7 Bank Flashcards
How is bank different from other financial institutions that accept deposits and make advaces?
They cant create credit
What is profit of bank?
Accepts deposits —-> Purchases at Certain rate of interest
Leds money —> Sells money at higher rate of interest
Difference in profit
Bank is dealers in money and credit because?
Their profit.
Why is banking relationship oriented?
- Based on mutual trust Between:
Bank and Customers - Burrower or depositor of bank directly interacts with the respresentative or the employee of the bank
Why is central bank called central bank?
It occupes the central position in countries bamking secotr
Purpose of central bank is to earn profit. For or Against:
It is not to earn profit but to serve the country
Meaning of Central Bank:
Banking institution which controls the baking sysytem in a coutnry an d carries out its monetory policy
Functions of Central Bank
- Banker’s Bank
- -2. Clearing house facility - Banker to the government
- Credit Control
- Currency notes
- Custodian of Foreign Exchanges
- Mantanence of exchange rate
- Development function
- Collection and Publication of data
- Banker’s Bank:
Acts as bank for all commercial bank in the country
When comemrcial bank needs funds,
Can obtain loan and redicount its bills => LENDER OF LAST RESORT
Commercial banks are required to keep a cash reserve (credit control)
advises on matter relating to business
- Banker to the government:
BANKER, AGENT, ADVISOR (manager, representator) TO THE GOVERNMENT.
Banker: Receives and makes payments on behalf of the gov
Agent: Agent In financial matters
Advisor: In Monetary an banking policy
Manager: Manages the national debt and issue of gov security
Representator: In international conferences of monetary and banking matters
- Issue of Currency notes:
Central bank has monopoly over issuing currency notes Central bank is given monopoly because: 1. Mantain uniformity 2. Avoid Over issue 3. Lend prestige
Why does central bank keep reserves of gold and silver?
In order to inspire public confidence in paper currency
- Credit Control
Bank exercies qualitative and quantitiative control over cresit granting capacity of Credit granting capacity of commercial banks
In order to mantain stability in prices and foreign exchanges
- Custodian of Foreign currency reserves:
Sole custodian of :
Gold
Foreign exchange
All other reserves
Manages these JUDICIOSULY:
Overcome difficulty in balance of payments
stabilize exchange rates
Balance of payments is managed by
Controlling imports and exports and restrictions
- Maintenance of Exchange rate
Monitors the exchange rate of home currency with respect to the foreign currencies
Tries to mantain stability in exchange rate:
1. promote country’s foreign trade
2. encourage the flow of foreign investment
Buys and sells currencies in order to mantain a stable exchange rate
- Clearing House Facility?
The central bank settles the claims of commercial banks
Enables them to clear their dues
thru book entries
Mantains debit and credit in their accounts
for convenient adjustments of their daily balances
Advantages of Clearing House facility:
- SETTLEMENT BETWEEN DIFFERENT BANKS ARE MADE CONVENIENT thru book entries
- Possibility of cash withdrawal during economic crisis are reduced
Helps to stabilize the baking system
Clearing house of facility is done by
State Bank of India
RBI has no office
- Development functions:
- Creating special financial institutions for
Agri, Infustry, Transport, Trade and Finance - Balanced regional development
- Controlling prices
- Collection and Publication of Data:
Conducts surveys and publishes reports and bulletins
Others:
Central Bank
Provide staff training for commerical bank
Relations with world bank, IMF etc.
Credit Control:
Meaning:
Credit control means the regulation of credit by central bank for achieving desired objectives.
Involves expansion and contraction of creidt.
Objjectives of Credit Control:
- Stabilize general prive level and exchange rates
- Maintain and promote, Normal and steady growth rate in business activity and high level of icnome and employment
- Eliminate fluctuations in production and employment
- Avoid lending to wrong parties for unproductive purposes
Methods of Credit control can be:
Qualitative
Quantitative
Quantitative credit control includes:
- Bank Rate policy
- Open market opoerations
- Cash reserve ratio
- Statutory liquid ratio
Qualitative credit control includes:
- Margin requirements
- Credit rationing
- Moral suasion
- Publicity
Functions of Commercial Bank maybe:
Primary:
- Accepting deposits
- Lending deposits
Secondary:
- Agency Function
- General Utility Function
Accepting deposits include:
They receive deposits ffrom public for making investments and granting loans
People deposit for safety and earning interest
Depositors can withdraw in form of 1. Cash and 2. Cheque
Accepts deposits of various types to meet requirements of different people
- Fixed Deposit
- Savings deposit
- Recurring deposit
- Current Account
Lending money can be:
- Overdraft
- Cash Credit
- Discounting of Bills
- Loans and Advances
Overdraft:
An arrangement under which currrent account holder is allowed to withdraw more than the balance to his credit upto the specifies limit
Short period and INTEREST is Charged
Commercial Banks provide overdraft against personal security of account holder and security of some assets
Cash credit;
Bank advances cash loans to burrowe against tangible security or personal guarantee
Withdrawer can withdraw upto his CASH CREDIT LIMIT according to his needs and can deposit back surplus
INTEREST IS CHARGED ON THE WHOLE AMOUNT WITHDRAWN AND NOT ON THE WHOLE AMOUNT GRANTED
Longer period than overdraft so popular method for Bsinessmen
Discounting of Bills:
Businessmen receive bills of exchanges from customers, They receive goods on credit.
They produce the bill to a bank and bank gives the money on the bill before the date of maturity after deducting discount charges (INTEREST).
On the date of maturity —> Bank gets payment of bill from acceptor
If bill is dishonored, bank receives payment from customer who discounted the bill
Loans and Advances:
Ban advances amount in lump sum to burrower for an agreed period
Interest is charged on whole ammount
Both short term and medium term
Granted against security of assets or personal security of burrower
- Agency functions includes:
- Colecting receipts
- Making payments
- Buy and sell securities
- Trustees and executors
Collecting receipts
Collect amount of cheques, bills etc. on behalf of their customers
Collect interest, dividend and rent on instruction
Making payments:
On instruction —> Make payments of loan, Installments, interest, rent, insurance, tax etc.
Buy and sell securities:
Buy and sell shares, debentures and other securities
Trustees and Executors:
Act as representative of customers with other banks
Transfer money from one place to another (nation and international) on Instructions
- General Utility Functions includes:
- Issuing credit Instruents
- Underwriting capital issues (shares and debentures) issued by companies
- Safe cutody of valluables: Accept jewellery, docs and other valuables for safe keeping. Provide vaults.
- Advice and Information
- Issuing credit instruments:
Issues letters of credit, drafts and traveller’s chequess
Advice and Information:
Offers advice on financial matters
Info abt credit-worthiness of customers
Collect and provide info abt trade and industry
Guarantee is given
Types of bank Deposit accounts:
- Fixed Deposit
- Savings deposit
- Recurring Deposit
- Current Account
- Automatic Teller machine (ATM)
Fixed Deposit Account:
These are made for a fixed period and cant be withdrawn befoe the expiry of the period.
AKA Time deposit or Long-term Deposit.
Higher rate of interest.
No passbook or Cheque Book. Only Receipt.
The receipt in fixed deposit contains:
Name and address of the depositor
Amount and period of Deposit: Due date, Maturity value, Date
Bank name and (Non-Transferrabe)
Savings deposit account:
Small savings of middle and low income people are deposited.
Deposits —> Any number of times. Restriction on number of withdrawals.
Interest only to the minimum balance during a month.
Pass book and Cheque book is issued
Develop habit of saving.
Can be opened by 2 persons in their joint names.
NO OVERDRAFT.
Recurring Deposit Account:
Account holder is required to deposit a dpecific amount every month. After the expiry, Depositor gets back his money with interest.
Only pass book. No cheque book.
Current Account:
Opened by business firms. Withdrawn and Deposited any number of times.
Pass, Cheque book and Ovedraft is available.
No interest but a small charge on current account.
ATM:
Banks having high texh computerized branches —> Providing round the clock banking facilities.
Operating a bank account:
- Pay in Slip Book
- Cheque Book
- Pass Book
Pay in Slip Book:
Contains number of PRINTED SLIPLE with perforated counter foils.
To be filled in at the time of depositing cash and cheques.
After filling, to the bank clerk along with cash or cheque
Clerk checks up the details, signs and stamps the counter foil
Counter foil to depositor (evidence)
Main slip retained used to credit the account
Information in Pay in Slip Book:
- Date of Deposit
- Name of Depositor
- Name and Number of Bank Account
- Amount to be deposited
- Details of cash or cheque
Cheque Book:
This book contains:
Number of Printed blank forms of cheques with counterfoils (indicates the amount withdrawn), numbered.
Can draw money through cheques, fill it and sign it also the counter foil
Maybe to self or payable to third parties.
What to do if the cheque book is over?
A cheque book contains a REQUISITION slip which is to be duly filled and signed for obtaining another cheque book from the bank
Pass Book:
An extract or copy of the customers account as in bank’s ledger on a particular date.
Brings in pass book and clerk record all transaction during the period, time to time
Transactions include All withdrawal and deposits.
Account balance is shown.
Purpose of pass book:
Acquaint the customer periodically with the details of bank account.
Advantages of Bank Account:
- Safety of Money
- Safe custody of valuables
- Habits of saving
- Collection facility
- Payment facility
- Loans and advances
- Credit Information
- Other services
- Safety of Money:
Always a risk at keeping cash in home.
Savings deposited are safe and free from risk
- Safe custody of valuables:
Offer lockers on preferential basis
Can deposit their jewelry and other valuables for safe custody
- Habit of saving:
Promote the habit of thrift and savings
Prompted to save and deposit due to benefiets of safety and earning interest.
- Collection Pacility:
Collects the drafts, bills of exchanges and cheques deposited by ac holder
Businessmen can discount their bills of exchange easily
- Payment Facility:
Cheques: Can be made easily and safely by cheques.
No need to keep large amounts at home.
Counting is not required.
Serves as evidence —> Safe and Convenient
- Loans and Advances:
Can obtain loans, overdrafts and cash credits from banks
- Credit Information:
Provide info relating to credit worthiness of their customers
AC holder can get better credit facilities
Also isssue letters of credits on behalf of the cutomers —-> Foreign trade
- Other services:
- Purchase and sell of securities
- Payment of insurance premium
- Collection of Interest and rent
- Remittance facility
- Traveler’s cheque
Advantages of Cheques:
- Convenience
- Easy Transfer
- Credit
- Safety
- Receipt
- Money saving (currency notes)
- Convenince:
Very convenient method of making payment
No need of counting and checking notes
- Easy transfer:
Cheques facilitate transfer of funds from on place (country) to another
Easy, Safe and cheap than any other method
Credit:
Facilitate credit
Useful for growth of trade and commerce in country
Safety:
Cheques
Use of cheques for withdrawing money ensures safety
Can be crossed (payment made only to bank account of payee)
Receipt:
Valid proof of payment made
- Money saving:
Sacing in use of currency notes
Disadvantages of Cheques:
- Not legal tender —> Creditor may refuse to accept cheque in payment
- Forgery: Dishonest person may forge or make alterations in a carelessly drawn cheque.
- Risk of loss —> When cheque is mislaid or stolen
- Not convenient for persons who dont have bank account
3 parties of cheque:
Drawer—> Who signs
Drawee —> Bank
Payee —-> To whom the amount of cheque is payable
Bank Draft:
Bank draft is a type of cheque drawn by a bank either on its own branch or on another bank in favour of a third party.
It is payable to the person named in it or to his orders.
Always payable on demand => Demand Draft.
Advantages of Bank Draft:
It is safe: Because its amount is credited to the account of the person named in it.
The process of Bank Draft:
The person who wants to purchase —> Fills in prescribed form available with the bank.
The form duly filled in along with the amount of draft + Commission is paid to the bank, who issues the draft.
He then sends the draft to the receiver by post or courier.
The receiver gets the amount of draft from concerned bank.
-
-
Validity and Unused cheques:
Traveller’s cheque are valid until use.
Unused cheque can be returned back to the issuing bank which pays the cash.
-
-
a
sas
vasig
