BANK MONEY / DEPOSIT MONEY Flashcards
What is the primary purpose of a cheque?
A cheque is a written instruction to a bank to pay a specific amount of money from one person’s account to another person or business.
Name the three parties involved in issuing a cheque.
Drawer (the person writing the cheque)
Drawee (the bank paying the money)
Payee (the person or business receiving the money)
Explain the difference between a stale cheque and a post-dated cheque.
Stale cheque: A cheque that is over 3 months old and may not be accepted by the bank.
Post-dated cheque: A cheque written with a future date, and can only be cashed on or after that date.
What is an open or bearer cheque?
An open or bearer cheque has no lines crossed through it. This means anyone who has it can cash it.
What is the purpose of the IFSC code on a cheque?
The IFSC code is a unique code that identifies the specific bank branch where the money should be taken from. It’s like the branch’s address.
What does the MICR code on a cheque do?
The MICR code is printed with magnetic ink and contains important cheque details. It helps machines quickly read and process the cheque for payment.
What is a demand draft?
A demand draft (DD) is a payment method where your bank issues a document guaranteeing a specific amount of money to the receiver. It’s like a pre-paid check where the bank itself verifies the funds.
How does a demand draft work?
You visit your bank and request a DD for the desired amount and payee (receiver).
Your bank deducts the amount from your account.
The bank creates a DD document that includes your name, the receiver’s name, and the amount.
You provide the DD to the receiver, who deposits it in their bank.
Why would someone use a demand draft instead of a regular check?
Security: A DD is guaranteed by the bank, less likely to bounce due to insufficient funds.
Long-distance payments: DDs can be physically mailed and cashed in different cities.
Are there any disadvantages to using demand drafts?
Yes.
Slower: Getting a DD created and deposited takes more time than instant online transfers.
Inflexible: Difficult to cancel a DD once it has been issued.
What is an overdraft?
An overdraft is a bank-provided facility allowing customers to withdraw money from their account even if they have insufficient funds. It’s essentially a short-term loan.
Does the Pradhan Mantri Jan-Dhan Yojana (PMJDY) offer overdraft facilities? If so, what is the limit?
Yes, the PMJDY offers overdraft facilities of up to Rs 10,000 under specific conditions.
Explain the key difference between overdrafts and loans.
Overdrafts are designed for short-term, smaller operating expenses. Loans are intended for longer-term, higher-value financial needs.
What are some potential costs associated with using an overdraft?
Banks usually charge interest on overdrafts. Additionally, you might incur fees for overdrawing your account.
Can frequent overdrafts negatively impact your financial standing?
Yes, regularly overdrawing your account can harm your credit score.
What is a cheque?
A cheque is a written instruction to your bank to pay a specific amount of money from your account to the person or company named on it.
What is NPCI’s Cheque Truncation System (CTS)?
CTS is a system that speeds up cheque clearing by using digital images instead of physically transporting cheques. This leads to faster money transfers.
Explain in detail how NPCI’s Cheque Truncation System (CTS) works.
CTS streamlines cheque clearing through this process:
Scanning and Imaging: The cheque is scanned at the bank where it’s deposited, creating a digital image.
Data Extraction: Key information is extracted from the image: date, payee, amount, bank codes, etc.
Electronic Transmission: The image and data are sent electronically through the CTS network.
Clearing and Settlement: The receiving bank verifies the information and authorizes the transfer of funds.
Describe the three main benefits of CTS.
Efficiency: No physical cheque movement means faster processing times.
Reduced Costs: Digitization saves time and resources for banks.
Geographical Reach: CTS grids (North, South, West) allow for faster clearing between different locations within India.
What are the specific advantages of CTS compared to the traditional cheque clearing system?
CTS offers several advantages over traditional methods:
Speed: Cheques clear in days rather than weeks due to the elimination of physical transport.
Cost Reduction: Banks save on costs related to physically processing and transporting cheques.
Security: Digital images reduce the risk of cheques being lost or damaged in transit.
Pan-India Reach: CTS grids streamline clearing across the country, reducing location-based delays.
What is the Positive Pay Mechanism?
The Positive Pay Mechanism is a security feature that helps prevent cheque fraud. You provide your bank with details of a high-value cheque, and they cross-check those details during the clearing process.
Describe how the Positive Pay Mechanism works to enhance cheque security.
Positive Pay works as follows:
Information Submission: Before issuing a high-value cheque, you proactively provide your bank with its key details (cheque number, amount, payee, date) via internet banking, phone, or a bank visit.
Verification: When the cheque arrives in the CTS, the provided details are automatically cross-checked against the cheque’s information.
Discrepancy Alerts: If the details don’t match, the bank is alerted, and the cheque may be flagged for manual review or returned.
How does Positive Pay prevent fraud?
If someone alters details on your cheque (like the amount or payee), the system will detect the mismatch when compared to your provided details. This helps prevent unauthorized transactions.
Why is the combination of CTS and Positive Pay important for banking in India?
CTS and Positive Pay together provide a significant boost to the Indian banking system:
Fraud reduction: Positive Pay makes it much harder to alter a high-value cheque fraudulently.
Faster processing: CTS ensures that even with added security, cheques clear quickly.
Customer Confidence: These systems enhance trust in cheques as a reliable payment method.
What are electronic orders and digital payments?
The process of buying and selling goods or services using electronic methods (apps, cards, online transactions) instead of physical cash or checks.
What important law in India governs digital payments?
The Payment & Settlement System Act 2007
Who is the primary regulator of digital payments in India?
The Reserve Bank of India (RBI)
What is Core Banking Solutions (CBS)?
A centralized software system that acts as the operational heart of a bank.
Connects all branches to a single database, letting customers access accounts and services from any location.
The foundation of modern banking conveniences like ATMs, mobile banking, and internet banking.
Key benefits of Core Banking Solutions
Customer Convenience: Access accounts and banking services from any branch, ATM, or online.
Branchless Banking: Enables ATMs, mobile banking, and internet banking, making services available 24/7.
Efficiency: Streamlines bank operations, reducing paperwork and manual errors.
Real-time updates: All transactions are reflected immediately, keeping information accurate.
Examples of Core Banking Solutions software
Finacle (Infosys): Popular globally, known for its flexibility and scalability.
BanCS (TCS): Robust platform used by banks worldwide.
E-Kuber (RBI): India’s own core banking system, developed by the Reserve Bank of India.
How does Core Banking Solutions (CBS) work?
Centralized Database: Stores all customer information, account details, and transaction histories.
Networking: CBS links all bank branches to this database, creating a unified system.
Real-Time Processing: When a customer makes a transaction (deposit, withdrawal, transfer), CBS updates the central database instantly.
What are the key differences between RTGS and NEFT?
RTGS is for high-value, time-critical transactions settled individually in real-time. NEFT is for batch-processed transactions, suitable for lower values and less time-sensitive transfers.
Describe the settlement mechanisms for RTGS, NEFT, and IMPS.
RTGS: Gross settlement - each transaction settled immediately.
NEFT: Net settlement - transactions settled in batches at regular intervals.
IMPS: Instant settlement - funds transferred immediately.
What is the main advantage of IMPS over RTGS and NEFT?
IMPS allows for instant, 24/7 transfers, even for small amounts. This makes it ideal for retail and person-to-person payments.
Who can offer RTGS, NEFT, and IMPS services?
RTGS and NEFT: Banks and non-bank entities (since 2021 reforms)
IMPS: Banks and prepaid payment instrument (PPI)/mobile wallet companies
What type of customer would typically use RTGS? What about IMPS?
RTGS: Businesses making large-value, time-sensitive payments (like interbank settlements or corporate payments)
IMPS: Individuals and businesses making small-value, instant payments (like paying bills, sending money to friends, etc.)
What are the minimum and maximum transaction limits for IMPS?
Minimum: ₹1. Maximum: ₹5 lakh.
Are there fees associated with RTGS, NEFT, and IMPS?
RTGS and NEFT :- BEFORE: fee + GST Tax** After RBI Reforms: Rs.0
IMPS :- fee + GST
Although some banks don’t charge IMPS fees for transactions upto ₹”X”/-(EXACTFig NOTIMP)
What does the acronym “CPS” stand for, and what payment systems offered by the RBI fall under this category?
CPS stands for Centralized Payment Systems. RTGS and NEFT are both CPS systems managed by the RBI.
Besides banks, what other type of entities can provide RTGS and NEFT services?
Since 2021, non-banking entities have also been permitted to offer RTGS and NEFT services.
When would it be more appropriate to use NEFT instead of RTGS?
NEFT is preferable for transactions that are not extremely urgent and are of lower value (within the NEFT limits). RTGS is reserved for high-value, time-critical payments.
What is the purpose of the Lightweight Payment and Settlement System (LPSS)?
The LPSS acts as an emergency backup system for India’s financial infrastructure. It ensures essential payment capabilities continue even when traditional systems like NEFT, RTGS, and IMPS/UPI are compromised.
Under what circumstances would the LPSS be deployed?
The LPSS is designed for use during natural disasters or wartime situations where the conventional payment infrastructure may be damaged or inaccessible.
Describe two key advantages of the LPSS system.
Portability: The LPSS can be operated from any location, making it adaptable to emergencies.
Minimal Staffing: It requires very few personnel to manage, ensuring functionality even when resources are limited.
What information is currently unavailable about the LPSS?
The specific details about how the LPSS works and what features it offers are not yet implemented or made public.
