BANK MONEY / DEPOSIT MONEY Flashcards
(45 cards)
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.
