Basics Of Banking

Basics Of Banking

RBI: The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the RBI Act, 1934. RBI was nationalized in 1949 and it is fully owned by the Government of India. RBI was established on the recommendation of the Hilton Young Commission.

RBI’s FUNCTIONS:
1. Issue of currency notes
2. Controlling the monetary policy
3. Regulator and supervisor of the financial system
4. Banker to other banks
5. Banker to the government
6. Granting licenses to banks
7. Control over NBFIs (Non Banking Financial Institutions)
8. Manager of Foreign Exchange of India (also known as FOREX)

RBI & Monetary Policy:
Monetary policy refers to the use of instruments under the control of the central bank to regulate the availability, cost and use of money and credit.

The main objectives of monetary policy in India are:

Maintaining price stability

Ensuring adequate flow of credit to the productive sectors of the economy to support economic growth

Financial stability

There are several direct and indirect instruments that are used in the formulation and implementation of monetary policy.

Direct instruments:
Cash Reserve Ratio (CRR): The share of net demand and time liabilities that banks must maintain as cash balance with the Reserve Bank.
Statutory Liquidity Ratio (SLR): The share of net demand and time liabilities that banks must maintain in safe and liquid assets, such as government securities, cash and gold.
Refinance facilities: Sector-specific refinance facilities (e.g., against lending to export sector) provided to banks.

Indirect instruments
Liquidity Adjustment Facility (LAF): Consists of daily infusion or absorption of liquidity on a repurchase basis, through repo (liquidity injection) and reverse repo (liquidity absorption) auction operations, using government securities as collateral.
Open Market Operations (OMO): Outright sales/purchases of government securities, in addition to LAF, as a tool to determine the level of liquidity over the medium term.
Market Stabilisation Scheme (MSS): This instrument for monetary management was introduced in 2004. Liquidity of a more enduring nature arising from large capital flows is absorbed through sale of short-dated government securities and treasury bills. The mobilised cash is held in a separate government account with the Reserve Bank.
Repo/reverse repo rate: These rates under the Liquidity Adjustment Facility (LAF) determine the corridor for short-term money market interest rates. In turn, this is expected to trigger movement in other segments of the financial market and the real economy.
Bank rate: It is the rate at which the Reserve Bank is ready to buy or rediscount bills of exchange or other commercial papers. It also signals the medium-term stance of monetary policy.

Key financial terms
APR: It stands for Annual Percentage Rate. APR is a percentage that is calculated on the basis of the amount financed, the finance charges, and the term of the loan.

ABS: Asset-Backed Securities. It means a type of security that is backed by a pool of bank loans, leases, and other assets.

EPS: Earnings Per Share means the amount of annual earnings available to common stockholders as stated on a per share basis.

CHAPS: Clearing House Automated Payment System. It’s a type of electronic bank-to-bank payment system that guarantees same-day payment.

IPO: Initial Public Offerings is defined as the event where the company sells its shares to the public for the first time. (or the first sale of stock by a private company to the public.)

FPO: Follow on Public Offerings: An issuing of shares to investors by a public company that is already listed on an exchange. An FPO is essentially a stock issue of supplementary shares made by a company that is already publicly listed and has gone through the IPO process.

Difference: IPO is for the companies which have not been listed on an exchange and FPO is for the companies which have already been listed on an exchange but want to raise funds by issuing some more equity shares.

RTGS: Real Time Gross Settlement systems are a funds transfer system where transfer of money or securities takes place from one bank to another on a “real time”. (‘Real time’ means within a fraction of seconds.) The minimum amount to be transferred through RTGS is Rs 2 lakhs. Processing charges/Service charges for RTGS transactions vary from bank to bank.

NEFT: National Electronic Fund Transfer. This is a method used for transferring funds across banks in a secure manner. It usually takes 1-2 working days for the transfer to happen. NEFT is an electronic fund transfer system that operates on a Deferred Net Settlement (DNS) basis which settles transactions in batches. (Note: RTGS is much faster than NEFT.)

CAR: Capital Adequacy Ratio. It’s a measure of a bank’s capital. Also known as “Capital to Risk Weighted Assets Ratio (CRAR)”, this ratio is used to protect depositors and promote the stability and efficiency of financial systems around the world. It is decided by the RBI.

NPA: Non-Performing Asset. It means once the borrower has failed to make interest or principal payments for 90 days, the loan is considered to be a non-performing asset. Presently it is 2.39%.

IMPS: Inter-bank Mobile Payment Service. It is an instant interbank electronic fund transfer service through mobile phones. Both the customers must have MMID (Mobile Money Identifier Number). For this service, we don’t need any GPS-enabled cell phones.

BCBS: Basel Committee on Banking Supervision is an institution created by the Central Bank governors of the Group of Ten nations.

RSI: Relative Strength Index.

IFSC code: Indian Financial System Code. The code consists of 11 characters for identifying the bank and branch where the account in actually held. The IFSC code is used both by the RTGS and NEFT transfer systems.

MSME and SME: Micro Small and Medium Enterprises (MSME), and SME stands for Small and Medium Enterprises. This is an initiative of the government to drive and encourage small manufacturers to enjoy facilities from banks at concessional rates.

LIBOR: London InterBank Offered Rate. An interest rate at which banks can borrow funds, in marketable size, from other banks in the London interbank market.

LIBID: London Interbank Bid Rate. The average interest rate at which major London banks borrow Eurocurrency deposits from other banks.

ECGC: Export Credit Guarantee Corporation of India. This organisation provides risk as well as insurance cover to the Indian exporters.

SWIFT: Society for Worldwide Interbank Financial Telecommunication. It operates a worldwide financial messaging network which exchanges messages between banks and other financial institutions.

STRIPS: Separate Trading for Registered Interest & Principal Securities.

CIBIL: Credit Information Bureau of India Limited. CIBIL is India’s first credit information bureau. Whenever a person applies for new loans or credit card(s) to a financial institution, they generate the CIBIL report of the said person or concern to judge the credit worthiness of the person and also to verify their existing track record. CIBIL actually maintains the borrower’s history.

CRISIL: Credit Rating Information Services of India Limited. Crisil is a global analytical company providing ratings, research, and risk and policy advisory services.

AMFI: Association of Mutual Funds of India. AMFI is an apex body of all Asset Management Companies (AMCs) which have been registered with SEBI. (Note: AMFI is not a mutual funds regulator)

FCCB: Foreign Currency Convertible Bond. A type of convertible bond issued in a currency different from the issuer’s domestic currency.

CAC: Capital Account Convertibility. It is the freedom to convert local financial assets into foreign financial assets and vice versa. This means that capital account convertibility allows anyone to freely move from local currency into foreign currency and back, or in other words, transfer of money from current account to capital account.

BANCASSURANCE: Is the term used to describe the partnership or relationship between a bank and an insurance company whereby the insurance company uses the bank sales channel in order to sell insurance products.

Balloon payment: Is a specific type of mortgage payment, and is named “balloon payment” because of the structure of the payment schedule. For balloon payments, the first several years of payments are smaller and are used to reduce the total debt remaining in the loan. Once the small payment term has passed (which can vary, but is commonly 5 years), the remainder of the debt is due - this final payment is the one known as the “balloon” payment, because it is larger than all of the previous payments.

CPSS: Committee on Payment and Settlement Systems

FCNR Accounts: Foreign Currency Non-Resident accounts are the ones that are maintained by NRIs in foreign currencies like USD, DM, and GBP.

M3 in banking: It’s a measure of money supply. It is the total amount of money available in an economy at a particular point in time.

OMO: Open Market Operations. The buying and selling of government securities in the open market in order to expand or contract the amount of money in the banking system. Open market operations are the principal tools of monetary policy. RBI uses this tool in order to regulate the liquidity in economy.

Umbrella Fund: A type of collective investment scheme. A collective fund containing several sub-funds, each of which invests in a different market or country.

ECS: Electronic Clearing Facility is a type of direct debit.

Tobin tax: Suggested by Nobel Laureate economist James Tobin, was originally defined as a tax on all spot conversions of one currency into another.

Z score is a term widely used in the banking field.

POS: Point Of Sale, also known as Point Of Purchase, a place where sales are made and also sales and payment information are collected electronically, including the amount of the sale, the date and place of the transaction, and the consumer’s account number.

LGD: Loss Given Default. Institutions such as banks will determine their credit losses through an analysis of the actual loan defaults.

Junk Bonds: Junk bonds are issued generally by smaller or relatively less well-known firms to finance their operations, or by large and well-known firms to fund leveraged buyouts. These bonds are frequently unsecured or partially secured, and they pay higher interest rates: 3 to 4 percentage points higher than the interest rate on blue chip corporate bonds of comparable maturity period.

ARM: Adjustable Rate Mortgage is basically a type of loan where the rate of index is calculated on the basis of the previously selected index rate.

ABO: Accumulated Benefit Obligation, ABO is a measure of liability of pension plan of an organisation and is calculated when the pension plan is terminated.

Absorption: A term related to real estate, it is a process of renting a real estate property which is newly built or recently approved.

AAA: A type of grade that is used to rate a particular bond. It is the highest rated bond that gives maximum returns at the time of maturity.

DSCR: Debt Service Coverage Ratio, DSCR is a financial ratio that measures the company’s ability to pay their debts.

FSDC: Financial Stability and Development Council, India’s apex body of the financial sector.

ITPO: India Trade Promotion Organisation is the nodal agency of the Government of India for promoting the country’s external trade.

FLCC: Financial Literacy and Counseling Centres.

ANBC: Adjusted Net Bank Credit is Net Bank Credit added to investments made by banks in non-SLR bonds.

Priority sector lending: Some areas or fields in a country depending on its economic condition or government interest are prioritised and are called priority sectors i.e. industry, agriculture.

M0, M1, M2 AND M3: These terms are nothing but money supply in banking field.

BIFR: Bureau of Industrial and Financial Reconstruction.

FRBM Act 2003: Fiscal Responsibility and Budget Management act was enacted by the Parliament of India to institutionalise financial discipline, reduce India’s fiscal deficit, improve macroeconomic management and the overall management of the public funds by moving towards a balanced budget.

The main objectives of FRBM Act are:-
1. To reduce fiscal deficit.
2. To adopt prudent debt management.
3. To generate revenue surplus.

Gold Standard: A monetary system in which a country’s government allows its currency unit to be freely converted into fixed amounts of gold and vice versa.

Fiat Money: Fiat money is a legal tender for settling debts. It is a paper money that is not convertible and is declared by government to be legal tender for the settlement of all debts.

BCSBI: The Banking Codes and Standards Board of India is a society registered under the Societies Registration Act, 1860 and functions as an autonomous body, to monitor and assess the compliance with codes and minimum standards of service to individual customers to which the banks agree to.

OLTAS: On-Line Tax Accounting System.

EASIEST: Electronic Accounting System in Excise and Service Tax.

SOFA: Status of Forces Agreement, SOFA is an agreement between a host country and a foreign nation stationing forces in that country.

CALL MONEY: Money loaned by a bank that must be repaid on demand. Unlike a term loan, which has a set maturity and payment schedule, call money does not have to follow a fixed schedule. Brokerages use call money as a short-term source of funding to cover margin accounts or the purchase of securities. The funds can be obtained quickly.

Scheduled bank: Scheduled Banks in India constitute those banks which have been included in the Second Schedule of RBI Act, 1934 as well as their market capitalisation is more than Rs 5 lakh. RBI in turn includes only those banks in this schedule which satisfy the criteria laid down vide section 42 (6) (a) of the Act.

FEDAI: Foreign Exchange Dealers Association of India. An association of banks specialising in the foreign exchange activities in India.

PPF: Public Provident Fund. The Public Provident Fund Scheme is a statutory scheme of the Central Government of India. The scheme is for 15 years. The minimum deposit is Rs 500 and maximum is Rs 70,000 in a financial year.

SEPA: Single Euro Payment Area.

GAAP: Generally Accepted Accounting Principles. The common set of accounting principles, standards and procedures that companies use to compile their financial statements.

Indian Depository Receipt: Foreign companies issue their shares and in return they get the depository receipt from the National Security Depository in return of investing in India.

Hot Money: Money that is moved by its owner quickly from one form of investment to another, as to take advantage of changing international exchange rates or gain high short-term returns on investments.

NMCEX: National Multi-Commodity Exchange.

PE RATIO: Price to Earnings Ratio, a measure of how much investors are willing to pay for each dollar of a company’s reported profits.

CASA: Current Account, Savings Account.

CAMELS: CAMELS is a type of Bank Rating System. (C) stands for Capital Adequacy, (A) for Asset Quality, (M) for Management ,(E) for Earnings, (L) for Liquidity and (S) for Sensitivity to Market Risk.

OSMOS: Off-site Monitoring and Surveillance System.

Free market: A market economy based on supply and demand with little or no government control.

Retail banking: It is mass-market banking in which individual customers use local branches of larger commercial banks.

Eurobond: A bond issued in a currency other than the currency of the country or market in which it is issued.

PPP: Purchasing Power Parity is an economic technique used when attempting to determine the relative values of two currencies.

FEMA Act: Foreign Exchange Management Act, it is useful in controlling HAWALA.

Hawala transaction: It’s a process in which large amount of black money is converted into white.

Teaser Loans: It’s a type of home loans in which the interest rate is initially low and then grows higher. Teaser loans are also called terraced loans.

ECB: External Commercial Borrowings, taking a loan from another country. Limit of ECB is $500 million, and this is the maximum limit a company can get.

CBS: Core Banking Solution. All the banks are connected through internet, meaning we can have transactions from any bank and anywhere. (e.g. deposit cash in PNB, Delhi branch and withdraw cash from PNB, Gujarat)

CRAR: For RRB’s it is more than 9% (funds allotted 500 cr) and for commercial banks it is greater than 8% (6000 cr relief package).

NBFCs: NBFC is a company which is registered under Companies Act, 1956 and whose main function is to provide loans. NBFC cannot accept deposit or issue demand draft like other commercial banks. NBFCs registered with RBI have been classified as AssetFinance Company (AFC), Investment Company (IC) and Loan Company (LC).

IIFCL: India Infrastructure Finance Company Limited. It gives guarantee to infra bonds.

IFPRI: International Food Policy Research Institute. It identifies and analyses policies for meeting the food needs of the developing world.

Currency swap: It is a foreign-exchange agreement between two parties to exchange aspects (namely the principal and/or interest payments) of a loan in one currency for equivalent aspects of an equal in net present value loan in another currency. Currency swap is an instrument to manage cash flows in different currency.

WPI: Wholesale Price Index is an index of the prices paid by retail stores for the products they ultimately resell to consumers. New series is 2004 2005. (The new series has been prepared by shifting the base year from 1993-94 to 2004-05). Inflation in India is measured on WPI index.

MAT: Minimum Alternate Tax is the minimum tax to be paid by a company even though the company is not making any profit.

Future trading: It’s a future contract/agreement between the buyers and sellers to buy and sell the underlying assets in the future at a predetermined price.

Reverse mortgage: It’s a scheme for senior citizens.

Basel 2nd norms: BCBS has kept some restrictions on bank for the maintenance of minimum capital with them to ensure level playing field. Basel II has got three pillars:
Pillar 1- Minimum capital requirement based on the risk profile of bank.
Pillar 2- Supervisory review of banks by RBI if they go for internal ranking.
Pillar 3- Market discipline.

Microfinance institutions: Those institutions that provide financial services to low-income clients. Microfinance is a broad category of services, which includes microcredit. Microcredit is provision of credit services to poor clients.

NPCI: National Payments Corporation of India.

DWBIS: Data Warehousing and Business Intelligence System, a type of system which is launched by SEBI. The primary objective of DWBIS is to enhance the capability of the investigation and surveillance functions of SEBI.

TRIPS: Trade Related Intellectual Property Rights is an international agreement administered by the World Trade Organisation (WTO) that sets down minimum standards for many forms of intellectual property (IP) regulation as applied to nationals of other WTO Members.

TRIMs: Trade Related Investment Measures. A type of agreement in WTO.

SDR: Special Drawing Rights, SDR is a type of monetary reserve currency, created by the International Monetary Fund. SDR can be defined as a “basket of national currencies”. These national currencies are Euro, US dollar, British pound and Japanese yen. Special Drawing Rights can be used to settle trade balances between countries and to repay the IMF. American dollar gets highest weightage.

LTD: Loan-To-Deposit Ratio. A ratio used for assessing a bank’s liquidity by dividing the bank’s total loans by its total deposits. If the ratio is too high, it means that banks might not have enough liquidity to cover any fund requirements, and if the ratio is too low, banks may not be earning as much as they could be.

CAD: Current Account Deficit. It means when a country’s total imports of goods, services and transfers is greater than the country’s total export of goods, services and transfers.

LERMS: Liberalized Exchange Rate Management System.

FRP: Fair and Remunerative Price, a term related to sugarcane. FRP is the minimum price that a sugarcane farmer is legally guaranteed. However sugar Mills Company gives more than FRP price.

STCI: Securities Trading Corporation of India Limited was promoted by the Reserve Bank of India (RBI) in 1994 along with Public Sector Banks and All India Financial Institutions with the objective of developing an active, deep and vibrant secondary debt market.

IRR: Internal Rate of Return. It is a rate of return used in capital budgeting to measure and compare the profitability of investments.

CMIE: Centre for Monitoring Indian Economy. It is India’s premier economic research organisation. It provides information solutions in the form of databases and research reports. CMIE has built the largest database on the Indian economy and companies.

TIEA: Tax Information Exchange Agreement. TIEA allows countries to check tax evasion and money laundering. Recently India has signed TIEA with Cayman Islands.

Contingency Fund: It’s a fund for emergencies or unexpected outflows, mainly economic crises. A type of reserve fund which is used to handle unexpected debts that are outside the range of the usual operating budget.

FII: Foreign Institutional Investment. The term is used most commonly in India to refer to outside companies investing in the financial markets of India. International institutional investors must register with the Securities and Exchange Board of India to participate in the market.

P-NOTES: “P” means participatory notes.

MSF: Marginal Standing Facility. Under this scheme, banks will be able to borrow upto 1% of their respective net demand and time liabilities. The rate of interest on the amount accessed from this facility will be 100 basis points (i.e. 1%) above the repo rate. This scheme is likely to reduce volatility in the overnight rates and improve monetary transmission.

FIU: Financial Intelligence Unit set by the Government of India on 18 November 2004 as the central national agency responsible for receiving, processing, analysing and disseminating information relating to suspect financial transactions.

SEBI: Securities and Exchange Board of India. SEBI is the primary governing/regulatory body for the securities market in India. All transactions in the securities market in India are governed and regulated by SEBI. Its main functions are:
1. New issues (Initial Public Offering or IPO)
2. Listing agreement of companies with stock exchanges
3. Trading mechanisms        4. Investor protection
5. Corporate disclosure by listed companies etc.

Note: SEBI is also known as capital regulator or mutual funds regulator or market regulator. SEBI also created investors protection fund and SEBI is the only organization which regulates the credit rating agencies in India. (CRISIL and CIBIL).

FINANCIAL REGULATORS IN INDIA: RBI, SEBI, FMCI (Forward Market Commission of India), IRDA etc.

ASBA: Application Supported by Blocked Amount. It is a process developed by the SEBI for applying to IPO. In ASBA, an IPO applicant’s account doesn’t get debited until shares are allotted to him.

DEPB Scheme: Duty Entitlement Pass Book. It is a scheme which is offered by the Indian government to encourage exports from the country. DEPB means Duty Entitlement Pass Book to neutralise the incidence of basic and special customs duty on import content of export product.

LLP: Limited Liability Partnership, is a partnership in which some or all partners (depending on the jurisdiction) have limited liability.

Balance sheet: A financial statement that summarises a company’s assets, liabilities and shareholders’ equity at a specific point in time.

TAN: Tax Account Number, is a unique 10-digit alphanumeric code allotted by the Income Tax Department to all those persons who are required to deduct tax at the source of income.

PAN: Permanent Account Number, as per section 139A of the Act obtaining PAN is a must for the following persons:-
1.    Any person whose total income or the total income of any other person in respect of which he is assessable under the Act exceeds the maximum amount which is not chargeable to tax.
2.    Any person who is carrying on any business or profession whose total sales, turnover or gross receipts are or are likely to exceed Rs. 5 lakh in any previous year.
3.    Any person who is required to furnish a return of income under section 139(4) of the Act.

JLG: Joint Liability Group, when two or more persons are both responsible for a debt, claim or judgment.

REER: Real Effective Exchange Rate.

NEER: Nominal Effective Exchange Rate.

Contingent Liability: A liability that a company may have to pay, but only if a certain future event occurs.

IRR: Internal Rate of Return, is a rate of return used in capital budgeting to measure and compare the profitability of investments.

MICR: Magnetic Ink Character Recognition. A 9-digit code which actually shows whether the cheque is real or fake.

UTR Number: Unique Transaction Reference number. A unique number which is generated for every transaction in RTGS system. UTR is a 16-digit alphanumeric code. The first 4 digits are a bank code in alphabets, the 5th one is the message code, the 6th and 7th mention the year, the 8th to 10th mentions the date and the last 6 digits mention the day’s serial number of the message.

RRBs: Regional Rural Banks. As its name signifies, RRBs are specially meant for rural areas, capital share being 50% by the central government, 15% by the state government and 35% by the scheduled bank.

MFI: Micro Finance Institutions. Micro Finance means providing credit/loan (micro credit) to the weaker sections of the society. A microfinance institution (MFI) is an organisation that provides financial services to the poor.

PRIME LENDING RATE: PLR is the rate at which commercial banks give loans to its prime customers (most creditworthy customers).

BASE RATE: A minimum rate that a bank is allowed to charge from the customer. Base rate differs from bank to bank. It is actually a minimum rate below which the bank cannot give loan to any customer. Earlier base rate was known as BPLR (Base Prime Lending Rate).

EMI: Equated Monthly Installment. It is nothing but a repayment of the loan taken. A loan could be a home loan, car loan or personal loan. The monthly payment is in the form of post dated cheques drawn in favour of the lender. EMI is directly proportional to the loan taken and inversely proportional to time period. That is, if the loan amount increases the EMI amount also increases and if the time period increases the EMI amount decreases.

Basis points (bps): A basis point is a unit equal to 1/100th of a percentage point. i.e. 1 bps = 0.01%. Basis points are often used to measure changes in or differences between yields on fixed income securities, since these often change by very small amounts.

Liquidity: It refers to how quickly and cheaply an asset can be converted into cash. Money (in the form of cash) is the most liquid asset.

Certificate of Deposit (CD) is a negotiable money market instrument and issued in dematerialised form for funds deposited at a bank or other eligible financial institution for a specified time period.

Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note. It was introduced in India in 1990. Corporates and the All-India Financial Institutions are eligible to issue CP.


Indian Banking Structure

Types of banks in India
Central Bank (RBI)
Specialised banks
Commercial banks
Development banks
Co-operative banks

Central Bank:
As its name signifies, a bank which manages and regulates the banking system of a particular country. It provides guidance to other banks whenever they face any problem (that is why the Central Bank is also known as a banker’s bank) and maintains the deposit accounts of all other banks. Central Banks of different countries: Reserve Bank of India (INDIA), Federal Reserve System (USA), Swiss National Bank (SWITZERLAND), Reserve Bank of Australia (AUSTRALIA), State Bank of Pakistan (PAKISTAN).

SpecialisedbBanks:

Those banks which are meant for special purposes. For examples: NABARD, EXIM bank, SIDBI, IDBI.

NABARD: National Bank for Agriculture and Rural Development. This bank is meant for financing the agriculture as well as rural sector. It actually promotes research in agriculture and rural development.

EXIM bank: Export Import Bank of India. This bank gives loans to exporters and importers and also provides valuable information about the international market. If you want to set up a business for exporting products abroad or importing products from foreign countries for sale in our country, EXIM bank can provide you the required support and assistance.

SIDBI: Small Industries Development Bank of India. This bank provides loans to set up the small-scale business unit / industry. SIDBI also finances, promotes and develops small-scale industries.  Whereas IDBI (Industrial Development Bank of India) gives loans to big industries.

Commercial banks: 

Normal banks are known as commercial banks, their main function is to accept deposits from the customer and on the basis of that they grant loans. (Loans could be short-term, medium-term and long-term loans.) Commercial banks are further classified into three types.

(a) Public sector banks
(b) Private sector banks
(c) Foreign banks

(a) Public Sector Banks (PSB): Government banks are known as PSB. Since the majority of their stakes are held by the Government of India. (For example: Allahabad Bank, Andhra Bank, Bank of Baroda, Bank of India, Bank of Maharastra, Canara Bank, Central Bank of India etc).

(b) Private Sector Banks: In these banks, the majority of stakes are held by the individual or group of persons. (For example: Bank of Punjab, Bank of Rajasthan, Catholic Syrian Bank, Centurion Bank etc).

(c) Foreign Banks: These banks have their headquarters in a foreign country but they operate their branches in India. For e.g. HSBC, Standard Chartered Bank, ABN Amro Bank.

Development banks: 

Such banks are specially meant for giving loans to the business sector for the purchase of latest machinery and equipments. Examples: SFCs (State Financial Corporation of India) and IFCI (Indian Finance Corporation of India).

Co-operative banks: 

These banks are nothing but an association of members who group together for self-help and mutual-help. Their way of working is the same as commercial banks. But they are quite different. Co operative banks in India are registered under the Co-operative Societies Act, 1965. The cooperative bank is regulated by the RBI.

Note: Co-operative banks cannot open their branches in foreign countries while commercial banks can do this.

Types of bank accounts 

Savings bank account

Current account

Fixed Deposit account

1. Saving Bank Account: These accounts are maintained by individuals/ salaried peoples. Such account offers interest on customer deposit. The interest on these accounts is regulated by Reserve Bank of India. No Overdraft is allowed on such accounts.

2. Current Account: These accounts are used mainly by businessmen and are not generally used for the purpose of investment. These deposits are the most liquid deposits and there are no limits for number of transactions or the amount of transactions in a day. No interest is paid by banks on these accounts. One of the prominent advantage of such account is that Overdraft is allowed.

3. Fixed Deposit Account: also known as term deposit account. All Banks offer fixed deposits schemes with a wide range of tenures for periods from 7 days to 10 years. The term “fixed” in Fixed Deposits (FD) denotes the period of maturity or tenor.