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Introduction to Banking

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Introduction to Banking

  1. 1. Introduction to Banking PRESENTED BY DR.B.SUBHA ASSISTANT PROFESSOR KRISTU JAYANTI COLLEGE AUTONOMOUS BANGALORE
  2. 2. What is Banking?  accepting and safeguarding money owned by other individuals and entities,  lending out this money in order to earn a profit.  widened and now various other services are also offered by banks
  3. 3. Profit of Bank
  4. 4. Primary Function of Bank  1.Accepting Deposits Fixed Deposits Current Deposits Saving Deposits Recurring Deposits
  5. 5. Fixed Deposits  Depositing money for a specified period of time.  Investment period may be short or long term  Fixed Tenure  Higher rate of Interest.  No withdrawal of money before maturity  In Emergencies withdrawal is possible
  6. 6. Saving Deposit  Basic Type of Bank Account  Deposit Money  Keep it safe  Withdraw funds with some limitations.  Earn interest  Enjoy Maximum Benefits.
  7. 7. Current Accounts  Individual, businessmen or corporates  significantly higher number of transactions with banks on a regular basis.  No interest from bank  Maintain high minimum balance  Non maintenance of minimum balance  Penalty  Single business no multiple account.
  8. 8. Recurring Deposit  Regular Income people  Deposit fixed Amount  Deposit every month  Minimum Deposit –Rs 100  Maximum Deposit-No Limit  Period of deposit-Minimum 1year to maximum 10 years.  Penalty charges for non deposit of monthly amount  Earn interest  Interest differs based on category, tenure  Senior higher interest  Long term higher interest
  9. 9. Primary Function 2. Granting Loans Overdraft Cash Credit Term Loan
  10. 10. Overdraft  An overdraft lets you borrow money through your current account or savings account by taking out more money than you have in the account.  Overdraft Limit  Withdraw money till assigned limit.  Charges interest higher than cash credit  Short term credit  Limit based on repayment history
  11. 11. Cash credit  Need to open separate bank account called cash credit Account.  Businessmen can claim not individuals  Granted to customers to bridge working capital gap.  Customers have to provide some form of collateral as security  Cash credits are tax deductible  Cash credit is short term credit  Interest rate is lower while comparing to overdraft
  12. 12. Previous Session Topics Meaning of Bank Banking Functions Types of Functions Forms of deposits Forms of loans
  13. 13. Term Loan  Term loan is a loan approved and disbursed by a bank  for a fixed amount that shall be repaid in regular payments  such as Equated Monthly Instalments (EMIs) over a defined period of time  Term loans can be offered in both fixed and floating rate of interest.  Tenure 1 to 10 years  Tenure is decided at the time of loan application  Example Home loan, educational loan ,car loan
  14. 14. Months Payment ( Rs)EMI Principal( Rs) Interest (7%) Balance( Rs) 0 10,000(principal) 1 1200 500 700 9500 2 1165 500 665 9000 3 1130 500 630 8500 4 1095 500 595 8000 5 1060 500 560 7500 6 1025 500 525 7000 7 990 500 490 6500 8 955 500 455 6000 9 920 500 420 5500 10 885 500 385 5000 11 850 500 350 4500 12 815 500 315 4000 13 780 500 280 3500 14 745 500 245 3000 15 710 500 210 2500 16 675 500 175 2000 17 640 500 140 1500 18 605 500 105 1000 19 570 500 70 500 20 535 500 35 0 17350 10000 7350 0
  15. 15. Secondary Function  1.Agency function  Periodic payment  Buying and selling securities  Collection of cheques  Transfer of funds
  16. 16. Agency function – Periodic Payment Bank itself make monthly payment from your accounts Insurance premium, rent, salary Customer authorizes bank
  17. 17. Buying and selling of shares Behalf of customer bank undertakes Function of buying and selling securities Clear writing instruction
  18. 18. Collection Of Cheques  the Bank undertakes collection of cheques deposited by its customers,
  19. 19. Collection of cheque CUSTOMER COLLECTING BANK(HDFC) Paying Bank (SBI)
  20. 20. Transfer of fund Cheques Bank Draft Electronic mode of transfer
  21. 21. Cheques  Document that orders bank to pay a specific sum of money  From a person’s account  To the person whom the cheque has been issued.  Safe ,secure and convenient payment mode.  Fear of theft is minimized
  22. 22. Bank draft Instrument like cheque used to make payment Cheque is issued by an individual Bank draft or demand draft is issued by bank Bank draft is guaranteed by the issuing bank On customers request ,bank issues bank draft after ensuring the customer has sufficient payment in his account. Cheque is drawn by individual, but bank draft is drawn by bank Demand draft or bank draft is the secured form of payment for the payee.
  23. 23. Secondary Function: Utility function  1.Locker Function Depositing gold Jewellery, important documents Hired by individual, company Sizes small ,medium, large Rental Charges
  24. 24. Utility Function: 2.Underwriting of Shares  Acts as underwriters to many companies  Bank underwrites securities from the issuer then turns around to sell  Securities in the market  Underwriters can sell the securities with more price in the market than the price it purchased from the issuer.  Risk is minimized for issuer  Underwriters charge fees.
  25. 25. STRUCTURE OF INDIAN BANKING
  26. 26. Banker Customer Relationship- General Relationship Debtor and creditor Creditor and Debtor Bailee and Bailor Lessor and Lessee Principal and Agent Trustee and Beneficiary Mortgage and Mortgagor
  27. 27. Debtor and Creditor Customer is having a deposit account like saving deposit, fixed, or current account Banker is the debtor Customer is the creditor Dignified debtor Demand by means of cheques or ATM
  28. 28. Creditor and debtor Banks gives loans and other credit facility Bank is the creditor Customer is the debtor
  29. 29. Bailee and Bailor Bank offers a service called safe custody Bank will keep the customers documents and valuables safely When bank accepts the documents and keep it safe Banker - Bailee Customer – Bailor.
  30. 30. Lessor and Lessee Bank-Lessor Customer-Lessee Bank Keep you valuables safely in the locker. Annual rent Bank will provide a key for your locker Kept in joint custody Bank is not liable in case of any loss. Customer is Lessee and the banker is the Lessor.
  31. 31. Principal and Agent Bank - principal Customer -agent Arrangement in which customer appoints banker to act on his behalf. Example bank purchases shares on behalf of its customers.
  32. 32. Trustee and Beneficiary Banker acts as an Trustee Customer is the beneficiary Bank accepts valuables for safe custody- Trustee Customer is getting benefits-Beneficiary. Trustee is the person who holds property for the benefits of somebody else.
  33. 33. Mortgage and Mortgagor Banker –Mortgagee Customer-Mortgagor Customer executes mortgage deed. Mortgage-Customers immovable property is taken as collateral by bank.

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