Need of Borrowing
Borrowing helps us fill the gap between what
we have and what we need.
It helps us deal with the temporary scarcity.
What is borrowed is supposed to be returned
in a pre-determined period of time with
Sources of Borrowing
When we borrow from
relatives, etc., it is
called internal source of
We borrow from banks,
institutions and non-
institutional lenders e.g.
A sum of money
borrowed from a
financial institution is
A loan is repaid with an
Interest is the extra
money we pay along
with the principal
Banks accept deposits
from people and lend
them to people for
What is RBI?
Every country has an organization called the
central bank of the country.
It controls and monitors the banking and
financial system of the country.
In India, the Reserve Bank of India (RBI) is
the central bank and it plays the role of a
regulator of the banking system of the
The RBI was established in 1935 and was
nationalized in 1949. The Banking Regulation
Act 1949 and the RBI Act 1935 have given
the RBI the power to regulate the banking
Role of RBI
The RBI is responsible for controlling the
overall operations of all banks in India.
These banks may be:
Public sector banks
Private sector banks
Regional rural banks
It maintains people’s confidence in the
It provides forum for redressing customer’s
Main Functions of RBI
Issuer of currency
Banker and debt manager to Government
Banker to Banks
Regulator and supervisor of the financial
Manager of Foreign Exchange
Regulator and Supervisor of the Payment and
Maintaining financial stability
Issuer of Currency
RBI issues currency notes.
Coins and one rupee notes are supplied by
Government of India and RBI only helps in its
Every bank note issued by RBI has signature
of the RBI governor on it.
Rupee one notes however have the signature
of the Finance Secretary, Government of
The promissory clause refers to the Bank’s
obligation to pay.
All the currency notes issued by RBI have a
promissory clause written on it.
“I promise to pay the bearer the sum of
Protection from all kinds of hazardous goods
Full information about the performance and
quality of all goods and services.
Freely choose goods and services.
Grievance making and redressal (in case of
infringement of consumer rights)
Be heard in all decision-making processes
related to consumer interests.
Introduction to Banking
Bank: An institution that accepts deposits
and gives loans in return for an interest
is called a bank.
Bank accepts money
from the public.
A person depositing
money in the bank is
benefitted from the
interest that bank pays
to the depositor over a
specific period of time.
Example of Deposits:
Time Deposits, Savings
Bank gives money to
A person taking loan
from the bank is
charged with a
percentage of interest
that he has to pay to
the bank over a specific
Example of Loans:
Home loan, Car loan,
education loan, etc.
Issued by a financial institution, usually
banks, giving the holder an option to buy
goods and services without making any
actual cash payment.
A type of short-term borrowing.
The card holder has to pay the money back to
the bank within 30-50 days and an interest
is charged on late payment.
Issued by a bank, allows the holder access to
his account to withdraw cash or pay for
goods and services.
It’s a type of plastic money that allows
access only to ones own deposited money.
The card holder can go to an ATM or pay
electronically at merchant locations.
Removes the need for cheques as it enables
immediate transfer and withdrawal of cash.
Automated Teller Machine
ATMs are electronic machines
that provide banking services
round the clock (day and night).
Services that can be availed are
- Cash Withdrawals
- Checking Account Balance
- Bill Payment
- Transfer of Funds etc.
The amount of cash withdrawal
in a day is limited.
To operate an ATM, the customer
has to insert the card and then
enter the PIN.
ATM Card and PIN
ATM card is used in an ATM machine for using
the banking services.
ATM is a plastic card, magnetically coded and
contains a unique card number and some
security information which can be read by the
Every card (ATM card, Credit card and Debit
card) comes with an expiration date and
requires a PIN.
PIN or Personal Identification Number has to
be entered in an ATM machine to use the
A card in the ATM can be used only if the PIN
A payment instruction from the account
holder to his/her bank directing to pay a
certain sum of money to a specific person or
the bearer of the instrument is called cheque.
This process takes 1-3 days depending on the
local clearing house procedures.
The presence of sufficient balance of funds in
ones account must be ensured before issuing
Banking is an institution which accepts money
from one person as deposits and lends to
other person as loan in return for some
Types of Accounts
Traditionally, banks in India have 4 types of
Opened to run a business that have a large
number of daily banking transactions. It is a
non-interest bearing bank account. It needs a
higher minimum balance to be maintained.
Savings Bank Account
Opened to encourage people to save and
deposit their small savings. Interest paid is
normal. Can be opened in single or joint
names. Allowed to withdraw money as and
when required. There is lot of flexibility for
deposits and withdrawals of funds from the
account. Basic Savings Bank Deposit Account
has no minimum balance requirement.
Opened by those who want to save regularly
for a certain period of time and earn a higher
interest rate than Savings Bank Account. No
withdrawals are allowed. However, banks
may allow closing the account before the
maturity period within which any default
attracts small penalty. RD are normally
allowed for 6 months to 120 months
maturity. It can be opened in single or joint
Opened for a particular fixed term by
depositing particular amount of money.
Money is deposited for 7 days to 10 years.
Withdrawal cannot be made before expiry (if
closed before maturity, penalty is imposed).
Interest amount is paid in lump sum, monthly
or quarterly. Deposits can be renewed for
Banking: With new technology
A system through which electronic
instructions can be given for instant
transfer of funds from the account of a
customer in one bank to the account of
a customer of another bank across
cities. RTGS takes place on a ‘real time’
basis. The beneficiary’s bank has the
responsibility to credit his account
within 2 hours from the initiation time
of transaction. Minimum amount
transferred is 2 lakh rupees.
Anyone can transfer funds directly from
his account to the bank account of
receiver/beneficiary. Operates in hourly
batches. Amount is credited in the
beneficiary’s account within 2 hours.
There is no minimum or maximum limit
for transferring money through NEFT.
Banking: With new technology (cont.)
Allows individuals to carry out banking
activities anytime, anywhere via
internet without visiting a bank branch.
Enables routine transactions such as
money transfer, balance inquiry, bill
The use of cellular device to perform
banking activities. A customer needs to
register with the bank.
Sneha’s daddy used to spend on expensive gifts for
But he used his card for this.
Members of the family were concerned on the type
of card used by Sneha’s father.
He had used the debit card but Sneha was not aware
about the difference between the debit card and
Sneha thought that her father was spending without
having money (which is through credit card).
The difference between both the cards was
explained and everyone was convinced that they
were living within their means and were not
borrowing money unnecessarily.
Marked Price or Maximum Retail Price (MRP)
of a product is the upper limit on the price of
an item set by the manufacturer. Charging
price more than the MRP of a product is
Selling Price of the product is the actual price
paid to the shopkeeper for purchasing the
Cost price of the product is the cost to
produce the product without any profit.
Profit/Loss = Selling Price – Cost Price
Selling Price > Cost Price = Profit.
Selling Price < Cost Price = Loss.
Formula to calculate simple interest:
SI = Prt/100, where
SI = Simple Interest
P = Principal
r = Interest rate
t = time
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