1. Introduction
A banking company is defined as a company which transacts the business of
banking in India. The Banking Regulation Act defines the business of
banking by stating the essential function of the banker. It also states the
various other businesses of banking company may be engaged in and
prohibits certain businesses to be performed by it.
The term ‘banking’ is defined as “accepting, for the purpose of lending or
investment, of deposits of money from the public, repayable on demand or
otherwise, and withdraw able by cheque, draft, order or otherwise.”
The term ‘customer’ of a bank is not defined by law. Ordinarily, a person
who has an account in a bank is considered its customer. Banking experts
and the legal judgments in the past, however, used to qualify this statement
by laying emphasis on the period for which such account has actually been
maintained with the bank. In Sir John Paget’s view “to constitute the
customer there must be some recognizable course or habit of dealing in the
nature of the regular business.” This definition of the customer of as bank
lays emphasis on the duration of the dealings between the banker and the
customer and is, therefore, called the ‘duration theory’.
The relationship between a banker and his customer begins with the opening
of an account with the former in the name of the latter. Initially, all the
accounts are opened with the deposit of money by the customer and hence
these accounts are called deposits accounts. The bulk of resources from the
bank are mobilized by accepting deposits from the public. Accepting of
deposits of money from the public, as already noted, is one of the essential
functions of a banker, according to the definition of banking given in the
Banking Regulation Act, 1949.
The banker solicits deposits from the members of the public belonging to the
different walks of life, engaged in numerous economic activities and having
different financial status. The nature of banking facilities sought by them,
therefore, varies widely. The bank have therefore introduced different types
of account with various privileges and facilities.
Let us discuss about the measure adopted to regulate competition amongst
the banks in India in the field of deposit mobilization.
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2. Regulation of Competition in Banking
Competition in the business of accepting deposits takes two forms:
• Improvement in the customer services
• Offer a high rate of interest to the depositor.
Such competition, though essential for the growth of industry, is undesirable
if it becomes unhealthy. Bankers realized the urgency of regulating
competition amongst themselves in the field of deposit mobilization as early
as 1958 when the leading banks in the country entered into a voluntary
agreement. The Inter-Bank Agreement on the Deposit Rates prescribed the
maximum rates of interest payable by the members banks. After the
commercialization of 14 major commercial banks in july 1969, the Reserve
Bank of India exercised its right to issue directives to the banks in regard to
the deposit rate.
A notable feature of the Reserve Bank directives is that the freedom to
compete in the banking business is controlled and regulated rather than
completely abolished. The smaller banks with comparatively less deposits
cannot compete with the bigger banks by offering the same rate of interest.
In the directives of the Reserve Bank, therefore, smaller banks are permitted
to compete with the bigger ones by offering reasonably higher rates of
interest. Thus both the maximum and the minimum rates of interest payable
on deposits are prescribed for smaller banks. These banks are liberty to
determine their own rates within the limits prescribed by the Reserve Bank
according to their own judgment and discretion.
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3. Bank Fixed Deposits
Bank Fixed Deposits are also known as Term Deposits. In a Fixed Deposit
Account, a certain sum of money is deposited in the bank for a specified
time period with a fixed rate of interest.
The rate of interest for Bank Fixed Deposits depends on the maturity period.
It is higher in case of longer maturity period. There is great flexibility in
maturity period and it ranges from 7days to 10 years. The interest is
compounded annually and is added to the principal amount. Minimum
deposit amount is Rs 1000/- and there is no upper limit.
Loan / overdraft facility is available against bank fixed deposits. Premature
withdrawal is permissible but some penalty is levied. Tax Deductible at
Source, if the interest paid/ payable on deposit exceeds Rs.5000/- per
customer, per year, per branch.
Renewal Before Maturity
The Reserve Bank has permitted the banks to renew an exting term deposits
before maturity without invoking the penalty provide:
1. It is renewed before the date of maturity.
2. The period of renewal is longer than the remaining period of the
original deposit.
In such cases interest will be payable as follows:-
1. On the original deposit at the rate applicable to the period of which the
deposit has actually run (i.e.., from the date of the deposit to the date
of the renewal), prevailing at the time of original deposit (without
levying any penalty);
2. Interest for the period from the date of renewal will be allowed at the
rate prevailing on the date of the renewal.
If you are planning to open a fixed deposit account, you have a variety of
choices. There are fixed deposit accounts that offer you safe and high
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4. returns. And there are fixed deposit accounts that offer you the flexibility of
a savings account as well.
The ABN AMRO Bank EasyDraw Fixed Deposit offers you all this...and
much more. Making it the most powerful fixed deposit account in the
country. The minimum deposit required to open an EasyDraw Fixed Deposit
is Rs 50,000*. This is to be maintained at month-end across both your
EasyDraw Fixed Deposit and the linked Savings account.
• Maximised Returns
• High Liquidity
• Cheque Book and Debit Card Convenience
• NetBanking
• SMS/Email alerts
• Choice of Tenure, Choice of Interest Payments
• Automatic Renewal
• Extended Banking Hours
• National Access
• Cash Delivery
• Courier Pick Ups
• 24 Hours Bank by Phone
• Other Fixed Deposit Options
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5. Specimen Of Fixed Deposits Receipt
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6. Specimen Of The Backside Of Fixed Deposits Receipt
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7. Savings Bank Account’s
Savings Bank Accounts are meant to promote the habit of saving among the
citizens while allowing them to use their funds when required. The main
advantage of Savings Bank Account is its high liquidity and safety. On top
of that Savings Bank Account earn moderate interest too. The rate of interest
is decided and periodically reviewed by the Government of India. Presently,
the rate of interest is 3.5% compounded half yearly.
Savings Bank Account can be opened in the name of an individual or in joint
names of the depositors. Savings Bank Accounts can also be opened and
operated by the minors provided they have completed ten years of age.
The minimum balance to be maintained in an ordinary savings bank account
varies from bank to bank. It is less in case of public sector banks and
comparatively higher in case of private banks. In most of the public sector
banks, minimum balance to be maintained is Rs. 100. In accounts where
cheque books are issued, a minimum balance of Rs. 500/- has to be
maintained. For Pension Savings Accounts, minimum balance to be
maintained is Rs. 5/- without cheque facility and Rs. 250/- with cheque
facility.
Growth
With the advent of the internet, high yield savings accounts have become more
prevalent from virtual banks. The internet savings account business model is to
offer interest rates generally higher than those available at storefront banks
while maintaining few if any retail locations and keeping customer service
costs low through automated and computer systems. The growth of online
high yield accounts have pushed many brick and mortar banks to create their
own high yield savings accounts
Costs
Withdrawals from a savings account are occasionally costly and are
sometimes much higher and more time-consuming than the same financial
transaction being performed on a demand account. However, most savings
accounts do not limit withdrawals, unlike certificates of deposit. In the
United States, violations of Regulation D often involve a service charge, or
even a downgrade of the account to a checking account. With online
accounts, the main penalty is the time required for the Automated Clearing
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8. House to transfer funds from the online account to a "brick and mortar" bank
where it can be easily accessed. During the period between when funds are
withdrawn from the online bank and transferred to the local bank, no interest
is earned.
In some countries, such as the United Kingdom, an account called the
"notice deposit" account is available. A slight interest premium is paid, with
the caveat that one must give up to 90 days notice to make a withdrawal
without a fee. Often, withdrawals can be made without notice by paying a
penalty equivalent to the interest earned in the notice period.
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9. Recurring Deposits Account’s
Under a Recurring Bank Deposit, a specific amount is invested in bank on
monthly basis for a fixed rate of return. The deposit has a fixed tenure, at the
end of which the principal sum as well as the interest earned during that
period is returned to the investor.
Recurring Bank Account provides the element of compulsion to save at high
rates of interest applicable to Tern Deposits along with liquidity to access
those savings any time.
There is great flexibility in period of deposit with maturity ranging from 6
months to 120 months. The minimum monthly deposit varies from bank to
bank. In most of the public sector banks, one can start a Recurring Deposit
Account with monthly installment of Rs.100/-.
Loan/overdraft facility is also available against Recurring Bank Deposits.
The rate of interest on the recurring deposit account stands favourably as
compared to the rate of interest on the saving bank account because the
former partly resembles the fixed deposit accounts. According to the
directive of the Reserve Bank, banks are required to ensure that the rate
interest offered by them on recurring deposits are generally in accord with
the rates prescribed for various term deposits. The rate of interest is,
therefore, almost equal to that of the fixed deposit account.
The recurring deposit account can be opened by any person, more than one
person jointly or severally, by a guardian in the name of a minor and even by
a minor. While opening the account, the depositor is given a Pass Book
which is to be presented to the bank at the time of monthly deposits and
repayment of amount. Installment for each month should be paid before the
last working day of the month. Accumulated amount with the interest will be
payable after a month of the payment of the last installment.
Recurring Deposits are meant for steady and gradual saving for individuals
to build-up the savings through regular monthly deposits of a fixed sum over
a fixed period of time. You do not need to open a savings account with us
for opening a recurring deposit account.
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10. Current Account’s
Current Account is primarily meant for businessmen, firms, companies,
public enterprises etc. that have numerous daily banking transactions.
Current Accounts are meant neither for the purpose of earning interest nor
for the purpose of savings but only for convenience of the business, hence
they are non-interest bearing accounts.
In a Current Account, a customer can deposit any amount of money any
number of times. He can also withdraw any amount as many times as he
wants, as long as he has funds to his credit.
Current Account can be opened by:
• an individual who has attained majority.
• two or more individuals in their joint names.
• sole proprietorship concerns.
• partnership concerns.
• Hindu Undivided Family.
• Limited Companies.
• Clubs, Societies.
• Trusts, Executors and Administrators.
• Others - Govt. and semi Govt. bodies, local authorities etc.
Current Account is primarily meant for businessmen, firms, companies,
public enterprises etc. that have numerous daily banking transactions.
In a Current Account, a customer can deposit any amount of money any
number of times. He can also withdraw any amount as many times as he
wants, as long as he has funds to his credit.
Current Accounts are meant neither for the purpose of earning interest nor
for the purpose of Savings but only for convenience of the business.
Opening of Current and Saving Accounts
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11. By opening an account with the banker. The special features of this
relationship impose several obligations on the banker. He should, therefore,
be very careful in opening an account in the name of the customer. Though
any person may apply for opening of an account in his name but the banker
reserves the right to do so on being satisfied about the identify of the
customer. The following precautions to be taken in this regard:
1. Application on the prescribed Form:
The request for opening a saving or current account is made on the
prescribed form on the bank concerned. Banks provide separate
application forms for opening savings and current account for
individuals, partnership firms and companies. The applicant is required to
mention his name , occupation, full address, specimen signature and the
name signature of the referee. He also undertakes to comply with the
banks rules in force from time to time for the conduct of the account. It
means that the rules prevalent at the time of opening of an account may
be changed or modified by the banker and such modified rules shall be
acceptable to the customer.
2. Introduction of the Applicant:
Before opening a savings or current account in the name of an intending
customer, the banker must get true identity of the former in order to
ensure that he is respectable person. The banker, thus. Reserves the right
not to open an account in the name of the person whose true identity has
not been established or who is considered ton be an undesirable person,
eg.., a thief, robber, etc. The applicant may be introduced to the banker in
any of the three forms:
• A respectable person- either a customer of the same branch of the
bank or who is known to the staff of the branch- introduces him by
signing on the applicant form itself along with his full address.
• The Applicant may give the name of any respectable person or that
of another bank as referee. The banker enquires from the said
referee about the integrity, honesty, respectability and the financial
standing of the applicant and his past experience in dealing with
the applicant. If the referee sends no reply, the banker should not
open the account unless satisfactory introduction is given
otherwise.
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12. • The Reserve Bank has advised the banks that pay books or postal
identification cards or identity cards of armed
forces/police/government departments or passports may be
considered or passports may be considered sufficient for
establishing the identity of persons desiring to open deposit
accounts without cheque facility.
Specimen Of Account Opening Form
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16. Types of Accounts
While banks may use different names for the accounts, the following types of
checking and savings accounts are offered by most financial institutions.
Regular Checking —
Generally, this type of account is for the customer who does not maintain a
high balance and uses a checking account for paying bills and daily
expenses. Some basic accounts may require either direct deposit or a low
minimum balance to avoid any fees. Look for a bank that offers a checking
account linked to another account. Your savings balance may offset your
checking account balance requirement
Interest-bearing Checking —
A simple way to earn interest on the funds
• you have on deposit. With these accounts, the higher your balance, the
more interest you earn. This type of account usually requires a
minimum balance to open and an even higher balance to maintain in
order to avoid fees. Interest is usually compounded daily on the
average daily available balance. If you cannot maintain high minimum
balances, avoid these accounts as it may cost you more in fees than
the low interest you'll earn on your balance.
• Joint Checking — An account owned by two or more people, usually
sharing a household and the associated expenses. Each person has
equal access to the account. Most accounts, be it checking, savings or
money market, allow for joint use.
• Express Checking — For people who rarely step inside a bank, these
accounts are a good way to get low-priced checking from a large
bank. They usually offer unlimited check writing, low minimum
balance requirements and low or no monthly fees. The downside to
this type of account is that teller fees can be as high as $3 per visit.
These accounts are popular with students and young customers who
are always on the go and don't want to spend a lot of time on banking
transactions. Because these accounts are being offered by some of the
top competitors in each market, regional and smaller banks are
expected to develop express checking accounts of their own.
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17. • No Frills Checking — These "no-frills" accounts are for people who
don't write many checks on a monthly basis and cannot meet
minimum required balances to avoid regular checking fees. No-frills
accounts usually have monthly fees ranging from zero to $6, require
low, if any, minimum balance and allot a certain number of checks per
month.
• Savings — Savings accounts allow you to make withdrawals, but
without the flexibility of using checks. The number of withdrawals or
transfers you can make on the account each month may be limited.
Many banks offer more than one type of savings account (i.e.,
passbook savings, statement savings). With a passbook savings
account, you have a record book to enter withdrawals, deposits and
keep track of transactions. With a statement savings account, the
institution mails you a statement that shows your withdrawals and
deposits. As with other accounts, there may be various fees on savings
accounts, such as minimum balance fees.
• Senior/Student/Special Accounts — Some banks offer special
accounts for children, students, senior citizens or special savings plans
such as Christmas Clubs or Vacation Plans. These special accounts
usually don't carry any fees. The benefits vary from bank to bank, but
may include free checks, ATM use, better rates on loans and credit
cards, or discounts on everything from travel to prescriptions.
• Money Market — This account combines checking with savings
and/or investment opportunities and helps you pursue higher earnings.
It requires a high minimum balance to open ($1,000 - $10,000), and
higher balances must often be maintained to avoid fees. While you are
able to make withdrawals, it is not as convenient as doing so from a
checking account and there are limitations on the number of checks
you are allowed to write. A Money Market account is for people who
want to put their money where it will earn a market interest rate.
These accounts pay more interest than basic checking or savings
accounts; however, the interest rates can fluctuate, depending upon
market conditions.
• Certificates of Deposit (CDs) — Time deposits are often called CDs
and are for people who want to lock-in an interest rate. They usually
offer a guaranteed rate of interest for a specified period of time (e.g.,
one year). Banks offer CDs that allow you to choose the length of
time, or term that your money is on deposit. Terms can range from
several days to several years with the longer term typically having a
higher annual percentage yield. Once you choose the term you want,
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18. generally you must leave the money in the account until the term ends,
known as maturity. Some banks will let you withdraw the interest,
while your initial deposit amount (the principal) must remain in the
account. If the bank allows you to withdraw your principal funds
before maturity, a penalty is usually charged.
As suggested by the Working Group on the Money Market, Reserve
Bank of India has permitted the banks to issue Certificates of Deposits.
Reserve Bank has issued guidelines also in this regard, which have been
relaxed from time to time.
Certificates of Deposit can be issued by scheduled commercial banks
only and not by the Regional Rural Banks. Through CDs bank accept
short term deposits of substantial amount from the investor who have
liquid funds for temporary period. Such CDs can be issued by the
individual, corporation, companies, trusts, funds, association, etc. Non-
resident Indians (NRI) may subscribe to such certificates but not on a
non-repatriable basis and such CDs cannot be endorsed to another NRI
in the secondary market.
A certificate of deposit or CD is a time deposit, a financial product commonly
offered to consumers by banks, thrift institutions, and credit unions.
Such CDs are similar to savings accounts in that they are insured and thus
virtually risk-free; they are "money in the bank" (CDs are insured by the FDIC
for banks or by the NCUA for credit unions). They are different from savings
accounts in that the CD has a specific, fixed term (often three months, six
months, or one to five years), and, usually, a fixed interest rate. It is intended
that the CD be held until maturity, at which time the money may be withdrawn
together with the accrued interest
Rates
In exchange for keeping the money on deposit for the agreed-on term,
institutions usually grant higher interest rates than they do on accounts from
which money may be withdrawn on demand, although this may not be the
case in an inverted yield curve situation. Fixed rates are common, but some
institutions offer CDs with various forms of variable rates. For example, in mid-
2004, with interest rates expected to rise, many banks and credit unions
began to offer CDs with a "bump-up" feature. These allow for a single
readjustment of the interest rate, at a time of the consumer's choosing, during
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19. the term of the CD. Sometimes, CDs which are indexed to the stock market, the
bond market, or other indices are introduced.
A few general rules of thumb for interest rates are:
• The larger the principal, the higher the interest rate.
• The longer the term, the higher the interest rate. (Unless the yield
curve is inverted.)
• The smaller the bank, the higher the interest rate.
• Personal CD accounts receive higher interest rates than business CD
accounts.
How CDs work
The consumer who opens a CD may receive a passbook or paper certificate,
but it now is common for a CD to consist simply of a book entry and an item
shown in the consumer's periodic bank statements; that is, there is usually no
"certificate" as such.
At most institutions, the CD purchaser can arrange to have the interest
periodically mailed as a check or transferred into a checking or savings
account. This reduces total yield because there is no compounding. Some
institutions allow the customer to select this option only at the time the CD
is opened.
Commonly, institutions mail a notice to the CD holder shortly before the CD
matures requesting directions. The notice usually offers the choice of
withdrawing the principal and accumulated interest or "rolling it over"
(depositing it into a new CD). Generally, a "window" is allowed after
maturity where the CD holder can cash in the CD without penalty. In the
absence of such directions, it is common for the institution to "roll over" the
CD automatically, once again tying up the money for a period of time
(though the CD holder may be able to specify at the time the CD is opened
to not "roll over" the CD).
CDs typically require a minimum deposit, and may offer higher rates for
larger deposits. In the US, the best rates are generally offered on "Jumbo
CDs" with minimum deposits of $100,000 (though some, recognizing that
some investors don't want more in the account than is covered by FDIC
insurance, have lowered the minimum deposit to $95,000). However there
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20. are also institutions that do the opposite and offer lower rates for their
"Jumbo CDs".
Withdrawals before maturity are usually subject to a substantial penalty. For
a five-year CD, this is often the loss of six months' interest. These penalties
ensure that it is generally not in a holder's best interest to withdraw the
money before maturity—unless they have another investment with
significantly higher return or have a serious need for the money.
Terms and conditions
It is vital that a consumer study the terms and conditions for a CD before
purchase.
Employees of the institution are generally not familiar with this information.
In the US, the Federally required "Truth in Savings" booklet, or other
disclosure document that gives the terms of the CD, must be made available
before the purchase. The standard practice, however, is to provide the
booklet to the consumer only after they have purchased a Certificate of
Deposit.
• If purchasing at a branch office, the consumer should obtain the
disclosure document and check the CD terms before buying a CD.
• If purchasing online or by telephone, the consumer should have the
disclosure document faxed or mailed and check the CD terms before
buying. In those cases where the terms are posted online, the
consumer should print a copy.
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21. What Constitutes Proper Introduction
 It is necessary that the person introducing the applicant to the banker
must himself be a respectable person ,because the latter’s opinion
about applicant carries value if he himself commands respect and
goodwill. The banker should, therefore, take reasonable care in
accepting the introduction or reference from any person.
 What should be the contents of proper introduction and what is the
duty of the banker in this regard was considered by the Madras High
Court in Indian Bank v. Catholic Syrian Bank. In this case the
applicant for opening a current account was introduced to the bank by
the well known customer of the bank. But what he did was to take the
applicant to the bank and informed the branch manager that he was
the man from Indore and he wanted to open the bank account to
enable him to purchase carpets at that place. The introducer had not
given any assurance that the applicant was known to him or that they
had long standing business association and that he was a bona-fide
customer and account could safely opened in his name.
The high court therefore held that the bank was negligent in securing
proper introduction of the applicant. In the circumstances of the case,
bank ought to have made more enquiries than usual to test the
credentials of the prospective customer before allowing him to open
the account.
It may be concluded from the above, that the banker should fully
ascertain the true identity of the applicant by other means also, and
should not depend exclusively on the casual words of the introducer.
The Reserve Bank of India has reiterated that the commercial banks
should invariably obtain satisfactory introduction in respect of all
types of deposits. It has advised the banks to incorporate a certificate
in the account opening from in respect of all deposit accounts
confirming the identity, occupation and address of the person by the
introducer. The bank has also suggested to the banks to keep the
careful watch on the operation of large amounts in new accounts.
About the mode of securing introduction, Reserve Bank has advised
the banks that they should send a letter by the registered post to the
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22. introducer for confirming the introduction in all such cases where the
introducer is not in the position to come to the bank at the time of
opening the account.
Risk in Opening Accounts Without Proper Introduction
The applicant must be properly introduced to the banker. If the latter
opens an account without proper introduction or shows carelessness in
this regard cases of fraud or misrepresentation may occur frequently. Not
only the banker runs the risk in such cases but the general public may
also be deceived by the undesirable customers. The risks inherent in such
cases are as follows:-
1. The banker cannot avail of the statutory protection:-
Section 131 of the Negotiable Instruments Act provides to the banker,
if he collects the cheque, bill, etc.., on behalf of the customer who has
no title thereto or his title is defective. The collecting banker will incur
no liability to the true owner of the cheque provided the former has
acted in good faith and without negligence. The banker cannot avail of
this statutory protection if he opens an account in the name of an
undesirable person without proper introduction and such person sends
a stolen or the forged cheque for the collection and the banker does so,
because his failure or carelessness to find out the true identity of the
customer will constitute a negligence on his part. If such undesirable
persons are permitted to open accounts in the name of the somebody
else and they realise the stolen or forged cheque through such
accounts and latter on disappear, the banker remains liable to the true
owner of such cheques.
2. Risk in case of overdrafts:-
If a banker grants an overdrafts, even by mistake or by negligence, to
a customer who is not properly introduced, he bears the risk of loss in
case it is not repaid by the customer. The banker remains unaware of
the assets of such customer.
3. Risk in case of undischarged insolvent:-
In case of the persons who are declared insolvent, all assets or funds
are attachable, until or unless he is discharged. The deposits received
by a banker from an undischarged insolvent, without proper
introduction, carries the risk of attachment.
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23. 4. Risk in case of issue of bogus cheque:-
If the banker provides a cheque book to an undesirable customer not
properly introduced, there is the risk that he might defraud the general
public by issuing bogus cheques on his account without having
sufficient balance.
The banker must, therefore, seek proper introduction of the applicant
for pening a current account, because all the above mentioned risks
may be faced by the banker in case of current accounts. The banker
may not insist on introduction if the applicant applied for opening a
savings account where only cash operations are permitted, because,
neither a cheque book is issued to him nor he permitted to deposit
cheque, etc.., for collection or to take overdraft. But in other cases
proper introduction is necessary. No introduction is necessary in case
of opening a fixed deposit account for the same reasons.
 Specimen Signature-The applicant is required to give his specimen
signature on a prescribed form, generally a card for the purpose of bank’s
record. The signature card are preserved by the banker and the signature
of the account holder on the cheques is compared with his specimen
signature. If the former differs from the latter, the banker can refuse to
honour the cheque. The specimen signature thus protects the banker
against forger. He should be very careful in comparing the signature of
the customer given on a cheque with his specimen signature.
 Opening the account-After the above formalities are over, the banker
opens an account in the name of the applicant. It is essential that the
applicant deposits some at the time of opening an account.these amounts
will also be the minimum balances to be maintained by the account
holder. The banker, thereafter, provides the customer with
1. Pay-in-Slip Book
2. Cheque Book &
3. Pass Book and he is authorised to operate the account.
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24. Operating The Bank Account
The word operate in relation to a bank account means that the customer
deposits further sums of money and cheques, etc.., into the bank and
withdraws money according to his nned or convenience. A special feature of
banking business is that each and every transaction of money with the
customer is supported by a separate slip or document. A customer is,
therefore, required to make use of
1. Pay-in-Slips for depositing money and
2. Cheques for withdrawing money from the bank.
 The Pay-in-Slip Book contains slips perforated counterfoils to be
filled in by the depositor himself or by his agent at the time of
depositing cash, cheques, drafts, bills,..etc., to the credit of his account
.Usually every bank supplies free of cost to the customers separate
pay-in-slips for depositing cash and cheque etc. Though the size and
the design of such slios vary from bank to bank but the contents
include information relating to the date of deposit, name and account
number of the customer, amount to be deposited, the denomination of
currency notes, etc., the cheque number and the name of the drawee.
After filling in all such details on the counterfoil, the customer hands
over the same together with cash to the cashier orcheques, etc., to any
other responsible officer who acknowledges receipt of the same by
signing the counterfoil along with the stamp of the bank and returns it
to the customer. The slip retained by the bank is passed on to the clerk
concerned for making necessary credit entries in the account of the
customer.
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25. Specimen Form of Pay-in-Slip For Depositing Cash
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26. Pay-in-Slip For Local Cheques Only
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27.  The Cheque Book contains blank forms of the cheque which are used
as the instrument to withdraw money from the bank. In case of
savings bank account a cheque book is provided to only those
customers who undertake to maintain a minimum balance to their
credit. Other customers may withdraw from their savings bank
account through a withdrawal form available from the bank. But in the
latter case it is essential that the Pass Book must accompany the
withdrawal form everytime. The blank forms of the cheques and their
counterfoils are serially numbered. The Cheque Book also contains a
Requisition Slip which, dully filled in, is presented by the customer
for obtaining another cheque book from the bank.
 The Pass Book is a small handy book issued by the banker to his
customer to record all dealings between them. In fact, it is an
authenticated copy of the customer’s account books of the banker. The
purpose of issuing a pass book to the customer ia to acquaint him
periodically with the state of the affairs of his account with the bank.
The Pass Book also contains rules and regulations governing the
savings account. The customer deposits the pass book periodically
with the bank for the purpose of recording entries therein. As it passes
from the hands of the customer to the banker and vice versa, it is
called a ‘Pass Book’.
A Pass book is very important to a customer because it enables him to
know some of the entries made by the banker in his ledger account,
e.g. the amount of interest allowed or charged, the incidental or other
charges made by the banker. In business where such entries are many,
businessmen prepare Bank Reconciliation Statements with the help of
the Pass Book to tally the balance shown in the Cash Book with that
given in the Pass Book.
27

28. The Following points are important in this connection:-
1. Entries in the Pass Book are to be recorded by the clerk of the bank
and must bear the initials of the accountant. The customer should not
write any write any entry himself, even for the purpose of reconciling
the bank balance.
2. whenever the banker sends a pass book to the cuatomer, it must show
up-to-date entries.
3. if the Pass Book is lost by the customer, a duplicate Pass Book may be
issued by the banker and marked as ‘Duplicate’
4. in case of a Savings Bank account, the Pass Book must accompany the
withdrawal form every time when money is withdrawn through a
withdrawal form.
Some banks,especially the State Bank of India,send to the customers a
Statement of Account periodically, i.e.., fortnightly or monthly, in
place of providing the customer with a Pass Book. Such statement
shows the relevant entries in the customer’s account during the given
period and are filed by the customer.
28

29. Legal Aspects Of Entries In The Pass Book
Through the Pass book contains true and authenticated record of the
customer’s account with the banker, no unanimous view prevails regarding
the validity of the entries in the Pass Book. The question, therefore, arises
whether the Pass Book constitutes a conclusive proof of the accuracy of the
entries made therein.
Sir John Paget’s View:-
According to Sir John Paget, “The proper function which the Pass book
ought to fulfill is to constitute a conclusive and unquestionable record of
transaction between the banker and the customer and it should be recognized
as such. After full opportunity of examination on the part of the customer all
entries, at least to his debit, out to be subsequently final, and not liable to the
subsequently reopened at any rate to the detriment to the banker.”
In fact this viewpoint resets on the presumption that the customer is under
any obligation to verify the entries made in the Pass Book periodically and if
he detects any mistake, he ought to bring it to the notice of the banker within
the reasonable period. If he does not do so and remains silent after the
receipt of the Pass Book, customer’s concurrence with the correctness of the
entries is taken for granted. In some of the legal judgments, specially in the
United States this viewpoint was upheld by the Court. According to this
viewpoint, negligence or omission on the part of the customer to examine
the correctness of the entries in the Pass Book is a fault on his part and thus
renders Pass Book as an evidence of settled and accepted account.
Effect of Entries to the Advantage of the Customer:-
The account of the customer may sometimes wrongly show the credit
balance, which is larger than the correct balance because of the duplicate of
credit entries or incorrectly entering higher amounts for such entries or
incorrectly entering higher amounts for such entries or due to omission of
any debit entry.
The legal position of the banker and his customer shall be as follows:-
1. The Pass Book is written by the banker and hence the entries therein
may form an evidence against the banker. The customer is rightly
entitled to believe them as correct and to act on the basis of such
entries. If the Pass Book shows the higher balance and the customer
withdraws such balance treating as his own and subsequently spends
is away, the banker shall not be entitled to recover such amount
29

30. wrongly paid to the customer. But the customer shall have to prove
that
• He acted in such manner relying on the correctness of the
balance shown in the Pass Book and had no knowledge of the
mistakes therein
• He altered his position by spending the same
2. There are some expectation to the above-mentioned principle of
estoppel. If the customer regularly maintains his account books and
the bank regularly sends him the Pass Book the customer cannot act
on the basis of the above presumption. Though it is not obligatory for
him to check the Pass Book. But in such circumstances, it is difficult
to establish that he was ignorant about the mistakes in the Pass Book,
because he regularly maintained the account books.
Effects of the Customer Signing Confirmation Slips:-
The Pass Book itself is not a conclusive proof of the settled account.
Banks nowadays periodically issue to the customers confirmation slips,
which give the balance in the account as on the given date. By putting in
the signature on the confirmation slips, the customer accepts and
confirms such balance. The legal effect of the customer’s signing the
confirmation slip by the Kerala High Court. The Court observed that
“unless there is evidence to show that the practice or the custom indicated
a stated or the settled account, the customer is not precluded from
questioning the debit entries in the Pass Book but, when confirmation
slips are signed by the customer, he will be bound by the debits made.” In
this case the confirmation slips were signed by the customer or his
authorized agent. Hence the same were binding on him and his heirs and
could not be challenged by them.
The banker is entitled to point out the customer any mistake or the
omission and to rectify it as soon he knows about it. On the receipt of
such information the customer is not entitled to withdraw the excees
amount wrongly credited to his account. But the should not dishonour the
cheque drawn and issued by the customer before the notice of such
wrong entry is served on him. If he does so, he will be liable for the
consequences of their wrongful dishonour.
30

31. Specimen Of Bank Pass Book
Effect of Wrong Entries in favour of the Banker:-
When a credit entry has been totally omitted or its figure has ben wrongly
stated or any debit entry has been erroneously made in the account of the
customer, such entries are favourable to the banker and against the
customer. The customer is entitled to get the mistake rectified as soon as
he happens to detect it. This right of the customer does not lapse even if
he returns the Pass Book without raisisg the objection regarding any entry
or he remains silent after the receipt of the Pass Book because, as already
noted, the customer is not bound to examine the Pass Book periodically
and regularly. He is entitled to recover the amount wrongly credited to
his account. The right of the customer to get the mistake rectified is,
however, subject to one limitation.
The High Court also held that an implied contract as to the settlement of
accounts does not arise between a customer and his banker merely by
reason of the banker sending the Pass Book to the customer with the
31

32. accounts written up and the customer failing to point out any
irregularities therein.
Effect of False Entry in the Pass Book
The liability of the banker to his customer in case his employee commits an
act of embezzlement and makes false entries in the Pass Book was
considered by the Supreme Court in State Bank of India. The brief of the
case were as follows:
A lady opened a saving bank account in State Bank of India with the
introduction by an employee of the bank, who was a close neighbour and
fast friend of her husband. The customer entrusted to the said employee
moneys and cheques, duly endorsed, for being credited to her account. The
employee misappropriated the same and to cover up his fraud made false
entries in the Pass Book. It was argued on behalf of the customer that the
entries in the Pass Book showing the deposits of these amounts in the
savings bank account had admittedly been made by the employee had
manipulated the accounts of three other depositors also and the bank had
reimbursed those customers for the loss. It was urged that the entries in the
Pass Book were prima facie sufficient tom establish the customer’s claims.
The banker argued that the customer had entrusted the employee moneys
from time to time for depositing in her savings account. In such situation the
employee could not be said to have been acting in due course of his
employment or as an agent of the bank. He was also an agent of the
customer. If he did not deposit those amounts as directed by the customer
and misappropriated the same and to cover up his fraud made false entries in
the Pass Book, the bank could not be liable for the loss.
The Supreme Court, therefore, considered the question whether the amounts
were handed over by the customer to the said employee in the course of the
bank’s business, i.e…, whether the employee acted as the gent of the
customer or of the bank in the course of the employment.
It was established that the said employee was not, as the relevant times, in
charge of the savings bank counter at which the saving account of the
customer was dealt with. In such a situation he acted as an agent of the
customer. His act of misappropriation could not be said to have been
committed in the course of his employment with the bank. Similarly, it
cannot be said that false and fictitious entries made by the employee to cover
32

33. up his fraud made the embezzlement an act committed by the employee in
the course of his employment with the bank. The bank was, therefore, not
liable to make good the loss caused to the customer. The Supreme Court laid
down the legal principle which governs liability of an employer for the loss
caused to the customer through the misdemeanour or negligence of the
employee as follows:-
The employer is not liable for the act of the servant if the cause of the loss or
damage arose without his actual fault of his agent or servant in the course of
his employment.
Precautions to be taken by the Banker and the Customer
1. The Pass Book must be sent by the customer to the bank periodically
and regularly for recording the necessary entries, so that mistakes, if
any, may be detected by the customer soon thereafter. Reserve Bank
has advised the banks tom issue a simple receipt to the tender of
savings bank if it is retained by the bank for updating.
2. The Pass Book must be initialed by the accountant or other
responsible officer of the bank, who must ascertain the accuracy of the
balance on the date of recording the entries, otherwise the customer
will be entitled to act upon the same, if it is wrongly stated.
3. The customer must tally the entries with his own record either the
account books or the counterfoils of pay-in-slips and cheques, etc. If
any inaccuracy is found, the customer must inform the bank
immediately to get the mistake rectified.
4. While sending the Pass Book to the customer, the banker should take
steps to ensure the secrecy of its contents. The Pass Book must be sent
in a closed cover.
33

34. Closing Of A Bank Account
The relationship between a banker and his customer is a contractual one and
continues as long as both of them so desire. The relationship may be
terminated by either of them by giving notice of his intension to the other
party. Moreover, the banker is bound to suspend payment out of the
customer’s account under the compulsions of law. The rights and obligations
of a banker in this regard are as follows:
1. If a customer directs the banker in writing to close his account , the
banker is bound to comply with such direction. The latter need not ask
the reasons for the former’s direction. The account must be closed
with immediate effect and the customer be required to return the
unused cheques.
2. If an account remains unoperated for a very long period, the banker
may request the customer to withdraw the money. Such step is taken
on the presumption that the customer no longer needs the account. If
the customer could not be traced after reasonable effort, the banker
usually transfers the balance to an “Unclaimed Deposit Account”, and
the accounts is closed. The balance is paid to the customer as and
when he is traced.
3. The banker is also competent to terminate his relationship with the
customer, if he finds that the latter is no more a desirable customer.
The banker takes this extreme step in circumstances when the
customer is guilty of conducting of account in an unsatisfactory
manner, i.e…,if the customer is convicted for forging cheques or bills
or if he issues cheques without sufficient funds or does not fulfill his
commitment to pay back the loans or overdrafts, etc. The banker
should take the following steps for closing such an account:
• The banker should give to the customer due notice of his
intention to close the account and request him to withdraw the
balance standing to his credit. This notice should give sufficient
time to the customer to make alternative arrangements. The
banker should not, on his own, close the account without such
notice or transfer the same to any other branch.
34

35. • If the customer does not close the account on receipt of the
aforesaid notice, the banker should give another notice
intimating the exact date by which the account be closed
otherwise the banker himself will close the account. During this
notice period the banker can safely refuse to accept further
credits from the customer and can also make him liable to the
customer and will be in consonance with the intension of the
notice to close account by a specified date.
The banker should, however, not refuse to honour the cheques
issued by the customer, so long as his account has a credit
balance which will suffice to pay the cheques. If the banker
dishonours any cheque without sufficient reasons, he will be
held liable to pay damages to his customer under Section 31 of
the Negotiable Instruments Act, 1881.
• In case of default by the customer to close the account, the
banker should close the account and send the money by draft to
the customer. He will not be liable for dishonouring cheques
presented for payment subsequently.
4. On receipt of the notice of death of a customer, the banker must stop
the operation of his account because the authority of the customer
terminates as he dies.
5. If the banker receives the notice regarding the insanity of his
customer, he is bound to stop payments from his account.
6. The relationship between the banker and his customer is also affected
if the customer becomes insolvent or the corporate customer goes into
liquidation. The credit balance of the customer is transferred to the
Official Receiver of the insolvent customer.
7. On receipt of a Garnishee order from the court, the banker is bound to
suspend payment from the account of the customer. If the order
prohibits the payment of a specified sum from the account, the banker
may honour the cheque out of the remainder amount.
8. When the banker has received a notice of assignment of the credit
balance in the account of a customer to a third party, the banker is
bound to pay the same amount to the said third party.
35

36. Insurance of Bank Deposits
An important feature of Indian banking is that deposits of the public with the
bank are insured up to the limit of Rs. 30,000 in such account. After the
failure of the Palai Central Bank, a scheduled bank of the South India in
1960, the Government and the Reserve Bank felt the necessity of insuring
the deposits in the banks so that public confidence in the banking institution
was not shaken whenever any bank failed to operate or was merged with
other bank. The Deposit Insurance Corporation of India was established by
an Act of Parliament to insure the deposits in the commercial banks and the
scheme of deposits insurance was introduced with effect from January 1,
1962. the corporation has been renamed as Deposit Insurance and Credit
Guarantee Corporation with effect from July 15, 1978.
Salient Feature of Deposit Insurance:-
1. The scheme of deposit insurance applies since its inception to all
commercial banks in India, scheduled and non-scheduled. The deposit
insurance cover has been extended to co-operative banks also in 16
states and 3 Union Territories upto the end of June, 1988. The
Regional Rural Bank have also been included in this scheme. All
these banks are called insured banks.
2. The insurance cover is extended to all deposits with the insured banks
except the deposits of the Central and State Governments, foreign
Governments and the commercial banks.
3. The deposits with the insured banks are insured up to a specified limit
only. With effect from July 1, 1980 the insurance cover is available in
respect of all unpaid balances due to a depositor held in bank in the
same capacity and in the same right up to Rs. 30,000. this means that
every account of a depositor in every insured bank is insured to the
extend of RS. 30,000. the accounts with credit balance up to Rs.
30,000 each are called fully protected accounts.
36

37. 4. The corporation reimburses the depositors in case the insured bank
fails or is amalgamated with another bank and defaults in paying the
balances due to the depositors in cash or by crediting the same to the
full extent in the books of the transferee banks. The difference
between the amount so paid or credited and the limit of the insurance
cover per account is paid by the Corporation. For example, if bank X,
on its merger with bank Y, gives a credit equal to 75% of the deposit,
a depositor having a credit balance of Rs.10,000 will get credit of
RS.7,500. the balance of Rs.2,500 will be reimbursed to him by the
Corporation.
5. The rate of insurance premium is 4 paise per annum for every hundred
rupees of assessable deposits. It is payable by the insured banks and
not by the depositors at half-yearly intervals. Premium is thus payable
on the total assessable deposit whereas the ‘Insured Deposits’ are
those which are below the limit of insurance cover, i.e…, RS.30,000
in each account.
6. The Corporation maintains two funds:
(a) Deposit Insurance Fund
(b) General Fund.
The income from insurance premia is credited to the Deposit
Insurance Fund and is invested in the Central Government securities.
Income from such investments is credited to and the insurance losses
are debited to the Revenue Account of the Fund. The General Fund
meets all other expenses of the Corporation.
37

38. Attractive Savings Schemes
Though the terms and conditions regarding deposits are largely
prescribed by the Reserve Bank of India, the banks have recently
introduced various attractive savings schemes. For example, the State
Bank of India at present offers the following deposit scheme to the
public:
1. Re-investment Plan:
This is just like fixed deposits with the difference that deposits with
the difference that the deposits are accepted for a fixed period ranging
between 12 and 120 months and interest, though calculated
periodically, is payable at the time of maturity. This plan provides for
the re-investment of interest also. According to the Reserve Bank
directive, in case of premature withdrawal or renewal under such plan,
compound interest with quarterly rests at prescribed rate is to be
allowed. If an advance is granted against a deposit under re-
investment scheme, accrued interest is also to be taken into account
for determining the margin.
2. Cash Certificates
These certificates are issued with different values payable after
specified maturity period. The issue prices for different maturity
periods are specified in advance ; for example, one can get a Cash
Certificate with face value of Rs. 100 after 12 months by paying Rs.
92.38. Thus interest is payable on maturity.
3. Perennial Pension Plan
This plan provides for
(i) the payment of the monthly deposit with bank in specified
denomination for the period of 84 months.
(ii) the payment of monthly pension by the bank from the 86th
month onwards.
38

39. (iii) further specified sum payable to depositor when pension is
discontinued.
4. Annuity Deposit
Under this plan the depositor opts for the monthly annuity for Rs. 36,
60, 84, or 120 months. He makes the initial deposits of the specified
amount and thereafter receives monthly annuity amount for the
selected period of time. For example, by making an initial deposit of
RS.1551 one gets the monthly annuity of Rs. 50 for 36 months.
5. Super Savings Package
Under this plan a depositor makes monthly deposits for a longer
period ranging from 15 to 40 years and gets the lumpsum thereafter.
6. State Bank Education Plan
This plan is to help the parents to save for meeting the educational
expenses of the children. Parents are required to make a monthly
deposit of RS. 100 per month during the period the child studies from
nursery to 7th
class. Thereafter. The parents gets specified sums
annually when the child reaches 12th
class and completes his 5th
year
of university education. This plan provides for further studies
including study abroad.
39

40. Classification of Deposits
The Reserve Bank of India publishes the classification of deposits with the
commercial banks into two broad heads, namely
o Demand Deposits
o Time Deposits
The various types of deposits included in these heads are as follows:
1.Demand Deposits include
o Current Deposits
o Demand liabilities portion of savings bank deposits
o Margins held against letter of creditguarantees
o Balances in overdue deposits, cash certificate and recurring
deposits
o Outstanding telegraphic and mail transfers, demand drafts
o Unclaimed deposits
o Credit balance in cash credit account
o Deposits held as security for advances which are repayable
on demand
2. Time Deposits include
o Fixed deposits
o Cash certificates, recurring deposits
o Time liabilities portion of savings bank deposits
o Staff security deposits
o Margins held against letter of credit if not payable on
demand
o Fixed deposits held for securities for advances
It is to be noted that the savings deposits are apportioned in both of the
above categories. The portion which can be withdrawn without notice is
treated as demand deposits and the rest as time deposits.
40

41. Facility of Nomination
The Banking Laws Act, 1983 has inserted a new section 45 ZA in the
Banking Regulation Act, 1949 to provide for the facility of nomination by
the depositor in banks. The above section and the rules framed therein
provides as follows:
1. A single depositor may nominee, in the prescribed manner, a person
to whom, in the event of the death of the depositor, the amount of his
credit may be paid by the banking company.
2. In case of a joint account, all the depositors together may nominate a
person to who, in the event of the death of all the joint depositors, the
amount to their credit may be paid by the banking company. Thus the
nominee’s right to receive deposit money arises only after the death
of the depositors. There cannot be more than one nominee in respect
of the joint account.
3. A nomination can be made in favour of individuals only and not
associates, societies, trusts or any organization or their office-bearers.
4. Nomination facility is available to all types of deposit accounts,
including the accounts opened for credit of pension.
5. Such nomination confers upon the nominee the right to receive the
amount of deposit from the banking company. On the death of the
depositor/all the joint depositor, the nominee shall become entitled to
all the rights of the latter to such deposit, to the exclusion of all
person.
6. If the nominee is a minor, the depositor may also appoint any person
to receive the amount of deposit in the event of his death during the
minority of the nominee.
41

42. 7. The nomination may be varied or cancelled by the depositor in the
prescribed manner. In case of a joint account variation or cancellation
of a subsiting nomination can be made the surviving depositors acting
together.
8. On making payment under the provisions of this section, the banking
company shall be fully discharged from its liability in respect of the
deposit.
9. The right of claim of any other person against the nominee, to whom
any payment is made under this section, shall not be affected by such
payment.
10.No other person shall be able to get notice of his claim to such
deposits to the banking company. Nor shall the banking company be
bound by such notice even though expressly given to it.
The above provisions in the act have been made to facilitate
expeditious settlement of claim in the accounts of deceased
depositors and to minimize the hardship caused to the family
members on the death of the depositor.
42

43. Legal Status Of The Nominee
It is necessary to understand the legal position of the nominee as regards
the amount of deposits received by him from the banking company.
Does he become absolute owner of such amount or the claims of other
legal heirs of the deceased remain unaffected by such nomination? This
question was decided by the Supreme Court in connection with
nomination made in case of the insurance policy. In this case the wife of
the policy holder was the nominee. His mother and the minor son
claimed their shares from the life insurance money received by the
deceased’s wife from L.I.C. The Supreme Court held that-
“A mere nomination made under section 39 of the Insurance Act, does
not have the effect of conferring on the nominee any beneficial interest
in the amount payable under the life insurance policy on the death of the
assured.”
“The nomination only indicates the hand which is authorized to receive
the amount, on the payment of which the insurer gets the valid discharge
of its liability under the policy. The amount, however, claimed by the
heirs of the assured in accordance with the Law of Succession governing
them.”
Thus it is clear that nominee does not become the absolute owner of the
amount received by him. The Law of succession will still pevail.
43

44. Small savings schemes lose out to bank deposits
Small savings have declined 21% during the financial year 2006-07
compared to the compound annual growth rate (CAGR) of 13% during the
six year period from 2000-01 to 2005-06.
Small savings have lost out to commercial banks which are offering higher
interest rates on deposits. During the same period, saving deposits with
banks increased by 14% maintaining the CAGR of 19%. These are some of
the findings of the Eco Pulse Study on “Growth trend of small savings
schemes,” released by Assocham.
According to Mr Venugopal Dhoot, President, Assocham, “a high interest
regime has introduced small saving schemes to direct competition from
commercial banks. With the advent of private fund managers gaining
strength in the financial market, small savings could face some more loss in
its deposits”.
Total receipts under the small savings schemes during the financial year
2006-07 dipped to Rs 1,37,560 crore as against Rs 1,73,283 crore in the
previous year. However, saving bank deposits with commercial banks stood
at Rs 6,55,274 crore at the end of FY07.
Small savings schemes include post office saving bank deposits, national
saving schemes, monthly income schemes, national saving certificates,
Indira Vikas Patra etc,which are meant to mobilize savings from small
investors since they carry attractive interest rates, sovereign guarantee and
tax benefits.
Commercial banks raised the deposit rates by 200 basis points during the
financial year 2006-07, as RBI tightened money flow in the market. The rate
of return on deposits of one-month to a year was 7% as compared to 5% in
2005-06, and the rate on deposits of more than one year was 9%.
Consequently, flow of savings changed their course from, Small Saving
Schemes in which rate of return is Government administered, to saving
deposits with banks. Interest rates offered by small saving schemes range
between 3.5% on saving deposit account and 7.5% on one-year time deposits
and 8% on two-year deposits.
44

45. Analysis of small savings
Monthly Income Scheme:Savings under Monthly Income Scheme which
account for one-third of total small savings, declined by 47% in last financial
year even as they recorded CAGR of 25% during the period from FY2000-
06. Collections in FY07 was Rs 25007 crore as compared to Rs 47273 crore
in the previous year. The total amount outstanding at the end of fiscal 2007
was Rs 1,53,636 crore.
Kisan Vikas Patra(KVP): Savings invested with KVP recorded a decline
of 26% during 2006-07 as compared to a 25% increase in the previous year
and an overall compound annual growth of 4.5% in the six-year period
extending from FY00-06. Amount of Rs 153636 crore is outstanding in
KVP, which is around 27% of total small savings.
Post Office Recurring Deposits (PORDS): Receipts of PORDS grew by
mere 1% compared to previous year’s growth rate of 18% and CAGR of
19% during FY2000-06. The scheme accounts for 10.5% of total small
savings. The amount outstanding at the end of fiscal 2007 was Rs 59279
crore.
National Saving Certificate VIII Issue: It accounted for 10.5% of the total
small savings, registering a decline of 28% in last financial year as against
the compound annual growth of 6% during six years preceding the fiscal
2007. The amount outstanding with the Scheme was Rs 59110 crore.
Post Office Time Deposits (POTD): These consisit of one, two, three and
five-year time year deposits, accounting for 6.64% of small savings.
Receipts with total POTD witnessed 11% decline in FY2007 as compared to
the CAGR of 25% over the period of 2000-06. Two and five-year time
deposits, bore maximum brunt with 18% and 6.5 downfall in collections.
They had recorded compound annual growth of 34% and 23%, accounting
for 5% and 30% of total amount invested in POTD.
One year time deposits, which have a maximum share of 48% in time
deposits, registered growth of 9% in FY007 as compared to 27% in previous
year and compound annual growth of 51%. Growth rate of three-year time
deposits also came down to 1% as against 25% growth in fiscal 2006 and
CAGR of 63%.
45

46. Post Office Saving Banks Deposits: Receipts in this scheme grew by
merely 1% in FY2007 as compared to a growth rate of 27% in fiscal 2006.
The share of post office saving deposits in total small savings is around 3%.
The dcheme was growing at compound annual growth rate of 18% in the
six-year period preceding FY2007.
Deposits Scheme for Indians Abroad
A large number of Indian citizen and aliens of Indian origin live abroad and
are in a position to save a good deal of money. The government of Indian
realized the urgency of mobilizing their savings in the form of bank deposits
in India and therefore, offered them certain concessions and incentives to
remit money to India for investment. Banks in India at present operate
various types of deposit accounts for Indian nationals abroad in the Indian
rupee and Foreign currency.
Definition of Non-Resident Indians
To open an account under any of the schemes meant for Non-Resident
Indians, one must qualify as a Non-Resident Indian, by fulfilling anyone of
the conditions as given in the Foreign Exchange Regulation Act:
1. He is an Indian citizen, who stays abroad for employment or for
carrying on a business or vocation, or for any other purpose in the
circumstances indicating an indefinite period of stay outside India.
2. He is an Indian citizen working abroad with international
organizations like the UNO, IMF, etc.
3. He is an official of CentralState Government and public sector
undertaking deputed abroad for temporary assignments
4. He is a person of Indian origin. A person is deemed to be of Indian
origin if he at any time held an Indian passport ,or he or either of his
parents or any of his grant parents was an Indian and a permanent
resident in undivided India at any time. Wife of a citizen of India or of
a person of Indian origin is also deemed to be of Indian origin even
though her parents are non-Indians.
46

47. These accounts can be maintained with banks which are authorized dealers
in the foreign exchange or which are specifically authorized in this behalf by
the reserve Bank is not required to open these accounts.
Features of various deposit schemes available to Non-Resident Indians
(NRIs)
Particulars Foreign Currency
(Non-Resident)
Account (Banks)
Scheme (FCNR(B)
Account)
Non-Resident
(External)Rupee
Account Scheme
(NRE Account)
Non-Resident
Ordinary Rupee
Account Scheme
(NRO Account)
(1) (2) (3) (4)
Who can open an
account
NRIs (individuals /
entities of
Bangladesh/ Pakistan
nationality/ownership
require prior approval
of RBI)
NRIs (individuals /
entities of
Bangladesh /
Pakistan nationality
/ ownership require
prior approval of
RBI)
Any person resident
outside India (other
than a person
resident in Nepal
and Bhutan)
(individuals /
entities of
Bangladesh /
Pakistan
nationality /
ownership as well
as erstwhile OCBs
require prior
approval of RBI)
Joint account In the names of two
or more non-resident
individuals
In the names of two
or more non-
resident individuals
May be held jointly
with residents
47

48. Nomination Permitted Permitted Permitted
Currency in which
account is
denominated
Pound Sterling, US
Dollar, Jap. Yen,
Euro, Canadian
Dollar and Australian
Dollar
Indian Rupees Indian Rupees
Repatriable Repatriable Repatriable Not repatriable
except for the
following in the
account - 1) Current
income 2) Upto
USD 1 Million per
financial year
(April- March), for
any bonafide
purpose out of the
balances in NRO
account / sale
proceeds of assets
in India acquired by
way of inheritance /
legacy inclusive of
assets acquired out
of settlement
subject to certain
conditions.
Type of Account Term Deposit only Savings, Current,
Recurring, Fixed
Deposit
Savings, Current,
Recurring, Fixed
Deposit
Period for fixed
deposits
For terms not less
than 1 year and not
more than 5 years.
At the discretion of
the bank
As applicable to
resident accounts.
48

49. Rate of Interest Subject to cap :
LIBOR / SWAP rates
for the respective
currency /
corresponding
maturities minus 25
basis points
Subject to cap :
Fixed Deposits :
LIBOR / SWAP
rates, as on the last
working day of the
previous month, for
US dollar of
corresponding
maturities plus 50
basis points with
effect from close of
business on January
31, 2007.
Savings Bank
Account
Interest rate shall be
at the rate
applicable to
domestic savings
account with effect
from close of
business in India on
17-11-2005.
Banks are free to
determine interest
rates for term
deposits.
Operations by
Power of Attorney
in favour of a
resident by the non-
resident account
holder
Operations on the
account in terms of
Power of Attorney is
restricted to
withdrawals for
permissible local
payments or
remittance to the
account holder
himself through
normal banking
channels.
Operations on the
account in terms of
Power of Attorney
is restricted to
withdrawals for
permissible local
payments or
remittance to the
account holder
himself through
normal banking
channels.
-
49

50. Loans
a. In India
i) to the Account
holder
ii) to Third Parties
Permitted up to Rs.20
lakhs
Permitted upto Rs.20
lakhs
Permitted upto
Rs.20 lakhs
Permitted upto
Rs.20 lakhs
Permitted
Permitted
b. Abroad
i) to the Account
holder
ii) to Third Parties
Permitted upto Rs.20
lakhs
Permitted upto Rs.20
lakhs
Permitted upto
Rs.20 lakhs
Permitted upto
Rs.20 lakhs
Not Permitted
Not Permitted
c. Foreign Currency
Loans in India
i) to the Account
holder
ii) to Third Parties
Not Permitted
Not Permitted
Not Permitted
Not Permitted
Not Permitted
Not Permitted
Purpose of Loan
a. In India
i) to the Account
holder
i) Personal purposes
or for carrying on
business activities. *
ii) Direct investment
in India on non-
repatriation basis by
way of contribution
to the capital of
Indian firms /
companies
iii) Acquisition of flat
/ house in India for
i) Personal purposes
or for carrying on
business activities.
*
ii) Direct
investment in India
on non-repatriation
basis by way of
contribution to the
capital of Indian
firms / companies
iii) Acquisition of
Personal
requirement and / or
business purpose *
50

51. his own residential
use.
flat / house in India
for his own
residential use.
ii) to Third Party Fund based and / or
non-fund based
facilities for personal
purposes or for
carrying on business
activities *.
Fund based and / or
non-fund based
facilities for
personal purposes
or for carrying on
business activities
*.
Personal
requirement and / or
business purpose *
b. Abroad
To the account
holder and Third
Party
Fund based and / or
non-fund based
facilities for bonafide
purposes.
Fund based and / or
non-fund based
facilities for
bonafide purposes.
Not permitted.
* The loans cannot be utilised for the purpose of re-lending or for carrying
on agriculture or plantation activities or for investment in real estate
business.
Note :
a. When a person resident in India leaves India for Nepal and Bhutan for
taking up employment or for carrying on business or vocation or for any
other purpose indicating his intention to stay in Nepal and Bhutan for an
uncertain period, his existing account will continue as a resident account.
Such account should not be designated as Non-resident (Ordinary) Rupee
Account (NRO).
b. ADs may open and maintain NRE / FCNR (B) Accounts of persons
resident in Nepal and Bhutan who are citizens of India or of Indian origin,
provided the funds for opening these accounts are remitted in free foreign
exchange, Interest earned in NRE / FCNR (B) accounts can be remitted only
in Indian rupees to NRIs and PIO resident in Nepal and Bhutan.
c. In terms of Regulation 4(4) of the Notification No.FEMA.5/2000-RB
dated May 3, 2000, ADs may open and maintain Rupee accounts for a
person resident in Nepal / Bhutan.
51

52. d. The regulations relating to the various deposit schemes available to Non-
Resident Indians have been notified vide Notification No.FEMA.5 dated 3rd
May 2000, as amended from time to time. The relevant Notifications and A
P (DIR Series) Circulars have been placed on our website www.rbi.org.in and
may please be referred to for full details.
Foreign Currency Account’s
If your business exports or imports goods or services, you need to consider
how you will protect yourself against changes in the exchange rate. A tiny
variation in the rate could cost your business thousands of pounds.
You'll also need to decide how to make and receive payments in foreign
currencies.
This guide is aimed at businesses which regularly deal with foreign
customers. It explains how to price goods or services, how to combat the risk
of exchange rate changes and the practicalities of dealing in foreign
currencies.
Identify foreign Currency Exchange
When your business deals in a foreign currency you are exposed to certain
risks.
For example, you might find that after agreeing a price for exported or
imported goods the exchange rate changes before delivery. Clearly, this
can work both for and against you.
Some countries' currencies are more volatile than others because of their
inflationary or unstable economies. This makes their exchange rates more
liable to extreme movements. Your bank should be able to advise you.
Of course, because exchange rates can go both up and down, it can be
tempting to gamble that this will work out in your favour. However, this is
extremely risky and could land you with a significant financial loss.
It's safer to reduce the risk by using one of the forms of hedging available
through a bank. Hedging simply means insuring against the price of an item
- in this case, currency - moving against you in the future. Three types of
52

53. hedging are discussed in this guide. See the pages in this guide on
forward foreign exchange contracts, opening foreign
currency accounts and buying currency options.
You could, of course, consider trading overseas in sterling - effectively
transferring the foreign exchange risk to the business you're dealing with.
Whether this is an appropriate solution will probably depend on the product
in question and the relative bargaining strength of you and your trading
partner.
Bear in mind that exchange rates could have an effect on your business'
competitiveness even if you don't trade overseas. When a country's currency
loses value against the pound, imports from that country into the UK become
cheaper, so you may have to respond to aggressive pricing from competitors
who source from that country.
Similarly, if a country's currency gains currency against sterling, UK exports to that
country become cheaper.
Foreign currency and exchange risk
Opening foreign currency accounts
An alternative way of hedging your currency risk is to open a foreign
currency account - a bank account operated in the UK in a foreign currency
of your choice.
Foreign currency accounts can be a good option for importers and exporters.
They are offered by most of the UK clearing banks including Barclays, Co-
operative Bank, HSBC, Lloyds TSB, NatWest, and the Royal Bank of
Scotland.
If you open an account in the currency in which you make the bulk of your
transactions you can hedge against exchange rate changes by keeping money
in the account until the rate is beneficial to you.
Although the UK isn't in the eurozone, you can open a euro account here -
which could be useful if you conduct a lot of business with European
customers. It allows you to hedge risks for a range of EU countries at the
same time.
This option suits businesses with:
53

54. • a large number of dealings in a particular currency
• a strong cashflow - which means they're unlikely to require immediate
access to funds
Advantages
• Ease of access.
• Potential interest earned on your deposits.
• The ability to discuss transactions in English with your own bank.
• Avoiding the cost of exchanging currency.
Disadvantages
• There will be charges for setting up and running the account.
• If you need to convert funds in your foreign currency account into
sterling for UK use, you will face a loss if the pound is strong against
that currency.
Buying currency options
Buying currency options is a more flexible form of hedging than setting up a
forward foreign exchange contract - but it's also more expensive.
Currency options give you the right, but not the obligation, to buy a certain
amount of currency at a specific exchange rate on or before a specified date.
But unlike a forward foreign exchange contract, you're not obliged to buy
the currency at the end of the period.
To enjoy this flexibility you'll have to pay a premium, which typically might
be a minimum of £500. The exact amount will depend on the amount of
currency involved and the length of the option.
This option suits businesses that:
• want to protect themselves from unfavourable rate changes while
retaining the flexibility to benefit from advantageous ones
• are entering into a deal and there's a fair chance of it not going ahead
Advantages
• You're protected from any adverse movements in the exchange rate.
• Your business can benefit if the exchange rate moves in your favour.
54

55. Disadvantage
• The expense of setting the option up.
• The ability to buy currency options is offered by most of the UK
clearing bank
Survey
55

56. 1.Do you have an account with the bank ?
o Yes
o No
Yes
78%
No
22%
2.Do you think the procedure for opening an account is ?
o Convenient
o Lengthy
Yes
95%
No
5%
3. What type of an account according to you is more preferable?
56

57. o Fixed Account
o Current Account
o Savings Account
o Recurring Account
4. What type of an account do you have with the bank?
o Fixed Account
o Current Account
o Savings Account
o Recurring Account
5. What type of rate of interest do you prefer?
Fixed
Account
9%
Current
Account
32%
Savings
Account
50%
Recurring
Account
9%
Fixed
Account
3%
Current
Account
25%
Savings
Account
60%
Recurring
Account
12%
57

58. o Fixed
o Fluctuating
Fixed
45%Flctuating
55%
58

59. Questionnaire with the banker
59

60. I had visited Punjab National Bank at Borivli (west) branch and met Mrs.
Merle D’Souza who is a customer care officer of the bank . Even though of
her busy schedule she helped me out by giving answers to few questions.
First of all she gave me a brief introduction on PNB Bank. That is PNB is
113 years old bank and almost stands No. 1 in Public Sector Bank in India.
They have 4900 branches all over India. Out of which 2900 branches are
connected by core banking solution (CBS) and due to this connectivity
person can withdraw money anywhere in India. PNB have branches in rural
areas also.
The Questions are as follows:-
1. Which type of account do the customer prefer the most while opening
an account with the bank?
Ans.- Savings Bank Account’s
2. On which account do you pay the highest rate of interest and what is the
interest rate provided by the bank?
Ans.- Highest rate of interest is paid on Fixed Deposit Account’s. interest
rate provided by the bank is 1 year- 8%, 2 year- 8.75%, 5 year- 8.50%
3. What is the minimum and maximum commission charged by your bank
on the demand draft?
Ans.- Minimum- Rs.50/- Maximum- 2000/-
4. What are the Penalty charges if the Pass Book is lost?
60

61. Ans.- Duplicate 100 or 150 depending on the pages
5. What is the main document needed for opening an account?
Ans.- Address proof, Photo id, Photograph, Minimum Rs.1000/-
6. Which is the latest account PNB have started?
Ans.- It have started with a new scheme of PNB Vidyarthi Account specially
for students for internet banking and credit card.
7. What do you mean by Premium Customer?
Ans.- Premium customers are one who maintains Rs.25000/- in previous 3
month in savings account and Rs.50000/- in current account. For premium
customer there are waiver of charges and commission.
8. Does PNB have any account for NRI?
Ans.- PNB have NRE Account under Fima Act.
So, here the interview between the manager and myself got over and I was
provided by the true and the right information.
]
Conclusion
61

62. Overall, this project has helped to understand the different types of accounts
that are in the current Indian Banking System, specifically the savings &
current bank accounts. I have also understood the procedures and functions
of recurring and fixed deposit Account. The various formalities and legal
aspects in operations of a bank account have been explained in the project.
This project also helped me understand the various types of Deposits & what
are the opportunities in India for Indians Abroad.
Thus, with the help of this project I have learned many new things in the
banking sector and customer accounts in particular.
Bibliography
62

63.  Banking Law And Practice- P.N. Varshney
 www.google.com
 www.banks.com
63