Course Code: 19BMC205B

Course Title: Banking and Financial Institutions

Course Leader

Mrs. Savitha Kulkarni

savitha.ms.mc@msruas.ac.in

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Faculty of Management and Commerce ©Ramaiah University of Applied Sciences
 Lecture No. 14-27
Bank Accounts

At the end of this session, students will be able to:

- Discuss the different types of deposit accounts in bank

- Explain the opening and operation of accounts
- Discuss KYC guidelines in banks

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 Introduction

• Deposits are main sourc of funds for

the e
commercial whic play ver importa
banks, in the economic
role h a y
life nt
of the
country through their assistance to
trade, commerce, industry and
agriculture.
• One of the main functions of commercial
banks is to accept deposits of various
types on different terms and conditions.

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 Types of Deposit Accounts

1. Current Account
2. Saving Account
3. Fixed Deposits Account
4. Recurring Account
5. Non-residents’ Account

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 Current Account
• Current Accounts are basically meant for businessmen
and are never used for the purpose of investment or savings.
These deposits are the most liquid deposits and there are no
limits for number of transactions or the amount of transactions
in a day. Most of the current account are opened in the names of
firm / company accounts. Cheque book facility is provided and
the account holder can deposit all types of the cheques and
drafts in their name or endorsed in their favor by third parties.
• No interest is paid by banks on these accounts. On the other
hand banks certain service charges, on such accounts.
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 Features of Current Account
• The main objective of Current Account holders in opening these
account is to enable them to conduct their business transactions
smoothly.

• There are no restrictions on the number of times deposit in cash /

cheque can be made or the amount of such deposits.

• Usually banks do not have any interest on such current accounts.

However, in recent times some banks have introduced special
current accounts where interest is paid.

• The current accounts do not have any fixed maturity as these are
on continuous basis accounts.Overdraft facility is given to
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current account holder.
Faculty of Management and Commerce ©Ramaiah University of Applied Sciences
 Advantages of Current Account

• Segregate business finance from personal finance.

• Professionalism in business.
• Ability to prove credit worthiness.
• Overdraft facility.
• Ease in banking transactions

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 Savings Account

• Commercial bank, co-operative banks, public sector

banks (like State bank of India, Bank of India, etc.) and
postal departments accept deposits by way of opening
saving bank account with them.
• The 'saving account' is generally opened in bank by salaried
persons or by the persons who have a fixed regular income.
This facility is also given to students, senior citizens,
pensioners, and so on.
• Saving accounts are opened to encourage the people to save
money and collect their savings.

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 Features of Current Account

• The main objective of saving account is to promote savings.

• In India, mandatory PAN (Permanent Account Number) details are required to
be furnished for doing cash transactions exceeding र50,000.
• Withdrawals are allowed subject to certain restrictions.
• The money can be withdrawn either by cheque or withdrawal slip
of the respective bank.
• The rate of interest payable is very nominal on saving accounts. At present it is
between 4% to 6% p.a in India.
• Saving account is of continuing nature. There is no maximum period of
holding.
• A minimum amount has to be kept on saving account to keep it functioning.
• No loan facility is provided against saving account.
• Electronic clearing System (ECS) or E-Banking are available to pay
electricity bill, telephone bill and other routine household expenses.
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 Advantages of Savings Account

• Saving account encourages savings habit among salary earners

and others who have fixed income.
• It enables the depositor to earn income by way of saving bank interest.
• Saving account helps the depositor to make payment by way of
issuing cheques.
• Saving account passbook acts as an identity and residential proof of the account
holder.
• It provides a facility such as Electronic fund transfer (EFT) to other people's
accounts.
• It helps to do online shopping via facility like internet banking.
• It aids to keep records of all online transactions carried on by the
account holder.
• It provides immediate funds as and when required through ATM.
• The bank offers number of services to the saving account holders.
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 Procedure to open Savings or Current Account

• Fill the account opening form. The vital points are name,
address, occupation and the amount to be deposited.
• Provide declaration of accepting the rules and regulations of bank.
• An existing customer of the bank should introduce you to
the bank or from a respectable citizen known to the bank.
• The following are the documents to be submitted for
accounting opening procedure:
• Photocopy of Voter ID or Passport
• Address Proof
• Passport size photographs – 2

• After submission, the bank complete the paper work and process
your account opening form. On its completion the bank will send
cheque book and debit card via post.
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 Fixed Deposit Account
• Banks in India offer fixed deposits schemes with a wide range of
tenures for periods from 7 days to 10 years.

• These are also popularly known as FD accounts. However, in some other countries
these are known as "Term Deposits" or even called "Bond".

• The term "fixed" in Fixed Deposits (FD) denotes the period of maturity or tenor.
Therefore, the depositors are supposed to continue such Fixed Deposits for the
length of time for which the depositor decides to keep the money with the bank.

• However, in case of need, the depositor can ask for closing the fixed
deposit prematurely by paying a penalty .

• The rate of interest for Fixed Deposits differs from bank to bank.

• In the changed computerized environment, now the Interest payable on Fixed Deposit
can also be easily transferred on due dates to Savings Bank or Current Account of
the customer.
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 Features of Fixed Deposit Account
• The main purpose of fixed deposit account is to enable the
individuals to earn a higher rate of interest on their surplus
funds.
• The amount can be deposited only once. For further such
deposits, separate accounts need to be opened.The period of
fixed deposits range between 15 days to 10 years.
• The rate of interest may vary as per amount, period and
from bank to bank.
• Withdrawals are not allowed. However, in case of
emergency, banks allow to close the fixed account prior to
maturity date. In such cases, the bank deducts 1% from the
interest payable as on that date.
• The depositor is given a fixed deposit receipt, which
depositor has to produce at the time of maturity. The deposit
can be renewed for a further period. 13
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 Benefits of Fixed Deposit Account

• Fixed deposit encourages savingshabit for a longer

period of time..
• Fixed deposit account enables the depositor to earn a high
interest rate.
• The depositor can get loan facility from the bank.
• On maturity the amount can be used to make purchases of
assets.
• The bank can get the funds for a longer period of time.
• The bank can lend such funds for short term loans to
businessmen.
• Fixed deposits indirectly boost economic development of the
country.
• The bank can also invest such funds in profitable areas. 14
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 Recurring Deposit Account
• These are popularly known as RD accounts and are special kind of Term
Deposits and are suitable for people who do not have lump sum amount
of savings, but are ready to save a small amount every month.

• Under these type of deposits, the person has to usually deposit a fixed
amount of money every month. Any default in payment within the month
attracts a small penalty. However, some Banks besides offering a fixed
installment RD, have also introduced a flexible / variable RD. Under these
flexible RDs the person is allowed to deposit even higher amount of
installments, with an upper limit fixed.

• These accounts can be funded by giving Standing Instructions by which bank

withdraws a fixed amount on a fixed date of the month from the saving bank
of the customer (as per his mandate), and the same is credited to RD account.
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 Recurring Deposit Account

• Recurring Deposit accounts are normally allowed for maturities

ranging from 6 months to 120 months. A Pass book is usually
issued wherein the person can get the entries for all the
deposits made by him / her and the interest earned.

• Premature withdrawal of accumulated amount permitted is usually

allowed (however, penalty may be imposed for early withdrawals).

• These accounts can be opened in single or joint names. Nomination

facility is also available.

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 Features of recurring Deposit Account
• Recurring Deposit schemes aim to inculcate a regular habit of
saving among the public.
• Minimum amount that can be deposited varies from bank to bank.
• The minimum period of deposit starts at six months and the maximum
period of deposit is ten years.
• The rate of interest is equal to that offered for a Fixed Deposit and
is hence higher than any other Savings scheme.
• Premature and mid term withdrawals are not allowed. However, the bank
may allow to close the account before the maturity period, sometimes
with a penalty for premature withdrawal.
• RD offers the additional benefit of taking loan against the deposit, i.e., by
using the deposit as a collateral. About 80 to 90% of the deposit value can be
given as loan to the account holder.
• The Recurring Deposit can be funded periodically through Standing
Instructions which are the instructions given by the customer to the bank
to credit the Recurring Deposit account every month from his/her Savings
or Current account.
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 Benefits of RD Account
• Fixed monthly investment: A recurring deposit fixed
monthly investment builds up a savings discipline which is
otherwise very tough to have in today’s society which is so
spend oriented.
• Fixed duration: The investment in a recurring deposit comes
with a clear horizon. This allows the customer to plan for
certain predictable events in their lives.
• Fixed rate of interest: The rate of interest is locked-in in a
Recurring Deposit, which as compared to certain other
investment instruments insulates the customer from swings
in the interest rates.
• No TDS is applicable on recurring deposits
• Ease of investment: As a customer you can give a Standing
Instruction over your savings account to fund your
Recurring Deposit with a fixed value every month. This makes it
very easy to operate recurring deposits without actually
visiting the bank branch. 18
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 Non-Resident’s Account
Non-Resident bank accounts are those, which are maintained by Indian
nationals and persons of Indian origin resident abroad. Bank
branches can open ordinary non-resident accounts in the names of
private individuals provided initial deposits for opening the
accounts are received from abroad in an approved manner or the initial
amount is tendered in foreign currency while on a visit to India or
transfer of funds from the existing non-resident account of the same
person. RIs / PIOs / OCBs are permitted to open bank accounts in
India out of funds remitted from abroad, foreign exchange brought
in from abroad or out of funds legitimately due to them in India, with
an authorized dealer. Such accounts can be opened with banks
specially authorized by the Reserve Bank in this behalf.
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 Non-Resident Ordinary Account

• These are Rupee denominated non-repatriable accounts and

can be in the form of savings, current, recurring or fixed
deposits. These accounts can be opened jointly with
residents in India. When an Indian National resident in
India leaves for taking up employment, etc. outside the
country, his bank account in India gets designated as NRO
• Interest income, from NRO accounts is taxable. Interest
account.
income, net of taxes is reportable.
• The deposits can be used to make all legitimate payments in
• NRO account can be funded through any of the following
rupees.
sources:
By proceeds of foreign exchange remittance from abroad
through banking channels in an approved manner
• By proceeds of foreign currency notes and
traveler cheques brought into India by the non-
resident while on a temporary visit to India
• By transfer from an existing non-resident account in
the name of the same person 20
• By funds from a local source representing bonafide
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 Non-Resident Ordinary Account contd..

⦿ These are rupee denominated accounts and can be in the form of savings, current, recurring
or fixed deposit accounts. Accounts can be opened by remittance of funds in free
foreign exchange. Foreign exchange brought in legally, repatriable incomes of the account
holder, etc. can be credited to the account. Joint operation with other NRIs/PIOs is permitted.
Power of attorney can be granted to residents for operation of accounts.
• The deposits can be used for all legitimate purposes. The balance in the account is
freely repatriable. Interest lying to the credit of NRE accounts is exempt from tax in the hands
of the NRI. Funds held in NRE accounts may be freely transferred to FCNR accounts of the
same account holder. Likewise, funds held in FCNR accounts may be transferred to NRE
accounts of the same account holders.

• Immediately upon return of the account holder to India and on his becoming a
resident in India, NRE Account will be re-designated as Resident Rupee Account or
converted to RFC account as per the option of the account holder. However, if the account
holder is only on a short visit to India, the account will continue to be treated as NRE account.
• The initial deposit in NRE account can be made in any of the following manners:
• 1. By proceeds of foreign exchange remittances from abroad through banking
channels in an approved manner
• By proceeds of foreign currency notes and traveler cheques brought into India by the
non- resident while on a temporary visit to India
• By transfer from an existing NRE Account of the same person

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 KYC Guidelines
• Banks were advised to follow certain customer identification procedure for
opening of accounts and monitoring transactions of a suspicious nature for the
purpose of reporting it to appropriate authority. These ‘Know Your Customer’
guidelines have been revisited in the context of the Recommendations made by
the Financial Action Task Force (FATF) on Anti Money Laundering (AML)
standards and on Combating Financing of Terrorism (CFT).
• Detailed guidelines based on the Recommendations of the Financial Action Task
Force and the paper issued on Customer Due Diligence (CDD) for banks by the
Basel Committee on Banking Supervision, with indicative suggestions wherever
considered necessary, have been issued. Banks have been advised to ensure that
a proper policy framework on ‘Know Your Customer’ and Anti-Money
Laundering measures with the approval of the Board is formulated and put in 22
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 Four key elements of KYC

• Banks should frame their KYC policies incorporating the following

four key elements:

a) Customer Acceptance Policy;

b) Customer Identification Procedures;
c) Monitoring of Transactions; and
d) Risk Management.

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 Summary
• There are four different types of accounts in banks
• They are Current Account, Saving Account, Fixed Deposits Account,
Recurring Account, Non-residents’ Account.
• Banks were advised to follow certain customer identification
procedure for opening of accounts and monitoring transactions of
a suspicious nature for the purpose of reporting it to appropriate
authority. These ‘Know Your Customer’ guidelines have been
revisited in the context of the Recommendations made by the
Financial Action Task Force (FATF) on Anti Money Laundering (AML)
standards and on Combating Financing of Terrorism (CFT).
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 References
a. Essential Reading
1. Class Notes
2. L M Bhole and Jitendra Mahakud (2017), financial institutions and Markets, 6th edition,
Mc Graw Hill.
3. Benton Gup (2016) Banking and Financial Institutions, Wiley Publications.

b. Recommended Reading
1. N Kannan, (2017),Banking sectors reforms in India, Abhijit publications
2. IIBF (2017) Legal and Regulatory Aspects of Banking, 3rd edition, Macmillan
3. Indian Institute Of Banking & Finance, (2015), Banking Products And Services,
Taxmann Publications Pvt. Ltd

c. Magazines and Journals

1. Business India, fortnight subscription (India Book House Ltd)
2. Business Today, fortnight subscription (Living media India Limited)
3. Money Today, monthly subscription (Living media India Limited)
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 Disclaimer

• All data and content provided in this presentation

are taken from the reference books, internet –
websites and links, for informational purposes only.

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