Unit 3: Deposit Mobilization

3.1 Meaning and nature of bank's deposit

Bank deposits consist of money placed into banking institutions for safekeeping. These deposits
are made to deposit accounts such as savings accounts, checking accounts, and money market
accounts. The account holder has the right to withdraw deposited funds, as set forth in the terms
and conditions governing the account agreement.

A deposit account is a bank account that pays interest but that imposes the requirement of notice
before withdrawal can be effected; a deposit receipt is an acknowledgement by the bank that
sums have been deposited and are being held for the account of depositor.

A Certificate of Deposit is a financial instrument providing a similar acknowledgment but where

the claim of the depositor is transferable. The acceptance of carrying on a deposit-
taking business in the Nepal requires authorization from the Nepal Rastra Bank as competent
authority.

The deposit itself is a liability owed by the bank to the depositor. Bank deposits refer to this
liability rather than to the actual funds that have been deposited. When someone opens a bank
account and makes a cash deposit, he surrenders the legal title to the cash, and it becomes an
asset of the bank. In turn, the account is a liability to the bank.

Most bank deposits are insured up to NRs300,000 by the Deposit and Credit Guarantee Fund
(DCGF)1. The coverage of deposit guarantee is limited to NRs300,000 per natural individual
depositors per member institution applicable on a combination of saving and fixed deposit.

The deposit rate is the interest rate paid by commercial banks or financial institutions on cash
deposits of account holders. Deposit accounts include certificates of deposit (CD), savings
accounts, and other investment accounts.

1
As a deposit insurer, DCGF has started the deposit guarantee scheme in Nepal from the year 2010. DCGF has
fixed the premium rate of 0.16 % on guaranteed deposit to all BFIs member institutions.
For instance, a deposit interest rate will often be paid for cash deposited into savings and fixed
deposit accounts. Savings accounts earn a rather low rate of interest, but cash deposited in fixed
accounts are paid relatively higher deposit rate by banks and financial institutions. Deposit
interest rates can be either fixed for a certain period of time with a minimum amount of money
on deposit, or it can be variable, which fluctuates and is not usually subject to early withdrawal
penalties.

Deposit accounts are attractive for investors as a safe vehicle for maintaining their liquid cash,
earning a small amount of fixed interest, and taking advantage of insurance. Banks typically offer
better rates for accounts holding larger balances. This is used as an incentive to attract high-value
clients with considerable assets. Banks like to offer competitive interest rates for these deposits
in order to attract customers.

Certain accounts such as time and fixed deposit also require a set length of time—six months,
one year, or multiple years—that the money must remain deposited and cannot be accessed by
the account holder. If the deposit is accessed early, there may be penalties and fees incurred.

3.2 Types of deposit

A. Current Account or Demand Deposit:

A current account, also called a demand deposit account, is a basic checking account. Consumers
deposit money and the deposited money can be withdrawn as the account holder desires on
demand. These accounts often allow the account holder to withdraw funds using bank cards,
checks, or over-the-counter withdrawal slips. In some cases, banks charge monthly fees for
current accounts, but they may waive the fee if the account holder meets other requirements
such as setting up direct deposit or making a certain number of monthly transfers to a savings
account.

Current bank account is opened by businesses, institutions, and organizations who have a higher
number of regular transactions with the bank. It includes deposits, withdrawals, and contra
transactions.
Current account can be opened in commercial bank, development bank, saving cooperative, etc.
In current account, amount can be deposited and withdrawn at any time without giving any
notice. It is also suitable for making payments to creditors by using cheques. Cheques received
from customers can be deposited in this account for collection.

In Nepal, current account can be opened by depositing Rs.5000 to Rs.50,000 as minimum

balance. Generally, current account holders do not get any interest on their balance lying in
current account with the bank. Current account holder get one important advantage of overdraft
facility.

Features of Current Bank Account:

 Current bank accounts are operated to run a business.

 It is a non-interest bearing bank account.
 It needs a higher minimum balance to be maintained as compared to the savings account.
 Penalty is charged if minimum balance is not maintained in the current account.
 It charges interest on the short-term funds borrowed from the bank.
 It is of a continuing nature as there is no fixed period to hold a current account.
 It does not promote saving habits with its account holders.
 Banker requires KYC (Know your Customers) norms to be completed before opening a
current account.
 The main objective of current bank account is to enable the businessmen to conduct their
business transactions smoothly.
 There is no restriction on the number and amount of deposits.
 There is also no restriction on the number and amount of withdrawals made, as long as
the current account holder has funds in his bank account.
 Generally, bank does not pay any interest on current account. Nowadays, some banks do
pay little interest on current accounts.

Types of Demand Deposits

Checking account: A checking account is one of the most common types of demand deposits. It
offers the greatest liquidity, allowing cash to be withdrawn at any time. The checking account
may earn only zero or minimal interest since demand deposit accounts involve minimal risk.
Interest paid may vary based on the financial provider.

Savings account: A savings account is for demand deposits held at a slightly longer duration
compared to the short-term use of the checking account. Funds in the savings account offer less
liquidity; though, for an extra fee, money may be transferred to the checking account.

Savings accounts often come with a minimum required balance. As larger balances are held for
extended periods in a savings account, it pays a slightly higher interest rate than a checking
account.

Money market account: A money market account is for demand deposits that follow market
interest rates. Market interest rates are impacted by the central bank’s responses to economic
activity. The money market account will, therefore, pay interest either more or less than a savings
account, depending on how the market interest rate fluctuates. Traditionally, money market
accounts offer a competitive rate to savings accounts.

Current call account: An account which can be opened by individual/institution having bulk
deposits. This account provides interest on deposit on the basis of mutual agreement for example
1 % on daily balance basis.

Advantages and disadvantages of demand deposit:

Advantages:

 Demand Deposits allow the depositor without any advance notice to the bank to
withdraw funds on demand.
 Demand Deposit allows joint owners of a single account.
 Demand Deposits allow the customer to easily access their money. Bank Teller, Net
Banking, ATMs, by writing checks, are some types.
 As required for personal use or domestic needs and sufficient numbers of transactions
are permitted, the user can withdraw funds at any time.
  In Demand Deposits, an electronic transfer is allowed. When we have our Demand
Deposit account, we do not need to carry cash.
 Banks do not charge any extra fees for withdrawing the amount.
 These are also considered in Money Supply by Central Bank.

Disadvantages:

 Demand Deposits pay very low interest or no interest at all occasionally. But in order to
provide services for these accounts, banks typically charge monthly fees.
 If we compare Return on Investment in Bank accounts with Treasury bills, business
papers, relative to these investments, the return is very low. Similarly, a higher interest
rate than demand deposits is provided by many investments with less risk. In contrast to
market inflation rates, capital appreciation in demand deposits is very small.
B. Saving Deposit:

A savings account is an interest-bearing deposit account held at a bank or other financial

institution. Though these accounts typically pay a modest interest rate, their safety and reliability
make them a great option for parking cash available for short-term needs.

Further, there are restrictions in terms of the number of times money can be withdrawn from
this account. These restrictions are also imposed by the bank and may vary between two banks.
The depositor can withdraw his money by going to the bank and use the withdrawal slip or use
his cheque book or go to an ATM and use his card. Money can also be transferred to someone
else by using the cheque facility or using an electronic mode of transfer.

Savings and other deposit accounts are important sources of funds that financial institutions can
turn around and lend to others. For that reason, we can find savings accounts at every bank
or cooperatives. In addition, we can also find savings accounts at some investment and brokerage
firms.

The rate earns on a savings account is generally variable. With the exception
of promotions promising a fixed rate until a certain date, banks and cooperatives can generally
raise or lower their savings account rate at any time. Typically, the more competitive the rate,
the more likely it is to fluctuate over time.

Some savings accounts will require a minimum balance in order to avoid monthly fees or earn
the highest published rate, while others will have no minimum balance requirement. So it’s
important to know the rules of a particular account.

Whenever you want to move money in or out of your savings account, you can do so at a branch
or an ATM, by electronic transfer to or from another account using the bank’s app or website, or
by direct deposit. In some cases, transfers can be arranged by phone, as well.

Types of Saving Accounts in Nepal:

Normal Saving Account: Minimum Balance of starts from zero; Interest in saving accounts
calculated and capitalized on quarterly basis generally; unlimited deposit and limited withdrawal
facility.

Premium or Super Saving Account: Minimum Balance relatively higher for example Rs100,000;
Higher interest rate than normal saving account. Interest in saving accounts calculated and
capitalized on monthly, quarterly or half-yearly basis generally; unlimited deposit and limited
withdrawal facility.

Specific Market Niche Saving Account: Nari Bachat, Elderly Group, children, etc, saving account
targeting specific group and providing facilities such as home delivery, higher deposit, health and
accidental insurance, etc.

Shareholders Saving Accounts: Targeting the shareholders of the company specially to allot the
dividends and other earnings.

Salary Saving Account: Facilitating the monthly payroll of clients’ organizations, salary saving
minimum balance of starts from zero; Interest in saving accounts calculated and capitalized on
quarterly basis generally; unlimited deposit and limited withdrawal facility.

Features of a saving account

 Return: Moderate rate less than time deposit. This rate can change from time to time.
  Risk: Minimum risk. Money is safe in a bank account. Government guarantees
investments in banks up to Rs. 3 lakh through deposit insurance.
 Liquidity: Moderately liquid. You can withdraw any amount, up to the total balance
available in your account, any time during banking hours. But, some time there may be
withdrawal limit per day.
 Tenure: No fixed tenure. You can keep your money in the account as long as you wish.
This could be for years together or you could withdraw it the day after you deposit it.
 Taxes: The money that you receive as interest on your balance in the savings bank account
gets added to your other taxable income and is taxed at the rate of tax applicable to you.
 24/7 access to cash through ATM Network, internet banking, etc.
 Accidental and health insurance may be provided by some banks.

Advantages and disadvantages of saving deposit:

Advantages:

 Fast and easy to set up, and to move money to and from
 Can be conveniently linked to your primary checking account
 Up to your full balance can be withdrawn at any time.
 Up to NRs 300,000 is compulsory insured against bank failure.

Disadvantages:

 Pays less interest than you can earn with certificates of deposit, time deposit, or other
investments.
 Easy access can make withdrawals tempting.
 Some savings accounts require minimum balances, daily withdrawal limits, etc.

C. Time Deposit or Fixed Deposit:

A Time Deposit also known as a Term Deposit is a deposit which has a fixed tenure and earns
interest for the customer. The tenure varies for each instrument and may even change from bank
to bank.
The most widely used name for time deposits is Fixed Deposits. The common feature among all
Time deposits is that they cannot be withdrawn prematurely. One should thus plan their deposits
according to their requirement for money going forward.

The more the money resides in the bank of a term deposit the more interest it earns. Banks pay
higher interest in longer-term deposits than on shorter ones. The tenure of an FD can vary from
7, 15 or 45 days to 1.5 years and can be as high as 10 years.

Fixed Deposits earn higher interest than a Savings Account because the former gives Banks leg
room to lend to people who need the money for roughly the same time limit. For example, a one
year fixed deposit in a bank can allow the bank to lend money to a person who requires a personal
loan for one year period.

Banks issue a separate receipt for every FD because each deposit is treated as a distinct contract.
This receipt is known as the Fixed Deposit Receipt (FDR) that has to be surrendered to the bank
at the time of renewal or encashment.

Many banks offer the facility of automatic renewal of FDs where the customers do give new
instructions for the matured deposit. On the date of maturity, such deposits are renewed for a
similar term as that of the original deposit at the rate prevailing on the date of renewal.

It is known as a term deposit or time deposit in Canada, Australia, New Zealand, India and The
United States, and as a bond in the United Kingdom.

Types of Fixed Deposit Account:

Short-term deposits: A short-term deposit generally lasts anywhere from 1 to 12 months. It is

recommended for people with short-term saving goals, or who are not willing to lock their money
away for years. Due to the shorter terms available, these accounts tend to have much lower
interest rates than long-term deposits, so the return on investment is not as high.

Long-term deposits: A long-term deposit can last anywhere from 1 to 10 years. It is recommended
for savers with long-term savings goals, or who have a lump sum that they don’t need in their
regular spending budget. This can be a good option for retirees looking for a low-risk investment
strategy; however, it’s important to remember your money will be untouchable for years at a
time.

Advance notice term deposits: An advance notice term deposit is a term deposit that you’re able
to make a withdrawal from. It just requires a client to give at least 31 days’ notice before she
withdraw. These types of accounts are becoming increasingly popular due to their high interest
rate however, in the event of an emergency; there will be at least a 31 day delay in receiving your
payout.

No notice term deposits: These term deposits allow you to make a withdrawal and don’t require
any notice period beforehand. They are a good option if you want the flexibility to access funds
without the 31 day waiting period and in the event of an emergency. Generally with these types
of accounts, client will end up with a lower interest rate, and may be better off opting for a
savings account anyway.

Interest paid monthly term deposits: Recently, some providers have been offering deals that have
the option of paying your interest monthly. A pro that comes with this option is that your interest
will start to earn interest. It’s important to consider the fact that due to having your interest paid
monthly, you may have a lower interest rate which may not matter all that much in the long run.

Low balance term deposits: Typically, all term deposits require a minimum balance to get started
and these can range greatly. Low balance term deposits have a required minimum balance of
Rs5000 or below and sometimes even no minimum at all. It is recommended for savers who don’t
have a lot of cash to lock away, however, the lower the balance, the lower interest it accrues.

Recurring Deposits: In this case, a fixed amount, as decided by the depositor, is deposited at
regular intervals till the end of the tenure. The accumulated interest and the principal is given
back to the depositor at the end of the tenure. The tenure of a recurring deposit can be anything
from six months to 120 months.

Features of Fixed Deposit

 A deposit receipt is issued by the bank branch accepting the fixed deposit – mentioning the
depositor’s name, principal amount, maturity period and interest rate, date of the deposit and
its maturity.
 Fixed deposits is generally opened by individuals, sole trading, partnership and sometime
corporation.
 Bank must pay interest on fixed deposit and interest rate is highest among all deposit types.
 The deposits are for fixed time. These deposits are normally withdrawn after the maturity.
 Term deposits are not transferable.
 The interest rate and the maturity are specified on the fixed deposit certificate.

Advantages and disadvantages of fixed deposit

Advantages:

 Time deposits offer investors a fixed interest rate until maturity.

 Time deposits are risk-free investments backed by the DCGF.
 Time deposits have various maturity dates and minimum deposit amounts.
 Time deposits pay a higher interest rate than regular savings accounts.

Disadvantages:

 Time deposit returns are lower than that of other conservative investments.
 Investors may miss a better opportunity if interest rates rise.
 Depositors can't withdraw their money without a penalty.
 Fixed interest rates don't generally keep pace with inflation.

D. Different between Demand Deposit and Time Deposit:

Basis Demand Deposit Time Deposit

Meaning Deposits, withdraw-able on Deposits that are repayable after a
demand are known as demand certain period of time are called time
deposit. deposits.
 Time period In a demand deposit, there is no In time deposit money is deposited for a
fixed period involved. fixed period of time.

Rate of return In demand deposits, either rate of In time deposit rate of interest is much
interest is comparatively lower or higher and stable than the demand
no rate of interest. deposit.

Liquidity In demand deposit money can be In time deposit money can be

withdrawn anytime so high withdrawn after a certain time so low
liquidity. liquidity.

Facilities Many facilities like a credit card, No such facilities are provided as money
ATM card, online banking, etc. are cannot be withdraw after a certain time.
provided.

Examples Saving account and current Fixed deposits are the example of the
account are an example of time deposit
demand deposit

3.3 Procedure of account opening and eligibility

A. Procedure of account opening

Most banks and cooperatives follow a straightforward process to open the bank account.
Getting account opened is just a matter of picking a bank, providing certain details, and funding
account by a clients. Once the formalities are done, client can start using her account—and save
time and money. But bank should follow following procedures to open any client’s deposit
accounts.

Step I: Type of account to be opened: Clients should be asked or accessed the best fit types of
deposit account. Firstly, if they are institutional or corporate clients they should open current or
call account and therefore the required formalities should be followed as per the institutional
depositors. Secondly, if the client is natural person and desire to open individual or joint account
with multiple accountholders and signatories, she may be interested to open fixed deposit or
saving account. Moreover, client may be interested to open minor account with the guardian
consent. The bank has varieties of fixed deposit and saving deposit accounts with different terms
and conditions. The clients also required to be eligible for the account types they desire to open
and maintain with the bank. Therefore, proper discussion/orientation shall be done with the
clients and help them to choose the best deposit accounts for them.

Step II: Client’s information through application form fill-up: Bank cannot open an account
without varying client’s identity. Therefore various information shall be collected through
application form fill up.

Mostly, the following details shall be collected from institutional clients: Name of Institution,
registered and current office address, registration numbers, affiliations, licensees, types of
business services, site map, etc.; Name of owner, directors, shareholders having more than 10%
stake, signatories, etc. their posts, affiliations, contacts, etc.; and Nature of business, tentative
annual transections, bank accounts detail if they have already have bank account in same or other
bank, date of incorporation, etc.

Moreover, the following details shall be collected from individual clients: Full Name, present and
permanent address, affiliations, government issued identification card number, date of birth,
contact details, email, source of funding, tentative annual transections, etc. of account holder,
and his/her family members. If account is joint account with more than one account holders such
information shall be collected from all account holders. If account is minor account, such
information shall be collected from the minor and guardian both.

Step III: Identification proof documents and relevant photographs: Bank shall verify the
information collected in application form through authorized document. Therefore photo copy
of various identification proof documents shall be collected through the clients. In some cases,
original documents are also asked for verification of the provided copy of documents.

The following document’s photo copy shall be collected from institutional clients:
  Registration Certificate/ Income Tax certificate/ Pan/Vat certificate including renewal
certificates including renewal certificate.
 Certificate of incorporation and Memorandum and Articles of Association
 Personal details of directors, management committee or any other committee and their
official, Managing Director, account operator, top management
 Copy of citizenship certificate/passport and photograph of shareholders holding 10% and
above shares.
 Recent passport size photo, citizenship certificates/passport, KYC form fill up of Board of
Directors, Managing Director/CEO/Account operator
 Audited financial report, tax clearance certificate of last fiscal year
 Shareholder’s stake in the organization /firm issued by Office of Company Registrar.
 Board resolution as to opening and operation of the account and delegation of authority
 In case of legal entity holding 10% and above shares of company, copy of passport/
citizenship certificate shareholders of such legal entity who is holding 10% and above
shares of the entity.

The following document’s photo copy shall be collected for institutional clients:

 Citizenship or passport or Voter’s Card (photo affixed), National Identification Card,

Driving License or any other documents issued by Government entities (photo affixed) or
on the basis of certified recommendation issued by the local body along with photo.
 Simplified KYC form
 Recent Passport size photograph

Step IV: Consent to the terms and conditions: The clients shall be agreed to abide by certain rules
and accept responsibility for certain activities in their accounts. Some of them shall be regarding
the legal and authorized financial transactions the clients should do through the bank account,
authorizing bank to record, maintain, and use the fund in the account, permitting banks to rectify
and correct the any financial, operational and record keeping errors seen in the accounts, etc.

Step V: Print, sign, and apply: If a client follow all above steps and procedures, she must be asked
to sign in each page of printed application form. The finger prints, organizational seal, etc. are
also required if applicable. With the all information filled up, recent photograph affixed, signed
and stamped on each page of application form, fingers print printed, and supporting document
attached, the clients should submit application form to the bank in order to apply for opening
the new deposit account.

Step VI: KYC of account holders, core stakeholders, and signatories: Know your costumer (KYC) is
compulsory legal formality in today’s banking affairs in order to discourage malpractice and anti-
money laundering activities seen in monetary system. For this, bank collects client’s present
home address, site map of home address, and utility (electricity, water, etc.) invoice, etc. to know
the exact address of the individuals involved. Besides this, bank also collects the account holders
and related stakeholders family members details. The KYC information shall be provided by all
stakeholders of the bank deposit account.

Step VII: Funding the account: If client is opening a checking or savings account, she often needs
to make an initial deposit into the account. Sometimes, this is required as part of the opening
process, and other times, you can do it after the account is up and running. There are several
ways to fund your account; deposit cash, deposit a cheque or money order; direct deposit from
employment, transfer funds electronically, etc.

Step VIII: Account maintenance and other services: The client shall have a new bank account in
her name after following all above steps. It may be ready to use within a few minutes to a few
days. She shall get a chequebook so that she can write cheques. The client might be interested
in other services such as Credit/Debit Card services, Overdraft, SMS/Internet Banking Services,
payments standing orders, bills and cheques collection, fund disbursement, statement print,
balance certification, etc. These are regular activities the client operate after the opening of the
bank account.

B. Eligibility of bank account opening

Each financial institution sets the terms and conditions for each type of account it offers, and
when a customer applies for the opening of an account, and accepted by the institution, they
form the contract between the financial institution and the customer in relation to the account.
The laws of each country specify how bank accounts may be opened and operated. They may
specify who may open an account, for example, how the signatories can identify themselves,
deposit, withdrawal limits among other specifications.

Some common eligibility terms might be as:

 Should be registered as a separate legal entity having authority to do financial transaction

and to open bank account for institutional account holders.
 Should be a citizen of Nepal.
 The individual should be 18 years and above to be eligible.
 In the case of minors, the parents or legal guardian of the minor can open the account on
their behalf.
 The applicant is required to have valid identity and address proof that is Government
approved.
 Following approval from the bank, the applicant will have to make an initial deposit -
depending on the minimum balance requirement of that particular deposit accounts
he/she has chosen.
3.4 Type and structure of charge

Banks charge fees for the services they provide their personal and commercial clients. For
instance, banks charge customers fees just to have certain deposit accounts open. In other cases,
they may charge service fees to conduct transactions or as penalties for things like bouncing
checks. Certain fees apply to all customers across the board, while others may be waived under
certain conditions. Customers who have long-standing relationships and multiple assets and
liabilities with a bank may qualify for a fee waiver.

All financial institutions must be transparent about their bank fees. There is a comprehensive
disclosure of the fee schedule on bank websites and in the fine print of pamphlets. Customers
must carefully read and review the disclosures to avoid surprises. All financial institutions must
be fully transparent and disclose their bank fees in writing, so make sure you read all the fine
print.
Fees are listed on a customer's paper bank statements, passbooks, and/or through the
institution's online banking portal. In most cases, banks will post fees at the time the transaction
takes place. For other cases—such as bank account maintenance fees—the bank generally add
them on at the end of the month.

While the majority of a financial institution's total revenue comes from net interest income, a big
portion comes from bank fees. Individual fees may be small but when combined, they can add
up quite nicely. When the net interest margin for a bank is squeezed in a low-interest-rate
environment, bank fees provide a measure of stability to bank earnings.

Types of Bank Fees

 Minimum account balance fees: Some bank accounts require customers to keep a
minimum balance every month. If the balance dips below this required amount—even for
a day—a customer will be hit with a fee at the end of the monthly cycle.
 Withdrawal and transfer fees: Many accounts allow customers to do a certain number of
transactions each month. For instance, a checking account may allow the account holder
to make up to thirty withdrawals or transfers each month. The bank may charge a service
fee for any additional withdrawals after that. For savings accounts, customers can make
up to six free withdrawals per month, after which they incur a charge for each subsequent
withdrawal. Other types of fees in this category include wire transfer fees.
 ATM fees: These fees may be charged if customers make excessive withdrawals from
ATMs and if they use machines out of their bank's network. These fees are generally taken
out when the transaction is executed rather than at the end of the month.
 Not Sufficient Fund (NSF) fees: When a customer doesn't have enough money to cover
the full amount of a transaction, the bank will reverse it. As a consequence, the customer
gets hit with an NSF charge.
 Overdraft fees: Whenever a customer's account balance dips below zero, the account
incurs an overdraft fee. In some cases, the bank may also charge interest on the average
overdraft balance, as it's often considered a short-term loan.
  Late payment fees: Banks and credit card companies charge cardholders late payment
fees if they miss the due date listed on their statements.
 Mobile banking/SMS banking charge: Mobile banking (also known as M-Banking, SMS
Banking etc.) is a term used for banking services through mobile phone via mobile App.
 Internet banking charge: Based on annual renewal, size of fund transfer to other account
or payment, etc.
 ABBS Charge: Charges for withdraws and deposits of cash from any bank or branch usually
above minimum amount of threshold limit.
 Debit Card/Credit Card Charge: If client withdraw cash from an ATM that's not from—or
affiliated with—the bank that issued the card, they charged an ATM transaction fee. Client
might also incur a replacement card fee if the card is lost, damaged, or stolen, and a
foreign transaction fee, if she buy something in a foreign currency. Interest charge in
credit card when applicable.
 Bank Statement and balance certification charges: Based on minimum thresholds of avg.
of transection per day for statement print and regular per issue for balance certification.
 Cheque Issue Charge: Generally no charge for minimum no of cheques issue and charged
above minimum threshold.
 Cheque clearing, and return charge: Charge is applicable as per the size of amount on
cheque, location of withdrawn bank, and types of account maintained.
 Account maintenance charge: Some banks may charge account maintenance charge
annually specially for current account.
3.5 Know Your Customer

The know your customer or know your client (KYC) guidelines in financial services require that
professionals make an effort to verify the identity, suitability, and risks involved with maintaining
a business relationship. The procedures fit within the broader scope of a bank's Anti-Money
Laundering (AML) policy. KYC processes are also employed by companies of all sizes for the
purpose of ensuring their proposed customers, agents, consultants, or distributors are anti-
bribery compliant, and are actually who they claim to be. Banks, insurers, export creditors, and
other financial institutions are increasingly demanding that customers provide detailed due
diligence information. Initially, these regulations were imposed only on the financial institutions
but now the non-financial industry, fintech, virtual assets dealers, and even non-profit
organizations are liable to oblige.

The objective of KYC guidelines is to prevent businesses from being used by criminal elements
for money laundering. Related procedures also enable businesses to better understand their
customers and their financial dealings. This helps them manage their risks in a well-judged
manner. Today, KYC principles apply to banks as well as different online businesses. They usually
frame their KYC policies incorporating the following four key element.

 Customer acceptance policy;

 Customer identification procedures;
 Monitoring of transactions; and
 Risk management.

The stringent regulatory environment establishes KYC as a mandatory and crucial procedure for
financial institutions as well as non-financial institutions. As it minimizes the risk of fraud, by
identifying suspicious elements earlier on in the client-business relationship.

KYCC or Know Your Customer's Customer is a process that identifies a customer's customer
activities and nature. This includes the identification of those people, assessing their associated
risk levels and associated activities the customer's customer (business) is involved in.

Know Your Business or simply KYB is an extension of KYC laws implemented to reduce money
laundering. KYB is a set of practices to verify a business. It includes verification of registration
credentials, location, the UBOs (Ultimate Beneficial Owners) of that business, etc. Also, the
business is screened against blacklists and grey lists to check if it was involved in any sort of
criminal activity such as money laundering, terrorist financing, corruption, etc. KYB is significant
in identifying fake business entities and shell companies. It is crucial for efficient KYC and AML
compliance.

3.6 Client’s account maintenance, and client’s account closing

A. Client’s account maintenance

A bank account is a financial account maintained by a bank or other financial institution in which
the financial transactions between the bank and a customer are recorded. Each financial
institution sets the terms and conditions for each type of account it offers, which are classified in
commonly understood types, such as deposit accounts, credit card accounts, current accounts,
loan accounts or many other types of account. A customer may have more than one account.
Once an account is opened, funds entrusted by the customer to the financial institution on
deposit are recorded in the account designated by the customer. Funds can be withdrawn from
the deposit account as per the standing orders given by the deposit holders of as per the services
and other charges applicable for the bank account.

The financial transactions which have occurred on a bank account within a given period of time
are reported to the customer on a bank statement, and the balance of the accounts of a customer
at any point in time is their financial position with the institution. These include cash withdrawals,
bill payments, wire transfers, and other such transactions. In order to track and reward clients'
account activity, banks and other financial institutions need to maintain detailed and accurate
records of client transactions.

Due to the stringent regulatory environment, bank has to check whether the banking
transactions doing by the clients are legitimate, authorized and of the good conducts. Any
suspicious, and unusual transection seen should be asked with the clients. If found any
questionable space, the information should be given to the concern authority such as central
bank.

Moreover, Bank should regularly credit the interest earned by the deposit account as per the
prevailing market rate or rate finalized with the clients. Any changes regarding the terms and
conditions, interest rates, service charges, etc. should be informed promptly to the deposit
holders. Bank should also pay for the any standing order given by the client. Bank should try to
satisfy clients that each client is a valued costumer for the bank.

B. Client’s account closing

Neither a bank nor a customer is obliged to continue their relationship, but there are some rules
about how to end it, and for what reasons.

A bank can end its relationship with a customer at any time, just as a customer can move to
another bank at any time. A customer may move because a competitor offers a better deal or
because the relationship with the bank is unsatisfactory or has broken down. A bank may decide
to close a customer’s account because of how that person has been operating it, or because of
regulatory requirements, or because the bank also feels the relationship has broken down. Banks
are under no obligation to continue doing business with a person or company, but they should
not close an account without good reason.

However, difficulties can arise when a bank ends its relationship with a customer based on its
perception of customer conduct. It can be extremely confronting for a customer to be accused
of abusive and threatening behaviour, particularly if the customer considers they did not act that
way and/or the bank contributed in some way to the situation – for example, by making an error.

A decision to exit a customer on conduct grounds should therefore be handled with care. The
Code of Banking Practice requires banks to act fairly, reasonably and in good faith. This means
the bank should following, when considering closing a customer’s account:

 ensure the assessment is made by someone independent, who has not been directly
involved in interactions with the customer
 examine all available information, including, if possible, CCTV footage
 keep an open mind to the possibility that staff may have acted inappropriately
 consider whether another course of action besides closure would suit everyone’s
interests, such as a warning to the customer or offering remote banking services only

Generally, a bank should not close clients account without giving reasonable notice, which
typically means giving you enough time to make alternative banking arrangements. Usually we
would view "reasonable" as at least 14 days' notice.

In some limited circumstances, however, a bank can close client account without giving you any
notice. These may include:
  if a bank is complying with a court order
 if client have fraudulent activity related to your account
 if client have breached the bank’s terms and conditions
 if client have acted abusively towards bank staff.

A bank does not have to explain why it is closing a customer's account, although in most cases
banks follow good practice and give a reason. This gives the customer an opportunity to respond
if the bank has misunderstood the facts of a situation or made a mistake. A bank must return all
the money in a customer's account at the time it closes the account, less any interest or fees that
apply.

Reasons banks close accounts may include inactivity, low balances and instances where their
customer's actions have been deemed as posing a specific risk to the institution. These risks
include monetary losses, as well as the potential of fraudulent activity. However, banks also can
close accounts at their discretion, even if the owner has kept the account in good standing.

3.7 Card services: debit card, credit card, prepaid card

A. Debit Card

A debit card is a payment card that deducts money directly from a consumer’s checking account
when it is used. The payment is allowed if there is a sufficient positive balance of fund in the
underlying accounts. Also called “check cards” or "bank cards," they can be used to buy goods or
services; or to get cash from an automated teller machine or a merchant who'll let you add an
extra amount onto a purchase.

KEY TAKEAWAYS
 Debit cards eliminate the need to carry cash or physical checks to make purchases, and
they can also be used at ATMs to withdraw cash.
 Debit cards usually have daily purchase limits, meaning it may not be possible to make an
especially large purchase with a debit card.
 Debit card purchases can usually be made with or without a personal identification
number (PIN).
  You may be charged an ATM transaction fee if you use your debit card to withdraw cash
from an ATM that's not affiliated with the bank that issued your card.
 Some debit cards offer reward programs, such as 1% back on all purchases.

A debit card is usually a rectangular piece of plastic, resembling any charge card. It is linked to
the user's checking account at a bank or credit union. The amount of money that can be spent
with it is tied to the account size (the amount of funds in the account).

Debit cards usually have daily purchase limits as well, meaning you can't spend more than a
certain amount with them in one 24-hour period.

If client withdraw cash from an ATM that's not from—or affiliated with—the bank that issued the
debit card, they charged an ATM transaction fee. Client might also incur a replacement card fee
if the card is lost, damaged, or stolen, and a foreign transaction fee, if you buy something in a
foreign currency.

B. Credit Card

A credit card is a thin rectangular piece of plastic or metal issued by a bank or financial services
company that allows cardholders to borrow funds with which to pay for goods and services with
merchants that accept cards for payment. Credit cards impose the condition that cardholders
pay back the borrowed money, plus any applicable interest, as well as any additional agreed-
upon charges, either in full by the billing date or over time.

In addition to the standard credit line, the credit card issuer may also grant a separate cash line
of credit (LOC) to cardholders, enabling them to borrow money in the form of cash advances that
can be accessed through bank tellers, ATMs or credit card convenience checks. Such cash
advances typically have different terms, such as no grace period and higher interest rates,
compared to those transactions that access the main credit line. Issuers customarily pre-set
borrowing limits, based on an individual's credibility and relationship with bank. A vast majority
of businesses let the customer make purchases with credit cards, which remain one of today's
most popular payment methodologies for buying consumer goods and services in developed
Credit cards typically charge a higher interest versus other forms of consumer loans. Interest
charges on any unpaid balances charged to the card are typically imposed approximately one
month after a purchase is made. Moreover credit card issuers may offer a grace period for
example at least 21 days before interest on purchases can begin to accrue.

Most major credit cards—which include Visa, Mastercard, Discover and American Express—are
issued by banks, credit unions or other financial institutions. Many credit cards attract customers
by offering incentives such as airline miles, hotel room rentals, gift certificates to major retailers
and cash back on purchases. These types of credit cards are generally referred to as rewards
credit cards.

Secured credit cards are a type of credit card where the cardholder secures the card with a
security deposit. Such cards offer limited lines of credit that are equal in value to the security
deposits, which are often refunded after cardholders demonstrate repeated and responsible card
usage over time. These cards are frequently sought by individuals with limited or poor credit
histories.

C. Comparison between Debit and Credit Card

Basis Debit Card Credit Card

Objectives The money is directly debited Money can be used on credit and has to
from client’s bank account be repaid at a later date.
Types Standard Debit Card, Prepaid Standard Card, Reward Card, Secured
Debit Card, Electronic Benefits Credit Card, Charge Card, etc.
Transfer (EBT), etc.
Charges No mandatory fee, however Interest rates applicable on the
some banks may charge an outstanding amount, along with annual
annual fee. fees and service tax. A penalty may be
charged for exceeding the credit limit.
Loan Against Card Loan facility is not available Depending on the issuing bank, client
against Debit Card can take short term loan against the
 credit card for a tenure of 3 to 24
months.
Credibility Impact No impact Use of credit cards and timely
payments of dues has a positive impact
on client’s credibility.

D. Prepaid Card

A prepaid card is a card a client can use to pay for things. If a bank costumer buy a card with
money loaded on it, then it can be used the card to spend up to that amount. A prepaid card is
also called a prepaid debit card, or a stored-value card. Many prepaid cards come with the Visa
or MasterCard logo. These prepaid cards look just like a debit or credit card. A prepaid card is not
linked to a bank checking account instead, any payment is spending money placed in the prepaid
card account in advance. This is sometimes called “loading money onto the card”.

Account holders do not have to worry about accruing debt or finance charges. What they have
in their account is all they are able to spend. There is no due date or revolving balance to think
about as in credit card use.

3.8 Deposit marketing and customer care services.

A. Deposit Marketing

There is a stiff competition between banks to convince clients to do term and saving deposits in
their banks, and due to this marketing campaigns, a huge amount of money is spent by the banks
in reaching out to clients and prospective subscribers. Deposit marketing is the process of
designing and executing the strategies that generates wholesale and retail deposits from the
market to the bank. It may be develop and oversee marketing campaigns to promote products
and services this may oversee many aspects of a campaign throughout the entire lifespan of a
product, service or idea. For deposit marketing following 6Ps analysis and execution shall be done
by a perspective depository institution:

P1-Product
‘Product' satisfies the needs and wants of customers. Banks offers variety of the deposit product
tied up with the advanced banking services such as free ATM cards, internet banking, sms
banking, competitive interest rates, travelers card, DEMAT services, online money transfer,
mobile banking, internet banking, agricultural banking, micro credit facilities, health and
insurance facilities, etc. Bank also takes very much attention toward the service delivery process
with excellent customer care service, branch less banking, home delivery services, attractive
branding and office outlets, etc. Bank also designs the deposit product targeting different market
segments such as employee, retired population, women and housewife, children, corporate
houses, trust organization, small and medium enterprises, etc.

P2-Price

The ‘price' of the deposit product is fixed in the form of interest, service charges and other fees
to cover transaction costs, overheads, risk premium and to generate a reasonable surplus for the
bank. Moreover, other relevant charges such as minimum balance required, internet banking
charges, ATM uses and card service charges, Cheque and statement charges, mobile and SMS
banking charges, etc. These charges should be competitive and reliable as per the market trends
and costumers aspirations.

P3-Promotion

Promotion includes all publicity vehicles that aim at customer information, education and image
building. Moreover, it also implies the distribution channel to reach the customer's place:
Implementing the most effective strategy in order to get the most out of any marketing
campaign. What segment of the population should we address? Which instrument should we use
to get our message out? For ex: telephones, radio, TV, social media, digital media, etc. The
promotion includes advertising - television, radio, movies, theatres, etc.; print media- hoardings,
newspaper, magazines; publicity- stalls in commercial area, road shows, corporate houses visits,
sponsorship; sales promotion- gifts, discount and commission, incentives, etc.; personal selling-
cross-sale (selling at competitors place), personalized service, etc. targeting the appropriate
market niche. For wholesale deposit marketing, relationship and network building, affiliate and
referral connection are also the better options.
P4-Place

The ‘place' of a bank branch play a significant impact for deposit collection. Suitable location and
convenience determine the choice of a bank by a customer. A bulk of the banking business for
any branch comes from its immediate neighborhood. Therefore convenience branch location,
ATMs, service centers, etc. have a huge impact on deposit collection. Moreover, client will also
evaluate the service as per their comfort zone with the service during and after consumption.
The conditions such as lighting, temperature, noise and colour, etc. inside and outside of bank
office also create favorable perceptions among customers. Moreover, this will help in branding,
market positioning, etc. for the bank.

P5- People

One of the most important features of customer care is the “feel good factor”. For the ‘people'
factor in marketing a bank service, a team of motivated and dedicated staff with positive
attitudes in favor of business development and offering high service quality will make the bank
the most preferred one for the customers. This includes mostly the behaviors of the branch
manager, front line officers, and bank employees toward the visiting costumer in the bank.

P6-Process

The role of ‘processes' in providing banking services is very crucial therefore operational systems
and procedures are viewed as vehicles for the delivery of customer satisfaction. “Hence, banks
keep on refining or reinventing or re-engineering their systems and procedures to keep managing
customers' ever increasing expectations.

B. Costumer care services:

Customers are not only concerned about the services and product they are getting but they are
also concerned with the treatment they are getting. Today there is lot of competition and the
customers is left with different alternatives that is different kinds of services and products which
the customers might usually choose. Banking businesses are caring for their customers and
serving them beyond their expectations which involve putting all system in place to maximize
customer satisfaction.
Customer service or customer care is a series of activities designed to enhance the level of
customer satisfaction, that is, the feeling that a product or service has met the customer
expectation. Customer care is based on emotional factors. Customers do not only buy the
products and services but the whole packages that include emotional factors as well. The
satisfactions of customer expectations are becoming a more central and critical success factor
for any banking business. Here are some tips to enrich a customer experience in the banking
business.

Answer phone calls: People who call want to talk to a live person, not a “fake recorded robot”.
Therefore, there must be someone picking up the phone when a client calls to the bank. The staff
should be well experienced and trained so that she can solve or suggest appropriate direction of
the client’s issues.

Listen to the customers: Any one feels so annoying when telling someone what they want or
what their problem is and then discovering that the person hasn’t been paying attention and
needs to have it explained again. Therefore, let your customer talk and show him that you are
listening by making the appropriate responses, such as suggesting how to solve the problem.

Deal with complaints: No one likes hearing complaints, and many of us have developed a view
saying, “You can’t please all the people all the time”. But if costumer care executive gives the
complaint her attention, she may be able to gain the benefits of good customer service.

Be helpful: Staffs and executives in costumer care should be always helpful toward the costumer
in order to resolve their problems. Helpful nature of staffs enables proper communication with
the clients.

Train the staff to be always helpful, courteous, and knowledgeable: Bank should train the staff
regularly for regarding their behavior toward the clients. Staffs should tell about good customer
service regularly. Most importantly, every member of staff should be given enough information
and power to make small customer-pleasing decisions.