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Module I Types of deposit accounts Commercial Bank Financial inclusion

Bank
Bank is a financial institution which deals with
money and credit. It accepts deposit and lends
money to those who are need of it.
Characteristics of a bank
• Dealing in money • Acceptance of deposit
•Giving loans.• Payment and withdrawal.
•Individual, firm or company. • Agency and utility
services.• Profit and service orientation. •Ever
increasing function. • Connecting link. • Banking
business
Evolution of banking in India
• Money lending business was prevalent in India
• East India Company launched few commercial
banks in 18th century • The first Indian bank
started in 1770. (Bank of Hindustan) • Three
presidency banks started by East India Company.
(Bank of Calcutta, Bank of madras, Bank of
Bombay) •Allahabad bank came into existence in
1865 • Alliance bank came into existence in 1875
•First purely commercial bank formed in 1880
•RBI established in 1935 •RBI was nationalized in
1949 •Banking companies Act passed in 1949
•Imperial bank was nationalized in 1955.
(Renamed as SBI) •14 Banks were nationalized in
1969 •Regional rural bank schemes started in
1975 •NABARD was set up in 1982 • In 2017 5
associate banks and Baratiya Mahila Bank
merged with SBI.
Types of Banks
1. Commercial banks :- Commercial banks are
those types of banks, which accepts deposit
from public & lend money to trade & commerce
2. Agricultural banks :- Agricultural banks are
those banks which provides finance to
agricultural purposes.
3. Local area banks :- Local area banks are those
banks which is established for the purpose of
mobilizing the rural savings by local institution.
4. Savings bank :- Saving banks are those
specialized banks which mobilizes the saving
habits of the people.
5. Industrial banks :- Industrial banks are those
banks which meets the requirement of industrial
concerns. It is also known as investment banks.
Functions of industrial banks
• It accepts long term deposits • It grant long
term loans to industries • It provide technical
assistance to industries • Advice given to
government matters relating to industry • It
participate management in industrial concerns.
6. Exchange banks :- Exchange banks are those
banks which deals with foreign exchange and
international trade.
Functions of exchange banks
• Purchase and sale of foreign currencies, silver,
gold etc... • They accept and collect foreign bills
of exchange • Purchase and discount export and
import bills •Transfer of money from one country
to other •Issue letter of credit to importers
7. Central banks :- It is the highest banking and
monetary institution of a country. It is the leader
of the all banking institution of a country.
8. World bank :- It is the financial institution
which provides financial assistance to its
member countries of the world.
9. New development bank BRICS :- It is a
multilateral development bank operated byBRICS
states(Brazil,Russia,India,China,SouthAfrica)
Types of banking
1. Unit banking Unit banking refers to a single,
small bank that provide financial services to its
local community.
2. Branch banking :- Branch banking refers to a
big bank which has number of branches in
different part of the country.
3. Monopoly banking :- It means a few big banks
open branches in all part of the country.
4. Group banking :- It is a type of multiple office
banking consisting of two or more banks under
the control of a holding company.
5. Chain banking :- It is a banking system where
the same individual or group of individuals
control two or more banks.
6. Mixed banking :-Mixed banking is an approach
where banks undertake both commercial and
industrial banking.
7. Correspondent banking :-It refers to a financial
institution that provides services to another one
usually in another country.
Gift cheque
The gift cheque is another banking instrument
presented for gifting money to the loved ones
alternatively of hard cash.
1. Saving bank account :- Saving bank account
are mainly meant for non-trading customer
Features of saving bank account
• It is meant for middle and low income groups.
• It can be opened with very small amount. • Rate
of interest fixed by RBI. •Customer can deposit
any amount to a minimum of Rs. 5 • Minimum
amount of cheque should be Rs. 5
2. Recurring deposit :- This is a special type of
saving bank account introduced by the banks
in recent years. It creates the saving habits of
lower income group.
3. Current accounts :- Current accounts are
those accounts generally meant for the
commercial and industrial undertakings.
Features of current accounts
• It is meant for commercial establishments.
• No restrictions for deposit and withdrawal
amount. • Deposits can be made by pay in slip.
• Withdrawals can be made by cheques.
4. Fixed deposit account :- Fixed deposits are
moneys deposited by customers for a fixed
period. It is also called term deposit.
Procedures for opening a bank account
• Fill up application on the prescribed form
• Proper introduction of the applicant • Banker
should obtain specimen signature of the
applicant • Banker should obtain initial
investment • Opening the account.
Circumstances under which bank accounts can
be closed
• Death of a customer • Insolvency of a customer
• Dissolution of firm • Garnishee order • Winding
up of company • Assignment of credit balance
Circumstances under which a banker can refuse
payment
• When the banker receive notice of customers
death •When customer has been adjudged
insolvent • When the banker receives notice of
customer insanit • When an orde • When banker
receive the notice of lost of a cheque.
Deposit schemes for Indian abroad
• NRO Accounts • NRE Accounts
• NRNR Accounts • FCNR Accounts
Pay in slip book
It is a book which contains printed slip. This
book is supplied by the bank to the customers.
Cheque book
A cheque book is a book which contains 10 or 20
blank cheque leaves serially numbered. These
are used to withdraw money.
Pass book
A pass book is a small book issued by a banker
to his customer to record all dealings between
them.
Dormant account
Dormant account means inoperative or not
functioning of a bank account last two years.
KYC (Know Your Customer)
It is a process by which bank obtain information
about the identity and address of the customers.
FDR (Fixed Deposit Receipt)
After depositing money, the banker will issue a
receipt to the depositor is called fixed deposit
receipt.
Demat banking
It is nothing but de-materialization. This is a
recent extent in the Indian banking sector. The
customer who wants to invest in the stock
market need this account with commercialbanks
Customer of a bank
A customer is a person who has an account in a
bank in his name & dealing between the banker &
customer should be of regular banking business
Special Types of Customers
• Minors • Lunatics • Drunkards • Married Women
• Pardanashin women • Insolvents • Illiterate
Persons • Agents • Joint Stock Company • Clubs,
Associations and Educational Institutions
• Partnership Firm • Joint Accounts • Executors
and administrators • Local authorities
Money lenders :- Money lenders are those
person are those person who do not accept
deposits from the public but lend their own
funds.
Indigenous bankers :- It is an individual or
private firm receiving deposits and dealing in
hundies or lending money.
Scheduled Bank :-A scheduled bank is a bank
which is included in the second schedule of the
RBI Act 1934.
Non-scheduled Bank :- Commercial banks which
have a paid-up share capital and reserves of an
aggregate value of less than 5 lakh is considered
as non-scheduled bank
A commercial bank is a financial institution
which performs the functions of accepting
deposits from the general public and giving
loans to the investment with the aim of earning
profit.
Functions of commercial bank
× Primary functions
• Receiving deposi •Giving loan •Credit creations
•Use of cheque system and plastic card •
Transfer of funds
× Secondary functions
> Agency Services
• Collection of credit instrument • Collection of
dividend • Transfer of funds • Deal of foreign
exchange • Purchase and sale of securities
• Execution of standing orders
> General Utility Services
• Locker facility • Issue travellers’ cheques
• Issue Letter of Credits • Collect information
• Collection of statistics •Underwriting securities
• Merchant banking
Innovative Functions of Commercial Bank
• ATM Services • Credit card facilities • Tele
banking • Home banking • Internet banking • EFT
• Electronic clearing services • RTGS • Mobile
banking
Role of banks in economic development
• Simulation of savings. • Capital formation.
•Facilitating agricultural development •Innovating
entrepreneurs • Promotion of small-scale
industries • Monetisation of economy • Facilitate
international trade • Create employment
opportunities • Implementation of monetary
policy • Encouraging right type of industries
• Influencing economic activities • Balanced
development.
EXIM Bank (Export Import Bank)
Exim bank was set up in January 1982. It is a
public sector financial institution, it facilitates
and finance foreign trade in India.
Objectives / Functions of EXIM Bank
• To finance, facilitate and promote foreign trade
in India •To contribute foreign exchange to our
country • To finance joint ventures in foreign
countries • To provide technical and financial
assistance to export import sectors • To provide
financial help for export and import of goods and
services.
Co-operative Banks
Co-operative banks are institutions established
on the principle of co-operation and it deal in
ordinary banking business.
NABARD (National Bank for Agriculture and
Rural Development)
It is an apex development bank for agriculture
and rural development. It was established in 12th
July, 1982.
Functions of NABARD
• It functions as an apex institutions • It provide
short term, medium term and long term credit • It
coordinate operations of rural credit agencies • It
has the responsibility to inspect cooperative
banks • It advise government matters related to
rural credit •It maintain a research &development
fund to promote research in agriculture and rural
development • It provides facilities for training
and development • It formulates project and
programs for rural development.
Land Development Bank
It is a type of bank, which meet the long term
credit requirement of agriculturalist against
security of their land.
Micro finance institutions
Micro financial institutions are those financial
institutions, which provides financial services
like micro credit, micro savings, and micro
insurance to poor people.
Mudra Bank (Micro unit development and
refinance agency bank)
It is a public sector financial institution in India. It
provides loans at micro finance institutions &non
banking financial institutions. It was launched by
Prime Minister Narendra Modi on 8th April, 2015.
RRB (Regional Rural Bank)
RRB is a type of bank to enhance the local
participation of the bank to meet the credit
requirements of weaker section of the society
Drawbacks of Regional Rural Banks
•Lack of coordination in branch expansion
•Difficulty in deposit mobilisation • Urban
orientation of staff • Procedural rigidities • Slow
progress in lending activities.
Letter of Credit :-it is a promise by a bank on
behalf of the buyer. Its a document from bank
that guarantees payment.
Financial inclusion is the process of ensuring
access to financial products and services
needed vulnerable groups at an affordable cost
in a transparent manner by institutional players
Financial inclusion schemes in India
• PMJDY (Pradhan Mantri Jan Dhan Yojana)
• APY (Atal Pension Yojana) • PMVVY (Pradhan
Mantri Vaya Vandana Yojana) • Stand up India
loan scheme • MUDRA loan • Jan Suraksha
Scheme • SSY (Sukanya Samriddi Yojana)
• Jeevan Suraksha Bandhan Yojana • Varistha
Pension Bima Yojana (VPBY) • Credit
Enhancement Guarantee Scheme for scheduled
casts • Venture capital fund for scheduled casts
under social sector initiatives
Central Bank
Central bank is a supreme monetary authority of
a country. It is the leader of all banks in a country
Functions of Central Bank
1. Monopoly of note issue
Note issue is the main function of a central bank
in every country. The currency note issued by a
central bank are the legal tender money of that
country. Every central bank got the monopoly of
the sole right of the note issue.
Advantages of Note issue by central bank
• Central bank controls credit creating power of
commercial banks • People have more
confidence in the currency issued by central
bank • Uniformity in the currency system in the
country • Currency system of the country will be
flexible • It helps in economic development of
the country.
2.Bankers, agent and advisor to the government:-
As a banker to the government, central bank
provide all those banking services and facilities
to the government. As an agent, bank helps the
government in all financial matters. As anadvisor
bank advice the government on monetary,
banking and financial matters.
3. Custodian of cash reserve :- Central bank is
the bank of bank. This signifies that it has the
same relationship with the commercial banks in
the country that they gave with the customers.
4. Custodian of foreign exchange :- Central bank
is the custodian of foreign currency obtained
from various countries.
5. Lender of last resort :- Central bank work as a
lender of the last resort for commercial bank
because in a time of need, it provides financial
help.
6. Clearing house function :- All commercial bank
have their account with central bank. Therefore
central bank settles the mutual transaction of
banks.
7. Credit Control :- This is one of the most
important function the central bank to control the
volume of credit for maintaining price stability
8. Collection of data
Central bank in almost all the countries collect
statistical data regularly relating to economic
aspects of money, credit, foreign exchange,
banking etc.
Reserve bank of India (RBI)
RBI is our central bank. It was established in
1935. Prior to the establishment of RBI, there
was no central bank. But some of the central
banking functions were performed by Imperial
bank of India.
Objectives of RBI
1. To regulate and control monetary system of
our country 2. To regulate the issue of bank note
3. To have an authority to control money market
4. To regulate banking system of our country.
Organisation structure of RBI
1. Central Board :- Central board consists of 20
members. It includes one governor, four deputy
governors and fifteen directors
2. Local Board :- Besides the central board, there
are local board for regional areas of the country
with their headquarters at Mumbai, Kolkata,
Madras and New Delhi.
Departments of RBI
• Issue department • Banking department
• Currency management department • Budgetary
control departmen •Exchange control department
• Agricultural credit department • Rural credit
department • Industrial credit department • Legal
department • Inspection department
Functions of RBI
1. Monopoly of note issue 2. Banker, agent and
advisor to the government 3. Lender of last
resort 4. Act as clearing house 5. Credit control
6. Custodian cash reserves 7. Custodian foreign
exchange.

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Credit Control
This is one of the most important function the
central bank to control the volume of credit for
maintaining price stability.
Credit ceiling
It is an operation of RBI, in which it issues prior
information that loans to the commercial banks
will be given up to a certain limit.
There are two types of credit control weapons
1 Quantitative credit control weapons
• Bank rate
It is the minimum rate at which RBI is ready to
grant loans and advances to commercial banks.
• Open market operation Open market operation
means purchase and sale of government
securities in an open market.
• Cash reserve ratio (CRR)
Every scheduled bank is required to maintain
fixed percentage of their time and demand
deposit as cash reserve with RBI. It is called
cash reserve ratio.
• Statutory Liquidity Ratio (SLR)
Every commercial bank is required to maintain
not less than 255 of its total time and demand
liabilities in liquid assets in the form of cash and
gold with RBI. This is known as SLR.
2 Qualitative / selective credit control weapons
• Issuing of directives • Regulation of margin
requirements • Differential rate of interest
• Restriction on clean advances • Credit
authorisation scheme.
Module II
Negotiable Instruments
Negotiable instrument is a written document that
promises the payment of a sum of money to a
specified person or bearer of the instrument.
Features of negotiable instruments (Essentials)
•These are easily and freely transferable • All
negotiable instrument must be in writing •It must
be an unconditional order or promise • It involves
payment of certain sum of money •Time of
payment must be certain • Payee must be a
person • The instrument must bear the signature
of the maker • Delivery of instrument is essential
• Stamping of bill of exchange and promissory
note is mandatory.
Types of Negotiable instruments
• Promissory notes • Bills of exchange • Cheque
• Other negotiable instruments like railway
receipts, delivery order, etc.
Promissory Notes
A Promissory note is a negotiable instrument. It
contain a promise to pay a certain sum of money
to a specified person or bearer on demand or on
a future date.
Essential characteristics of a promissory note
• Promissory note must be in writing. • It is a
promise to pay. • The promise to pay must be
unconditional. •The amount promised must be
certain and definite sum of money. • The
promissory note must be signed by the maker
•It involves two parties, i.e. drawer and payee.
• The maker must be a certain person. • It must
be properly stamped.
Parties to a promissory note
1. Drawer: The person who makes a promissory
note is called drawer or maker.
2. Payee: Payee is the person to whom the
amount is payable.
Difference between bill of exchange and
promissory note
Bill of Exchange Promissory Note
It is an order to It is a promise to
make a payment make payment
It involves three It involves two
parties namely, parties namely
drawer, drawee and drawer and payee
payee
It is drawn by the It is drawn by the
creditor debtor
It is defined under t is defined under
section 5 of section 4 of the
negotiable negotiable
instrument act instrument act
It requires It does not requires
acceptance acceptance
Mainly used for Mainly used for
financing trade raising loans
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Bill of exchange (BOE)
A bill of exchange is a negotiable instrument. It
contain an order to pay a certain sum of money
to a specified person or bearer on demand or on
a future date.
Essential characteristics of bill of exchange
• It involves three parties, drawer, drawee and
payee •It must be in writing • It must be signed
by the drawer • It must be an order to make the
payment • It is an order to pay money only • It
must be properly stamped •It must be accepted
by the drawee.
Parties to bill of exchange
1. Drawer: Drawer is the maker of the bill of
exchange.
2. Drawee: Drawee is the person upon whom the
bill of exchange is drawn.
3. Payee: Payee is the person to whom the
payment is made.
Classification of bill of exchange
1. On the basis of period of bill:
a) Demand bill of exchange: There is no fixed
date for payment of such bill.
b) Term bill of exchange: There is a fixed date for
payment of such bill.
2. On the basis of writing the bill:
a) Trade Bill: These bills are drawn and accepted
against thesale and purchase of goods on credit.
b) Accommodation bills: These bills do not
involve sale and purchase of goods on credit.
3. Other type of bill:
a) Inland bill: These bills are drawn in a country
upon person living in the same country.
b) Foreign bills: These bills are drawn in one
country and accepted in another country.
Cheque
A cheque is a negotiable instrument. It is
transferable either by mere delivery or by
endorsement and delivery.
Essential features / requisites of a valid Cheque
• A cheque must be in writing • A cheque must
contain an unconditional order • Cheque is
always drawn on a specified banker • It must be
signed by the drawer • A cheque is always
payable on demand • A cheque can be crossed
• A cheque is used for payment.
Parties to a cheque
1.Drawer: Drawer is a person who issues a
cheque
2. Drawee: Drawee is the bank on which the
cheque is issued.
3. Payee: Payee is the person to whom the
amount of cheque is payable.
Kinds / Types of Cheque
1. Bearer Cheque :- A bearer cheque is always
payable to bearer.
2. Order cheque :- An order cheque is a cheque
which is payable to a certain person.
3. MICR cheque :- MICR (Magnetic Ink Character
Recognition) cheque is a recent innovation. Bank
issue cheques in MICR format using the special
quality paper and printing specifications.
4. Truncated cheque :- It is an electronic image
of a paper cheque which means physical cheque
is scanned at the bank of first deposit.
5. Electronic cheque :- It is simply refers to an
electronic version of a paper cheque.
Dating of cheque
• Ante- dated cheque :- A cheque bear the date
earlier to the date of issue is called ante-date
cheque
• Post-dated cheque :- A cheque bears a date
which is yet to come is called post-dated cheque
• Stale cheque :- A cheque which is not presented
for payment within a reasonable period of time is
called stale cheque.
Mutilitated cheque
If a cheque is torn into two or more pieces, it is
called mutilated cheques.
Holder of a cheque
Any person who is entitled in his name to the
possession there of and to receive or recover the
amount due thereon from the parties thereto.
Holder in due course
Any person who acquires the title to the
instrument for a consideration is called holder in
due course.
Crossing of Cheques
Crossing of cheque means drawing across the
face of the cheque two parallel transverse lines
with or without the words “and company”.
Types of crossing
• General crossing • Special crossing • Not
negotiable crossing • Account payee crossing
• Double crossing
General Crossing
In general crossing, the cheque bears across its
face an addition of two parallel transverse lines
and the addition of the words “and company” or
“not negotiable” between them.
Essential Features of general crossing
•There must be two parallel transverse lines on
the face of the cheque. • The lines are drawn on
the left-hand top corner of the cheque. • The
words “and company” or its abbreviation may be
written in between these lines. • The words “not
negotiable” or “account payee” also be added
with general crossing. • The paying banker is
required to pay the amount of a generally
crossed cheque to another bank.
Special Crossing
In special crossing, the name of a banker with or
without the words “not negotiable” is written on
the cheque.
Essential features of special crossing
• Two parallel transverse lines is not essential.
• The name of the collecting banker should be
specified •the words such as “not negotiable” or
“account payee”are also added with special
crossing •the special crossing makes a cheque
safer.
Endorsement
Endorsement means signing on the back of a
negotiable instrument forthe purpose ofnegotiation
Effects of endorsement
• Endorsee gets right, title or property in the
instrument. • He also gets the right of further
negotiation. • The endorser certifies genuineness
of the instrument. • The endorsee acquires the
right of the instrument as its holder.
Liability of endorser
• By endorsing an instrument, the endorser
impliedly promises that on due presentation the
instrument will be accepted and paid. •Endorser
will not deny the validity of the endorsement. •
Where there are two or more endorsements, the
liability of the endorser will be fixed in the order
in which their signature appear on the
instrument. • The liability of an endorser can be
excluded by a spate contract. • The liability of the
endorser continues even alter the death till the
instrument is paid.
Electronic Payments
Electronic payment means payment for buying
and selling goods or services through internet.
Features and importance of electronic payment
•There is no paper involved. • Fast, efficient, safe
and secure. • Less costly. • It is convenient to the
consumers. • It improve customer attention.
•These are fully traceable.
Module III
E - Banking
E-banking is a method of banking in which
banking transactions are done through
electronically.
Advantages of E - banking
• Internet banking have lower operational cost.
•Internet banking have lower transactional cost.
•Online banking is convenient. •Online banking
offers 24×7 services. • Online banking facilitate
better customer retention. • There is less chance
for errors. • Easy transfer of fund from one
account to another. •Online banking is fast,
efficient and effective. • Customers can obtain
funds at any time from ATM • It is a safe way of
handling our money. • Internet banking is not
limited to a physical site. • Internet banking
provides enlarged range of services.
Disadvantages of E-banking
• Understanding the usage of internet banking is
difficult for beginners. • It require huge initial
start-up cost. • Without internet connection,
online banking is not useful. • There is a chance
of hacking personal information.•It is not useful
in case of banks server down. • It is not useful
for illiterate persons.
Need and importance of E-banking
• Reduce burden •Need for transformation • Ever
increasing competition • Introduction of more
customer friendly products and services
•Boundary less banking • Use of electronic
means • Influence of Information technology
Dimensions of E-banking
1. Customer to bank e banking :- Customers can easily
access all important information relatingto their
deposit,transfer&payments through internet
2. Bank to bank e banking :- It is related with interbank
transactions which are done between banks through internet.
3. Electronic central banking :- All banks within the control of
a central bank are to be interconnected via extra net
4. Intranet procurement :- An intranet is meant for the
exclusive use of the organization and its associates
E- Based products or services
1. ATM (Automated Teller Machine)
ATM is a device that allow customers to perform
routine banking transactions by using ATM cards
ATM card
It is a plastic card issued by a financial
institution, which enables a
customer to access their financial accounts.
Functions of ATM
• A card holder is able to withdraw money
• A card holder gets latest and updated
information • It allows transfer of funds • It also
possible to make deposits • Payment of loan can
be made through ATM • It provide printed copy
of transactions.
2. Credit card :- A credit card is a plastic card, which can be
used more than once to borrow money or buy products and
services on credit.
3. Debit cards :- Debit card is a plastic card, issued by the
bank to their customers who have maintained an account in
the bank with sufficient credit balance.
Types of debit card
• Direct debit cards :- It allows only online transactions, also
called point of sale.
• Deferred debit card :- This card allows online transactions
as well as offline transactions.
4. Smart card :- A smart card is a plastic card that contains
an embedded plastic chip either a memory / microprocessor
that transacts data.
5. Mchq product :- It is a recently innovative banking product.
It is nothing but a mobile to mobile payment option.
6. Telephone banking :-Telephone banking is a service
provided by a financial institution, which allow customer to
perform transactions over the telephone.
7. Internet banking :- It is a method of banking in which
transactions are conducted electronically through internet.
Services provided through online banking
• Easily transfer of money. •Customers can open
FD account via net. • Customer can order for
issue of a demand draft. • Customer can inquire
account balance.• Customer can request for a
cheque book.
Necessities required for operating online
banking
• An active bank account. •Debit or credit card
number.• Customer's user ID. •Bank account
number. •Internet banking PIN number. •A PC
with net
8. Virtual banking :- Virtual bank is an internet
based financial institution that offers deposit
and withdrawal facilities, and other banking
services through ATM or other services.
Advantages of virtual banking
•Transaction cost is less. • Account maintenance
cost is less.• Operations cost are less. •Virtual
banks are safe. • No need of visiting a bank
physically. •These are convenient. •24×7 services
Limitations of virtual banking
• Initial start-up cost are high. •Difficult for new
users. •Difficult for illiterate persons. • Problems
related to server down. • Technological hacking.
9. Core banking:- Core banking simply refers to doing all
banking operations of branches and head office by
connecting to a central computer kept at data centre.
Advantages of core banking
• Total cost can be reduced.• Multiple data entry risk reduced.
• Ability to offer developed operations.
Limitations of core banking
• It is mainly depending on technology. • Recurring cost are
heavy. • Stoppage of work has adverse effect on banks
image.
10. SWIFT :- SWIFT is the society for worldwide interbank
financial telecommunication, a member owned cooperative
through which the financial world conduct its business
operations with speed, certainty and confidence.
11. SPNS (Shared payment network system) :-SPNS is a large
network of ATMs spread in the city of Mumbai, Vashi and
Thane.
12. EDI (Electronic Data Interchange) :- EDI is the electronic
exchange of business information between two concerns in a
specified format.
13. Indian Financial Network (INFENET) :- It is a very small
aperture terminal based satellite network for messaging, file
transfer and chat services.
14.Automated clearing houses:-The computerized centres
where cheques are cleared are called automated clearing
houses.
15. Centralized funds management system (CFMS) :- It is a
system that aims at inter connecting the 17 deposit account
departments of RBI.
16. Home banking :-Home banking is the practice of
conducting banking transactions from home. It is also called
personal computer banking.
17. Electronic Fund Transfer (EFT) :-EFT means speedier
transfer of funds between different banks forthe bank
customers electronically. It was introduced by RBI in 1996. It
is worked on the principle of “next day availability of funds."
National electronic fund transfer (NEFT) :- It is a nation - wide
payment system facilitating one to one fund transfer.
18. Electronic clearing services (ECS) :-It consist of electronic
credit clearing and electronic debit clearing.
19. Real Time Gross Settlement System (RTGS) :-RTGS is an
online fund transfer mechanism provided by the RBI. RTGS
facilitates fund transfer from one bank account to other on
real time basis without any waiting time.
Benefits of RTGS
•it facilitates fund transfer on real time basis. •RTGS is a safe
and secure fund transfer mechanism. • Lower remittance
charges •RTGS could also be done offline.

Module IV
Insurance
According to John Megi "Insurance is a plan
where in persons collectively share the losses of
risk"
Features of insurance
•It is a contract between insurer and insured.
• Insurance covers the monetary risks •Insurance
is not a gambling • Insurance is a contract of
indemnity except life insurance.• Utmost good
faith is required from all the parties. • Insurance
is a cooperative endeavour. • Insurance involves
consideration It is called premium •The parties
must have legal capacity to enter into insurance
contract.
Benefits/ Importance/ Advantages of Insurance
•Insurance cover against uncertainties•Insurance
contributes positively to economic growth
•Insurance is an investment opportunity of an
individual. •Insurance provide security and safety
• Insurance encourages savings •Insurance
ensures business continuation • Insurance
generating employment opportunities •Insurance
promoting social welfare • Insurance ensures
social security. • Insurance maintains standard
of living.
Parties of insurance
•Insured: A person covered by insurance is called
insured. •Insurer: A person contracting to
indemnify against the loss is called insurer.
•Beneficiary: The person to whom the indemnity
is paid is called beneficiary.
Functions of Insurance
> Primary functions
•Providing protection •Collective risk bearing
•Evaluating risk • Provide certainty
> Secondary functions
• Preventing losses • Provides capital • Covering
larger risk with small capital• Development of
larger industries
> Other functions
• It is a saving and investment tool. •Medium of
earning foreign exchange. • Risk free trade.
Principles of insurance
1. Insurable interest 2. Utmost good faith
3. Indemnity 4. Subrogation 5. Proximate cause
6. Contribution 7. Mitigation of loss
• Insurable interest :- The insured must have
insurable interest in the subject matter of the
insurance.
• Utmost good faith :- It is essential that there
must be utmost good faith and mutual
confidence between the insured and insurer.
• Indemnity :- A contract of insurance except
contract of life insurance is contract of
indemnity. This means that insured in case of
loss against which the policy has been issued,
shall be paid the actual amount of loss or value
of policy whichever is less.
• Subrogation :- Subrogation is the transfer of
rights and remedies of the insured to the insurer
whohas indemnified the insured in respectof loss
• Causa Proxima :- Causa Proxima means the
most immediate cause which results into a
definite loss.
• Mitigation of loss :- Mitigation of loss means to
minimize or reduce the severity of loss.
•Contribution: Its another outcome of principle of
indemnity.Where there are two/more insurance
on one risk,the principle of contribution comes
into play. The aimof contribution is to distribute
the actual amount of loss.
Hull insurance :- Hull insurance is a type of
insurance policy especially designed for covering
ship damage expenses.
Burglary insurance :- Burglary insurance means a
type of crime insurance that covers losses
resulting from burglary. Re - insurance :- Re
insurance simply means insurance for insurance
company. It means an insurance company
purchase another insurance company.
Double insurance :- When same subject matter
is insured with two or more insurer is called
double insurance. Role of insurance in economic
development • Investment for economic
development. • Promotes trade and commerce. •
Insurance makes financial resources. • Insurance
spreads risk. • Encourage financial stability. •
Substitute for government security programs. •
Insurance provides increasing GDP. • Facilitate
efficient capital allocation.
ʀᴀsʜɪᴅ_ᴠᴇɴɢᴀʀᴀ | ʀᴀsʜɪᴅ_ᴠᴇɴɢᴀʀᴀ | ʀᴀsʜɪᴅ_ᴠᴇɴɢᴀʀᴀ | ʀᴀsʜɪᴅ_ᴠᴇɴɢᴀʀᴀ
3
Kinds or Types of Insurance Module V
1. Life insurance :- Life insurance is a type of Life insurance
contract that pays out a sum of money either on Life insurance is a type of contract that pay out a
the death of the insured or a specified period. sum of money either on the death of the insured
2. Marine insurance :- Marine insurance is a type or a specified period.
of insurance that cover loss or damages of ships Features of life insurance
or cargo from point of origin and final • It is an outcome of offer and acceptance. • It is
destination. not a contract of indemnity. • It is best alternative
Types of marine policies way of savings. • Insurable interest must be
a) Voyage policy: Insure the subject matter from present at the time of taking policy. • It offers
one place to another is called voyage policy. flexible premium payments.
b) Time policy: Where the subject matter is Importance of life insurance
insured for a definite period of time is called time • It is a protection against untimely death. •It is a
policy savings for old age. •It initiates investment. • It
c) Mixed policy: mixed policy is a combination of improves creditworthiness of the business •It is
voyage and time policy. a social security tool. • It facilitate tax benefits.
d) Valued policy: It is a policy which specifies the •Promotion of savings.
agreed value of a subject matter. General principles of life insurance (Essential
e) Open policy: It is a type of policy where the elements)
policy value of the subject matter insured is not • Offer and acceptance • Legal relationship
specified. •Consensus ad idem • Competency of parties •
f) Floating policy: It is type of policy in which the Free consent •Lawful consideration •Legal object
value of goods being insured cannot be Basic principles of life insurance
calculated exactly. • Principle of good faith • Principle of insurable
Features of marine insurance interest • Principle of not a contract of indemnity
• In this type of insurance cargo, ship, and fright Insurance policy
is to be insured. • There is a contract between Insurance policy is a contract of insurance. It
insurer and insured. •It includes third party describes the term, coverage, premium and
insurance also. • Insurance can be taken for deductibles.
single journey or number of journeys. • It can be Claim
taken against losses incurred in inland also. A claim is the payment made by the insurer to
3. Fire insurance :- Fire insurance is a type of the insured on the occurrence of the event
insurance which protects people from cost specified in the contract.
incurred from fire during a specified time. Nomination
Features of fire insurance A nomination is an important part of a life
• It is a contract of indemnity. • It should fulfil insurance. It is the common to nominate a
essentials of a valid contract. • It is a contract of person usually spouse, child or one parent while
utmost good faith.• Fire policies covers losses taking an insurance policy.
against fire. • In fire insurance insured must have Assignment
insurable interest. • A fire insurance is generally Assignment of a policy means transfer of all
for taken one year. • Fire insurance policy issued rights, title and liabilities of the life insurance
for a lawful consideration. policy in favour of the assignee.
4. Medical / Health insurance Premium
Health insurance is a type of insurance that An insurance premium is the amount of money
cover medical expenses that arises due to an an individual or business pays for an insurance
illness. company.
5. General insurance Assurance
An insurance which is not life insurance is called Assurance refers to financial coverage that
general insurance. It includes vehicle and home provides remuneration for an event that is
owners insurance. certain to happen.
Personal accident insurance :- It is a type of IRDA (Insurance Regulatory and Development
insurance for personal accidents or illness. Authority)
Auto insurance :- Auto insurance is a type of It is an autonomous apex statutory body which
insurance, it helps of repair orreplacement in the regulates and develops the insurance industry in
event of accident. India.
Disability insurance :- It is a type of insurance, it Powers, Functions, and Duties of IRDA
may protect the insured from financial ruin if he • Registering and regulating insurance
is injured. companies. • Protecting interest of the policy
Long term care insurance :- It is a type of holders. • Promoting professional organizations
insurance designed for those diagnosed with in insurance. •To control over management of
chronic illness. insurers. • Maintenance of solvency margin.
Homeowners insurance :- It is a type of • Ensuring insurance coverage in rural areas.
insurance which helps to cover losses of a home • Regulating investment of policy holders.
or property due to fire, natural disaster, faulty Role of IRDA
plumbing work, bad electric work etc... • IRDA provides a certificate of registration to a
Miscellaneous/ Liability insurance :- It refers to life insurance company. • IRDA is responsible for
contract of insurance other than life insurance. It renewal, modification, withdrawal and
includes fire, marine etc. cancelation of certificate of registration. • IRDA
Property insurance :- Property insurance is a protects the interest of the policy holders • IRDA
type of insurance protection against risks ofthe offers policy holders the right to voice their
property. complaints. • IRDA has to set up the grievance
Difference between General Insurance and Life redressal cell. • It promote and regulate activities
Insurance of professional organizations. • It regulate and
General Insurance Life Insurance maintenance of margin of solvency. • It regulates
It is a personal It is a non-personal the investments of funds.
contract contract. Laws relating to general insurance
• Insurance Act 1938 • Indian marine insurance
It is a contract of It is not a contract
Act 1963 • General insurance business Act, 1972
indemnity of indemnity
• The general insurance business amendment
General insurance Life insurance
Act, 2002.
insures homes, insures one’s life or
Laws relating to life insurance
automobiles and the life of someone
• Insurance Act, 1938 • The life insurance
other personal
corporation Act, 1956 • The IRDA Act, 1999
properties
General insurance Life insurance is
is taken generally generally for long
for one year period
The object of The object of life
general insurance insurance is the
is to protect from security and
risks investment
Principal of Principals of
indemnity is indemnity does not
applicable apply