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Notes of topic : Scope of E-commerce

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Topic: Scope of E-commerce

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Steps in formation of Public Company

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ch-4 Banking notes

Unit 4: Business Services

Banking means accepting, for the purpose of lending and investment of deposits of money from the public, repayable on demand or otherwise and withdraw able by cheques, draft, order or otherwise.

Meaning of Bank

A bank is an institution which deals in money and credit. It collects deposits from the public and supplies credit, thereby facilitating exchange. It also performs many other function like credit creation, agency functions, general services etc. Hence a Bank is an organisation which accepts deposits, lends money and perform other agency functions.

Functions of Commercial Bank
Primary Functions		Secondary functions
Accepting Deposits	Lending money	Agency Functions	General utility function
1.Fixed deposit	1. Loans
2. Current deposit	2. Cash Credit
3. Saving Deposit Account	3. Overdraft
4. Multiple option deposit accounts	4.Discounting of Bills of Exchange

Primary Functions:

1.                Accepting Deposits

Accepting deposits is the main function of commercial banks. Banks offer different types of Bank accounts to suit the requirements and needs of different customers.

Different types of Bank accounts are as follows:

 1. Fixed Deposit Account: Money is deposited in the account for a fixed period. After expiry of specified period person can claim his money from the bank. Usually the rate of interest is maximum in this account. The longer the period of deposit, the higher will be the rate of interest on deposit.

 2. Current Deposit Account: Current deposit Accounts are opened by businessman. The account holder can deposit and withdraw money whenever desired. As the deposit is repayable on demand, it is also known as demand deposit Withdrawals are always made by cheque. No interest is paid on current accounts. Rather charges are taken by bank for services rendered by it.

3. Saving Deposit Account: The aim of a saving account is to mobilise savings of the public. A person can open this A/c by depositing a small sum of money. He can withdraw money from his account and make additional deposits at will. Account holder also gets interest on his deposit in this account though the rate of interest is lower than the rate of interest on fixed deposit account.

4. Recurring Deposit Account The aim of recurring deposit is to encourage regular savings by the people. A depositor can deposit a fixed amount, say Rs. 100 every month for a fixed period. The amount together with interest is repaid on maturity. The interest rate on this account is higher than that on saving deposits.

5. Multiple Option Deposit Account:  It is a combination of savings account and fixed deposit account which provide specific options to the depositors. It is a type of saving Bank A/c in which deposit in excess of a particular limit gets automatically transferred into Fixed Deposit. On the other hand, in case adequate fund is not available in our saving Bank Account so as to honour a cheque that we have issued the required amount gets automatically transferred from fixed deposit to the saving bank account. Therefore, the account holder has twin benefits from this amount (i) he can earn more interest and (ii) It lowers the risk of dishonouring a cheque.

2. Lending Money

With the help of money collected through various types of deposits, commercial banks lend finance to businessman, farmers, and others.

The main ways of lending money are as follows:

1. Term Loans These loans are provided by the banks to their customers for a fixed period to purchases Machinery, Truck, Scooter, House etc. The borrowers repay their loans in Monthly/Quarterly/Half Yearly/ Annual instalments.

2. Bank Overdraft The customer who maintains a current account with the bank, takes permission from the bank to withdraw more money than deposited in his account. The extra amount withdrawn is called overdraft. This facility is available to trustworthy customers for a small period. This facility is usually given against the security of some assets or on the personal security of the customer. Interest is charged on the actual amount overdrawn by the customer.

3. Cash Credit Under this arrangement, the bank advances cash loan up to a specified limit against current assets and other securities. The bank opens an account in the name of the borrower and allows him to withdraw the borrowed money from time to time subject to the sanctioned limit. Interest is charged on the amount actually withdraw.

4. Discounting of Bill of Exchange Under this, a bank gives money to its customers on the security of a bill of exchange before the expiry of the bill in case a customer’s needs it. For this service bank charges discount for the remaining period of the bill.

Secondary Functions

The secondary functions of commercial banks are as under:

1. Agency Functions

As an agent of its customers, a commercial bank provides the following services:

(a) Collecting bills of exchanges, promissory notes and cheques

(b) Collecting dividends, interest, rent etc.

(c) Buying and selling shares, debentures and other securities

(d) Payment of interest, insurance premium, etc.

(e) Transferring funds from one branch to another and from one place to another

 (f) Acting as an agent or representative while dealing with other banks and financial institutions.

A commercial bank performs the above functions on behalf of and as per the instructions of its customers.

2.     General Utility Functions

 Commercial banks also perform the following miscellaneous functions.

 (a) Providing lockers for safe custody of jewellery and others valuables of customers.

 (b) Giving references about the financial position of customers.

(c) Providing information to a customer about the credit worthiness of other customers.

 (d) Supplying various types of trade information useful to customers

(e) Issuing letter of credit, pay orders, bank draft, credit cards, and traveller s cheques to customers.

 (f) Underwriting issues of shares and debentures.

 (g) Providing foreign exchange to importers and travellers going abroad.

Some important services provided by Banks:

Bank Draft

It is a financial instrument with the help of which money can be remitted from one place to another. Anyone can obtain a bank draft after depositing the amount in the bank. The bank issues a draft for the amount in its own branch at other places or other banks (only in case of tie up with those banks) on those places. The payee can present the draft on the drawee bank at his place and collect the money. Bank charges some commission for issuing a bank draft.

Banker s cheque or Pay Order

 It is almost like a bank draft. It refers to that bank draft which is payable within the town. In other words banks issue pay order for local purpose and issue bank draft for outstations.

ELECTRONIC BANKING SERVICES/E-BANKING Using computers and internet in the functioning of the banks is called electronic banking. Because of these services the customers do not need to go to the bank every time he has to transact with bank. He can make transactions with the bank at any time and from any place. The chief electronic services are the following.

1. Electronic Fund Transfer Under it, a bank transfers wages and salaries directly from the company s account to the accounts of employees of the company. The other examples of EFTs are on line payment of electricity bill, water bill, insurance premium, house tax etc.

2. Automatic Teller Machines (ATMs) ATM is an automatic machine with the help of which money can be withdrawn or deposited by inserting the card and typing your personal Identity Number (PIN). This machine operates for all the 24 hours.

3. Debit Card A Debit Card is issued to a customers in lieu of his money deposited in the bank. The customers can make immediate payment of goods purchased or services obtained on the basis of his debit card provided the terminal facility is available with the seller.

 4. Credit Card A bank issues a credit card to those of its customers who enjoy good reputation. This is a sort of overdraft facility. With the help of this card the holder can buy goods or obtain services up to a certain amount even without having sufficient deposit in their bank accounts.

5. Tele Banking Under this facility, a customer can get information about the balance in his account or information about the latest transactions on the telephone.

6. Core Banking Solution/Centralised Banking Solution In this system a customer by opening a bank account in one branch (which has CBS facility) can operate the same account in all CBS branches of the same bank anywhere across the country. It is immaterial with which branch of the bank the customer deals with when he/she is a CBS branch customer.

 7. National Electronic Fund Transfer : NEFT refers to a nationwide system that facilitate individuals, firms and companies to electronically transfer funds from any branch to any individual, firm or company having an account with any other bank branch in the country. NEFT settles transactions in batches. The settlement takes place at a particular point of time for example, NEFT settlement takes place 6 times a day during the week days (9.30am, 10.30 am, 12.00 noon, 1.00 pm, 3.00 pm & 4.00 pm) and 3 times during Saturday 9.30 am, 10.30 am and 12.00 noon) Any transaction initiated after a designated settlement time is settled on the next fixed settlement time.

8. Real Time Gross Settlement RTGS refers to a funds transfer system where transfer of funds takes place from one bank to another on a Real time and on Gross basis. Settlement in Real time means transactions are settled as soon as they are processed and are not subject to any waiting period. Gross settlement means the transaction is settled on one to one basis without bunching or netting with any other transaction. This is the fastest possible money transfer system through the banking channel. The RTGS service for customers is available from 9.00 am to 3.00 pm on week days and from 9.00 am to 12.00 noon on Saturdays. The basic difference between RTGS and NEFT is that while RTGS transactions are processed continuously, NEFT settles transactions in batches.