Sunday, December 12, 2010

Bank Accounts basic

RETAIL BANKING DEPOSITS


Balance Sheet of a Bank
LIABILITIES
Capital I & II
Free reserves
Borrowings- ST/LT
Deposits
CD/SB – ST
TD – LT
CL & Provisions
ASSETS
Cash on hand
Cash with RBI
Fixed assets
Investments –ST/LT
Loans & Advances
CC/OD/DL/Bills -ST
T/L - LT
Current Assets
IA- Losses /VRS etc

Multi-channel delivery of a comprehensive retail product portfolio
Definition of Deposit
Legal perspective -RBI directives
No interest on current a/c
No discrimination in the matter of interest on deposit among the customers except for deposits of Re 15 lacs and above and deposits meant for senior citizens
No brokerage/commission for canvassing deposit a/cs except commission paid to the agents employed to collect deposits under special scheme.
No launching of prize/lottery/free trips either in India or abroad
No loans against fixed deposits of other banks
No interest on margin money held in current a/c. E.g. issuance Bank Guarantee.
Legal perspective
Depositor Bank – creditor and debtor relationship
*, DEPOSIT INSURANCE CORPORATION ESTABLISHED BY ACT OF PARLIAMENT ON 01.07.1962 FROM 15.07.1978- RENAMED DI & CGC to protect retail depositors.
ELIGIBILITY- 1. ALL CBS,RRBS.CO-OP BANKS. 2. ALL DEPOSITORS OTHER THAN CENTRAL & STATE GOVT., BANKS, FOREIGN GOVTS.,
AMOUNT - UPTO RS. 1 LAKH PER DEPOSITOR PER BANK
CONDITION - payable on closure of bank

DEPOSITS




Introduction
KYC norms
Protection under Sec 131 under Negotiable Instruments Act1881.
Introduction can be given by any person to the bank viz existing a/c holder, staff member etc.

Types of customers
Individuals
Institutions – Corporate, Partnership, HUF, Trust, Government agencies, Associations , Society , banks etc
Requirements
Appropriate Account opening forms + photo
Requisite documents according to type of a/c Partnership- Partnership Deed
Corporate - Memorandum of Association, Articles of association, Certificate of incorporation and commencement & Board resolution
Introduction by an existing account holder or persons known to the bank.
Operating instructions – single or joint or PA
Establishing relationship
Applicant to submit identity of proof – pass port, driving license, Employee ‘ I” card, PAN card, Photo credit card, Pension book etc.
Proof of communication address – electricity bill, Telephone bill, statement of a./c of credit card, letter from employer, Lease agreement, Gas connection etc
Submission of photographs
Pan card copy
Nomination

Savings account
Running account
Minimum balance
No maturity
Meant for mainly for savings purpose. It cannot be opened for business purposes.
Cheque book facility
Single or joint account
Interest is fixed by RBI. Presently @ 3.5%.Paid on minimum credit balance maintained between 10th and last day of each calendar month. Paid every half year.
Can be operated by single or joint a/c holders.
Generally, no overdraft is permitted
No frills account as suggested by RBI to make accessible to vast section of population. Account with either Nil or low minimum balance and low service charges. It is meant for financial inclusion i.e. banking service to cover major portion of population.
Banker’s perspective – low cost deposit and more dependable source of deposit since it is mainly for savings.
Savings account
Cannot be opened for business purposes.
Nomination only in the name of individuals and it can be only one.
Restrictions on deposits and withdrawals.
Risk – low interest rate.
Liquidity – withdraw able on demand

Current account
No fixed maturity and running a/c
Non interest bearing
Mainly meant for business requirements
Cheque book and nomination facility in case of individuals and proprietor
Individuals and institutions can open the a/c
Minimum balance requirement
No restriction on deposit and withdrawal.
BCTT (banking cash transaction tax) applicable –
Others – with drawls exceeding Re 1.00 lac.
Liquidity – most liquid
Bank’s perspective – most attractive since no interest is payable.
Fixed/Term deposits
Objective – savings/tax planning . Different banks devise products according to their ALM requirement
Fixed maturity – 7 days to 10 years.
Interest – according to tenor. Free or Floating
Nomination – only individual.
Target group – mostly senor citizens/house wives. Trust etc
TDS – Interest income Re 5000 & above
Tax saving – up to Re 1.00 lac with maturity period of 5 years under sec 80 cc of IT Act
Customized for different target group such as monthly income, quarterly, reinvestment plan etc
Loan to the extent of 90 percent of the accumulated amount (principal + interest) in the account
Liquidity – premature closure .
Bank’s perspective – high cost but stable due to fixed maturity
Fixed/Term deposits
Transferable from one branch to another
Auto Sweep/Reverse Sweep a/c – money over the thresh hold limit is automatically transferred (auto sweep) from savings a/c and invested in fixed deposit a/c. Fixed deposit is linked to savings a/c. Linked fixed deposit is automatically broken to meet short fall in savings a/c.
Most liquid market instrument

RECURRING DEPOSIT
Purpose – for people who cannot put money in one lump sum
Amount deposited in Installments
Period – 12 to 60 months
Monthly installment starts from Rs 100
Premature closure
Loan facility
Free from TDS

RECURRING DEPOSIT
Target group – people who have fixed income-
Petty traders
House wives
Employed persons
Students




Non Resident a/cs
Non Resident Ordinary a/c – Rupee deposit a/c. No repatriation (flow of capital from the foreign country to the country of origin) except interest. All types of a/c’s
Non Resident External a/c - Rupee deposit a/c. Repatriation permitted. All types of a/cs. Exemption from tax liability.
Foreign currency Non resident a/c – nly in foreign currency fixed deposit a/c. Exemption form tax liability.

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