Banking and Its Products

Banking : Bank is a financial institution that accepts deposits and lend (udhar dena) them to public.

Deposits: Deposits are of four types:

Saving Accounts:

a) Used for saving purposes
b) Limits on withdrawal ( Depends upon individual banks )
c) PSB follow the rule of giving 4% rate of interest which was earlier fixed by RBI but now withdrawn but PSB
still following this
d) Earns interest on daily basis.

Current Accounts:

a) Used for Business Purposes
b) No limits on transactions, any no. of deposits and withdrawals are permitted
c) Earns no interest
d) Provide facilities like overdraft or cash credit ,i.e allowing individual to take loan from account and
then deposit in it later on.

Term Deposit Accounts:

a) Allows deposit in lump sum for a fixed period of time
b) Term or period for which the deposit is made can vary from 7 days to 10 years

Recurring Deposit Accounts:

a) Money is not deposited in lump sum , but a fixed deposit is made monthly in regular periods.
b) Term for which RD account is opened can vary from 6 months to 10 years
c) Earns same rate of interest as of term deposit accounts

Loans: Lending money to an individual at a fixed or floating rate of interest.

Two types:  Secured Loan and Unsecured Loan

Secured loan – In this, the borrower pledges some asset(car or property) as a security or collateral against the loan
Unsecured loan – In this, borrower does not please some asset as a security against the loan. So, it carries higher risk for banks to lend money.

Depending upon the types of securities pledged,classification is done as follows:

a) Mortgage: Loans against the fixed property.e.g.- home
b) Pledge : Loans against the movable property where the possession remains with creditor,i.e.Bank.e.g :Jewellery,
Stocks,shares,NSC,etc.
c) Hypothecation : Loans against th movable property where the possession remains with borrower. So,if borrower defaults, then the Bank first have to take the possession and then possess the right to sell it off.

Assets are Loans
Liabilities are deposits which has to be returned at some period of time to customers

CASA defines the ratio of Savings and Current in proportion to total deposits .Higher the CASA, more will be the profitability of Banks as the Banks pay little interest on Saving accounts which is 3 to 4% and no interest on current accounts. So, it is considered as cheap or low cost of funds for the Banks. So, CASA defines the profitability.

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