Banking Awareness

1. Bank and its operations

A bank is a financial institution that accepts deposits from the public and creates Lending. RBI is the sole regulator for the banking sector in India.

2. Assets and liabilities

Assets: (yield / income) Lending activities are the best way to earn income for banks. Personal loan,corporate loan, mortgage loan, housing loans will fetch a higher interest rate for the bank.

Liabilities: (cost fund ) Deposits with the banks are liabilities for the banks.Because banks have to give interest rate for the respective amount deposited by the customer.

3. Net Interest Margin

Net interest margin is a gap between Assets and Liability. For example bank charges 9% interest rate for loans. And it gives 4% interest for the deposits that lie with the banks. Now 9% - 4% = 5% will be the profit for the banks. The 5% is a net interest margin for the banks. Net Interest Margin (NIM) is the important parameter for the survival of any banking system.

At present, some new generation private sector banks along with SBI are able to achieve +3% NIM,which is the benchmark for profitable banking operations. But most of the public sector banks are struggling with NIMs of 2.2 to 2.7%. Hence these banks are not able to achieve desired levels of profitability. To get high net interest margin banks should reduce the cost of funds.

Types of Accounts and Nomination

1. Savings Account

It is especially for individuals and small businesses.It creates the savings habits for people in the country. Saving Account eligible for Resident Indians above 18 years age (for 10 to 18 years age group account is allowed with some restrictions and for persons below 10 years, minor account with guardian is to be opened)Saving Accounts Interest rates vary from 3.5% to 6% (Most of the banks offer 3.5% at present) Regular monthly payments through ECS are allowed for payment of house loans, personal loans etc…(Electronic Clearing Service)

No tax is payable on interest earned on saving bank account up to Rs.40,000 per year i.e. interest income up to Rs.40,000/- is exempted from income tax.From 1st April 2020 the interest is calculated on daily basis. Minimum balance varies from bank to bank. Normally Rs.500/- (without cheque book).Rs.1000/-(With cheque book)

2. Current Account

Firms and companies are eligible to open current account.Basically meant for business men, to run businesses.Normally firms / companies / trusts / association of persons can open them Current Account carries no interest on deposits.

Banks will charge service charges to account holders.Savings and current Accounts are called demand deposits. We can withdraw money at any time

3. CASH Ratio

CASH Ratio is the ratio of the deposits in the form of current and savings accounts to the total

4. Inactive /Dormant Account

If a customer has a current or a savings bank account and has not done any transactions through it for more than 12 months, then it will be classified as an inactive account. And if you don’t do any transactions from a bank account for 24 months, then it will be classified as dormant Account.

Such deposits unclaimed for more than 10 years are to be transferred to RBI. Now, RBI will use this amount for DEAF(Depositor Education Awareness Fund) Scheme to educate the depositors.

Thank you 👍😊👍

Search This Blog

N Educational Guide