Our site is under maintenance. Stay Tuned!!
Menu
Our site is under maintenance. Stay Tuned!!
Bank is a financial institution that is authorized to receive deposits and offer loans to their customers including individuals, corporates, and groups. Additionally, they provide financial services to the regular public such as loans, wealth management, investment services, currency exchange, safe deposit facilities and more. Banks are important to a country’s growth and development and essential to its financial stability. This is why most of the banks are highly regulated by a governmental authority of the country. In the modern era, there are different types of banks that are essential to the smooth functioning of the economy. In this session, we will learn about mainly 5 modules. They are:
They are also known as retail banks. These types of banks are extremely important as they manage money for individuals and small businesses. Apart from withdrawal and deposits, these banks are also allowed to provide short term loans to individuals and small enterprises. Customers can perform most of the fundamental banking activities in these banks. The top commercial and retail banks of India are State Bank of India, ICICI Bank, HDFC Bank, and Axis Bank.
These banks are essential to the functioning of big corporations, big enterprises, government, and other entities. These banks act as a financial intermediary and provide a variety of services for the large industries. Some of the most reliable investment banks are JP Morgan, Citigroup, Bank of America, Deutsche Bank, and Barclays.
This is a reference to banks that are associated with national postal system to provide the citizens with basic banking activities.
Regional Rural Banks are government owned scheduled commercial banks of India that operate at regional level in different states of India. These banks are under the ownership of Ministry of Finance, Government of India. They were created to serve rural areas with basic banking and financial services.
Co-operative Banks in India are registered under Co-operative Societies Act, 1912. These banks operate both at the urban and rural level. They were created to serve entrepreneurs, small businesses, industries, and self-employed personnel, and more.
Payment banks are new model of banks, conceptualised by the Reserve Bank of India, which cannot issue credit. These banks can accept a restricted deposit, which is currently limited to ₹200,000 per customer and may be increased further. These banks cannot issue loans and credit cards.
Small Finance Banks are a type of niche banks in India. Banks with a small finance bank (SFB) license can provide basic banking service of acceptance of deposits and lending. The aim behind these is to provide financial inclusion to sections of the economy not being served by other banks, such as small business units, small and marginal farmers, micro and small industries and unorganised sector entities.
A neo bank is a digital only and mobile-first bank. In India, service providers partner up with traditional banks to create a digital banking platform for giving customers seamless banking on the go.
Local Area Banks were introduced in India in the year 1996. These are organized by the private sector. Earning profit is the main objective of Local Area Banks. Local Area Banks are registered under Companies Act, 1956. At present, there are only 4 Local Area Banks, all of them located in South India.
Certain banks are introduced for specific purposes only. Such banks are called specialized banks. Small Industries Development Bank of India (SIDBI) is an example. Loan for a small scale industry or business can be taken from SIDBI. Financing small industries with modern technology and equipment is done with the help of this bank. There are various other specialized banks and each possesses a different role in helping to develop the country financially.
This is an important function of banks that enables us to transfer funds from one account to another, from one city to another. Alongside, modern banking systems allow us to make the direct online money transfer, pay utility bills, collection of cheques, and more. With the evolution of technology, payments can be made and collected from any part of the world.
A loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations, etc. The recipient incurs a debt and is usually liable to pay interest on that debt until it is repaid, as well as to repay the principal amount borrowed.
A. Categories of Lending
1. Collateral Lending/ Secured Loans
A collateral loan is a type of secured loan requiring a borrower to pledge an asset to avail the loan. The asset, called a ‘collateral,’ is liquidated by the lender in case the borrower defaults.
Types of Collateral to Secure a Loan
2. Non Collateral Lending/ Unsecured Loans
An unsecured loan is a loan that doesn’t require any type of collateral. Instead of relying on a borrower’s assets as security, lenders approve unsecured loans based on a borrower’s creditworthiness. Examples of unsecured loans include personal loans, student loans, and credit cards.
B. Types of Loans
1.Term Loan
A term loan is simply a loan provided for business purpose that needs to be paid back within a specified time frame. It typically carries a fixed interest rate, monthly or quarterly repayment schedule – and includes a set maturity date. Term loans can be both secure (i.e. some collateral is provided) and unsecured. A secured term loan will usually have a lower interest rate than an unsecured one. Depending upon the repayment period this loan type is classified as under:
Short term loan: Repayment period less than 1 year.
Medium term loan: Repayment period between 1 to 3 years.
Long term loan: Repayment period above 3 years.
Types of Term Loans
1.1. Home Loan
A home loan is a secured loan that is obtained to purchase a property by offering it as collateral. Home loans offer high-value funding at economical interest rates and for long tenure periods. They are repaid through EMIs. After repayment, the property’s title is transferred back to the borrower.
1.2. Personal Loan
A personal loan (also known as a consumer loan) describes any situation in which an individual borrows money for personal need, including making investments in a company.
1.3. Consumer Loan
Consumer loan means a loan to one or more individuals for household, family, or other personal expenditures.
1.4. Education Loan
An education loan is a sum of money borrowed to finance post-secondary education or higher education-related expenses. Education loans are intended to cover the cost of tuition, books and supplies, and living expenses while the borrower is in the process of pursuing a degree.
1.5. Vehicle Loan
A Vehicle Loan is a loan that allows you to purchase two and four wheelers for personal use. Typically, the lender loans the money (making a direct payment to the dealer on the buyer’s behalf) while the buyer must repay the loan in Equated Monthly Instalments (EMIs) over a specific tenure at a specific interest rate.
2. Bank Overdraft
A Bank Overdraft Facility refers to the ability to draw funds greater than the amount available in the company’s current account. The actual size of the facility and the interest to be paid on overdrafts is typically agreed to prior to sanction. An overdraft facility is considered as a source of short term funding as it can be covered with the next deposit.
3. Letter of Credit
A letter of credit is a document issued by a financial institution assuring payment to a seller provided certain documents have been presented to the bank. This ensures the payment will be made as long as the services are performed (usually the dispatch of goods). Hence, a Letter of Credit serves as a guarantee to the seller that he or she will be paid as agreed. It is often used in trade financing when goods are sold to overseas customers or between trading parties who are not well known to each other.
4. Bank Guarantee
A bank guarantee is a ‘letter of guarantee’ issued by a bank on behalf of its customer, to a third party (the beneficiary) guaranteeing that certain sum of money shall be paid by the bank to the third party within its validity period on presentation of the letter of guarantee. A letter of guarantee usually sets out certain conditions under which the guarantee can be invoked. Unlike a line of credit, the sum is only paid if the opposing party does not fulfil the stipulated obligations under the contract. A bank guarantee is usually used to insure a buyer or seller from loss or damage due to non-performance by the other party in a contract.
5. Lease Finance
Lease Financing is a modern financing method that allows individuals or companies to own and make use of certain assets for medium to long term financing periods in return for previously – set interim payments. The lessor, who is the finance company, purchases the assets and becomes its legal owner. At the conclusion of the leasing period, the lessor would have recovered a large portion (or all) of the initial cost of the identified asset, in addition to interest earned from the rentals or instalments paid by the lessee. The lessee also has the option to acquire ownership of the identified asset by, for example, paying the final rental or instalment, or by bargaining a final purchase price with the lessor. Throughout the duration of the leasing period, the lessor (finance company) remains the legal owner of the asset. However, the lessee has control over the asset, and makes use of it as required.
6. SME Collateral free loan
This is usually a business loan offered to SMEs and is collateral-free or without third party guarantee. Here the borrower is not required to provide collateral to avail the loan. It is made available to SMEs in both the start-up as well as existent phases to serve working capital requirements, purchase of machines, support expansion plans. However, it is to be noted that small businesses involved in retail trade are not eligible for these types of loans.
7. Construction Equipment loans
Construction Equipment loans are provided for purchase of both new and used equipment like excavators, backhoe loaders, cranes, high end construction equipment etc. The tenure of such loans varies from 12 to 60 months depending upon the deal and nature of repayment capacity. This is usually a secured loan where the machine itself is hypothecated until the loan is repaid.
8. SME Credit Card
A SME Credit Card is a loan type that is made available either in Cash Credit or in Term Loan type, the quantum of credit being up to 10 lakhs. This loan facility can be used by small industrial units, small retail trader, small business enterprises and transport traders. The repayment period for Term Loans is 5 years and 3 years for Cash Credit.
9. Commercial Vehicle Loans
Commercial Vehicle Loans enables a borrower to purchase vehicles like trucks, buses, tippers, light commercial vehicles. The tenure of such loans varies from 12 to 60 months depending upon the deal and nature of repayment capacity.
This loan facility is provided to companies with more than two years of business experience, existing owners of at least two commercial vehicles, captive customers and transporters.
Overdraft services allow account holders to withdraw more than what their deposits allow. Though, interest is charged on the overdrawn amount. This is one of the many ways banks lend money to their customers.
Imagine if there were no banks where you would acquire foreign currency for travel or trading purposes. The banks provide foreign currency exchange with local currency in an easy manner.
Modern banks have a holistic approach and they aim to provide all kinds of services to their customers that involve their financial situation. Modern banks are hiring financial and legal experts to provide advice and solutions about customer’s wealth, investment, and trading. It has become a paid service with annual fees. The service provider will take care of the overall wealth management of the client.
In the digital world, every bank is striving to make space in online banking world. With the help of the internet, banks allow their customers to perform banking activities through their official website. This allows the customer to access their account 24/7 without having to visit a physical branch.
Similarly, banks are also providing mobile banking services wherein customers can perform banking activities through their smartphone apps.
Home banking is another rising trend wherein banking transaction can be made from home directly. These services require an internet connection or access to online banking.
Most of the banks offer credit and debit cards to their customers that can be used to purchase products and services, and even borrow or withdraw money. This is one of the most important steps towards a cashless society.
Banks also offer safe deposit to their clients to store their valuables safely, at minimal fees.
There are several ways banks offer to transfer money from one part of the world to the other with the help of demand drafts, money orders, cheques, online banking, and more.
Many banks now offer financial services to their customers. They help them make the best of their wealth by offering several investment products.
Wealth management is one of the many investment services offered by banks. It allows the customers to plan their finances to grow long-term wealth.
Apart from all this, banks also offer several auxiliary services to the customers such as solvency certificates, mutual funds, insurance services, gold coins, and more.
Traditionally, there are four types of bank accounts in India, which are – Current Account, Recurring Deposits, Savings Accounts, and Fixed Deposit Accounts. Each type has its advantages. NRI accounts are specially designed for Non Resident Indians
A savings account is a bank account at a retail bank. Common features include a limited number of withdrawals, a lack of cheque and linked debit card facilities, limited transfer options and the inability to be overdrawn
A current account is a bank account where you can store and withdraw money. Most banks offer a range of current accounts that have different features, so you can find an account that best suits your needs.
A fixed deposit account is a specific deposit instrument provided by banks or other financial institutions which provides investors a higher rate of interest than a regular savings account, until the given maturity date. It may or may not require the creation of a separate account.
A recurring deposit account is a special kind of term deposit offered by Indian banks and Post Office which helps people with regular incomes to deposit a fixed amount every month into their account and earn interest at the rate applicable to fixed deposits.
Your CIBIL Score provides lenders an indication of your credit health. A high score represents creditworthiness of an individual. The higher your score the better are your chances of getting a loan. Be it Credit Card, Personal Loan, Home Loan, Auto Loan or Consumer Durable Loan; with your CIBIL Score and Report you can now plan your loan requirements in a more organized manner.
1. Fixed interest rate:
A fixed interest rate on a loan or mortgage stays at the predetermined rate for the entire term of the loan. This allows borrowers to plan their future payments. Usually personal loans and credit cards have fixed interest rates.
2. Floating interest rate:
A floating interest rate fluctuates with the market or along with an index. Floating rates are usually offered for home loans; the prime lending rate or the base rate is used as a basis for calculating the floating rate and the interest rate charged is the prime interest rate/base rate plus a certain spread (as charged by the credit institution)
The document required for availing loans will vary depending upon bank policy and type of loans. Some of the most commonly required documents are;
Latest Credit Score
Bank Statement
KYC Documents
Registration Papers
Income Statement
Property Papers
IT Return for 3 years
Your CIBIL Score provides lenders an indication of your credit health. A high score represents creditworthiness of an individual. The higher your score the better are your chances of getting a loan. Be it Credit Card, Personal Loan, Home Loan, Auto Loan or Consumer Durable Loan; with your CIBIL Score and Report you can now plan your loan requirements in a more organized manner.
A fixed deposit is a specific deposit instrument provided by banks or other financial institutions which provides investors a higher rate of interest than a regular savings account, until the given maturity date. It may or may not require the creation of a separate account.
A recurring deposit is a special kind of term deposit offered by Indian banks and Post Office which helps people with regular incomes to deposit a fixed amount every month into their recurring deposit account and earn interest at the rate applicable to fixed deposits.
The Savings Bond is issued in a Demat form. It is credited to the Bond Ledger Account of the investor. The bank gives a certificate of holding to the investor as proof of the investment. The interest on the Savings Bond is payable every six months.
