BANKING
Contents
1.1 Basics of Banking............................................................................................................. 2 Relationship - Bank and Customer ........................................................................... 2 Products and Services ............................................................................................... 3 1.1.1 1.1.2 1.2
Savings Bank Accounts .................................................................................................... 3 Opening an account................................................................................................... 3 Things to Consider While Opening a Savings Account ........................................... 4 General Document Required (KYC Norms)............................................................. 4 Closing of Account ................................................................................................... 4 Account Transfer ...................................................................................................... 4
1.2.1 1.2.2 1.2.3 1.2.4 1.2.5 1.3 1.4
Cheques ............................................................................................................................ 4 Transactions ..................................................................................................................... 5 Deposits..................................................................................................................... 5 Withdrawals .............................................................................................................. 5
1.4.1 1.4.2 1.5
ATM Application ............................................................................................................. 6 Features ..................................................................................................................... 6 Construction .............................................................................................................. 6 Advantages ................................................................................................................ 7 Reliability and Security measures ............................................................................. 8
1.5.1 1.5.2 1.5.3 1.5.4 1.6
Online banking (E-banking or Internet banking) ............................................................. 8 Advantages of Online Banking ................................................................................. 8 Security features........................................................................................................ 9
1.6.1 1.6.2 1.7
Biometric Devices and its scope in Applications ............................................................. 9 Types of Applications ............................................................................................... 9 Need for Biometrics ................................................................................................ 10 Usage Methodology ................................................................................................ 11 Advantages .............................................................................................................. 11
1.7.1 1.7.2 1.7.3 1.7.4 1.9
Model Question Bank..................................................................................................... 12
1.1 Basics of Banking
A bank is a financial institution accepting deposits of money from the public for purpose of lending or investment, repayable on demand and withdrawal by cash, cheque, draft, order, etc. Banks have following Customer Segments ? ? ? ? Personal banking SME/Commercial banking Corporate & Investment banking Private banking
Benefits for Customer ? ? ? ? ? Encourages customers to cultivate the „savings? habit High level of liquidity Convenience – available 24 hours a day, 7 days a week Offers a range of products to suit needs of individual customers Safety/Security
Benefits for Bank ? ? ? Good source of low cost funds Large customer base - volume driven business Diversification of risk to a larger pool and variety of clientele Cross selling is more prevalent in Personal Banking than any other stream
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1.1.1 Relationship - Bank and Customer There can be number of relationships between bank and customer depending on situation:
? ? ? ? ? Debtor & Creditor: Customer deposits money with bank hence he becomes a Lender or Creditor of the bank. Bank has accepted deposit from customer hence bank becomes a Debtor. Pledger and Pledgee: When customer pledges (promises) certain assets or security with the bank in order to get a loan, the customer becomes the Pledger, and the bank becomes the Pledgee. Bailor & Bailee: Banks acts as a caretaker for valuables & securities in the safe custody, in this case, customer becomes the Bailor, and the bank becomes the Bailee. Trustee & Beneficiary: When the Bank holds property for the beneficiary, it becomes Trustee for the Beneficiary. Agent & Principal: Bank acts as Agent of customer, provides agency services to customer, and is responsible for carrying out customer?s instruction.
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Lessee and Lessor: Bank acts as a Lessor when it rents out space (e.g. locker) to customer who is a Lessee. Advisor and Client: When a customer invests in securities, on advice from the bank, the banker acts as an Advisor and the customer as a Client.
1.1.2 Products and Services
Products Liability Products Demand Deposits Current Accounts Saving Accounts Time Deposits Fixed Deposits Recurring Deposits Cluster Deposits Asset Products Loan Products Home Loans Vehicle Loans Asset Loans Personal Loans Securities Loans Card Products Charge Cards Credit Cards Transaction Services Banking Related Pay Orders Demand Drafts Money Transfer Electronic Clearing Standing Instruction Foreign Exchange Travelers Cheque Forex Other Products/Services Investments Securities Trading Wealth Management Mutual Funds Custody Services Insurance Life Insurance Asset Insurance Medical Insurance
1.2 Savings Bank Accounts
Saving Bank Accounts are meant to promote the habit of saving among the citizens while allowing them to use their funds when required. The main advantage of Savings Bank Account is its high liquidity and safety. Additionally, Savings Bank Accounts earn moderate interest too. The rate of interest was earlier decided and periodically reviewed by the Government of India. Presently, the rate of interest is decided by the banks themselves. 1.2.1 Opening an account Savings Bank Account can be opened in the name of an individual or in joint names of the depositors. Savings Bank Accounts can also be opened and operated by the minors provided they have completed ten years of age. Minors? Account can also be opened by their natural guardians either jointly with the minor or singly or by guardians appointed by a competent court Accounts by Hindu Undivided Families (HUF) not engaged in any trading or business activity can be opened in the name of the Karta of the HUF.
Savings accounts are opened at the discretion of the bank for persons who comply with the Know Your Customer (KYC) norms. Illiterate persons/blind persons may also open savings accounts provided they are properly introduced and other formalities for opening accounts of such persons are duly observed. The minimum balance to be maintained in an ordinary savings bank account varies from bank to bank. It is less in case of public sector banks and comparatively higher in case of private banks. In most of the public sector banks, minimum balance to be maintained is Rs. 100. In accounts where cheque books are issued, generally a minimum balance of Rs. 500/- has to be maintained. 1.2.2 Things to Consider While Opening a Savings Account 1. It is advisable to seek the following information from bank before opening the account: 2. Minimum balance requirements 3. Penal provisions in case the balance falls below the minimum stipulated amount 4. Penalty in case of return of cheques issued or instruments sent on collection 5. Collection facilities etc. offered and charges applicable. 6. Details of charges, if any for issue of cheque books and limits fixed on number of withdrawals, cash drawings, etc. 1.2.3 General Document Required (KYC Norms) 1. Two passport size photographs 2. Proof of residence i.e. Passport/driving license/Gas / Telephone / Electricity Bill/ Ration card/voters identity card 3. An introduction of the person from an existing account holder 4. PAN number / Declaration in form no.60 or 61 as per the Income Tax Act 1961 1.2.4 Closing of Account 1. If a depositor closes the account within 12 months of opening it, a small charge will generally be made 2. The Bank reserves the right to close any account without previous intimation if in the Bank's opinion it is not operated upon satisfactorily or for any other reason whatsoever 3. All remaining cheque books and passbooks should be submitted with a letter of closing 1.2.5 Account Transfer Savings accounts may be transferred from one office of the bank to another office in India, free of charge on a written request from the depositor and on return of the unused cheque leaves, if any, along with the passbook. 1.3 Cheques
1. A cheque is a written instruction you give to your banker to make payment by debit to your account on demand 2. Cheque is a valid payment instrument from the date shown on the face of it. By banking practice three months is treated as normal validity of a cheque 3. A Bearer cheque is payable to the holder. An Order cheque is payable to the person on whose favour it is drawn or subsequent endorsees. So banks seek identification of the person receiving payment of an order cheque
4. Banks verify the signature on the cheque with the account holder's specimen signature on record before making payment 5. Report loss of cheque to the issuing bank immediately and give Stop Payment instruction to them 6. Cheques should not be issued without adequate balance in the account or arrangements to pay. Dishonor of cheque for insufficiency of funds or exceeding amount arranged to be paid, is a criminal offence punishable with imprisonment for a period up to one year or with fine, which may extend to twice the amount of the cheque
1.4 Transactions
1.4.1 Deposits Amounts received for the credit of a savings account should ordinarily be accompanied by pay-in-slips with counterfoils, which will be supplied by the bank, free of charge, on request. Pay-in-slips should be made out separately for each of the following items: 1. 2. 3. 4. 5. Cash Cheques and other instruments drawn on the branch Cheques and other instruments drawn on local branches of Indian Bank Cheques drawn on outstation branches of Indian Bank or any other Bank and Cheques and other instruments drawn on local branches of other banks
Cheques and Dividend Warrants can also be used as Deposit instruments 1.4.2 Withdrawals Drawings from savings bank account will be by withdrawal forms or cheques supplied by the bank. Where a withdrawal is made by means of a withdrawal slip through a third party authorized by the account holder, the account holder should sign his name on the reverse of the withdrawal form naming the authorized person to whom the payment is to be made and also authenticate the signature of the person receiving payment on his behalf. The authorized person receiving the cash will affix his signature on the reverse of the withdrawal form. Normally no money can be withdrawn from a savings account operated by withdrawal slips without the production of the passbook. Withdrawal by cheques in cheque-operated accounts may be made only on cheque leaves supplied by the bank to the depositor. The use of withdrawal slips is restricted to Rs.10000/- for cash transactions and Rs.20000/- for transfer transactions.
1.5 ATM Application
An Automated Teller Machine (ATM), also known as Automated Banking Machine (ABM) or Cash Machine or All Time Money (in India), is a computerised telecommunications device that provides the clients of a financial institution with access to financial transactions in a public space without the need for a cashier, human clerk or bank teller. 1.5.1 Features 1. On most modern ATMs, the customer is identified by inserting a plastic ATM card with a magnetic stripe or a plastic smart card with a chip; that contains a unique card number and some security information such as an expiration date or CVV 2. Authentication is provided by the customer entering a personal identification number (PIN) 3. Using an ATM, customers can access their bank accounts in order to make cash withdrawals or deposits, balance enquiry, transfers, pay bills, order cheque books, purchase prepaid cell phone credit, deposit Cheques etc. Modern ATM?s provide most functionality which the bank offers to the customers 4. If the currency being withdrawn from the ATM is different from that which the bank account is denominated in (e.g. Withdrawing Japanese Yen from a bank account containing US Dollars), the money will be converted at a wholesale exchange rate. Thus, ATMs often provide the best possible exchange rate for foreign travelers and are heavily used for this purpose as well 1.5.2 Construction An ATM is typically made up of the following devices: 1. 2. 3. 4. 5. CPU (to control the user interface and transaction devices) Magnetic and/or Chip card reader (to identify the customer) Secure crypto processor, generally within a secure enclosure Display (used by the customer for performing the transaction) Function key buttons (usually close to the display) or a Touchscreen (used to select the various aspects of the transaction) 6. Record Printer (to provide the customer with a record of their transaction) 7. Vault (to store the parts of the machinery requiring restricted access) 8. Housing (for aesthetics and to attach signage to)
Mechanisms found inside the vault may include: 1. Dispensing mechanism (to provide cash or other items of value) 2. Deposit mechanism including a Cheque Processing Module and Bulk Note Acceptor (to allow the customer to make deposits) 3. Security sensors (Magnetic, Thermal, Seismic, Gas) 4. Locks: (to ensure controlled access to the contents of the vault) 5. Journaling systems (a sealed flash memory device based on proprietary standards) or a solid-state device (an actual printer) which accrues all records of activity including access timestamps, number of bills dispensed, etc. This is considered sensitive data and is secured in similar fashion to the cash as it is a similar liability 1.5.3 Advantages 1. Usage ? Easy to use ? Available 24X7 ? Quick and efficient ? Anywhere banking ? Cross banking facility ? No need to carry cash always or depend on bank timings 2. Alternative uses ? Deposit currency recognition, acceptance, and recycling ? Pay routine bills, fees, taxes (utilities, phone bills, social security, legal fees, taxes, etc.) ? Printing bank statements ? Updating passbooks
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Loading monetary value into stored value cards Purchasing postage stamps, lottery tickets, Train tickets, Cheque Processing Adding pre-paid cell phone / mobile phone credit
1.5.4 Reliability and Security measures 1. Reliability: Before an ATM is placed in a public place, it typically has undergone extensive testing with both test money and the backend computer systems that allow it to perform transactions. Banking customers also have come to expect high reliability in their ATMs. 2. Fraud: As with any device containing objects of value, ATMs and the systems they depend on to function are the targets of fraud. Fraud against ATMs and people's attempts to use them takes several forms. 3. Physical security: A common theft method is to simply rob the staff filling the machine with money. To avoid this, the schedule for filling them is kept secret, varying and random. The money is often kept in cassettes, which will dye the money if incorrectly opened. 4. Customer identity integrity: There have also been a number of incidents of fraud by man-in-themiddle attacks, where criminals have attached fake keypads or card readers to existing machines. These have then been used to record customers' PINs and bank card information in order to gain unauthorized access to their accounts. Various ATM manufacturers have put in place countermeasures to protect the equipment they manufacture from these threats 5. Device operation integrity: Openings on the customer-side of ATMs are often covered by mechanical shutters to prevent tampering with the mechanisms when they are not in use. Alarm sensors are placed inside the ATM and in ATM servicing areas to alert their operators when doors have been opened by unauthorized personnel. 6. Customer security: Multiple security cameras and security guards are a common feature.
1.6 Online banking (E-banking or Internet banking)
Online banking or E-banking allows customers to conduct financial transactions on a secure website. 1.6.1 Advantages of Online Banking 1. Transactional (e.g., performing a financial transaction such as an account to account transfer, paying a bill, wire transfer, and applications like applying for a loan, new account, etc.) ? Electronic Bill Presentment and Payment - EBPP ? Funds transfer between a customer's own checking and savings accounts, or to another customer's account ? Investment purchase or sale ? Loan applications and transactions, such as repayments of enrollments 2. Non-transactional (e.g., online statements, check links, browsing, chat) ? Bank statements 3. Financial Institution Administration
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Support of multiple users having varying levels of authority Transaction approval process Wire transfer
1.6.2 Security features Protection through single password authentication is not considered secure enough for personal online banking applications. So generally, there exist two different security methods for online banking. The PIN/OTP system where the PIN represents a password, used for the login and OTP represents onetime passwords to authenticate transactions. Digital certificates are used against phishing and pharming. In addition, the use of class-3 card readers is a measure to avoid manipulation of transactions by the software in signature based online banking variants. To protect their systems against Trojan horses, users should use virus scanners and be careful with downloaded software or e-mail attachments.
1.7 Biometric Devices and its scope in Applications
The term biometrics is widely known as “the science of measuring physical characteristics, to verify a person?s identity which includes voice recognition, iris and face scans, and fingerprint recognition.” Biometric characteristics can be divided in two main classes: 1. Physiological those are related to the shape of the body. Examples include, but are not limited to: ? Fingerprint ? Face recognition ? DNA ? Palm print ? Hand geometry ? Iris recognition, which has largely replaced retina ? Odour/Scent 2. Behavioral those are related to the behavior of a person. Examples include, but are not limited to: ? Typing rhythm ? Gait ? Voice 1.7.1 Types of Applications 1. Fingerprint biometrics: They are probably the most common form of biometrics available today. By having an individual scan their fingerprint electronically to decode information, the transmitter of the data can be certain that the intended recipient is the receiver of the data. When scanned electronically, fingerprints provide a higher level of detail and accuracy can be achieved over manual systems. Some other strengths associated with fingerprint biometrics are that giving fingerprints is more widely accepted, convenient and reliable than other forms of physical identification, especially when using technology.
2. Hand Geometry: Closely associated with fingerprint biometrics is another biometric that registers the imprint left by the palm of the hand. These types of scanners measure the geometry of the hand rather than the fine skin patterns as found in the fingertip. Hand scanners have been used in apartment buildings, nurseries, etc. to control access to restricted areas. These units are more commonly found in areas where dirt or debris on hands may make fingerprint identification difficult such as on shop floors in manufacturing plants. Although palm print scanners nearly match fingerprint scanners in reliability, the units are much larger in size and cost than fingerprint scanners. 3. Retina/Iris Scanners: There are two common types of optical biometrics; retinas and irises. Retinal and iris biometric devices are more accurate than fingerprint and hand biometric devices because both the retina and iris have more characteristics to identify and match than those found on the hand. The error rate for the typical retina or iris scanner is about one in two million attempts, which further demonstrates the reliability of this technology. Two drawbacks to these devices however are that they have difficulty reading images of those people who are blind or have cataracts, and that they sometimes cumbersome to use. 4. Facial Scan: Facial biometrics can function either from short distances or over greater distances. This form of biometric however are often less reliable then more common forms such as fingerprints and iris scans. The interpretative functions the computer must perform to find a match is much more subjective using this technology. An image is examined for overall facial structure, which works well over short distances but progressively loses accuracy the greater the distance between the individual and the scanner. Changes in lighting can also increase the error rate in these devices. This type of technology is in place in several airport terminals and at many border crossings to help determine the identities of individuals at a distance who may be involved in criminal activities without alerting the individual that they are being monitored. 5. Voice recognition: There are several distinct advantages that voice recognition has for use in encryption technology. Not only are voice biometrics perfect for telecommunication applications, most of the modern personal computers already possess the necessary hardware to utilize the applications. Therefore, for fewer budgets individuals can possess the technology needed to have reliable biometric encryption technology for use over the Internet. The error rate for this type of biometric is not as accurate, however, as some other forms. The error rate for this type of technology ranges between two and five percent, however it lends itself well for voice verification over the public telephone system and is more secure than PINs. Some drawbacks to this technology are that voiceprints can vary over the course of the day, and one?s health, such as a cold or laryngitis, can affect verification of the user by the system.
1.7.2 Need for Biometrics 1. Biometrics identifies a person via a unique human characteristic: the size and shape of a hand, a fingerprint, one?s face or several aspects of the eye. If the goal of an access control system is to control where people, not credentials, can and cannot go, then only a biometric device truly provides this capability to the end user. 2. As a result, biometrics is used on the front doors of thousands of businesses around the world, at the doors to the tarmacs of major airports, and at the entrances of other facilities where the combination of security and convenience are desired.
3. Biometric hand readers control client and employee access to special areas of banks, prisons, universities, hospitals, International airports, etc. 4. India is undertaking an ambitious mega project (the Multipurpose National Identity Card) to provide a unique identification number to each of its 1.25 billion people. The Identification number will be stored in a central databases; consisting the biometric information of the individual. Once implemented, this would be the biggest implementation of the biometrics in the world. 1.7.3 Usage Methodology 1. The first time an individual uses a biometric system is called an enrolment. During the enrolment, biometric information from an individual is stored. In subsequent uses, biometric information is detected and compared with the information stored at the time of enrolment. 2. The sensor is the interface between the real world and the system; it has to acquire all the necessary data. Most of the times it is an image acquisition system, but it can change according to the characteristics desired. 3. The processor removes artifact from the sensor, to enhance the input (e.g. removing background noise), to use some kind of normalization, etc. 4. Next, the necessary features are extracted. A vector of numbers or an image with particular properties is used to create a template. A template is a synthesis of the relevant characteristics extracted from the source. Elements of the biometric measurement that are not used in the comparison algorithm are discarded in the template to reduce the file size and to protect the identity of the enrollee. 1.7.4 Advantages 1. The goal of any access control system is to let authorized people, not just their credentials, into specific places. Only with the use of a biometric device can this goal be achieved. 2. A card-based access system will control the access of authorized pieces of plastic, but not who is in possession of the card. 3. Systems using PINs require an individual only know a specific number to gain entry; but who actually entered the code cannot be determined. On the contrary, biometric devices verify who people are by what they are, whether by hand, eye, fingerprint or voice recognition. 4. Biometric reductions in errors have lowered the capital costs of ID cards in recent years and the true benefit of eliminating them is realized through reduced administrative efforts. For example, a lost card must be replaced and reissued by someone. Just as there is a price associated with the time spent to complete this seemingly simple task, when added together, the overall administration of a card system is costly. 5. Contrary to using badges, sign-ins or other ways of tracking employees, a biometric time clock assures that no employee can punch in for another, eliminating time fraud and reducing payroll costs. Because every person?s biometric characteristic (hand, fingerprint, eyes, face, etc.) is unique, a biometric time clock provides a quick, accurate and reliable way to record in- and out-punches for each employee. That is why so many companies now employ biometrics.
1.9 Model Question Bank
Answer in brief (1-2 lines): Define: 1. ATM 2. Biometrics 3. E-banking Write Short Notes on: 1. Hand Geometry 2. Iris scan 3. Retina scan 4. Face recognition 5. Voice recognition 6. Biometric devices 7. Cheques 8. ATM 9. Online banking 1 mark
3 marks
Answer the following in detail: 5 marks 1. What is saving account? List the steps of open saving account. 2. What are the documents required to open Saving Accounts in the bank? 3. What are the advantages of ATM to customer? State any two benefits of ATM to banks. 4. What are the merits and demerits of E-banking? 5. Why is the need of Biometric? Which devices are used for Biometric? State any two types of Biometrics. 6. Discuss benefits of E-banking to banking industry. 7. Describe the different Relationships between Bank and Customer. 8. Explain the different types of transactions in a Bank.
doc_121241014.docx
Contents
1.1 Basics of Banking............................................................................................................. 2 Relationship - Bank and Customer ........................................................................... 2 Products and Services ............................................................................................... 3 1.1.1 1.1.2 1.2
Savings Bank Accounts .................................................................................................... 3 Opening an account................................................................................................... 3 Things to Consider While Opening a Savings Account ........................................... 4 General Document Required (KYC Norms)............................................................. 4 Closing of Account ................................................................................................... 4 Account Transfer ...................................................................................................... 4
1.2.1 1.2.2 1.2.3 1.2.4 1.2.5 1.3 1.4
Cheques ............................................................................................................................ 4 Transactions ..................................................................................................................... 5 Deposits..................................................................................................................... 5 Withdrawals .............................................................................................................. 5
1.4.1 1.4.2 1.5
ATM Application ............................................................................................................. 6 Features ..................................................................................................................... 6 Construction .............................................................................................................. 6 Advantages ................................................................................................................ 7 Reliability and Security measures ............................................................................. 8
1.5.1 1.5.2 1.5.3 1.5.4 1.6
Online banking (E-banking or Internet banking) ............................................................. 8 Advantages of Online Banking ................................................................................. 8 Security features........................................................................................................ 9
1.6.1 1.6.2 1.7
Biometric Devices and its scope in Applications ............................................................. 9 Types of Applications ............................................................................................... 9 Need for Biometrics ................................................................................................ 10 Usage Methodology ................................................................................................ 11 Advantages .............................................................................................................. 11
1.7.1 1.7.2 1.7.3 1.7.4 1.9
Model Question Bank..................................................................................................... 12
1.1 Basics of Banking
A bank is a financial institution accepting deposits of money from the public for purpose of lending or investment, repayable on demand and withdrawal by cash, cheque, draft, order, etc. Banks have following Customer Segments ? ? ? ? Personal banking SME/Commercial banking Corporate & Investment banking Private banking
Benefits for Customer ? ? ? ? ? Encourages customers to cultivate the „savings? habit High level of liquidity Convenience – available 24 hours a day, 7 days a week Offers a range of products to suit needs of individual customers Safety/Security
Benefits for Bank ? ? ? Good source of low cost funds Large customer base - volume driven business Diversification of risk to a larger pool and variety of clientele Cross selling is more prevalent in Personal Banking than any other stream
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1.1.1 Relationship - Bank and Customer There can be number of relationships between bank and customer depending on situation:
? ? ? ? ? Debtor & Creditor: Customer deposits money with bank hence he becomes a Lender or Creditor of the bank. Bank has accepted deposit from customer hence bank becomes a Debtor. Pledger and Pledgee: When customer pledges (promises) certain assets or security with the bank in order to get a loan, the customer becomes the Pledger, and the bank becomes the Pledgee. Bailor & Bailee: Banks acts as a caretaker for valuables & securities in the safe custody, in this case, customer becomes the Bailor, and the bank becomes the Bailee. Trustee & Beneficiary: When the Bank holds property for the beneficiary, it becomes Trustee for the Beneficiary. Agent & Principal: Bank acts as Agent of customer, provides agency services to customer, and is responsible for carrying out customer?s instruction.
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Lessee and Lessor: Bank acts as a Lessor when it rents out space (e.g. locker) to customer who is a Lessee. Advisor and Client: When a customer invests in securities, on advice from the bank, the banker acts as an Advisor and the customer as a Client.
1.1.2 Products and Services
Products Liability Products Demand Deposits Current Accounts Saving Accounts Time Deposits Fixed Deposits Recurring Deposits Cluster Deposits Asset Products Loan Products Home Loans Vehicle Loans Asset Loans Personal Loans Securities Loans Card Products Charge Cards Credit Cards Transaction Services Banking Related Pay Orders Demand Drafts Money Transfer Electronic Clearing Standing Instruction Foreign Exchange Travelers Cheque Forex Other Products/Services Investments Securities Trading Wealth Management Mutual Funds Custody Services Insurance Life Insurance Asset Insurance Medical Insurance
1.2 Savings Bank Accounts
Saving Bank Accounts are meant to promote the habit of saving among the citizens while allowing them to use their funds when required. The main advantage of Savings Bank Account is its high liquidity and safety. Additionally, Savings Bank Accounts earn moderate interest too. The rate of interest was earlier decided and periodically reviewed by the Government of India. Presently, the rate of interest is decided by the banks themselves. 1.2.1 Opening an account Savings Bank Account can be opened in the name of an individual or in joint names of the depositors. Savings Bank Accounts can also be opened and operated by the minors provided they have completed ten years of age. Minors? Account can also be opened by their natural guardians either jointly with the minor or singly or by guardians appointed by a competent court Accounts by Hindu Undivided Families (HUF) not engaged in any trading or business activity can be opened in the name of the Karta of the HUF.
Savings accounts are opened at the discretion of the bank for persons who comply with the Know Your Customer (KYC) norms. Illiterate persons/blind persons may also open savings accounts provided they are properly introduced and other formalities for opening accounts of such persons are duly observed. The minimum balance to be maintained in an ordinary savings bank account varies from bank to bank. It is less in case of public sector banks and comparatively higher in case of private banks. In most of the public sector banks, minimum balance to be maintained is Rs. 100. In accounts where cheque books are issued, generally a minimum balance of Rs. 500/- has to be maintained. 1.2.2 Things to Consider While Opening a Savings Account 1. It is advisable to seek the following information from bank before opening the account: 2. Minimum balance requirements 3. Penal provisions in case the balance falls below the minimum stipulated amount 4. Penalty in case of return of cheques issued or instruments sent on collection 5. Collection facilities etc. offered and charges applicable. 6. Details of charges, if any for issue of cheque books and limits fixed on number of withdrawals, cash drawings, etc. 1.2.3 General Document Required (KYC Norms) 1. Two passport size photographs 2. Proof of residence i.e. Passport/driving license/Gas / Telephone / Electricity Bill/ Ration card/voters identity card 3. An introduction of the person from an existing account holder 4. PAN number / Declaration in form no.60 or 61 as per the Income Tax Act 1961 1.2.4 Closing of Account 1. If a depositor closes the account within 12 months of opening it, a small charge will generally be made 2. The Bank reserves the right to close any account without previous intimation if in the Bank's opinion it is not operated upon satisfactorily or for any other reason whatsoever 3. All remaining cheque books and passbooks should be submitted with a letter of closing 1.2.5 Account Transfer Savings accounts may be transferred from one office of the bank to another office in India, free of charge on a written request from the depositor and on return of the unused cheque leaves, if any, along with the passbook. 1.3 Cheques
1. A cheque is a written instruction you give to your banker to make payment by debit to your account on demand 2. Cheque is a valid payment instrument from the date shown on the face of it. By banking practice three months is treated as normal validity of a cheque 3. A Bearer cheque is payable to the holder. An Order cheque is payable to the person on whose favour it is drawn or subsequent endorsees. So banks seek identification of the person receiving payment of an order cheque
4. Banks verify the signature on the cheque with the account holder's specimen signature on record before making payment 5. Report loss of cheque to the issuing bank immediately and give Stop Payment instruction to them 6. Cheques should not be issued without adequate balance in the account or arrangements to pay. Dishonor of cheque for insufficiency of funds or exceeding amount arranged to be paid, is a criminal offence punishable with imprisonment for a period up to one year or with fine, which may extend to twice the amount of the cheque
1.4 Transactions
1.4.1 Deposits Amounts received for the credit of a savings account should ordinarily be accompanied by pay-in-slips with counterfoils, which will be supplied by the bank, free of charge, on request. Pay-in-slips should be made out separately for each of the following items: 1. 2. 3. 4. 5. Cash Cheques and other instruments drawn on the branch Cheques and other instruments drawn on local branches of Indian Bank Cheques drawn on outstation branches of Indian Bank or any other Bank and Cheques and other instruments drawn on local branches of other banks
Cheques and Dividend Warrants can also be used as Deposit instruments 1.4.2 Withdrawals Drawings from savings bank account will be by withdrawal forms or cheques supplied by the bank. Where a withdrawal is made by means of a withdrawal slip through a third party authorized by the account holder, the account holder should sign his name on the reverse of the withdrawal form naming the authorized person to whom the payment is to be made and also authenticate the signature of the person receiving payment on his behalf. The authorized person receiving the cash will affix his signature on the reverse of the withdrawal form. Normally no money can be withdrawn from a savings account operated by withdrawal slips without the production of the passbook. Withdrawal by cheques in cheque-operated accounts may be made only on cheque leaves supplied by the bank to the depositor. The use of withdrawal slips is restricted to Rs.10000/- for cash transactions and Rs.20000/- for transfer transactions.
1.5 ATM Application
An Automated Teller Machine (ATM), also known as Automated Banking Machine (ABM) or Cash Machine or All Time Money (in India), is a computerised telecommunications device that provides the clients of a financial institution with access to financial transactions in a public space without the need for a cashier, human clerk or bank teller. 1.5.1 Features 1. On most modern ATMs, the customer is identified by inserting a plastic ATM card with a magnetic stripe or a plastic smart card with a chip; that contains a unique card number and some security information such as an expiration date or CVV 2. Authentication is provided by the customer entering a personal identification number (PIN) 3. Using an ATM, customers can access their bank accounts in order to make cash withdrawals or deposits, balance enquiry, transfers, pay bills, order cheque books, purchase prepaid cell phone credit, deposit Cheques etc. Modern ATM?s provide most functionality which the bank offers to the customers 4. If the currency being withdrawn from the ATM is different from that which the bank account is denominated in (e.g. Withdrawing Japanese Yen from a bank account containing US Dollars), the money will be converted at a wholesale exchange rate. Thus, ATMs often provide the best possible exchange rate for foreign travelers and are heavily used for this purpose as well 1.5.2 Construction An ATM is typically made up of the following devices: 1. 2. 3. 4. 5. CPU (to control the user interface and transaction devices) Magnetic and/or Chip card reader (to identify the customer) Secure crypto processor, generally within a secure enclosure Display (used by the customer for performing the transaction) Function key buttons (usually close to the display) or a Touchscreen (used to select the various aspects of the transaction) 6. Record Printer (to provide the customer with a record of their transaction) 7. Vault (to store the parts of the machinery requiring restricted access) 8. Housing (for aesthetics and to attach signage to)
Mechanisms found inside the vault may include: 1. Dispensing mechanism (to provide cash or other items of value) 2. Deposit mechanism including a Cheque Processing Module and Bulk Note Acceptor (to allow the customer to make deposits) 3. Security sensors (Magnetic, Thermal, Seismic, Gas) 4. Locks: (to ensure controlled access to the contents of the vault) 5. Journaling systems (a sealed flash memory device based on proprietary standards) or a solid-state device (an actual printer) which accrues all records of activity including access timestamps, number of bills dispensed, etc. This is considered sensitive data and is secured in similar fashion to the cash as it is a similar liability 1.5.3 Advantages 1. Usage ? Easy to use ? Available 24X7 ? Quick and efficient ? Anywhere banking ? Cross banking facility ? No need to carry cash always or depend on bank timings 2. Alternative uses ? Deposit currency recognition, acceptance, and recycling ? Pay routine bills, fees, taxes (utilities, phone bills, social security, legal fees, taxes, etc.) ? Printing bank statements ? Updating passbooks
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Loading monetary value into stored value cards Purchasing postage stamps, lottery tickets, Train tickets, Cheque Processing Adding pre-paid cell phone / mobile phone credit
1.5.4 Reliability and Security measures 1. Reliability: Before an ATM is placed in a public place, it typically has undergone extensive testing with both test money and the backend computer systems that allow it to perform transactions. Banking customers also have come to expect high reliability in their ATMs. 2. Fraud: As with any device containing objects of value, ATMs and the systems they depend on to function are the targets of fraud. Fraud against ATMs and people's attempts to use them takes several forms. 3. Physical security: A common theft method is to simply rob the staff filling the machine with money. To avoid this, the schedule for filling them is kept secret, varying and random. The money is often kept in cassettes, which will dye the money if incorrectly opened. 4. Customer identity integrity: There have also been a number of incidents of fraud by man-in-themiddle attacks, where criminals have attached fake keypads or card readers to existing machines. These have then been used to record customers' PINs and bank card information in order to gain unauthorized access to their accounts. Various ATM manufacturers have put in place countermeasures to protect the equipment they manufacture from these threats 5. Device operation integrity: Openings on the customer-side of ATMs are often covered by mechanical shutters to prevent tampering with the mechanisms when they are not in use. Alarm sensors are placed inside the ATM and in ATM servicing areas to alert their operators when doors have been opened by unauthorized personnel. 6. Customer security: Multiple security cameras and security guards are a common feature.
1.6 Online banking (E-banking or Internet banking)
Online banking or E-banking allows customers to conduct financial transactions on a secure website. 1.6.1 Advantages of Online Banking 1. Transactional (e.g., performing a financial transaction such as an account to account transfer, paying a bill, wire transfer, and applications like applying for a loan, new account, etc.) ? Electronic Bill Presentment and Payment - EBPP ? Funds transfer between a customer's own checking and savings accounts, or to another customer's account ? Investment purchase or sale ? Loan applications and transactions, such as repayments of enrollments 2. Non-transactional (e.g., online statements, check links, browsing, chat) ? Bank statements 3. Financial Institution Administration
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Support of multiple users having varying levels of authority Transaction approval process Wire transfer
1.6.2 Security features Protection through single password authentication is not considered secure enough for personal online banking applications. So generally, there exist two different security methods for online banking. The PIN/OTP system where the PIN represents a password, used for the login and OTP represents onetime passwords to authenticate transactions. Digital certificates are used against phishing and pharming. In addition, the use of class-3 card readers is a measure to avoid manipulation of transactions by the software in signature based online banking variants. To protect their systems against Trojan horses, users should use virus scanners and be careful with downloaded software or e-mail attachments.
1.7 Biometric Devices and its scope in Applications
The term biometrics is widely known as “the science of measuring physical characteristics, to verify a person?s identity which includes voice recognition, iris and face scans, and fingerprint recognition.” Biometric characteristics can be divided in two main classes: 1. Physiological those are related to the shape of the body. Examples include, but are not limited to: ? Fingerprint ? Face recognition ? DNA ? Palm print ? Hand geometry ? Iris recognition, which has largely replaced retina ? Odour/Scent 2. Behavioral those are related to the behavior of a person. Examples include, but are not limited to: ? Typing rhythm ? Gait ? Voice 1.7.1 Types of Applications 1. Fingerprint biometrics: They are probably the most common form of biometrics available today. By having an individual scan their fingerprint electronically to decode information, the transmitter of the data can be certain that the intended recipient is the receiver of the data. When scanned electronically, fingerprints provide a higher level of detail and accuracy can be achieved over manual systems. Some other strengths associated with fingerprint biometrics are that giving fingerprints is more widely accepted, convenient and reliable than other forms of physical identification, especially when using technology.
2. Hand Geometry: Closely associated with fingerprint biometrics is another biometric that registers the imprint left by the palm of the hand. These types of scanners measure the geometry of the hand rather than the fine skin patterns as found in the fingertip. Hand scanners have been used in apartment buildings, nurseries, etc. to control access to restricted areas. These units are more commonly found in areas where dirt or debris on hands may make fingerprint identification difficult such as on shop floors in manufacturing plants. Although palm print scanners nearly match fingerprint scanners in reliability, the units are much larger in size and cost than fingerprint scanners. 3. Retina/Iris Scanners: There are two common types of optical biometrics; retinas and irises. Retinal and iris biometric devices are more accurate than fingerprint and hand biometric devices because both the retina and iris have more characteristics to identify and match than those found on the hand. The error rate for the typical retina or iris scanner is about one in two million attempts, which further demonstrates the reliability of this technology. Two drawbacks to these devices however are that they have difficulty reading images of those people who are blind or have cataracts, and that they sometimes cumbersome to use. 4. Facial Scan: Facial biometrics can function either from short distances or over greater distances. This form of biometric however are often less reliable then more common forms such as fingerprints and iris scans. The interpretative functions the computer must perform to find a match is much more subjective using this technology. An image is examined for overall facial structure, which works well over short distances but progressively loses accuracy the greater the distance between the individual and the scanner. Changes in lighting can also increase the error rate in these devices. This type of technology is in place in several airport terminals and at many border crossings to help determine the identities of individuals at a distance who may be involved in criminal activities without alerting the individual that they are being monitored. 5. Voice recognition: There are several distinct advantages that voice recognition has for use in encryption technology. Not only are voice biometrics perfect for telecommunication applications, most of the modern personal computers already possess the necessary hardware to utilize the applications. Therefore, for fewer budgets individuals can possess the technology needed to have reliable biometric encryption technology for use over the Internet. The error rate for this type of biometric is not as accurate, however, as some other forms. The error rate for this type of technology ranges between two and five percent, however it lends itself well for voice verification over the public telephone system and is more secure than PINs. Some drawbacks to this technology are that voiceprints can vary over the course of the day, and one?s health, such as a cold or laryngitis, can affect verification of the user by the system.
1.7.2 Need for Biometrics 1. Biometrics identifies a person via a unique human characteristic: the size and shape of a hand, a fingerprint, one?s face or several aspects of the eye. If the goal of an access control system is to control where people, not credentials, can and cannot go, then only a biometric device truly provides this capability to the end user. 2. As a result, biometrics is used on the front doors of thousands of businesses around the world, at the doors to the tarmacs of major airports, and at the entrances of other facilities where the combination of security and convenience are desired.
3. Biometric hand readers control client and employee access to special areas of banks, prisons, universities, hospitals, International airports, etc. 4. India is undertaking an ambitious mega project (the Multipurpose National Identity Card) to provide a unique identification number to each of its 1.25 billion people. The Identification number will be stored in a central databases; consisting the biometric information of the individual. Once implemented, this would be the biggest implementation of the biometrics in the world. 1.7.3 Usage Methodology 1. The first time an individual uses a biometric system is called an enrolment. During the enrolment, biometric information from an individual is stored. In subsequent uses, biometric information is detected and compared with the information stored at the time of enrolment. 2. The sensor is the interface between the real world and the system; it has to acquire all the necessary data. Most of the times it is an image acquisition system, but it can change according to the characteristics desired. 3. The processor removes artifact from the sensor, to enhance the input (e.g. removing background noise), to use some kind of normalization, etc. 4. Next, the necessary features are extracted. A vector of numbers or an image with particular properties is used to create a template. A template is a synthesis of the relevant characteristics extracted from the source. Elements of the biometric measurement that are not used in the comparison algorithm are discarded in the template to reduce the file size and to protect the identity of the enrollee. 1.7.4 Advantages 1. The goal of any access control system is to let authorized people, not just their credentials, into specific places. Only with the use of a biometric device can this goal be achieved. 2. A card-based access system will control the access of authorized pieces of plastic, but not who is in possession of the card. 3. Systems using PINs require an individual only know a specific number to gain entry; but who actually entered the code cannot be determined. On the contrary, biometric devices verify who people are by what they are, whether by hand, eye, fingerprint or voice recognition. 4. Biometric reductions in errors have lowered the capital costs of ID cards in recent years and the true benefit of eliminating them is realized through reduced administrative efforts. For example, a lost card must be replaced and reissued by someone. Just as there is a price associated with the time spent to complete this seemingly simple task, when added together, the overall administration of a card system is costly. 5. Contrary to using badges, sign-ins or other ways of tracking employees, a biometric time clock assures that no employee can punch in for another, eliminating time fraud and reducing payroll costs. Because every person?s biometric characteristic (hand, fingerprint, eyes, face, etc.) is unique, a biometric time clock provides a quick, accurate and reliable way to record in- and out-punches for each employee. That is why so many companies now employ biometrics.
1.9 Model Question Bank
Answer in brief (1-2 lines): Define: 1. ATM 2. Biometrics 3. E-banking Write Short Notes on: 1. Hand Geometry 2. Iris scan 3. Retina scan 4. Face recognition 5. Voice recognition 6. Biometric devices 7. Cheques 8. ATM 9. Online banking 1 mark
3 marks
Answer the following in detail: 5 marks 1. What is saving account? List the steps of open saving account. 2. What are the documents required to open Saving Accounts in the bank? 3. What are the advantages of ATM to customer? State any two benefits of ATM to banks. 4. What are the merits and demerits of E-banking? 5. Why is the need of Biometric? Which devices are used for Biometric? State any two types of Biometrics. 6. Discuss benefits of E-banking to banking industry. 7. Describe the different Relationships between Bank and Customer. 8. Explain the different types of transactions in a Bank.
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