Unit – II

Chapter – 3
Operations of bank accounts
Objective

 To know about operations of various bank account.

 To know the demand deposits and time deposits
 To understand the various special deposit schemes offered by banks
 To know about the bank accounts of Non-Resident Indians
1.Introduction

A modern banker operates different type of accounts to give the best advantage of
convenience and profit to the customer. A banker operates accounts to suit the requirements of
every type of customer.

There are four types of deposit accounts namely Savings Bank Account, Current Account, Fixed
Deposit Account and Recurring Deposit Account.

While opening an account in person, most banks require two forms of identification – Address
Proof, ID Proof.

 Proof of Identity - Passport, Driving License, Voters Id card etc,.

 Proof of Address - Passport, Driving License, Voters Id card, RationCard.

 Pan Card or Form 16 ( only if PAN Card is not available)

 Two Latest Passport Size Photographs.

2. Savings Bank Account

A savings bank account is a basic type of bank account that allows to deposit money,
keep it safe, withdraw funds and bears an interest. Savings accounts are offered by most banks,
credit unions and other financial instituitions.
2.1 Who can open a SB A/C

 Should be a citizen of India

 Should be 18 years and above
 In case of minors, the parents or legal guardian of minor can open the account
on their behalf.
 The applicant is required to have valid identity and address proof that is
Government approved.
 Following approval from the bank, the applicant will have to make initial
deposit ( depending on the minimum balance requirement of that particular
savings bank a/c he/ she has chosen)

2.2 Procedure - Steps

 Visit the nearby bank branch you have chosen.

 Request the Bank officer for an account opening form.
 Filling up of account opening form which requires all details of
customers(KYC details – Know Your Customer)
 Ensure that all the field have been entered and are correct.
The details mentioned in the Application form should match those mentioned
in the KYC documents have been submitted.
 Customers have to make initial deposit.
 As soon as the bank completes the verification process the accountholder
will be granted a free passbook and a cheque book (optional).
 Simultaneously Customers can submit the internet banking form.
 All savings bank account customers are requires nominating a beneficiary.

When filling application form Customers will be required to choose a nominee.

Following death of account holder the nominee himself can operate account, if he is not a minor.
3. Current Account

A special type of bank account opened by traders, businessmen, corporate bodies, and others
who operate the account frequently is known as ‘current account’.

Following are the features of a current account:

a. Varying minimum balance is to be maintained in rural, semi- urban areas and metros.
b. Account is not eligible for interest.
c. There is no ceiling on the number of with drawls and credits.
d. Passbook, pass sheet, standing instructions, and cheque collection facilities are available.
e. Helps in supporting day-to-day financial requirements.
f. Gives the advantage of maximum financial leverage for the customer’s money thus
saving on the time and cost.

3.1 Savings/Current Account – Benefits.

Following are the benefits available to the savings and current account holders.

3.2 Card Convenience

The first and the foremost advantage of operating a savings and current account is that
the bank provides the benefit of free ATM/ Debit card. The card provides a wide network for
accessing the account anytime anywhere. This enables the customer to withdraw cash, enquire
about the balance, etc. Further, it is also possible for the customer to avail of ‘International Debit
Card’, which can be used domestically, as well as internationally

3.3 Easy and wide accessibility of money

Both the savings and current accounts provide the advantages of transacting at the
customer’s convenience. This, in turn, saves time and cost through a wide distribution network
spread all over India. The facility is available through the ATMs and Internet banking.
3.4 Monitoring account

With the help of latest banking technique such as internet banking, it is possible for a
customer to view the statement of banking transactions at any time anywhere. This way, the
accounts can be monitored and controlled.

3.5 Sweep-in account.

Funds can be transferred from fixed deposits to your current account whenever needed
for meeting immediate cash requirements.

3.6 Easy transaction

Both savings and current accounts offer the advantages of easy and convenient
transaction as mentioned below.

 Unlimited credits allowed in all accounts.

 Unlimited number of payments.

 Facility of security of a cheque payment guarantee, if the balance in the account goes
insufficient for the payment of a cheque, through a prearranged limit.

 Make payments by giving standing instructions.

 Order Demand Drafts and Pay- Orders on a wide area of locations.

 Transfer funds from any part of the country.

 Up country cheque collection.

 Free cheque book of leaves every year.

 Facility of a safe deposit locker for the safety of your important documents and valuable,

 Efficient foreign exchange services.

3.7 Money multiplier

The accounts would give the benefit of money multiplier. This is possible by linking the
current account to the deposit account. This way, the customer can earn additional interest on the
surplus money. Further, this also gets rid of the problems of bounced cheques forever.

3.8 Other benefits

In addition to above, the savings and current accounts provide the customer the following
further benefits.

 Free account transfer between our wide network of branches.

 Nomination facility available.

 Facility to open your current account in single or joint names.

 Very low minimum balance requirements.

 Full security of our money at all times.

3.9 Privileges Enjoyed by Current Account Holders.

‘Current deposits’ are the deposits in which the customers, generally, the business
customers, deposit any amount and withdraw any amount by cheque at their convenience.
Current account holders enjoy certain privileges (many of these privileges are not available to
saving account holders) such as the following.

a. Withdrawal of any amount at any time by issue of cheques.

b. Collection of third party cheques.

c. Availability of overdraft facilities.

d. Availability of cash credit facilities.

4. Resident Foreign Currency (Domestic) Account

It is a type of an account opened by a banker where it is possible for a customer to

deposit foreign currency USD, GBP, and Euros. This account can be opened as Current Account
Only. The account carries no interest with it and there is no minimum amount for opening the
account. Foreign exchange acquired in the form of currency notes, travellers cheques, gifts,
honorarium received outside India, gifts received from relatives and earnings through the export
of goods and services, can be credited to this account,

5. Fixed Deposit Account

A type of an account opened by a customer where the money is deposited for longer
period of time and to get a regular income, it its known as ‘fixed deposit account’. Fixed deposit
account is safe and fetches relatively a higher return. The minimum amount of deposit under this
type of account is Rs. 500. There is no ceiling for the maximum amount of deposit that can be
made into this account.

`Under this type of deposit account, the depositor agrees not to withdraw the money
before the expiry of the period for which it has been deposited. As such, the banker can freely
utilize the amount for the deposit period. The rate of interest payable depends on the period of
time deposit. Accordingly, longer the period, higher will be the rate of interest. The time deposit
is also known as ‘Fixed Deposit.’

The period of deposit varies from 15 days to 120 months. Interest is paid monthly,
quarterly, half- yearly or annual intervals at depositor’s choice. An attractive rate of interest is
offered at the choice of banker.

An important advantage of the fixed deposit account is that there is high order of liquidity. It is
possible for the customer to obtain loan against deposit. Besides, the customer may choose to
close the account any time before maturity. Further, there is also the facility of part with drawl
of deposits in units of Rs. 1000 keeping the rest of deposit to earn contract rate of interest.

Like the savings and current accounts, fixed deposit account also gives the beneficiary
the advantage of nomination facility.
5.1 FIXED DEPOSIT RECEIPT

1. It is not a negotiable instrument and hence cannot be transferred and the transferee does
not get a better title than that of the transferor.

2. It cannot be transferred by mere blank endorsement.

3. It can be assigned but the assignment should be duly given to the bank. Otherwise,
assignment will not be a valid one.

4. Cheques cannot be drawn against fixed deposit receipts.

5. If the deposit receipt is duly signed by the customer but presented by a third party,
banker should not pay the amount until he obtains ‘Letter of Authority’ from his
customer.

6. A fixed deposit receipt just due for payment can only be attached by court.

7. Fixed deposit receipt can be a subject of a Donotio Mortis causa i.e., a donation or gift
made in contemplation of the death of the donor and to take effect only in that event. If
the donor does not die, the gift or donation is recoverable by him.

8. Fixed deposit made- jointly by many persons is repayable to all of them jointly and not
to any unless otherwise arranged.

9. Limitation period on the back of the receipt.

If the fixed deposit receipt is lost or destroyed the bank cannot stand in the way of reclaiming the
money by the depositor. The depositor can get a duplicate of the FDR and the banker can repay
the deposit on surrender of the duplicate receipt. The banker may, obtain at the time of
repayment or deposit amount an indemnity Bond in order to safeguard his position.

5.2 Reinvestment Deposit Account

A type of deposit account in which there is a facility of reinvestment of money

immediately after the expiry of the fixed deposit. Apart from safety and liquidity, it offers the
highest growth option in the form of compounded interest.
Some of the features and benefits of this type of account are as follows:

a. Minimum account balance is Rs.1000

b. There is no maximum ceiling.

c. As regards the period of deposit, it ranges from the minimum of 6 months to maximum of
120 months.

d. It offers high returns.

e. Usually interest is compounded every quarter.

f. Easy liquidity.

g. Closure before maturity.

h. Loan against deposit permissible.

i. Facility of part withdrawal of deposits in units of Rs.1000 keeping the rest of the deposit
to earn contracted rate of interest.

j. Nomination facility is available.

5.3 Flexi- deposit Account:

A type of a deposit account operated by a banker which combines the advantages of

savings accounts and fixed deposit account. The account offers high returns and liquidity. This
account enables the customer to earn maximum interest. Under this type of account, automatic
transfer of funds is made beyond a certain amount, say Rs.15000 from the customer’s savings
bank account to an automatically created fixed deposit in multiplies of a certain amount usually,
Rs.1000 that would earn more interest. The distinct advantage is that the savings bank account
continues to serve as before.

Under this kind of an account, where the cheque amount exceeds the available balance in
savings account balance, funds are transferred from the fixed deposit account so as to ensure that
the customer’s cheque is honoured. Such transfers are effected automatically in multiplies of
usually Rs.1000 thus allowing the remaining portion of the fixed deposit to earn the contracted
rate of interest. The choice of selecting period for which fixed deposits should be placed rests
with the customer, and he has the option to change the period for future deposits.

5.4 Senior Citizen Deposit Account

A type of account operated by a banker for the benefit of the senior citizens of the
country is known as ‘Senior Citizen deposit account’. The objective of this type of account is to
respect the age of the people of the country.

The features of the senior citizen deposit account as follows:

a. Eligibility: Individuals, who have completed the age of 60 years and above, single or joint
names, are eligible to open this type of account.

b. Joint account: Accounts can be opened jointly with other senior citizens or with other
persons below the age of 60 subject to the condition that the senior citizen is number one
depositor.

c. Proof of Age: At the time of opening of new deposit account a certified copy of any of the
following documents may be produced:

1. Secondary School Leaving Certificate indicating the date of birth.

2. LIC policy.

3. Voters Identity Card.

4. Pension Payment Order.

5. Birth Certificate issued by the competent authority

6. Passport

7. Any other documents acceptable to the bank.

High returns- The account offers an attractive rate of interest, 0.50 per cent above the base
rate as applicable from time to time.
 d. Eligible accounts: Domestic fixed deposits and Kamadhenu deposits, etc., are some of the
accounts eligible for being used for opening the senior citizen account.

e. Investment limit: Minimum is Rs. 1000 and there is no maximum limit of deposit
investment.

f. Period of deposit: Period of deposit varies from 15 days to 120 months.

g. Other features:

1. Easy liquidity

2. Loans against deposits period.

3. Nomination facility available.

4. No TDS(Tax Deducted at Source) on interest income upto Rs.50000/-

6. Recurring Deposit Account:

A type of bank account where the customer makes a deposit on a periodical interval up to
a certain period of time is known as ‘recurring deposit account’. The purpose of this type of
account encourages thrift and savings habit and makes it a rewarding recurring habit. The
account is ideal for convenient savings. It enables to build up sizeable capital in a regular and
systematic way.

The deposit is made in as low an amount of Rs. 50 and in multiplies of Rs. 50. There is
no ceiling on the maximum amount. The account offers an attractive rate of interest, the rate
being revised from time to time. The interest is compounded every quarter. The account
commands easy liquidity and can be closed before maturity. Further, it permits loan against
deposit. Nomination facility is available too.

7. New Deposit Saving Schemes

Apart from the traditional schemes offered by banks such as savings, current and fixed
deposit accounts, now-a-days, banks offer a variety of schemes to attract customers. These
special schemes are brought under different names according to the region, purpose and the place
of business of banks. Given below are some novel accounts of different banks:

(i) Premium Savings Account: Premium savings account facilitates high earnings, with
easy liquidity. A minimum average monthly balance of Rs. 10,000 is required.
Balance in excess of Rs. 10,000 gets swept out into fixed deposit for 180 days in units
of Rs. 1,000. As and when there is need for funds in savings account, the fixed
deposit is broken prematurely without any penalty in units of Rs. 1,000 and swept
into the savings account to the extent of meeting the needs.
(ii) Special premium savings account: Special premium savings account also facilitates
high earnings with easy liquidity. In this account, a minimum average monthly
balance of Rs. 20,000 is required. Balance in excess of Rs. 20,000 gets swept out into
fixed deposits in units of Rs. 1,000. As and when there is a need for funds in savings
account, the fixed deposit is broken prematurely without any penalty in units of
Rs. 1,000 and swept into the savings account to the extent of meeting the needs.
(iii) Vikas Cash certificates: Basically, a Vikas cash certificate is a money multiplier. An
investor can make a minimum amount of deposit of Rs. 100 in multiples of Rs. 100.
The period of deposit varies between 6 months and 120 months. Interest is
compounded every quarter.

7.1 Reinvestment schemes

When the customer comes under the tax bracket, the bank will undertake to provide tax
shelter by investing in such schemes which will exempt the customer from tax liability.

In addition to this, the reinvestment schemes also induce the depositor to invest his
interest accrued in the same deposit by which not only the deposit amount will increase but the
interest due to the customer will also increase. This is a part of reinvestment plan.

When a customer is willing to renew the deposit along with the interest due on it for a
further period on the date of maturity, it is called reinvestment plan. Example: A fixed deposit
receipt taken for three years, along with the interest is renewed for a fresh three-year period with
the interest accrued, then it is a reinvestment plan.
7.2 Perennial Premium Plan

Under perennial premium plan, the customer enters into an agreement with the bank in
such a way that the deposits will continuously grow with the accrued interest without the
customer renewing the deposit every year.

7.3 Annuity Deposit

This is a deposit made for a year and the interest is payable along with the deposit at the
end of the year. The customer has the option to either continue or withdraw the deposit. The
deposit can also be renewed for the same period (i.e one year and one year etc.).

7.4 Deposits of Non-resident Indians

This is known as NRI deposits or non-resident Indian deposits. There are three types of deposits.

1. NRI ordinary account

2. Non-resident external account
3. Non- resident convertible account.

NRI Ordinary account: Here, the account is opened by an NRI by depositing in terms of foreign
currency which is converted into Indian rupee. But the converted rupee cannot be reconverted
into foreign currency. This account can also be operated by any other person authorised by the
NRI depositor. The account will attract a higher interest rate than ordinary savings account so
that NRI depositors are induced to deposit more in terms of foreign exchange.

Non- resident external account: Here, the deposits are made in foreign currency and held in
foreign in currency and are withdrawable in foreign currency. The interest is also payable in
foreign currency. This scheme will attract more foreign currency and will increase the exchange
reserve of the country. But the banks will have to pay interest at a competitive rate compared
with any other foreign banks.

Non resident convertible account: Here, the NRI deposits are converted into domestic
currencies, i.e., the rupees at the prevailing rate of exchange and the depositors are eligible to
reconvert the domestic currency into foreign currency at the prevailing rate.
CONCLUSION

The lesson envisaged the various deposit schemes available with various banks,
the features of various bank deposits. We have also seen the objectives and benefits of
new deposits schemes offered by modern bankers. So one can avail a suitable banking
facility according to the needs.

EXERCISES

Short Answer Questions

1. What is a fixed deposit?
2. Who is a senior citizen?
3. Mention some facilities linked with a current account?
4. What is a reinvestment plan?
5. Explain premium savings package.

Big Answer Questions

1. What are the implications of fixed deposits?
2. Enumerate the features of a current account.
3. Differentiate between a savings bank account and a current account?
4. Explain the Non-Resident bank accounts.