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Introduction to Banking Unit 3 Opening and Closing of Account
Introduction to Banking Unit 3 Opening and Closing of Account Notes cover all the exercise questions in UGC Syllabus. Introduction to Banking Unit 3 Opening and Closing of Account provided here ensures a smooth and easy understanding of all the concepts. Understand the concepts behind every Unit and score well in the board exams.
Opening and closing of Accounts
INTRODUCTION TO BANKING
|(A) VERY SHORT TYPES QUESTION & ANSWERS|
(A) Multiple Choice Questions:
1. We should keep our savings with banks because.
(a) It is safe.
(b) Earns interest.
(c) Can be withdrawn anytime.
(d) All of above.
Ans: (d) All of above.
2. Bank does not give loan against.
(a) Gold Ornaments.
(b) LIC policy.
(c) Lottery ticket.
Ans: (c) Lottery ticket.
3. Bank having maximum number of branches in India.
(a) Reserve Bank of India.
(b) State Bank of India.
(c) Punjab National Bank.
(d) Bank of Baroda.
Ans: (b) State Bank of India.
4. 100/- Rupee note is signed by.
(a) Prime Minister.
(b) Finance Minister.
(c) RBI Governor.
(d) None of above.
Ans: (c) RBI Governor.
5. Minimum age required to open SB account in the bank.
(a) 8 years.
(b) 10 years.
(c) 12 years.
(d) None of above.
Ans: (b) 10 years.
6. Loans from money lenders are.
(a) With high rate of interest.
(b) No proper accounting.
(c) No transparency.
(d) All of above.
Ans: (d) All of above.
7. Timely repayment of loans results.
(a) Good reputation.
(b) No tension.
(c) Easily availability of loan infuture.
(d) All of above.
Ans: (d) All of above.
8. Banks pays interest on.
(c) Both (a) & (b).
(d) None of above.
Ans: (a) Deposits.
9. Bank charges interest on.
(c) Both (a) & (b).
(d) None of above.
Ans: (b) Loans.
10. Who can open bank account?
(a) Indian citizen.
(b) Non Resident Indian.
(d) All of above.
Ans: (d) All of above.
(B) Fill in the Blanks:
1. Fixed Deposit can _______.
Ans: withdrawn before maturity.
2. Maximum amount of Cheque ________.
Ans: No limit.
3. Banks prepare the accounts for ________.
Ans: financial year.
4. Bank does not provide loans for ________.
Ans: Drinking & Gambling.
5. Defaulter of loans means __________.
Ans: Not paying loan instalments.
6. Timely repayment of loans results __________.
Ans: Easily availability of loan in future.
7. When the loan is repayable on demand or at a very short notice, the loan is known as __________.
8. If the loan granted by a bank is on long-term or medium-term, the loan is called ___________.
Ans: Term loan.
9. ____________ is a flexible system of lending under which the borrower has the option to withdraw the funds as and when required.
Ans: Cash credit.
10. __________ is an agreement with the bank by which a current account holder is allowed to withdraw over and above the amount in his account.
SHORT TYPE QUESTION & ANSWERS
1. Name the different types of bank accounts.
Ans: The different types of bank accounts are.
(i) Fixed Deposit account.
(ii) Savings Deposit accounts.
(iii) Current Deposit accounts.
(iv) Recurring Deposit account.
(v) NRI account.
(vi) Demat account.
2. What is the full form of DEMAT account?
Ans: The DEMAT account also stands for Dematerialized Account.
3. How many types of NRI accounts are there?
Ans: NRI Bank Accounts are further classified into three types-NRO (Non-Resident Ordinary Rupees) Account, NRE (Non-Resident External Rupees) Account, and FCNR (Foreign Currency Non-Resident) Account.
4. What type of bank accounts are best for everyday transactions?
Ans: Current accounts are best for day to day transactions as there is no fixed number of times that money can either be deposited or withdrawn from such accounts. These accounts are not for saving purposes and is mostly opened by businessmen.
5. What is Derived or Active deposit?
Ans: The deposit which has been created on the basis of primary deposit is called derivative deposit or secondary deposit, while creating derivative deposit banks transform illiquid assets like bills, stock, bond etc. into liquid assets of deposit money.
6. Can I avail loans against recurring deposits?
Ans: Yes, banks typically allow you to borrow between 70% and 90% of the recurring deposit.
7. What is the interest rate to avail a loan against a recurring deposit?
Ans: The interest rate will be according to the interest rates provided by your bank for a recurring deposit. Most banks provide a rate that is 2% to 3% higher than the rate on recurring deposits.
8. Who can apply for a loan against a recurring deposit?
Ans: All resident individuals, Hindu Undivided Family (HUF) members, sole proprietorships, trusts, etc., may apply for a loan against a recurring deposit.
9. Can senior citizens avail loans against recurring deposits?
Ans: Yes, senior citizens can avail loans against recurring deposits.
10. What fees must be paid in order to obtain a loan against a recurring deposit?
Ans: There are no fees associated with availing loans against recurring deposits. However, part of your repayment will go towards interest, which serves as the fee for using the facility.
11. What is loan against Recurring Deposit?
Ans: Those who have a Recurring Deposit in a Bank can avail loan against the deposit. In this case, the recurring deposit will be treated as a collateral by the bank and the depositor can avail 80% – 90% of the deposit value as loan amount. This will be a secured loan and any defaulted payment on the loan will be adjusted against the amount available in the recurring deposit account of the borrower. Interest levied on a loan against recurring deposit is lower than that which is applicable on a personal loan.
12. Why close a Bank Account?
Ans: The reason to close a bank account can vary from person to person. Most common reasons include no proper response or service, fees being charged unnecessarily, online services, etc. It can also be because you cannot maintain the account, need the money or simply that you would like to start a fresh account. Sometimes, it happens otherwise too. The bank closes your account because your account remained inactive for a very long period of time, you have had zero balance over a period of time, you have too many bounced checks or overdrafts, you have been subjected to identity theft, etc.
13. How can I close my bank account permanently?
Ans: To close your bank account permanently, you have to visit the bank and enquire about the process of closing a bank account and then write a letter to the branch manager by providing the reasons for closing the account. Also, provide the required documents for proof and verification.
14. How much does it cost to close a bank account?
Ans: Typically, it doesn’t cost anything to close a checking, savings or money market account. Time-deposit accounts, such as certificates of deposit (CDs), may issue a penalty. Most banks and credit unions charge an early withdrawal penalty if you close a CD account before its maturity date.
15. How long does it take to close a bank account?
Ans: Closing a bank account can be a quick process, especially if you’ve already transferred funds from the account and accounted for any lingering transactions. If you’ve already withdrawn or transferred funds to another account, the closing process may only take a few minutes.
16. What is a bank transfer?
Ans: A bank transfer is simply the direct transfer of funds from one bank account into another. This transfer of funds can be between two different UK banks or between two accounts held with the same Uk bank. International bank transfers can also be completed between two banks from different countries or territories.
17. What are the documents needed for the transfer of a bank account?
Ans: You will have to provide the documents like Aadhaar card for residential proof, PAN card, the old passbook, and a passport size photograph.
18. What is Savings Account?
Ans: A Savings Account is a place to park or save your access funds and earn interest on it. You also get a wide range of services like debit cards, internet banking, online bill payments etc., with the account. There is no specific upper limit on the amount you can save. However, there the permissible transactions depend on the type of bank account you open. For instance, minimum balance requirements for regular Savings Accounts are significantly low compared to Privileged Savings Accounts. Accounts, Family Savings Accounts, Senior Citizens Savings Account, Kids Savings Account etc.
19. What are the features of Savings Bank Account?
Ans: Features of Savings Bank Account:
(i) No limit of the number of times the account holder can deposit money in the account. However, there is a restriction on the number of times money can be withdrawn by the account holder.
(ii) The rate of interest varies from 4% to 6% per annum.
(iii) No minimum balance required to be maintained.
(iv) Interest bank service is provided.
(v) Account holders are provided with an ATM/Debit/ Rupay Card.
(vi) Savings bank account is further categorised as Basic Savings Bank Deposit (BSBDA) and Basic Savings Bank Deposit Accounts Small (BSBDS).
(vii) Such a type of account is suitable for students, working professionals, housewives, pensioners, etc.
20. What is Current Account?
Ans: A current account is a running and active account which may be opened with the bank by a businessman or an organisation. The depositor can withdraw the money from this account whenever the requires it. In general the bank grants no interest on this account because it has to keep the cash ready at all times to meet the requirements of the depositors.
21. What are the features of Current Account?
Ans: Features of Current Bank Account:
(i) No transaction limit and the account also offers more frequent transactions.
(ii) The minimum balance for current accounts is higher.
(iii) There is a current account available to all businesses, regardless of whether they are a partnership firm or a sole proprietorship.
(iv) Banks offer current account holders the option of an overdraft; however, the banks will set the terms for the overdraft facility.
(v) You will cheque books, mobile and internet banking facilities.
(vi) Few current bank accounts allow foreign currency transactions.
(vii) Apart from businessmen, current bank accounts are opened by associations, companies, institutions, religious institutions, etc.
(viii) There is no fixed number of times that the current bank account holders can deposit or withdraw money from it.
22. Write two advantages of current account.
Ans: The advantages of current account are as follows:
(a) Current account is mainly opened for businessmen such as proprietors, partnership firms, public and private companies, trust, association of persons, etc. that has a large number of daily banking transactions, i.e. receipts and/or payments.
(b) It enables businessmen to carry out their business transactions properly and promptly.
23. What is Salary Account?
Ans: As the name suggests, a salary account is where your employer credits your monthly salary. These accounts are opened by employers who typically tie-up with one bank and open accounts for all their employees. Salary accounts double as zero balance accounts since you can withdraw all the sums deposited in the account.
24. What are the features of Salary Account?
Ans: According to the employer and bank agreement, you must open a salary account. Your employer deposits your salary each month in the salary account.
Features of the salary account are:
(i) Salary accounts deposits earn interest, and it varies by bank.
(ii) Salary accounts have no minimum balance requirements.
(iii) Banks provide debit and credit cards.
(iv) There are also lower rates for IMPS, NEFT, and RTGS.
(v) Customers can also check their account balances via the interest and mobile banking.
(vi) Overdrafts facility is also available from a few banks.
(vii) Simplifies bill-paying.
(viii) Home and personal loans are also lower for salary account holders.
25. What is Fixed Deposit Account?
Ans: Fixed Deposit Accounts are also known as time deposit. In this account certain sum of money is fixed for a fixed period of time. The money or deposit is repayable on the expiry of a fixed period of time. The rate of interest for the different periods is different but it is usually higher than the interest rate offered in savings account.
26. What are the features of Fixed Deposit Account?
Ans: Features of Fixed Deposit Account are:
(i) It is a one-time deposit and take away account.
(ii) The account holder needs to deposit a fixed amount of funds for a fixed period of time.
(iii) The amount deposited in a fixed deposit account is withdrawable just once and not anytime as per the account holders’ requirements.
(iv) A certain amount of interest is paid on the fixed deposit account.
(v) The rate of interest of a fixed deposit account depends on the amount deposited and the time duration for which the amount is deposited.
(vi) The bank is liable to repay the full amount deposited in the FD before the maturity date.
27. What is Recurring Deposit Account?
Ans: This is another form of fixed deposit. In this account certain sum of money (Not less than Rs. 5.00) is deposited every month for a period of 12 to 60 months or more. This is also known as cumulative deposit account. The rate of interest is almost equal to the rates of fixed deposits. Recurring Deposit or RD account is a type of account in which the account holder is required to deposit a fixed amount of money every month till the time it reaches the fixed maturity date. The account is an investment tool that encourages people to make regular deposits and receive decent returns on their investment.
28. What are the features of Recurring Deposit Account?
Ans: Features of Recurring Deposit Account are:
(i) It is the regular deposit factor and the interest aspect that the account provides flexibility and ease of investment to the account holders.
(ii) The RD account can be opened by any individual or an institution either jointly or separately.
(iii) Regular monthly instalments to be added can range from as low as INR 50 to any amount from one bank to another.
(iv) The account can be opened ranging from 6 to 120 months.
(v) Its rate of interest varies from bank to bank.
(vi) The Recurring Deposit Account provides the nomination facility as well.
(vii) Account holders are issued passbooks to know their account summary on a regular basis.
(viii) The bank can deduct a sum of the amount as a penalty if premature withdrawal of the amount is made.
(ix) RD account can be opened in the name of minors; however, only under the supervision of parents/ guardians.
(x) Set standing instructions so that the instalments are automatically deducted from your savings account without the need for manual interaction.
29. What is a DEMAT Account?
Ans: Shares and securities which can be held in electronic format constitute the DEMAT account. There are only two depository organisations which manage this type of bank account in India. This includes: National Securities Depository Limited and Central Depository Services Limited. The DEMAT Account constitutes the shares and securities held in electronic form. The DEMAT account stands for Dematerialisation Account. Such account are maintained by two depository institutions, the National Securities Depository Limited and the Central Depository Services Limited.
30. What are the features of DEMAT Account?
Ans: Features of DEMAT Account are:
(i) There are only two depository organisations which manage this type of bank account in India. This includes: National Securities Depository Limited and Central Depository Services Limited.
(ii) They facilitate conducting stress-free transaction of share.
(iii) Opening of the DEMAT Account requires the KYC procedure.
(iv) The transaction cost is reduced.
(v) Traders can work from any location.
(vi) The transfer of securities can be done with less paperwork.
(vii) Such accounts help easy trade of share and securities.
(viii) The transfer of securities can be done with reduced paperwork.
31. What is NRI Account?
Ans: The option of the NRI Account is provided by both public and private sector banks to fulfil the banking requirements of a non-residential Indian or a person of the Indian origin. An NRI account allows overseas transfer of funds to India and holds the funds in Indian rupees. An NRO savings account helps NRIs manage their income in India. It can be interest, rent, or dividends. Only Indian currency deposits in the account are possible in this account.
32. What are the features of NRI Account?
Ans: An NRO account has the following features:
(i) The rupee-denominated account must make all deposits in rupees; also, it requires a higher minimum deposit.
(ii) NRIs can open accounts individually or with other NRI or Indian residents.
(iii) You cannot repatriate the NRO savings account’s funds.
(iv) You cannot transfer NRO to NRE funds.
(v) They can invest the money in India.
(vi) This account allows nominations; additionally, it may make payments from NRI from the NRO account.
(vii) If the account holder’s residency status changes, he can convert it to an NRO account.
(viii) If he returns to India and changes their residency status, he can convert to a regular savings account.
(ix) The interest repatriates on these accounts, and India’s interest is taxable.
(x) NRI account enables free repatriate of funds without any restrictions. It also allows easy investment in the Indian investment instruments like FDI, FPI, FII, etc.
33. What are the types of NRI Accounts?
Ans: Types of NRI Accounts are:
(i) Non Resident Ordinary Rupees (NRO) Account: It allows transfer of foreign earnings easily to India. This account can be opened by an individual or a group of persons.
(ii) Non Resident External Rupees (NRE) Account: This account comes into existence when an Indian citizen moves abroad for employment. Their existing bank accounts are then converted into NREs. It can be jointly opened with an Indian resident as well.
(iii) Foreign Currency Non Resident (FCNR) Account: This account can be opened to manage an international currency. FCNR can only be in the form of Term deposit and can be withdrawn after its maturity.
34. Give a short note on ‘Insurance of Bank Deposit’.
Ans: Protection provided usually by a government agency to depositors against risk of loss arising from failure of a bank or other depository institution. Deposit insurance is mandatory and pays claims from a pool of funds to which every depository institution regularly contributes. However it covers only a fixed maximum amount per account holder.
35. What is Pay-in-slip?
Ans: This book contains printed slips with perforated counterfoils. The bank supplies pay-in-slip either in book form or loose to the customer. While depositing cash, cheques, drafts etc. to the credit of his account. The depositor is expected to fill in the amount, nature of account, account number, date, details of currency notes and coins, signature etc. in the pay-in-slip. After the receipt of the cash or cheque and draft, the bank puts the date stamp and is signed by the cashier and counter signed by the Accountant or Manager and the counterfoils is returned to the depositor, which is used for the record of the customer.
36. What are the benefits of Pay in Slip?
Ans: Benefits of Pay in Slip are:
(i) The account holder uses a bank-printed Pay-in-slip, which is provided free of charge, to deposit cash and checks into his bank account.
(ii) After depositing cash or a check into the bank, the pay-in-slip foil is kept by the bank. The bank uses this portion of the pay-in-slip to make entries in the bank’s registers.
(iii) The pay in slip service’s counterfoil serves as legal proof or documented proof of cash or check deposits in the bank.
(iv) The account holder makes entries in the triple column of the cash book based on the counterfoil of pay in slip (that is, businessman).
(v) The auditor can utilise the pay in slip to double-check the entries in the cash book.
37. What is withdrawal slip?
Ans: A withdrawal slip is a bank document where the date, account number, and amount of money to be withdrawn from a bank are written. Because it is used to make a withdrawal from a personal bank account, it is termed a withdrawal slip. It contains crucial information that enables the bank to maintain a precise record of the withdrawal and give the required amount. To ensure correct withdrawal, it is critical to write accurate and understandable information on the slip. The person obtains an official bank withdrawal slip from the bank branch where the money was deposited, which contains a clear print of the name of the bank. The customer’s name, account number, date, amount of the withdrawal from his account are all listed on a withdrawal slip. His signature will be required. The teller will very certainly ask for identification. Currently, most banks display this with a plastic card that is “swiped” through a small machine.
38. What is a Passbook?
Ans: A bank passbook is a tangible notebook used by bank account users to keep track of their finances. It keeps track of all banking activities on paper, including specifics like account numbers. While most banks now provide paperless alternatives to the old-fashioned passbook, some accounts still require a passbook. A passbook savings account, for example, includes both a physical notebook to record transactions and attractive interest rates. A bank passbook is a traditional method of keeping track of the transactions made in a user account. It depicts all transactions, whether they are credited or debited. It also shows where a person spent money and who credited it into his bank account. In a bank passbook, everything is precisely printed. However, a user must have the transactions printed on a bank passbook every time he or she visits the bank to keep it up to date.
39. State the meaning of Cheque Book.
Ans: A checkbook is a folder or small book containing preprinted paper instruments issued to checking account holders and used to pay for goods or services. A checkbook contains sequentially numbered checks that account holders can use as a bill of exchange. The checks are usually preprinted with the account holder’s name, address, and other identifying information. In addition, each check will also include the bank’s routing number, the account number, and the check number. A checkbook is comprised of a series of checks that can be used to make purchases, pay bills, or in any other situation that requires payment. With the advent of online commerce and banking, more people are making purchases and paying bills online, thereby reducing or eliminating the need for paper checkbooks.
40. What are the importance of Cheque Book?
Ans: Importance of Cheque book:
(i) It is safer and more convenient to carry around than cash.
(ii) It is a negotiable instrument which can be endorsed in favour of a third party.
(iii) It can be easily traced if lost.
(iv) All cheque payments will be recorded in the books of the bank. No necessity to keep a separate record of all payments made.
(v) Cheques can be transferred from person to person. This will help one to make payments to sellers of goods and services.
41. Distinguish between Pass Book and Cheque Book.
Ans: Key Differences Between Cash book and Passbook:
(i) Cash book keeps a record of cash transactions. Passbook is issued by the bank to the account holder that records the deposits and withdrawals.
(ii) Cash book is prepared by the firms whereas Passbook is written by banks and retained by the customer.
(iii) In cash book, the receipts will be shown on the debit side while payments are entered in credit side. On the other hand, in the passbook, the deposits will be shown in credit side while withdrawals are shown on the debit side.
(iv) The creation of cash book is optional, but Passbook should be created and maintained compulsorily.
(v) The recording of cheque deposited for collection is done in cash book on the date of deposit. However, in the case of Passbook, the same is done on the date on which the amount is collected from the debtor’s bank.
(vi) The recording of cheque issued to the creditor is done in cash book on the date of issue. As opposed to Passbook, the same is done when the bank pays the amount to the creditor.
42. What are the importance of Bank Accounts?
Ans: To help manage the finances here are some excellent reason to have a bank account-
(i) Bank accounts offer simplicity for transactions. One can easily withdraw money and make payments if they have a bank account.
(ii) Having bank accounts offers a safe treasury of your hard-earned money and even if the bank or the unions are close you are sure to get back your money.
(iii) Most banks and financial institutions offer the account holders free or low-cost services, hence bank accounts are cheaper.
(iv) It is an easy way to grow money. Most banks offer an interest rate when you put your money in a savings account. The interest will help your money grow over time.
(v) It offers easy access to credits. Having a bank account is favourable as banks provide the facility to access credits to its customers for Personal loan, home loan, education loan etc.
43. What is the meaning of KYC?
Ans: The meaning of KYC is Know Your Customer. It refers to the essential procedure of verifying and identifying a client’s identity when establishing an account and at regular intervals thereafter. It is a mandatory process that banks must undertake to ensure the authenticity of their clients. In simpler terms, KYC serves as a means for banks to confirm that their clients are indeed who they represent themselves to be. KYC is an important tool as it looks after the financial bodies and keeps illegal activities in check. Many non-individual customers use financial services like trading and mutual fund investment. With KYC, banks have the right to verify the legal status of that entity which also includes cross-checking customers’ operating addresses and verifying the identities of their beneficial owners and authorised signatories.
44. What are the Benefits of KYC?
Ans: Now, let’s focus on benefits of KYC:
(i) Establishes the identity of a customer.
(ii) Helps understand the nature of the financial activities of the customer.
(iii) Monitors the activities of the customer that help in assessing the risk of money laundering.
(iv) Protects lending institutions from losses and frauds that may arise from illegal transactions.
(v) Safeguards participants of various industries, as an individual’s financial portfolio as well as background information is provided.
(vi) Offers a sense of security to the customer’s sensitive data through its in-depth verification procedure.
(vii) Helps streamline the process of maintaining a close eye on any unauthorised activities taking place in the system.
(viii) Builds trust between the financial institution and the individual, thereby improving client and supplier relationship.
(ix) Simplifies the process of identification by handling personal data cautiously.
45. What are the different types of KYC verification?
Ans: There are various types of KYC depending on the verification procedure:
(i) Aadhaar-based KYC: Aadhaar-based KYC verification can be done online. You can either opt for Aadhaar OTP-based online KYC or Aadhaar-based Biometric KYC. Do note that if you opt for this variant of KYC verification, you can invest only up to Rs. 50,000 in a mutual fund per year.
(ii) In-person KYC Verification: As the name suggests, this type of KYC verification is done offline. You can visit a KYC kiosk to complete the in-person verification (IPV). You can also call the KYC Registration Agency and request an executive to come to your home and carry out verification. There is no limit to the amount of money you can invest if you avail the in-person KYC verification service.
(iii) Centralised KYC: Under the centralised KYC procedure, you will be required to submit a CKYC form online only once. Additionally, you will have to upload copies of necessary documents as well. On submission, you will receive a unique 14-digit account number. The Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) saves the data provided by you in their repository online.
One of the most exciting features of the CKYC is that, once you upload your information, you will not be required to submit your documents every time you wish to carry out a financial transaction. The 14-digit CKYC number will allow companies to access your documents for verification whenever necessary.
46. What are the objectives of KYC?
Ans: Objectives of KYC are:
(i) The KYC (Know Your Customer) is one of the banking regulations that the banks and other financial institutions are required to perform to identify their customers. It is done in order to obtain their client’s relevant information before entering into doing a financial business with them.
(ii) Money laundering has quickly become a growing threat to the banking industry as it not only poses a serious issue to the integrity of the economic system but also the financial stability and safety of the countries.
(iii) In India, the PMLA (Prevention of the Money Laundering Act) was passed in 2002 and it has been in line with the FATF (Financial Action Task Force) recommendations in 2009.
(iv) Banks are being comprehensively sensitised about the concealment and updated KYC norms. As such, before 2002, the banks in India were advised to follow certain customer identification processes for the opening of accounts and monitoring all the transactions with the aim to report them to the appropriate authorities.
(v) To ensure appropriate customer identification and monitor transactions of suspicious nature.
47. Write a note on the importance of KYC?
Ans: KYC is an important tool as it looks after the financial bodies and keeps illegal activities in check. Many non-individual customers use financial services like trading and mutual fund investment. With KYC, banks have the right to verify the legal status of that entity which also includes cross-checking customers’ operating addresses and verifying the identities of their beneficial owners and authorised signatories. Additionally, the KYC process also requires the nature of employment as well as the business carried out by the customer which is useful in verifying the authenticity of an individual and/or company.
KYC is the means of identifying and verifying the identity of the customer through independent and reliance source of documents, data or information.
For the purpose of verifying the identity of:
(i) Individual customers, bank will obtain the customer’s identity information, address and recent photograph. Similar information will also have to be provided for joint holders and mandate holders.
(ii) Non-Individual customers- banks will obtain identification data to verify the legal status of the entity, operating address, the authorised signatories and beneficial owners.
Information is also required on the nature of employment/business that the customer does or expects to undertake and the purpose of opening of the account with the bank.
(iii) KYC is essentially required if the customer wants to carry out any kind of financial transaction. After the verification process, the customer gives the financial institution that has conducted the test information about their identity, address, and financial history. This can aid the bank in knowing that the money the customer chose to invest is not one so for any money laundering related purpose.
48. What are the Documents required for KYC?
Ans: Documents are very important, for identifying a customer The documents vary for Banks, Partnership firms, Companies, and so on.
The documents required in general are as follows:
(i) For Individual Accounts: For opening an individual account, six documents are declared as ‘Officially Valid Documents’ by the Government of India that can be presented as proof of identity which is as follows: PAN Card, Driving License, Voters’ Identity Card, Aadhaar Card issued by UIDAI, MGNREGA Job Card.
(ii) Accounts for Companies: In the case of companies, they open Current accounts and the documents required are as follows:
Certificate of Incorporation, Memorandum of Association
Any resolution made by the Board of Directors or any officially valid document with respect to the managers, officers, employees, etc.
(iii) Account for Partnership Firms: The documents required are as follows: Partnership deed, Registration certificate.
(iv) Trust Accounts: The documents required are as follows: Trust Deed and Registration certificate.
49. Write about the RBI KYC Norms.
Ans: from 2002 onwards, the RBI made it compulsory to implement the KYC norms for every new bank account opened. However, it came into force only on 01st July 2005. The KYC norms were made compulsory with the sole objective to limit money laundering and terrorist financing activities. Now that you know the documents required for the KYC process in India, let’s take a look at the KYC norms in India.
(a) Customer Identification Process: According to RBI guidelines, Financial Institutions need to perform the identification of their customers under the following circumstances.
(i) When a customer wants to open a bank account.
(ii) For carrying out international money transfer operations.
(iii) If there’s any doubt about the authenticity of the customer identification data.
(iv) A walk-in customer, where the amount exceeds Rs. 50,000 as a single transaction or across multiple transactions.
These are just a few of the circumstances where the customer identification process is performed. You can read more about it here.
(b) Customer Due Diligence: Customer Due Diligence is the process of collecting and evaluating information about customers or potential customers. There are various KYC methods that Financial Institutions can use to perform this process. These various methods of KYCs that banks, NBFCs, and Fin Tech companies can use are Digital KYC, Offline KYC, Central KYC and Video KYC.
(i) Digital KYC and Offline KYC: All banks, NBFCs, and FinTech companies can use Digital KYC. All these financial institutions can make use of Offline KYC with the consent and cooperation of their customers.
(ii) CKYC: CKYC is only available to entities regulated by the Government of India. These regulators include RBI, SEBI, IRDA, and PFRDA.
(iii) V-KYC: The V-KYC process is accessible only to banks using OTP-based eKYC and Offline Aadhaar verification and NBFCs and FinTech companies using Offline KYC.
50. What are the documents required to open Fixed Deposit Receipt Account?
Ans: Here are the documents you would need while applying for a Fixed Deposit Receipt account:
(i) Address Proof: Salary Slip, Telephone Bill, Electricity Bill, Bank Statement.
(ii) Identity Proof: Aadhaar Card, Driving Licence, Passport, Voter ID.
(iii) For Senior Citizens: PAN Card, Voter ID, Passport, Driving Licence.
(iv) For Minors: A Birth Certificate.
(v) Other Proofs: Savings Account Documents, Date of Birth Proof.
51. What is Fixed deposit receipt?
Ans: The fixed deposit scheme is a traditional investment that is very popular in the country. It is the most looked-for investment as it guarantees returns in the form of interest. FDs are low-risk investments that offer higher returns than savings accounts. The period of the FD will range from 7 to 10 days, and the rate of interest also ranges with the tenure and the bank. You can open a fixed deposit account with any bank, and you can also opt for more than one FD. Banks let an individual invest in fixed deposits- both online and offline. Once you open an FD, the bank will give you an acknowledgment of the investment to the investor. It is called Fixed Deposit Receipt. The FD receipt is the document that acts as the proof of investment for a fixed deposit. The half-page document is given to you from the bank after you open a fixed deposit account. This recipe has crucial details, such as name, age, address, details, and more for the scheme.
52. What is premature withdrawal?
Ans: The term Premature Withdrawal in any fixed-period investment refers to the removal of the investment before the maturity date. Personal circumstances or unanticipated exigencies may force an investor to redeem or make an early withdrawal from his fixed-period investment. It could be from any fixed-period investment, including deposits, endowment insurance policies, post office savings etc. An investor can also make a premature withdrawal from any investment scheme which has a fixed lock-in period. There are levies of penalties on such premature or early redemptions. These penalties are deducted from the final interest payment or redemption amount.
53. What is the premature withdrawal of a Fixed Deposit?
Ans: Let us assume that an investor has a fixed deposit of Rs. 5 lakhs with the Bank of Baroda for a fixed period of six months. Due to certain personal exigencies, unforeseen circumstances may force the investor to make an FD early withdrawal. When an investor makes premature withdrawal, the bank imposes a penalty deduction on his interest for the premature withdrawal.
54. What are the penalty charges for premature withdrawal of FD?
Ans: Normally, banks impose a penalty ranging from 0.50% to 1% as a fixed deposit early withdrawal penalty, depending on the bank. Banks may also not impose penalties on deposits held for a certain minimum period. For instance, the Bank of Baroda imposes a penalty of 1% in case of domestic term deposits which vary between Rs 5 lakhs and Rs 1 crore. If an investor withdraws a fixed deposit of less than Rs. 5 lakhs after being held for more than 12 months after the deposit date, there is no penalty in such a case. Bank of Baroda’s time deposits are of two types: callable and non-callable. Callable FDs are FDs with premature withdrawal facility. In non-callable deposits, the Bank of Baroda levies 2% as the penalty charge for premature withdrawal of the deposit.
55. What are the disadvantages of withdrawing FD Prematurely?
Ans: Some of the disadvantages associated with closing a fixed deposit before maturity are as follows:
(i) Penalty: You are liable to pay a penalty if you want to withdraw your FD before maturity. A bank usually charges anywhere between 0.50% to 1.00% of the interest as a penalty. The applicable penalty may change according to the discretion of the bank.
(ii) Hinders Financial Growth: A fixed deposit offers assured returns in the form of interest at the time of maturity. If you decide to close your FD before it matures, your income flow will be disrupted and this could have an impact on your budget.
(iii) Time-consuming Process: The process involved in closing a fixed deposit prematurely is time-consuming and complicated. You will have to meet bank representatives, fill out various forms, submit documents, and more.
(iv) Interest is Lost: If you withdraw your fixed deposit prematurely, you will not receive the exact amount determined by the fixed deposit’s interest rate and term. Therefore, you must consider the penalty charges to calculate the amount you will get after premature closure.
56. How to avoid the penalty on premature withdrawal of FD?
What are the alternatives to Premature Withdrawal of Fixed Deposit?
Ans: However, due to immediate cash crunch, there might be times when you may have to prematurely withdraw from your fixed deposit account, which would attract a penalty. Hence, in order to avoid that, there are certain ways through which you can avoid penalty for premature withdrawal of FD. We will have a look at those methods given below.
(i) Using a credit card: Most investors hold credit cards to meet their spending requirements. Most banks, including Bank of Baroda, issue credit cards. One of the chief advantages of credit cards is that investors can borrow a loan on a credit card. They can easily borrow on their credit, card to meet the urgent financial expenditure if they have a good credit score and credit history.
(ii) Loans against fixed deposits: Most banks allow investors to obtain loans against fixed deposits. Banks generally provide loans up to 90% of the fixed deposit amount. The bank gets a lien over the fixed deposit for the loan period for such loans. Normally, the investors can avail of such loans at interest rates which exceed the fixed deposit rates by 1%- 2%. The loans against fixed deposits are also cheaper than regular personal loans granted by banks.
(iii) Using the contingency fund: Most investors have contingency or emergency funds. These funds are normally used to meet unforeseen personal expenditures. The investor can use such emergency funds to meet unforeseen personal expenditures.
(iv) Liquidating other investments: Investors may have other investments in their portfolio in other financial assets like stock investments etc. They should explore whether these investments can be liquidated profitably to meet urgent financial expenses.
57. How to break a Fixed Deposit Account before Maturity?
How to close FD Prematurely?
Ans: You can withdraw your fixed deposit prematurely online as well as offline. For premature withdrawal of an FD offline, you need to visit the nearest branch of your respective bank. You will have to fill out a form along with supporting documents and also surrender your FD receipt. Please keep in mind that some banks only permit online withdrawals for deposits that were initially booked online. Furthermore, the internet banking facility must be enabled so that fixed deposit withdrawals can be made online.
58. What is Loan Against Fixed Deposit?
Ans: Whenever we want to invest our surplus money, the first thing that comes to our mind is fixed deposit. One of the most traditional investment products, fixed deposit, is extremely popular and trusted amongst investors. The hassle-free process, guaranteed returns, and ease of investment makes has attracted many investors towards Fixed Deposit since ages. However, what we do not know is that fixed deposit is much more than just an investment avenue. If there is an emergency or sudden requirement of cash, we seek loans against various assets. But do you know that you can also avail loan against fixed deposit? You can pledge your fixed deposit as collateral and avail loan against it from your bank. Loan against fixed deposit is a secured loan in nature. If you are looking for a loan to meet some financial emergency, look no further and consider your fixed deposit. The loan/overdraft facility is one of the biggest advantages of a fixed deposit account. You can avail loan against a term deposit by pledging as collateral. Not just this, the banks charge comparatively lesser rate of interest than the other forms of loan. This loan is mainly disbursed by the bank in the form of an overdraft.
59. What are the features of Loan Against Fixed Deposit?
Ans: Features of Loan Against Fixed Deposit are:
(i) All customers, single as well as joint account holders are eligible to avail loan against fixed deposit.
(ii) You can avail a loan of up to 70% to 90% of the deposit amount.
(iii) The existing fixed deposit acts as the collateral.
(iv) The repayment period should not exceed the tenure of the fixed deposit.
(v) The loan is treated as a demand or overdraft.
(vi) You can apply through Internet banking or by visiting your nearest bank branches.
(vii) There is no processing fee required for this loan.
(viii) The interest rate is around 2% to 3% higher than the fixed deposit rate in most cases.
60. What are the documents required for a loan against fixed deposit?
Ans: Documents required for a loan against fixed deposit are:
(i) A duly filled in Application form.
(ii) Receipt of the fixed deposit.
(iii) For non-cumulative FD, an ECS mandate is required.
(iv) For non-cumulative FD, a cancelled cheque is required.
61. What are the eligibility criteria for availing loan against fixed deposit?
Ans: (i) Resident citizens of India.
(ii) Hindu Undivided Family (HUF).
(iii) Sole proprietorships, partnership firms, and companies including group companies.
(iv) Clubs, associations, and societies.
(v) Family trusts.
(vi) There are many banks in Indian that offer this facility which offers this facility to Non-resident Indians.
(vii) Non-Resident Indians (NRIs) who have invested in term deposits such as Non-Resident External (NRE), Non-Resident Ordinary (NRO), and.
(viii) Foreign Currency Non-Repatriable (FCNR) deposits, are also eligible to apply for a loan against their respective fixed deposits.
62. What are Premature withdrawals?
Ans: The amount invested in RD is locked in for a definite period However, certain situations arise whereby an investor may withdraw the amount invested in RD even before the investment term is over. This known as premature withdrawal, i.e., withdrawal before maturity.
63. What are the types of Recurring Deposits?
Ans: Types of Recurring Deposits are:
(i) Regular RD Accounts: A regular RD account is meant for Indian residents aged 18 years or above. The account allows the account holders to deposit a fixed sum in the account once every month over a pre-specified period to earn a fixed interest on the deposit amount. A compound or straight forward interest method will be used for interest calculation based on the account’s tenure.
(ii) RD Account for Minors: Such accounts will be opened in the name of individuals below the age of 18; however, this is possible only in their parents or guardians’ supervision. Like the regular RD accounts, a fixed monthly instalment and tenure will be set at the time of opening the account. The returns may be similar or a little higher as compared to the regular RD accounts.
(iii) RD Accounts for Senior Citizens: Banks provide dedicated RD accounts for senior citizens, i.e. aged above 60 years. Sometimes, senior customers. The interest gets compounded every quarter.
(iv) NRE/NRO RD Accounts: Non-Resident Indians (NRIs) can open Non-Resident External (NRE) and Non-Resident Ordinary (NRO) RD accounts. NRIs can earn a good interest and make savings every month through such accounts on income earned outside and inside India.
64. What are the advantages and disadvantages of RD?
Ans: Advantages of RD Accounts:
(i) Inculcates the habit of saving.
(ii) Penalty is not imposed if you miss the RD instalment for a month.
(iii) Expect an interest rate that is higher than that of a savings account.
(iv) It takes as low as Rs.100 to start a recurring deposit account.
(v) Hassle-free RD account opening process, especially so if you already have a savings account with the bank.
(vi) Simple documentation process. Existing members need not submit any documentation mostly.
(vii) Great savings option to attain your short-term goals.
Disadvantages of RD Accounts:
(i) Withdrawing within the lock-in period does not give any returns.
(ii) Partial and premature withdrawal comes with a penalty and is subject to certain criteria.
(iii) Instalment amount is fixed.
(iv) Interest rate is lower as compared to other investment products.
65. What are the important factors to check before applying for Recurring Deposit?
Ans: Factors to check before applying for Recurring Deposit are:
(i) Term Period of the Recurring Deposit Account: There are mainly 3 categories into which the term periods are divided. Short-Term Tenure that lasts from 6 months to a year, Medium-term tenure that lasts from more than a year to 5 years, and Long-term tenure that lasts from more than 5 years to 10 years. You must consider checking the tenure before applying.
(ii) Interest Rate offered: Consider reviewing the interest rate offered before you apply for an RD account as different banks offer different interest rates depending on different term periods.
(iii) Premature Withdraw Conditions: Usually, all banks offer the facility of opening an RD account. They also offer the choice of premature withdrawal of the same. If you decide to withdraw before maturity, the interest payable will be calculated on the basis of the tenure completed. Also, banks will charge a penalty for such withdrawal. Thus, before you invest, choose a bank that offers a high rate of interest and charges a less amount of penalty on premature withdrawal.
66. Can I withdraw money from Recurring Deposit?
Ans: This is one of the most asked questions by the investors of recurring deposits. Whether premature withdrawal of recurring deposits is allowed. What if any emergency arises? Can I withdraw money from recurring deposits in emergencies? While the concerns are genuine, there is good news! Recurring deposit accounts do allow premature withdrawal. The rules govern premature withdrawals as per the policy of the financial institution.
However, the following points should be kept in mind before withdrawing your funds prematurely:
(i) The withdrawal amount shall be in multiples of Rs. 100.
(ii) Some financial institutions or post offices may charge simple interest on the amount withdrawn by the account holder.
(iii) The maximum amount that can be withdrawn prematurely from the RD account is 50% of the deposits made in the account.
(iv) The account holder shall repay the amount withdrawn through a one-time deposit or EMIs.
(v) If the account holder does not repay the amount, this amount will be deducted from the maturity proceeds payable by the financial institution or the post office.
(vi) The withdrawal is allowed only if the RD account has remained operational for a minimum of 12 months and 12 monthly deposits have been made into the account.
67. What are the consequences of premature withdrawal of RD?
Ans: While we have seen that premature withdrawal of recurring deposits is allowed, it carries certain consequences as well.
(i) Late Payment Charges: If you have made premature withdrawals, you can repay the same through EMIs. However, it should be ensured that the EMI is paid on time. Skipping on EMIs or late payment of the same would attract penal charges in the form of late payment charges.
(ii) Interest Charges: The bank usually charges simple interest on the amount prematurely withdrawn. The financial institutions and post offices usually use the amount that an investor invests in recurring deposits for further investments in other avenues. This allows them to earn income from which the interest is paid to recurring deposit account holders.
In case of premature withdrawals of recurring deposits, the amount available with financial institutions and post offices reduces. Therefore, they might also reduce the interest amount on the recurring deposit. However, as the amount gets repaid, they again bring the interest rate to the normal level.
68. How to prematurely withdraw funds from the RD?
Ans: For premature withdrawal, you need to contact the concerned financial institution or the post office where you have opened your RD account. Some banks also provide the feature to withdraw prematurely online from the website. In other cases, you can visit the nearest branch of the bank or the post office and put a request for premature withdrawal of recurring deposit funds. Also, one can send an email to the concerned bank requesting the premature withdrawal. The withdrawal will be allowed as per the rules and policies of the bank or the post office, as the case may be.
69. What are the rules pertaining to premature withdrawal of Recurring Deposits?
Ans: Before we decide to prematurely close our RD, it is important to understand the rules pertaining to this move. While it is not recommended to close an RD before maturity, individuals who have no other choice should keep these points in mind:
(i) As per the rules, one withdrawal is permitted before the maturity period. This withdrawal amount is capped at a maximum of 50% of the deposits in the account.
(ii) The withdrawal can be made only if the RD is operational for a minimum of 1 year, with 12 monthly deposits required in order to withdraw the sum.
(iii) The withdrawal amount needs to be in multiples of Rs. 5 only.
(iv) In case an individual fails to repay the amount withdrawn before the RD matures, the bank/post office will deduct the said amount (with interest) before the maturity sum is paid.
(v) In case of an individual withdrawing a sum, he/she will have to repay this, either through EMIs or via a lump sum deposit.
(vi) The bank/post office might charge a simple interest on the amount, which needs to be paid by the person withdrawing said sum.
70. What is the penalties or charges for premature closure of RD?
Ans: You must repay the withdrawn amount within the stipulated time. If you fail to pay the same by the due date for a period of more than three months, you can be charged a penalty. The penalty is usually 1.5 to 2.5% of the total borrowed amount.
In the above example, if you fail to repay in time, at a penalty of 1.5%, you will be charged Rs. 360.
71. Explain the common conditions for premature withdrawal of RD.
Ans: Most banks and financial institutions allow premature withdrawal of RD under certain conditions. The conditions for premature withdrawal vary depending on the bank and the type of RD calculator account. Let’s take a look at some of the common conditions for premature withdrawal.
(i) Partial Withdrawal: Many banks allow partial withdrawal of RD funds before the maturity date. However, the rules for partial withdrawal may vary depending on the bank. Some banks may allow partial withdrawal after a certain number of deposits have been made, while others may allow it after a specific period.
(ii) Penalty for Premature Withdraw RD: You may have to pay the penalty if you withdraw the funds before maturity. The penalty for premature withdrawal varies depending on the bank and the RD scheme. In some cases, the penalty may be a fixed amount, while in others, it may be a percentage of the interest earned.
(iii) Loss of Interest: If you withdraw the funds before the maturity date, you may lose the interest earned on the investment. Interest forfeited may depend on the bank and the RD scheme. In some cases, the entire interest earned may be forfeited, while a percentage may be forfeited in others.
(iv) Documentation: Before you withdraw the funds prematurely, you may be required to submit certain documents, such as ID proof, address proof, and the RD receipt. The documents required may vary depending on the bank and the type of RD account.
It’s important to note that the conditions for premature withdrawal can vary from bank to bank and may also depend on the type of RD account. Before opening an RD account, it’s essential to read and understand the terms and conditions of the scheme, including the conditions for premature withdrawal.
72. Write a note on loan against RD.
Ans: You can apply for a loan against your National Savings Recurring Deposit by completing Form- 5. To qualify for the loan, you must keep the account open for a year and deposit 12 installments. You can borrow up to 50% of the sum credit on your RD account. The account holder has the option of repaying the loan in a lump sum or in equal payments. The account holder must repay the entire amount before the RD matures. The applicable simple interest rate on the loan will be 2% plus the applicable RD interest rates on the RD account. Interest will be charged from the date of withdrawal until the date of final repayment, in proportion to the amount of payback. If you fail to repay the loan, the PO will deduct the loan plus interest from the RD account’s maturity value. If the account is kept through maturity, the repayment can be made over a longer period of time.
If you do not repay the loan in full or in part, the amount owed will be recovered from you, your legal successor, or the nominee when the account is closed. If the interest payable on the loan exceeds the interest on the RD, the account holder must pay the difference.
73. What are the guidelines to follow before closing your Bank Account?
Ans: Guidelines to follow before Closing your Bank Account:
(i) It is critical to double-check your account balance before closing it.
(ii) Check your balance and then write a cheque to withdraw your money.
(iii) Before requesting closure, ensure that all of your transactions and bank-related operations have been completed.
(iv) Using an ATM card may result in less than 500 remaining. Hence, use a cheque whenever emptying the money in your bank account.
(v) Deposit or destroy a blank chequebook and ATM card for security and personal reasons.
(vi) Confirm that your account has been closed.
LONG TYPE QUESTION & ANSWERS
1. Explain the procedure of opening any bank account.
Ans: Following are the main steps in opening a bank account:
(i) Selection of type of account: The first step is to select the type of account to be opened. An account may have several types such as current, saving fixed account. An account can be opened jointly or singly.
(ii) Selection of bank and branch: The prospective account holder should now select the bank.
(iii) Obtaining the account opening form: An account opening form is obtained from the bank. It should be read carefully and filled in with utmost care.
(iv) Obtaining the reference: One or two reference are obtained by the prospective account holder. The people who give references sign the form and give their account no. and name and address.
(v) Submission of the form: Now the form should be submitted along with the required documents. These documents vary from account to account.
(vi) Giving specimen signature: Now, the account holder signs on a card called specimen signature card. These signatures are matched with the cheques of the account holder.
(vii) Making initial deposit: The applicant is allotted an account and asked to make initial deposit in his account through a deposit slip.
(viii) Account is opened: As soon as the initial deposit is made, the account is opened.
(ix) Receiving of cheque book/term deposit certificate: Finally, a cheque book is issued which bears the applicant’s account no. The money can be withdrawn with the help of these cheques.
2. Describe the procedure of opening of Recurring and Fixed deposit account in a bank.
Ans: The Recurring deposit account can be opened by any person, more than one person jointly, by a guardian in the name of a minor and even by a minor. While opening the account, the depositor is given a Pass Book which is to be presented to the bank at the time of monthly deposits and repayment of amount. Money in these accounts is deposited in monthly instalments for a fixed period and is repaid to the depositors along with interest on maturity. In case a depositor is compelled to close the account before its maturity, the bank pays no interest if the deposits are made for less than 3 months.
For opening a fixed deposit account a depositor is required to fill up an application form wherein he or she mentions the amount of deposits and the period for which deposit is to made. He also gives his specimen signature. A fixed deposit receipt is thereafter issued to the depositor, acknowledging the receipt of the sum of money specified therein, to be repaid at the expiry of the period mentioned therein along with interest at the specified rate. Though interest is payable at the stipulated rate at the maturity of fixed Deposit Receipt, banks usually pay interest quarterly or half yearly also at the request of the depositor. The interest earned during the said quarter / half year is paid to the depositor in cash or is credited to the savings account. This system of payment is based on ‘Quarterly rests’ or ‘half yearly rests’ and so on. The depositor is required to present the receipt for the purpose of necessary entry regarding payment of interest on the back thereof. Withdrawal of interest or the principal through cheques is not permitted. At the request of the customer, the banker may credit the amount of interest or the principal to his saving or current account from which he may withdraw the same through cheques.
3. State the procedure for opening of current account.
Ans: Before opening a current account, the following formalities are required to be completed.
(i) Application on the Prescribed form: Whenever any person, company, firm etc. wants to open a current account with the bank, he has to make request on the prescribed form. Every bank has got its own form, on which the applicant is required to give his or her name, address, date and occupation. The applicant has also to declare that he/she shall comply with all rules in force from time to time.
(ii) Reference or Introduction: Before opening a current account, the applicant is required to give the name of the respectable person or party in the application form from whom the banker may make enquiries regarding the customer’s character, integrity and responsibility.
(iii) Signature: The applicant is required before opening a current account with the bank to furnish or give one or more specimens of his/her signature to the bank on the prescribed form. These signatures are also taken on cards which are filled in an alphabetical order.
(iv) Agents Role: Whenever a customer desires to get his account operated by another person or by his agent, the bank will obtain a mandate in writing to that effect. For this, the bank will obtain necessary information as well as the specimen signature of the person in whose favour the mandate is given.
(v) Opening the account: After observance of these formalities the bank opens an account in the name of the applicant. The applicant is required to deposit alternative minimum amount ranging from Rs. 100 to Rs. 1000 in a saving bank account and Rs. 5000 to Rs. 20000 in case of current account.
The bank then provides the customer with.
(a) Pay-in-slip book.
(b) A cheque book.
(c) A pass book.
4. State the procedure of opening joint account.
Ans: (i) Fill up Bank Account Opening Form- Proposal Form: The proposal form must be duly filled in all respects. Necessary details regarding name, address, occupation and other details must be filled in wherever required. Two or three specimen signatures are required on the specimen signature card. If the account is opened in joint names, then the form must be signed jointly. Now a days the banks ask the applicant to submit copies of his latest photograph for the purpose of his identification.
(ii) Give references for opening your bank Account: The bank normally required references or introduction of the prospective account holder by any of the existing account holders for that type of account The introducer introduces by signing his specimen signature in the column meant for the purpose. The reference or introduction is required to safeguard the interest of the bank.
(iii) Submit bank account opening form and documents: The duly filled in proposal form must be submitted to the bank along with necessary documents. For e.g. in case of a joint stock company, the application form must accompany with the Board’s resolution to open the account. Also certified copies of articles and memorandum of association must be produced.
(iv) Officer will verify your bank account opening form: The bank officer verifies the proposal form. He checks whether the form is complete in all respects or not. The accompanying documents are verified. If the officer is satisfied, then he clears the proposal form.
(v) Deposit initial amount in newly opened Bank Account: After getting the proposal form cleared, the necessary amount is deposited in the bank. After depositing the initial money, the bank provides a pass book, a cheque book and pay in slip book in the case of joint account. In the case of fixed deposits, a fixed deposit receipt is issued. In the case of current account, a cheque book and a pay in slip book is issued. For recurring account, the pass book and a pay in slip book is issued.
5. Describe the procedure for operating deposit account.
Ans: Procedure for operating saving bank account:
Once you have opened the account, you must also know how to operate the account. In other words, you have to know the procedure to be followed for further deposits to be made in the account and for withdrawing money from the account.
(A) Deposit in the Account:
(i) ‘Paying-slip’ for deposit of the initial amount while opening your account. It is a printed form, which you get in the bank. Each ‘pay-in-slip’ has two parts divided by perforation, the right-hand part known as ‘foil’ and the left-hand part known as ‘counter-foil’. The slip has to be filled up while depositing cash or a cheque. Separate pay-in-slip form will have to be filled up while depositing both cash and cheques.
(ii) For deposit cash in account pay-in-slip has to be filled up giving the date of deposit, your name Or account-holder’s name if you deposit money in somebody’s account, account number, and the amount deposited in figures and words. Besides you have to enter on the slip, in the place indicated, how many currency notes of different denominations (5, 10, 20, 50, 100, etc.) are being deposited along with the amount against the types of notes. The bank has had a counter for cash receipts then sign and present the pay-in-slip there and also hand over the amount of cash. The receiver will keep the foil ( right hand part) of the pay-in-slip while the left-hand part ( counter-foil) will be rubber-stamped, signed by him, and returned to you.
(iii) Instead of cash, when deposit cheque in bank, instead of going to another bank to encash it. Bank will collect the amount of the cheque and record it as a deposit in savings bank account.
( iv) To deposit the cheque, you have to use the pay-in-slip again, name of the account-holder, the serial number and date of the cheque, name and address if the bank on which the cheque is drawn, and the amount of the.
Cheque in figures and words. After signing the slip, have to attach the cheque with the foil by an all pin (steel pin), and present the slip at the counter for cheque receipt. The person at the counter will keep the foil with the cheque attached, and return to you the counter-foil with bank rubber stamp and his signature. In some banks, there is a box kept near the counter. The bank rubber stamp is also available at the counter. The depositor is to put the rubber stamp on the foil and counterfoil. Then after separating the counter-foil, the cheque along with the foil is to be dropped in the box through a slit.
(B) Withdrawal from Deposit Account: You deposit your savings for use in future. The need for money may arise any time. So, you should know how to get back your money from the bank. In the above section you have learnt about the procedure for deposit of money in the savings bank account. Let us know the procedure for withdrawal of money from your account.
(i) Withdrawal Form: Every bank has printed withdrawal forms, which can be used by account holders to withdraw cash from deposit account. The form has to be filled in, mentioning the date of withdrawal, account number, amount to the withdrawn (in figures and words) and the signature of the account holder. You have to produce it along with your pass book at the counter at which your account is handled. At the counter the officer concerned generally passes the form for payment after checking the balance in the account and the signature on the withdrawal form against the specimen signature on record. The amount of withdrawal is recorded in the pass book, and payment is made at the counter if the amount is within a certain limit (say, 5,000), otherwise a disc or token is given which bears a number. This has to be presented at the cash payment counter for receiving the amount withdrawn.
(ii) Cheque: As an account-holder, you can withdraw cash from your savings bank account by making use of a cheque also. Cheques can also be issued for payment to other parties. Thus, a cheque issued to another person can be either encashed by him at the bank, or deposited in his account in some other bank.
Withdrawal by issue of cheque requires the same procedure to be followed as that for withdrawal by filling in and signing the withdrawal form explained above. In both cases the amount of withdrawal is recorded in the books of the bank in the relevant savings bank account. Interest allowed on the balance of deposit is also recorded in the relevant accounts maintained in the books of account of the bank. These are also entered in the Pass Book as and when presented by the account holder to the bank.
(iii) ATM Card: Banks issue ATM card to its depositors for easy withdrawal of money from their accounts. This card is used for withdrawal of money from saving and current deposit account through Automated Teller Machine (ATM). It is a magnetic card, which can be operated by using a particular secret number. It is the most convenient system of withdrawal of money.
6. What are the types of account a customer can open with a bank? Explain briefly?
Ans: Bank is an institution which attracts money or deposits for the purpose of lending to trade, industry etc. Receiving deposits from the public is an important function of a commercial bank. A bank provides the facility to open different kinds of deposit accounts with various facilities to suit the needs of various customers or 4000 depositors. There are three main types of accounts which a person can open with a bank, namely-
(I) Fixed or Time Deposit Account.
(ii) Saving Bank Deposit Account.
(iii) Current Deposit Account or Current Account.
(i) Fixed or Time Deposit Account: Fixed deposit account is one wherein money is deposited for a fixed period and cannot be withdrawn before the expiry of the said period. The said period usually varies from three months to five years. The rate of interest allowed on such accounts increases with the period of deposit. This is also called “Term Deposit Account. “
The bank prefer these type of deposits since it does not have to maintain cash reserve against these deposits and, therefore, the bank offer higher rates of interest on such deposits. On the other hand, this account attracts those customers who have money on invest for a longer period but do not want to take much of risk. Generally the customer cannot withdraw the amount before a fixed period, but he/she has the option to take a loan against the deposit at a higher rate of interest than the deposit. But if one insists to withdrawn the money before the due date, he forgoes much of interest accrued on such deposit.
(ii) Savings Bank Deposit Account: This is an account into which small savings are deposited into bank by the customers. This account is meant for the benefit of middle class and low income group people. A Savings Bank Deposit Account can be opened by any person with a minimum deposit of five rupees. The special feature of this account is that deposit can be made in this account for any member of times in a week but withdrawals can be made only once or twice a week. Restrictions on withdrawals are imposed by banks to discourage the habit of frequent withdrawals. At present 50 withdrawals are permitted in a half year by most of the banks. The rate of interest payable by the banks on such deposits is very low as compared to fixed deposit accounts which ranges from 3.5% to 5% p. a.
(iii) Current Deposit Account or Current Account: Current Accounts, sometimes also called as ‘Open Account’ is one in which money can be deposited can withdrawn at any time during working hours on all working days. This account may be defined as running account between a banker and a customer. Since customer can deposit money into or withdraw money from a current account whenever they like, businessman like to keep money with bank rather than in their own cash box from where it can be lost or stolen. Current Accounts suit the requirements of businessman, companies, corporations, institutions, firms etc.
7. What are the benefits of Savings Account? Explain.
Ans: Here are the benefits of having a savings account:
(i) Liquidity: One of the benefits of opening a savings account that it offers you liquidity.
(ii) Safety of Funds: A savings bank account is a safe avenue to keep your funds rather than keeping it on hand where it is susceptible to get lost or stolen. Another important point to remember is that each account is insured by the Deposit Insurance and Credit Guarantee Corporation for up to Rs.1 lakh.
(iii) Additional earnings because of auto facility: Most banks have an auto sweep facility where funds above a particular limit are automatically converted into a fixed deposit. These funds earn interest at fixed deposit rates as compared to regular savings rate. By enabling this feature, the depositor can get full benefits of keeping money in a savings account.
(iv) Automatic Debits for Payments: Banks allow customers to set up automatic debits for utility payments and bills. In such cases, the utility company or telecom company raises a demand with the bank and the bank automatically debits the bank account. This is a convenient way to make payments on time. When you take a loan, you can set up an auto debit facility from your savings account where the instalment will get debited from the savings Bank account.
(v) Auto credits for investment incomes: One of the benefits of keeping money in a savings account is that it can be linked to a demat account and other investments. In such cases, the income from dividends and interest gets automatically credited to the bank account. This convenience ensures all incomes get pooled in one account.
(vi) Convenient fund transfers: It is extremely simple to make fund transfers from a savings account. There are different modes of a fund transfer which are easily available in both interest banking and mobile banking. A savings bank account holder can transfer funds using NEFT, RTGS, IMPS and UPI.
(vii) Joint Account: There are benefits of a joint savings account. Having a joint account provides greater flexibility since all the joint holders can sign cheques and operate the bank account. It makes it easy to track spends and incomes. A joint account can be maintained for household incomes and expenses which is excellent for financial planning.
8. Explain the benefits of Fixed Deposit.
Ans: The following are the benefits of fixed deposit:
(i) Assured Rate of Return: The major reason why people prefer investing their funds in a fixed deposit is the assured rate of return. Once you invest your funds in a fixed deposit account, you can be guaranteed of receiving the stated rate of return. Banks also have a fixed deposit interest calculator on their websites where a customer can calculate the interest, he will receive on investing a particular sum of money for a particular period.
(ii) Tax threshold for Interest: Banks are not mandated to deduct tax on any interest until it crosses the cap as per income tax guidelines. This provides comfort to small deposit holders.
(iii) Flexible Tenure: The tenure for a fixed deposit is flexible and depends on the deposit holder. Each bank has their own minimum tenure rules however, the final decision can be taken by the deposit holder. It is also possible to decide whether to redeem the fixed deposit or to extend it for the same period.
(iv) Easy Liquidation: It is relatively easy to liquidate a fixed deposit. For FDs booked online, they can be liquidated online via net banking as well. Otherwise, most bank branches have a form to liquidate the FD.
(v) Loans against fixed deposit: An FD is a dependable instrument to keep in case of financial emergencies. Taking a loan against a fixed deposit is very easy. You can take a loan up to 95% of the fixed deposit amount depending on the bank. This makes it a dependable investment.
9. Explain the various advantages of investing in RD.
Ans: Here are some of the key benefits provided under RD:
(i) Safe Investment: RD full form is Recurring Deposit, which carries very little risk at all. By investing in an RD offered by a stable bank, you can ensure that your savings stay safe. An RD is a simple investment that offers fixed returns because it does not dabble in the markets. Since the interest rates do not change over the period of investment, you do stand to lose any funds.
(ii) You earn while you save: A recurring deposit help grow your savings as the earned interest is accumulated and increase over the tenure of the RD. So, the longer the tenure, the more interest you earn.
(iii) Lump-sum pay-out: The maturity amount is paid out at the end of the tenure as a lump sum. This amount includes your investments and the interest earned on them. You can use the lump sum to achieve your financial objectives.
(iv) Online Access: Since most banks offer online interest banking services, you can open a recurring deposit account, access them and observe their progress over time. You can pick your tenure, deposit amount, and view the interest rates offered with the online access.
(v) Loans against RDs: RD full form is Recurring Deposit, which offer the facility to borrow loans against them. Banks offer lower interest rates on loans of your borrow against a recurring deposit.
(vi) Higher interest rates for senior citizens: The recurring deposit schemes offer a higher rate of interest for senior citizens. This is a significant benefit for older people to earn more returns.
10. What are the advantages of Current Bank Account?
Ans: The advantages of current account are as follows:
(i) Current account is mainly opened for businessmen such as proprietors, partnership firms, public and private companies, trust association of persons, etc. that has a large number of daily banking transactions, i.e. receipts and/or payments.
(ii) It enables businessmen can withdraw from their business transactions properly and promptly.
(iii) The businessmen can withdraw from their current accounts without any limit, subject to banking cash transaction tax, if any levied by the government.
(iv) Home branch is that location where one opens his bank account. There are no restrictions on deposits made in the current account opened in a home branch of a bank. However, the current account holder can deposit the cash from any other branch of a bank other than the home branch by paying a nominal charge as applicable.
(v) It helps businessmen to make a direct payment to their creditors by issuing cheques, demand-drafts or pay-orders, etc.
(vi) It enables bank to collect money on behalf of its customers and credits the same in their customers’ current accounts.
(vii) It enables the current account holder to obtain overdraft (short-term borrowing) facility.
11. What are the components of a Fixed Deposit Receipt (FDR)?
Ans: An FD receipt is a document the bank gives the investor upon successfully opening an FD account. Following are the components of a fixed deposit receipt.
(i) Name, age, address of the applicant: The FDR contains the full name of the applicant. The name will be the same as the name in Aadhar Card or PAN Card. Also, the full address and age of the investor are mentioned too.
(ii) Bank account details of the investor: The customer ID and bank account number are provided upon opening an FD account. These details will be mentioned by the bank on the fixed deposit receipt, along with the bank details of the customer.
(iii) Deposit amount and value date: The amount of the investor’s investment is called the deposit amount. An FDR contains the amount of deposit. The value date is the date on which the FD starts. A fixed deposit receipt will also include the start date of the FD.
(iv) The rate interest, tenure, and date of maturity: The interest rates of the FD varies with tenure and bank. An FDR contains the exact interest rate the bank is offering the customer for the tenure selected. The investment tenure and date of maturity is also mentioned in the FDR.
(v) Interest amount and maturity amount: The fixed deposit receipt format will also have the interest amount that the investor will receive and the final maturity amount that the bank will pay the applicant.
(vi) Deposit type: There are cumulative and non-cumulative deposits. The FDR will include information about the type of deposit chosen by the applicant.
(vii) Nominee and nomination details: Investors can nominate a person who is entitled to receive the FD amount in case of the unfortunate death of the applicant. The FDR will include nominee details if any.
(viii) Auto-renewal and Auto Closure: Most of the banks offer auto-renewal of fixed deposits upon maturity. An FD is usually automatically renewed until and unless an investor opts against it. Details of auto-renewal are mentioned in the receipt by the bank. If the investor opts for auto closure of the FD on maturity, the details and instructions of the same will be mentioned in the receipt.
(ix) Penalty on premature withdrawals: In case the investor opts for premature withdrawal, the terms and penalty for withdrawal are mentioned clearly on the FDR by the bank.
12. What is the purpose of a FDR?
What is the requirement of Fixed Deposit Receipts?
Ans: Fixed Deposit Receipt ( FDR) can be asked by the bank on various occasions like:
(i) At the time of renewal: In the case of an offline FD, the depositor may be asked by the bank to surrender the FDR so that the existing FD can be renewed for a new tenure and a new receipt be issued.
(ii) For premature withdrawal: In case the depositor wishes to withdraw funds before the maturity date, they will be required to produce FDR as the proof of ownership.
(iii) To get a loan against FD: To address a cash crunch, depositors can apply for a loan against their fixed deposit at lower interest rates than an unsecured loan. To do so, they are required to deposit the FDR as alien to the bank for the term of the loan. Once the loan is repaid, FDR is returned to the depositor with the updated details.
13. What are the things or factors to check in a Fixed Deposit Receipt?
Ans: When individuals receive their Fixed Deposit Receipt, the following are the things that they need to check for:
(i) Term and interest rate offered: Although this is a basic component of the receipt and may already be known to the customer, it is important to check these details again. This has to be given priority especially when individuals are renewing their fixed deposit scheme as certain rates may be discontinued by the bank.
(ii) Auto renewal and date of maturity: It is convenient for individuals to opt for auto renewal if they have a guaranteed salary every month as it saves on hassle and time during the next renewal. Also, date of maturity is another detail that should not be missed by individuals as this will help them plan out their financials better and also with regard to the day they can withdraw their fixed deposit investment.
(iii) Penalty for Prepayment: Banks sometimes charge a penalty on their fixed deposit if prepayment has been done. For example, if a bank charges 1% as the penalty for prepayment and individuals withdraw their fixed deposit (valued at 9%) after a period of 6 months, then they will receive an interest rate of only 6% assuming the bank provides 7% as the interest for a 6 month FD.
(iv) Nomination: The receipt must provide details of the nomination in case the individual has made one. In the event of the unfortunate death of the individual, his/her nominee will receive the proceeds of the fixed deposit.
(v) Declaration to save TDS: Tax at source is deducted by the bank in case the income from interest is over Rs. 10,000. In case an individual’s income falls into the bracket of ‘no income tax’ then declaration through Form 15G or Form 15H can be submitted and this must be mentioned in the receipt.
14. Explain the features or benefits of loan against Fixed Deposit.
Ans: Benefits of Loan Against Fixed Deposit:
(i) Loan amount up to 70% to 90%: You can avail about 70% to 90% of your fixed deposit value as a loan. Let us say you have a fixed deposit for Rs. 10 lakhs, so you can avail anything in the range of Rs 7 lakhs to Rs 9 lakhs. The remaining amount which remains in the fixed deposit account even after the loan is sanctioned will continue to earn the interest. The loan amount to be sanctioned varies across banks.
(ii) Low interest rates: The rate of interest for loans against the fixed deposit is much lower than that of other loan forms. Let us say that it is just 2% to 3% higher than the fixed deposit account, you will have to pay an interest rate of 11.25% on your loan against the FD. This is way below the average interest rate that banks would charge you on personal loans.
(iii) Flexible payment procedure: One very important point to be noted is that the tenure of the loan against fixed deposit is the same as that of the fixed deposit itself. While the tenure of the loan can be less than the fixed deposit, it cannot exceed the tenure of the deposit. For example, if the tenure of the Fixed Deposit is 5 years, the loan can be either less than or equal to 5 years but not more than that.
(iv) Zero processing fee: This kind of loan is straight forward. There is no requirement of any additional processing fee to be paid as it is the case with other loans. This, in turn, reduces the overall cost of the loan.
(v) Hassle-free application process: This is one sort of loan which is extremely hassle-free. Since you are already the fixed deposit account holder, there is very less documentation involved. You only need to fill up the mandatory forms and there also an option of opting for a loan against fixed deposit online.
(vi) No credit score check: When you apply for any kind of loan, lenders will have a look at your credit score before they offer you a loan, However, in the case of a loan against FD, your CIBIL or credit score will not be considered while evaluating your eligibility. Hence, such loans can be a good option for people who have low or no credit score.
(vii) Minimal paperwork: The interest rate on these loans is lower because your fixed deposit serves as collateral for a loan. These loans often have interest rates that are 2% to 2.5% lower than personal loans. As a result, the EMIs (equivalent monthly payments) on these loans are also lower.
15. How to close a bank account? Explain the steps.
Ans: Here are some steps which can guide you to close a bank account. Generally, follow the steps below:
(a) Visit Bank: You cannot close your bank account online. You need to visit your home branch where you opened the account. So you need to walk into the home branch where you have an account and request them for account closure.
(b) Account closure form: All banks provide an account closure form, which you can procure from the bank’s branch or website. If you have a joint account, then all account holders will have to give their consent by signing the closure form.
(c) Fill the complete details: After you receive the account closure form. You need to fill the complete details on it:
(i) Name of the account holder.
(ii) Account number.
(iii) Contact number.
(iv) Signature of the account holder.
(v) Reasons for closing the account.
(d) Sumit required document: After filling up the closure form you need to submit it to the bank with the following:
(i) Cheque Book: You need to return the cheque book along with remaining cheque leaves to the respective bank branch at the time of closing their account.
(ii) Passbook: You should also handover your passbook to the bank at the time of closing their SBI account.
(iii) Debit Card: The account holder should also return their debit card which is used to withdraw money from ATM.
(iv) ID proof: Some bank may even ask you for ID proof and address proof before closing your account.
(e) Closure charges: Some banks charge for the account closure. For example, SBI Bank’s don’t charge for the closure within 14 days of the opening of an account. Any closure of the SBI bank account after 14 days but before 1 year are subject to some closure charges.
Keep these things in mind and don’t let unwanted bank accounts lie idle as there is no benefits in making yourself over burdening in gathering information and statements from too many banks. So close unwanted account they serve no good to your financial life.
(f) Updating Account Details: The savings account you want to close could be linked to EPFO, insurance policies, Income Tax Department and other government saving schemes. In such cases, before initiating the process to close the account, update the new account details on all such services and savings schemes. This will help you avail yourself of the scheme’s benefits and continue all transactions without interruption.
16. What are the reasons to close a bank account?
Ans: Even if you don’t want to leave the banking system entirely, there are still many reason some can have for closing a bank account.:
(i) Poor Customer Service: When you’re using a financial institution, you are trusting them with your personal finances. The least you can expect is great customer service. By closing a bank account and moving to a new bank, or by using alternative financial services like Check City’s Check Cashing Services, you can find the personal, warm customer service you deserve.
(ii) Becoming Unbanked: Some people choose to be what’s called “unbanked.” This mean that you choose to not have a bank account. Some people choose to be unbanked to avoid bank fees or because they prefer alternative financial institutions. If you decide to become unbanked, then you may need to learn how to close a bank account.
(iii) Bank Availability: If you are moving or travel very often, you might need to learn how to close a bank account so you can open a more travel-friendly bank account. Some banks are available nationwide while others are only available in a few state. Some banks are also available internationally while others are only available in the US. If you travel a lot, or if you’re moving, you may need to close your bank account and start anew with a bank that has better availability for your needs.
(iv) Requirements and Fees: Another reason to learn how to close a bank account is to avoid bank account requirements and fees. Some bank accounts will have minimum balance requirements, overdraft fees, fees to transfer money, or fees for negative balances. If the bank statements start including too many fees, it might be time to think about account closure.
(v) Switching Banks: Sometimes you want to close your bank account to start an account somewhere else instead. Debit card accounts and credit card accounts all come with their terms and conditions at each bank. Banks all come with their own pros and cons. If you want to switch bank accounts, then you need to learn how to close a bank account, so you can open one somewhere else.
17. Explain the steps how to transfer your bank account.
Ans: Here’s how to transfer your bank account:
When you move to a new home, it is important to also transfer your bank account to a branch nearby. Though normal banking transactions such as deposits, withdrawals, can be done at any branch, getting a locker, availing of loan and credit facilities, activating dormant accounts, etc. can be done only at the home branch. Here’s how to go about transferring your account.
(i) Application: The account holder (s) should submit a written application or form to either the new branch or the old one (home branch). The letter should clearly indicate account numbers, which are to be transferred to another branch. The exact name of the new branch, where the account is to be transferred, must be mentioned in the letter as well.
(ii) Surrendering the cheque book: Along with the application, the account holders are required to return any cheque book (s) and unused cheque leaves.
(iii) Other documents: Proof of new address should be accompanied by the application. Contact details such as new landline or mobile number should also be updated.
(iv) Process: Once the application is received, the request is sent to the home branch. The home branch closes the account and transfers balances to the other branch. A new account is then opened at the branch where the account is transferred and funds are deposited in this account. The whole transfer process may take 8-10 working days. Once the account is transferred, the customer is allotted the new account number, and a new cheque book can be issued.