An Introduction to Banking Book

An Introduction to Banking Book
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    1Unit - 1 : An Introduction to BankingStructure of Unit:1.0Objectives1.1Introduction1.2Origin and Development of Banking1.3Meaning and Definition of Banking1.4Types of Banks1.5Types of Banking1.6Summary1.7Self Assessment Questions1.8Books for Further Readings1.0ObjectivesAfter completing this uni...

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    2various other functions, such as credit creation, agency job and general service. Bank, therefore is such aninstitution which accepts deposits from the people, gives loans, creates credit and undertakes agency work.1.3Meaning and Definition of BankingMeaning of BankingYou know people earn money ...

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    3Figure 1.1 : Types of Banks1. Central BankA central bank functions as the apex controlling institution in the banking and financial system of the country.It functions as the controller of credit, banker’s bank and also enjoys the monopoly of issuing currency onbehalf of the government. A centr...

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    4co-operative banks at the state level. At the intermediate level (district level) these are central co-operativebanks, which are generally established for each district.At the base of the pyramid there are primary agricultural societies at the village level. The long term exit isprovided by the ...

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    51.5Types of BankingBanking is described as the business carried on by an individual at a bank. Today, several forms of bankingexist, giving consumers a choice in the way they manage their money most people do a combination of atleast two banking types. However, the type of banking a consumer use...

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    61.6SummaryThus, a bank can play a useful role in promoting the economic development of any country’ economy.Banks tending and investment activities lead to changes in the quantity of money in circulation which in turninfluence the nature and quality of production.Therefore, banks have been rig...

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    7Unit - 2 : Functions of BanksStructure of Unit:2.0Objectives2.1Introduction2.2Functions of Banks2.3Importance of Banks2.4Summary2.5Self Assessment Questions2.6Books for Further Readings2.0ObjectivesAfter completing this unit, you will be able to : Know about introduction of Banks Identify ...

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    8I. Accepting Deposits:The most important function of commercial banks is to accept deposits from public. This is the primaryfunctions of a commercial bank. Banks receives the idle savings of people in the form of deposits andfinances the temporary needs of commercial and industrial firms.A comm...

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    9(iii) Cash Credit : It is an arrangement by which a bank allows his customers to borrow money upto acertain limit against certain tangible securities as Government securities or shares of approved concernsetc. In this case interest in charged on the actual amount withdrawn by the customer and no...

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    10- Banks help in remitting money from one place to another. The cheque, bank draft, letter of credit,bills, hundies enable traders to transfer large sums of money from one place to another.- By their ability to create credit, the banks have placed at the disposal of the nation a large amountof m...

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    11Unit - 3 : Structure of Banking SystemStructure of Unit:3.0Objectives3.1Introduction3.2Indian Banking System3.2.1 Reserve Bank of India (RBI)3.2.2 Industrial Development Bank of India (IDBI)3.2.3 Small Industries Development Bank of India (SIDBI)3.2.4 National Bank for Agriculture and Rural Dev...

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    12the constraints that go with social control and public ownership. Nationalization, for instance, was a structuralchange in the functioning of commercial banks which was considered essential to better serve the needs ofdevelopment of the economy in conformity with national policy and objectives....

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    13capital of Rs. 5 Crores on the basis of the recommendations of the Hilton Young Commission. The sharecapital was divided into shares of Rs. 100 each fully paid which was entirely owned by private shareholdersin the beginning. The Government held shares of nominal value of Rs. 2,20,000.The Reser...

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    143.2.2 Industrial Development Bank of India (IDBI)This is an apex institution providing long-term finance to industrial sector. It was set us as a subsidiary of theRBI in 1964. In February, 1976 it was segregated from the RBI. At present its whole of the share capital isowned by the Government o...

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    15Long term Loan FacilitiesTechnical Assistance and Advice3.2.5 Export-Import Bank of India (EXIM)The Export-Import Bank of India (EXIM Bank) was set in January, 1982 with its headquarters in Mumbai.It Perform the normal banking functions connected with import and export of goods, and sever...

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    16Phase 1: Early phase from 1786 to 1969 of Indian banks.Phase 2: Nationalization of Indian bands up to 1991 prior to the Indian banking sector reforms.Phase 3: New phase of Indian banking system with the advent of Indian Financial and Banking SectorReforms after 1991.We shall now discuss these t...

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    178.Indian Overseas Bank9.Bank of Baroda10.Union Bank11.Allahabad Bank12.United Bank of India13.UCO Bank14.Bank of IndiaThe second phase of nationalization of Indian banks was carried out in 1980, with seven more banks beingnationalized. This step brought 80 percent of the banking segment in Indi...

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    18The Indian banking system has the RBI at the apex. It is the central bank of the country under which thereare the commercial banks including public sector and private sector banks, foreign banks and local areabanks. It also includes regional rural banks as well as cooperative banks. The structu...

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    19The banking sector has been undergoing drastic metamorphosis. The rapid progress witnessed in the realmof banking services has been engineered by the trends in globalization, liberalization and privatization. Thetechnological revolution and demographic changes have also helped to change the fac...

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    20Table 3.2 : Bank Group-Wise and Population Group-Wise Number of Offices of ScheduledCommercial Banks (As on March 31, 2011)Source: Reserve Bank of India3.4.1.1 Scheduled BanksA scheduled bank means a bank included in the second schedule of the Reserve Bank of India Act,1934. A bank is included ...

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    21A Schedule bank enjoys certain privileges like becoming eligible for availing the facilities ofaccommodation from the Reserve bank, dealing in foreign exchange, etc. It also has certain obligationslike maintaining statutory reserves with the Reserve Bank.Figure 3.4 : Overview of Scheduled Banks...

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    22existence, since the state banks of Bikaner and Jaipur were merged. The Second phase of public sectorbanking came into existence when 14 major commercial banks were nationalized on July, 1969. This wasdone with the view to serve the needs of development of the economy in conformity with nationa...

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    23Revised guidelines issued by the RBI in January 2001 brought in some changes. The major changes are:Minimum paid-up capital for a new bank should be Rs. 200 crore which shall be increased to Rs.300crore in subsequent three years after commencement of business.A non-banking financial compa...

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    24Most foreign banks have a very strong parent bank commitment, superior technology and provide a veryhigh level of customer service. This has resulted in very strong performances of these banks both in the retailsector (home loans, credit cards, distribution of third party products including mut...

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    25This unit also provides an overview of the statutory framework for banking in India. The Banking RegulationAct, 1949 is the most important legislation for banks in India. This act lays down the definition of bankingand allowable banking activities. It also gives the RBI wide-ranging regulatory ...

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    26 Unit - 4 : Reserve Bank of IndiaStructure of Unit:4.0Objectives4.1Introduction4.2What is Central Banking?4.3Objectives of RBI4.4Role of RBI in Economic Development4.5Summary4.6Self Assessment Questions4.7Books for Further Readings4.0ObjectivesAfter completing this unit, you would be able to:...

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    27banks maintain stable cash ratios as prescribed from time to time. The effective functioning of the Britishmodel depends on an active securities market where open market operations can be conducted at thediscount rate. The effectiveness of open market operations however depends on the member ba...

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    28The internal organisational set up of the Bank has been modified and expanded from time to time in order tocope with the increasing volume and range of Bank’s activities. In order to perform its various functions, theBank has been divided and sub divided into a large number of departments. Ap...

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    29In addition to these ordinary banking operations the Reserve Bank of India helps the Government - both theUnion and the States to float new loans and to manage public debt. The RBI is entitled to charge a commissionfor these activities. Under public debt management the RBI manages deficit/ surp...

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    30call for information is also intended to give it effective control of the credit system. The Reserve Bank hasalso the power to inspect the accounts of any commercial bank.As supreme banking authority in the country, the Reserve Bank of India, therefore, has the following powers:a) It holds the ...

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    31To inspect the organisational set up: branch expansion, mobilisation of deposits, investments, creditportfolio management, region wise performance, profit planning, manpower planning, training andso on regarding banks.To investigate into complaints, irregularities and fraud in respect of ...

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    32financial system so as to anchor financial stability and to facilitate effective transmission of monetary policy.In addition, the Reserve Bank pursues operational objectives in the context of its core function of issuanceof bank notes and currency management as well as its agency functions such...

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    33widespread concern that Indians past inward orientation inhibited economic growth, especially in comparisonwith the developing countries of East Asia. The acceptance of economic liberalization and reform hasallowed the relaxation of restrictions on foreign direct investment and inward portfolio...

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    34requires that a country’s foreign exchange liquidity position could be calculated under a range of possibleoutcomes for relevant financial variables, such as, exchange rates, commodity prices, credit spreads etc.Reserve Bank of India has done exercises based on intuition and risk models in or...

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    35e) Restricting the regulatory concession in asset classification and provisioning to the first restructuringwhere the package also has to meet norms relating to turn-around period and minimum sacrificeand funds infusion by promoters.f) Convergence in the methodology for computation of economic ...

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    36other jurisdictions. This single class of licence places them virtually on the same footing as an Indian bankand does not place any restrictions on the scope of their operations. Thus, a foreign bank can undertake,from the very first day of its operations, any or all of the activities permitted...

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    37Activity C:1.RBI is known to formulate, implement and keep tabs on the monetary policy and it also has tomake certain the sufficient flow of credit to productive sectors. Discuss.4.5SummaryThe Central Bank is the apex monetary institution in the money market which acts as the monetary authority...

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    38Unit - 5 : Methods of Credit ControlStructure of Unit:5.0Objectives5.1Introduction5.2What is Credit Control?5.3Methods of Credit Control5.3.1 Quantitative Methods of Credit Control5.3.2 Qualitative Methods of Credit Control5.4Summary5.5Self Assessment Questions5.6Books for Further Readings5.0Ob...

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    39the country. Thus, RBI controls credit in such a manner, so as to bring ‘Economic Development withstability’. It means, bank will accelerate economic growth on one side and on other side it will controlinflationary trends in the economy. It leads to increase in real national income of the c...

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    40resources to investments and statutory reserves with the Reserve Bank is enhanced, thereby curtailing theavailability of loan-able resources with the bank.Refining Policy of Reserve Bank:As the central bank of the country, the Reserve bank is the lender of last resort to the banking system. Its...

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    41Qualitative system consist of the following instruments :1) Selective Credit control2) Rationing of Credit3) Moral Persuasion4) Publicity5) Direct Action5.3.1 Quantitative Methods of Credit Control1. Bank Rate:Bank rate is the rate at which central bank grant loans to the commercial banks again...

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    42India. Yet the Reserve Bank has been using it more and more as a weapon to control deflationarypressure in the economy.During the last few years, the bank rate has been reduced several times to combat the deflationary pressuresin the economy. But this year it is currently stipulated at 6%.2. Op...

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    43The RBI controls credit through change in Cash Reserve Ratio of commercial banks. According to section42(1) of RBI Act every schedule bank has to maintain a certain percentage reserve of its time and demanddeposits. This ratio can be varied from 3% to 15% as directed by the Reserve Bank. Reserv...

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    44The Reserve Bank of India is empowered to change this ratio. As on 21, 1997, it was fixed to 25% of thetotal deposits of Banks. It also influences the credit creation capacity of the banks. The effect of bi\bothcash reserve ratio and statutory liquidity ratio on credit expansion is similar. Pen...

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    45instruments, (3) the reactivation of B/R and the use of repo rate, (4) the continuation of the use of the CRR.The B/R changes, combined with changes in the CRR and LAF repo rates have emerged as active andimportant tools of liquidity and monetary management. The LAF has developed as an effectiv...

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    46(a) Differential Discount Rates: The reserve Bank fixes different discounting rates for the bills of differentsectors. The sector for which more credit is to be made available the exchange bills re discounted at a lowerrate. On the other hand, if RBI wants to discourage credit for a particular ...

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    473. Moral Persuasion :Moral persuasion refers to those cases where the Reserve Bank endeavours to achieve its object by makingsuitable representations to the banking institutions concerned and relying on its moral influence and powerof persuasion. Being an apex institution and lender of the last...

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    485.Discuss various selective credit control methods used by RBI?6.Differentiate between quantitative and qualitative methods of credit control.7.Discuss repo rates and reverse repo rates.5.6Books for Further Readings-Khan M.Y. (2007); ‘Indian Financial System’, Tata Macgraw Hill, Fifth editi...

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    49Unit - 6 : Commercial BanksStructure of Unit:6.0Objectives6.1Introduction6.2Meaning of Commercial Banks6.3Structure of Commercial Banks6.3.1 Scheduled Banks6.3.2 Non Scheduled Banks6.4Functions of Commercial Banks6.5Need for Nationalization of Commercial Banks6.6Advantages of Nationalization of...

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    50According to Prof. Kinley, “A bank is an establishment which makes to individuals such advances ofmoney as may be required and safety made, and to which individuals entrust money when not required bythem for use.”According to John Paget, “No body can be a banker who does not (i) take depo...

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    51special types of credit card which are nationally and internationally accepted. These banks earn lots of profitand create new ways of investments in the country.4) Regional Rural BanksRegional rural banks established 1975 with mandate to ensure sufficient credit for agriculture and ruralsector....

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    52b) Overdraft : In over draft, a customer can withdraw money from his current account and availablebalance below zero. When the amount withdrawn is within the authorized limit then rate of interestcharged at agreed rate. Overdraft is allowed normally against the security of negotiable Instrument...

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    537)Traveller’s Cheque ad Credit Card: Commercial Banks issue traveller’s cheques and creditcards to their customers. They can travel without fear of theft and loss of money. Credit card is usedto make payment for purchases so that individual does not have to carry cash.8)Foreign Exchange: ...

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    54Bihar, Uttar Pradesh than in developed states like Gujarat, Tamil Nadu etc. These banks reducedthe Regional Imbalances.4.Collection of Saving: Before the Nationalization, the banks did not attract more saving frompublic. Because people did not trust banking system . But After nationalization ...

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    556.8SummaryCommercial banks play a very significant role in development of Indian banking system. No country canprogress without organized baking system. Commercial banks also promote economic development andsocial welfare activities in India. These banks provide loan and advances to priority s...

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    56Unit - 7 : National Bank for Agriculture and Rural DevelopmentStructure of Unit:7.0Objectives7.1Introduction7.2Objectives of NABARD7.3Financial Resources7.4Organisation and Management of NABARD7.5Functions of NABARD7.6Summary7.7Self Assessment Questions7.8Books for Further Readings7.0Objectives...

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    577.3Financial ResourcesNABARD was established with initial capital of Rs 100 crore having 50:50 Contribution of Government ofIndia and RBI. This authorized capital was increased from time to time. Since 1 February 2001, this authorizedcapital stands at Rs. 5000 crore. But till now the paid up ca...

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    58 Particulars 31.03.2009 31.03.2010 Cash and Bank Balance Government securities and Investment Production and Marketing credit Conversion of Production credit in MT loan Liquidity Support MT and LT Project loan LT Non project loan Loan out of RIDF Co finance loan (Net of provision) Other loan...

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    59NABARD has its head office at Mumbai, India. The NABARD is managed by a 15 member Board ofDirectors consisting chairman, managing director, two experts of rural economies, three experts fromcooperative and commercial banks, three directors from current directors of RBI, three director fromgover...

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    607.6SummaryNABARD promoting sustainable and equitable agriculture and rural development through effective creditsupport, related services institution development and other innovative initiatives. It also helps the stategovernment in reaching their targets of providing assistance to eligible inst...

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    61Unit - 8 : Types of Accounts in Banking SystemStructure of Unit:8.0Objectives8.1Introduction8.2Classification of Bank Accounts8.3Savings Bank Account8.4Fixed Deposit Account8.5Current Account8.6Recurring Deposit Account8.7Difference between Savings Bank Account & Current Bank Account8.8Diff...

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    62bank classifies the account into different types. Customers of different preferences choose their type ofaccounts and do transactions with bank. In deposit terminology, the term Bank Account refers to a Financialarrangement between a Depositor or debt holder and a Bank. Bank Accounts are usuall...

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    632. It enables the depositor to earn income by way of interest.3. It helps the depositor to make payment by way of cheques.4. The bank offers number of services to the saving bank account holders.Features of Savings Bank Account1. The main objective of saving account is to promote savings.2. The...

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    64Figure 8.2Activity A:1Visit your nearest bank and obtain a saving bank account form. List the name of documents requiredto open Savings Bank Account. Try to fill it on your own and get information about further procedure.

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    65Procedure for Depositing Money in Savings Bank Account One has to fill a slip obtainable at bank known as Pay-in-Slips. Information required generallyincludea) Name of the depositorb) Account numberc) Sum of amount to be deposited (in words & in figures both)d) Specimen signaturee) Datef...

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    66 Withdrawal form Figure 8.4Automated Teller Machine:ATM cards are the most convenient form of withdrawing money. It is a magnetic card having a secret PIN( Personal Identification Number) which is kept to be confidential by the user to p...

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    67How ATM Works1. Swipe Card : The card reader in the machine reads and stores the bank account account informationrecorded on the magnetic strip of the card.2. Enter Pin : The machine converts PIN into an encryption and sends it to the host processor comparesthe PIN with the recorded information...

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    685. Put your cash, card and receipt away immediately. Count your money later, and always keepyour receipt.6. If you see anyone or anything suspicious, cancel your transaction and leave immediately. Ifanyone follows you after making a transaction, go to a crowded, well-lit area and call the polic...

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    69Types of Chequea) Open Cheque: A cheque is called ‘Open’ when it is possible to get cash over the counter at thebank. The holder of an open cheque can do the following:i. Receive its payment over the counter at the bank,ii. Deposit the cheque in his own account.iii. Pass it to someone e...

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    705. Withdrawals are not allowed. However, in case of emergency, banks allow to close the fixed accountprior to maturity date. In such cases, the bank deducts 1% (deduction percentage many vary) fromthe interest payable as on that date.6. The depositor is given a fixed deposit receipt, which depo...

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    71Features of Current Account1. The main objective of current bank account is to enable the businessmen to conduct their businesstransactions smoothly.2. There is no restriction on the number and amount of deposits. There is also no restriction on thewithdrawals.3. Generally banks do not pay any ...

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    72Advantages of RD AccountRecurring deposit encourages regular savings habit among the people.Recurring deposit account holder can get a loan facility.The bank can utilize such funds for lending to businessmen.The bank may also invest such funds in profitable areas.8.7 Difference ...

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    738.9 Other Facilities Given by BanksNomination Facility:This facility was given to the customers after a provision was made in the Banking Laws (Amendment) Actof 1983. This facility is provided on every Deposit Account. Nomination means a person who is liable toreceive deposited amount in cas...

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    744. Do not use your date of birth, telephone number, address, your name or the name of a friend orrelative in your password.5. Your internet banking account is locked in case you enter wrong user id and password 3 times.6. Change your password regularly.7. Ensure that you are not observed while ...

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    75Advantage of Internet Banking : Through Internet banking, you can check your transactions at any time of the day, and as many times as youwant to. Where in a traditional method, you get quarterly statements from the bank. If the fund transfer hasto be made outstation, where the bank does not ...

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    76Key WordsATM: An automated teller machine or automatic teller machine (ATM), is a Computerizedtelecommunications device that provides the clients of a financial Institution with access to financialtransactions in a public space without the need for a cashier, human clerk or bank ...

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    778.12 Books for Further Readings-N.S. Toor (2006); ‘Hand book of Banking Information’; Skylark Publication, New Delhi-Jain, Rathi, Sharma(2010); ‘Banking Services Operations’, RBD Professional publication, Jaipur-New Delhi-Trivedi, Chaudhary, Kumar(2010); ‘Indian Banking System’, R...

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    78 Unit - 9 : Loans and AdvancesStructure of Unit:9.0Objectives9.1Introduction9.2Merits of Granting Loans and Advances9.3Principles of Lending9.4Types of Loan9.5Nature of Loan9.6Procedure of Obtaining Loans and Advances9.7Classification of Loan9.8Determining Creditworthiness9.9Role of RBI in...

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    79repayable in installments over a period is termed as loan while a credit facility repayable within one year maybe known as advances. However, in the present lesson these two terms are used interchangeably.9.2 Merits of Granting Loans and AdvancesLoans and advances granted by commercial banks ...

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    80d. For Purchasing of Car, Jewellery, Furniture, Land and Other Assetse. For Investing Somewhere Else in Profitable Avenues4. Others:Overall development of the society, depends on the these loans and advances to a great extent. Consumptionpattern of the consumer has been increased positively, wh...

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    81The bank may grant loan to meet working capital requirements. However, after nationalisation of banks, thebanks have started granting loans to meet long-term requirements.6. Security:A banker should grant secured loans only. In case the borrower fails to return the loan, the banker mayrecover h...

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    82(b)Term Loans : Medium and long term loans are called term loans. Term loans are granted for morethan a year and repayment of such loans is spread over a longer period. The repayment is generallymade in suitable instalments of a fixed amount. Term loan is required for the purpose of starting an...

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    83both in inland trade and foreign trade. When the seller of goods has to realize his dues from the buyer at adistant place immediately or after the lapse of the agreed period of time, the bill of exchange facilitates thistask with the help of the banking institution. Banks invest a good percenta...

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    84(II) Submission of Form Along With Relevant DocumentsThe loan application form duly filled in should be submitted to the bank along with the relevant documents.(III) Sanctioning of LoanThe bank scrutinizes the documents submitted and determines the credit worthiness of the applicant. If it isfo...

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    85that one is obtained with collateral and the other without the collateral. But the purpose of the loan remainsthe same that is to realize personal needs.Types of Personal LoansThere are basically two types of Personal Loans. They are:Secured Loan: - Wherein the loan involves the attachme...

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    86IV. Car LoansEvery individual want to own a car. Hence, the need for car loans emerges at some point or the other. Whileselecting a car loan it is always wise to scrutinize the various options accessible in the market besidesanalyzing its fiscal suitability. V. Education LoansEducation Loans of...

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    87District Manager for each district who acts as a catalytic force for promoting financial inclusion and smoothworking between government and banks. Special Agricultural Credit Plan With a view to augmenting theflow of credit to agriculture, Special Agricultural Credit Plan (SACP) was instituted ...

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    88 1962: Deposit Insurance Corporation 1963: Agricultural Refinance Corporation 1964: Unit Trust of India 1964: Industrial Development Bank of India 1969: National Institute of Bank Management 1971: Credit Guarantee Corporation 1978: Deposit Insurance and Credit Guarantee Cor...

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    89up banking facilities (currency chests, extension of foreign exchange and Government business facilities) atcenters in the North-Eastern region, which are not found to be commercially viable by banks. The StateGovernments would make available necessary premises and other infrastructural support...

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    90step is to arrange for the security for the loan granted by bank. After completing these formalities theborrower is allowed to draw money against the loan.Key WordsLoans: A loan is a type of debt. the borrower initially receives or borrows an amount of money, calledthe principal...

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    91Unit - 10 : Bank ServicesStructure of Unit:10.0Objectives10.1Introduction: Bank Services10.2Advances10.2.1 Unsecured Advances10.2.2 Secured Advances10.3Forms of Advances10.4Bank Instruments/ Negotiable Instruments10.4.1 Types of Negotiable Instruments10.5Bank Remittance Services10.6Safe Custody...

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    9210.2 AdvancesEvery business is run with an objective of earning profits. Even the banks are profit oriented and they alsoinvest their funds to earn profits. Advances are credit provided by banks to their customers, traders,businessmen and industrialists against security of assets or on the basi...

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    93h) Character – Capital – Capacity = Fraudulent one10.2.2 Secured Advances:Secured advances are those which can be taken against certain security of tangible assets like land buildingetc.According to banking regulation Act 1949 Sec. 5(i) (n) “ Secured loand or advances means a loan oradvan...

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    94to his requirement as and when he need. He also has liberty of putting back the excess amount. The interestis charged on the amount withdrawn.Cash credit provides an elastic form of borrowing since the limit fluctuates accordingly to the need of thebusiness.3) Overdraft:Unlike cash credit, over...

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    95Features of a Negotiable Instruments: Free Transfer: - It can be very easily transferred from one person to another either by meredelivery or by endorsement and delivery. Transfer Free from Defects: - If the transferor has a bad title to the instrument he can still pass ona good title to...

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    96As per this definition we can say that “All cheques are bills of exchange but all bills of exchange arenot cheques.Features of Bills of Exchange, Promissory Note and Cheques: Instruments in Writing: - Bills, Cheques and promissory note are always in written. Unconditional order/Promise:...

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    97 Term Deposits - Banks are free to determine the interest rates. Account should be denominated in Indian Rupees. Permissible credits to NRO account are transfers from rupee accounts of non-resident banks,remittances received in permitted currency from outside India through normal banki...

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    98 Term deposits – The interest rates are stipulated by the Department of Banking Operations andDevelopment, Reserve Bank of India. At present, with effect from the close of business in India onNovember 15, 2008, interest rates on NRE deposits for one to three years should not e...

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    99 Terms and conditions as applicable to NRE accounts in respect of joint accounts, repatriation offunds, opening account during temporary visit, operation by power of attorney, loans/overdraftsagainst security of funds held in accounts, shall apply mutatis mutandis to FCNR (B).A part from thi...

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    100Bank) may acquire immovable property in India other than agricultural land/ plantation property ora farm house out of repatriable and / or non-repatriable funds. The payment of purchase price, if any, should be made out of (i) funds received in India through normal banking channels by way o...

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    101C. Facilities to Returning NRIs/PIO Returning NRIs/PIO may continue to hold, own, transfer or invest in foreign currency, foreignsecurity or any immovable property situated outside India, if such currency, security or propertywas acquired, held or owned when resident outside IndiaForeign Cu...

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    102Safe Custody is offered by a select number of branches A safe deposit locker is located in a vault, which isbuilt in accordance with the Reserve Bank of India guidelines. It is the safest place to keep your valuablesand offers confidentiality and privacyWhile booking your locker with a bank, y...

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    10310.8 Self Assessment Questions1.What are bank services?2.Define advances and explain its types.3.Explain negotiable instruments.4.Explain difference between cheques and bills of exchange.5.Write short notes on:a) Bank Remittanceb) Safe Custody Vaults10.9 Books for Further ReadingsN.S. To...

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    104Unit - 11 : Banking InstrumentsStructure of Unit:11.0Objectives11.1Introduction11.2What is Negotiable Instrument?11.3Types of Negotiable Instruments11.4Summary11.5Self Assessment Questions11.6Books for Further Readings11.0 ObjectivesAfter completing this unit, you must be able to Understan...

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    105(4)A fixed amount of money (with or without interest in a specified amount or at a specifiedrate)(5)On demand or at an exact future time(6)To a specific person, or to order, or to its bearerNegotiable: Writing & SignatureWritten Form: A negotiable instrument must be(1)Written on materia...

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    10611.3 Types of Negotiable InstrumentsNegotiable instruments by Statue are of three types, cheques, bills of exchange and promissorynote.Negotiable instruments by custom or usage :- Some other instruments have acquired the characterof negotiability by the the custom or usage of trade. Sect...

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    1072. Cheque Contains an Unconditional Order: Every cheque contains an unconditional order issuedby the customer to his bank. It does not contain a request for payment. A cheque containing conditionalorders is dishonoured by the bank.3. Cheque is Drawn by a Customer on His Bank: A cheque is alway...

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    108c) Bearer Cheque: A cheque which is payable to any person who presents it for payment at the bankcounter is called ‘Bearer cheque’. A bearer cheque can be transferred by mere delivery and requiresno endorsement.d) Order Cheque: An order cheque is one which is payable to a particular person...

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    109(B) Bill of ExchangeA bill of exchange or “draft” is a written order by the drawer to the drawee to pay money to the payee. Acommon type of bill of exchange is the cheque (check in American English), defined as a bill of exchangedrawn on a banker and payable on demand. Bills of exchange ar...

  • Page 110

    110FeaturesA bill of exchange has the following features:A bill of exchange is an instrument in writing.It must be signed by the maker or drawer. Unsigned document will not be legally valid.It contains an unconditional order. There is no condition attached to it.The order must be to p...

  • Page 111

    111 future time, certain in money, to order or to bearer. (see Sec.194) Bank note is frequently referred to as apromissory note, a promissory note made by a bank and payable to bearer on demandAccording to section 4 of the Negotiable Instruments Act, 1881, a promissory note means “PromissoryNo...

  • Page 112

    112The Maker of the Pro-note Must Be Certain- The instrument should show on the fact of it asto who exactly is liable to pay. The name of the maker should be written clearly and ascertainableon seeing the document.It Should be Signed By the Maker- Unless the maker signs the instrument, it i...

  • Page 113

    113 Finding a Borrower Can Be Difficult: A major disadvantage of promissory notes for lenders isthat you must find the borrower before repayment can occur. If a borrower moves out of state orfinds another way to disappear, you may not be able to collect the money you are owed.Going to Court...

  • Page 114

    114The Negotiable Instruments act does not apply to Hundis. Hundis are governed by the custom and usagesof the locality in which they are intended to be used. In case there is no customary rule known as to a certainpoint, the court can apply the rules of the Negotiable Instruments Act. It is also...

  • Page 115

    115lawful owner, or from any person in lawful custody thereof, by means of an offence or fraud, or has been obtainedfrom the maker or acceptor thereof by means of an of-fence or fraud, or for unlawful consideration, the burden ofproving that the holder in due course lies upon him.11.5 S...

  • Page 116

    116Unit - 12 : Merchant BankingStructure of Unit:12.0Objectives12.1Introduction12.2Nature and Characteristics of Merchant Banking12.3Travellers Cheques - Meaning and Objectives12.4Classification of Merchant Banking12.5Functions/ Services Offered by Merchant Bankers12.6Scope for Merchant Banking i...

  • Page 117

    117management and underwriting alone, which may have an adverse impact on business. Merchant bankerscan turn to any of the activities mentioned above depending upon resources, such as capital, foreign tie-upsfor overseas activities and skills. The depth and sophistication in merchant banking busi...

  • Page 118

    118Figure 12.1History of Traveller’s ChequeTravellers cheques were first issued in the late 1700s by the London Credit Exchange Company, andThomas Cook, founder of the British travel agency, issued notes similar to travellers checks in 1874, but themodern travellers cheque was invented in 1891 ...

  • Page 119

    119National Financial InstitutionsState Financial Institutions(2) Private Sector Merchant Banks:Foreign BanksIndian Private BanksLeasing BanksFinance and investment companies12.5 Functions/ Services Offered by Merchant BankersProject Appraisal: This service helps corporates in analyze the soundne...

  • Page 120

    120- An existing private/closely held co with 3-year track record of consistent profitability is allowed tofreely price the issue.- Existing listed co. can freely price further issue. Process of public issues:- Vetting of prospectus (by SEBI)- Appointment of underwriters, bankers, registrars and ...

  • Page 121

    121Mergers, Amalgamations and Acquisitions: Some companies desire to restructure themselves in orderto effectively meet competition. Merchant bankers provide all requisite guidance and services for restructuring,to prepare due diligence, necessary clearance from statutory bodies like SEBI, ROC et...

  • Page 122

    122Innovations in Financial Instruments: The Indian capital market has witnessed innovations in theintroduction of financial instruments. This has further extended the role of merchant bankers as marketmakers for these instruments.Corporate Restructuring: Due to liberalization and globalization, ...

  • Page 123

    123Issuing BankThe issuing bank’s liability to pay and to be reimbursed from its customer becomes absolute upon thecompletion of the terms and conditions of the letter of credit. Under the provisions of the Uniform Customsand Practice for Documentary Credits, the bank is given a reasonable amou...

  • Page 124

    124The irrevocable letter of credit may not be revoked or amended without the agreement of the issuing bank,the confirming bank, and the beneficiary. An irrevocable letter of credit from the issuing bank insures thebeneficiary that if the required documents are presented and the terms and conditi...

  • Page 125

    1258) The Issuing Bank checks if the documents comply with the L/C and makes a payment immediately(if the L/C is available by sight) or on a certain date (if L/C is available by deferred payment).1.7.3Types of Letter of CreditThere are five commonly used types of letter of credit. Each has differ...

  • Page 126

    126which requires the balance to be paid in full each month. In contrast, a credit card allows the consumer to‘revolve’ their balance, at the cost of having interest charged. Most credit cards are the same shape andsize, as specified by the ISO 7810 standard.Figure 12.2Credit Card FeaturesDo ...

  • Page 127

    127For those of you who collect and use your frequent flyer miles, they also have added incentives like travelinsurance and car rental insurance for your convenience. Of course, they are hoping that with all this travelling,you are using their card to foot at least some of the bill.Rewards: Many ...

  • Page 128

    128you can earn cash back for your purchases. Some companies offer 1% off your balance whileothers, like Sears, will offer you cash off purchases made in their store. Either way, if you areplanning on using a credit card, finding one that will offer you a cash incentive is a smart choice.Debit ca...

  • Page 129

    129What are the Features of the US Debit Card?Magnetic-Stripe CardIssuance “on-the-spot,” Host-to-host, or Over the InternetPIN ProtectionImmediate ActivationNo Bank Account RequirementUse at ATM, POS, Phone, etc.Multilingual Interactive Voice ResponseCard Cancellation AnytimeReports and Stat...

  • Page 130

    130• A person with poor credit can obtain a debit card without too much trouble.• Debit cards can be used to make online purchases and payments.• They provide freedom from carrying cash and checks while traveling, thereby offering more safety.• Debit cards do not charge high interest rate...

  • Page 131

    131 Provides the highest level of resilience and diversity Enables carriers and service providers to extend their global coverage without heavy CAPEXinvestment Provides a single integrated network for smaller Frame Relay sites and larger ATM locations Demonstrates REACH’s commitment...

  • Page 132

    13212.11 Self Assessment Questions1.What is merchant banking? Explain its Nature and characteristics.2.What is Travellers Cheques? Explain its Meaning and Purpose3.Write an essay on Classification of Merchant Banking.4.Explain various Functions/ Services offered by Merchant Bankers5.Put a light ...

  • Page 133

    133Unit - 13 : Insurance: An IntroductionStructure of Unit:13.0Objectives13.1Introduction13.2Origin and Development of Insurance13.3Meaning and Definition13.4Nature or Characteristics of Insurance13.5Functions of Insurance13.6Principles of Insurance13.7Kinds of Insurance13.8Role and Importance of...

  • Page 134

    13413.2 Origin and Development of InsuranceThe earliest traces of insurance in the ancient world are found in the form of marine trade loans or carriers’contracts which included an element of insurances. The first methods of transferring or distributing risk werepracticed by Chinese and Babylon...

  • Page 135

    135Life Insurance in India: The British companies started life insurance business in India, by issuing policiesexclusively on the lives of Europena soldiers and civilians. They sometimes issued policies on the lives ofIndians by charging extra charges. The first Indian company named as Bombay Mut...

  • Page 136

    136The principles to share the loss of each member of the society on the basis of probability of loss totheir risk.The method to provide security against losses to the insured.Fundamental Definitions: These definitions are based on business oriented since it is a device providingfinancial c...

  • Page 137

    137The payment will be made in a certain definite sum.The payment is made only upon contingency.Figure 13.313.4 Nature or Characteristics of Insurance1. Insurance is a cooperative device to share the burden of risk which may fall on happening of someunforeseen events. Its most important nat...

  • Page 138

    13812. Insurance is a legal contract between the insurer and insured. Insurer promises to compensate theinsured financially within the scope of insurance policy and the insured promises to pay a fixed rateof premium to the insurer.13. Insurance is a plan of social welfare and protection of intere...

  • Page 139

    1394. Spreading of Risk: Insurance is a plan which spreads the risks and losses of few people among alarge number of people. John Magee writes,” Insurance is a plan by which a large number of peopleassociate them and transfer to the shoulders of all, risks attached to individuals”.5. Risk Sha...

  • Page 140

    140III Other Functions:There are some indirect or others functions of insurance which indirectly provide economy benefit to theinsured people.1. Insurance serves as compulsory way of savings or investment and it restricts the unnecessary expensesby the insured.2. The country can earn foreign exc...

  • Page 141

    1416.Principle of Warranties: According to Section35 of Marine Insurance Act 1963,” A warrantymeans a promissory warranty by which the assured undertakes that some particular thing shall orshall not be done or that some conditions shall be fulfilled or whereby he affirms or negatives theexisten...

  • Page 142

    142I. Life Insurance:Life insurance is different from other insurance in the sense that, here, the matter of insurance is life of humanbeing. The insurer will pay the fixed amount of insurance at the time of death or at the expiry of certainperiod.Life insurance may be defined as a contract in wh...

  • Page 143

    143Property Insurance: The Property of an individual and of the society is insured against the loss of fireand marine perils, the crop is insured against unexpected decline in production, unexpected deathof the animals engaged in business, break-down of machines and theft of the property and good...

  • Page 144

    144 Business continuation Welfare of employees3. Uses to Society: Wealth of the society is protected Economic growth of the country Reduction in inflation13.9 Limitation of InsuranceInsurance has certain limitations and on account of such limitations, the benefits of insurance coul...

  • Page 145

    145Finally we can say that the insurance is provision which a prudent man makes against for the loss or inevitablecontingencies.Key Words Insured: The party of the individual who seeks protection against a specified risk and entitled to receivepayment from insurer. Normally policy holder of in...

  • Page 146

    146Unit - 14 : Regulatory Framework for InsuranceStructure of Unit:14.0Objectives14.1Introduction14.2What is IRDA?14.3Functioning of IRDA14.4Other Regulatory Developments14.5Summary14.6Self Assessment Questions14.7Books for Further Readings14.0 ObjectivesAfter completing this unit, you would be a...

  • Page 147

    147Milestones of Insurance Regulations in the 20th Century1912First piece of insurance regulation promulgated – Indian Life Insurance CompanyAct, 19121928Promulgation of the Indian Insurance Companies Act1938Insurance Act 1938 introduced, the first comprehensive legislation to regulateInsurance...

  • Page 148

    148Tariff Advisory Committee (TAC) is delinked form GIC to function as a separate statuary bodyunder necessary supervision by the insurance regulatory authority.All insurance companies be treated on equal footing and governed by the provisions of insuranceAct. No special dispensation is giv...

  • Page 149

    149(vii) Introduction of fees, commission and other recoveries for carrying out the objectives of this Act. (viii) Calling for data or information from, undertaking inspection of, conducting enquiries andinvestigations, conducting audit of the insurers, intermediaries, insurance intermediaries a...

  • Page 150

    150(3) The salary, allowances and other conditions of service of a member shall not be varied to hisdisadvantage after appointmentVII. Bar on Future Employment of Members.The Chairperson and the whole-time members shall not, for a period of two years from the date on whichthey cease to hold offic...

  • Page 151

    151has fixed minimum educational qualifications for all agents, together with training and examinationrequirements.Policyholder protection was enhanced through the enactment of the Protection of Policyholders’Interests Regulations, 2002. It stipulates the responsibility of insurance companie...

  • Page 152

    1522. Positive Implications to Industry:(1) The liberalization helps transfer of technology in the field of insurance. New techniques and methodscan e used for assessment of risks, fixations of reasonable premium and provide new investmentopportunity.(2) The liberalization can help in adopting a ...

  • Page 153

    153(6) Employees Fear: While implementing liberalization measures, companies can retrench certainnumber of employees who are excess in need. This is a main reason of fear of employeesworking in insurance sector.(7) Lack of Government Guarantee on Policies: The insurance policies issued by private...

  • Page 154

    154Unit - 15 : Life InsuranceStructure of Unit:15.0Objectives15.1Introduction15.2History and Development of Life Insurance in India15.3Basic Principles15.4Classification of Life Risks15.5Policies15.6Summary15.7Self Assessment Questions15.8Books for Further Readings15.0 ObjectivesAfter completing ...

  • Page 155

    155The beneficiary receives policy proceeds upon the insured person’s death. The owner designates thebeneficiary, but the beneficiary is not a party to the policy. The owner can change the beneficiary unless thepolicy has an irrevocable beneficiary designation. If a policy has an irrevocable be...

  • Page 156

    156The Parliament of India passed the Life Insurance Corporation Act on the 19th of June 1956, and the LifeInsurance Corporation of India was created on 1st September, 1956, with the objective of spreading lifeinsurance much more widely and in particular to the rural areas with a view to reach al...

  • Page 157

    157There are opportunities in the pensions sector where regulations are being framed. Less than 10 % ofIndians above the age of 60 receive pensions. The IRDA has issued the first license for a standalone healthcompany in the country as many more players wait to enter. The health insurance sector ...

  • Page 158

    158Life Insurer in Public Sector1.Life Insurance Corporation of IndiaLife Insurers in Private Sector1.SBI Life Insurance2.Metlife India Life Insurance3.ICICI Prudential Life Insurance4.Bajaj Allianz Life5.Max New York Life Insurance6.Sahara Life Insurance7.Tata AIG Life8.HDFC Standard Life9.Birla...

  • Page 159

    1596.Principle of Loss Minimization, and7.Principle of Causa Proxima (Nearest Cause).15.4 Classification of Life RisksLife Insurance Risk FactorsInsurance is an important facet of finances that can help protect money and provide for families in whenunexpected events occur. Life insurance pays mon...

  • Page 160

    160There are some occupations, activities and hobbies that insurers put on the too-risky list. These are manyand varied and should be checked in the exclusions section of the product disclosure statement if you areunsure of where you stand.Risky or dangerous jobs to set off alarm bells, for insta...

  • Page 161

    161Classifications of Risk:Risks may be classified in many ways; however, there are certain distinctions that are particularly importantfor our purposes. These include the following:1. Financial and Non-financial Risks:In its broadest context, the term risk includes all situations in which there ...

  • Page 162

    162a speculative risk. In a gambling situation, risk is deliberately created in the hope of gain. The personwagering rs.100 on the outcome of a game faces the possibility of loss, but this is accompanied by thepossibility of gain. The entrepreneur or capitalist faces speculative risk in the quest...

  • Page 163

    163Types of PoliciesLife insurance may be divided into two basic classes: temporary and permanent; or the following subclasses:term, universal, whole life and endowment life insurance.1. Term Insurance Policy: This policy is pure risk cover with the insured amount will be paid only if thepolicy h...

  • Page 164

    164to be hospitalized and intensive medical care has to be provided which can be very expensive. It is here thatmedical insurance is helpful in reducing the financial burden.These days the vulnerability to lifestyle diseases such as heart, cancer, neurotic, and pollution based, etc areon the incr...

  • Page 165

    165v.On surviving the age of 20, the life assured receives the sum assured as survival benefit and thepolicy continues to cover the life assured till maturity date when vested bonus will be paid only. If lifeassured dies before maturity, sum assured with bonuses will be paid.11. Group Insurance: ...

  • Page 166

    1665.Loss of Policy: Insurance policy is an important document to be surrendered at the time of finalclaim or at the time of taking loan against the policy.6.Theft of the Policy: In case the policy is lost by theft, the duplicate copy can be issued.7.Destruction or Mutilation of the Policy: Polic...

  • Page 167

    167If the Life assured had paid at least 3 years’ premiums and thereafter if premiums have not beenpaid, the nominees/life assured get proportionate paid up value.In the event of the death of’ the Life assured within 3 years and the policy is under the lapsedposition, nothing is payable...

  • Page 168

    168The following documents are required:(i)Certificate of death.(ii) Proof of age of the life assured (if not already given).(iii) Deeds of assignment / reassignments.(iv) Policy document.(v) Form of discharge.If the claim has accrued within three years from the beginning of the policy, the follo...

  • Page 169

    16915.6 SummaryLife insurance is a contract between an insurance policy holder and an insurer, where the insurer promisesto pay a designated beneficiary a sum of money (the “benefits”) upon the death of the insured person. Lifeinsurance policies are legal contracts and the terms of the contra...

  • Page 170

    170Unit -16 : Marine InsuranceStructure of Unit:16.0Objectives16.1Marine Insurance16.2History and Development of Marine Insurance16.3Classification of Subject Matter16.4Types of Policies16.5Main Clauses16.6Marine Losses16.7Summary16.8Self Assessment Questions16.9Books for Further Readings16.0 Obj...

  • Page 171

    1714. The insurable interest in marine insurance should exist at the time of loss.5. Ship, cargo and freight can be insured.6. The insurance can be for single journey, multiple journeys or a particular period of time.7. The compensation is paid in cash only.8. WarrantiesScope of Marine Insuranc...

  • Page 172

    1722. Importance of marine Insurance for Ship-owner: Marine insurance is important insurance for ship-owner. While going on the marine venture expensive ship may be destroyed due to different types of risks.Ship-owner may have to experience with larger amounts of loss due to the destruction of th...

  • Page 173

    173twelfth and fourteenth centuries, and to have been introduced into England in the sixteenth century. The lawof insurance was a branch of the law merchant and very greatly out of harmony with the principles of thecommon law. Early insurance cases were generally either submitted to the arbitrati...

  • Page 174

    174In the 19th century, Lloyd’s and the Institute of London Underwriters (a grouping of London companyinsurers) developed between them standardized clauses for the use of marine insurance, and these havebeen maintained since. These are known as the Institute Clauses because the Institute covere...

  • Page 175

    175(c) Freight InsuranceFreight refers to the fee received for the carriage of goods in the ship. Usually the ship owner and the freightreceiver are the same person. Freight can be received in two ways- in advance or after the goods reach thedestination. In the former case, freight is secure. In ...

  • Page 176

    1761. Voyage Policy: Under the policy, the subject matter is insured against risk in respect of a particularvoyage from a port of departure to the port of destination, e.g. Mumbai to New York. The risk starts fromthe departure of ship from the port and it ends on its arrival at the port of destin...

  • Page 177

    177insurance. Firstly, policies are constructed in general, ordinary way and later on, specific clauses are addedto them according to terms and conditions of the contract. Some of the important clauses in a marine policyare mentioned below:1. Valuation Clause: If the value is written at the time ...

  • Page 178

    17812. Barratry Clause: This clause covers losses sustained by the ship owner or the cargo owner due towillfull conduct of the master or crew of the ship.13. Jettison Clause: Jettison means throwing overboard a part of the ship’s cargo so as to reduce herweight or to save other goods. This clau...

  • Page 179

    179Activity B:1.What are the effects of marine losses on the insured and the insurer?Warranties and ConditionsAccording to section 35 of marine insurance Act, a Warranty is an undertaking by the assured that somecondition shall be fulfilled or that a certain thing shall be or shall not be done or...

  • Page 180

    18016.9 Books for Further Readings-The Principles of Marine Insurance - A.Primer by Harold Turner-Marine Insurance Claims by Leslie.J.Buglass, Marine Insurance Claims by J.KGoodcare-The Principles of marine Insurance by A Primer by Harold Turner,-Controlling Cargo theft byTyska Fennely, Inland Ma...

  • Page 181

    181Unit - 17 : Health InsuranceStructure of Unit:17.0Objectives17.1Introduction17.1.1 Health Care System in India17.1.2 Health Insurance17.2What is Health Insurance?17.2.1 Meaning17.2.2 Major Developments in Health Insurance17.2.3 Categories of Health Insurance17.3Schemes of Health Insurance in I...

  • Page 182

    182changes. The country is now in the midst of a dual disease burden of communicable and non communicablediseases. This is coupled with spiralling health costs, high financial burden on the poor and erosion in theirincomes. Around 24% of all people hospitalized in India in a single year fall belo...

  • Page 183

    183The concept of insurance is closely concerned with security. Insurance acts as a shield against risks andunforeseen circumstances. In general, by and large, Indians are traditionally risk-averse rather than risklovers by nature.Also known as medical insurance, accident and health insurance or ...

  • Page 184

    184 GLOSSARY OF HEALTH INSURANCE TERMS Group health insurance Traditional healthcare coverage subsidized by employers and other organizations whereby part or all of premium costs are paid for and/ or discounted group rates are offered to eligible individuals. Individual health insurance Private h...

  • Page 185

    185the hospitalization in advance. This duration period may vary from case to case. Examples include:FTND (Full Term Normal Delivery), Chemotherapy treatment for carcinoma (cancer), for cataractsurgery, tonsillectomy (removal of tonsils).• Emergency Hospitalization: It is a sudden hospitalizati...

  • Page 186

    186defer, delay, reduce or altogether avoid payment for health care incurred by individuals and households.Given the appropriateness of this definition in the Indian context, this is the definition, we would adopt. Thehealth insurance market in India is very limited covering about 10% of the to...

  • Page 187

    187Main players of this field are. Bajaj Allianz: Bajaj Alliance offers three health insurance schemes namely, Health Guard, CriticalIllness Policy and Hospital Cash Daily Allowance Policy.- The Health Guard scheme is available to those aged 5 to 75 years (not allowing entry for those over55 y...

  • Page 188

    188include maternity benefit of Rs 3 000 subject to waiting period of nine months after first enrolmentand for first two children only. Exclusion clauses apply (Ranson K & Jowett M, 2003. Cholamandalam General Insurance: The benefits offered (in association with the ParamountHealth Care, a...

  • Page 189

    189husband too can be covered. Rs 20 per member is then paid to the National Insurance Company(NIC) which provides coverage to a maximum of Rs 2 000 per person per year for hospitalization.After being hospitalized at a hospital of one’s choice (public or private), the insurance claim issubmitte...

  • Page 190

    190Government Health Scheme (CGHS). This scheme was designed to replace the cumbersome and expensivesystem of reimbursements (GOI, 1994). It aims at providing comprehensive medical care to the CentralGovernment employees and the benefits offered include all outpatient facilities, and preventive a...

  • Page 191

    191Some of them are listed below:Family Floater Policies: Most health insurance plans give the flexibility of covering up to 4 members ofthe family under the same plan with a slightly higher premium than an individual health insurance policy. Itgives the flexibility of choosing say 4 or 5 lakhs o...

  • Page 192

    1923. Disability income cover: is primarily aimed at providing for the lost income in the disability periodor in the treatment period. It tries to replace the income that cannot be earned due to sickness of theassured. The benefit is usually paid as a percentage of the capital sum insured, and is...

  • Page 193

    19317.6 Process of Insurance ClaimEssential Guidelines for Availing Individual Health Insurance Policy:The following points should be borne in mind while purchasing an individual health policy: Understanding the Policy Coverage: The policyholder should be able to clearly comprehendthe extent o...

  • Page 194

    194 Coinsurance: Instead of, or in addition to, paying a fixed amount up front (a copayment), the co-insurance is a percentage of the total cost that insured person may also pay. For example, themember might have to pay 20% of the cost of a surgery over and above a co-payment, while theinsuran...

  • Page 195

    195charges, etc.) The services offered are usually at the discretion of a utilization review nurse who is oftencontracted through the managed care entity providing the subscription health plan. This determination maybe made either prior to or after hospital admission (concurrent utilization revie...

  • Page 196

    196 Unit - 18 : Fire Insurance and Other Miscellaneous InsuranceStructure of Unit:18.0Objectives18.1Introduction18.2What is Fire Insurance?18.3Significance of Fire Insurance18.4Scope of Fire Insurance18.5Types of Policies18.6Conditions on Fire Insurance Policies18.7Various Kinds of Insurance18.8...

  • Page 197

    197A fire insurance is a contract under which the insurer in return for a consideration (premium) agrees toindemnify the insured for the financial loss which the latter may suffer due to destruction of or damage toproperty or goods, caused by fire, during a specified period. The contract specifie...

  • Page 198

    1986.In Case of Several Policies for the Same Property, Each Insurer is Entitled to ContributionFrom the Others: After a loss occurs and payment is made, the insurer is subrogated to the rightsand interests of the policy-holder. An insurer can reinsure a part of the risk.7.Fire Policies Cover Los...

  • Page 199

    199spoiling goods by water, or throwing articles of furniture out of the window, are covered by the firerisks.3.Even by damages to a neighboring house by explosion done for the purpose of arresting fire, wouldbe covered by the fire risks.4.Every loss directly, or if not directly at least conseque...

  • Page 200

    200in business activities. Insurance is the only field that provides security, against business risks. The role of fireinsurance has been increasing day by day as a means against destruction or damage of business propertycaused by fire. The significance of fire insurance can be discussed under th...

  • Page 201

    2017.Impact damage8.Subsidence and landslide including rock slide9.Bursting or overflowing of water tanks, apparatus and pipes10. Missile testing operations11. Leakage from automatic sprinkler installations12. Bush fireII.Special ScopeCertain special kind of risks are also included in the fire po...

  • Page 202

    202Features of Average Policies1) This policy contains ‘Average Clause’.2) The sum insured under this policy shall be lesser than the market value of the property insured.3) The insurer shall be liable to compensate the loss in proportion of the policy amount with the marketvalue of the subje...

  • Page 203

    203of policy. On the basis of this estimate insurance is affected on maximum value of goods. The insurer shall beliable upto this limit only. The minimum sum insured under this policy shall be Rs. 1 crore.At the beginning, the insurer charges three-fourth of the premium fixed on the basis of maxi...

  • Page 204

    2042) Alteration: This policy shall be avoided with respect to any of the property insured in regard towhich there be any alteration after the commencement of the insurance:a) By removal; orb) Whereby risk or damage is increased; orc) Whereby the interest of the insured ceases except by will or o...

  • Page 205

    2053) Reinstatement: If any property is to be reinstated or replaced by the insurer the insuredshall at his own expenses provide all such plans, documents, books and information as mayreasonably be required. The insurer shall not be bound to reinstate exactly but only ascircumstances permit and i...

  • Page 206

    206In case of life insurance, more than one policy can be effected and the amount of all these policiescan be claimed on all these policies at the time of death.The insured cannot recover more than the actual loss.UnderinsuranceRefers to insuring assets for less than their real value. While...

  • Page 207

    2072. Treaty Reinsurance: It is a method of reinsurance in which the insurer and the reinsurer formulateand execute a reinsurance contract. The reinsurer then covers all the insurance policies comingwithin the scope of that contract. The reinsurance contract may oblige the reinsurer to acceptrei...

  • Page 208

    208Motor InsuranceMotor insurance is one of the widely known classes of miscellaneous insurance. This class of insurance hastwo major aspects. One is the loss of or damage to the motor vehicle, to third parties for the bodily injuriessustained by them or for damage to their property. The insuranc...

  • Page 209

    209The insurance policies are not contracts of strict indemnity, but this does not mean that the insured underthese policies can make profit out of a loss.18.9 Self Assessment Questions1.What do you mean by Fire insurance? Describe its nature and scope.2.Explain the meaning of ‘fire’ in fire ...