Broad Classification of Products in a bank:
The different products in a bank can be broadly classified into:
- Retail Banking.
- Trade Finance.
- Treasury Operations.
Retail Banking and Trade finance operations are conducted at the branch level while the wholesale banking operations, which cover treasury operations, are at the hand office or a designated branch.
- Loans, Cash Credit and Overdraft
- Negotiating for Loans and advances
- Book-Keeping (maintaining all accounting records)
- Receiving all kinds of bonds valuable for safe keeping
- Issuing and confirming of letter of credit.
- Drawing, accepting, discounting, buying, selling, collecting of bills of exchange, promissory notes, drafts, bill of lading and other securities.
- Buying and selling of bullion. Foreign exchange
- Acquiring, holding, underwriting and dealing in shares, debentures, etc.
- Purchasing and selling of bonds and securities on behalf of constituents.
The banks can also act as an agent of the Government or local authority. They insure, guarantee, underwrite, participate in managing and carrying out issue of shares, debentures, etc.
Apart from the above-mentioned functions of the bank, the bank provides a whole lot of other services like investment counseling for individuals, short-term funds management and portfolio management for individuals and companies. It undertakes the inward and outward remittances with reference to foreign exchange and collection of varied types for the Government.
Common Banking Products Available:
Some of common available banking products are explained below:
1) Credit Card: Credit Card is “post paid” or “pay later” card that draws from a credit line-money made available by the card issuer (bank) and gives one a grace period to pay. If the amount is not paid full by the end of the period, one is charged interest. A credit card is nothing but a very small card containing a means of identification, such as a signature and a small photo. It authorizes the holder to change goods or services to his account, on which he is billed. The bank receives the bills from the merchants and pays on behalf of the card holder. These bills are assembled in the bank and the amount is paid to the bank by the card holder totally or by installments. The bank charges the customer a small amount for these services. The card holder need not have to carry money/cash with him when he travels or goes for purchasing. Credit cards have found wide spread acceptance in the ‘metros’ and big cities. Credit cards are joining popularity for online payments. The major players in the Credit Card market are the foreign banks and some big public sector banks like SBI and Bank of Baroda. India at present has about 3 million credit cards in circulation.
2) Debit Cards: Debit Card is a “prepaid” or “pay now” card with some stored value. Debit Cards quickly debit or subtract money from one’s savings account, or if one were taking out cash. Every time a person uses the card, the merchant who in turn can get the money transferred to his account from the bank of the buyers, by debiting an exact amount of purchase from the card. To get a debit card along with a Personal Identification Number (PIN). When he makes a purchase, he enters this number on the shop’s PIN pad. When the card is swiped through the electronic terminal, it dials the acquiring bank system – either Master Card or Visa that validates the PIN and finds out from the issuing bank whether to accept or decline the transaction. The customer never overspread because the amount spent is debited immediately from the customers account. So, for the debit card to work, one must already have the money in the account to cover the transaction. There is no grace period for a debit card purchase. Some debit cards have monthly or per transaction fees. Debit Card holder need not carry a bulky checkbook or large sums of cash when he/she goes at for shopping. This is a fast and easy way of payment one can get debit card facility as debit cards use one’s own money at the time of sale, so they are often easier than credit cards to obtain. The major limitation of Debit Card is that currently only some 8000-10000 shops country wide accepts it. Also, a person can’t operate it in case the telephone lines are down.
3) Automatic Teller Machine: The introduction of ATM’s has given the customers the facility of round the clock banking. The ATM’s are used by banks for making the customers dealing easier. ATM card is a device that allows customer who has an ATM card to perform routine banking transaction at any time without interacting with human teller. It provides exchange services. This service helps the customer to withdraw money even when the banks ate closed. This can be done by inserting the card in the ATM and entering the Personal Identification Number and secret Password.
ATM’s are currently becoming popular in India that enables the customer to withdraw their money 24 hours a day and 365 days. It provides the customers with the ability to withdraw or deposit funds, check account balances, transfer funds and check statement information. The advantages of ATM’s are many. It increases existing business and generates new business. It allows the customers.
- To transfer money to and from accounts.
- To view account information.
- To order cash.
- To receive cash.
Advantages of ATM’s:
To the Customers
- ATM’s provide 24 hrs., 7 days and 365 days a year service.
- Service is quick and efficient
- Privacy in transaction
- Wider flexibility in place and time of withdrawals.
- The transaction is completely secure – you need to key in Personal Identification Number (Unique number for every customer).
- Alternative to extend banking hours.
- Crowding at bank counters considerably reduced.
- Alternative to new branches and to reduce operating expenses.
- Relieves bank employees to focus an more analytical and innovative work.
- Increased market penetration.
ATM’s can be installed anywhere like Airports, Railway Stations, Petrol Pumps, Big Business arcades, markets, etc. Hence, it gives easy access to the customers, for obtaining cash.
The ATM services provided first by the foreign banks like Citibank, Grind lays bank and now by many private and public sector banks in India like ICICI Bank, HDFC Bank, SBI, UTI Bank etc. The ICICI has launched ATM Services to its customers in all the Metropolitan Cities in India. By the end of 1990 Indian Private Banks and public sector banks have come up with their own ATM Network in the form of “SWADHAN”. Over the past year upto 44 banks in Mumbai, Vashi and Thane, have became a part of “SWADHAN” a system of shared payments networks, introduced by the Indian Bank Association (IBA).
4) E-Cheques: The e-cheques consists five primary facts. They are the consumers, the merchant, consumer’s bank the merchant’s bank and the e-mint and the clearing process. This cheaqing system uses the network services to issue and process payment that emulates real world chaquing. The payer issue a digital cheaques to the payee ant the entire transactions are done through internet. Electronic version of cheaques are issued, received and processed. A typical electronic cheque transaction takes place in the following manner:
- The customer accesses the merchant server and the merchant server presents its goods to the customer.
- The consumer selects the goods and purchases them by sending an e-cheque to the merchant.
- The merchant validates the e-cheque with its bank for payment authorisation.
- The merchant electronically forwards the e-cheque to its bank.
- The merchant’s bank forwards the e-cheque to the clearing house for cashing.
- The clearing house jointly works with the consumer’s bank clears the cheque and transfers the money to the merchant’s banks.
- The merchant’s bank updates the merchant’s account.
- The consumer’s bank updates the consumer’s account with the withdrawal information.
The e-chequing is a great boon to big corporate as well as small retailers. Most major banks accept e-cheques. Thus this system offers secure means of collecting payments, transferring value and managing cash flows.
5) Electronic Funds Transfer (EFT): Many modern banks have computerised their cheque handling process with computer networks and other electronic equipments. These banks are dispensing with the use of paper cheques. The system called electronic fund transfer (EFT) automatically transfers money from one account to another. This system facilitates speedier transfer of funds electronically from any branch to any other branch. In this system the sender and the receiver of funds may be located in different cities and may even bank with different banks. Funds transfer within the same city is also permitted. The scheme has been in operation since February 7, 1996, in India. The other important type of facility in the EFT system is automated clearing houses. These are the computer centers that handle the bills meant for deposits and the bills meant for payment. In big companies pay is not disbursed by issued cheques or issuing cash. The payment office directs the computer to credit an employee’s account with the person’s pay.
6) Telebanking: Telebanking refers to banking on phone services.. a customer can access information about his/her account through a telephone call and by giving the coded Personal Identification Number (PIN) to the bank. Telebanking is extensively user friendly and effective in nature.
- To get a particular work done through the bank, the users may leave his instructions in the form of message with bank.
- Facility to stop payment on request. One can easily know about the cheque status.
- Information on the current interest rates.
- Information with regard to foreign exchange rates.
- Request for a DD or pay order.
- DeMat Account related services.
- And other similar services.
5) Mobile Banking: A new revolution in the realm of e-banking is the emergence of mobile banking. On-line banking is now moving to the mobile world, giving everybody with a mobile phone access to real-time banking services, regardless of their location. But there is much more to mobile banking from just on-lie banking. It provides a new way to pick up information and interact with the banks to carry out the relevant banking business. The potential of mobile banking is limitless and is expected to be a big success. Booking and paying for travel and even tickets is also expected to be a growth area. According to this system, customer can access account details on mobile using the Short Messaging System (SMS) technology6 where select data is pushed to the mobile device. The wireless application protocol (WAP) technology, which will allow user to surf the net on their mobiles to access anything and everything. This is a very flexible way of transacting banking business. Already ICICI and HDFC banks have tied up cellular service provides such as Airtel, Orange, Sky Cell, etc. in Delhi and Mumbai to offer these mobile banking services to their customers.
6) Internet Banking: Internet banking involves use of internet for delivery of banking products and services. With internet banking is now no longer confirmed to the branches where one has to approach the branch in person, to withdraw cash or deposits a cheque or request a statement of accounts. In internet banking, any inquiry or transaction is processed online without any reference to the branch (anywhere banking) at any time. The Internet Banking now is more of a normal rather than an exception due to the fact that it is the cheapest way of providing banking services. As indicated by McKinsey Quarterly research, presently traditional banking costs the banks, more than a dollar per person, ATM banking costs 27 cents and internet banking costs below 4 cents approximately. ICICI bank was the first one to offer Internet Banking in India.
Benefits of Internet Banking:
- Reduce the transaction costs of offering several banking services and diminishes the need for longer numbers of expensive brick and mortar branches and staff.
- Increase convenience for customers, since they can conduct many banking transaction 24 hours a day.
- Increase customer loyalty.
- Improve customer access.
- Attract new customers.
- Easy online application for all accounts, including personal loans and mortgages
Financial Transaction on the Internet:
- Electronic Cash: Companies are developing electronic replicas of all existing payment system: cash, cheque, credit cards and coins.
- Automatic Payments: Utility companies, loans payments, and other businesses use on automatic payment system with bills paid through direct withdrawal from a bank account.
- Direct Deposits: Earnings (or Government payments) automatically deposited into bank accounts, saving time, effort and money.
- Stored Value Cards: Prepaid cards for telephone service, transit fares, highway tolls, laundry service, library fees and school lunches.
- Point of Sale transactions: Acceptance of ATM/Cheque at retail stores and restaurants for payment of goods and services. This system has made functioning of the stock Market very smooth and efficient.
- Cyber Banking: It refers to banking through online services. Banks with web site “Cyber” branches allowed customers to check balances, pay bills, transfer funds, and apply for loans on the Internet.
9) Demat: Demat is short for de-materialisation of shares. In short, Demat is a process where at the customer’s request the physical stock is converted into electronic entries in the depository system. In January 1998 SEBI (Securities and Exchange Board of India) initiated DEMAT ACCOUNTANCY System to regulate and to improve stock investing. As on date, to trade on shares it has become compulsory to have a share demat account and all trades take place through demat.
How to Operate DEMAT ACCOUNT?
One needs to open a Demat Account with any of the branches of the bank. After opening an account with any bank, by filling the demat request form one can handover the securities. The rest will be taken care by the bank and the customer will receive credit of shares as soon as it is confirmed by the Company/Register and Transfer Agent. There is no physical movement of share certification any more. Any buying or selling of shares is done via electronic transfers.
- If the investor wants to sell his shares, he has to place an order with his broker and give a “Delivery Instruction” to his DP (Depository Participant). The DP will debit hi s account with the number of shares sold by him.
- If one wants to buy shares, he has to inform his broker about his Depository Account Number so that the shares bought by him are credited in to his account.
- Payment for the electronic shares bought or sold is to be made in the same way as in the case of physical securities.