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Ch. 06: Bank & Banking

TransactionsTopics;• Definition of bank• Types of bank accounts• Advancing of loans • Cheques and its types• Important banking terms

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Definition of Bank

A bank is a dealer in money and credit. It accepts deposits from the public at low rate of interest and lends it to those who need it at high rate of

interest.

Process of opening a bank account

1. Formal Application: for opening a bank account, customer fills an application form .

2. Obtaining Introduction: Before opening a bank account, banker may ask some formal questions

from the customer

3. Specimen Signatures: When the banker is satisified about the customer, he takes specimen signatures from

the customer on a card “signature card”

Name of account holder:

SNAWER GILL____ Snawer

Snawer Snawer

4. Initial Deposit: For opening a bank account, first deposit may be minimum of Rs. 500 or Rs. 1000 5. Operating of account: When an account is opened, banker gives to the customer following books to operate it;• Pay-in-slip book• Pass Book• Cheque Book

1. Pay-in-Slip Book: It is a book that contains blank printed form provided by the banker to its customer. It is used to deposit money into bank.

2. Pass Book: It is a book that is used to record all the banking transactions. All the amounts paid into bank and withdrawn from bank are recorded in it.

2. Cheque Book: It is a book that contains blank printed form provided by the banker to its customer. It is used to draw money from the bank.

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Types of

Bank Accounts

1. Current AccountIn this type of account, client

can deposit and withdraw money at any time. No profit is

given by bank in this type of account2. Profit & Loss Saving Account

This type of account is opened with a veiw to receive some profit. Two withdrawals are

allowed in a week. Low rate of profit is given by bank in this

type of account

3. Fixed deposit AccountIn this type of account, a

particular amount of money is deposited into bank for a fixed period of 6 months, 1 years, 2 years or more. Amount cannot be drawn before the expiry of that period. High rate of profit

is given in this account.

4. Foreign Currency AccountThis type of account is opened

and operated in foreign currency like dollar, pond etc. Nature wise this account can be current, saving or a fixed

account.

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Advancing Loan

Loans and advancesBank makes the following types of

loans.• Short-term loans (for 1 year)• Medium term loan (for 1-5 years)• Long term loan (for 5 to 15 years)

Bank Over draftSometimes, bank allows its

trust worthy clients to overdraw money up to a certain limit, this extra

money is called overdraft. Bank charge interest on this

money.

Cheque and its Types

A cheque is an unconditional order in writing addressed by a customer to its banker to pay a sum of money

to him or to the person named therein.

Cheque

1. Bearer Cheque: A cheque that is payable to any person

who may present it at bank on which it is drawn.

2. Order Cheque: A cheque that is only payable to a person whose name is written on it. For the payment of this cheque, banker may demand identification from that person.

3. Crossed Cheque: A cheque on which two parallel lines are drawn on its face. A crossed cheque can not be cashed at bank counter. Amount is transferred from bank to bank.

4. Open Cheque: When a cheque is not croosed, it is said to be an open cheque. A crossed cheque can not be made an open cheque without the signature of the accountholder.

5. Post dated Cheque: A cheque that contains any future date or a date yet to come is called post dated cheque.

6. Anti-dated Cheque: A cheque that contains any previous date on which it is drawn is called anti-dated cheque.

6. Stale Cheque: A cheque that contains six month old date on which it is drawn is called stale cheque.

6. Dishonoured Cheque: When a cheque is returned by the banker unpaid due to any reason is callled a dishonoured cheque

Dishonouring of cheque

• Signatures are different• amount in words and figures differ• alterations are not signed • insufficient funds in account• payment is stopped by accountholder• Stale cheque (6 mont hold date)• etc

Important Terms

Postal Order: It is a written order by which

one post officer requests the other

post officer to pay a specific amount of money to a specific

person.

Bank Draft: It is a written order by which one Banker requests the other banker to

pay a specific amount of money to a specific

person.

Treasury Order: It is a written order by the

Government department to a

particular “government

treasury” to pay a sum of money to the

person whose name is written therein.

Standing Order: Sometimes, the

banker pays some expenses and receives some incomes on the behalf of the client.

This right of the bank is called, standing

order.

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Regards: