The Indian Banking System is a well-structured and regulated financial network that plays a critical role in the country’s economic development. It operates under the supervision of the Reserve Bank of India (RBI) — the central bank of the country.
Table of Contents
Structure of the Indian Banking System
The Indian banking system can be broadly classified into the following:
1. Reserve Bank of India (RBI) – Central Bank
- Regulates and supervises the entire banking system.
- Controls monetary policy, issues currency, and manages foreign exchange.
- Acts as banker to the government and other banks.
2. Scheduled Banks
Banks listed under the Second Schedule of the RBI Act, 1934. They have access to RBI facilities and must maintain the required statutory reserves.
Types of Scheduled Banks:
A. Commercial Banks
Provide banking services to individuals and businesses.
- Public Sector Banks (PSBs):
Majority ownership by the Government of India.
Examples: SBI, Bank of Baroda, PNB. - Private Sector Banks:
Owned by private entities.
Examples: HDFC Bank, ICICI Bank, Axis Bank. - Foreign Banks:
Headquartered outside India but operating within India.
Examples: Citi Bank, HSBC, Standard Chartered. - Regional Rural Banks (RRBs):
Jointly owned by the Central Government, State Government, and a sponsor bank.
Serve rural areas for financial inclusion. - Small Finance Banks (SFBs):
Provide basic banking services to small businesses, marginal farmers, and MSMEs.
Examples: AU Small Finance Bank, Ujjivan SFB. - Payments Banks:
Can accept deposits (up to ₹2 lakh), but cannot give loans.
Examples: India Post Payments Bank, Paytm Payments Bank.
3. Co-operative Banks
These operate on a cooperative basis and cater to rural and semi-urban areas.
- Urban Co-operative Banks (UCBs)
- State Co-operative Banks
- District Central Co-operative Banks
🏛️ Key Features of Indian Banking System
- Dual Regulation: RBI regulates banks, while co-operative banks are also regulated by state governments.
- Financial Inclusion: Through Jan Dhan Yojana, PMMY, and DBT.
- Digital Banking Revolution: UPI, IMPS, AEPS, NEFT, RTGS, and mobile banking are transforming how Indians access banking services.
📈 Recent Reforms and Trends
- Merger of Public Sector Banks to improve efficiency.
- Introduction of Digital Banks and FinTech collaborations.
- Strengthening of NPAs (Non-Performing Assets) management via IBC and SARFAESI Act.
- Green Banking & ESG initiatives.
- Focus on Financial Literacy & Cyber Security.
Commercial Banks: A Detailed Explanation
Commercial banks are financial institutions that accept deposits from the public and businesses and provide loans and other financial services with the goal of earning profit. These banks are regulated by the Reserve Bank of India (RBI) under the Banking Regulation Act, 1949.
They play a key role in the economic development of a country by mobilizing savings and channeling them into productive investments.
🧾 Key Characteristics of Commercial Banks
| Feature | Description |
| Profit-Oriented | Operate with the main objective of earning profit |
| Accept Deposits | From individuals, businesses, institutions |
| Lend Money | To borrowers at a higher interest than deposits |
| Regulated by RBI | Must follow RBI guidelines on CRR, SLR, interest rates, etc. |
| Provide Financial Services | Such as remittances, locker facilities, internet banking, etc. |
| Deal in Money Market | Participate in call money, repo, government securities markets |
Types of Commercial Banks in India
1. Public Sector Banks (PSBs)
- Majority (51% or more) owned by the Government of India.
- Focus on financial inclusion, rural banking, and welfare schemes.
Examples:
- State Bank of India (SBI)
- Punjab National Bank (PNB)
- Bank of Baroda (BoB)
- Union Bank of India
2. Private Sector Banks
- Majority stake held by private individuals or institutions.
- Known for modern technology, efficient service, and competitive rates.
Examples:
- HDFC Bank
- ICICI Bank
- Axis Bank
- Kotak Mahindra Bank
3. Foreign Banks
- Incorporated outside India but operate branches within India.
- Cater mainly to high-net-worth clients and corporates.
Examples:
- Citibank
- Standard Chartered
- HSBC
- Deutsche Bank
4. Regional Rural Banks (RRBs)
- Jointly owned by Central Government (50%), State Government (15%), and a Sponsor Bank (35%).
- Focus on rural lending, agriculture, and small businesses.
Examples:
- Bihar Gramin Bank
- Karnataka Vikas Grameena Bank
5. Small Finance Banks (SFBs)
- Set up to provide banking services to underserved and unbanked sections, especially small businesses and rural clients.
Examples:
- AU Small Finance Bank
- Ujjivan SFB
- Equitas SFB
Functions of Commercial Banks
A. Primary Functions
- Accepting Deposits
- Savings Account
- Current Account
- Fixed Deposit
- Recurring Deposit
- Granting Loans and Advances
- Personal Loans
- Business Loans
- Home Loans
- Cash Credit, Overdrafts
B. Secondary Functions
- Agency Functions
- Collecting cheques, dividends
- Paying utility bills
- Acting as trustee or executor
- General Utility Functions
- Locker services
- Issuance of drafts, pay orders
- Forex services
- Internet/Mobile banking
- Demat account services
Role of Commercial Banks in the Economy
| Role | Description |
| Financial Intermediation | Mobilize savings and lend to productive sectors |
| Credit Creation | Boosts investment and production in economy |
| Monetary Policy Implementation | Act as channels for RBI’s credit control |
| Employment Generation | Through direct jobs and business financing |
| Digital Empowerment | Promoting UPI, net banking, and mobile wallets |
| Support to MSMEs | Provide credit to small businesses and entrepreneurs |
Advantages of Commercial Banks
- Easy access to savings and credit
- Safe deposit of funds
- Wide network of branches and ATMs
- Financial literacy and advisory support
- Supports digital India & economic inclusion
Challenges Faced by Commercial Banks
- Rising NPAs (Non-Performing Assets)
- Cybersecurity threats
- Stiff competition from fintechs and NBFCs
- Regulatory compliance burden
- Operational risks and frauds
📝 Summary Table
| Type of Bank | Ownership | Key Focus | Example |
| Public Sector | Govt. of India | Inclusion + large coverage | BOB,SBI, PNB |
| Private Sector | Private entities | Tech + customer service | HDFC, ICICI |
| Foreign Bank | Foreign parent | HNIs, corporates | HSBC, Citibank |
| RRBs | Govt. + sponsor | Rural banking, agriculture | Bihar Gramin Bank |
| SFBs | Private sector | Microloans, small businesses | AU SFB, Ujjivan |
Co-operative Banks in India: A Detailed Explanation
Co-operative Banks are financial institutions owned and operated by their members (customers), who also act as shareholders. They function on the principles of cooperation, mutual help, and democratic decision-making, and are regulated under a dual regulatory framework by the Reserve Bank of India (RBI) and respective State Governments.
These banks primarily cater to the credit needs of small farmers, rural businesses, low-income groups, and self-employed individuals.
Key Features of Co-operative Banks
| Feature | Description |
| Member-Owned | Customers are also shareholders (one member, one vote) |
| Profit Sharing | Profits are shared among members or reinvested in development |
| Local Focus | Serve specific geographic areas (rural/semi-urban/urban) |
| Dual Regulation | Regulated by RBI and State Registrar of Co-operatives |
| Registration | Under Co-operative Societies Act (State or Multi-State) |
| Loans & Deposits | Accept deposits and lend to members and local businesses |
Structure of Co-operative Banking System in India
Co-operative banks are broadly classified into two categories:
1. Urban Co-operative Banks (UCBs)
Description:
- Operate in urban and semi-urban areas.
- Provide banking services like savings accounts, loans, FDs to individuals, traders, and SMEs.
- Do not deal much with agriculture.
Regulation:
- Regulated by RBI (Banking functions) and State Registrar (Administrative functions).
- Since 2020, RBI has full regulatory powers over UCBs under the Banking Regulation (Amendment) Act, 2020.
Examples:
- Saraswat Co-operative Bank (Mumbai)
- Cosmos Bank (Pune)
- Shamrao Vithal Co-operative Bank
2. Rural Co-operative Banks
These banks mainly serve agricultural and rural sectors. They have a three-tier structure:
A. State Co-operative Banks (SCBs)
- Apex-level co-operative banks in each state.
- Coordinate and supervise District Central Co-operative Banks (DCCBs).
- Provide refinancing and link to NABARD.
B. District Central Co-operative Banks (DCCBs)
- Operate at district level.
- Act as intermediaries between State Co-op Bank and Primary Agricultural Co-operative Societies.
- Provide loans to PACS and rural borrowers.
C. Primary Agricultural Credit Societies (PACS)
- Operate at village level.
- Provide short-term crop loans, fertilizers, seeds, etc.
- First point of contact for farmers.
Three-Tier Structure of Rural Co-operative Banks
State Co-operative Bank (SCB) – Apex level
↑
District Central Co-operative Bank (DCCB) – Middle level
↑
Primary Agricultural Credit Societies (PACS) – Grassroots level
Functions of Co-operative Banks
| Function | Description |
| Accept Deposits | Savings, fixed, and recurring deposits |
| Lend Money | Short and medium-term loans to farmers, artisans, traders |
| Promote Savings | Among low-income groups and rural populations |
| Support Agriculture | Credit for seeds, fertilizers, irrigation, etc. |
| Retail Banking | Provide lockers, remittance, insurance, and other services (UCBs) |
Advantages of Co-operative Banks
| Advantage | Description |
| Financial Inclusion | Serve rural and unbanked populations |
| Local Decision-Making | Better understanding of local needs |
| Democratic Setup | Equal say for each member, regardless of capital |
| Low Operational Cost | Minimal administrative expenses |
| Encourage Savings | In rural and semi-urban sectors |
Challenges Faced by Co-operative Banks
| Challenge | Description |
| Political Interference | Management often influenced by politics |
| Poor Governance | Weak internal controls and supervision |
| Lack of Professionalism | Inadequate skilled manpower |
| NPA and Loan Recovery Issues | Difficulty in recovering loans from members |
| Limited Technology | Slower adoption of digital banking services |
Co-operative Banks vs Commercial Banks
| Aspect | Co-operative Bank | Commercial Bank |
| Ownership | Members (co-owners) | Shareholders or Govt. |
| Objective | Mutual help and community service | Profit generation |
| Area of Operation | Mostly local | National/International |
| Regulation | Dual: RBI + State Registrar | RBI only |
| Decision-making | Democratic (one person, one vote) | Proportional to shareholding |
In the Indian banking system, deposit accounts are accounts where customers deposit money for safekeeping and earning interest. Banks offer different types of deposit accounts to suit various needs:
Types of Deposit Accounts in India
1. Savings Account
- Purpose: Encourage savings among individuals.
- Interest: 2.5% – 4% p.a. (varies by bank).
- Features:
- Allows deposits and withdrawals.
- Interest-bearing.
- Minimum balance requirements may apply.
- Suitable for salaried people, students, and households.
2. Current Account
- Purpose: Primarily for businesses and professionals with frequent transactions.
- Interest: No interest is usually paid.
- Features:
- Unlimited transactions allowed.
- Overdraft facility often available.
- Requires higher minimum balance.
- Ideal for companies, firms, and traders.
3. Fixed Deposit Account (FD)
- Purpose: Long-term investment with higher interest returns.
- Interest: 5.5% – 7.5% p.a. (varies with bank & tenure).
- Features:
- Fixed tenure (7 days to 10 years).
- Premature withdrawal may attract penalty.
- Higher interest than savings accounts.
- Ideal for risk-averse investors.
4. Recurring Deposit Account (RD)
- Purpose: Encourage regular monthly savings.
- Interest: Similar to FDs, compounded quarterly.
- Features:
- Fixed monthly deposits over a specified period.
- Tenure ranges from 6 months to 10 years.
- Useful for salaried individuals and small savers.
5. Term Deposit
- A general term that includes Fixed Deposits and Recurring Deposits.
- Money is deposited for a fixed period with assured returns.
6. Other Specialized Deposit Accounts
A. Senior Citizen Deposit
- Higher interest rates than standard FDs.
- For individuals aged 60+.
B. Tax-Saver Fixed Deposit
- Tenure: 5 years.
- Eligible for tax deduction under Section 80C (up to ₹1.5 lakh/year).
- No premature withdrawal allowed.
C. NRO/NRE/FCNR Accounts (For NRIs)
- NRE (Non-Resident External): Rupee account for income earned outside India.
- NRO (Non-Resident Ordinary): Rupee account for income earned in India.
- FCNR (Foreign Currency Non-Resident): Fixed deposit in foreign currency.
Summary Table:
| Type | Interest | Withdrawal | Target Group |
| Savings Account | ✅ | ✅ | Individuals |
| Current Account | ❌ | ✅ | Businesses |
| Fixed Deposit (FD) | ✅✅ | ❌ (limited) | Long-term savers |
| Recurring Deposit | ✅✅ | ❌ (monthly) | Regular income savers |
| Tax Saver FD | ✅✅ | ❌ (5 yrs) | Tax planning investors |
| NRO/NRE/FCNR | ✅ | ✅ | Non-Resident Indians |
1. Savings Account
✅Purpose:
To promote the habit of savings among individuals while providing liquidity and moderate interest income.
✅ Key Features:
| Feature | Description |
| Interest Rate | 2.5% – 4% p.a. (depends on bank & balance) |
| Withdrawals | Limited free monthly withdrawals (ATM, branch, online) |
| Cheque Book | Usually provided |
| Passbook/Statement | Regular updates available |
| Online Banking | Available for most accounts |
| Debit Card | Issued with ATM access |
| Minimum Balance | ₹0 in some banks (BSBDA); ₹500–10,000 in others |
| Eligibility | Indian residents (minors via guardians allowed) |
| Taxation | Interest above ₹10,000/year taxable under Section 80TTA |
✅ Ideal For:
Salaried people, students, pensioners, households.
2. Current Account
✅ Purpose:
To facilitate frequent and large financial transactions for businesses, firms, and professionals.
✅ Key Features:
| Feature | Description |
| Interest Rate | 0% (generally no interest paid) |
| Transactions | Unlimited deposits & withdrawals |
| Overdraft Facility | Available subject to terms |
| Cheque Book | Issued for business use |
| Minimum Balance | ₹5,000 – ₹1,00,000 (based on type & bank) |
| Online Banking | Enabled with bulk payment options |
| Eligibility | Individuals, sole proprietors, firms, companies |
| KYC Compliance | Mandatory documents like PAN, GSTIN, business proof |
✅ Ideal For:
Traders, businesses, professionals, service providers.
3. Fixed Deposit Account (FD)
✅ Purpose:
To invest surplus funds for a fixed period at a higher interest rate with capital safety.
✅ Key Features:
| Feature | Description |
| Tenure | 7 days to 10 years |
| Interest Rate | 5.5% to 7.5% p.a. (bank & tenure dependent) |
| Interest Payout | Monthly, quarterly, or on maturity |
| Premature Withdrawal | Allowed with 0.5%-1% penalty |
| Loan Against FD | Up to 90% of FD amount |
| Auto Renewal | Option available on maturity |
| Taxability | Interest fully taxable under “Income from Other Sources” |
| TDS | Deducted if interest > ₹40,000 (₹50,000 for senior citizens) |
✅ Ideal For:
Investors with lump-sum money who want guaranteed returns.
4. Recurring Deposit Account (RD)
✅ Purpose:
To promote regular saving habit with monthly contributions over a fixed tenure.
✅ Key Features:
| Feature | Description |
| Monthly Deposit | Fixed amount every month |
| Tenure | 6 months to 10 years |
| Interest Rate | Same as FD (compounded quarterly) |
| Premature Withdrawal | Allowed with interest penalty |
| Loan Against RD | Usually after 6 months, subject to bank policy |
| Taxability | Interest fully taxable |
✅ Ideal For:
Salaried individuals and small savers with regular income.
5. Term Deposit (FD + RD)
✅ Purpose:
A general category for time-bound deposits that includes both Fixed and Recurring Deposits.
✅ Common Features:
- Fixed interest.
- Assured returns.
- Capital protection.
- Early withdrawal with penalty.
6. Senior Citizen Deposit Account
✅ Purpose:
To provide higher interest rates and safe investment options to senior citizens.
✅ Key Features:
| Feature | Description |
| Eligibility | Age 60+ |
| Interest Rate | 0.25% to 0.75% higher than regular FD |
| Minimum Deposit | ₹1,000 (varies by bank) |
| Tenure | 7 days to 10 years |
| Tax Benefits | Up to ₹50,000 interest exempt under Section 80TTB |
| Premature Withdrawal | Available with penalty |
✅ Ideal For:
Retired individuals seeking stable income.
7. Tax-Saver Fixed Deposit
✅ Purpose:
To help individuals save taxes under Section 80C of the Income Tax Act.
✅ Key Features:
| Feature | Description |
| Tenure | 5 years (mandatory lock-in) |
| Interest Rate | Similar to regular FDs |
| Tax Deduction | Up to ₹1.5 lakh/year |
| Premature Withdrawal | Not allowed |
| Loan Facility | Not available |
| Interest Taxation | Interest is taxable |
✅ Ideal For:
Taxpayers looking for safe, tax-saving investment.
8. NRI Deposit Accounts (NRE/NRO/FCNR)
A. NRE Account (Non-Resident External)
| Feature | Details |
| Currency | Indian Rupees |
| Repatriation | Fully repatriable |
| Tax | Interest tax-free in India |
| Purpose | Save foreign income in INR |
B. NRO Account (Non-Resident Ordinary)
| Feature | Details |
| Currency | Indian Rupees |
| Repatriation | Limited to $1 million/year |
| Tax | Interest taxable |
| Purpose | Save income earned in India (rent, dividends, etc.) |
C. FCNR Account (Foreign Currency Non-Resident)
| Feature | Details |
| Currency | USD, GBP, EUR, etc. |
| Tenure | 1 to 5 years |
| Interest | Tax-free |
| Exchange Risk | None (held in foreign currency) |
| Repatriation | Fully allowed |
There are three main types of NRI (Non-Resident Indian) bank accounts in India, each serving different purposes for managing income earned in India or abroad. These accounts are regulated by the Foreign Exchange Management Act (FEMA) and overseen by the Reserve Bank of India (RBI).
Types of NRI Accounts in India
| Type | Full Form | Currency | Repatriable? | Tax on Interest | Ideal For |
| NRE | Non-Resident External | Indian Rupees (INR) | ✅ Yes | ❌ No | Parking foreign income in INR |
| NRO | Non-Resident Ordinary | Indian Rupees (INR) | ✅ (Limited) | ✅ Yes | Managing income earned in India |
| FCNR(B) | Foreign Currency Non-Resident (Bank) | Foreign Currency | ✅ Yes | ❌ No | Saving in foreign currency to avoid exchange rate risk |
1. NRE Account (Non-Resident External Account)
✅ Purpose:
To deposit foreign income in India in Indian Rupees, fully repatriable and tax-free.
✅ Features:
- Account held in Indian Rupees.
- Funds must be remitted from abroad or from another NRE/FCNR account.
- Fully repatriable (principal + interest).
- Interest earned is tax-free in India.
- Types: Savings, Current, Fixed, Recurring Deposits.
- Joint account allowed only with another NRI.
✅ Ideal For:
NRIs who earn abroad and want to save or invest in India.
2. NRO Account (Non-Resident Ordinary Account)
✅ Purpose:
To manage income earned in India such as rent, pension, dividends, etc.
✅ Features:
- Held in Indian Rupees.
- Can accept foreign income and income from India.
- Interest is taxable in India.
- Repatriable up to $1 million/year (subject to taxes and documentation).
- Joint account can be held with resident Indian or NRI.
- Types: Savings, Current, FD, RD.
✅ Ideal For:
NRIs with income sources in India.
3. FCNR(B) Account (Foreign Currency Non-Resident Bank Account)
✅ Purpose:
To save earnings in foreign currency without exposure to exchange rate risk.
✅ Features:
- Maintained in foreign currencies like USD, GBP, EUR, JPY, AUD, etc.
- Minimum tenure: 1 year; Maximum: 5 years.
- Fully repatriable (principal + interest).
- Interest is tax-free in India.
- Only Fixed Deposit type account.
- Joint account allowed with NRIs only.
✅ Ideal For:
NRIs who want to keep funds in foreign currency and avoid INR depreciation risk.
Summary Table
| Feature | NRE | NRO | FCNR(B) |
| Currency | INR | INR | Foreign Currency |
| Source of Funds | Foreign income | Indian + foreign income | Foreign income |
| Repatriation | Fully allowed | Up to $1 million/year | Fully allowed |
| Interest Tax | Exempt | Taxable | Exempt |
| Account Type | Savings, Current, FD, RD | Savings, Current, FD, RD | Fixed Deposit only |
| Joint Account | NRI only | NRI or Resident Indian | NRI only |
What is a Demand Draft (DD)?
A Demand Draft (DD) is a prepaid negotiable instrument issued by a bank that directs another branch or bank to pay a specific amount of money to a specified person or organization. It is a secure mode of money transfer, often used when the payer and payee are in different cities.
Key Features of Demand Draft
| Feature | Description |
| Prepaid Instrument | The issuer (payer) pays the amount upfront to the bank. |
| Issued by Bank | Only banks can issue a DD, not individuals. |
| Guaranteed Payment | Since it is prepaid, there is no risk of bouncing like a cheque. |
| Payable at Another Branch | Generally used to pay someone in another city or branch. |
| Drawer / Remitter | The person who requests the draft (pays the amount + fee). |
| Drawee Bank | The bank branch on which the draft is drawn (responsible for payment). |
| Payee | The person/firm to whom the money is payable. |
How a Demand Draft Works
- The remitter goes to the bank and pays the DD amount + commission.
- The bank issues a printed draft, mentioning:
- Amount (in figures and words)
- Name of payee
- Branch on which DD is payable
- The payee deposits the DD in their bank account.
- The drawee branch verifies the DD and releases funds.
✅ Advantages
- No risk of bouncing like in cheques.
- Useful for large payments in areas without online transfer.
- Accepted by institutions for fees, applications, etc.
- Can be tracked via serial number.
❌ Disadvantages
- Time-consuming (requires visiting bank).
- Charges apply (commission varies by amount).
- Non-refundable if lost, unless revalidated or canceled.
Common Uses of Demand Draft
- College or exam fee payments.
- Tenders and government payments.
- Real estate transactions.
- Business-to-business transactions without online banking.
Sample DD Details
| Field | Value |
| Amount | ₹10,000 |
| Payee | XYZ Pvt. Ltd. |
| Payable At | SBI, Kolkata |
| Drawn By | ABC (Remitter) |
| Issue Branch | SBI, Delhi |
| DD Number | 4567891234 |
What is a Cheque?
A cheque is a written, dated, and signed instrument that instructs a bank to pay a specific amount of money from the drawer’s account to the person named (the payee) or to the bearer of the cheque.
It is a common, paper-based mode of payment in the banking system.
✅ Key Elements of a Cheque
| Field | Description |
| Drawer | The person who writes the cheque (account holder). |
| Drawee | The bank where the drawer holds an account. |
| Payee | The person or entity to whom the amount is payable. |
| Amount | Specified in numbers and words. |
| Date | The cheque must be dated for validity. |
| Signature | Must match the drawer’s bank records. |
Types of Cheques
| Type | Description |
| Bearer Cheque | Payable to the person holding it. Risky if lost. |
| Order Cheque | Payable to a specific person (name written, not transferable). |
| Crossed Cheque | Two parallel lines on top left; amount must be deposited in a bank account (not payable in cash). |
| Account Payee Cheque | A type of crossed cheque with “A/C Payee” written – extra secure. |
| Post-Dated Cheque | A cheque dated for future; payable only on that future date. |
| Stale Cheque | Cheque older than 3 months from the date – not valid. |
| Blank Cheque | Signed cheque with no amount/date filled in – high risk. |
| Cancelled Cheque | Has “CANCELLED” written across it; used for documentation, not payment. |
How a Cheque Works
- Drawer issues a cheque to the payee.
- Payee deposits the cheque in their bank.
- The cheque is sent to the drawer’s bank (drawee).
- If valid and funds are available, the bank clears the amount to the payee.
✅ Advantages of a Cheque
- Simple and accepted payment method.
- Can be used for post-dated payments.
- No need to carry cash.
- Legal record of payment.
❌ Disadvantages
- Can be bounced if insufficient balance.
- Processing takes 2–3 days.
- Risk of fraud if misused or forged.
- Must be filled and signed properly to be valid.
Important Cheque Terms
- Cheque Bounce: Failure to honor the cheque due to insufficient funds or signature mismatch.
- MICR Code: Magnetic Ink Character Recognition code (used for faster processing).
- CTS: Cheque Truncation System – electronic clearing mechanism.
Difference Between Cheque and Demand Draft
| Point | Cheque | Demand Draft |
| Issued By | Account holder (drawer) | Bank (on request of customer) |
| Requires Balance | May bounce if funds insufficient | Always prepaid (no bounce) |
| Payee | Can be bearer or order | Always order (specific payee) |
| Risk | High (can be dishonored) | Low (guaranteed by bank) |
What is a Debit Card?
A debit card is a plastic or metal card issued by a bank that allows the cardholder to access funds directly from their bank account to make purchases or withdraw cash.
It is linked to the user’s savings or current account, and every transaction instantly debits (deducts) the amount from that account.
✅ Key Features of a Debit Card
| Feature | Description |
| Linked to Account | Savings or Current account |
| Instant Deduction | Amount is debited in real-time |
| Used For | Online/offline shopping, ATM withdrawal, bill payments |
| PIN Protected | Requires a 4-digit PIN for authentication |
| Contactless Feature | Tap-to-pay up to ₹5,000 (as per RBI) |
| Validity | Usually 3–5 years; renewable |
| Issued by | Banks like SBI, HDFC, ICICI, Axis, etc. |
| Card Networks | VISA, Mastercard, RuPay (Indian), Maestro |
Uses of a Debit Card
- ATM Withdrawals (cash withdrawal from ATMs)
- POS (Point of Sale) Transactions in shops
- Online Purchases (e-commerce, apps)
- Utility Bill Payments
- International Transactions (if enabled)
- Balance Check and Mini Statement
🔐 Security Features
- Chip & PIN (EMV chip cards are safer)
- SMS Alerts for every transaction
- Two-Factor Authentication for online payments (OTP)
- Temporary Blocking via mobile banking if lost
Debit Card vs Credit Card
| Feature | Debit Card | Credit Card |
| Source of Funds | Own bank account | Borrowed from bank (credit limit) |
| Interest | No interest (own money) | Charged if not paid on time |
| Eligibility | Linked to account; easy to get | Requires good credit history |
| Limit | Based on account balance | Based on credit limit set by bank |
| Risk | Limited to account balance | Can lead to debt if misused |
Types of Debit Cards
| Type | Description |
| Regular Debit Card | Basic use for transactions and ATM withdrawals |
| Contactless Card | Tap and pay feature |
| International Debit Card | For use abroad |
| RuPay Debit Card | Domestic Indian card with zero transaction fee in many schemes |
| Prepaid Debit Card | Pre-loaded; not linked to bank account |
✅ Benefits of a Debit Card
- Convenient and cashless
- No debt or interest
- Safer than carrying cash
- Useful for budgeting
- Accepted globally (VISA/Mastercard)
What is a Credit Card?
A credit card is a plastic or metal card issued by a bank or financial institution that allows you to borrow money up to a certain limit to make purchases, pay bills, or withdraw cash. You pay back later, either in full or in installments, along with interest (if not paid fully on time).
It is a form of short-term loan with a predefined credit limit.
✅ Key Features of a Credit Card
| Feature | Description |
| Credit Limit | Pre-approved borrowing limit set by the issuer |
| Buy Now, Pay Later | Pay at the end of the billing cycle (15–45 days grace period) |
| Minimum Due | Small portion (~5%) must be paid to avoid penalty |
| Interest Charges | Charged on unpaid balance (18% to 42% p.a.) |
| Reward Points | Earned on every spend (redeemable) |
| EMI Facility | Big purchases can be converted into EMIs |
| Cash Withdrawal | Allowed (high interest + fee applies) |
| Bill Payment Date | Monthly due date to clear the balance |
Uses of a Credit Card
- Shopping (Online/Offline)
- Bill Payments (Electricity, Mobile, Insurance, etc.)
- Booking Flights, Hotels, and Events
- Cash Withdrawals (with charges)
- Balance Transfer from other cards
- Foreign Transactions
🔐 Security Features
- EMV Chip & PIN security
- OTP for online transactions
- SMS/Email Alerts
- Card Lock/Unlock via Mobile App
- Zero liability on lost cards if reported promptly
Credit Card vs Debit Card
| Point | Credit Card | Debit Card |
| Source of Funds | Borrowed from bank (credit) | Own bank account |
| Interest Charges | If balance not paid fully | None |
| Monthly Bill | Yes | No |
| Credit Score Impact | Affects & builds credit score | No impact |
| Spending Limit | Fixed credit limit | Limited to account balance |
Types of Credit Cards
| Type | Suitable For |
| Standard Credit Card | General use |
| Rewards Card | Earn points/cashback |
| Travel Credit Card | Frequent flyers |
| Fuel Credit Card | For petrol/diesel cashback |
| Shopping Card | Discounts on retail & e-com |
| Secured Credit Card | Backed by fixed deposit (for low credit score) |
| Business Credit Card | For entrepreneurs & professionals |
✅ Benefits of Using a Credit Card
- 45–50 days of interest-free credit
- Earn cashback, points, and air miles
- Helps build credit score
- Convenient for emergencies
- Global acceptance (VISA, Mastercard, Amex)
❌ Risks / Disadvantages
- High-interest rates on overdue amounts
- Penalties on late payments
- Risk of overspending and debt
- Charges for cash withdrawals & foreign use
Fund Transfer
Here is a detailed explanation of NEFT, RTGS, and IMPS – the three major electronic fund transfer systems used in India for transferring money between bank accounts.
1. NEFT – National Electronic Funds Transfer
✅ What is NEFT?
NEFT is an electronic payment system that facilitates bank-to-bank transfers in a batch-wise (hourly) settlement system.
✅ Key Features:
| Feature | Details |
| Transfer Type | Deferred Net Settlement (DNS) – batch processing |
| Settlement | Hourly batches (24×7, including holidays) |
| Transaction Limit | No minimum or maximum limit (subject to bank policies) |
| Processing Time | 30 minutes to 2 hours |
| Charges | Free for most banks |
| Availability | 24×7 through Internet/Mobile banking |
| Use Case | Ideal for small and medium-value transactions |
| Example | Transferring ₹50,000 to a friend’s account in another bank |
✅ Ideal For:
General-purpose money transfer across banks – non-urgent, cost-effective.
2. RTGS – Real-Time Gross Settlement
✅ What is RTGS?
RTGS is a real-time and gross settlement system used for high-value, urgent transactions.
✅ Key Features:
| Feature | Details |
| Transfer Type | Real-time, one-to-one basis |
| Settlement | Continuous and immediate |
| Minimum Amount | ₹2,00,000 |
| Maximum Amount | No upper limit |
| Processing Time | Instant |
| Charges | Free in most banks post-RBI guidelines |
| Availability | 24×7, 365 days |
| Use Case | Urgent business or property-related transactions |
| Example | Transferring ₹10 lakh to a builder or corporate entity |
✅ Ideal For:
High-value, time-sensitive transactions where immediate clearance is needed.
3. IMPS – Immediate Payment Service
✅ What is IMPS?
IMPS is an instant real-time interbank transfer service available 24×7, including on Sundays and holidays.
✅ Key Features:
| Feature | Details |
| Transfer Type | Real-time |
| Settlement | Instant (seconds) |
| Minimum Amount | ₹1 |
| Maximum Amount | ₹5 lakh (depending on bank) |
| Processing Time | Within seconds |
| Charges | Varies by bank (mostly free or nominal) |
| Availability | 24×7 via mobile, net banking, ATM, UPI |
| Use Case | Instant money transfer for urgent needs |
| Example | Sending ₹10,000 to a family member instantly at night |
✅ Ideal For:
Instant, anytime, anywhere money transfer – even on holidays.
Comparison Table: NEFT vs RTGS vs IMPS
| Feature | NEFT | RTGS | IMPS |
| Settlement | Hourly Batches | Real-Time | Real-Time |
| Speed | 30 min – 2 hrs | Immediate | Instant |
| Min. Amount | ₹1 | ₹2,00,000 | ₹1 |
| Max. Amount | No limit (bank-defined) | No upper limit | ₹5,00,000 (varies by bank) |
| Charges | Mostly Free | Free / Nominal | Nominal / Free |
| Availability | 24×7 | 24×7 | 24×7 |
| Use Case | Regular transactions | High-value transactions | Urgent transfers (small) |
Conclusion
| Use This | When You Want To |
| NEFT | Send non-urgent, affordable transfers of any amount. |
| RTGS | Transfer ₹2 lakh+ urgently and securely. |
| IMPS | Send small-to-moderate amounts instantly 24×7. |
4.UPI – Unified Payments Interface
UPI (Unified Payments Interface) is a real-time payment system developed by the National Payments Corporation of India (NPCI) that allows users to instantly transfer money between bank accounts using a mobile phone.
It enables peer-to-peer (P2P) and merchant transactions without the need to share bank account details – only a Virtual Payment Address (VPA) like yourname@upi is required.
✅ Key Features of UPI
| Feature | Description |
| Real-Time Transfers | Money is transferred instantly 24×7 |
| Linked to Bank Account | No need to reload wallets |
| Single App, Multiple Accounts | One UPI app can link several bank accounts |
| VPA (UPI ID) | Unique ID like name@bank to send/receive money |
| Minimal Information Needed | No IFSC, account number required |
| Two-Factor Authentication | Secured via MPIN and device ID |
| Free of Charge | Most banks and apps don’t charge users |
| Daily Limit | Usually ₹1 lakh per day (₹5 lakh for select cases like IPO) |
Who Developed UPI?
- Developed By: NPCI (National Payments Corporation of India)
- Launched: April 2016 (live from August 2016)
- Regulated By: RBI (Reserve Bank of India)
How UPI Works
- Download a UPI-enabled app like BHIM, PhonePe, Google Pay, Paytm.
- Register with your mobile number linked to your bank account.
- Create a UPI ID (VPA).
- Set a 6-digit UPI PIN for secure transactions.
- Use the app to:
- Send money via VPA, QR code, or phone number.
- Request money from others.
- Pay bills or scan & pay merchants.
Popular UPI Apps in India
- BHIM UPI (by NPCI)
- Google Pay
- PhonePe
- Paytm
- Amazon Pay UPI
- Bank-specific apps (SBI YONO, iMobile by ICICI, etc.)
Benefits of UPI
| Benefit | Description |
| Convenient | No need for cash, cards, or IFSC |
| Secure | Regulated by RBI, uses encrypted channels |
| Instant | Real-time fund transfer, 24×7 |
| Free | No or minimal charges |
| Multipurpose | P2P, merchant payments, IPO payments, donations |
| Interoperable | Works across all major banks and apps |
UPI vs Other Payment Methods
| Feature | UPI | NEFT | IMPS | Wallets |
| Speed | Instant | 30–60 mins | Instant | Instant |
| Availability | 24×7 | 24×7 | 24×7 | 24×7 |
| Limit | ₹1–₹5 lakh/day | No limit | ₹5 lakh max | ₹1–₹10K (wallet) |
| Bank Details Needed | No | Yes | Yes | No |
UPI Security Measures
- Two-factor authentication (PIN + phone verification)
- Mobile device binding
- Real-time fraud detection by banks and apps
- RBI oversight and compliance
Fun Fact:
As of 2024, UPI processes over 10 billion transactions per month and is now accepted in countries like UAE, Singapore, France, Bhutan, and Sri Lanka.
What is Nomination in Banking?
Nomination is a facility offered by banks and financial institutions that allows an account holder to appoint a person (nominee) who will receive the proceeds or balance of the account in case of the account holder’s death.
It simplifies the transfer of ownership and ensures that the rightful person can claim the money without lengthy legal procedures.
✅ Key Features of Nomination
| Feature | Description |
| Purpose | To ensure smooth transfer of assets after the account holder’s death |
| Who Can Nominate? | Individuals holding bank accounts, deposits, lockers, etc. |
| Who Can Be Nominee? | Any individual (including minors with guardian), not necessarily a family member |
| Number of Nominees | Only one nominee allowed per account (multiple in demat accounts) |
| Types of Accounts | Applicable to Savings, Fixed Deposits, Recurring Deposits, Lockers, PPF, etc. |
| Can Be Changed? | Yes, the nomination can be modified or canceled anytime |
| Legal Status | Nominee is custodian, not legal heir (unless otherwise stated) |
How Nomination Works
- The account holder fills a nomination form (DA1) at the time of opening an account or later.
- In case of the account holder’s death, the nominee can:
- Submit death certificate and ID proof.
- Claim the amount with minimal paperwork.
- If no nomination exists, legal heirs must produce a succession certificate or will, which takes more time.
Benefits of Nomination
| Benefit | Explanation |
| ✅ Simplifies Claims | Avoids long legal process for family members |
| ✅ Reduces Disputes | Clearly defined beneficiary |
| ✅ Applicable Across Products | Bank A/Cs, FDs, Lockers, PPF, EPF, Insurance |
| ✅ Can Be Updated | Easily modifiable anytime via bank application |
Important Points to Note
- Nominee ≠ Legal Heir: A nominee does not become the owner of the funds by default; they are trusted to hand over the funds to the legal heir (unless otherwise clarified).
- Nomination is optional but highly recommended.
- For joint accounts, nomination must be done with the consent of all holders.
Forms Used
| Form Code | Purpose |
| DA1 | Nomination form (new nomination) |
| DA2 | Cancellation of nomination |
| DA3 | Change of nomination |
Death Claim Process in Bank
When a bank account holder dies, their legal heirs or nominee can initiate the death claim process to get the funds transferred. The process depends on whether a nominee is registered or not.
If Nominee Is Registered
This is the simplest and fastest method.
Required Documents:
- Death Certificate (original + photocopy)
- ID proof of nominee (Aadhaar, PAN, etc.)
- Passbook or Fixed Deposit Receipt (if available)
- Nominee’s Claim Form (as prescribed by the bank)
- KYC documents of nominee (Photo, Address Proof)
- Cancelled cheque or bank details of nominee
Process:
- Visit the bank branch where the account is held.
- Submit the claim form along with the above documents.
- Bank verifies details and signature of the nominee.
- Funds are released to the nominee’s account, typically within 7–15 working days.
✅ No succession certificate or legal heir certificate required if valid nomination exists.
If No Nominee Is Registered
The process is more legal and takes more time.
Required Documents:
- Death Certificate
- Claim Form signed by all legal heirs
- Legal Heir Certificate or Succession Certificate (issued by a competent court)
- ID and Address Proof of all claimants
- Indemnity Bond (bank format)
- No Objection Certificate (NOC) from other legal heirs, if claim made by one
- Bank Passbook/FD Receipt
Process:
- Submit claim documents to the bank.
- Bank evaluates legal documents and may seek legal advice.
- Funds are released to rightful heir(s) only after full verification.
- Time taken: 15 days to 3 months or more.
Important Notes
| Point | Explanation |
| Joint Accounts (E or S) | Funds transferred to surviving holder |
| Minor Nominee | Guardian required to receive the claim |
| Loan Linked Accounts | Balance adjusted with outstanding loan first |
| Locker Facility | Nominee/legal heir must submit a separate claim |
Legal Terms
| Term | Meaning |
| Nominee | Appointed person to receive funds after death |
| Legal Heir | Family members entitled under inheritance law |
| Succession Certificate | Court-issued document certifying legal heir(s) |
Pro Tip
Always:
- Add a nominee to every bank account.
- Keep your family informed of account details.
- Update KYC and contact information with the bank regularly.
Process of Receiving Funds from Abroad in India
Receiving money from abroad in India is legal and regulated by the Foreign Exchange Management Act (FEMA) and supervised by the Reserve Bank of India (RBI). The funds can be received by individuals or businesses via banking channels using various methods.
✅ Common Ways to Receive Funds from Abroad
| Mode | Description |
| SWIFT (Wire Transfer) | Direct bank-to-bank international transfer |
| Money Transfer Operators (MTOs) | Western Union, MoneyGram, etc. |
| UPI-Linked Remittances | From countries integrated with Indian UPI |
| Forex Cards / Prepaid Wallets | Limited use; not direct bank deposit |
| Paypal / Stripe | For freelancers and exporters (requires FIRC/IEC for businesses) |
Step-by-Step Process via Bank (SWIFT Transfer)
1. Provide Your Bank Details to Sender
Share the following details:
- Your full name (as per bank account)
- Your account number
- SWIFT/BIC code of your bank (e.g., SBININBBXXX for SBI)
- Bank name and branch address
- Purpose code (required for crediting foreign income, like P1017 for personal gift)
📌 Your bank must be authorised to receive foreign remittances.
2. Sender Initiates Transfer from Abroad
The sender approaches their foreign bank or remittance service and:
- Inputs your Indian bank details and SWIFT code
- Pays the amount in foreign currency
- The remitting bank transfers funds via the SWIFT network
3. Intermediary (Correspondent) Bank Processes Transfer
- The remittance may go through one or more correspondent banks.
- The Indian bank’s Nostro account (foreign currency account held by Indian bank abroad) gets credited.
4. Indian Bank Credits the Beneficiary’s Account
- The Indian bank converts the foreign currency into INR using prevailing exchange rates.
- The credited amount (in INR) is deposited into your account.
- You may receive a credit intimation SMS/email.
Documents Required (If Asked)
| For Individuals | For Businesses (Exports/Freelancing) |
| – PAN card | – PAN, IEC (Import Export Code) |
| – Purpose Code | – FIRC (Foreign Inward Remittance Certificate) |
| – Passport (sometimes) | – GSTIN (if applicable) |
Purpose Code Examples
| Code | Description |
| P1017 | Gifts from relatives/friends abroad |
| P1301 | Indian exports of goods |
| P0805 | Freelance income/services |
| P1202 | Education payments |
| S0014 | Salary received from abroad |
Time Taken
| Method | Duration |
| SWIFT Transfer | 1 to 3 working days |
| Western Union | Within minutes (cash pickup) |
| Paypal | 1 to 5 working days |
Safety Tips
- Use trusted banks and services only.
- Confirm exchange rate and fees before transfer.
- Track the SWIFT Reference Number (MT103) for status.
- Ensure correct account details to avoid rejections or delays.
Process for Sending Funds Abroad from India
Sending money from India to another country is governed by the Liberalised Remittance Scheme (LRS) under the Foreign Exchange Management Act (FEMA) and regulated by the Reserve Bank of India (RBI).
You can remit funds abroad for personal, educational, medical, investment, or business purposes, subject to limits and compliance.
✅ Step-by-Step Process for Sending Money Abroad
1. Choose a Mode of Remittance
You can send funds abroad using:
- Bank wire transfer (SWIFT)
- Online forex/remittance platforms (e.g., BookMyForex, Wise, Instarem)
- Bank-authorised apps (e.g., HDFC ForexPlus, ICICI Money2World)
Most banks offer online & offline options for sending funds.
2. Submit Required Details
You’ll need to provide the following:
A. Beneficiary Details (the person receiving the money)
- Full Name
- Country
- Bank Name & Address
- SWIFT/BIC Code of recipient’s bank
- Account Number or IBAN
- Relationship with sender
B. Purpose of Remittance
Choose correct Purpose Code, e.g.:
- S1107: Education abroad
- S0301: Gift or donation
- S1101: Medical treatment
- S0001: Investment in foreign securities
3. Documentation Required
| Individual Remitter | Businesses |
| ✅ PAN Card (mandatory) | ✅ PAN, IEC (if applicable) |
| ✅ Aadhaar/Passport (ID proof) | ✅ Business registration |
| ✅ Form A2 (RBI declaration form) | ✅ Purpose-specific approvals (if needed) |
| ✅ Proof of purpose (invoice, admission letter, etc.) | ✅ KYC and board resolution (for companies) |
4. Declaration under LRS (Liberalised Remittance Scheme)
- You must declare that the remittance is under the LRS limit of USD 250,000 per financial year (per individual).
- You can split it into multiple transactions, but total must stay within the limit.
5. Make the Payment
- Transfer the INR equivalent to the bank or platform.
- Bank converts INR into foreign currency at prevailing exchange rate (may include margin/spread).
- The bank executes the SWIFT transfer to the recipient’s bank abroad.
Time Taken
| Method | Time |
| SWIFT Transfer | 1 to 3 business days |
| Online Forex Platforms | 24–48 hours |
Charges Involved
| Type of Fee | Description |
| Conversion Charges | Forex margin (0.5% – 2.5%) |
| Bank Fee | ₹500 – ₹2,000 per transfer |
| GST | 18% on service charges |
| TCS (Tax Collected at Source) | 5%–20% (based on purpose & limits) |
TCS Example:
- 5% TCS if amount > ₹7 lakh/year for education/medical
- 20% for other purposes (except where lower rate applies)
✅ Permissible Purposes for Sending Money Abroad
| Category | Examples |
| Personal | Gifts, family maintenance, travel |
| Education | Tuition fees, hostel charges |
| Medical | Hospital abroad, emergency care |
| Investment | Shares, property, mutual funds abroad |
| Business | Import payment, software services, royalty |
❌ Not Allowed Under LRS
- Lottery tickets, gambling, banned items
- Margin trading, crypto currency (as of current RBI guidelines)
- Remittance to countries identified by FATF as high-risk
Safety Tips
- Use RBI-authorised banks and platforms.
- Double-check SWIFT code and beneficiary details.
- Retain proof of transfer and declaration forms.
- Track the Transaction Reference Number for status.
What is FASTag?
FASTag is an electronic toll collection system in India, operated by the National Highway Authority of India (NHAI) under the Ministry of Road Transport and Highways. It uses Radio Frequency Identification (RFID) technology to automatically deduct toll charges when a vehicle passes through a FASTag-enabled toll plaza, without stopping for cash payment.
✅ Key Features of FASTag
| Feature | Description |
| Tag Type | RFID (Radio Frequency Identification) |
| Placement | On the inside of the vehicle’s front windshield |
| Linked Account | Prepaid wallet, savings account, or current account |
| Automatic Deduction | Toll charges are deducted when vehicle crosses toll booth |
| Validity | 5 years |
| Operates on | All National Highways and many State Highways |
| Mandatory From | 15 February 2021 for all vehicles |
Where to Get a FASTag
- Banks: SBI, ICICI, HDFC, Axis, Kotak, etc.
- Digital Wallets: Paytm, Amazon Pay, PhonePe, etc.
- Toll Plazas: Across national highways
- Online: FASTag official site (https://nhai.gov.in), bank portals
Documents Required for FASTag
| For Individuals | For Vehicles |
| – PAN Card / Aadhaar | – RC (Registration Certificate) |
| – Driving License | – Vehicle photo (some cases) |
| – Passport-size Photo | – Valid ID & Address proof |
Charges
| Charge Type | Amount |
| Tag Issuance Fee | ₹100 approx. |
| Security Deposit | ₹200 – ₹500 (refundable) |
| Minimum Recharge | ₹100 to ₹200 |
| Top-up | As per usage (no fixed limit) |
Benefits of FASTag
| Benefit | Explanation |
| No Waiting Time | Automatic deduction saves time |
| Fuel Savings | Reduces idle time at toll booths |
| Cashless Travel | Linked to bank/wallet |
| SMS Alerts | Instant updates for each transaction |
| Monthly Statements | For easy tracking of toll expenses |
| Valid Across India | Works on 1,000+ toll plazas |
Penalty for Not Using FASTag
- Double the toll amount is charged at FASTag lanes if:
- You don’t have a FASTag
- Your FASTag is not functional or lacks balance
How FASTag Works – In Simple Steps
- You affix the FASTag to your vehicle’s windshield.
- It’s linked to your wallet or bank account.
- As your car passes a toll plaza, an RFID scanner reads the tag.
- Toll amount is automatically deducted.
- You get an SMS alert confirming the transaction.
What If FASTag Is Not Working?
- Recharge your wallet or bank account
- Ensure tag is placed properly
- Call customer care of the issuing bank/wallet
- Visit NHAI grievance redressal portal if needed
What is KYC (Know Your Customer)?
KYC stands for Know Your Customer. It is a mandatory process used by banks, financial institutions, and regulated entities to verify the identity and address of a customer before opening an account or conducting high-value financial transactions.
The process helps prevent money laundering, fraud, terrorist financing, and other financial crimes.
Objectives of KYC
| Objective | Description |
| Identity Verification | Confirm the customer’s real identity |
| Address Verification | Establish the customer’s place of residence |
| Financial Transparency | Monitor financial behavior for suspicious activity |
| Regulatory Compliance | Fulfill RBI & SEBI anti-money laundering guidelines |
When is KYC Required?
- Opening a bank account (savings/current)
- Applying for a loan, credit/debit card
- Mutual fund, insurance, or stock trading
- Sending or receiving large remittances
- Updating account details
- For FASTag, PPF, and pension services
Documents Required for KYC in India
As per RBI and SEBI guidelines, any one of each category is needed:
🔹Proof of Identity (PoI)
| Accepted Documents |
| PAN Card (mandatory for financial investments) |
| Aadhaar Card |
| Voter ID |
| Passport |
| Driving License |
🔹 Proof of Address (PoA)
| Accepted Documents |
| Aadhaar Card |
| Passport |
| Electricity or Telephone Bill (recent) |
| Rent Agreement |
| Voter ID Card |
🔒 Aadhaar is voluntary unless required by law. Masked Aadhaar or VID can be used.
Types of KYC
| Type | Description |
| Physical KYC | Done in person by submitting paper documents at a bank or institution |
| e-KYC (Electronic KYC) | Done using Aadhaar OTP authentication; paperless |
| Video KYC | Done via a live video call with official; accepted by RBI & SEBI |
| CKYC (Central KYC) | A central database maintained by CERSAI; allows reuse across institutions |
Benefits of KYC
| Benefit | Explanation |
| ✅ Fraud Prevention | Stops identity theft and illegal transactions |
| ✅ Transparency | Enables tracking of money trails |
| ✅ Faster Processing | Smooth onboarding and transactions |
| ✅ Compliance | Helps companies follow RBI/SEBI/IRDA norms |
What Happens If KYC is Not Done?
- Account may be frozen or restricted
- Cannot open new financial accounts
- Ineligible for loans, mutual funds, or card services
- No access to large withdrawals or deposits
In banking, customers are classified into different types based on their relationship with the bank, nature of transactions, and legal identity. This classification helps banks apply appropriate services, risk profiles, and regulatory compliances (like KYC/AML norms).
Types of Bank Customers
1. Individual Customers
Persons who operate accounts in their personal capacity.
Examples:
- Salaried employees
- Students
- Pensioners
- Freelancers
- Self-employed professionals
Accounts Operated:
- Savings account
- Fixed deposit
- Personal loan
- Credit card
2. Joint Account Holders
Two or more individuals operating a shared account.
Modes of Operation:
- Either or Survivor: Any one can operate, and the survivor continues after death.
- Jointly: All must sign to operate.
- Former or Survivor: Only the first-named person operates.
Example: Husband and wife holding a joint savings account.
3. Sole Proprietors
Single individuals who own a business and operate a Current Account in the name of the business.
Examples:
- Small shop owners
- Consultants
- Tutors
Required Documents:
- PAN, Aadhaar
- Business registration or GST certificate
4. Partnership Firms
Registered or unregistered business with two or more partners operating a joint account.
Accounts Used:
- Current account
- Overdrafts
- Loans
Documents Needed:
- Partnership deed
- PAN card
- KYC of partners
5. Companies (Private/Public Ltd.)
Registered under the Companies Act, these entities require a board resolution to operate a bank account.
Features:
- Authorised signatories operate account
- Required documents: COI, MOA, AOA, PAN, KYC of directors
Types:
- Private Limited Company
- Public Limited Company
- One-Person Company (OPC)
6. Trusts and Societies
Non-profit or charitable institutions operating savings or current accounts.
Requirements:
- Trust Deed or Society Registration Certificate
- PAN
- List of trustees or office bearers
- KYC of authorised signatories
7. Government Bodies and Local Authorities
Accounts opened by:
- Central and State Governments
- Municipalities
- Panchayats
- Public Sector Undertakings
Usually for fund disbursal, salaries, welfare schemes.
8. Non-Resident Indians (NRI Customers)
Account Types:
- NRE Account – for income earned abroad
- NRO Account – for income earned in India
- FCNR Account – fixed deposits in foreign currency
Documents Required:
- Passport
- Visa or work permit
- Overseas address proof
- OCI/PIO card (if applicable)
Summary Table
| Type of Customer | Account Type | Example |
| Individual | Savings, FD | Salaried person |
| Joint Holders | Savings, FD | Husband-wife account |
| Sole Proprietor | Current | Small business owner |
| Partnership Firm | Current | Two-person firm |
| Company | Current, OD | Pvt Ltd or Public Ltd firm |
| Trust/Society | Savings, Current | NGO or Charitable trust |
| Government Body | Salary, Funds | State Treasury, PSUs |
| NRI | NRE/NRO/FCNR | Person living abroad |
Here is a detailed explanation of each type of bank customer in India, including features, documents required, and examples:
1. Individual Customers
✅ Description:
An individual operates a bank account in their personal name. This is the most common customer type.
✅ Features:
- Can open savings, fixed deposit, recurring deposit, or personal loan accounts.
- Transactions are for personal use, not for business purposes.
- KYC compliance is mandatory.
✅ Documents Required:
- Identity Proof: PAN card, Aadhaar, Passport, Voter ID
- Address Proof: Aadhaar, utility bill, passport
- Photograph
✅ Examples:
- Salaried employee
- Housewife
- Student
- Pensioner
2. Joint Account Holders
✅ Description:
Two or more individuals jointly open and operate a bank account.
✅ Modes of Operation:
- Either or Survivor: Either can operate; survivor continues after death of one.
- Jointly: All account holders must authorize transactions.
- Former or Survivor: Only first person can operate; survivor gets access after death.
✅ Documents Required:
- KYC documents of all account holders
- Signature of all applicants
- Relationship declaration (in some banks)
✅ Examples:
- Husband and wife
- Parent and child
- Siblings
3. Sole Proprietorship Firms
✅ Description:
A business owned and operated by a single individual under a business or trade name.
✅ Features:
- Operates a Current Account
- Owner is personally responsible for all transactions
- Easy to start and manage
✅ Documents Required:
- Proprietor’s PAN and Aadhaar
- Business registration (Shop Act, MSME, GST)
- CA certificate (sometimes)
- Utility bill or letterhead
✅ Examples:
- Grocery shop owner
- Independent contractor
- Consultant
4. Partnership Firms
✅ Description:
Two or more people enter a legal agreement to run a business and share profits.
✅ Features:
- Operates a Current Account
- All partners or authorized partners can operate
- Partnership deed governs operations
✅ Documents Required:
- Partnership deed
- PAN of firm and partners
- KYC of partners
- GST/Shop Act certificate
- Authorization letter or resolution
✅ Examples:
- Law firm
- Construction company
- Boutique co-owned by two friends
5. Companies (Private/Public Ltd.)
✅ Description:
Registered under the Companies Act (1956/2013), these are legal persons separate from their shareholders.
✅ Types:
- Private Limited Company (Pvt Ltd)
- Public Limited Company (Ltd)
- One Person Company (OPC)
✅ Features:
- Separate legal entity
- Operates current accounts
- Transactions are managed by authorized signatories as per board resolution
✅ Documents Required:
- Certificate of Incorporation (COI)
- PAN of the company
- Memorandum & Articles of Association (MOA & AOA)
- Board resolution for authorized signatories
- KYC of directors
- GST registration (if applicable)
✅ Examples:
- IT company (Pvt Ltd)
- FMCG manufacturer (Ltd)
- E-commerce startup (OPC)
6. Trusts and Societies
✅ Description:
Non-profit, religious, or charitable organizations established under the Societies Registration Act or Trust Act.
✅ Features:
- Operate savings or current accounts
- Operated by trustees or governing body
- Subject to additional scrutiny and compliance
✅ Documents Required:
- Trust deed or society registration certificate
- PAN card
- List of trustees or managing committee members
- Resolution authorizing account operation
- KYC of authorized signatories
✅ Examples:
- Educational NGOs
- Religious institutions
- Orphanages
7. Government Bodies / Local Authorities
✅ Description:
Accounts operated by:
- Central/State Governments
- Municipalities
- Panchayati Raj Institutions
- Public Sector Undertakings (PSUs)
✅ Features:
- Used for salary payments, fund disbursement, welfare schemes
- Operated under government authorization
- May be exempt from certain charges
✅ Documents Required:
- Official communication from government body
- PAN (if applicable)
- Authorization letter
- KYC of government officer operating the account
✅ Examples:
- Bihar State Road Transport Corporation
- District Collectorate account
- Panchayat fund account
8. Non-Resident Indian (NRI) Customers
✅ Description:
NRIs are Indian citizens residing abroad for work, business, or study. They can hold specialized accounts in India to manage funds.
✅ Types of NRI Accounts:
| Account | Currency | Purpose |
| NRE (Non-Resident External) | INR | Repatriable foreign income |
| NRO (Non-Resident Ordinary) | INR | Indian income (rent, dividends) |
| FCNR (Foreign Currency Non-Resident) | Foreign Currency | Fixed deposits in USD, GBP, EUR, etc. |
✅ Documents Required:
- Passport with visa
- Overseas address proof
- Indian address (optional)
- NRE/NRO declaration
- PAN or Form 60
✅ Examples:
- Indian IT worker in the US
- Doctor practicing in UAE
- Student studying in UK
Summary Table
| Customer Type | Key Account Type | Operated By | Special Notes |
| Individual | Savings, FD | Self | Most common |
| Joint | Savings, FD | Two or more | Multiple modes |
| Sole Proprietor | Current | Individual | Business income |
| Partnership | Current | Partners | Partnership deed required |
| Company | Current | Board/Directors | Needs board resolution |
| Trust/Society | Savings/Current | Trustees | For non-profit purpose |
| Government | Salary, Grants | Officers | For official use |
| NRI | NRE/NRO/FCNR | NRI | Regulated by FEMA |
What is HUF (Hindu Undivided Family) in Banking?
HUF (Hindu Undivided Family) is a distinct legal entity recognized under Hindu Law and the Income Tax Act, 1961. It consists of all persons lineally descended from a common ancestor and includes male and female members (coparceners and members), living as a joint family.
In banking and taxation, an HUF can open its own account, file tax returns, and hold assets separately from its individual members.
Key Features of HUF
| Feature | Description |
| Legal Status | Recognized as a separate entity under income tax law |
| Created By | Automatically by Hindu family; or by receiving ancestral property |
| Head of HUF | Known as the Karta (usually the eldest male/female) |
| Members | All lineal descendants (including daughters, post-2005 amendment) |
| PAN Required? | Yes, HUF needs a separate PAN |
| Bank Account? | Yes, HUF can operate its own bank account |
| Business Transactions? | Yes, HUF can do business, hold property, and invest separately |
| Tax Benefits? | HUF gets separate tax exemption limit (₹2.5 lakh/year) |
Opening a Bank Account for HUF
✅ Documents Required:
- HUF PAN Card (mandatory)
- Declaration Form stating:
- Name of Karta
- Names of all coparceners (members)
- Nature of HUF
- Identity & Address Proof of Karta (Aadhaar, Passport, etc.)
- HUF Rubber Stamp (for signing documents)
- KYC of Karta
- Proof of existence of HUF (optional: deed or affidavit)
Sample Declaration Format for HUF:
I, _________ (name), residing at __________, as Karta of Hindu Undivided Family (HUF) named _____________, declare that the following are the co-parceners of our HUF: __________, __________, etc.
Date: _______
Signature: ___________ (Karta)
Taxation of HUF
| Benefit | Description |
| Separate Tax File | HUF can file ITR separately from its members |
| Basic Exemption Limit | ₹2.5 lakh/year (like individuals) |
| Deductions | HUF can claim deductions under Section 80C, etc. |
| Income | HUF income includes business, rent, interest on HUF property |
Important Points
- HUF can’t be created by contract or agreement – only by Hindu family by birth or inheritance.
- Only Hindus, Sikhs, Jains, and Buddhists can form HUF.
- A daughter becomes a coparcener (equal share) after the 2005 amendment.
- HUF dissolution can happen via partition or mutual agreement.
What is a Company?
A company is a legal entity formed under the Companies Act, 2013 (or earlier under the Companies Act, 1956) to conduct business or other lawful activities. It is distinct from its owners (shareholders), has its own legal identity, and can own assets, incur liabilities, sue or be sued in its own name.
✅ Key Features of a Company
| Feature | Description |
| Separate Legal Entity | The company has a distinct identity from its owners/shareholders. |
| Limited Liability | Shareholders’ liability is limited to their shareholding. |
| Perpetual Succession | Company continues to exist even if owners die or leave. |
| Common Seal (optional) | Used for legal contracts (not mandatory after 2015). |
| Transferable Shares | Ownership can be transferred through shares (in most types). |
| Corporate Governance | Managed by a Board of Directors, governed by Memorandum and Articles of Association. |
Types of Companies in India (Under Companies Act, 2013)
| Type | Key Characteristics |
| Private Limited Company (Pvt. Ltd.) | Cannot raise funds from public; limited shareholders (2–200); easy to start and manage. |
| Public Limited Company (Ltd.) | Can raise money from public via IPO; must have minimum 7 shareholders. |
| One Person Company (OPC) | Single person can start a company with limited liability. |
| Section 8 Company | Non-profit organization formed for charitable, educational, or religious purposes. |
| Government Company | 51% or more shareholding by the Government (e.g., ONGC, BHEL). |
| Foreign Company | Incorporated outside India but operates in India. |
Opening a Bank Account for a Company
Required Documents:
- Certificate of Incorporation (COI) from MCA
- Company PAN Card
- Memorandum & Articles of Association (MOA & AOA)
- Board Resolution authorizing account opening and signatories
- List of Directors & Signatories with KYC documents
- Address Proof of Registered Office (Electricity bill, lease deed, etc.)
- GST Registration Certificate (if applicable)
The bank opens a Current Account for the company.
Company Incorporation – Key Requirements
| Requirement | Private Ltd. | Public Ltd. | OPC |
| Min. Shareholders | 2 | 7 | 1 |
| Max. Shareholders | 200 | No limit | 1 |
| Min. Directors | 2 | 3 | 1 |
| Min. Paid-up Capital | ₹1 (as per new rules) | ₹1 | ₹1 |
| Registrar of Companies (ROC) Registration | Mandatory for all | ||
| Name Approval (RUN/MCA Portal) | Required before registration |
Key Legal Documents
| Document | Purpose |
| MOA (Memorandum of Association) | Defines company’s objectives, scope, and powers |
| AOA (Articles of Association) | Contains internal rules and regulations |
| COI (Certificate of Incorporation) | Proof of legal existence of the company |
| DIN (Director Identification Number) | Unique ID for directors issued by MCA |
| DSC (Digital Signature Certificate) | Required for filing documents with ROC online |
Taxation and Compliance for Companies
| Tax Head | Rate (as of FY 2024–25) |
| Corporate Tax | 22% (domestic co., new regime) |
| MAT (Minimum Alternate Tax) | 15% (if applicable) |
| TDS/TCS Filing | Periodic filing of returns |
| GST | Mandatory if turnover > ₹40 lakh (services ₹20 lakh) |
| ROC Annual Filings | AOC-4 (financials), MGT-7 (annual return) |
| Audit | Compulsory for all companies (Statutory + Tax audit) |
Advantages of Forming a Company
- Limited liability protection
- Separate legal entity status
- Credibility for loans and investment
- Continuity (perpetual succession)
- Tax planning opportunities
Disadvantages
- More compliance and reporting
- Higher cost of formation and maintenance
- Regulatory scrutiny by ROC, MCA, and Income Tax
What is a Locker Facility in a Bank?
A locker facility, also known as a safe deposit locker, is a secure storage service provided by banks to customers for storing valuable items such as jewellery, documents, wills, property papers, and other important belongings.
The facility is available on rent, and lockers are kept in a high-security vault within the bank premises.
✅ Key Features of a Locker Facility
| Feature | Description |
| Security | Located inside secure bank vaults with dual control |
| Access | Only the customer (hirer) and authorized signatory can access |
| Joint Access | Lockers can be held jointly (e.g., husband-wife) |
| Rental Charges | Annual fee based on locker size & branch location |
| Locker Agreement | Legal contract signed between bank & customer |
| Dual Key System | Locker opens with bank key + customer key |
| Locker Sizes | Small, Medium, Large, Extra-Large (varies by bank) |
How to Avail a Locker Facility
1. Eligibility
- Must be a bank customer (with savings/current account)
- Must complete KYC formalities
2. Required Documents
- Locker application form
- KYC documents: PAN, Aadhaar, Photograph
- Locker agreement (signed on stamp paper)
- Nomination form (optional but recommended)
3. Security Deposit
- Many banks ask for a Fixed Deposit as a security (to cover rent and charges in case of default)
Locker Rent Charges (Indicative)
| Locker Size | Annual Rent (₹) |
| Small | ₹1,000 – ₹3,000 |
| Medium | ₹3,000 – ₹7,000 |
| Large | ₹6,000 – ₹12,000 |
| Extra-Large | ₹10,000 – ₹20,000 |
Charges vary by bank and city tier.
RBI Guidelines (Latest)
- Banks must provide transparency in locker rent and procedures
- Locker access is recorded and logged by the bank
- Bank is not liable for contents, but must take all reasonable safety measures
- In case of natural calamity, theft, or negligence, partial compensation may apply (limited)
- If rent is not paid for 3 years, bank can break open locker after due notice
Important Terms
| Term | Meaning |
| Hirer | Person who rents the locker |
| Nominee | Person entitled to operate or claim the locker after hirer’s death |
| Locker Breaking | Bank can break open locker in case of rent default or death without nominee/legal heir |
✅ Benefits of Locker Facility
- High-level security for valuable items
- Privacy in locker access (done in private room)
- Joint operation for family convenience
- Nomination ensures hassle-free transfer on death
Limitations
- Bank is not responsible for actual contents (no inventory taken)
- Locker access only during banking hours
- Limited number of free visits (extra visits chargeable)
- Waiting period in high-demand branches
Disclaimer
The information provided in this article is for general awareness and informational purposes only. While efforts have been made to ensure the accuracy and currency of the data, readers are advised to verify specific scheme details, eligibility criteria, and application procedures directly from official government websites or authorized bank portals. The availability, terms, and conditions of loan schemes may change over time based on policy updates by respective ministries or financial institutions. The author and publisher disclaim any liability for decisions made based on this information.
To explore information about the Government Yojana related to the bank visit: 🏦 Government Yojanas for Business & Livelihood-Empower Your Enterprise: Bank Yojanas Driving India’s Business Revolution – LoanAtoZ