BANKING AND INSURANCE

Bank
Bank is a financial institution which deals with money and credit. It acceptsdeposit and lends money to those who are need of it

Characteristics of a bank
1.Dealing in money
2.Acceptance of deposit.
3.Giving loans.
4.Payment and withdrawal.
5.Individual, firm or company.
6.Agency and utility services.
7.Profit and service orientation.
8.Ever increasing function.

Types of Banks

1. Commercial banks
Commercial banks are those types of banks, which accepts deposit from public and lend money to trade and commerce.
2. Agricultural banks
Agricultural banks are those banks which provides finance to agricultural purposes.
3. Local area banks
Local area banks are those banks which is established for the purpose ofmobilizing the rural savings by local institution.
4. Savings bank
Saving banks are those specialized banks which mobilizes the savinghabits of the people.
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5. Industrial banks
Industrial banks are those banks which meets the requirements ofindustrial concerns. It is also known as investment banks.

Functions of industrial banks

1.It accepts long term deposits.
2.It grants long term loans to industries.
3.It provides technical assistance to industries.
4.Advise given to government matters relating to industry.
5.It participates management in industrial concerns
.6. Exchange banksExchange banks are those banks which deals with foreign exchange andinternational trade.

Functions of exchange banks

1.Purchase and sale of foreign currencies, silver, gold etc...
2.They accept and collect foreign bills of exchange.
3.Purchase and discount export and import bills.
4.Transfer of money from one country to other
5.Issue letter of credit to importers.
7. Central banks
It is the highest banking and monetary institution of a country. It is theleader of the all-banking institution of a country.
8. World bank
It is the financial institution which provides financial assistance to itsmember countries of the world.
9. New development bank BRICS
It is a multilateral development bank operated by BRICS states. (Brazil,Russia, India, China, South Africa).

Types of banking
1. Unit banking
Unit banking refers to a single, small bank that provide financial services to itslocal community.
2. Branch banking
Branch banking refers to a big bank which has number of branches in different part of the country.
3. Monopoly banking
It means a few big banks open branches in all part of the country.
4. Group banking
It is a type of multiple office banking consisting of two or more banks underthe control of a holding company.
5. Chain banking
It is a banking system where the same individual or group of individualscontrol two or more banks.
6. Mixed banking
Mixed banking is an approach where banks undertake both commercial andindustrial banking.
7. Correspondent banking
It refers to a financial institution that provides services to another one usuallyin another country.
Types of deposit accounts
1. Saving bank account
Saving bank account are mainly meant for non-trading customers. It isgenerally preferred by middle- and low-income group.

Features of saving bank account

1.It is meant for middle- and low-income groups.
2.It can be opened with very small amount.
3.Rate of interest fixed by RBI.
4.Customer can deposit any amount to a minimum of Rs. 5
5.Minimum amount of cheque should be Rs. 5
2. Recurring deposit
This is a special type of saving bank account introduced by the banks inrecent years. It creates the saving habits of lower income
group.
3. Current accounts
Current accounts are those accounts generally meant for the commercialand industrial undertakings.
Features of current accounts
1.It is meant for commercial establishments.
2.No restrictions for deposit and withdrawal amount.
3.Deposits can be made by pay in slip.
4.Withdrawals can be made by cheques.
4. Fixed deposit account
Fixed deposits are moneys deposited by customers for a fixed period. It isalso called term deposit.

Procedures for opening a bank account

1.Fill up application on the prescribed form.2.Proper introduction of the applicant.3.Banker should obtain specimen signature
of the applicant.4.Banker should obtain initial investment.5.Opening the account.

Circumstances under which bank accounts can be closed

1.Death of a customer
2.Insolvency of a customer
3.Dissolution of firm
4.Garnishee order
5.Dissolution of firm
6.Winding up of company
7.Assignment of credit balance

Deposit schemes for Indian abroad

1.NRO Accounts
2.NRE Accounts
3.NRNR Accounts
4.FCNR Accounts
Pay in slip book
It is a book which contains printed slip. This book is supplied by the bankto the customers.
Cheque book
A cheque book is a book which contains 10 or 20 blank cheque leavesserially numbered. These are used to withdraw money.
Pass book
A pass book is a small book issued by a banker to his customer to record alldealings between them.
Dormant account
Dormant account means inoperative or not functioning of a bank accountlast two years.
KYC (Know Your Customer)
It is a process by which bank obtain information about the identity andaddress of the customers.
FDR (Fixed Deposit Receipt)
After depositing money, the banker will issue a receipt to the depositor iscalled fixed deposit receipt.
Meaning of Customer of a bank
A customer is a person who has an account in a bank in his name.
Special Types of Customers

I. Minors:
Minor is a person who does not attain the age of 18. While entering into acontract with a minor, banker has to take following
precautions.
1.The minor should have attained the age of discretion, i.e., he must beabout 18 years of age. He must be capable of understanding
what he does.2.The minor should be able to read and write.3.Banks usually stipulate limits up to which deposits in such
accountscan be accepted.4.Amount tendered by the minor should as far as possible be in cash.
II. Lunatics:
A lunatic is a person who has a temporary mental derangement. If a lunatic enters into a contract, a banker should take
some precautions.
III. Drunkards:
A drunkard is a person who is intoxicated to be incapable of understanding the nature and effect of a contract. The banker
has taken following precautions in this connection
:a)It is advisable for banker not to allow a person to open a bank account.
b)A cheque in the name of drunkard should be drawn in the presence of a responsible person.
IV. Married Women:
A married woman is competent to enter into a valid contract. Following precautions are needed in this connection:
a)While opening a bank account in the name of a married women, she should also furnish her husband’s details.
b)A banker should not grand a loan or overdraft to a married womenconsidering the properties of her husband.V.
V. Insovents
When a person is unable to pay his debts in full, his property in certaincircumstances is taken possession of by official receiver or
officialassignee, under orders of the court. He realizes the debtor’s property andratably distributes the proceeds amongst
his creditors. Such a proceedingis called ‘insolvency’ and the debtor is known as an ‘insolvent’.
VI.Illiterate persons
A person is said to be illiterate when he does not know to read and write. Nocurrent account should be opened in the name of an
illiterate person. However,a savings bank account may be opened in the name of such a person.
VII. Agents:
A banker may open an account in the name of a person who is acting asan agent of another person. The account should
be considered as the personal account of an agent, and the banker has no authority to questionhis power to deal with the funds in
the account unless it becomes obviousthat he is being guilty of breach of trust.
VIII. Joint Stock Company
A joint stock company has been defined as an artificial person, invisible,intangible and existing only in contemplation of law. It
has separate legalexistence and it has a perpetual succession.
The banker must satisfy himself about the following while opening an account in the name of a company:
(a)Memorandum of Association
(b)Articles of Association
(c)Certificate of Incorporation
(d)Certificate to Commence Business
(e)Application Form and Copy of the Board’s Resolution
(f)A Written Mandate
(g)Registration of Charges
(h)Any Change in the Company’s Constitution or Offices.
IX. Clubs, Associations and Educational Institutions:
Clubs, Associations and Educational Institutions are non-trading institutionsinterested in serving noble courses of education,
sports etc.
The banker shouldobserve the following precautions in dealing with them:
(a)Incorporation
(b)Rules and by-laws of the Organization
(c)A Copy of Resolution of Managing Committee
(d)An Application Form
(e)A Written Mandate
(f) Transfer of Funds:
(g) Death or Resignation:
X. Partnership Firm:
A partnership is not regarded as an entity separate from the partners. TheIndian Partnership Act, 1932, defines partnership as the
“relation between persons who have agreed to share the profit of the business, carried on by allor any of them acting for
all. “Partnership is formed or constituted on accountof agreement between the partners and with the sole intention of earning
andsharing profits in a particular ratio.
A banker should take the following precautions while opening an account in the name of a partnership firm:
(a)Application Form
(b)Partnership Deed
(c) A Mandate
(d) Transfer of Funds
(e) Sanctioning of Overdraft
XI. Joint Accounts:
When two or more persons open an account jointly, it is called a jointaccount.
The banker should take the following precautions in openingand dealing with a joint account:
(a). The application for opening a joint account must be signed by all the persons intending to open a joint account
.(b). A mandate containing name or names of persons authorized tooperate an account.
(c). The full name of the account must be given in all the documentsfurnished to the banker, even if the account is to be operated
upon by oneor a few of the joint account holders
.(d)Banker must stop operating an account as soon as a notice of death,insolvency, insanity etc., of any one account holder
is received.
(e)The joint account holder, who is authorized to operate the jointaccount, himself alone cannot appoint an agent or attorney to
operate theaccount on his behalf. Such attorney or agent may be appointed with theconsent of all the joint account holders.
(f)If all the persons are operating the account, then banker must see thatany cheque drawn on him is duly signed by all.
(g)Banker must stop making payments as soon as letter of revocation isobtained.
(h)Banker must see that no loan or overdraft is granted without proper security.

STRUCTURE OF BANKING IN INDIA Commercial Bank

A commercial bank is a financial institution which performs the functionsof accepting deposits from the general public and giving
loans to theinvestment with the aim of earning profit.
Functions of commercial bank
)1. Primary functions
a. Receiving deposit
It is one of the important functions of commercial bank. It accepts depositfrom every class and from every source.
b. Giving loans
Giving loans is the other major important function of the commercial bank. After keeping certain percentage of deposits as cash
reserve, the balance is given as loans and advances.
c. Credit creation
It is a unique function of modern bank. When the bank performs importantfunction, such as receiving and lending of money,
it automatically performsanother function namely creation of credit which means loan is given. Itcreates an equivalent deposit.
d. Use of cheque system and plastic card
Cheque can be used for large transaction, but now it is replaced by plasticcards like visa and master card.
e. Transfer of fund
Commercial bank fund provides transfer of fund from one country toanother country by using EFT system.

2. Secondary functionsi. Agency Services

a. Collection of credit instrument
They collect cheques, bill of exchanges, promissory notes on behalf ofthe customer.
b. Collection of dividends
The bank collects dividend and interest warrants on behalf of the customer.
c. Transfer of funds
They help the customers to transfer of fund from one place to another.
d. Deal of foreign exchange
They buy and sell foreign exchange on behalf of customers.
e. Purchase and sale of securities
Bank purchase and sell shares, debentures and government securities on behalf of their customers.
f. Execution of standing orders
The banks execute the standing order their customers.

ii. General Utility Services:

a.Locker facility:
Bank provide locker facility to their customers. The customers can keep their valuables such as gold, silver,
importantdocuments, securities etc. in these lockers for safe custody.
b.Issue travelers’ cheques:
Banks issue traveler’s cheques to help theircustomers to travel without the fear of theft or loss of money.
c. IssueLetter of Credits:
Banks issue letter of credit for importers certifying their credit worthiness.
d.Collect information:
Banks collect information about other businessmen through the fellow bankers and supply information to theircustomers
.e.Collection of statistics:
Banks collect statistics for giving important information about industry, trade and commerce, money and banking
.f.Underwriting securities:
Banks underwrite securities issued bygovernment, public or private bodies.
g.Merchant banking:
Some bank provides merchant banking services such as capital to companies, advice on corporate matters, underwriting
etc.

Innovative Functions of Commercial Bank

1.ATM Services
2.Credit card facilities
3.Tele banking
4.Home banking
5.Internet banking
6.EFT
7.Electronic clearing services
8.RTGS
9.Mobile banking
Roles of banks in economic development
1. Simulation of savings
2. C a p i t a l f o r m a t i o n .
3. F a c i l i t a t i n g a g r i c u l t u r a l d e v e l o p m e n t .
4. I n n o v a t i n g e n t r e p r e n e u r s .
5. P r o m o t i o n o f s m a l l - s c a l e i n d u s t r i e s .
6. m o n e t i z a t i o n o f e c o n o m y .
7. F a c i l i t a t e i n t e r n a t i o n a l t r a d e .
8. C r e a t e e m p l o y m e n t o p p o r t u n i t i e s .
9. I m p l e m e n t a t i o n o f m o n e t a r y p o l i c y .
10. encouraging right type of industries.
11. Influencing economic activities.
12. Balanced development.
Scheduled Bank
A scheduled bank is a bank which is included in the second schedule ofthe RBI Act 1934.
Non-scheduled Bank
Commercial banks which have a paid-up share capital and reserves of anaggregate value of less than 5 lakh is considered as non-
scheduled bank.
EXIM Bank (Export Import Bank)
Exim bank was set up in January 1982. It is a public sector financialinstitution; it facilitates and finance foreign trade in India.
Objectives / Functions of EXIM Bank
1.To finance, facilitate and promote foreign trade in India.2.To contribute foreign exchange to our country.3.To finance joint
ventures in foreign countries.4.To provide technical and financial assistance to export import sectors.5.To provide financial help
for export and import of goods and services.
Co-operative Banks
Co-operative banks are institutions established on the principle of co-operation and it deal in ordinary banking business.
NABARD (National Bank for Agriculture and Rural Development)
It is an apex development bank for agriculture and rural development. Itwas established in 12th July, 1982.
Functions of narbard
1. It functions as an apex institution.2.It provides short term, medium term and long-term credit.3.It coordinates operations of rural
credit agencies.4.It has the responsibility to inspect cooperative banks.5.It advises government matters related to rural credit.6.It
maintains a research and development fund to promote research inagriculture and rural development.7.It provides facilities for
training and development.8.It formulates project and programs for rural development.
Land Development Bank
It is a type of bank, which meet the long-term credit requirement ofagriculturalist against security of their land.
Mudra Bank (Micro units’ development and refinance agency bank)
It is a public sector financial institution in India. It provides loans atmicro finance institutions and non-banking financial
institutions. It waslaunched by prime minister Narendra Modi on 8
April, 2015.

RRB (Regional Rural Bank)

Regional rural bank is a type of bank to enhance the local participation ofthe bank to meet the credit requirements of weaker
section of the society.

Drawbacks of Regional Rural Banks

1.Lack of coordination in branch expansion.2.Difficulty in deposit mobilization.3.Urban orientation of
staff.4.Procedural rigidities.5.Slow progress in lending activities.
Gift cheque
The gift cheque is another banking instrument presented for giftingmoney to the loved ones alternatively of hard cash.
Letter of Credit
A letter of credit is a promise by a bank on behalf of the buyer. It is adocument from bank that guarantees payment.
Financial inclusion
Financial inclusion means the availability and equality of opportunities toaccess financial services.

CENTRAL BANK
Central Bank
Central bank is a supreme monetary authority of a country. It is the leader of all banks in a country.
Functions of Central Bank
1.Monopoly of note issue.
2.Banker, agent and advisor to the government.
3.Custodian of cash reserve.
4.Custodian of foreign exchange.
5.Lender of last resort.
6.Clearing house function.
7.Credit control.
8.Collection of data.
1. Monopoly of note issue
Note issue is the main function of a central bank in every country. The currencynote issued by a central bank are the legal tender
money of that country. Everycentral bank got the monopoly of the sole right of the note issue.
Advantages of Note issue by central bank
1.Central bank controls credit creating power of commercial banks.
2.People have more confidence in the currency issued by central bank.
3.Uniformity in the currency system in the country.
4.Currency system of the country will be flexible.
5.It helps in economic development of the country.
2. Bankers, agent and advisor to the government
As a banker to the government, central bank provides all those bankingservices and facilities to the government. As an agent,
bank helps thegovernment in all financial matters. As an advisor, bank advise thegovernment on monetary, banking and financial
matters.
3. Custodian of cash reserve
Central bank is the bank of bank. This signifies that it has the samerelationship with the commercial banks in the country that they
gavewith the customers.
4. Custodian of foreign exchange
Central bank is the custodian of foreign currency obtained from variouscountries.
5. Lender of last resort
Central bank work as a lender of the last resort for commercial bank because in a time of need, it provides financial help.
6. Clearing house function
All commercial bank has their account with central bank. Therefore,central bank settles the mutual transaction of banks.
7. Credit Control
This is one of the most important function the central bank to control thevolume of credit for maintaining price stability.
8. Collection of data
Central bank in almost all the countries collect statistical data regularlyrelating to economic aspects of money, credit, foreign
exchange, banking etc.RESERVE BANK OF INDIA (RBI)RBI is our central bank. It was established in 1935. Prior to the
establishmentof RBI, there was no central bank.
But some of the central banking functionswere performed by Imperial bank of India.Objectives of RBI
1.To regulate and control monetary system of our country.
2.To regulate the issue of bank note.
3.To have an authority to control money market.4.To regulate banking system of our country.

Organization structure of RBI

1. Central Board
Central board consists of 20 members. It includes one governor, four deputygovernors and fifteen directors
2. Local Board
Besides the central board, there are local board for regional areas of thecountry with their headquarters at Mumbai, Kolkata,
Madras and New Delhi.
Departments of RBI
1.Issue department
2.Banking department
3.Currency management department
4.Budgetary control department.
5.Exchange control department
6.Agricultural credit department
7.Rural credit department
8.Industrial credit department
9.Legal department
10.Inspection department
Functions of RBI
1.Monopoly of note issue.
2.Banker, agent and advisor to the government.
3.Lender of last resort.
4.Act as clearing house
5.Credit control
6.Custodian cash reserves.
7.Custodian foreign exchange.
1. Monopoly of note issue
The most important function of RBI is the note issue. RBI has the soleright to issue currency notes in India.
2. Banker, agent and advisor to the government
As a banker to the government, RBI provide all those banking servicesand facilities to the government. As an agent, bank helps
thegovernment in all financial matters. As an advisor, bank advise thegovernment on monetary, banking and financial matters.
3. Lender of last resort
RBI work as a lender of the last resort for commercial bank because in atime of need, it provides financial help.
4. Act as clearing house
All commercial bank has their account with RBI. Therefore, RBI settlesthe mutual transaction of banks.
5. Credit control
This is one of the most important function the central bank to control thevolume of credit for maintaining price stability.
6. Custodian cash reserves.
RBI is the bank of bank. This signifies that it has the same relationship withthe commercial banks in the country that they gave
with the customers.
7. Custodian foreign exchange.
RBI is the custodian of foreign currency obtained from various countries.
Credit Control
This is one of the most important function the central bank to control thevolume of credit for maintaining price stability.
There are two types of credit control weapons.
1.Quantitative credit control weapons
2.Qualitative credit control weapons
1. Quantitative credit control weapons
a)Bank rate:
It is the minimum rate at which RBI is ready to grant loansand advances to commercial banks.
b)Open market operation:
Open market operation means purchase andsale of government securities in an open market.
c)Cash reserve ratio (CRR):
Every scheduled bank is required tomaintain fixed percentage of their time and demad deposit as cashreserve with RBI. It is called
cash reserve ratio
d)Statutory Liquidity Ratio (SLR):
every commercial bank is requiredto maintain not less than 255 of its total time and demand liabilities in liquid assets in the form
of cash and gold with RBI. This is known asSLR.
2. Qualitative / selective credit control weapons
a)Issuing of directives. b)Regulation of margin requirementsc)Differential rate of interestd)Restriction on clean
advances.e)Credit authorization scheme.

Module II- NEGOTIABLEINSTRUMENTS

Negotiable Instruments
Negotiable instruments are certain documents which are freely used incommercial transactions.

Features / Characteristics of Negotiable instruments: (Expected Short Essay)

1.These are easily and freely transferable.
2.All negotiable instrument must be in writing.
3.It must be an unconditional order or promise.
4.It involves payment of certain sum of money
.5.Stamping of bill of exchange and promissory note is mandatory.
6.The time of payment of negotiable instrument must be certain.
Types of Negotiable instruments
1.Promissory notes
2.Bills of exchange
3.Cheque
4.Other negotiable instruments like railway receipts, delivery order, etc.
1. Promissory Notes
A Promissory note is a negotiable instrument. It involves a written promise to pay a debt.
Essential characteristics of a promissory note:
1.Promissory note must be in writing.
2.It is a promise to pay.
3.The promise to pay must be unconditional.
4.The amount promised must be certain and definite sum of money.
5.The promissory note must be signed by the maker
.6.It involves two parties, i.e., drawer and payee.
7.The maker must be a certain person.
8.It must be properly stamped.
Parties in a promissory notes
1.Drawer: The person who makes a promissory note is called drawer or maker.
2.Payee: Payee is the person to whom the amount is payable.
2. Bill of Exchange (BOE)
A bill of exchange is a written acknowledgment of the debt, written bythe creditor and accepted by the debtor.
Essential characteristics of Bill of Exchange:
1.It involves three parties, drawer, drawee and payee.
2.It must be in writing.
3.It must be signed by the drawer.
4.It must be an order to make the payment.
5.It is an order to pay money only.
6.It must be properly stamped.
7.It must be accepted by the drawee.
Parties in a bill of exchange
1.Drawer: Drawer is the maker of the bill of exchange.
2.Drawee: Drawee is the person upon whom the bill of exchange is drawn.
3.Payee: Payee is the person to whom the payment is made.
Classification of Bill of Exchange:
1. On the basis of period of bill:
a) Demand bill of exchange:There is no fixed date for payment of such bill.
b) Term bill of exchange:There is a fixed date for payment of such bill.
2. On the basis of writing the bill:
a ) T r a d e B i l l : These bills are drawn and accepted against the sale and purchase ofgoods on credit.
b)Accommodation bills:These bills do not involve sale and purchase of goods on credit.
3. Other type of bill:
a ) I n l a n d b i l l : These bills are drawn in a country upon person living in the same country.
b)Foreign bills:These bills are drawn in one country and accepted in another country.

Difference between bill of exchange and promissory note:Bill of Exchange Promissory Note
It is an order to make a payment. It is a promise to make payment.It involves three parties namely,drawer, drawee and payee.It
involves two parties namely drawerand payee.It is drawn by the creditor. It is drawn by the debtor.It is defined under section 5
ofnegotiable instrument act.It is defined under section 4 of thenegotiable instrument act.
It requires acceptance. It does not require acceptance.
3. cheque
A cheque is a negotiable instrument. It is transferable either by meredelivery or by endorsement and delivery.
Essential features or requisites of a valid cheque:
1.A cheque must be in writing.
2.A cheque must contain an unconditional order.
3.Cheque is always drawn on a specified banker.
4.It must be signed by the drawer.
5.A cheque is always payable on demand.
6.A cheque can be crossed.
7.A cheque is used for payment.
Parties to a cheque:
1.Drawer: Drawer is a person who issues a cheque.
2.Drawee: Drawee is the bank on which the cheque is issued.
3.Payee: Payee is the person to whom the amount of cheque is payable.
Difference between Bill of exchange and cheque Bill of Exchange Cheque

Bill of exchange cheque Bill of Exchange Cheque

A bill is need not be on a printed form A cheque is always drawn on a printed form A bill cannot be crossed.
A cheque can be crossed. Grace days are allowed. Grace days are not allowed.
A bill is payable on demand or after date. A cheque is always payable on demand
Acceptance is essential. Does not require acceptance.
A bill cannot countermand. A cheque may be countermanded.
Kinds / Types of Cheque:
Bearer Cheque:
A bearer cheque is always payable to bearer.
Order cheque:
An order cheque is a cheque which is payable to a certain person
MICR cheque:
MICR (Magnetic Ink Character Recognition) cheque is a recent innovation. Bank issue cheques in MICR format using the special
quality paper and printing specifications
Truncated cheque:
It is an electronic image of a paper cheque which means physical cheque is scanned at the bank of first deposit
Electronic cheque:
It is simply referring to an electronic version of a paper cheque.
Crossing of Cheques
Crossing of cheque means drawing across the face of the cheque two parallel transverse lines with or without the words “and
company”.
Types of crossing:
1.General crossing
2.Special crossing
3.Not negotiable crossing
4.Account payee crossing
5.Double crossing
1. General Crossing
In general crossing, the cheque bears across its face an addition of two parallel transverse lines and the addition of the words “and
company” or “notnegotiable” between them.
Essential Features of general crossing
1.There must be two parallel transverse lines on the face of the cheque.
2.The lines are drawn on the left-hand top corner of the cheque.
3.The words “and company” or its abbreviation may be written in betweenthese lines.
4.The words “not negotiable” or “account payee” also be added with generalcrossing.
5.The paying banker is required to pay the amount of a generally crossedcheque to another bank.
2. Special Crossing
In special crossing, the name of a banker with or without the words “notnegotiable” is written on the cheque.
Essential features of special crossing:
1.Two parallel transverse lines is not essential.
2.The name of the collecting banker should be specified.
3.The words such as “not negotiable” or “account payee” are also added withspecial crossing.
4.The special crossing makes a cheque safer.
Difference between general crossing and special crossing
General Crossing Special Crossing
Two parallel transverse line are essential. Two parallel transverse lines are not essential
General crossing makes cheque safer. Special crossing makes a cheque safer than general crossing
The words “and company” may or may not written. These words are not written.
The amount of generally crossed cheque The amount of specially crossed chequecan be paid only to the
can be paid to any banker specified banker.
Name of the collecting banker not written Name of the collecting banker is writtenin the face of the cheque.
in the face of cheque.
3. Not negotiable Crossing
The word “not negotiable” may be included in general and special crossing. Not negotiable does not mean not transferable.
4. Account payee crossing
The word “account payee” or “payees account” may be included in general or special crossing. This type of crossing gives further
protection to a cheque.
5. Double crossing
Double crossing means crossing a cheque specially to more than one banker.
Demand Draft (DD)
Demand draft is an instrument used for transfer of money. It is a negotiable instrument.
Difference between Cheque and Dem

and Draft Cheque Demand Draft

A cheque is issued by an individual. A draft is issued by a banker.A cheque can be dishonored. A draft cannot be dishonored. A
cheque is defined in the negotiable instrument act .Draft has no precise definition.A cheque is drawn by an accountholder of a
bank.A draft is drawn by one branch of bank.In a cheque, drawer and drawee aredifferent person.In draft, drawer and drawee are
same person.Payment of cheque can be stopped by the drawer.Payment of draft cannot be stopped.
Endorsement:
Endorsement means signing on the back of a negotiable instrument forthe purpose of negotiation.
Effects of endorsement:
1.Endorsee gets right, title or property in the instrument.
2.He also gets the right of further negotiation.
3.The endorser certifies genuineness of the instrument.
4.The endorsee acquires the right of the instrument as its holder.
Liability of endorser
1.By endorsing an instrument, the endorser impliedly promises that on due presentation the instrument will be accepted and paid.
2.Endorser will not deny the validity of the endorsement.
3.Where there are two or more endorsements, the liability of the endorser will be fixed in the order in which their signature appear
on the instrument.
4.The liability of an endorser can be excluded by a spate contract.
5.The liability of the endorser continues even alter the death till theinstrument is paid.
Electronic Payments
Electronic payment means payment for buying and selling goods orservices through internet.
Features and importance of electronic payment
1.There is no paper involved.
2.Fast, efficient, safe and secure.
3.Less costly.
4.It is convenient to the consumers.
5.It improves customer attention.
6.These are fully traceable.
Module III- E-BANKING
Meaning of E - Banking
E-banking is a method of banking in which banking transactions are donethrough electronically.
Advantages of E - banking
1.Internet banking have lower operational cost.2 . I n t e r n e t b a n k i n g h a v e l o w e r t r a n s a c t i o n a l
cost.3 . O n l i n e b a n k i n g i s c o n v e n i e n t . 4.Online banking offers 24×7
s e r v i c e s . 5.Online banking facilitates better customer retention.6 . T h e r e i s l e s s c h a n c e f o r
e r r o r s . 7.Easy transfer of fund from one account t

o another.8 . O n l i n e b a n k i n g i s f a s t , e f f i c i e n t a n d e f f e c t i v e . 9 . C u s t o m e r s c a n o b t a i n f u n d s a t a n y
t i m e f r o m A T M 10.It is a safe way of handling our money. 11.Internet banking is not limited to a physical
site.12.Internet banking provides enlarged range of services.
Disadvantages of E-banking
1.Understanding the usage of internet banking is difficult for beginners.2.It requires huge initial startup cost.3.Without
internet connection, online banking is not useful.4.There is a chance of hacking personal information.5.It is
not useful in case of banks server down.6.It is not useful for illiterate persons.
Difference between T- Banking and E-BankingTraditional Banking E-Banking
1. Banking business done throughtraditional method is calledtraditional banking.1. Banking business done throughelectronically is
called e-
banking.2. It does not offer 24x7 services. 2. It offers 24x7 services.3. There is a high chance for errors. 3. There is less chance for
errors.4. Compare to e-banking, it is not 4. It is fast, efficient and effective.
fast, efficient and effective.5. It is limited to a physical site. 5. It is not limited to a physical site.6. Compared to online banking, it
isnot convenient.6. Online banking is convenient.7 . T r a n s a c t i o n a l a n d o p e r a t i o n a l costs are high.7.
Transactional and operational costs are lower.
Need and importance of E-banking
1 . R e d u c e b u r d e n 2.Need for transformation3.Ever increasing competition 4.Introduction of more customer friendly

products and services5.Boundary less banking6.Use of electronic means 7.Influence of Information technology
Dimensions of E-banking1. Customer to bank e banking
Customers can easily access all important information relating to their deposit, transfer and payments through internet.
2. Bank to bank e banking
It is related with interbank transactions which are done between banksthrough internet.
3. Electronic central banking
All banks within the control of a central bank are to be interconnectedvia extra net.
4. Intranet procurement
An intranet is meant for the exclusive use of the organization and itsassociates.
E- based products or services (Expected essay )
1 . A T M 2 . C r e d i t c a r d 3.Debit cards
4 . S m a r t c a r d 5.Mach product6.Telephone
b a n k i n g 7 . I n t e r n e t b a n k i n g 8 . V i r t u a l b a n k i n g 9 . C o r e b a n k i n g 10.SWIFT11.SPNS1 2 .
E D I 13.INFENET14.Automated clearing houses15.CFMS16.Home banking1 7 . E F T 18.Electronic clearing
services19.RTGS20.Mobile banking21.Doorstep banking22.E- purse
1. ATM (Automated Teller Machine)
ATM is a device that allow customers to perform routine bankingtransactions by using ATM cards.
ATM card
It is a plastic card issued by a financial institution, which enables acustomer to access their financial accounts.
Functions of ATM
1.A card holder is able to withdraw money.2.A card holder gets latest and updated information.3.It allows transfer of
funds.4.It also possible to make deposits. 5.Payment of loan can be made through ATM6.It provides printed copy of
transactions.
2. Credit card
A credit card is a plastic card, which can be used more than once to borrow money or buy products and services on credit.
3. Debit cards
Debit card is a plastic card, issued by the bank to their customers whohave maintained an account in the bank with sufficient
credit balance.
Types of debit card
1.
Direct debit cards
It allows only online transactions, also call

ed point of sale.2.
Deferred debit card
This card allows online transactions as well as offline transactions.
4. Smart card
A smart card is a plastic card that contains an embedded plastic chipeither a memory or microprocessor that transacts data.
5. Mach product
It is a recently innovative banking product. It is nothing but a mobile-to-mobile payment option.
6. Telephone banking
Telephone banking is a service provided by a financial institution, whichallow customer to perform transactions over
the telephone.
7. Internet banking
It is a method of banking in which transactions are conductedelectronically through internet.
Services provided through online banking
1.Easily transfer of money.2.Customers can open FD account via net. 3.Customer can order for issue of a demand
draft.4.Customer can inquire account balance.5 . C u s t o m e r c a n r e q u e s t f o r a c h e q u e b o o k .
Necessities required for operating online banking
1.An active bank account.2.Debit or credit card number.3.Customer's user ID.
4.Bank account number.5.Internet banking PIN number. 6 . A P C w i t h n e t
8. Virtual banking
Virtual bank is an internet based financial institution that offers deposit andwithdrawal facilities, and other banking services
through ATM or otherservices.
Advantages of virtual banking
1.Transaction cost is less.2.Account maintenance cost is less.3.Operations cost are less.4.Virtual banks are
safe.5.No need of visiting a bank physically.6.These are convenient.7 . 2 4 × 7 s e r v i c e s .
Limitations of virtual

banking1.
Initial start-up cost are high.2.Difficult for new users.3.Difficult for illiterate persons.4.Problems related to server
down.5.Technological hacking.
9. Core banking
Core banking simply refers to doing all banking operations of branches andhead office by connecting to a central computer kept at
data center.
Advantages of core banking
1.Total cost can be reduced.2.Multiple data entry risk reduced. 3.Ability to offer developed operations.
Limitations of core banking
1.It is mainly depending on technology.2.Recurring cost are heavy.
3.Stoppage of work has adverse effect on banks image.
10. SWIFT
SWIFT is the society for worldwide interbank financialtelecommunication, a member owned cooperative through which
thefinancial world conducts its business operations with speed, certainty andconfidence.
11. SPNS (Shared payment network system)
SPNS is a large network of ATMs spread in the

city of Mumbai, Vashiand Thane.

12. EDI (Electronic Data Interchange)
EDI is the electronic exchange of business information between twoconcerns in a specified format.
13. Indian Financial Network (INFENET)
It is a very small aperture terminal-based satellite network for messaging,file transfer and chat services.
14. Automated clearing houses
The computerized center’s where cheques are cleared are calledautomated clearing houses.
15. Centralized funds management system (CFMS)
It is a system that aims at inter connecting the 17 deposit accountdepartments of RBI.
16. Home banking
Home banking is the practice of conducting banking transactions fromhome. It is also called personal computer banking.
17. Electronic Fund Transfer (EFT)
EFT means speedier transfer of funds between different banks for the bank customers electronically. It was introduced by RBI in
1996. It isworked on the principle of " next day availability of funds."
18. Electronic clearing services
It consists of electronic credit clearing and electronic debit clearing.
19. Real Time Gross Settlement System (RTGS)
RTGS is an online fund transfer mechanism provided by the RBI. RTGSfacilitates fund transfer from one bank account to other
on real time basiswithout any waiting time.
Benefits of RTGS
1.It facilitates fund transfer on real time basis.2.RTGS is a safe and secure fund transfer mechanism.3.Lower remittance
charges.4.RTGS could also be done offline.
20. Mobile banking
Mobile banking is a system of providing s

ervice to a customer to carryout banking transactions through a mobile phone.

21. Doorstep banking
Doorstep banking means bank allow you to take banking facilities to your home.
22. E-Purse
E-purse is a plastic card with a small amount of money storedelectronically on it.
Module IV- Introduction to insurance
Meaning of Insurance
Insurance is a protection against on the happening of an unexpected event.
Definition
According to Jhon Megi " Insurance is a plan where in personscollectively share the losses of risk."Features of insurance1.It is
a contract between insurer and insured.2.Insurance covers the monetary risks.3.Insurance is not a gambling
4.Insurance is a contract of indemnity except life insurance.5.Utmost good faith is required from all the parties.6.Insurance is
a cooperative endeavor.7.Insurance involves consideration. It is called premium.8.The parties must have legal capacity to enter
into insurance contract.
Benefits / Importance / Advantages of Insurance (Expected Essay )
1.Insurance cover against uncertainties.2.Insurance contributes positively t

o economic growth.3.Insurance is an investment opportunity of an individual. 4 . I n s u r a n c e p r o v i d e s s e c u r i t y

a n d s a f e t y . 5 . I n s u r a n c e e n c o u r a g e s s a v i n g s . 6 . I n s u r a n c e e n s u r e s b u s i n e s s c o n t i n u a t i o n . 7.Insurance
generating employment opportunities.8 . I n s u r a n c e p r o m o t i n g s o c i a l w e l f a r e . 9 . I n s u r a n c e e n s u r e s
s o c i a l s e c u r i t y . 10.Insurance maintains standard of living.
Parties of insurance
1.Insured: A person covered by insurance is called insured.2.Insurer: A person contracting to indemnify against the loss is called
insurer.3.Beneficiary: The person to whom the indemnity is paid is called beneficiary.
Functions of InsuranceA) PRIMARY FUNCTIONS1. Providing protection
The most important function of insurance is to provide protection againstfuture risk.
2. Collective risk bearing
Insurance is an instrument to share the financial losses. It is a mediumthrough which losses are divided among large number of
people.
3. Evaluating risk
Insurance evaluates the risk. Risk is the basis for ascertaining the premium rate as well.
4. Provide certainty
Insurance is a device, which assists in changing uncertainty to certainty.
B) SECONDARY FUNCTIONS1. Preventing losses
Insurance prevents unfortunate losses of the people.
2. Provides capital
The insurance provides capital which is essential for economicdevelopment of a nation.
3. Covering larger risk with small capital
This is done by paying small amount of premium against larger risk anduncertainty.
4. Development of larger industries
Insurance provides an opportunity to develop to those larger industrieswhich have more risks in their setting up.
C) OTHER FUNCTIONS1) It is a saving and investment tool.
Insurance is the best savings and investment tool or option torestructuring the unnecessary expenses of the insured.2.
Medium of earning foreign exchange.
Any country can earn foreign exchange by way of issue of marine insurance.3.
Risk free trade.
Insurance boosts exports insurance, making foreign trade with the help of different types of policies under marine insurance cover.
Principlesofinsurance(Expected Essay )
1.Insurable interest
2.Utmost good faith
3.Indemnity
4.Subrogation
5.Proximate cause
6.Contribution
7.Mitigation of loss
1. Insurable interest
Contract of insurance is valid if the insured possess insurable interest.The insured has an insurable interest in the object or in the
life of theinsured person.
2. Utmost good faith
It is essential that there must be utmost good faith and mutual confidence between the insured and insurer.
3. Indemnity
A contract of insurance except contract of life insurance is contract ofindemnity. This means that insured in case of loss against
which the policyhas been issued, shall be paid the actual amount of loss or value of policywhichever is less.
4. Subrogation
Subrogation is the transfer of rights and remedies of the insured to theinsurer who has indemnified the insured in respect of loss.
5. Causa Proxima
Causa Proxima means the most immediate cause which results into a definiteloss.
6. Mitigation of loss
Mitigation of loss means to minimize or reduce the severity of loss.
7. Contribution
It is another outcome of principle of indemnity. Where there are two ormore insurance on one risk, the principle of contribution
comes into play.The aim of contribution is to distribute the actual amount of loss.
Kinds or Types of Insurance
1. Life insurance
Life insurance is a type of contract that pays out a sum of money eitheron the death of the insured or a specified period.
2. Marine insurance
Marine insurance is a type of insurance that cover loss or damages ofships or cargo from point of origin and final destination.
Types of marine policies
a)Voyage policy :
Ensure the subject matter from one place to another iscalled voyage policy.
b)Timepolicy :
Where the subject matter is insured for a definite periodof time is called time policy
c)Mixed policy :
mixed policy is a combination of voyage and time policy.
d)Valuedpolicy :
It is a policy which specifies the agreed value of asubject matter.
e)Openpolicy :
It is a type of policy where the policy value of thesubject matter insured is not specified.
f)Floatingpolicy :
It is type of policy in which the value of goods beinginsured cannot be calculated exactly.
Features of marine insurance
1.In this type of insurance cargo, ship, and fright is to be insured.
2.There is a contract between insurer and insured.
3.It includes third party insurance also.
4.Insurance can be taken for single journey or number of journeys.
5.It can be taken against losses incurred in inland also.
3. Fire insurance
Fire insurance is a type of insurance which protects people from costincurred from fire during a specified time.
Features of fire insurance
1.It is a contract of indemnity.
2.It should fulfil essentials of a valid contract.
3.It is a contract of utmost good faith.
4.Fire policies covers losses against fire.
5.In fire insurance insured must have insurable interest.
6.A fire insurance is generally for taken one year.
7.Fire insurance policy issued for a lawful consideration.
4. Medical / Health insurance
Health insurance is a type of insurance that cover medical expenses thatarises due to an illness.
5. General insurance
An insurance which is not life insurance is called general insurance. Itincludes vehicle and home owners’ insurance.
Personal accident insurance
It is a type of insurance for personal accidents or illness.
Auto insurance
Auto insurance is a type of insurance, it helps of repair or replacement inthe event of accident.
Disability insurance
It is a type of insurance; it may protect the insured from financial ruin if heis injured.
Long term care insurance
It is a type of insurance designed for those diagnosed with chronic illness.
Homeowners insurance
It is a type of insurance which helps to cover losses of a home or propertydue to fire, natural disaster, faulty plumbing work, bad
electric work etc...
Miscellaneous/ Liability insurance
It refers to contract of insurance other than life insurance. It includes fire,marine etc...
Property insurance
Property insurance is a type of insurance protection against risks of the property.
Hull insurance
Hull insurance is a type of insurance policy especially designed forcovering ship damage expenses
Burglary insurance
Burglary insurance means a type of crime insurance that covers lossesresulting from burglary.
Re - insurance
Re insurance simply means insurance for insurance company. It means aninsurance company purchase another insurance
company.
Double insurance
When same subject matter is insured with two or more insurer is calleddouble insurance.
Role of insurance in economic development
1.Investment for economic development.
2.Promotes trade and commerce.
3.Insurance makes financial resources.
4.Insurance spreads risk.
5.Encourage financial stability.
6.Substitute for government security programs.
7.Insurance provides increasing GDP.
8.Facilitate efficient capital allocation.
Module V- Insurance Laws
Life insurance
Life insurance is a type of contract that pay out a sum of money either onthe death of the insured or a specified period.
Features of life insurance
1.It is an outcome of offer and acceptance.
2.It is not a contract of indemnity.
3.It is best alternative way of savings.
4.Insurable interest must be present at the time of taking policy.
5.It offers flexible premium payments.
Importance of life insurance
1.It is a protection against untimely death.
2.It is a savings for old age.
3.It initiates investment
4.It improves creditworthiness of the business.
5.It is a social security tool.
6.It facilitates tax benefits.
7.Promotion of savings.
Difference between General Insurance and Life Insurance
General Insurance Life Insurance
1. General insurance is a personal insurance contract. 1. Life insurance is a nonpersonalinsurance contract.
2. It is a contract of indemnity. 2. It is not a contract of indemnity.
3. General insurance insureshomes, automobiles and 3. Life insurance insures one’s lifeor the life of someone
other personal properties.
4. General insurance is takengenerally for one year. 4. Life insurance is generally forlong period.
5. The object of generalinsurance is to protect from risks. 5. The object of life insurance is thesecurity and investment.
Insurance policy
Insurance policy is a contract of insurance. It describes the term,coverage, premium and deductibles.
Nomination
A nomination is an important part of a life insurance. It is the common tonominate a person usually spouse, child or one parent
while taking aninsurance policy.
Assignment
Assignment of a policy means transfer of all rights, title and liabilities ofthe life insurance policy in favors of the assignee.
Claim
A claim is the payment made by the insurer to the insured on theoccurrence of the event specified in the contract.
Premium
An insurance premium is the amount of money an individual or business pays for an insurance company.

Assurance
Assurance refers to financial coverage that provides remuneration for anevent that is certain to happen.
IRDA (Insurance Regulatory and Development Authority)
It is an autonomous apex statutory body which regulates and develops theinsurance industry in India.
Powers, Functions, and Duties of IRDA
1.Registering and regulating insurance companies.
2.Protecting interest of the policy holders.
3.Promoting professional organizations in insurance.
4.To control over management of insurers.
5.Maintenance of solvency margin.
6.Ensuring insurance coverage in rural areas.
7.Regulating investment of policy holders.
Role of IRDA
1.IRDA provides a certificate of registration to a life insurance company.
2.IRDA is responsible for renewal, modification, withdrawal andcancelation of certificate of registration
.3.IRDA protects the interest of the policy holders
4.IRDA offers policy holders the right to voice their complaints.
5.IRDA has to set up the grievance redressal cell.
6.It promotes and regulate activities of professional organizations.
7.It regulates and maintenance of margin of solvency.
8.It regulates the investments of funds.
Laws relating to general insurance
1.Insurance Act 19382.Indian marine insurance Act 19633.General insurance business Act, 19724.The general
insurance business amendment Act, 2002.
Laws relating to life insurance
1.Insurance Act, 19382.The life insurance corporation Act, 19563.The IRDA Act, 1999