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Banking and Financial Awareness

Loans and Deposits

Different types of Loans in India

Loans proceed can be used for a varied purpose right from buying a home or starting a business, and to avail
these benefits a financial institutions comes into play. Bank label loans on the basis of end use of proceeds.
So, in order to caters these needs of the customers, banks offer a customized products which are classified
into different forms as mentioned below:

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1) Home Loan-Home loan as name suggest is the loan against buying property. Their are sub-categories of
home loans which are as below.
(a) Home loan for residents
(b) Loans for repairs and extension
(c) Land purchase loan

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(d) Top-up loans

(e) Loan for Earnest Money Deposits (EMD)
(f) Reverse Mortgage Loans
1) Loan against property:

We may also find different variant of home loans other than above. But the above listed are basic type of
home loans.

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We may find two types of Home loans

-Secured Loans-Where you provide some collateral as a safety against loans.
-Unsecured Loans-In such type of loans borrower collateral is not required.
2) Personal Loan-It is the loan granted to fulfill borrower expenses which ranges from buying some expensive
electronic gadgets . Usually rate of interest on Personal loans are higher than other types of loans.
3) Car Loan or Vehicle Loan-This is usually used to meet your financial requirement when one is planning to
have his car or bike. It is usually a secured loan where collateral is your vehicle and in case of default lender
may recover it by taking back your vehicle. But some lenders offer unsecured loans where your credit score
matters more.
4) Education Loan-Education Loan aims to provide the much needed financial support to deserving students
for pursuing higher professional or technical education in India and abroad. The education loan would be
provided to those students who have obtained admission to career-oriented courses e.g. medicine,
engineering, management etc., either at the graduate or post-graduate level.

Javed R. Siddiquee

(HO.: C-37, Ganesh Nagar, Delhi) (GA-82) /

(For free Banking and Finance materials for Bank PO/Clerk send friendship request to Javed Rahmat Siddiquee)

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5) Gold Loan-As the name suggests this is the loan given against gold. Many nationalized banks, private
banks and other financial companies offer this loan at attractive rates. Many go for this loan for short period
to meet the requirement of their childrens education, marriage and other financial problems in the family.
And others think that instead of keeping the gold idle at home or locker, loan against gold is the best option.
Moreover with the rise in gold rates the demand from companies and banks offering such loans has raised.
For instance, Muthoot Finance, one of the leading gold loan companies has seen 24 percent rises in gold loan
against 17 percent raise in the market value of gold.
6) Loan against Insurance Policies-You can use your insurance investment as either collateral or take loan
from insurer itself if that policy is eligible for loan. Usually loans will be available after 3 years of policy
period. You will get loan easily on your policy from insurer. But other method to take loan is to pledge your
policy document with banks and take loan on that.

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7) Loan against Bank FDs-This is one form of loan where your collateral is your bank FD itself. Suppose you
have bank FD of around Rs.10,00,000 then you are usually eligible to get loan upto Rs.8,00,000. But interest
rate will 1-2% higher than your FD rate. But still this form of loan is also fastest and best way.
8) Loan from PPF or EPF-You can avail loan from PPF when one satisfies certain conditions. You can avail loan
from EPF too. But you can avail loan from EPF only for special purposes like purchase of plot, medical
treatment, education or marriage of children, construction or purchase of house, re-payment of home loan,
renovation of home or pre-retirement. But all are not eligible to take loans. Their are certain conditions like
minimum years of completion, age or proof you need to produce. So it seems bit lengthy procedure.

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9) Loan against Shares or Mutual Funds-Few lenders offer loan against your investment value of shares or
mutual funds. But you will not get more value from this. Reason is, both the investments (if mutual fund is
of equity oriented) then fluctuation in values will be high. Hence to protect their loan amount usually
lenders offer less loan.
10) Loan from unrecognized sector-This is one of the easiest but costliest way of fulfilling your financial
dream. Usually interest rate will be in the range of 20%-30% but you can get it immediately. Such type of
loans are useful who are running out of time and not have any source also to fund their financial requirements.
But looking at this option is costly affair.

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Different Types of Bank Accounts

Bank Accounts are classified into four different types. They are,
1) Current Account
2) Savings Account

3) Recurring Deposit Account

4) Fixed Deposit Account

What is Current Account?

Current account is mainly for business persons, firms, companies, public enterprises etc and are never used
for the purpose of investment or savings.These deposits are the most liquid deposits and there are no limits
for number of transactions or the amount of transactions in a day. While, there is no interest paid on amount
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Javed R. Siddiquee

(HO.: C-37, Ganesh Nagar, Delhi) (GA-82)

(For free Banking and Finance materials for Bank PO/Clerk send friendship request to Javed Rahmat Siddiquee)

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held in the account, banks charges certain service charges, on such accounts. The current accounts do not
have any fixed maturity as these are on continuous basis accounts.

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What is Savings Account?

Savings Account is meant for saving purposes. Any individual either single or jointly can open a savings
account. Most of the salaried persons, pensioners and students use Savings Account. The advantage of
having Savings Account is Banks pay interest for the savings. The saving account holder is allowed to withdraw
money from the account as and when required.
The rate of interest ranges between 4% to 6% per annum in India. There is no restriction on the number and
amount of deposits. But withdrawals are subjected to certain restrictions. Some banks recommend to
maintain a minimum amount to keep it functioning.
What is Recurring Deposit Account?

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Recurring deposit account or RD account is opened by those who want to save certain amount of money
regularly for a certain period of time and earn a higher interest rate. In RD account a fixed amount is
deposited every month for a specified period and the total amount is repaid with interest at the end of the
particular fixed period.

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The period of deposit is minimum six months and maximum ten years. The interest rates vary for different
plans based on the amount one saves and the period of time and also on banks. No withdrawals are allowed
from the RD account. However, the bank may allow to close the account before the maturity period.
These accounts can be opened in single or joint names. Banks are also providing the Nomination facility to
the RD account holders.
What is Fixed Deposit Account?

In Fixed Deposit Account (also known as FD Account), a particular sum of money is deposited in a bank for
specific period of time. Its one time deposit and one time take away (withdraw) account. The money
deposited in this account can not be withdrawn before the expiry of period.

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However, in case of need, the depositor can ask for closing the fixed deposit prematurely by paying a
penalty. The penalty amount varies with banks.
A high interest rate is paid on fixed deposits. The rate of interest paid for fixed deposit vary according to
amount, period and also from bank to bank.

Types of Deposits accounts in India

There are two types of deposits viz. Time Deposits and Demand Deposits.
(1)Time Deposits includes Fixed deposits and Recurring deposits
(2) Demand deposits includes Current Account and Saving Accounts

Javed R. Siddiquee

(HO.: C-37, Ganesh Nagar, Delhi) (GA-82) /

(For free Banking and Finance materials for Bank PO/Clerk send friendship request to Javed Rahmat Siddiquee)

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1 Time Deposits When money is deposited with a period and it cannot be withdrawn before its maturity
fixed at a particular time. Such deposits are called Time deposits or Term deposits.Time deposits includes

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1 Fixed Deposit
2 Demand Deposits

Fixed deposits : A fixed rate of interest is paid at fixed, regular intervals Re-investment deposits Interest is
compounded quarterly and paid on maturity, along with the principal amount of the deposit.
Recurring deposits :Fixed amount is deposited at regular intervals for a fixed term and the repayment of
principal and accumulated interest is made at the end of the term.

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These deposits are usually targeted at persons who are salaried or receive other regular income. A Recurring
Deposit can usually be opened for any period from 6 months to 120 months. Further, banks also provide a
combination of demand and time deposits in the form of various products. Examples of such products
include Recurring Deposits, Flexible RDs, Multiplier FDs, Special Term deposit accounts etc. Demand deposits
If the funds deposited can be withdrawn by the customer (depositor / account holder) at any time without
any advanced notice to banks; it is called demand deposit. One can withdraw the funds from these accounts
any time by issuing cheque, using ATM or withdrawal forms at the bank branches. The money as demand
deposit is liquid and can be encashed at any time. The ownership of demand deposits can be transferred
from one person to another via cheques or electronic transfers. There is no fixed term to maturity for
Demand Deposits. The demand deposits may or may not pay interest to the depositor. For example, while
we get an interest on savings accounts; no interest is paid on current accounts. As mentioned above, there
are two types of demand deposits viz. savings accounts and current accounts. Current Account A current
account is always a Demand Deposit and the bank is obliged to pay the money on demand. The Current
accounts bear no interest and they account for the smallest fraction among the current, saving and term
deposits. They provide the convenient operation facility to the individual / firm. The cost to maintain the
accounts is high and banks ask the customers to keep a minimum balance. Saving Accounts Savings deposits
are subject to restrictions on the number of withdrawals as well as on the amounts of withdrawals during
any specified period. Further, minimum balances may be prescribed in order to offset the cost of maintaining
and servicing such deposits. Savings deposits are deposits that accrue interest at a fixed rate set by the
commercial banks. Difference Between Current Accounts and Savings Accounts Click here to read about
difference between current account and savings account. CASA Deposits CASA Deposits refers to Current
Account Saving Account Deposits. As an aggregate the CASA deposits are low interest deposits for the Banks
compared to other types of the deposits. So banks tend to increase the CASA deposits and for this they offer
various services such as salary accounts to companies, and encouraging merchants to open current accounts,
and use their cash-management facilities. The Bank is High CASA ratio (CASA deposits as % of total deposits)
are in a more comfortable position than the Banks with low CASA ratios , which are more dependent on term
deposits for their funding, and are vulnerable to interest rate shocks in the economy, plus lower spread they
earn.

NRO, NE(E)RA and FCNA(A) Accounts

There are several kinds of accounts available for non resident Indians , Persons of Indian Origin and Overseas
Citizens of India. They are as follows: Non Resident Ordinary Accounts: (NRO): Any person resident outside
of India can open this account. Normally, when a resident becomes a non resident, his domestic rupee

Javed R. Siddiquee

(HO.: C-37, Ganesh Nagar, Delhi) (GA-82)

(For free Banking and Finance materials for Bank PO/Clerk send friendship request to Javed Rahmat Siddiquee)

BSC Academy

Non-Resident (External) Rupee Account

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account gets converted into the NRO account. This helps the NRI to get his credits which accrue in India, for
example rent or interest from investments.

(NR(E)RA This account was introduced as NRE scheme in 1970. Its a Rupee account and the NRI can remit
money to India from the funds abroad. This means that depositor is exposed to the Currency rates risk.

Foreign Currency Non-Resident Account

Deposit Insurance in India

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(FCNR) Foreign Currency Non-Resident Account Bank or FCNR (B) was first introduced in 1993. It replaced
the existing FCNR (A) scheme. This account is opened by the NRIs in 6 designated currencies as follows: US
Dollar (USD) Great Britain Pound (GBP) Euro (EUR) Japanese Yen (JPY) Canadian Dollar (CAD) Australian
Dollar (AUD) Please note that FCNR account is opened ONLY in the form of Term Deposits and NOT in the
form of Demand Deposits. The term is from 1 year to 5 years. Repatriation of the principal and interest is
allowed n after maturity. Interest is paid on maturity, in the same currency of the deposit. For deposits of
tenure up to one year simple interest is paid and for deposits of tenure beyond one year the interest is
compounded at half yearly rests. The maturity proceeds inclusive of interest is fully repatriable. The banks
may decide the interest rates after approval from RBI and within the limits fixed by RBI. If a person has NRE
account and wishes to transfer to FCNR, it is permissible without prior approval of the RBI.

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In India, the bank deposits are covered under the insurance scheme provided by DICGC. When a bank
covered by DICGC fails, or undergoes liquidation or is merged with another bank; the DICGC pays the amount
due to depositors via the officially appointed liquidator in a time bound manner.

A complete book on Banking and Financial Awareness for BANK PO/CLERK exams

A PRIMER on
BANKING & FINANCE
Price: `230

by Javed R Siddiquee

Javed R. Siddiquee

(HO.: C-37, Ganesh Nagar, Delhi) (GA-82) /

(For free Banking and Finance materials for Bank PO/Clerk send friendship request to Javed Rahmat Siddiquee)