UNIT 2: DIGITAL FINANCE (BBA NOTES) Chitkara University

Banking Products and Services: Types of Banks

Meaning of Banking:

Banking refers to the business of accepting deposits, providing loans, and offering financial services to individuals, businesses, and governments. Banks play a vital role in financial intermediation, economic growth, and financial inclusion.

Types of Banks:

1. Commercial Banks:

   • Provide services to the general public and businesses.

   • Functions: Accept deposits, provide loans, issue credit cards, and offer investment services.

   • Examples: State Bank of India (SBI), HDFC Bank, ICICI Bank.

2. Cooperative Banks:

   • Owned and operated by members to serve their financial needs.

   • Primarily serve rural and semi-urban areas.

   • Examples: Saraswat Bank, Karnataka Bank.

3. Regional Rural Banks (RRBs):

   • Focus on agriculture and rural development.

   • Sponsored by commercial banks and government.

   • Example: Prathama Bank, Utkal Grameen Bank.

4. Development Banks:

   • Provide long-term finance for industrial and infrastructure projects.

   • Example: NABARD (National Bank for Agriculture and Rural Development), SIDBI (Small Industries Development Bank of India).

5. Central Bank:

   • Regulates monetary policy, issues currency, and supervises commercial banks.

   • Acts as the lender of last resort.

   • Example: Reserve Bank of India (RBI).

6. Private Sector Banks:

   • Owned by private individuals or corporations.

   • Focus on profit and modern banking services.

   • Examples: Axis Bank, Kotak Mahindra Bank.

7. Public Sector Banks:

   • Majority ownership by the government.

   • Serve both profit and social welfare objectives.

   • Examples: Punjab National Bank, Bank of Baroda.

8. Foreign Banks:

   • Operate in India but are headquartered abroad.

   • Serve global clients and provide international banking services.

   • Examples: Citibank, Standard Chartered Bank.

Banking Products and Services:

1. Deposit Products:

   • Savings accounts, current accounts, fixed deposits, recurring deposits.

2. Credit Products:

   • Personal loans, home loans, business loans, credit cards.

3. Investment Services:

   • Mutual funds, bonds, insurance, wealth management.

4. Digital Banking Services:

   • Internet banking, mobile banking, UPI payments, digital wallets.

5. Other Services:

   • Locker facilities, forex services, advisory services, bill payments.

Types of Bank Deposit Accounts

Banks offer various deposit accounts to meet the needs of individuals, businesses, and organizations. Each account type has specific features, purposes, and benefits.

1. Savings Bank Account (SB Account):

• Purpose: For individuals to save money and earn interest.

• Features:

  • Interest-earning account (rate varies by bank)

  • Allows deposits and withdrawals anytime

  • Linked with debit cards, ATM, and online banking

• Suitable for: Students, salaried individuals, and general public

2. Current Account:

• Purpose: Primarily for businesses and professionals to manage frequent transactions.

• Features:

  • No restrictions on deposits and withdrawals

  • Usually does not earn interest

  • Can have overdraft facilities

• Suitable for: Traders, companies, and organizations

3. Term Deposit / Fixed Deposit (FD):

• Purpose: To earn higher interest by locking money for a fixed period.

• Features:

  • Fixed tenure (e.g., 1 year, 5 years)

  • Higher interest rates than savings accounts

  • Premature withdrawal may attract a penalty

• Suitable for: Individuals seeking secure long-term investment

4. Recurring Deposit (RD):

• Purpose: To encourage regular savings over a period of time.

• Features:

  • Fixed monthly deposit for a specific period

  • Earns interest at a fixed rate

  • Maturity amount = Total deposits + interest earned

• Suitable for: Students, salaried individuals, or anyone wanting to save systematically

5. Public Provident Fund (PPF):

• Purpose: Long-term savings scheme with tax benefits.

• Features:

  • Tenure: 15 years (extendable in blocks of 5 years)

  • Interest earned is tax-free

  • Encourages retirement planning and wealth accumulation

• Suitable for: Individuals seeking secure long-term investment and tax savings

6. National Savings Certificate (NSC):

• Purpose: Government-backed investment to encourage savings.

• Features:

  • Fixed interest rate, usually compounded annually

  • Lock-in period: 5 years

  • Offers tax benefits under Section 80C

• Suitable for: Conservative investors seeking safe returns

Comparison Table of Deposit Accounts:

Type	Purpose	Interest	Liquidity	Tenure	Tax Benefits
Savings	Daily savings	Low	High	No fixed	No
Current	Business transactions	None	Very high	No fixed	No
Term Deposit	Fixed return	High	Low (before maturity)	Fixed	No (except some cases)
Recurring Deposit	Systematic savings	Moderate	Low (before maturity)	Fixed	No
PPF	Long-term savings	Moderate	Very low (lock-in 15 yrs)	15 years	Yes
NSC	Safe government investment	Fixed	Low	5 years	Yes

Formalities to Open Various Types of Bank Accounts

Opening a bank account requires submission of documents, fulfilling KYC norms, and completing the bank’s formalities. These steps are necessary for identity verification, legal compliance, and financial security.

1. Basic Requirements for All Accounts

1. Application Form:

   • Filled and signed form provided by the bank for the chosen account type.

2. Identity Proof (ID Proof):

   • Official document to verify the applicant’s identity.

   • Examples: PAN card, Aadhaar card, Voter ID, Passport, Driving License.

3. Address Proof:

   • Document to verify the residential address.

   • Examples: Aadhaar card, Utility bills (electricity, water, gas), Passport, Bank statement, Rental agreement.

4. Photographs:

   • Passport-sized photographs (usually 2–3 copies).

5. Minimum Deposit:

   • Some accounts (savings/current/FD) require an initial deposit as specified by the bank.

2. Know Your Customer (KYC) Norms

• Purpose: KYC norms are mandatory to prevent fraud, money laundering, and illegal transactions.

• Documents Accepted for KYC:

  1. Proof of Identity (POI): PAN, Aadhaar, Passport, Driving License

  2. Proof of Address (POA): Aadhaar, Utility Bills, Passport, Bank statement

• Process:

  • Submission of documents

  • Verification by the bank

  • Activation of the account after successful verification

3. Account-Specific Requirements

Account Type	Special Requirements
Savings Account	ID & address proof, passport-size photo, initial deposit
Current Account	ID & address proof, business proof (like GST registration, business license), PAN card, initial deposit
Term Deposit / Fixed Deposit	ID & address proof, minimum deposit, nomination details
Recurring Deposit	ID & address proof, initial deposit for first installment, fixed monthly contributions
PPF Account	ID & address proof, passport-size photo, initial deposit, nomination details
NSC Account	ID & address proof, initial investment, sometimes PAN card for tax purposes

4. PAN Card Requirement

• PAN (Permanent Account Number):

  • Required for most bank accounts, especially current accounts, term deposits, and investment-linked accounts.

  • Used for tax tracking, high-value transactions, and KYC compliance.

Various Types of Loans

Banks and financial institutions provide loans to individuals, businesses, and organizations to meet personal, business, or developmental needs. Loans are categorized based on duration, purpose, and repayment terms.

1. Short-Term Loans

• Duration: Less than 1 year (usually up to 12 months)

• Purpose: To meet working capital requirements or urgent financial needs

• Examples:

  • Cash credit

  • Overdraft facilities

  • Working capital loans for businesses

• Interest Rates: Usually higher than long-term loans; varies by bank (approx. 8%–12% per annum)

2. Medium-Term Loans

• Duration: 1 to 5 years

• Purpose: Purchase of machinery, vehicles, or business expansion

• Examples:

  • Equipment financing

  • Vehicle loans

  • Business term loans

• Interest Rates: Moderate (approx. 9%–13% per annum) depending on the bank and collateral

3. Long-Term Loans

• Duration: More than 5 years (can extend up to 30 years for housing)

• Purpose: For major investments, such as real estate, infrastructure, or higher education

• Examples:

  • Home loans

  • Education loans

  • Project loans for industries

• Interest Rates: Lower than short-term loans due to long tenure (approx. 7%–12% per annum)

4. Microfinance Loans

• Purpose: Provide small loans to low-income individuals, especially in rural areas, for income-generating activities

• Features:

  • Small loan amounts

  • Short repayment period

  • Usually group lending system

• Examples:

  • SHG loans (Self-Help Group)

  • Livelihood or agriculture microloans

• Interest Rates: Slightly higher due to risk and smaller amounts (approx. 10%–24% per annum)

Interest Rates Offered by Nationalized Banks and Post Office

Bank/Post Office	Type of Loan	Approx. Interest Rate (per annum)
SBI, PNB, Canara Bank	Home Loan	7% – 9%
SBI, PNB, Bank of Baroda	Vehicle Loan	9% – 12%
NABARD / Nationalized Banks	Agriculture / Microfinance	8% – 14%
Post Office	Recurring Deposit / Term Deposit Loans	7% – 8.5%
Nationalized Banks	Education Loan	9% – 12%
Microfinance Institutions (MFIs)	Microloans	10% – 24%

Note: Rates vary depending on loan amount, tenure, creditworthiness, and collateral.

Cashless Banking and E-Banking

1. Cashless Banking

Meaning: Cashless banking refers to a system where financial transactions are carried out without the use of physical cash, using digital modes of payment instead.

Key Features:

• Money is transferred electronically through debit/credit cards, UPI, mobile wallets, and online transfers.

• Reduces the need for carrying cash and enhances transaction security.

• Promotes transparency and traceability in financial transactions.

Benefits:

1. Convenient and faster transactions

2. Reduces risk of theft and counterfeit currency

3. Encourages financial inclusion

4. Supports government initiatives like Digital India

Examples:

• UPI payments (Google Pay, PhonePe, Paytm)

• Debit/Credit card payments

• QR code-based transactions

2. E-Banking (Electronic Banking)

Meaning: E-Banking refers to banking services provided through electronic platforms such as computers, smartphones, ATMs, and the internet, allowing customers to access their accounts anytime.

Key Features:

• Access bank accounts 24/7 from anywhere

• Perform financial transactions digitally

• Monitor account balances and statements online

• Secure and encrypted banking channels

Services Offered in E-Banking:

1. Fund Transfers: NEFT, RTGS, IMPS

2. Bill Payments: Utility bills, credit card payments, insurance premiums

3. Online Deposits and Loans: Apply for FD, RD, personal or education loans online

4. Account Management: Check balance, download statements, update KYC

5. Mobile Banking: Apps to manage accounts, invest, and pay digitally

Differences Between Cashless Banking and E-Banking

Feature	Cashless Banking	E-Banking
Meaning	Transactions without cash	Banking services via electronic platforms
Scope	Payments and money transfers	Full range of banking services
Examples	UPI, mobile wallets, card payments	Internet banking, mobile apps, ATMs
Purpose	Reduce physical cash usage	Convenience, accessibility, account management

Benefits of Cashless and E-Banking:

• Convenience and time-saving

• Safer than handling cash

• Promotes transparency and financial record-keeping

• Encourages digital financial literacy

CIBIL, ATM, Debit & Credit Cards, and App-Based Payment Systems

1. CIBIL (Credit Information Bureau (India) Limited)

Meaning:

• CIBIL is a credit information company that maintains records of an individual’s credit history.

• It generates a CIBIL score, which reflects the borrower’s creditworthiness.

Key Points:

• CIBIL score ranges from 300 to 900; higher scores indicate better creditworthiness.

• Used by banks and financial institutions to approve loans and credit cards.

• Helps individuals understand and improve their financial behavior and repayment habits.

2. ATM (Automated Teller Machine)

Meaning:

• An ATM is an electronic machine that allows customers to withdraw cash, deposit money, or check account balance without visiting the bank.

Features:

• 24/7 accessibility

• Multi-purpose: cash withdrawal, mini statements, PIN change

• Requires a debit/credit card and PIN

Advantages:

• Convenient and quick

• Reduces dependency on bank counters

• Enhances financial accessibility in remote areas

3. Debit Card

Meaning:

• A debit card allows direct withdrawal of money from your bank account for purchases or ATM withdrawals.

Features:

• Linked directly to savings or current account

• Daily transaction and withdrawal limits apply

• Can be used at POS (Point of Sale) terminals, online, and ATMs

Advantages:

• Convenient and cashless

• No borrowing involved; only uses available funds

• Widely accepted for payments and online transactions

4. Credit Card

Meaning:

• A credit card allows the user to borrow money from the bank up to a pre-approved limit to make purchases or withdraw cash.

Features:

• Monthly billing cycle with a repayment period

• Interest charged if full payment is not made

• Can be used online, offline, and internationally

Advantages:

• Short-term credit facility

• Provides rewards, cashback, and discounts

• Builds credit history

5. App-Based Payment Systems

Meaning:

• Mobile apps that allow instant digital payments, fund transfers, and financial management.

Examples:

• UPI-based apps: Google Pay, PhonePe, Paytm

• Wallet apps: Amazon Pay, Mobikwik

Features:

• Real-time money transfer

• QR code-based or bank account linked payments

• Can pay bills, recharge, shop online, or send money to anyone

Advantages:

• Quick and convenient

• Reduces cash dependency

• Safe, with PIN, OTP, or biometric security

• Encourages financial literacy and digital transactions

Banking Complaints and Ombudsman

1. Banking Complaints

Banking complaints arise when a customer is dissatisfied with the services or products offered by a bank. These can be related to loans, deposits, digital transactions, ATM, debit/credit cards, or online banking.

Common Reasons for Complaints:

1. Delay or refusal in loan sanction

2. Errors in account statements or billing

3. ATM or card-related issues (failed transactions, incorrect charges)

4. Unauthorized transactions or fraud

5. Poor customer service or grievance handling

Procedure to Lodge a Complaint:

1. Contact Bank Branch: Submit complaint at the bank branch or call the customer care.

2. Escalation: If not resolved within the stipulated time, escalate to the bank’s grievance redressal officer.

3. Written Complaint: Banks may require a written application for unresolved issues.

2. Banking Ombudsman

Meaning:

• A Banking Ombudsman is an official appointed by the Reserve Bank of India (RBI) to address complaints against banks.

• Provides a free, independent, and quick resolution for customers.

Types of Complaints Covered:

1. Delays or non-payment of deposits and withdrawals

2. Failure or delay in issuing drafts, cheques, or remittances

3. Non-compliance of RBI guidelines

4. ATM, debit, and credit card disputes

5. Digital banking and UPI-related complaints

Process to Approach the Banking Ombudsman:

1. Step 1: Submit complaint to the bank and wait 30 days for a response.

2. Step 2: If unresolved, approach the Banking Ombudsman through an online or offline application.

3. Step 3: Ombudsman investigates and provides binding resolution.

Key Features:

• Free of cost for customers

• Quick and transparent grievance redressal

• Applicable for all commercial, cooperative, and regional rural banks

Unified Payment Interface (UPI)

UPI is a real-time payment system developed by the National Payments Corporation of India (NPCI) that allows users to transfer money instantly between bank accounts using a mobile device.

Key Features of UPI:

1. Instant Transfers: Money is transferred 24/7 in real time.

2. Multiple Bank Accounts: Users can link multiple bank accounts to a single UPI ID.

3. Simple Identification: Payments are made using a Virtual Payment Address (VPA), avoiding the need to share bank account details.

4. Security: PIN-based authentication ensures safe and secure transactions.

5. Interoperability: Works across banks and payment apps.

Popular UPI Apps:

• Google Pay

• PhonePe

• Paytm

• BHIM (Bharat Interface for Money)

Types of Transactions:

1. Peer-to-Peer (P2P): Transfer funds between individuals.

2. Peer-to-Merchant (P2M): Pay for goods or services at shops, online platforms, or utility payments.

Advantages of UPI:

• Quick and convenient money transfer

• No need to carry cash

• Works on both smartphones and feature phones (USSD-based BHIM UPI)

• Supports bill payments, QR code payments, and recurring payments

• Reduces dependency on cards and cash

Digitisation of Financial Transactions

Digitisation of financial transactions refers to the use of electronic systems, mobile apps, and online platforms to conduct banking and financial activities instead of using cash. This ensures faster, convenient, secure, and traceable transactions.

1. Debit Cards and Credit Cards

Debit Cards:

• Linked directly to a bank account.

• Allows withdrawals, purchases, and online payments.

• Uses available funds; no borrowing involved.

• Security: PIN-based authentication.

Credit Cards:

• Provides short-term credit from the bank up to a pre-approved limit.

• Can be used for online, offline, and international transactions.

• Requires repayment within billing cycle; interest charged on delayed payment.

• Offers rewards, cashback, and discounts.

Benefits:

• Convenient and cashless payments

• Enhances security compared to cash

• Widely accepted across merchants and online platforms

2. Net Banking (Internet Banking)

Meaning:

• Accessing banking services through the bank’s website or portal.

• Provides 24/7 account access and financial management.

Services Offered:

• Fund transfers (NEFT, RTGS, IMPS)

• Bill payments, recharge, and loan applications

• Account balance checks and statement downloads

• Investment in mutual funds, FD, or RD

Advantages:

• Convenient, anytime, anywhere access

• Reduces dependency on bank branches

• Enables secure online financial transactions

3. Unified Payment Interface (UPI)

Meaning:

• A real-time payment system allowing instant transfers between bank accounts using VPA (Virtual Payment Address).

Features:

• Works 24/7

• Supports multiple bank accounts

• Peer-to-Peer (P2P) and Peer-to-Merchant (P2M) payments

• Highly secure with PIN authentication

Popular Apps: Google Pay, PhonePe, Paytm, BHIM

Advantages:

• Instant, convenient, and cashless

• No need to share bank details

• Supports QR payments, bill payments, and recurring transactions

4. Digital Wallets

Meaning:

• Apps that store prepaid money digitally, allowing payments without cash or card.

Features:

• Can link bank account or card for top-ups

• Used for online/offline purchases, bill payments, and peer transfers

• Offers cashback, discounts, and promotions

Examples: Paytm, Mobikwik, Amazon Pay

Advantages:

• Quick, convenient, and contactless

• Encourages digital payments

• Safe and secure with PIN or biometric authentication

Security and Precautions Against Ponzi Schemes and Online Frauds

Ponzi Schemes

Meaning:

• A Ponzi scheme is a fraudulent investment scam where returns are paid to earlier investors using the funds of new investors, instead of legitimate profits.

• It collapses when there are not enough new investors.

Warning Signs of Ponzi Schemes:

1. Promises of high returns with little or no risk

2. Pressure to reinvest earnings or recruit others

3. Lack of transparency about investment details

4. Unregistered or non-regulated investment schemes

Precautions:

• Verify the investment with SEBI or RBI regulations

• Avoid schemes promising unrealistic returns

• Check registration of the company or fund

• Do not rely on word-of-mouth recommendations alone

Online Frauds

Meaning:

• Online frauds occur when cybercriminals steal money, data, or personal information through internet banking, apps, or online transactions.

Common Types:

1. Phishing: Fake emails or websites to steal login credentials

2. Vishing: Fraudulent phone calls asking for sensitive information

3. Identity Theft: Misuse of personal data for financial gain

4. Fake Investment Apps/Websites: Unofficial apps promising high returns

5. Credit/Debit Card Frauds: Unauthorized use of card details

Precautions:

• Use strong, unique passwords and 2FA (Two-Factor Authentication)

• Never share OTP, PIN, or bank credentials

• Verify apps from official stores and check reviews

• Regularly monitor bank statements and transactions

• Enable alerts for transactions via SMS/email

• Avoid clicking on suspicious links or emails

General Safety Measures

1. Educate yourself on digital payment and investment safety

2. Use secure networks; avoid public Wi-Fi for transactions

3. Report suspicious activity immediately to the bank or cyber cell

4. Maintain financial discipline and avoid impulsive investments