Nischay

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Learning & Development Unit

Phinoucky Ahuja (Asst. Manager)


Akriti Thakur (Chief Manager)

NISCHAY
A synopsis on Inclusive Banking Thro’ Business
Correspondents (Payments Banks)

India Post Payments Bank Limited, Corporate Office,

2nd Floor, Speed Post Centre Bhai Vir Singh Marg, New Delhi -110001

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Table of Contents Page No.

Chapter 1 – Structure of Indian Banking & Types of Banks 2–5

Chapter 2 – Various Deposit Schemes and Other Services 6–9

Chapter 3 – Account Opening, On-Boarding Process, KYC Mechanism and Operations 10 – 14

Chapter 4 – Accounting, Finance and Operations 15 – 16

Chapter 5 – Grievance Redressal Mechanism 17 – 19

Chapter 6 – Overview of the Financial Market 20 – 21

Chapter 7 – Financial Inclusion and Banking for the Unbanked 22 – 24

Chapter 8 – Business Correspondent and Business Facilitator (BC/BF) Model: A 25 – 27


Vehicle for Financial Inclusion

Chapter 9 – Risk and Fraud Management 28 – 29

Chapter 10 – PMJDY, PMJJBY, PMSBY and APY 30 – 35

Chapter 11 – Basic Technical Skills 36 – 37

Chapter 12 – Digital Banking Products 38 – 43

Chapter 13 – Communication and Financial Counselling (Including Financial Literacy 44


and Financial Education)

Chapter 14 – How to deal with different types of customers 45 – 46

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CHAPTER 1
STRUCTURE OF INDIAN BANKING AND TYPES OF BANKS
 Today, all banks are competing with each other in regard to the development of new products
matching with global standards. Banks offer savings, remittance, credit and other ancillary
products to their customers. In addition, customers are also offered insurance and other risk
management products.

 It was felt that the branch banking and electronic banking may not be appropriate models to
reach the excluded people as financial inclusion involves financial education, counselling and
building up of close relationship with people. In this background and in order to take banking
services to the people living in unbanked and under banked areas, the Business
Correspondent/Business facilitation (BC/BF) Model was introduced. The person or institution
company appointed as BC/BF will function as an extend arm of the bank branch in the area.
The individual appointed by the bank or a BC company is known as Business Correspondent
Agent (BCA). As a result of this arrangement, the targeted population can access various
financial services and financial education from the banks through these agents.

 A bank accepts deposits from the public in the form of savings, Current and/ or Term Deposits.

 Banks can be either scheduled or non-scheduled. Banks which are listed in the second schedule
of the Reserve Bank of India are known as scheduled banks. These banks are further classified
as:

 Public Sector Banks:


 Private Sector Banks:
 Regional Rural Banks
 State Co-operative Banks and District Central Co-operative Banks
 Urban Co-operative Banks

 Public Sector Banks(PSBs) These banks are characterized by majority ownership (51% or more
share capital) by the Government of India. About 72% of the banking business in India is
performed through these banks.

 Regional Rural Banks (RRBs) have been established with a focus on rural development. These
are also scheduled banks sponsored by public sector banks. Their ownership capital is provided
jointly by Central Government (50%), concerned State Government (15%) and the sponsoring
(35%). In order to ensure better viability of these RRBs, sponsor banks have started merging
their RRBs at State level. After the merger, the number has been reduced from 196 to 56 as on
31st March, 2017.

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 Private Sector Banks
i. Indian Private Sector Banks: These banks are better capitalized, technology-driven, aggressive
in business development and adopt a style of functioning comparable to foreign banks
operating in India. In 2014, two more banks IDFC Bank and Bandhan Bank were given license
by RBI.
ii. Foreign Banks: These are the banks incorporated abroad but granted license by RBI to do
banking business in India through their Indian Branches.
iii. Local Area Banks: These are banks which have been given license to function in a given area.
They operate with a low level of capital and cannot offer all the financial services of a
commercial bank. There are only four Local Area Banks in the country as of now.
iv. Payment Banks: Payments Banks can accept demand deposits-current deposits and savings
banks deposits – from individuals, small business and other entities, but there is an upper limit
of Rs. 2 lakh per customer. They cannot lend to customers or issue credit cards.
v. Small Finance Banks: The small finance banks are essentially scaled down versions of
commercial banks, with both deposit-taking and loan-making functions. They are required to
provide at least 75 per cent of their loans to borrowers classified as priority sector and at least
50 per cent of their loans must be below Rs. 25 lakhs.

 Traditional Functions
i. Acceptance of Deposits: Current accounts and savings accounts are also known as demand
deposits. Term deposits could be in the form of fixed deposits, recurring/ cumulative deposits,
monthly income deposits, etc. Term deposits constitute the largest portion of bank’s funds.
ii. Loans and Advances: Banks lend in the form of Cash Credits, Overdrafts, Demand Loans and
Term Loans. Based on the borrower profile, loans can be classified as Corporate Loans, SME
advances., Agricultural Loans, retail Loans, Foreign Currency Loans, Educational Loans, Vehicle
Loans etc. A loan account with security is known as secured loan whereas a loan without
security is known as clean loan (clean advance). Loans and advances which remain overdue for
more than a stipulated period is known as ‘non-performing assets’ (NPAs).
iii. Remittance services: Banks charge appropriate fee from the remitting person for the service
rendered. Remittance of funds by banks is fast, safe, secure and cheap as compared to other
modes of funds transfer, like post office money order (which is generally for small sums of
money for personal use), physical transfer of money etc. Information and Communication
Technology (ICT) is playing an important role in financial inclusion efforts.

 Reserve Bank of India: The activities of the banking sector are supervised, controlled and
regulated by the Reserve Bank of India. It plays an important role in the monetary and banking
structure of the country. The Reserve Bank of India (RBI) was established on April 1, 1935 as
the central bank of the country. It acts as the note issuing authority, banker’s bank and banker

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to Government, and to promote the growth of the economy within the framework of the
general economic policy of the Government consistent with the need for maintenance of price
stability.

 NABARD: The Committee to Review Arrangements for Institutional Credit for Agriculture and
Rural Development (CRAFICARD) under the Chairmanship of Shri B. Siva Raman recommended
the establishment of a separate bank at the national level under the umbrella of RBI to be
known as National Bank for Agriculture and Rural Development (NABARD) as a refinancing
agency for the entire rural credit system. NABARD came into existence on 12 July 1982 by
transferring the agricultural credit functions of RBI and refinance functions of the then
Agricultural Refinance and Development Corporation (ARDC). More than 50% of the rural
credit is disbursed by the Co-operative Banks and Regional Rural Banks. NABARD is responsible
for regulating and supervising the functions of co-operative banks and RRBs.

 Recent Trends in Banking


i. Increased Use of Technology: Core Banking Solution implemented in almost all banks has
enabled anywhere, anytime banking. Banks are also entering into the “wallet” banking
business for penetrating its outreach to the vast population of the country. Use of plastic
money like credit cards, debit cards and other pre-paid instruments at the “point of sale” are
becoming popular.
ii. Mobile Banking: It is estimated that around 14 of mobile users are residing in villages/small
towns. The Mobile Banking services are generally available through a java application and
Blackberry, Android, iPhone and Windows mobile phones. Various banking service like Funds
Transfer, Immediate Payment Services, Enquiry Services, Demat Account Services, Requests
for Cheque Book, Bill Payments, etc. may be carried out through mobile banking. The mobile
banking services are also available over SMS. Mobile Banking through mobile wallet was also
launched in 2012.

Self-Assessment

1. Principal functions of banks are:


a) Accepting deposits
b) Lending and investing
c) Non-fund business and remittance services
d) All of above

2. IDBI is a

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a) Private bank
b) Nationalized bank
c) Public sector bank
d) Development bank

3. Payment Banks can accept deposits


a) Of any type and also without any ceiling
b) Term deposits only
c) Demand deposit only but there is no upper limit for it
d) Demand deposits having balance not exceeding Rs. 2 lakh per customer

4. Small Finance Banks are required to give finance


a) Maximum upto Rs. 25 lakhs
b) 50% of its total advances portfolio should be at least upto Rs. 25 lakhs per borrower
c) to any borrower without any ceiling
d) only to priority sectors as defined by RBI

5. Regional Rural Banks can open its branches:


a) anywhere in the state wherein it has its Head Quarters
b) anywhere in the state but non-customer related offices can be opened anywhere in the
country
c) anywhere in the country
d) only in the Govt. notified area (districts)

CHAPTER 2
VARIOUS DEPOSIT SCHEMES AND OTHER SERVICES
 Types of Deposits

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i. Demand deposits which are repayable on demand by the customers. These comprise of
Current account deposits, Savings bank deposits, Call deposits.
ii. Term deposits that are repayable on maturity dates as agreed between the customers and the
banker. These deposits comprise of Fixed deposits, Recurring/Cumulative deposits
iii. Hybrid deposits or flexi deposits which combine the features of demand and term deposits.

 Demand Deposits
i. Current Accounts: The main feature of currents accounts are:
 There are no restrictions on the number and amount of withdrawals deposits.
 Cheque book facility is provided to each current account holder. Withdrawals are permitted
by cheques. There is no restriction on the number of cheques that can be transacted in a day.
 Balances in the current accounts do not earn any interest.
 Customers are allowed overdraft facility. Overdraft is a facility whereby banks honor cheques
drawn by current account customers even when the balance in the account is less than the
amount of the cheques. Banks charge an agreed rate of interest on such over drafts.

ii. Savings Bank Accounts: Banks pay interest on these accounts with a view to encouraging
saving habit in the community. Savings account can be opened by individuals, guardians (on
behalf of their minor children/words), minors of the age of 10 years and above, trusts, HUF,
etc. The main features of Savings bank accounts are as follows:
 Banks stipulate certain restrictions on the number of withdrawals per month/ quarter,
amount of withdrawal per day, minimum balance to be maintained in the account on all days,
etc. and levy fee/ penalty for violations of these rules. These rules are different for different
banks.
 Banks pay interest on the daily balance maintained in the account at the prescribed rate.
Banks are free to decide interest rate on Savings Bank Account.
 No overdraft (payment in excess of the credit balance) is allowed in a savings bank account.
 Under electronic banking, a customer can access the account through interest by using a
customer ID number and password assigned to him/her by the bank.

iii. Basic Savings Bank Deposit Account (BSBDA)


 This account does not have the requirement of any minimum balance.
 Account holders will be allowed a maximum of four withdrawals in a month, including ATM
withdrawals.
 No charge is to be levied for non-operation/ activation of in-operative ‘Basic Savings Bank
Deposit Account’.
 The ‘Basic Savings Bank Deposit Account’ would be subject to RBI instructions on known your
customer (KYC) Anti-Money Laundering (AML) for opening of bank accounts issued from time
to time. If such account is opened on the basis of simplified KYC norms, the account would

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additionally by treated as a ‘Small Account’ and would be subject to conditions stipulated for
such accounts.
 Holders of ‘Basic Savings Bank Deposit Account’ are not eligible for opening any other savings
bank deposit account in that bank. If a customer has any other existing savings bank deposit
accounts in that bank, he/she will be required to close it within 30 days from the date of
opening a ‘Basic Savings Bank Deposit Account’.

 Insurance of Bank deposits by Deposit Insurance and Credit Guarantee Corporation (DICGC)
– Each depositor in a bank is insured upto a maximum of Rs. 5,00,000 (Rs. Five Lakh) for both
principal and interest amount held by him in the same capacity and same right. No premium
is charged from customer for the purpose. Individual Bank who are registered with DICGC
bears the insurance premium cost.

 REMITTANCES
A. Banker’s Drafts: A banker’s draft (or demand draft) is a payment order issued by one branch
of a bank upon other branch, instructing the drawee branch to pay the specified sum of money
to the specified person. A demand draft is always drawn, payable to order. A demand draft
resembles a bill of exchange, the only difference being that in the former, the drawer (bank)
and the drawee (bank) are same. A demand draft is a negotiable instrument payable to a
certain person or to the order thereof, drawn by one branch of a bank on another branch of
the same bank, or specific branch of another specific bank with which the drawer bank has
draft-drawing agency arrangements.

 Issue and encashment of Demand Drafts


Banks should ensure that demand drafts of Rs. 20,000 and above are issued invariably with
account payee crossing. A draft should be uniformly valid for a period of three months. Banks
should ensure that drafts of small amounts are issued by their branches against cash to all
customers irrespective of the fact whether they are having accounts with the banks or not.

 Issue of Duplicate Demand Draft


Duplicate draft, in lieu of lost draft, up to and including Rs. 5,000 may be issued to the
purchaser on the basis of adequate indemnity and without insistence on seeking non-payment
advice from drawee office irrespective of the legal position obtaining in this regard. Banks
should issue duplicate Demand Draft to the customer within a fortnight from the receipt of
such request. Further, for the delay beyond this stipulated period, banks were advised to pay
interest at the rate applicable for fixed deposit of corresponding maturity in order to
compensate the customer for such delay.
B. Electronic Funds Transfer

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i. SWIFT: The Society of Worldwide Interbank Financial Telecommunication is an internal society
for enabling international electronic fund transfer between member banks world-wide.
ii. Remittance through RTGS: RTGS is an inter-fund transfer system, where funds are transferred
as and when the transactions are triggered. The acronym ‘RTGS’ stand for ‘Real Time Gross
Settlement’. This is the fastest possible money transfer system through banking channel.
 Benefits of RTGS
a. Speed
b. Quicker settlement cycles
c. Wider Boundaries
The minimum amount to be remitted through RTGS is Rs. 2 lakhs. There is no upper ceiling for
RTGS transactions. The beneficiary bank has to credit the beneficiary’s account within two
hours of receiving the funds transfer message.

 Pre-requisites for RTGS


1. Amount to be remitted
2. His account number which is to be debited
3. Name of the beneficiary bank
4. Name of the beneficiary customer
5. Account number of the beneficiary customer
6. Sender to receiver information
7. The IFSC (Indian Financial System Code) Number

iii. Remittance through NFFT: The NEFT (National Electronic Fund Transfer) service helps in the
seamless transfer of funds from one branch to another without any delays or procedural
hassles. In NEFT, there are clearing settlement batches and the return time allowed is 24
hours.
iv. Remittance through mobile phones as well as Internet Banking and ATM:
 Immediate Payment System (IMPS): Immediate Payment Service (IMPS) was launched by
NPCI on 22nd November, 2010. It offers an instant, 24*7, interbank electronic fund transfer
service through mobile phones as well as internet banking and ATMs. In the process of
remittances across the bank there are four stakeholders I.e. (1) Remitter (Sender), (2)
Beneficiary (Receiver), (3) Banks and (4) National Financial Switch – NPCI.
For registration the Remitter must register for mobile banking and get Mobile Money
Identifier (MMID) and Mobile Banking PIN (MPIN) for initiation of a transaction. MMID is a 7-
digit number, to be issued by the bank to the customer upon registration and the Beneficiary
Must Register his/her mobile number with the bank account and get MMID.
 National Unified USSD Platform (NUUP): Banking customers can use this service by dialing
*99#, a “Common number across all Telecom Service Provides, (TSPs)”, on their mobile and
transaction through an interactive menu displayed on the mobile screen. A notable inclusion
in the NUUP service is a new addition in the form of Query Service on Aadhaar Mapper
(QSAM). Under this feature a user can come to know about his/her AADHAAR seeding status

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with the banks, a service that will find tremendous utility for the government’s direct subsidy
disbursals programme.
 Aadhaar Enabled Payment System (AEPS): AEPS is a banking product which allows online
interoperable financial inclusion transaction at Pos (Micro-ATM) or Kiosk Banking through
the Business Correspondent of any bank using the Aadhaar authentication. Presently, four
aadhaar enabled basic types of banking transactions are available (1) Enquiry, (2) Cash
Withdrawal, (3) Cash Deposit and (4) Aadhaar to Aadhaar Funds Transfer.
 Aadhaar Payment Bridge System (APBS): The Aadhaar Payments Bridge System enables the
transfer of payments from Government and Government Institutions to Aadhaar-enabled
accounts of beneficiaries at banks and post offices.

Self-Assessment

1. Savings accounts contain some restrictions regarding


a) Number of withdrawals per quarter
b) Amount of withdrawals per transaction in ATM
c) Number of deposits into the account per quarter
d) Both (a) and (b) above

2. Interest on savings bank can be paid


a) On any interval as per bank’s own approved policy
b) On half yearly intervals only
c) On yearly intervals only
d) On quarterly intervals only

3. Demand Deposits are those which can be withdrawn


a) On repeat
b) On sanction by manager
c) On demand
d) On persuasion

4. Current account deposits are not entitled to


a) Cheque book above 100 leaves
b) Monthly statements
c) Cash payments
d) Interest

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5. In saving account deposits, interest is paid on ____________ balance in account
a) Maximum
b) Average
c) Daily
d) Last balance at the end of month

CHAPTER 3
ACCOUNT OPENING, ON-BOARDING PROCESS, KYC MECHANISM AND OPERATIONS

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 Any person who want to open an account with a bank, will have to submit certain documents
to prove his identity and residential/office address. In general terms, this procedure in banking
terms is called “Know Your Customer” (KYC).

 One of the main objectives of KYC procedure is to prevent possible misuse of the banking
system for money laundering and financing of terrorist activities. RBI has stipulated that banks
should show strict adherence to ‘KYC’ guidelines and monitoring of cash transaction based on
prescribed norms (above specified amounts).

 Documents to be obtained:
A) Accounts of individuals
 For proof of identity:
1) Passport; 2) PAN card; 3) Voter’s Identity Card; 4) Driving License; 5) job; 6) The letter issued
by the Unique Identification Authority of India (UIDAI) containing details of name, address and
Aadhaar number; 7) Identity card (subject to the bank’s satisfaction); 8) Letter from a
recognized public authority or public servant verifying the identity and residence of the
customer to the satisfaction of bank.

 For proof of Address:


1) Telephone bill; 2) Bank account statement; 3) Letter from any recognized public authority; 4)
Electricity bill; 5) Ration card; 6) Letter from employer (subject to satisfaction of the bank); 7)
A rent agreement indicating the address of the customer duly registered with State
Government or similar registration authority.

 Banks should accept e-Aadhaar downloaded from the website of the Unique Identification
Authority of India (UIDAI) as an officially valid document.

 Utility bill which is not more than two months old of any service provider electricity, telephone,
postpaid mobile phone, piped gas, water bill for the limited purpose of proof of address are
deemed to be Officially Valid Documents (OVDs) under ‘simplified measures’.

 Those persons who do not have any of the ‘officially valid documents’ can open ‘small
accounts’ with banks. A ‘small account’ can be opened on the basis of a self-attested
photograph and putting her/his signature or thumb print in the presence of an official of the
bank. Such accounts have limitations regarding the aggregate credits (not more than Rs. one
lakh in a year), aggregate withdrawals (not more than Rs. ten thousand in a month) and
balance in the accounts (not more than Rs. fifty thousand at any point of time).

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 Banks may open a non-resident ordinary (NRO) bank account of a foreign students on the basis
of his/her passport (with appropriate visa and immigration endorsement) which contains the
proof of identity and address in the home country along with a photograph and a letter from
the educational institution offering admission:
 Within a period of 30 days of opening the account, the foreign student should submit to the
branch where the account has been opened a valid address proof giving local address, in the
form of a rent agreement or a letter from the educational institution.
 During the 30 days’ period, the account should be operated with the condition of allowing
foreign remittances not exceeding USD 1,000 into the account and a cap of monthly
withdrawal of Rs. 50,000, pending verification of address.

 If an existing KYC complaint customer of a bank desires to open another account in the same
bank, there should be no need for submission of fresh proof of identity and/or proof of address
for the purpose.

 While imposing ‘partial freezing’, banks are advised to ensure that the option of ‘partial
freezing’ is exercised after giving due notice of three months initially to the customers to
comply with KYC requirement and followed by a reminder for further period of three months.
If the accounts are still KYC non-compliment after six months of imposing initial ‘partial
freezing’ banks may render them in-operative.

B) Accounts of companies
Documents to be obtained: 1) Certificate of incorporation and Memorandum and Articles of
Association; 2) Resolution of the Board of Directors to open an account and identification of
those who have authority to operate the account; 3) Power of Attorney granted to its managers,
officers or employees to transact business on its behalf; 4) Copy of PAN allotment letter 5) Copy
of the telephone bill.

C) Accounts of partnership firms


Documents to be obtained: 1) Registered certificate, if registered; 2) Partnership deed; 3)
Power of Attorney granted to a partner or an employee of the firm to transact business on its
behalf; 4) Any officially valid documents identifying the partners and the persons holding the
Power of Attorney and their address; 5) Telephone bill in the name of firm/partners.

D) Accounts of trusts and foundations


Documents to be obtained: 1) Certificate of registration, if registered 2) Power of Attorney
granted to transact business on its behalf 3) Any officially valid documents to identity the
trustees, settlors, beneficiaries and those holding Power of Attorney,

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founders/managers/directors and their address 4) Resolution of the managing body of the
foundation association 5) Telephone bill.

E) Accounts of Proprietorship Concerns: Any two of the following documents would suffice.
 Registration certificate (in the case if a registered concern)
 Certificate/license issued by the Municipal authorities under Shop and Establishment Act.
 Sales and income tax return
 CST/VAT certificate
 Certificate/registration document issued by Sales Tax/Service Tax/Professional Tax
authorities
 License issued by the Registering authority like Certificate of Practice issued by Institute of
Chartered Accountants of India, Institute of Cost Accountants of India, Institute of Company
Secretaries of India, India Medical Council, Food and Drug Control Authorities,
registration/licensing document issued in the name of the proprietary concern by the Central
Government or State Government Authority/Department, etc.
 The complete Income Tax return (not just the acknowledgment) in the name of the sole
proprietor where the firm’s income is reflected, duly authenticated/acknowledge by the
Income Tax Authorities.
 Utility bills such as electricity, water, and landline telephone bills in the name of the
proprietary concern.

 Electronically Know Your Customer (KYC)


In the year 2013, RBI permitted e-KYC as a valid process for KYC verification under prevention
of Money Laundering (Maintenance of Records) Rules, 2005. If there is any suspicion about
any account being used for money laundering activity, the same should be reported to the
Government of India through proper channel without at the same time alerting the customer.
In any case, cash transactions of over Rs. 10 lacs are required to be reported to the RBI on a
fortnightly basis.

 Periodic updating of KYC


 Full KYC exercise should be done at least every two years for high risk individuals and entities.
 Full KYC exercise should be done at least every ten years for low risk and at least every eight
years for medium risk individuals and entities.
 Fresh photographs should be obtained from minor customers on their becoming major.

 Specimen signature of the customer is obtained on the account opening form in the presence
of the bank staff and it is attested by an authorized bank officer in the form itself. A customer
is recognized mainly by his/her signature on the cheques vouchers and these are compared
with the specimen signature on record to verify the genuineness of the customer’s signature.
In respect of credit/debit cards and ATM cards, customers are given specific PIN numbers by
the banks.

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 The banks should inform, at least one month in advance, the existing account holders of any
change in the prescribed minimum balance and the charges that may be levied if the
prescribed minimum balance is not maintained. Banks are not permitted to levy penal charges
for non-maintenance of minimum balances in any inoperative account.

 Non-voucher generating transactions:


1. Issue of pass-books/statement of accounts;
2. Issue of cheque books;
3. Delivery of term deposit receipts/drafts;
4. Acceptance of share application forms;
5. Acceptance of clearing cheques;
6. Acceptance of bills for collection.

 Vouchers generating transaction:


1. Issue of term deposit receipts;
2. Acceptance of cheques for locker rent due;
3. Issue of travelers cheques;
4. Issue of gift cheques;
5. Acceptance of individual cheques for transfer credit.

 Banks are required to make available all printed material used by retail customers including
account opening forms. Pay-in-slips, pass-books, etc., in trilingual form i.e., English, Hindi and
the concerned Regional Language.

Self-Assessment

1. Money laundering refers to


a) Conversion of assets into cash
b) Conversion of money which is illegally obtained
c) Conversion of cash into gold

2. One of the important steps in Money Laundering is


a) Placement and layering
b) Organization and controlling
c) Depositing and withdrawing
d) Backward and forward integration

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3. Which one of the following is an Officially valid document available to the bank for customer
identification.
a) Election ID card
b) Ration card
c) Photograph
d) Bank statement of account

4. Objectives of KYC
a) To ensure appropriate customer identification
b) To monitor transaction of suspicious nature
c) If loan given, it would not be a NPA
d) To create a data base of customers

CHAPTER 4
ACCOUTING, FINANCE AND OPERATIONS

 When money is advanced by a bank, the borrower usually pays a price in consideration of the
loan to the banks, till it is repaid (to the bank). This price is called ‘Interest”. Similarly, a bank
pays interest at agreed rates on deposits accepted by it.

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 Simple Interest: Simple interest is a fixed percentage of the amount borrowed for a period.
The formula for calculation of simple interest is as follows:

Interest = Principal x Rate of Interest x Time


Where:
 Interest is the total amount of interest paid
 Principal is the amount of money borrowed
 Rate is the percentage of the principal charged as interest each year, expressed as a decimal
fraction
 Time is the period for which the money is used borrowed

Question: If Rs. 1 lac is the money borrowed for 12 months and the ROI is 12% p.a., then
what would be the Interest paid by the borrower to the lender?
By applying the above formula, let us calculated the amount of interest payable in the above
illustration.

Solution: Interest = Rs. 1,00,000 × 12/100 × 1 year


Answer = Rs. 12,000

 Compound Interest: When interest is added to the account as oppose to paying it


immediately to the lender, the interest is said to be capitalized and earns interest during the
next time period for compounding interest. This is compounding of interest or in simple term
“Compound Interest”. The formula for calculating compound interest is as follows:

A=P (1+r/n)^nt
Where:
 P = The principal (original amount)
 A = the amount on maturity
 r = the rate (expressed as fraction)
 n = number of times per year that interest is compounded
 t = number of years of the loan/ deposit

Question: You deposit Rs. 10,000 with a bank for one year at 6% interest p.a. The Bank Pays
monthly compounded interest which is reinvested in the account. What amount would you
get on maturity of your deposit?

By applying the above formula, let us now solve the problem

Solution:
A= Amount on maturity
P= Rs. 10000
R= 0.06
N= no. of times a year that interest is compounded=12
T= no. of years of the deposit

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A= 1000 [1+(0.06/12)]^12x1

=10000 (1 + 0.005)^12
=10000 (1.005)^12
= Rs.10000 (1.06167)
= Rs. 10616.77 say Rs. 10617

Self-Assessment

1. If Rs. 1 lakh is the money borrowed for 12 months and the ROI is 12% p.a. simple, when is
the interest paid by the borrower?

a) Rs. 10000
b) Rs. 24000
c) Rs. 20000
d) Rs. 12000

CHAPTER 5

GRIEVANCE REDRESSAL MECHANISM IN BANKS AND BANKING OMBUDSMAN


SCHEME

 The banks will inform customers where to find details of procedures for handling complaints
fairly and quickly. This information is generally made available at a prominent place on the
notice board of branch. If the customer complaint is received in writing, the bank will
endeavor to send an acknowledgement a response within a week. If customer complaint in

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relayed over phone at the designated telephone helpdesk or customer service number, the
bank will provide a complaint reference number and keep customers informed of the
progress within a reasonable period of time.

 Resolution of Grievances at Branch

 Branch Manager will be responsible for the resolution of the complaints/grievances in


respect of customer’s service by the Branch. If the Branch Manager feels that is not possible
at his/her level to solve the problem, he/she may refer the case to Regional or Circle Office
or Head Office for guidance. Similarly, if Regional Office/Circle Office finds that they are not
able to solve the problem such cases may be referred to the Nodal Officer of the Bank. For
this purpose, banks provide a grievance escalation system to its customers. Suggestion Box
and Complaint Book are provided in all the branches.

 Customer’s Day is observed on 15th of every month. On this day branch in-charge will be
available at the branch between 3 p.m. and 5 p.m. to meet customers without any prior
appointment.
Customer Service Committee meetings is held every month at all Branches, Regional Offices.
The sole task of the Committee is to find out ways and means to render service to the
satisfaction of the Customers.

 Nodal officer, other designated officials to handle complaints and grievances and mandatory
display requirements: The banks have made it mandatory to display the following at branches
for the benefit of customers:-
1) Details on appropriate arrangements made for receiving complaints and suggestions
2) The name, address and contact number of Nodal Officer
3) Contact details of Banking Ombudsman of the area
4) Details of Code of Bank’s commitments to customers/Fair Practice Code.

 Time Schedule for redressal of complaints


Stipulated by MOF Adopted by Banks

General Complaints 30 days 21 days


Complaints forwarded by RBI/MOF 21 days 15 days
MPs/VVIPs
Complaints from PM’s office 15 days 7 days

 BANKING OMBUDSMAN SCHEME:

 Within 30 days of lodging a complaint with the bank, if customer does not get a satisfactory
response from the bank and if customer wishes to pursue other avenues for redressal of
grievances, customer may approach Banking Ombudsman appointed by Reserve Bank of India
under Banking Ombudsman Scheme, 2006.

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 If the complaint is not settled by agreement or recommendations above within 2 months from
the date of receipt of the complaint, he can pass an AWARD for an amount not exceeding Rs.
10 lakhs.
 The bank has to comply with the Award within 15 days from the date of receipt.
 The Banking Ombudsman reports to RBI the non-compliance of an AWARD by any Bank.

Self-Assessment
1. _____________is responsible for resolution of grievances at the branch level.

a) BC Agent
b) Designated Counter Clerk
c) Sub-Staff
d) Branch Manager

2. Parties can resolve their differences peacefully through the

a) Banking Ombudsman
b) Grievance Redressal Procedure
c) Consumer Courts
d) Civil Courts

3. Customer’s Day is observed on

a) 5th of every month


b) 10th of every month
c) 15th of every month
e) 20th of every month

4. The Bank’s Model Policy on Grievances Redressal is based on certain principles

a) Customers will be fully informed of avenues to escalate their complaints / grievances


within the organization and their rights to alternative remedy, if they are not fully satisfied
with the response of the bank to their complaints.

b) Complaints raised by customers will be dealt with courtesy and in time.


c) Customers will be treated fairly at all times.

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d) Bank will treat all complaints efficiently and fairly as they can damage the Bank’s
reputation and business if handled otherwise and Employees will work in good faith and
prejudice to interests of the bank.

5. If not satisfied by the decision/award, either bank or customer can appeal to the Deputy
Governor, RBI and the Appellate Authority within days from the date of receipt of the
Award.

a) 45
b) 30
c) 15
d) 20

CHAPTER 6
OVERVIEW OF THE FINANCIAL MARKET

 Commercial Banks: Commercial banks include public sector banks, foreign banks, and private
sector banks. Acceptance of deposits from the public for the purpose of lending or investment
is the main area of activity.

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 Non-Banking Financial Companies (NBFCs): NBFCs are allowed to raise monies as deposits
from public and lend monies through various instrument including leasing, hire-purchase and
bill discounting etc. These are licensed and supervised by the Central Banking authority
(Reserve Bank of India).

 Primary Dealers (PDs): PDs are primary dealers in government securities and deal both in
primary and secondary markets. Their basic responsibility is to provide markets for
government securities and strengthen government securities market.

 Financial Institutions (FIs): FIs are development financial institutions which provide long-term
funds for industry and agriculture. All these institutions are under off-sire and on-site
surveillance of Central Banking Authority. FIs raise their resources through long-term bonds
from financial system and borrowings from international financial institutions.

 Co-operative Banks: These are allowed to raise deposits and give advances from and to public,
Urban Co-operative Banks are controlled by State governments and RBI, while other co-
operative banks are controlled by NABARD and State Governments.

 Management of Government Debt: Most of the Central Banks manage issue and servicing of
government debt. This involves price discovery, volume to be raised, tenure of debt, and
matching it with over-all cash management of the debt.

 Cash Reserve Ratio (CRR): Cash Reserve Ratio (CRR) is the mandatory deposit, to be held by
Banks with monetary authority/ Reserve Bank of India. It is a percentage of their Demand and
Time liabilities. The increase or decrease can be effected by the Central Bank to pump in and
soak liquidity in the banking system.

 Statutory Liquidity Ratio (SLR): Statutory Liquidity Ratio (SLR) is the prescribed percentage of
Demand and time liabilities of a bank, to be held in prescribed securities, mostly government
securities.

Self-Assessment

1. Banks need to maintain certain percentage of their Demand and Time liabilities with the
Reserve Bank India compulsorily. This is referred as.

a) Statutory Liquidity Ratio (SLR)


b) Cash Reserve Ration (CRR)
c) Current Ration
d) Credit Deposit Ratio (CD Ration)

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CHAPTER 7
FINANCIAL INCLUSION AND BANKING FOR THE UNBANKED

 The situation wherein people are not able to access financial products from formal financial
institutions is termed as “Financial Exclusion”. The ‘financially excluded’ section needs to be
educated about the benefits of being a part of the organized financial system. Financial literacy
and product innovation are the needs of the hour if microfinance is to extend its reach, and
the reach and deliver on its goal of financial inclusion in India.

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 The definition of financial inclusion currently in use is the delivery of financial services by the
formal financial system at an affordable cost to vast sections of disadvantaged and low-income
groups. Financial services include the provision of savings, loans, insurance, payments and
remittance facilities by the formal financial system to those who tend to be excluded.

 There are 1,25,857 branches of all banks in the country as on 31 st march, 2015 out of which
only 48577 are in the rural areas. Currently, for every 12000 people in India, there is only one
branch of commercial bank to meet their banking needs.

 While analyzing the root causes for the above state of affairs, one must recognize the
following:
 A major issue in expanding the outreach of the formal banking system is the transaction cost
for banks.
 Poor credit discipline in rural loans is another important issue.
 Adequacy of manpower in the rural branches is another issue.
 Not only do the banks find it difficult to reach the poor in the rural areas, the poor also do not
find it easy to relate to the urban-oriented staff at the rural b ranches.
 Often the distance at which the bank’s branches located necessitated customers to incur out-
of-pocket expenses and also to forego their earnings during the days they visited.
 The co-operatives are not efficient and financially strong to undertake larger credit
disbursement.

 The Reserve Bank of India in its annual policy statement of April 2005 recognized the problem
of financial exclusion and had initiated several steps.
 Introduction of basic savings bank deposit account wither with nil or very low balances as well
as charges that make such accounts accessible to vast sections of population.
 A simplified general purpose credit card (GCC) facility to be issued by banks without insistence
on collateral or purpose.
 Launching self-help group scheme.
 Simplified “know your customer (KYC)” norms.
 Relaxations in Branch Licensing Policy.

 A major technological development in banking sector is the adoption of the Core Banking
Solutions (CBS). CBS is a step towards enhancing, customer convenience through, Anywhere,
Anytime Banking. The adoption of CBS led to various technological products like NEFT, RTGS,
mobile banking, Internet Banking, ATMs, etc. Some of the Technological based products have
made significant changes in the banking outreach to the mases are appended below:
 Adopting core banking solution (CBS) by the Banks, including all Regional Rural Banks (RRBs).
 A multi-channel branchless approach using handled devices, mobiles, cards, micro-ATMs and
kiosks can be u sed.

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 Transactions put through such front-end devices are seamlessly integrated with the banks”
CBS
 Implementation of the electronic payment system such as RTGS (Real Time Gross Settlement).
 Electronic Clearing Service (ECS).
 Electronic Funds Transfer (NEFT).
 Cheque Truncation System (CTS).
 Banking transaction by using Mobile phones etc.

Self-Assessment

1. Define Financial Inclusion in one sentence.

Answer: The definition of financial inclusion currently in use is the delivery of financial services by
the formal financial system at an affordable cost to vast sections of disadvantaged and low-income
groups.

2. The following are a few of the root causes that prevent banks reaching now to the rural poor.
(State what is incorrect)

a) High transaction cost in banks.


b) Poor credit discipline in the rural areas, making credit monitoring by banks more difficult.
c) Poor deposit-base in the rural branches.
d) No willing takers among the bank employees for the rural postings.

3. The Regional Rural Banks are the best fitted to be the vehicle for financial inclusion in rural
areas. (State what is incorrect)

a) Their Regional character.


b) Their functioning in a homogeneous agro-climatic area.
c) Their employees, hailing from the same area, are best suited to relate with the rural customers.
d) They are managed by people from their parent banks.

4. The initiatives of Reserve Bank of India towards financial inclusion of the rural poor include.
(State what is incorrect)

a) Introduction of basic ‘no-fills’ savings accounts making them accessible to vast sections of the
rural poor.

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b) Issuance of simplified General Purpose Credit Card (GCC) without insistence on collateral or
purpose.
c) Financing of SMEs on concessional terms.
d) Relaxation of KYC norms for opening new relationship accounts in rural areas.

5. Intermediaries through who banks reach-out to the rural poor in areas they have no
branches include. (State what is incorrect)

a) Self-Help Groups
b) Non-Government Organizations
c) Debt Recovery Agents
d) Microfinance Institutions

CHAPTER 8
BUSINESS CORRESPONDENT AND BUSINESS FACILITATOR (BC/BF) MODEL: A
VEHICLE FOR FINANCIAL INCLUSION

 The services to be provided by BCs include rural credit disbursement, delivery of savings and
insurance products, small value payments and remittances. The BC idea has come from Brazil
where retail vendors, lottery outlets and post offices double as bank branches. It is said that
the Business Correspondent/Business Facilitator will be a friend, philosopher and guide to the
people in the villages served by him/her. A Business Correspondent/Business Facilitator is
normally the one residing and/or located in the area he/she serves.

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 A Business Correspondent/Business Facilitator is expected to perform; they can be entrusted
with the following specific activities/duties:
 Identification of prospective borrowers.
 Determining suitability of the activities chosen by them and advising the branch thereof.
 Educating the prospective borrowers on the loan products available with the bank and advising
them of the one that suits them.
 Helping the prospective borrower in filling the loan application.
 Collection of the application forms from the applicants and initial security thereof.
 Verification of primary information given therein.
 Ensuring that the KYC norms have been complied with.
 Processing of loan applications with the help of the Bank’s template applicable to the product
category and submission of the proposals to the branch.
 Post-sanction and pre and post disbursal verification and monitoring.
 Follow-up for recovery.
 Giving inputs to farmers and villagers on skill development and micro enterprises.
 Formation/Bank Linkage of SHGs.
 Establishment of farmers clubs.

 Who can be the Business Facilitators?

The following organizations and their members/staff or individuals mentioned below can be
business facilitators.
 Non-Government Organizations (NGOs)
 Farmers Club
 Community Based Organizations (CBOs)
 Co-operative Societies
 Post Offices
 Insurance Agents
 Village Knowledge Centers (VKCs)
 Agri-clinics and Agri Business Centers
 Krishi Vigyan Kendras
 KVIC/KVIB units in the area.
 IT enabled Rural Outlets of Corporate Entities
 Farmers’ Service Societies
 Well-functioning Panchayats.
 Primary and Secondary School Teachers
 Members of NGOs/LBOs
 Members of Self Help Groups
 Anganwadi/Balwadi workers
 Primary Health Centre Staff

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 Postal Staff such as Post Masters/Village Post Masters, Postmen, Postal clerks
 Municipal and Gram Panchayat staff
 Village Officer and his staff
 Members of Farmers’ Service Societies
 Ration Dealers
 Shop Keepers and Kirana Merchants
 Members of any other Business Organization and Institutions Functioning in the area.
 Retired Bank employees

 Who can be Business Correspondents?

Eligible Individuals/entities
 Individuals like retired bank employees, retired teachers, retired govt. employees and ex-
servicemen.
 Owners of Kirana/Medical/ Fair Price Shops, individual Public Call Officer operators.
 Agents of Small Savings Schemes of Govt. Of India/Insurance Companies,
 Individuals who own Petrol Pumps.
 Authorized functionaries of well Run Self-Help Groups which are linked to banks, any other
individual including those operating Common Service Centers.
 NGOs/MFIs set up under societies/Trusts Acts and Section 25 Companies,
 Co-operative Societies registered under Mutually Aided Cooperative Societies
Acts/Cooperative Societies Act of States/Multi State Cooperative Societies Act,
 Post Offices,
 Companies registered under the Companies Act, 1956, with large and wide-spread retail
outlets, excluding NBFCs, and
 Non-deposit taking NBFCs (NBFCs-ND)

 Business Facilitators: Scope of activities

The services performed by business facilitators generally include:


 Identification of borrowers and fitment of activities
 Collection and preliminary processing of loan applications
 Preliminary verification of primary information/data
 Creating awareness among people in the village about savings and debt products.
 Educating people and advising them on managing money
 Credit (also Debt) counselling
 Submission of loan applications to bank’s branch
 Post-sanction monitoring
 Follow-up for recovery.

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 Business Correspondent: Scope of Activities

The services performed by business facilitators generally include:


 Disbursal of small value credit
 Opening of accounts and mobilization of small value deposits
 Recovery of principal and collection of interest on item above
 Sale of micro insurance, mutual fund products etc.
 Receipt and delivery of small value remittances and other payment instruments.

 Such third party intermediaries doing banking business in villages away from the Bank’s
location attract significant reputation, legal and operational risks for banks engaging them to
work as Business Correspondents. To mitigate these risks, banks generally:
a) Specify suitable limits on cash holding by Business Correspondents
b) Specify limits on individual payments and receipts
c) Ensure that the transactions performed by them are accounted for and reflected in the bank’s
books at the end of the day or at least the following working day, and
d) Ensure that all agreements/contracts with the customer shall clearly specify that the bank is
responsible for the acts of commission and omission of the Business Correspondent.

Self-Assessment
1. The scope of the activities to be undertaken by the Business Correspondent will not
include

a) Disbursal of small value credit


b) Recovery of principal and collection of interest from the borrower
c) Collection of small value deposits
d) Payment of Demand Drafts not exceeding Rs. 1,000

2. Banks cannot use the services of one of the following as intermediaries under BF/BC
Model

a) NGOs
b) SHGs
c) Village Sarpanch
d) MFIs

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CHAPTER 9
RISK AND FRAUD MANAGEMENT

 Some of the issues/problems faced by customer while using banking technology products are
mentioned below:
 The delay in reversing the amount wrongly debited (either due to technology failure or frauds)
to the customer’s a/c.
 There are instances wherein short payment is made to the customer by the ATM.
 When a customer visit’s an ATM, there are instances wherein the machine in out of order or
out of cash.
 Most of the time, customers get only higher domination notes at ATMs and there is also no
facility to exchange the same for smaller denomination notes or coins.

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 When a wrong PIN is used three times repeatedly to do either ATM or online transaction, after
that it denies the particular transaction and also no other transaction can be done till next day.
 In online transaction if the customer uses wrong PIN continuously for three times, the
transaction stops without institutions.
 In online transaction, banks provide OTP (One Time Password) and the same should not be
shared by the customer with 3rd party. If he shares the same with the 3rd party, then there are
chances that the 3rd party might misuse the same and the customer will incur loss.
 In mobile banking or online banking for transfer of funds, one needs to registered the payee
and get confirmation. This is a cumbersome process.
 Another issue is that sometimes it becomes difficult to note whether the transaction was
successful or not. It may be due to loss of internet connectivity or slow connection or the
bank’s server is down.

 An effective fraud management approach is one that focuses on three objectives:


i. Prevention: controls designed to reduce the risk of fraud from occurring in the first place
example include following specific process, third party due diligence etc.
ii. Detection: controls designed to discover fraud when it occurs example might be auditing and
monitoring, oversight by bank branch etc.
iii. Response: controls designed to take corrective action and remedy the harm caused by fraud
example might be investigation and remedial action.

 Do’s and Don’ts for Business Correspondents and Business Facilitators

 The confidentiality and the secrecy of the customer information in their custody is of
paramount importance. The BC/BF should maintain it completely.
 Their access to the customer information should be limited to those areas where the
information is required for performing the outsourced function. Other records should not be
made available to them.
 They should be able to isolate and clearly identify the Bank’s customer information,
documents, records and assets to protect the Bank’s confidentiality.
 They should be impartial and should not indulge in politics, caste-divisibility irrespective of the
caste, creed or sex.

Self-Assessment

1. BCA provides banking service to the targeted people. Due poor service of BCA, the bank’s
name and image among the tarnished. This is a ___________ risk for the bank.

a) Contractual

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b) Concentration
c) Reputation
d) Compliance

2. Which one of the following is included in the DO’s for a BCA?

a) BCA should maintain the confidentiality and the secrecy of the customer information
b) BCA should indulge in local politics
c) BCA should treat his/her customers differently according to their caste, creed or sex
d) BCA should not do transaction with financially excluded people.

CHAPTER 10
PMJDY, PMJJBY, PMSBY AND APY

 To include financially excluded segments of the society into formal financial system with the
Branchless Banking through Agents called Business Correspondent was started by RBI in 2006.
In 2011, the Government of India gave a serious push to the programme by undertaking the
“Swabhimaan” campaign to cover over 74,000 villages, with population more than 2,000 (as
per 2001 census), with banking facilities.

 Census, 2011 estimates that only 58.7% of the households have access to banking services.
Pradhan Mantri Jan-Dhan Yojana (PMJDY) was introduced by the Prime Minister on 15 August
2014 and it has set an ambitious target of bringing in more than 7.5 crore un-banked families
into banking system by opening more than 15 crore bank accounts at the rate of two bank
accounts per household. To universalize social security, Government has launched three new

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insurance and pension schemes; namely, the Pradhan Mantri Suraksha Bima Yojana, the
Pradhan Mantri Jeevan Jyoti Bima Yojana and the Atal Pension Yojana.
 Pradhan Mantri Jan Dhan Yojana (PMJDY) is National Mission for financial inclusion built on
Six Pillars.
 Universal access to banking facilities
 Providing Basic Banking Accounts with Overdraft facility Rs. 10,000 and Rupay Debit Card with
inbuilt accident insurance cover of Rs. 2,00,000
 Financial Literacy Programme
 Creation of Credit Guarantee Fund for coverage of defaults in overdraft accounts
 Micro-insurance
 Unrecognized sector Pension scheme like Swavalamba.

 The direct/special benefits attached to PMJDY scheme are


i) Interest on deposit.
ii) Accidental insurance cover of Rs. 2,00 lac.
iii) No minimum balance required. However, for withdrawal of money from any ATM with Rupay
Card, some balance is advised to be kept in account.
iv) Life Insurance cover of Rs. 30,000.
v) Easy Transfer of money across India.
vi) Beneficiaries of Government schemes will get Direct Benefit Transfer in these accounts.
vii) After satisfactory operation of the account for 6 months, an overdraft facility will be
permitted.
viii) Access to pension, insurance products.

 The bank account under PMJDY can be opened in any bank with Zero balance and Joint account
also can be opened. Any individual above the age of 10 years can open BSBDA/PMJDY Account.

 Life Insurance Cover Under PMJDY: The person should be a member of the family and should
be in the age group of 18 to 59 (i.e. person should be at least 18 years old, and should not have
turned 60) and meet all other conditions of eligibility like having a bank account etc. In case of
a person having multiple cards/accounts, the benefit will be allowed only under one card i.e.
one person will get a single cover of Rs. 30,000, subject to the eligibility conditions.

 RuPay Debit Card: Rupay Debit Card is an indigenous domestic debit card introduced by
National Payment Corporation of India (NPCI). “RuPay”, the word itself has a sense of
nationality in it. RuPay is the coinage of two terms Rupee & Payment.

 Eligibility criteria to avail personal Accidental insurance cover on RuPay Debit Card: The Claim
under Personal Accidental Insurance under PMJDY shall be payable if the Rupay Card holder
have performed minimum one successful financial or non-financial customer induced
transaction at any Bank Branch, Bank Mitra, ATM, POS, E-COM etc. within 90 days prior to date
of accident including accident date will be included as eligible transactions under the Rupay
Insurance Program. Claim intimation should be made within 90 days from the date of accident.
All supporting documents relating to the claim must be submitted within 60 days from the

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date of claim intimation. The claim will be settled within 10 working days from the date of
receiving the complete set of documents and assessment of entitlement from insurance
company. Any claim intimated after 120 days from the date of the policy period is not eligible
for compensation.
 Overdraft in PMJDY Account: Overdraft facility up to Rs. 5,000 will be available to one account
holder of PMJDY per household after 6 months of satisfactory conduct of the account. To avoid
duplication Aadhaar number will also be required.

 Electronically Known Your Customer (e-KYC): In order to reduce the risk of identity fraud,
documentary forgery and have paperless KYC verification, UIDAI has launched its e-KYC
services and RBI permitted e-KYC as a valid process for KYC verification. Under the e-KYC
process under the explicit consent of the customer and after his or her biometric
authentication from UIDAI data base individual basic data comprising name, age, gender and
photograph can be shared electronically with Authorized Users like Banks etc.

 Micro-ATMs: Micro-ATMs are biometric authentication enabled hand-held device. In order to


make the ATMs viable at rural/semi-urban centers, low cost Micro-ATMs would be deployed
at each of the Bank Mitra location. This would enable a person to instantly deposit or withdraw
funds regardless of the bank associated with a particular Bank Mitra/Business Correspondent.

 USSD based transaction: USSD is abbreviated form of “Unstructured Supplementary Service


Data”. The user needs to approach his bank and get his mobile number registered. The bank
will issue an MPIN (Mobile PIN) to the user. The user thereafter needs to dial *99# and the
menu for using USSD opens. Thereafter customer has to follow selections on the menu to
complete the transaction. Charges as applicable by the Telecom Operator (not more than Rs.
1.50 per transaction as mandated by TRAI) may be applicable.

 Direct Benefit Transfer Scheme: The Govt. has decided to transfer direct benefit transfer
payments to the bank accounts of the beneficiaries under the various govt. programs through
Electronic Benefit Transfer (EBT) such as LPG Subsidy etc. The Govt. has given emphasis to roll
out subsidies/direct cash transfer on the basis of Aadhaar/UID number of the resident.

 Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY): The scheme is a one year cover Term Life
Insurance Scheme, renewable from year to year, offering life insurance cover for death due to
any cause. However, for subscribers enrolling for the first time on or after 1st June 2016,
insurance benefit shall not be available for death (due to any cause other than accident)
occurring during the first 45 days from the date of enrolment into the scheme. Death due to
accidental causes will be covered from day one of insurance coverage.

 Benefits - The benefits under the scheme is Rs. 2 lacs is payable on a subscriber’s death due to
any cause.
 Premium - The premium payable is Rs. 436 per annum per subscriber. Initially on launch for
the cover period from 1st June 2015 to 31st May 2016 subscribers were expected to enroll and
give their auto-debit option by 31st May 2015, which was extended up to 31st May 2016.

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 Eligibility - All individual (single or joint) bank account holders in the age 18 to 50 years in
participating banks will be entitled to join.
 Termination of the Assurance on The Life of the Member - The assurance on the life of the
member shall terminate/be restricted accordingly on any of the following events:
i. On attaining age 55 years, subjects to annual renewal up to that date (entry, however, will
not be possible beyond the age of 50 years).
ii. Closure of account with the Bank or insufficiency of balance to keep the insurance in force.
iii. In case a member is covered through more than one account and premium is received by
LIC/insurance company inadvertently, insurance cover will be restricted to Rs. 2 lacs and the
premium paid for duplicate insurance(s) shall be liable to be forfeited.

 Pradhan Mantri Suraksha Bima Yojana (PMSBY): The scheme is a one year cover Personal
Accident Insurance Scheme, renewable from year to year, offering protection against death or
disability due to accident. Natural calamities being in the nature of accidents, any
death/disability (as defined under PMSBY) resulting from such natural calamities is also
covered under PMSBY. While death due to suicide is not covered, that from murder is covered.

 Benefits - The benefits under the scheme are as follows:


Condition Sum Insured
a) Death Rs. 2 lakh
b) Total & irrecoverable loss of both eyes or loss of use of both hands or feet Rs. 2 Lakh
or loss of sight of one eye and loss of use of hand or foot
c) Total or irrecoverable loss of sight of one eye or loss of use of one hand Rs. 1 lakh
or foot

PMSBY covers death confirmed by documentary evidence, to have been cause by accident.

 Premium - Premium payable is Rs. 12 per member.


 Eligibility - All individual (single or joint) bank account holders in the age 18 to 70 years in
participating banks will be entitled to join.
 Termination of the accident cover assurance - The accident cover of the member shall
terminate/be restricted accordingly on any of the following events:
i. On attaining age 70 years (age nearer birth day).
ii. Closure of account with the Bank or insufficiency of balance to keep the insurance in force.
iii. In case a member is covered through more than one account and premium is received by
the insurance company inadvertently, insurance cover with be restricted to one account and
the premium shall be liable to be forfeited.

 Atal Pension Yojana (APY): A pension scheme for citizens of India, is focused on the
unorganized sector workers. Under the APY, guaranteed minimum pension of Rs. 1,000 or
2,000 or 3,000 or 4,000 or 5,000 per month will be given at the age of 60 years depending on
the contributions by the subscribers. 1) The age of the subscriber should be between 18-40
years (A person who is in age group of 18 years to 39 years 364 days). 2) He/she should have

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a savings bank account/post office savings bank account. Aadhaar is not mandatory for
enrollment.

 Co-Contribution of the Government - The Government co-contribution is payable to eligible


permanent Retirement Account Number (PRANs) by the Pension Fund regulatory and
Development Authority (PFRDA) after receiving the confirmation from Central Record Keeping
Agency to the effect that the subscriber has paid all the installments for the year Government
co-contribution will be credited in subscriber’s savings bank account/post office savings bank
account 50% of the total contribution subject to a maximum of Rs. 1,000 at the end of financial
year.

 Procedure for opening APY Account - The contribution can be made at monthly/quarterly/half
yearly intervals through auto-debit facility from savings bank account/post office savings bank
account of the subscriber. The subscriber, if he desires, he can change the mode
(monthly/quarterly/half yearly) of auto debit facility once in a year during the month of April).
Banks are required to collect Rs. 1 per month for contribution of every Rs. 100, or par thereof,
for each delayed monthly contributions.

 Nomination - It is mandatory to provide nominee details in APY account. If the subscribers are
married, the spouse will be the default nominee. The subscriber will also be receiving physical
Statement of Account once a year.

 The subscribers under the Swavalmban Scheme, who are beyond the age of 40 and who do
not wish to continue under the Scheme, may opt out by complete withdrawal of entire amount
in lump sum, or may prefer to continue till the age of 60 years, to be eligible for annuities there
under.

 Withdrawal procedure from APY

 In case of death of subscriber due to any cause after the age of 60 years, pension would be
available to the spouse and on the death of both of them, the pension wealth accumulated till
age 60 of the subscriber would be returned to the nominee.
 In case of death of subscriber before 60 years, the entire accumulated corpus under APY will
be returned to the spouse/nominee. However, pension shall not be payable to the
spouse/nominee.
 Exit before 60 years of age is generally not permitted, it may be permitted by PFRDA only in
exceptional circumstances, i.e., in the event of the death of beneficiary or terminal disease
etc., in-line with the provisions for pre-mature exit under NPS.
 In case a subscriber who has availed Government co-contribution under APY, choose to
voluntarily exit APY, at a future date, he shall only be refunded the contributions made by him
to APY, along with the net actual accrued income earned on his contributions.

Self-Assessment
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1. What is the monthly installment (as his contribution) to be paid by a person if he joins
APY at the age of 18 years and he wants to get a minimum monthly pension of rupees
5,000 per month at the age of 60 years?

a) Rupees 291
b) Rupees 240
c) Rupees 210
d) Rupees 126

2. Banks have assigned for opening of Basic Savings Bank Deposit Accounts under
financial inclusion through Business Correspondents.

a) Scheme codes
b) Personal Identification Number
c) Aadhaar Number
d) PRAN

3. EBT stands for

a) Economic Benefit Transfer


b) Extra Benefit Transfer
c) Electronic Benefit Transfer
d) Electronic Board for Transaction

4. PoS Machine is a small device installed at almost all Business Centers to facilitate
cashless purchases to their customers. PoS stand for

a) Payment on Sale
b) Point of Sale
c) Point of Settlement
d) Purchase and Sales

5. ATM is one of the banking channels. Here, the abbreviation ‘ATM’ refers to-
_____________

a) Any Time Money


b) Automated Teller Machine
c) Automated Transaction Money
d) All Time Money

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6. Under e-KYC, the Aadhaar KYC service at UIDAI authenticated customer’s___________

a) Data
b) Movement
c) Only bank account number
d) None of the above

7. Can a minor open an account under PMJDY?

a) A minor of above the age of 18 years can open his/her Savings Bank account in any bank.
b) A minor of above the age of 10 years can open his/her Savings Bank account in any
bank.
c) A minor of above the age of 12 years can open his/her Savings Bank account in any bank.
d) A minor cannot open the account under the scheme

8. The age for coverage under the scheme of life insurance cover under PMJDY
is___________

a) Age group of 21 to 59
b) Age group of 18 to 59
c) Age group of 18 to 60
d) Age group of 21 to 60

9. The sum assured for the Life Insurance cover provided under the PMJDY scheme
is__________.

a) Rupees 30,000
b) Rupees 5,000
c) Rupees 25,000
d) Rupees 1,00,000.

10. Under PMJDY overdraft facility will be allowed in the SB accounts

a) As running OD facility for 36 months subject to annual review of account


b) As running OD facility for 12 months.
c) As running OD facility for 24 months subject to annual review of account
d) As running OD facility as the account holder prefers.

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CHAPTER 11
BASIC TECHNICAL SKILLS (Handling Micro-ATMs, Biometric and other devices, Basic
connectivity issue)

 Technology for Low Cost Financial Inclusion: The features of the three main models presently
being utilized by some banks in the country are:

i. Hand held device with a contact card - Main features of the system are:
 Compact and portable device, easy to carry in field and ideal for a rural/semi-urban scenario
 A 2-4-line display, 16-key keypad, a thermal printer with eight hours of battery life.
 Support for various financial/non-financial transactions in offline mode in field such as,
deposit, withdrawal, account transfer, standing instruction, new product request and alerts.
 Support for remote parameter configuration such as, maximum daily withdrawal amount,
maximum cumulative and account balance.
 Settlement among multiple banks using the same infrastructure

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ii. Near Field Communication (NFC) Mobile with contact-less card – Main features of the system:
 Cards have an extensive ID profile, multiple accounts; last known balance and a history of
recent transactions. RFID smart cards with high end security (similar to cards embedded in
new US passports).
 Operators have portable equipment: NFC Mobile + Fingerprint unit + Receipt printer. All are
portable and battery operated. Can last 10 days without electricity.
 Transactions ONLINE to the banks host deposit and withdrawals can also be carried out
OFFLINE, based on risk parameters and counters embedded in cards and devices. OFFLINE
transaction are to be sent back to the backend as a batch. The system thus, works in areas
without connectivity also.
 The local operator- Customer Service Point or (CSP) deposits some working capital into the
Business Correspondent’s account in bank, and also keeps a reasonable amount of available
cash at the outlet.
 When NFC technology is included in a mobile phone, it can be embedded within the SIM card
in something called a secure element. This is similar to using the gold chip on a debit or credit
card to store user information such as credit card number and expiry number.

iii. Kiosk Banking - It is an Internet enabled PC based technology and extremely easy to use.
Therefore, anyone can become a Business Correspondents (BC) and open customer accounts
at Customer Service Point Kiosk outlet (CSP). Retailers can now be appointed as Customer
Service Points for Business Correspondents and CSP can carry our banking transactions on
behalf of its Bank. It helps a CSP/Business Correspondents to boost-up their earning in a faster
way. The Kiosk banking helps to become a Mini-Branch of a bank.

Self-Assessment

1. In kiosk Banking, the transactions are done through:

a) Mobiles
b) Computer/Laptop
c) Credit Cards
d) Pre-paid cards

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CHAPTER 12
DIGITAL BANKING PRODUCTS

 Various Type of Cards:


a) Debit Card - A Debit Card allows the card holder to withdraw money directly from his bank
account using an ATM. It also facilities the user to swipe the card at Point of Sale (PoS) device
at merchant locations, for goods/services purchased.
b) Credit Card - A Credit Card Allows the card holder to use the card against a line of credit
approved by the card issuing bank/organization. The card issuer normally allows the card
holder to repay the used amount, either in full or in part (Monthly minimum repayment). The
card can be used at Point of Sale (PoS) device at merchant locations, for goods/services
purchased. In 1951, Franklin National Bank in USA introduced the first credit card.
c) ATM Card - An ATM Card is one whose usage is restricted only to withdraw cash from ATMs.
This card cannot be used at PoS or e-commerce transactions at merchant location, while a
Debit Card is allowed in booth ATMs and merchant POS at shops.

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d) Prepaid Card - A Prepaid Card is pre-loaded with a definite amount of monetary value for
usage. There are two types of prepaid cards, viz, single-purpose and multipurpose. Single-
purpose cards, which are also known as closed-loop cards, are designated to be used for a
specific merchant or purpose. Multipurpose cards, also known as open-loop cards, are
branded with the logo of a bank (the issue) and card associations (the network).
e) Stored Value Card - A stored value card is a type of prepaid card with a difference in value
storing mechanism of the card. In stored value card, the monetary value is stored on the card
itself, whereas in prepaid card the value is lying in a deposit account linked at back end.
Example: - Metro Card
f) Charge Card - This is similar to a credit Card. However, the differentiating feature of charge
card and credit card is the repayment mode. The user has to repay the entire usage amount at
one go, at the end of allowable grace period.

 A common code *99*99# has been adopted for all TSPs (Telecom Service Providers). It is called
Query Service on Aadhar Mapper (QSAM) that allows the users to check the Aadhaar seeding
status in the bank account along with the last updated date.

 Mobile Banking: Banks have been offering application based mobile banking services. Bank
customers need to download the application and can avail host of banking services such as
Non-Financial transactions (Balance inquiry, Mini statement, Cheque book request), Financial
transactions (Fund transfer, Mobile/DTH recharge, Bill Pay etc.).

 Mobile Wallets: Mobile Wallet is one of Prepaid Payment Instruments (PPIs) and there are
three types of PPIs – closed, semi-closed and open (not necessarily for mobile only).

 Internet Banking: The Internet banking offers the following features:


 Account Details - One can track the entire account details by viewing balance, down loading
statements and more. All other account, such as credit card (of the same bank), loan, demat
accounts, etc., can be linked and tracked in one single location.
 Request Service - Through the service, requests can be made to issue Cheque book, Demand
draft, Stop Cheque payment, Debit card loyalty point redemption, etc.
 Bill payment services - Once can facilitate payment of electricity and telephone bills, mobile
phone, credit card and insurance premium and other utility bills, without going to the sites of
those service providers, as each bank has tie-ups with various utility companies, service
providers and insurance companies across the country.
 Investing through Internet banking - Once can now open an FD online through funds transfer.
Now investors with interlinked demat and bank accounts can easily trade in the stock market
and the amounts will be automatically debits/credited to their respective bank accounts and
the shares will be credited/debited to their demat account.
 Recharging prepaid phones - Now one can top-up his/her prepaid mobile cards by logging on
to Internet banking.

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 Shopping: With a range of all kind of products, one can shop online and the payment is also
made conveniently through the account.

 Automated Teller Machines (ATMs)


It provides various benefits to customers such as
 Provide 2487 and 365 days a year service
 Offer quicker and efficient service
 Allow privacy in transactions
 Mostly error free
 Enable the cardholders to access cash at any location regardless of where, and in which bank,
they maintain their accounts (inter-operability)
 Offer flexibility of cash withdrawals
 Enable funds transfer across bank branches in the card linked accounts
 Offer anywhere anytime banking facilities

ATMs are of 4 types, based on their location:


i. Onsite ATM - These are located within branch premises or in very close proximity of the
branch.
ii. Offsite ATM - These are situated at locations other than branch premises, such as shopping
centers, railway stations, airports, petrol stations, etc.
iii. Worksite ATM - These are located within the premises of an institutions and are generally
meant for the employees of the institutions.
iv. Mobile ATM - These are ATMs that are on the move and are not fixed to any particular
location. Some banks name this as ‘ATM on wheels’.

 White label ATMs do not have bank logos but, instead, the logo of the private service provider
of white label service. In case of such ATMs, the settlements, etc., are with a sponsor bank,
and dispute resolution is with the card issuing bank.

 Brown label ATMs are those where the operations are outsourced to a third party. The third
party (a private company) owns and operates the ATM machine, party its rent/bills, etc. A bank
provides cash for the ATM and connectivity with ATM network systems such as NFS (National
Financial Switch) of NPCI. The concept of “Brown Label ATMs” is midway between bank-owned
ATMs (proprietary) and White Label ATMs.

 In 2014, RBI formulated new ATM usage guidelines and charges:

For 6 Metro cities, viz., Mumbai, New Delhi, Kolkata, Chennai, Bengaluru and Hyderabad
 Maximum 5 times a month, free usage at own banks
 Maximum 3 times a month, free usage at other banks
 Rs. 2 per transaction, after free usage limit

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For Non-Metro Cities
 No limit on usage at own banks.
 Maximum 5 times a month, free usage at other banks
 Rs. 20 per transaction, after free usage limit at other banks

 Aadhaar is a 12-digit unique number which the Unique Identification Authority of India (UIDAI)
issues for all residents of India. From the perspective of banking operations linking/seeding of
Aadhaar number in the account facilitates following three major benefits:
i. Credit of various Government sponsored subsidy/benefit schemes such as DBT/DBTI/MNREGA
directly in Bank accounts through Aadhaar Payment Bridge System (ABPS) thus preventing
leakage/corruption.
ii. Used as KYC (know your customer) in account opening process.
iii. Banking Services/Transactions using Aadhaar Enabled Payment System (AEPS) through BC
network on the basis of biometric authentication of the customer from UIDAI data base.

 RuPay Card is SMS/DMS based Card product: The Dual Message System (DMS) provides for the
transmission of authorization requests and results among issuers, acquirers and other
transaction processors or networks. The Single Message System (SMS) switches financial
messages and provides transaction and settlement reporting. Security features
[(Hologram/HICo Magstripe/Signature Panel/Pre-printed 4 digits of IIN (Issuer Identification
Number) CVD (Card Verification Data i.e., CVV)]

 In case of a few contingencies, like death or permanent disability due to personal accident, the
card holder’s kin (for ‘death’ case) or cardholder (in ‘disability’ case), (sum Rs. 1 lac) would be
eligible to get the insured sum – Rs. 1 lac for ‘Classic’ Card holders, & Rs. 2 lacs for ‘Premium’
Card holders, provided card has been used in preceding 90 days of the accident, and a
customer is insured for 1 card only.

 Unified Payments Interface - UPI is a system that powers multiple bank accounts into a single
mobile application (of any particular bank), merging several banking features, seamless fund
routing & merchant payments into one hood. UPI-PIN (UPI personal Identification Number) is
a 4-6 digit pass code to be created during first time registration with this App.

 BHIM - Bharat Interface for Money (BHIM) is an app that helps to make simple, easy and quick
payment transactions using Unified Payments Interface (UPI). BHIM can be used currently on
all handsets with Android OS version 4.2 and above as well as iOS 8.1. A Virtual Payment
Address (VPA) is a unique identifier which can be used to send and receive money on UPI. It is
like an email ID which can be used to transfer money. Currently it is available in 13 languages,

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i.e. Hindi, English, Tamil, Telugu, Malayalam, Bengali, Odia, Kannada, Punjabi, Assamese, Urdu,
Marathi & Gujarati.

 Bharat QR Code - A QR code consist of black squares arranged in a square grid on a white back
ground which can be read by an imaging device such a camera. Bharat QR is P2M (Person to
Merchant) Mobile payment solution. This solution is mutually derived among NPCI, Visa and
Master card payment networks.

Self-Assessment

1. Which amongst the below mentioned forms of banking come under digital banking?

a) Branch Banking
b) Mobile Banking
c) Cheque Deposit
d) SMS Banking

2. Cards, that store data in integrate circuits are also called


a) Smart Cards
b) Magstrip cards
c) Both of above
d) None of the above

3. Which of the below facilities can be availed at an ATM Machine?

a) Cash Withdrawal
b) Update Mobile Number
c) Recharge Mobile
d) Pay utility bills
e) All the above

4. ATMs established by non-banking entities are called


a) Green Label ATMs
b) White Label ATMs
c) Blue Label ATMs

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d) Brown Label ATMs

5. Balance inquiry is a kind of


a) Financial transaction
b) Non-financial transaction
c) Technical transaction
d) None of the above

6. By using QSAM service one can check their aadhaar seeding status with their bank
account by dialing
a) *99#
b) *999*9#
c) *99*99#
d) *999#

7. IMPS stands for


a) Immediate Payment Service
b) Intermediate Payment Service
c) Inter-Bank Payment Service
d) None of the above

8. Under Pradhan Mantri Jan Dhan Yojana (PMJDY), the account holder is provided with
a Rupay Debit Card with inbuilt accident insurance cover upto Rs. ____________.
a) 5 lakhs
b) 4 lakhs
c) 2 lakhs
d) 1 lakh

9. LPG subsidy and MNREGA wages are disbursed by making use of


a) NACH Debit
b) Aadhaar Payment Bridge System (APBS)
c) Aadhaar Enabled Payment System (AEPS)
d) National Financial Switch (NFS)

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10. A bank led model which allows online financial inclusion transaction at Micro-ATM
through the Business correspondent of any bank using the Aadhaar authentication is
called_____________.
a) NACH Debit
b) Aadhaar Payment Bridge System (APBS)
c) Aadhaar Enabled Payment System (AEPS)
d) National Financial Switch (NFS)

CHAPTER 13
COMMUNICATION AND FINANCIAL COUNSELLING (INCLUDING FINANCIAL
LITERACY AND FINANCIAL EDUCATION)

 Many banks have launched Credit Counseling Centers as a part of their corporate strategy in
tackling the need for faster Financial Inclusion in villages. This initiative provides financial
education services as a supportive activity to financial counselling.

The functions of such centers include on providing:


 Information on financial products, services and where they are available
 Guidance on opening of a bank account
 Information on Bank’s products including interest rates and other charges
 Information on managing savings and the avenue of investment
 Guidance n management of existing debt

 Depositor Education and Awareness Fund: The fund has been created by RBI and all banks
have been advised to transfer inoperative deposit accounts which have not been claimed or
operated for a period of ten years or more or any deposit or any amount remaining unclaimed
for more than 10 years to the FUND.

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CHAPTER 14
HOW TO DEAL WITH DIFFERENT TYPES OF CUSTOMERS

 Soft Skills and Hard Skills - Hard skills are academic skills, experience and level of expertise
while soft skills are self-developed, interactive, communicative, human and transferable skills.
Soft skills are the skills of learning, how to be nice, how to play together, when and where to
use our manners, the development of social graces, how to resolve conflict, how to express
appreciation by learning how to use language in a way that persuades others.

 Soft Skills to build relationships - Soft skills are nothing but the relationship building towards
customers. Here are some common soft skills that help to deliver the best customer service
and build relationships:
 Good Communication: The ten points to be remembered in good communication are
i. Listening
ii. Politeness
iii. Clarity
iv. Empathy
v. Remove Obstruction
vi. Patience
vii. Eye Contact
viii. Do not argue

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ix. Responding
x. Interpersonal Contact
 Active Listening: Listening is as important as good communication.
 Patience: Remaining calm and cool while handling your customer is an important soft skill.
 Positivity: Positive attitude will always help in handling customers.
 Confidence: With confidence one can create a background of trust and professionalism within
the customers.
 Problem Solving Skills: It is very important for the BCA to understand the problem carefully
and find the best solution.
 Accountability: This is a must-have skill and fundamentals of the customer service.
 Apologize: BCA should know to apologize to a customer if he provides them with poor quality
of service.

 Do’s and Don’ts for Handling Customer Complaints


Do’s for handling Customer Complaints:

 Listen.
 Use the bank’s policy as guidelines, or not as hard-and-fast rules.
 Ask questions.
 Go the extra mile in solving the problem.
 Be efficient.

Don’ts for handling Customer Complaints:


 Dismiss the complaint as not-a-big-deal.
 Try to argue.
 Ask questions that the customer has already answered.
 Being impatient.

 Bank’s duty to maintain secrecy of customer’s accounts

Disclosures permitted by Law:


 Under law: A bank is justified to disclose any information about the customer’s account when
it is statutorily required to do so under a) Income-tax Act, 1961 b) Companies Act, 1956/2013,
c) Bankers Book Evidence Act, 1891 d) Reserve Bank of India Act, 1934 e) Foreign Exchange
Management Act, 1999 f) Gift Tax Act, 1958.
 Under express or implied consent of the customer.
 Common courtesy among bankers.
 Disclosure in the bank’s interest.
 Disclosure in Public/National interest.

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 Precautions to be adopted while disclosing information
 Only facts should be revealed: Only such facts as are evident from the customer’s account to
be revealed.
 It should be a statement in general: The banker should give the information about the
customer’s financial position in a general form.
 Secrecy should be maintained by the recipient also: The banker should clearly state while
giving the information that the recipient should maintain absolute secrecy of information
furnished.
 Disclosure of secrecy: It is the practice among bankers to state while sharing information
about customers with other bankers that the information is being furnished in strict
confidence further making it explicit that the recipient should also treat it as confidential.
 Information should not be given to persons out of context and without proper justification:
If any person not directly concerned with a bank’s customer solicits information on his account,
the request from such a person is out of context and hence the banker should not make
disclosure.

Self-Assessment
1. Communication skill is a

a) Academic Skill
b) Hard Skill
c) Soft Skill
d) None of the above

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Reference:

Indian Institute of Banking & Finance (2019): Inclusive Banking Thro’ Business
Correspondent (Payments Bank).

“DISCLAIMER:

The information contained in this document is highly confidential, privileged and


only for the information of the intended recipient and cannot be used, published
or redistributed. The opinions and intentions expressed are in good faith.

India Post Payments Bank Ltd. makes no representations and gives no


warranties of whatever nature in respect of these documents, including but not
limited to the accuracy or completeness of any information, facts and opinions
contained therein. Any unauthorized use or disclosure of this document or any
information contained in it is strictly prohibited and punishable by all available
legal remedies, including equitable relief.”

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