BANKING AND INSURANCE

Module I- INTRODUCTION TO BANKING

Bank
Bank is a financial institution which deals with money and credit. It accepts
deposit and lends money to those who are need of it
Characteristics of a bank
1. Dealing in money.
2. Acceptance of deposit.
3. Giving loans.
4. Payment and withdrawal.
5. Individual, firm or company.
6. Agency and utility services.
7. Profit and service orientation.
8. Ever increasing function.
Types of Banks
1. Commercial banks
Commercial banks are those types of banks, which accepts deposit from
public and lend money to trade and commerce.

2. Agricultural banks
Agricultural banks are those banks which provides finance to agricultural
purposes.
3. Local area banks
Local area banks are those banks which is established for the purpose of
mobilizing the rural savings by local institution.

4. Savings bank
Saving banks are those specialized banks which mobilizes the saving
habits of the people.
5. Industrial banks
Industrial banks are those banks which meets the requirements of
industrial concerns. It is also known as investment banks.
Functions of industrial banks
1. It accepts long term deposits.
2. It grants long term loans to industries.
3. It provides technical assistance to industries.
4. Advise given to government matters relating to industry.
5. It participates management in industrial concerns.
6. Exchange banks
Exchange banks are those banks which deals with foreign exchange and
international trade.
Functions of exchange banks
1. Purchase and sale of foreign currencies, silver, gold etc...
2. They accept and collect foreign bills of exchange.
3. Purchase and discount export and import bills.
4. Transfer of money from one country to other.
5. Issue letter of credit to importers.
7. Central banks
It is the highest banking and monetary institution of a country. It is the
leader of the all-banking institution of a country.
8. World bank
It is the financial institution which provides financial assistance to its
member countries of the world.
9. New development bank BRICS
It is a multilateral development bank operated by BRICS states. (Brazil,
Russia, India, China, South Africa).
Types of banking
1. Unit banking
Unit banking refers to a single, small bank that provide financial services to its
local community.
2. Branch banking
Branch banking refers to a big bank which has number of branches in different
part of the country.
3. Monopoly banking
It means a few big banks open branches in all part of the country.
4. Group banking
It is a type of multiple office banking consisting of two or more banks under
the control of a holding company.
5. Chain banking
It is a banking system where the same individual or group of individuals
control two or more banks.
6. Mixed banking
Mixed banking is an approach where banks undertake both commercial and
industrial banking.
7. Correspondent banking
It refers to a financial institution that provides services to another one usually
in another country.
Types of deposit accounts
1. Saving bank account
Saving bank account are mainly meant for non-trading customers. It is
generally preferred by middle- and low-income group.
Features of saving bank account
1. It is meant for middle- and low-income groups.
2. It can be opened with very small amount.
3. Rate of interest fixed by RBI.
4. Customer can deposit any amount to a minimum of Rs. 5
5. Minimum amount of cheque should be Rs. 5
2. Recurring deposit
This is a special type of saving bank account introduced by the banks in
recent years. It creates the saving habits of lower income group.
3. Current accounts
Current accounts are those accounts generally meant for the commercial
and industrial undertakings.
Features of current accounts
1. It is meant for commercial establishments.
2. No restrictions for deposit and withdrawal amount.
3. Deposits can be made by pay in slip.
4. Withdrawals can be made by cheques.
4. Fixed deposit account
Fixed deposits are moneys deposited by customers for a fixed period. It is
also called term deposit.
Procedures for opening a bank account
1. Fill up application on the prescribed form.
2. Proper introduction of the applicant.
3. Banker should obtain specimen signature of the applicant.
4. Banker should obtain initial investment.
5. Opening the account.
Circumstances under which bank accounts can be closed
1. Death of a customer
2. Insolvency of a customer
3. Dissolution of firm
4. Garnishee order
5. Dissolution of firm
6. Winding up of company
7. Assignment of credit balance
Deposit schemes for Indian abroad
1. NRO Accounts
2. NRE Accounts
3. NRNR Accounts
4. FCNR Accounts
Pay in slip book
It is a book which contains printed slip. This book is supplied by the bank
to the customers.
Cheque book
A cheque book is a book which contains 10 or 20 blank cheque leaves
serially numbered. These are used to withdraw money.
Pass book
A pass book is a small book issued by a banker to his customer to record all
dealings between them.
Dormant account
Dormant account means inoperative or not functioning of a bank account
last two years.
KYC (Know Your Customer)
It is a process by which bank obtain information about the identity and
address of the customers.
FDR (Fixed Deposit Receipt)
After depositing money, the banker will issue a receipt to the depositor is
called fixed deposit receipt.
Meaning of Customer of a bank
A customer is a person who has an account in a bank in his name.
Special Types of Customers
I. Minors:
Minor is a person who does not attain the age of 18. While entering into a
contract with a minor, banker has to take following precautions.
1. The minor should have attained the age of discretion, i.e., he must be
about 18 years of age. He must be capable of understanding what he does.
2. The minor should be able to read and write.
3. Banks usually stipulate limits up to which deposits in such accounts
can be accepted.
4. Amount tendered by the minor should as far as possible be in cash.
II. Lunatics:
A lunatic is a person who has a temporary mental derangement. If a lunatic
enters into a contract, a banker should take some precautions.
III. Drunkards:
A drunkard is a person who is intoxicated to be incapable of understanding the
nature and effect of a contract. The banker has taken following precautions in
this connection:
a) It is advisable for banker not to allow a person to open a bank account.
b) A cheque in the name of drunkard should be drawn in the presence of
a responsible person.
IV. Married Women:
A married woman is competent to enter into a valid contract. Following
precautions are needed in this connection:
a) While opening a bank account in the name of a married women, she
should also furnish her husband’s details.
b) A banker should not grand a loan or overdraft to a married women
considering the properties of her husband.

V. Insolvents:

When a person is unable to pay his debts in full, his property in certain
circumstances is taken possession of by official receiver or official
assignee, under orders of the court. He realizes the debtor’s property and
ratably distributes the proceeds amongst his creditors. Such a proceeding
is called ‘insolvency’ and the debtor is known as an ‘insolvent’.
 VI. Illiterate Persons:
A person is said to be illiterate when he does not know to read and write. No
current account should be opened in the name of an illiterate person. However,
a savings bank account may be opened in the name of such a person.
VII. Agents:
A banker may open an account in the name of a person who is acting as
an agent of another person. The account should be considered as the
personal account of an agent, and the banker has no authority to question
his power to deal with the funds in the account unless it becomes obvious
that he is being guilty of breach of trust.
VIII. Joint Stock Company
A joint stock company has been defined as an artificial person, invisible,
intangible and existing only in contemplation of law. It has separate legal
existence and it has a perpetual succession. The banker must satisfy himself
about the following while opening an account in the name of a company:
(a) Memorandum of Association
(b) Articles of Association
(c) Certificate of Incorporation
(d)Certificate to Commence Business
(e) Application Form and Copy of the Board’s Resolution
(f) A Written Mandate
(g) Registration of Charges
(h) Any Change in the Company’s Constitution or Offices.
IX. Clubs, Associations and Educational Institutions:
Clubs, Associations and Educational Institutions are non-trading institutions
interested in serving noble courses of education, sports etc. The banker should
observe the following precautions in dealing with them:
(a) Incorporation
(b) Rules and by-laws of the Organization
(c) A Copy of Resolution of Managing Committee
(d) An Application Form
(e) A Written Mandate
(f) Transfer of Funds:
(g) Death or Resignation:
X. Partnership Firm:
A partnership is not regarded as an entity separate from the partners. The
Indian Partnership Act, 1932, defines partnership as the “relation between
persons who have agreed to share the profit of the business, carried on by all
or any of them acting for all. “Partnership is formed or constituted on account
of agreement between the partners and with the sole intention of earning and
sharing profits in a particular ratio. A banker should take the following
precautions while opening an account in the name of a partnership firm:
(a) Application Form
(b) Partnership Deed
(c) A Mandate
(d) Transfer of Funds
(e) Sanctioning of Overdraft
XI. Joint Accounts:
When two or more persons open an account jointly, it is called a joint
account. The banker should take the following precautions in opening
and dealing with a joint account:
(a). The application for opening a joint account must be signed by all the
persons intending to open a joint account.
(b). A mandate containing name or names of persons authorized to
operate an account.
(c). The full name of the account must be given in all the documents
furnished to the banker, even if the account is to be operated upon by one
or a few of the joint account holders.
(d) Banker must stop operating an account as soon as a notice of death,
insolvency, insanity etc., of any one account holder is received.
(e) The joint account holder, who is authorized to operate the joint
account, himself alone cannot appoint an agent or attorney to operate the
account on his behalf. Such attorney or agent may be appointed with the
consent of all the joint account holders.
(f) If all the persons are operating the account, then banker must see that
any cheque drawn on him is duly signed by all.
(g) Banker must stop making payments as soon as letter of revocation is
obtained.
(h) Banker must see that no loan or overdraft is granted without proper security.
STRUCTURE OF BANKING IN INDIA
Commercial Bank
A commercial bank is a financial institution which performs the functions
of accepting deposits from the general public and giving loans to the
investment with the aim of earning profit.
Functions of commercial bank (Expected Essay)
1. Primary functions
a. Receiving deposit.
b. Giving loans.
c. Credit creations.
d. Use of cheque system and plastic card
e. Transfer of funds.
a. Receiving deposit
It is one of the important functions of commercial bank. It accepts deposit
from every class and from every source.
b. Giving loans
Giving loans is the other major important function of the commercial
bank. After keeping certain percentage of deposits as cash reserve, the
balance is given as loans and advances.
c. Credit creation
It is a unique function of modern bank. When the bank performs important
function, such as receiving and lending of money, it automatically performs
another function namely creation of credit which means loan is given. It
creates an equivalent deposit.

d. Use of cheque system and plastic card

Cheque can be used for large transaction, but now it is replaced by plastic
cards like visa and master card.
e. Transfer of fund
Commercial bank fund provides transfer of fund from one country to
another country by using EFT system.
2. Secondary functions
i. Agency Services
a. Collection of credit instrument
They collect cheques, bill of exchanges, promissory notes on behalf of
the customer.
b. Collection of dividends
The bank collects dividend and interest warrants on behalf of the customer.
c. Transfer of funds
They help the customers to transfer of fund from one place to another.
d. Deal of foreign exchange
They buy and sell foreign exchange on behalf of customers.
e. Purchase and sale of securities
Bank purchase and sell shares, debentures and government securities on
behalf of their customers.
f. Execution of standing orders
The banks execute the standing order their customers.
ii. General Utility Services:
a. Locker facility: Bank provide locker facility to their customers. The
customers can keep their valuables such as gold, silver, important
documents, securities etc. in these lockers for safe custody.
b. Issue travelers’ cheques: Banks issue traveler’s cheques to help their
customers to travel without the fear of theft or loss of money. c. Issue
Letter of Credits: Banks issue letter of credit for importers certifying their
credit worthiness.
d. Collect information: Banks collect information about other
businessmen through the fellow bankers and supply information to their
customers.
e. Collection of statistics: Banks collect statistics for giving important
information about industry, trade and commerce, money and banking.
f. Underwriting securities: Banks underwrite securities issued by
government, public or private bodies.
g. Merchant banking: Some bank provides merchant banking services such
as capital to companies, advice on corporate matters, underwriting etc.
Innovative Functions of Commercial Bank
1. ATM Services
2. Credit card facilities
3. Tele banking
4. Home banking
5. Internet banking
6. EFT
7. Electronic clearing services
8. RTGS
9. Mobile banking
Roles of banks in economic development
1. Simulation of savings.
2. Capital formation.
3. Facilitating agricultural development.
4. Innovating entrepreneurs.
5. Promotion of small-scale industries.
6. monetization of economy.
7. Facilitate international trade.
8. Create employment opportunities.
9. Implementation of monetary policy.
10.encouraging right type of industries.
11.Influencing economic activities.
12.Balanced development.
Scheduled Bank
A scheduled bank is a bank which is included in the second schedule of
the RBI Act 1934.
Non-scheduled Bank
Commercial banks which have a paid-up share capital and reserves of an
aggregate value of less than 5 lakh is considered as non-scheduled bank.
EXIM Bank (Export Import Bank)
Exim bank was set up in January 1982. It is a public sector financial
institution; it facilitates and finance foreign trade in India.
Objectives / Functions of EXIM Bank
1. To finance, facilitate and promote foreign trade in India.
2. To contribute foreign exchange to our country.
3. To finance joint ventures in foreign countries.
4. To provide technical and financial assistance to export import sectors.
5. To provide financial help for export and import of goods and services.
Co-operative Banks
Co-operative banks are institutions established on the principle of co-
operation and it deal in ordinary banking business.
NABARD (National Bank for Agriculture and Rural Development)
It is an apex development bank for agriculture and rural development. It
was established in 12th July, 1982.
Functions of NABARD (Expected Short Essay)
1. It functions as an apex institution.
2. It provides short term, medium term and long-term credit.
3. It coordinates operations of rural credit agencies.
4. It has the responsibility to inspect cooperative banks.
5. It advises government matters related to rural credit.
6. It maintains a research and development fund to promote research in
agriculture and rural development.
7. It provides facilities for training and development.
8. It formulates project and programs for rural development.
Land Development Bank
It is a type of bank, which meet the long-term credit requirement of
agriculturalist against security of their land.
Mudra Bank (Micro units’ development and refinance agency bank)
It is a public sector financial institution in India. It provides loans at
micro finance institutions and non-banking financial institutions. It was
launched by prime minister Narendra Modi on 8th April, 2015.
RRB (Regional Rural Bank)
Regional rural bank is a type of bank to enhance the local participation of
the bank to meet the credit requirements of weaker section of the society.
Drawbacks of Regional Rural Banks
1. Lack of coordination in branch expansion.
2. Difficulty in deposit mobilization.
3. Urban orientation of staff.
4. Procedural rigidities.
5. Slow progress in lending activities.
Gift cheque
The gift cheque is another banking instrument presented for gifting
money to the loved ones alternatively of hard cash.
Letter of Credit
A letter of credit is a promise by a bank on behalf of the buyer. It is a
document from bank that guarantees payment.
Financial inclusion
Financial inclusion means the availability and equality of opportunities to
access financial services.

CENTRAL BANK
Central Bank
Central bank is a supreme monetary authority of a country. It is the leader
of all banks in a country.
Functions of Central Bank (Expected Essay)
1. Monopoly of note issue.
2. Banker, agent and advisor to the government.
3. Custodian of cash reserve.
4. Custodian of foreign exchange.
5. Lender of last resort.
6. Clearing house function.
7. Credit control.
8. Collection of data.
1. Monopoly of note issue
Note issue is the main function of a central bank in every country. The currency
note issued by a central bank are the legal tender money of that country. Every
central bank got the monopoly of the sole right of the note issue.
Advantages of Note issue by central bank
1. Central bank controls credit creating power of commercial banks.
2. People have more confidence in the currency issued by central bank.
3. Uniformity in the currency system in the country.
4. Currency system of the country will be flexible.
5. It helps in economic development of the country.
2. Bankers, agent and advisor to the government
As a banker to the government, central bank provides all those banking
services and facilities to the government. As an agent, bank helps the
government in all financial matters. As an advisor, bank advise the
government on monetary, banking and financial matters.
3. Custodian of cash reserve
Central bank is the bank of bank. This signifies that it has the same
relationship with the commercial banks in the country that they gave
with the customers.
4. Custodian of foreign exchange
Central bank is the custodian of foreign currency obtained from various
countries.
5. Lender of last resort
Central bank work as a lender of the last resort for commercial bank
because in a time of need, it provides financial help.
6. Clearing house function
All commercial bank has their account with central bank. Therefore,
central bank settles the mutual transaction of banks.
7. Credit Control
This is one of the most important function the central bank to control the
volume of credit for maintaining price stability.
8. Collection of data
Central bank in almost all the countries collect statistical data regularly
relating to economic aspects of money, credit, foreign exchange, banking etc.
RESERVE BANK OF INDIA (RBI)
RBI is our central bank. It was established in 1935. Prior to the establishment
of RBI, there was no central bank. But some of the central banking functions
were performed by Imperial bank of India.
Objectives of RBI
1. To regulate and control monetary system of our country.
2. To regulate the issue of bank note.
3. To have an authority to control money market.
4. To regulate banking system of our country.
Organization structure of RBI
1. Central Board
2. Local Board
1. Central Board
Central board consists of 20 members. It includes one governor, four deputy
governors and fifteen directors
2. Local Board
Besides the central board, there are local board for regional areas of the
country with their headquarters at Mumbai, Kolkata, Madras and New Delhi.
Departments of RBI
1. Issue department
2. Banking department
3. Currency management department
4. Budgetary control department.
5. Exchange control department
6. Agricultural credit department
7. Rural credit department
8. Industrial credit department
9. Legal department
10. Inspection department
Functions of RBI (Expected Essay)
1. Monopoly of note issue.
2. Banker, agent and advisor to the government.
3. Lender of last resort.
4. Act as clearing house
5. Credit control
6. Custodian cash reserves.
7. Custodian foreign exchange.
1. Monopoly of note issue
The most important function of RBI is the note issue. RBI has the sole
right to issue currency notes in India.

2. Banker, agent and advisor to the government

As a banker to the government, RBI provide all those banking services
and facilities to the government. As an agent, bank helps the
government in all financial matters. As an advisor, bank advise the
government on monetary, banking and financial matters.
3. Lender of last resort
RBI work as a lender of the last resort for commercial bank because in a
time of need, it provides financial help.
4. Act as clearing house
All commercial bank has their account with RBI. Therefore, RBI settles
the mutual transaction of banks.
5. Credit control
This is one of the most important function the central bank to control the
volume of credit for maintaining price stability.
6. Custodian cash reserves.
RBI is the bank of bank. This signifies that it has the same relationship with
the commercial banks in the country that they gave with the customers.
7. Custodian foreign exchange.
RBI is the custodian of foreign currency obtained from various countries.
Credit Control
This is one of the most important function the central bank to control the
volume of credit for maintaining price stability.
There are two types of credit control weapons.
1. Quantitative credit control weapons
2. Qualitative credit control weapons
1. Quantitative credit control weapons (Expected Short Essay)
a) Bank rate: It is the minimum rate at which RBI is ready to grant loans
and advances to commercial banks.
b)Open market operation: Open market operation means purchase and
sale of government securities in an open market.
c) Cash reserve ratio (CRR): Every scheduled bank is required to
maintain fixed percentage of their time and demad deposit as cash
reserve with RBI. It is called cash reserve ratio.
d)Statutory Liquidity Ratio (SLR): every commercial bank is required
to maintain not less than 255 of its total time and demand liabilities in
 liquid assets in the form of cash and gold with RBI. This is known as
SLR.
2. Qualitative / selective credit control weapons
a) Issuing of directives.
b) Regulation of margin requirements
c) Differential rate of interest
d) Restriction on clean advances.
e) Credit authorization scheme.

Module II- NEGOTIABLE

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

It involves three parties namely, It involves two parties namely drawer

drawer, drawee and payee. and payee.
It is drawn by the creditor. It is drawn by the debtor.
It is defined under section 5 of It is defined under section 4 of the
negotiable instrument act. negotiable instrument act.
It requires acceptance. It does not require acceptance.
3. Cheque:
A cheque is a negotiable instrument. It is transferable either by mere
delivery or by endorsement and delivery.
Essential features or requisites of a valid cheque: (Expected Short Essay)
1. A cheque must be in writing.
2. A cheque must contain an unconditional order.
3. Cheque is always drawn on a specified banker.
4. It must be signed by the drawer.
5. A cheque is always payable on demand.
6. A cheque can be crossed.
7. A cheque is used for payment.
Parties to a cheque:
1. Drawer: Drawer is a person who issues a cheque.
2. Drawee: Drawee is the bank on which the cheque is issued.
3. Payee: Payee is the person to whom the amount of cheque is payable.
Difference between Bill of exchange and cheque
Bill of Exchange Cheque
A bill is need not be on a printed A cheque is always drawn on a printed
form form.
A bill cannot be crossed. A cheque can be crossed.
Grace days are allowed. Grace days are not allowed.
A bill is payable on demand or after A cheque is always payable on demand.
date.
Acceptance is essential. Does not require acceptance.
A bill cannot countermand. A cheque may be countermanded.

Kinds / Types of Cheque:

1. Bearer Cheque:
A bearer cheque is always payable to bearer.
2. Order cheque:
An order cheque is a cheque which is payable to a certain person.
3. MICR cheque:
MICR (Magnetic Ink Character Recognition) cheque is a recent innovation.
Bank issue cheques in MICR format using the special quality paper and
printing specifications.
4. Truncated cheque:
It is an electronic image of a paper cheque which means physical cheque is
scanned at the bank of first deposit.
5. Electronic cheque:
It is simply referring to an electronic version of a paper cheque.
Crossing of Cheques (Expected Essay)
Crossing of cheque means drawing across the face of the cheque two parallel
transverse lines with or without the words “and company”.
Types of crossing:
1. General crossing
2. Special crossing
3. Not negotiable crossing
4. Account payee crossing
5. Double crossing
1. General Crossing
In general crossing, the cheque bears across its face an addition of two
parallel transverse lines and the addition of the words “and company” or “not
negotiable” between them.
Essential Features of general crossing
1. There must be two parallel transverse lines on the face of the cheque.
2. The lines are drawn on the left-hand top corner of the cheque.
3. The words “and company” or its abbreviation may be written in between
these lines.
4. The words “not negotiable” or “account payee” also be added with general
crossing.
5. The paying banker is required to pay the amount of a generally crossed
cheque to another bank.
2. Special Crossing
In special crossing, the name of a banker with or without the words “not
negotiable” is written on the cheque.
Essential features of special crossing:
1. Two parallel transverse lines is not essential.
2. The name of the collecting banker should be specified.
3. The words such as “not negotiable” or “account payee” are also added with
special crossing.
4. The special crossing makes a cheque safer.
Difference between general crossing and special crossing
General Crossing Special Crossing
Two parallel transverse line are Two parallel transverse lines are not
essential. essential.
General crossing makes cheque safer. Special crossing makes a cheque safer
than general crossing
The words “and company” may or These words are not written.
may not written.
The amount of generally crossed The amount of specially crossed cheque
cheque can be paid to any banker. can be paid only to the specified banker.

Name of the collecting banker not Name of the collecting banker is written
written in the face of cheque. in the face of the cheque.
3. Not negotiable Crossing
The word “not negotiable” may be included in general and special crossing.
Not negotiable does not mean not transferable.
4. Account payee crossing
The word “account payee” or “payees account” may be included in general or
special crossing. This type of crossing gives further protection to a cheque.
5. Double crossing
Double crossing means crossing a cheque specially to more than one banker.
Demand Draft (DD)
Demand draft is an instrument used for transfer of money. It is a negotiable
instrument.
Difference between Cheque and Demand Draft
Cheque Demand Draft
A cheque is issued by an individual. A draft is issued by a banker.
A cheque can be dishonored. A draft cannot be dishonored.
A cheque is defined in the negotiable Draft has no precise definition.
instrument act.
A cheque is drawn by an account A draft is drawn by one branch of bank.
holder of a bank.
In a cheque, drawer and drawee are In draft, drawer and drawee are same
different person. person.
Payment of cheque can be stopped Payment of draft cannot be stopped.
by the drawer.
Endorsement:
Endorsement means signing on the back of a negotiable instrument for
the purpose of negotiation.
Effects of endorsement:
1. Endorsee gets right, title or property in the instrument.
2. He also gets the right of further negotiation.
3. The endorser certifies genuineness of the instrument.
4. The endorsee acquires the right of the instrument as its holder.
Liability of endorser
1. By endorsing an instrument, the endorser impliedly promises that on due
presentation the instrument will be accepted and paid.
2. Endorser will not deny the validity of the endorsement.
3. Where there are two or more endorsements, the liability of the endorser
will be fixed in the order in which their signature appear on the
instrument.
4. The liability of an endorser can be excluded by a spate contract.
5. The liability of the endorser continues even alter the death till the
instrument is paid.
Electronic Payments
Electronic payment means payment for buying and selling goods or
services through internet.
Features and importance of electronic payment
1. There is no paper involved.
2. Fast, efficient, safe and secure.
3. Less costly.
4. It is convenient to the consumers.
5. It improves customer attention.
6. These are fully traceable.

Module III- E-BANKING

Meaning of E - Banking
E-banking is a method of banking in which banking transactions are done
through electronically.
Advantages of E - banking
1. Internet banking have lower operational cost.
2. Internet banking have lower transactional cost.
3. Online banking is convenient.
4. Online banking offers 24×7 services.
5. Online banking facilitates better customer retention.
6. There is less chance for errors.
7. Easy transfer of fund from one account to another.
8. Online banking is fast, efficient and effective.
9. Customers can obtain funds at any time from ATM
10. It is a safe way of handling our money.
11. Internet banking is not limited to a physical site.
12. Internet banking provides enlarged range of services.
Disadvantages of E-banking
1. Understanding the usage of internet banking is difficult for beginners.
2. It requires huge initial startup cost.
3. Without internet connection, online banking is not useful.
4. There is a chance of hacking personal information.
5. It is not useful in case of banks server down.
6. It is not useful for illiterate persons.
Difference between T- Banking and E-Banking
Traditional Banking E-Banking
1. Banking business done through 1. Banking business done through
traditional method is called electronically is called e-banking.
traditional banking.
2. It does not offer 24x7 services. 2. It offers 24x7 services.
3. There is a high chance for errors. 3. There is less chance for errors.
4. Compare to e-banking, it is not 4. It is fast, efficient and effective.
fast, efficient and effective.
5. It is limited to a physical site. 5. It is not limited to a physical site.
6. Compared to online banking, it is 6. Online banking is convenient.
not convenient.
7. Transactional and operational 7. Transactional and operational costs
costs are high. are lower.
Need and importance of E-banking
1. Reduce burden
2. Need for transformation
3. Ever increasing competition
4. Introduction of more customer friendly products and services
5. Boundary less banking
6. Use of electronic means
7. Influence of Information technology
Dimensions of E-banking
1. Customer to bank e banking
Customers can easily access all important information relating to their
deposit, transfer and payments through internet.
2. Bank to bank e banking
It is related with interbank transactions which are done between banks
through internet.
3. Electronic central banking
All banks within the control of a central bank are to be interconnected
via extra net.
4. Intranet procurement
An intranet is meant for the exclusive use of the organization and its
associates.
E- based products or services (Expected essay)
1. ATM
2. Credit card
3.Debit cards
4. Smart card
5. Mach product
6. Telephone banking
7. Internet banking
8. Virtual banking
9. Core banking
10.SWIFT
11.SPNS
12.EDI
13.INFENET
14.Automated clearing houses
15.CFMS
16.Home banking
17.EFT
18.Electronic clearing services
19.RTGS
20.Mobile banking
21.Doorstep banking
22.E- purse
1. ATM (Automated Teller Machine)
ATM is a device that allow customers to perform routine banking
transactions by using ATM cards.
ATM card
It is a plastic card issued by a financial institution, which enables a
customer to access their financial accounts.
Functions of ATM
1. A card holder is able to withdraw money.
2. A card holder gets latest and updated information.
3. It allows transfer of funds.
4. It also possible to make deposits.
5. Payment of loan can be made through ATM
6. It provides printed copy of transactions.
2. Credit card
A credit card is a plastic card, which can be used more than once to
borrow money or buy products and services on credit.
3. Debit cards
Debit card is a plastic card, issued by the bank to their customers who
have maintained an account in the bank with sufficient credit balance.
Types of debit card
1. Direct debit cards
It allows only online transactions, also called point of sale.
2. Deferred debit card
This card allows online transactions as well as offline transactions.
4. Smart card
A smart card is a plastic card that contains an embedded plastic chip
either a memory or microprocessor that transacts data.
5. Mach product
It is a recently innovative banking product. It is nothing but a mobile-to-
mobile payment option.
6. Telephone banking
Telephone banking is a service provided by a financial institution, which
allow customer to perform transactions over the telephone.
7. Internet banking
It is a method of banking in which transactions are conducted
electronically through internet.
Services provided through online banking
1. Easily transfer of money.
2. Customers can open FD account via net.
3. Customer can order for issue of a demand draft.
4. Customer can inquire account balance.
5. Customer can request for a cheque book.
Necessities required for operating online banking
1. An active bank account.
2. Debit or credit card number.
3. Customer's user ID.
 4. Bank account number.
5. Internet banking PIN number.
6. A PC with net
8. Virtual banking
Virtual bank is an internet based financial institution that offers deposit and
withdrawal facilities, and other banking services through ATM or other
services.
Advantages of virtual banking
1. Transaction cost is less.
2. Account maintenance cost is less.
3. Operations cost are less.
4. Virtual banks are safe.
5. No need of visiting a bank physically.
6. These are convenient.
7. 24×7 services.
Limitations of virtual banking
1. Initial start-up cost are high.
2. Difficult for new users.
3. Difficult for illiterate persons.
4. Problems related to server down.
5. Technological hacking.
9. Core banking
Core banking simply refers to doing all banking operations of branches and
head office by connecting to a central computer kept at data center.
Advantages of core banking
1. Total cost can be reduced.
2. Multiple data entry risk reduced.
3. Ability to offer developed operations.
Limitations of core banking
1. It is mainly depending on technology.
2. Recurring cost are heavy.
3. Stoppage of work has adverse effect on banks image.
10. SWIFT
SWIFT is the society for worldwide interbank financial
telecommunication, a member owned cooperative through which the
financial world conducts its business operations with speed, certainty and
confidence.
11. SPNS (Shared payment network system)
SPNS is a large network of ATMs spread in the city of Mumbai, Vashi
and Thane.
12. EDI (Electronic Data Interchange)
EDI is the electronic exchange of business information between two
concerns in a specified format.
13. Indian Financial Network (INFENET)
It is a very small aperture terminal-based satellite network for messaging,
file transfer and chat services.
14. Automated clearing houses
The computerized center’s where cheques are cleared are called
automated clearing houses.
15. Centralized funds management system (CFMS)
It is a system that aims at inter connecting the 17 deposit account
departments of RBI.
16. Home banking
Home banking is the practice of conducting banking transactions from
home. It is also called personal computer banking.
17. Electronic Fund Transfer (EFT)
EFT means speedier transfer of funds between different banks for the
bank customers electronically. It was introduced by RBI in 1996. It is
worked on the principle of " next day availability of funds."
18. Electronic clearing services
It consists of electronic credit clearing and electronic debit clearing.
19. Real Time Gross Settlement System (RTGS)
RTGS is an online fund transfer mechanism provided by the RBI. RTGS
facilitates fund transfer from one bank account to other on real time basis
without any waiting time.
Benefits of RTGS
1. It facilitates fund transfer on real time basis.
2. RTGS is a safe and secure fund transfer mechanism.
3. Lower remittance charges.
4. RTGS could also be done offline.
20. Mobile banking
Mobile banking is a system of providing service to a customer to carry
out banking transactions through a mobile phone.
21. Doorstep banking
Doorstep banking means bank allow you to take banking facilities to your
home.
22. E-Purse
E-purse is a plastic card with a small amount of money stored
electronically on it.

Module IV- Introduction to insurance

Meaning of Insurance
Insurance is a protection against on the happening of an unexpected event.
Definition
According to Jhon Megi " Insurance is a plan where in persons
collectively share the losses of risk."
Features of insurance
1. It is a contract between insurer and insured.
2. Insurance covers the monetary risks.
3. Insurance is not a gambling
4. Insurance is a contract of indemnity except life insurance.
5. Utmost good faith is required from all the parties.
6. Insurance is a cooperative endeavor.
7. Insurance involves consideration. It is called premium.
8. The parties must have legal capacity to enter into insurance contract.
Benefits / Importance / Advantages of Insurance (Expected Essay)
1. Insurance cover against uncertainties.
2. Insurance contributes positively to economic growth.
3. Insurance is an investment opportunity of an individual.
4. Insurance provides security and safety.
5. Insurance encourages savings.
6. Insurance ensures business continuation.
7. Insurance generating employment opportunities.
8. Insurance promoting social welfare.
9. Insurance ensures social security.
10.Insurance maintains standard of living.
Parties of insurance
1. Insured: A person covered by insurance is called insured.
2. Insurer: A person contracting to indemnify against the loss is called insurer.
3. Beneficiary: The person to whom the indemnity is paid is called beneficiary.
Functions of Insurance
A) PRIMARY FUNCTIONS
1. Providing protection
The most important function of insurance is to provide protection against
future risk.
2. Collective risk bearing
Insurance is an instrument to share the financial losses. It is a medium
through which losses are divided among large number of people.
3. Evaluating risk
Insurance evaluates the risk. Risk is the basis for ascertaining the
premium rate as well.
4. Provide certainty
Insurance is a device, which assists in changing uncertainty to certainty.
B) SECONDARY FUNCTIONS
1. Preventing losses
Insurance prevents unfortunate losses of the people.
2. Provides capital
The insurance provides capital which is essential for economic
development of a nation.
3. Covering larger risk with small capital
This is done by paying small amount of premium against larger risk and
uncertainty.
4. Development of larger industries
Insurance provides an opportunity to develop to those larger industries
which have more risks in their setting up.
C) OTHER FUNCTIONS
1) It is a saving and investment tool.
Insurance is the best savings and investment tool or option to
restructuring the unnecessary expenses of the insured.
2. Medium of earning foreign exchange.
Any country can earn foreign exchange by way of issue of marine insurance.
3. Risk free trade.
Insurance boosts exports insurance, making foreign trade with the help of
different types of policies under marine insurance cover.
Principles of insurance (Expected Essay)
1. Insurable interest
2. Utmost good faith
3. Indemnity
4. Subrogation
5. Proximate cause
6. Contribution
7. Mitigation of loss
1. Insurable interest
Contract of insurance is valid if the insured possess insurable interest.
The insured has an insurable interest in the object or in the life of the
insured person.
2. Utmost good faith
It is essential that there must be utmost good faith and mutual confidence
between the insured and insurer.
3. Indemnity
A contract of insurance except contract of life insurance is contract of
indemnity. This means that insured in case of loss against which the policy
has been issued, shall be paid the actual amount of loss or value of policy
whichever is less.
4. Subrogation
Subrogation is the transfer of rights and remedies of the insured to the
insurer who has indemnified the insured in respect of loss.
5. Causa Proxima
Causa Proxima means the most immediate cause which results into a definite
loss.
6. Mitigation of loss
Mitigation of loss means to minimize or reduce the severity of loss.

7. Contribution
It is another outcome of principle of indemnity. Where there are two or
more insurance on one risk, the principle of contribution comes into play.
The aim of contribution is to distribute the actual amount of loss.
Kinds or Types of Insurance
1. Life insurance
Life insurance is a type of contract that pays out a sum of money either
on the death of the insured or a specified period.
2. Marine insurance
Marine insurance is a type of insurance that cover loss or damages of
ships or cargo from point of origin and final destination.
Types of marine policies
a) Voyage policy: Ensure the subject matter from one place to another is
called voyage policy.
b) Time policy: Where the subject matter is insured for a definite period
of time is called time policy
c) Mixed policy: mixed policy is a combination of voyage and time policy.
d) Valued policy: It is a policy which specifies the agreed value of a
subject matter.
e) Open policy: It is a type of policy where the policy value of the
subject matter insured is not specified.
f) Floating policy: It is type of policy in which the value of goods being
insured cannot be calculated exactly.
Features of marine insurance
1. In this type of insurance cargo, ship, and fright is to be insured.
2. There is a contract between insurer and insured.
3. It includes third party insurance also.
4. Insurance can be taken for single journey or number of journeys.
5. It can be taken against losses incurred in inland also.
3. Fire insurance
Fire insurance is a type of insurance which protects people from cost
incurred from fire during a specified time.
Features of fire insurance
1. It is a contract of indemnity.
2. It should fulfil essentials of a valid contract.
3. It is a contract of utmost good faith.
4. Fire policies covers losses against fire.
5. In fire insurance insured must have insurable interest.
6. A fire insurance is generally for taken one year.
7. Fire insurance policy issued for a lawful consideration.
4. Medical / Health insurance
Health insurance is a type of insurance that cover medical expenses that
arises due to an illness.
5. General insurance
An insurance which is not life insurance is called general insurance. It
includes vehicle and home owners’ insurance.
Personal accident insurance
It is a type of insurance for personal accidents or illness.
Auto insurance
Auto insurance is a type of insurance, it helps of repair or replacement in
the event of accident.
Disability insurance
It is a type of insurance; it may protect the insured from financial ruin if he
is injured.
Long term care insurance
It is a type of insurance designed for those diagnosed with chronic illness.
Homeowners insurance
It is a type of insurance which helps to cover losses of a home or property
due to fire, natural disaster, faulty plumbing work, bad electric work etc...
Miscellaneous/ Liability insurance
It refers to contract of insurance other than life insurance. It includes fire,
marine etc...
Property insurance
Property insurance is a type of insurance protection against risks of the
property.
Hull insurance
Hull insurance is a type of insurance policy especially designed for
covering ship damage expenses
Burglary insurance
Burglary insurance means a type of crime insurance that covers losses
resulting from burglary.
Re - insurance
Re insurance simply means insurance for insurance company. It means an
insurance company purchase another insurance company.
Double insurance
When same subject matter is insured with two or more insurer is called
double insurance.
Role of insurance in economic development
1. Investment for economic development.
2. Promotes trade and commerce.
3. Insurance makes financial resources.
4. Insurance spreads risk.
5. Encourage financial stability.
6. Substitute for government security programs.
7. Insurance provides increasing GDP.
8. Facilitate efficient capital allocation.

Module V- Insurance Laws

Life insurance
Life insurance is a type of contract that pay out a sum of money either on
the death of the insured or a specified period.
Features of life insurance
1. It is an outcome of offer and acceptance.
2. It is not a contract of indemnity.
3. It is best alternative way of savings.
4. Insurable interest must be present at the time of taking policy.
5. It offers flexible premium payments.
Importance of life insurance
1. It is a protection against untimely death.
2. It is a savings for old age.
3. It initiates investment.
4. It improves creditworthiness of the business.
5. It is a social security tool.
6. It facilitates tax benefits.
7. Promotion of savings.
Difference between General Insurance and Life Insurance
General Insurance Life Insurance
1. General insurance is a 1. Life insurance is a nonpersonal
personal contract. insurance contract.
2. It is a contract of indemnity. 2. It is not a contract of indemnity.
3. General insurance insures 3. Life insurance insures one’s life
homes, automobiles and other or the life of someone.
personal properties.
4. General insurance is taken 4. Life insurance is generally for
generally for one year. long period.
5. The object of general 5. The object of life insurance is the
insurance is to protect from risks. security and investment.

Insurance policy
Insurance policy is a contract of insurance. It describes the term,
coverage, premium and deductibles.
Nomination
A nomination is an important part of a life insurance. It is the common to
nominate a person usually spouse, child or one parent while taking an
insurance policy.
Assignment
Assignment of a policy means transfer of all rights, title and liabilities of
the life insurance policy in favors of the assignee.
Claim
A claim is the payment made by the insurer to the insured on the
occurrence of the event specified in the contract.
Premium
An insurance premium is the amount of money an individual or business
pays for an insurance company.
Assurance
Assurance refers to financial coverage that provides remuneration for an
event that is certain to happen.
IRDA (Insurance Regulatory and Development Authority)
It is an autonomous apex statutory body which regulates and develops the
insurance industry in India.
Powers, Functions, and Duties of IRDA
1. Registering and regulating insurance companies.
2. Protecting interest of the policy holders.
3. Promoting professional organizations in insurance.
4. To control over management of insurers.
5. Maintenance of solvency margin.
6. Ensuring insurance coverage in rural areas.
7. Regulating investment of policy holders.
Role of IRDA
1. IRDA provides a certificate of registration to a life insurance company.
2. IRDA is responsible for renewal, modification, withdrawal and
cancelation of certificate of registration.
3. IRDA protects the interest of the policy holders
4. IRDA offers policy holders the right to voice their complaints.
5. IRDA has to set up the grievance redressal cell.
6. It promotes and regulate activities of professional organizations.
7. It regulates and maintenance of margin of solvency.
8. It regulates the investments of funds.
Laws relating to general insurance
1. Insurance Act 1938
2. Indian marine insurance Act 1963
3. General insurance business Act, 1972
4. The general insurance business amendment Act, 2002.
Laws relating to life insurance
1. Insurance Act, 1938
2. The life insurance corporation Act, 1956
3. The IRDA Act, 1999