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Commercial banks mobilize dormant savings with the public and make them available for productive investment in various sectors of the economy. Banks thus act as financial intermediaries between lenders and borrowers. The difference between the interest charged on loans and interest paid on deposits constitutes the profit for the banker. Now the interest rates are deregulated. Banks are given freedom to determine the rates of interest on deposits of different maturities. So to say the rates of interest are market determined.
Banks mobilize funds in the form of various types of deposits. There are fixed deposits, savings deposits, and current accounts. Presently new private sector banks and foreign banks are offering several inducements. Life and accident insurance covers are provided by banks against certain types of deposits. In the following paragraphs we describe the various types of deposits accepted by commercial banks.
Demand deposits or current accounts:
Current deposits form and most important type of bank deposits. In the case of these deposits, the banker undertakes to honor his customer's checks so long as the latter account is in credit. In other words the customer can withdraw the whole of the amount standing to his credit by drawing a single checks or a number of checks. The customer deposits cash, checks and drafts drawn in his favor into the account. The banker collects the checks and drafts drawn in customer's favor and credits the amount in the customer's account. The customer has to fill in the paying-in-slip form at the time of depositing the amount in the bank.
Current deposits are of great convenience to bank's customers. As cash and checks are sent to the bank, they are safe. The customer can secure an overdraft with or without security. The banker has to keep sufficient cash with himself in order to honor the customer's checks. No interest in usually allowed on current accounts.
The bank issues a pass book at the time of opening a current account. All transactions in respect of that account are entered in the pass book and the customer can compare the entries therein with the entries in his own cash book. Alternatively, monthly statements showing the transactions between the banker and customer are furnished to enable the customer to compare the transactions entered in the statement with the entries made in his own cash book.
Advantages to the customer of having a current account:
Opening of a current account is a source of great convenience to the customer.
a. As cash, checks and drafts are deposited in the bank's account, they are perfectly safe.
b. The customer can make his payments more conveniently. He need not count cash at the time of making payments. This not only obviates errors but saves time.
c. Payment to creditors situated at distant places is facilitated by the issue of checks.
d. Collection of checks drawn on banks situated outside his place of business becomes easier.
e. The paid checks form at the bank serves as a receipt. It can be referred to in case of dispute. Normally, however, the person receiving checks will have to give a stamped receipt for the amount of the checks.
Housing Deposit Schemes:
These schemes are designed to those who wish to construct or purchase a house or a flat. The depositors are required to deposit money in installments or a fixed period so that sufficient funds accumulate and the customer can acquire a house or flat with the deposit amount which includes interest. If the funds as insufficient, the customer can take a loan from the bank for the balance.
In addition to the above, special savings accounts are offered to students, trusts, societies Demat account holders.
Banks now issue ATM cards not only on savings banks accounts but also on fixed deposits.
Demat Account:
Some banks are now offering Demat accounts. These accounts are a safe and convenient way to manage the share portfolio of the customer with a range of facilities such as Demats of securities, transfer of securities, pledging of securities, freezing and defreezing of securities lying in the account.
Free insurance cover to savings bank account holders:
In order to induce savers to deposit their savings in savings accounts, leading commercial banks, in public and private sectors have been offering life insurance cover to the account holders. The salient features of the scheme are:
1. Live insurance cover is provided to those customers who maintain a minimum balance in savings account.
2. The account holder need not pay any insurance premium. The bank pays the premium directly.
3. There is no medical examination of the account holders.
Difference between deposit insurance and life insurance cover:
The following differences may be noticed between deposit insurance cover and free life insurance cover.
1. There is no reference either to the age of the customer or of deposit. Free life insurance cover is provided only to saving bank accounts holders within the age group of 18 to 49 years. The life insurance cover is extended by some banks to their savings account holders.
2. Deposit insurance protects the interest of deposits in the event of failure of a bank. The insurance corporation becomes liable to repay deposits where a bank has failed or has amalgamated with another bank resulting in loss to the depositors as their deposits are not repaid by the concerned bank. The benefit and the extent of insurance cover are assessed on the basis of the average balance in the account.
3. Deposit insurance scheme is introduced to create confidence in the minds of the people regarding the safety of their deposits and thereby induce them to keep their money in the form of deposits. Free life insurance cover serves the same purpose and at the same time induces the customer to keep the prescribed minimum balance.
Accident insurance: There is another corporation known as general Insurance Corporation with subsidiaries. These general insurance companies provide policies which cover risks to properties arising out of fine, theft, accidents. The policy covers the loss of property arising out of fire, theft, and accident. General insurance policies are taken for vehicles transport and personal. In the case of vehicles, the insurance may cover loss to third parties due to accident only. It is then called third party insurance. If it also covers damage to vehicles due to accident, theft, fine, it is called comprehensive policy. All business houses, factories, vehicles of different types take general insurance policies. The motor vehicles act made it compulsory for all types of motor vehicles four wheelers and two wheelers to take insurance policy at least as per the prescriptions in the act.
These policies provide protection to loss arising out of fire, theft to properties and loss of life in case of accident involving motor vehicles. Accident benefit is provided by banks to credit card holders, such protection being given in collaboration with a general insurance company.
Dormant Accounts:
accounts either savings or current which remain in operative for a considerable length of time are called dormant accounts. If the customer does not create any transaction for a long time, his account is considered as dormant account. It should be noted that law did not prescribe any period after which an account is to be treated as dormant account. Each bank pursues its own policy in this regard.
There may be several reasons for the customer for not doing any transaction. He might have moved out of the place without notifying of the banker his changed address. He might have misplaced the pass book and forgotten about the account. When customers change places, some of them do not mind to leave the balance of the amount is negligible. The other reason can be the depositor might have died and his successors had not brought it to the notice of the banker.
If the account is a running account, the banker sends a statement of account to the customer and may also send a confirmation slip for his signature at regular intervals. In the case of acting account, the customer submits pass book from time to time to update entries.
On dormant accounts, there is no control and therefore there is scope for fraud. The bank should transfer all dormant accounts to a separate ledger and the signature cards should be placed under lock and key to avoid manipulations.
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