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OFFICE AUTOMATION – I OFFICE OPERATIONS 3. OPENING & HANDLING OF ACCOUNTS IN BANKS Bank Accounts and banking instruments are meant for the making our life more convenient by providing various means of monetary transactions. One should understand the basic concepts of using bank accounts and other banking instruments like, cheque, drafts, etc.

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Objectives After going through this lesson, you will be able to do following banking activities independently:

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3.1

Cheque deposits Cash deposits Making demand drafts Tips on maintenance of account

Introduction In today’s world it has become very important that we manage our accounts carefully and independently so that while being self-dependent we can also remain alert of any frauds.

3.2

Bank Accounts

3.2.1 Type of Bank Accounts There are two main types of bank accounts – Savings account and Current Account. Savings and Current accounts allows you to issue cheques, draw Demand Drafts and withdraw cash.

Maintaining a bank account these days is easy and quite sophisticated.

Technology has changed the completed way we used to bank earlier. Modern age banks offer you services and facilities, which if used properly with full knowledge and care can benefit our daily lives and help us save time.

This requires understanding few new things that have emerged today.

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Let us try and understand few a terms that we commonly approach at today’s banking.

3.2.2 Difference between Current & Savings Account Current Account There is no interest paid

Savings Account Interest paid at rate of 3.5 % on the lowest amount maintained in an account in a month between 10th & 30th

Used by Companies / Partnerships Used

by

Individuals

/

Hindu

etc.

Undivided Families / Trusts

No credit card issued

Credit card issued

High withdrawals and deposits

Less withdrawals and deposits

3.2.3 Features of Bank Accounts The main features of bank accounts are as listed below: Average Quarterly Balance (AQB): AQB, refers to the minimum average amount that must remain in the account.

AQB = Day 1 End of Day Balance + Day 2 +………..+ Day 90 90 Generally Saving Bank accounts ask for 5000/- AQB in every quarter i.e. 5000 (AQB) = 4,50,000 ( Day 1+2+3 +……+30) 90 In case AQB is not maintained, the services in the consecutive quarter are limited and a charge for non maintenance of AQB is levied to the account.

In special cases like Salary accounts where your company opens a bank account for you with the bank where the salary shall be credited every month, banks offer zero AQB accounts to the salaried employees.

Hotlisting: It is an activity which refers to informing the bank to deactivate your Debit / ATM / Credit card. This is done generally when the card is lost or card has got mutilated / damaged. Hotlisting can be done at the bank branch by signing up a form or can be done by calling a phone banking number of the

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bank or through internet by logging on to your net banking facility if you are registered for the same.

A very important point to be noted is that only you can get your card hotlisted and no one else can get the card hotlisted on your behalf. Keep your account no. and id no. (if provided by the bank) handy with you along with the banks phone banking no. so that in case of emergency you can get the card blocked. The phone banking hotlisting service is available at all times of the day at all days throughout the year (also termed 24 x 7 x 365 - for 24hours, full week, all days of the year) Stop Payment: The activity where in you instruct the bank to stop payment on a cheque issued by you is called stop payment. The same can be done by signing a form at the bank or through phone banking or net banking if you are registered for the same. You must have your account no. and cheque no. for doing so. In the industry it is not considered good to stop the payment on any transaction. One must issue a cheque only if one is sure of the transaction or one has funds in the account. Stop payment orders once issued on a cheque cannot be revoked and the cheque must be replaced by a new one. Only the account holder can stop payment on a cheque.

Phone Banking: It is a facility which enables you to access your bank account from a telephone. Once must get registered with his / her bank by applying for the same. These days by default the phone banking password gets registered at the time of account opening. Do not share your phone banking passwords with any one and keep changing it since transactions like stop payment and card blocking along with issuance of a cheque book can be done through this Mobile Banking: Many banks have started offering bank account details over mobile by either • • •

Sending automatic alerts or Customer sending sms to bank no. and getting revert or By logging on to the R-World option in Reliance CDMA handsets for ICICI & HDFC Bank Ltd. Mini Statement: It is an account statement, which provides a summary of the accounts’ transactions. It can be obtained from the ATM machine of your bank. Statements cannot be obtained if ATM machines of other banks are used. Only the balance amount can be obtained on ATM machine of banks other than the one which has your account. You are charged for the same also. Mini statement shows the last 9 debits & credits and the latest account balance.

FDR / TDR: FDRs, Fixed deposit Reserves, are the next alternative for savings after savings bank accounts. A Savings bank account is a transaction account in which one can do transactions of withdrawals / deposits. An amount doesn’t remain static, balances change everyday. While in a fixed deposit people deposit and block the money for certain period of time with the intention of not withdrawing. The bank knows that this money shall not be 3

utilized for some certain defined period of time and hence invests the money in the short term money market by lending it and earns higher interests on the same. This is to an extent passed back to the customer in form of FD Rates.

The FD rates vary from 5-8% for tenures varying from 1 month to 5 years and above.

Today the banks offer the facility of smartly using deposits by either taking cash credit limits against them or by withdrawing from them when required without paying any penalty.

Investment Account: Investment account refers to the details maintained by the bank for the investments made for you in the range of investment products ranging from Mutual Funds to insurance etc. It is an update which lets you know the market value of your investments made by the bank.

Service Transaction Tax & Educational Cess: The tax levied by the government, on transactions done, in which the banks renders its services.

The same is collected under the head of the service tax and is 10% of the service amount charged. Over and above this the government charges from the banks education cess of 0.22%. The end result is that the bank recovers this from the account holders to whom various services are rendered.

Debit Card: It is a plastic device, which bears your name, card no., expiry month & year, and the service provider name (VISA / MASTERCARD) on the face of it and on the back has column for your signature and a magnetic strip.

The card is linked to your savings bank account and lets you withdraw money from it at any point of time. All that one has to do is, go to the nearest bank’s ATM, insert the card in the machine, type the password and withdraw the amount required. Generally an ATM card has a cash withdrawal limit of INR 25,000/- Another use of the card is that it can be used for shopping. The information of the account is maintained in the magnetic strip at the back of the card and gets updated as and when the transactions are done. Hence while shopping all that one has to do is, get the card swiped in front of you.

Once the transactions is authenticated from the service provider confirming that the balance is there in the customers account for making the purchase, a transaction slip is printed on which the customer has to sign. The shopkeeper matches the signatures of the customer on the card with the ones on the payment slip. Transactions are done only when there is adequate balance in that account.

Credit Card: The debit card lets you do shopping against the balances in your account while in a credit card on the basis of your financial position a credit limit is set and put in the card as a personal loan generally of 22 days. If the payment is not made on completion of the due date, the bank charges you 2.5-3% per month on the limit that you have used. The system is same as debit card, its just that even if you have no balance in the account you can use the credit card since the credit card is not linked to an of your bank accounts.

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Mutual Fund: It is an investment option where in you need not invest in shares yourself. A company collects money on your behalf and invests this money in not one share but in a portfolio of shares. This helps in diversifying the risk of the investment and generally assures an average return. Companies which manage such funds are called as a Mutual Fund.

The portfolios for every mutual fund differs. They could consist of companies which are aggressive, passive, of the same nature etc. etc. Each mutual fund has an investment objective and one needs to understand the same and choose the best ones for their investments. Since Mutual Funds are most commonly approached by individuals for investing in equity markets, one must not forget the basic investment rule, “NEVER PUT YOUR EGGS IN ONE BASKET�. Always diversify your investment in various tools like bank deposits and RBI bonds etc.

ELSS (Equity Linked Savings Scheme: A category of Mutual Funds where you put your money in the fund and it remains blocked for 3 years. It is called as Equity Linked Savings Scheme and is approved by the Govt. Investment in this funds gets rebate up to 1 lac under Sec. 80 C. These are considerably the safest of the mutual funds since the investment horizon is minimum 3 years.

Before the completion of 3 years one cannot withdraw any amount.

ULIP: Unit Linked Insurance plans are insurance policies where the investment fund is managed in various combinations divided between equity and debt markets. These policies are market linked enabling the investor to get good and safe returns from the same insurance policy.

Personal Loan: It is a loan given on the basis of your financial credentials.

There is no mortgage taken and is purely on credentials. This is the reason why the interest rates are very high on this ranging form 16% to 22%. It should be considered as the last option. The entire lump sum amount is given to you on day one and Equated Monthly Installments (EMIs) are taken from you every month in form of post dated cheques / direct debit from accounts.

Loan Against Security: This consists of Loans / Cash Limits that bank gives by pledging securities like insurance policies/ equity shares / mutual funds, NSC / KVP etc. Since this involves a mortgage, the rate of interest is relatively lower than the personal loans. The only condition is that one cannot use the money to invest in capital markets again.

3.2.4 Opening a Bank Account Opening a bank account requires specific information about the person or organization that wishes to open the account.

Details required for individual accounts includes proof of address, contact details, personal details about place of work, income etc.

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Each bank has a specific format that is required to be filled up for opening an account.

Some such formats are as shown below.

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3.2.5 Bank Account Statement The bank account statement, also called simply a ‘statement’ details all the transactions performed for a specific time period for the specific account. The statement is a reconciliation of the banking activities performed during that period. The activities include issuing payments (Debits from the bank account) and receiving payments (Credits into the bank account).

An independent statement is issued for each individual bank account- savings or current account.

A typical statement is shown as below.

The bank statement helps us reconcile our transaction, i.e. enables us to match the details of pay-in slip with the details of entry made in the account.

Any discrepancies which are there must be reverted to the bank with-in the next 30 days.

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Many times transactions are originated by others (e.g. our salaries), for which the record is kept by company. We shall not come to know of it unless it appears in the statement.

For your account, you can confirm from the bank, how frequently statements are dispatched. Banks generally dispatch statements once a month / quarterly by post to your account address.

Also these days one can download a mini statement from the ATM machine which has in record the last nine transactions in the account and the account balance.

Modes of issuing payments to people from bank accounts (Debit Transactions) • • • • •

Issue Cheque for withdrawing cash Issue Cheque for payment to account Issue demand draft Withdraw amount from ATM machine Transfer money to any other account in bank through net banking Modes of receiving payments into bank account (Credit Transactions)

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When someone deposits cash in our account When someone gives us Cheque / Demand draft and we deposit it in our account When receiving salary into the account When dividends on investments are transferred directly to the account

Self-Check Questions 1. What is the basic difference between Current Account and Savings Account?

Fill in the Blanks 2. Current account can be opened by_____________ 3. ATM card can be utilised for ______________

3.3

Passbooks Bank account statements like the one we just saw are a result of full computerization. There are nationalized banks which are not yet computerized and still work on the models of getting passbooks updated from

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their branches rather than issue bank account statements. Hence it becomes important to understand what a passbook is and how to read it.

Passbook is like the predecessor of the bank account statement. Unlike a bank account statement which is delivered to our door step, one has to go the bank and get the passbook updated.

It is a record of transactions that appear in our account. In some banks where there is low computerization, the passbook is given it to the cashier, who takes out the ledger book in which the account details of the customer are maintained and notes down the withdrawal and deposit entries from it to the passbook, i.e. updates it and writes down the current balance. The account holder can reconciles the withdrawal (debit) and deposit (credit) entries.

Backside of a passbook

Front side of a Passbook

Some banks in spite computerization do not issue bank statements. They issue a passbook which when presented to the cashier, is updated with the help of computer by checking the transactions in the ledger.

The cashier enters the account number in the computer for which the details are displayed on his screen. These details are printed on the passbook using a printer.

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Abbreviations used in a passbook

Reading a passbook Date of Transaction.

Cheque No.

Narration

Withdrawals

Deposits

Balance After Transaction

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Self-Check Questions 4. What are the basic advantages of Passbook?

Fill in the Blank 5. Passbook keeps all details, like ______________ related to the account & accountholder.

3.4

Assignments Visit the nearest bank and take various forms / instruments explained in the subsequent sections. Use these actual formats to do the practice exercises.

Nothing is better learnt than what you do practically. Open a savings account, in case you do not have one already. Deposit some savings you have made in cash into this account, ask your family to give you a payment in cheque and deposit it.

3.5

Summing Up In this lesson you have learnt about:

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3.6

Various types of Bank Accounts Process of opening a Bank Account Use & details of passbooks

Answers of Self-Check Questions

1. Current Account is mainly used by the individuals or orgainsations and it facilitate frequent use of accounts and facility of overdraft. Savings accounts mainly meant for individuals and it doesn’t provide the facility of overdraft.

2. Individuals & organisations 3. Banking transactions (cash withdrawal, deposit of cash/cheque, etc.) and making electronic payments at shops & other outlets 4. All information about Accountholder & his account; up to date information regarding account; details regarding all transactions 5. Personal information of Account holder, type of account, up to date status of accounts & details o transactions

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3.7 1.

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3.8 • • • • • • •

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Terminal Questions What is pay-in-slip?

When is a pay-in slip used?

What are the important checks you shall exercise while filling up a pay-in slip?

List 3 advantages of a demand draft Why is a demand draft called bankers cheque What is difference between a Demand draft & managers cheque

Glossary AQB: Average Quarterly Balance Hotlisting: It is an activity which refers to informing the bank to deactivate your Debit / ATM / Credit card Stop Payment: The activity where in you instruct the bank to stop payment on a cheque issued by you Phone Banking: It is a facility which enables you to access your bank account from a telephone FDR: Fixed Deposit Reserves TDR: Term Deposit Reserves Mutual Fund: It is an investment option where you do not invest in shares yourself. A company collects money on your behalf and invests this money in not one share but in a portfolio of shares ELSS: Equity Linked Savings Scheme ULIP: Unit Linked Insurance Plan