BANKING CORRESPONDENCE PART 1
Business Correspondence means the exchange of information in any written format inside an organization (intra-organization i.e. within a business), between two or more organizations (inter-organization i.e. b2b), and between the customer and organization (i.e. b2c and c2b).
It is through letters (preferably, be done on the letterhead of the organization) that an organization can build good relations with people.
Now let us understand banking correspondence-
“Any letter exchanged between bank and its clients or any other letter written by bank to any other party else for performing its banking activities” is known as banking correspondence.
Let us have a Bird's eye view of the Banking Sector in India.
- The first bank of India was the “Bank of Hindustan”, established in 1770 and located in the then Indian capital, Calcutta.
- Banking in India started in 1786 with the establishment of "General Bank of India".
- During British rule in India, the East India Company started 3 banks-
Bank of Bengal
Bank of Bombay
Bank of Madras
In 1921, all three banks merged to form the 'The Imperial Bank of India"
- At the time when India got independence, all the major banks of the country were led privately which was a cause of concern as the people belonging to rural areas were still dependent on money lenders for financial assistance.
- With an aim to solve this problem, the then Government decided to nationalise the Banks. These banks were nationalised under the Banking Regulation Act, 1949. Whereas, the Reserve Bank of India was nationalised in 1949.
- The Indian banking sector is broadly classified into scheduled and non-scheduled banks. The scheduled banks are those included under the 2nd Schedule of the Reserve Bank of India Act, 1934. The scheduled banks are further classified into- nationalised banks; State Bank of India and its associates; Regional Rural Banks (RRBs); foreign banks; and other Indian private sector banks.
- The SBI merged its Associate banks into itself to create the largest Bank in India on 1 April 2017. With this merger, SBI has a global ranking of 236 on the Fortune 500 index.
- The term commercial banks refer to both scheduled and non-scheduled commercial banks regulated under the Banking Regulation Act, 1949.
Different Types of Banks in India
A bank is a financial institution whose purpose is to receive deposits and lend money to individuals and businesses, disburse payments, invest funds in securities for a return, and safeguard money. It services savings and current (chequing) accounts, provides credit to borrowers in the form of loans and through credit cards, and acts as trustees of its clients. Banks perform all of these functions or some of them depending on their nature.
In India and other developing countries, the term ‘bank’ is applied to a variety of institutions which provide funds for various purposes. So banks are of different types: commercial banks, savings banks, investment (industrial) banks, merchant banks, land development banks, cooperative banks and above all, central bank.
Commercial banks:
Commercial banks are the most important types of banks.
The term ‘commercial’ signifies that banking is a business like any other business. They are essentially profit-making institutions.
They collect deposits from the public and lend money to business firms (manufacturers), traders, farmers and consumers. Commercial banks normally meet the working capital needs of trade and industry and are a part of the money market.
These are specialized institutions that give loans to specific sectors of the economy.
Development banks:
Development banks are parts of a country’s capital market. They are also called public financial institutions. They are specialized financial institutions that supply long-term finance to large and medium industries. They also perform various promotional functions for accelerating the rate of capital formation in the country.
In this way, they promote industrial development in particular and economic development in general. IFCI (Industrial Finance Corporation of India), IDBI (Industrial Development Bank of India), and ICICI (Industrial Credit and Investment Corporation of India) are examples of such banks. These institutions have assumed crucial importance in providing an ever-increasing proportion of industrial finance and various types of development assistance to business enterprises in India.
Co-operative banks:
The co-operative banks are set up under the provisions of the co-operative society’s laws of a country. In India, such banks have been set up to provide credit to primary agricultural credit societies at low rates of interest. However, some co-operative banks also function in rural areas.
Land development banks:
These banks (called land mortgage banks in India) provide long-term credit to farmers for land development. They also give long-term loans to farmers for acquiring new land.
Investment banks:
When a corporate entity wants to issue new equity or debt securities, an investment bank serves the role of an intermediary. They sometimes also make investments in these companies through the purchase of equity shares.
Merchant banks:
A merchant bank helps a company to sell its new shares to the general public. The main job of a merchant bank is to raise money to lend to the industry. They do not lend money themselves but instead help circulate money from those who want to lend to firms who wish to borrow.
Foreign banks:
Foreign banks are branches or subsidiaries of international banks operating in India.
They bring global expertise and practices to the Indian banking sector.
Foreign banks primarily serve the needs of multinational corporations, high-net-worth individuals, and international trade.
There are many foreign banks in India like Citibank, Standard Chartered Bank, HSBC (Hongkong and Shanghai Banking Corporation), and the Bank of America. These are not nationalized institutions like Indian commercial banks.
Central bank:
The central bank is the bankers’ bank and is also the banker to the government. It controls the entire banking system of the country. The Reserve Bank of India (RBI) is India’s central bank.
Different Types of Bank Accounts
1. Savings Account
The account can be opened by anyone. There is a limited number of withdrawals in this account. Average Quarterly balance needs to be maintained for such accounts, failing which banks charge a penalty. A normal savings account comes with features such as a passbook, net banking, phone banking, chequebook facility and Debit cards.
2. Current Account
A current account is a type of bank account which is relevant to the people who run a business. It is also called a transaction account. Maintenance of minimum balance is necessary. Such accounts can be opened with public or private sector banks. Current accounts are ideal for carrying out day-to-day business transactions.
3. Automatic Transfer Service Account
A standing banking arrangement whereby transfers from a customer's account are made on a regular basis.
Purpose: Automatic transfers are often used to simplify financial management and achieve specific goals, such as saving money, paying bills, or making regular loan payments.
Frequency: You can set up automatic transfers to occur at regular intervals, such as daily, weekly, monthly, or on specific dates.
Transfer Types: Automatic transfers can involve various actions, including depositing money from one account to another, transferring funds between different banks, paying bills electronically, or making loan payments.
4. Joint Account
Two or more individuals can share an account. Joint account holders have equal access to all funds. Signatures of one or all account holders may be required for transactions carried out through a joint account. Joint accounts come with all the benefits of a basic savings account.
5. Low-cost Account
Also called zero-balance account. The restrictions regarding keeping a certain balance are removed. There is no interest and no bank charges.
6. Money Market Account
A money market account (MMA) is a type of savings account that may allow a limited number of checks to be drawn from the account each month. The interest rates are higher. Provides a combination of saving and investing options.
7. Overdraft Account
With an overdraft account, a bank is covering payments a customer has made that would otherwise be rejected, or in the case of actual physical checks, would bounce and be returned without payment. As with any loan, the borrower pays interest on the outstanding balance of an overdraft loan.
8. Time Deposit
It is also called a term deposit account. It has an interest-bearing bank account with a fixed term. It allows depositors to grow their money with higher interest rates compared to a regular savings account.
9. No-Frill Saving Accounts
Individuals having a no-frill account need not maintain minimum balance criteria or very low minimum balance. This was after instruction from the Reserve Bank of India to reach vast sections of the population. However, the no-frills account comes with certain restrictions, which vary from bank to bank.
10. Senior Citizen Savings Bank Account
As the name indicates the Senior Citizen Savings Bank Account, is tailor-made for people over 60. There are various benefits attached to it such as preferential rates of FD and comparatively fewer charges involved fees and charges.
Functions of Bank
Click here to read in detail about the various functions
Click here to view the Sample Letters Post Lesson Tasks
1. Draft a letter from a customer regarding dishonor of cheque
0r
1. Give an oral presentation in class regarding any of the topics from 'Different types of Banks' or 'Different Types of Bank Accounts'
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