CHSE Odisha Banking & Insurance cheat sheet

A bank accepts deposits repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise - the core legal test of "banking" under the Banking Regulation Act, 1949.

Primary functions: accepting deposits, lending and advancing loans, creating credit, and facilitating payments. Secondary functions: agency services (collections, standing instructions) and general utility services (lockers, letters of credit).

Credit creation: a bank creates deposits when it lends. Maximum deposit expansion = initial deposit × (1 / cash reserve ratio). A 10% reserve on a ₹1,000 deposit supports up to ₹10,000 of deposits.

Commercial banks are profit-oriented and lend to trade and industry; central banking is a non-profit public function; development finance institutions lend long-term for projects.

A scheduled bank is one included in the Second Schedule of the RBI Act, 1934 - it must be a state cooperative bank, a company under the Companies Act, or an institution notified by the Central Government.

Non-banking financial companies cannot accept demand deposits and are not part of the payment system as banks are; they are regulated by the RBI under the RBI Act, 1934.

Financial inclusion means delivery of banking services at affordable cost to disadvantaged and low-income segments; the no-frills/BSBDA account and Business Correspondent model are its main instruments.

Bank rate, repo rate, reverse repo, CRR and SLR are quantitative tools of monetary control; moral suasion, margin requirements and direct action are qualitative or selective tools.

The Reserve Bank of India, established 1 April 1935 under the RBI Act, 1934, is the central bank: it issues currency, acts as banker to government and banks, manages foreign exchange, and regulates banks.

Currency issue is on the minimum reserve system: the RBI holds at least ₹200 crore of gold and foreign securities, of which gold must be at least ₹115 crore.

Commercial banks are classified by ownership (public sector, private sector, foreign), by function (industrial, agricultural, exchange, savings), and by registration (scheduled and non-scheduled).

Public sector banks include State Bank of India and its associates/former associates plus nationalised banks; SBI was created by the SBI Act, 1955 and nationalisation of 14 banks occurred in 1969, with 6 more in 1980.

Cooperative banks form a three-tier structure: state cooperative banks at apex, district central cooperative banks in the middle, and primary cooperative credit societies at the base.

Regional Rural Banks were set up under the RRB Act, 1976, typically with shareholding of 50% central government, 15% state government and 35% sponsor bank.

The RBI's regulatory departments include Banking Regulation, Supervision, and the Department of Regulation; the SEBI, IRDAI and PFRDA regulate other financial segments, not banking.

Small Finance Banks and Payments Banks are differentiated licences: payments banks can accept deposits up to a prescribed limit but cannot lend; small finance banks must hold 75% of advances in priority sector.

The relationship is contractual and generally debtor–creditor: the depositor is a creditor of the bank, and the bank is a debtor, with the bank paying on demand at the branch.

Special relationships run alongside: trustee (for safe custody and securities), agent (for collection of cheques and bills), bailee (for articles in safe deposit), and lessor–lessee (for a locker).

The bank's duty of secrecy is implied; disclosure is permitted by law, by express or implied customer consent, in the bank's own interest, or in the public interest.

The bank must honour cheques drawn by a customer provided funds are sufficient, the cheque is properly drawn and presented within time, and there is no legal bar such as garnishee order, insolvency or death notice.

A minor may open and operate a savings account; under Section 26 of the Negotiable Instruments Act a minor may draw, endorse and negotiate instruments, but a minor cannot be held personally liable on a loan.

Types of accounts: savings (limited withdrawals, interest-bearing), current (no interest, high transaction freedom, for businesses), fixed deposit (fixed term, higher interest), and recurring deposit (periodic instalments).

Joint accounts carry modes of operation: either or survivor, former or survivor, jointly, or anyone or survivor; the mode chosen determines who can withdraw and who receives the balance.

The RBI's KYC Master Directions require customer due diligence at account opening, periodic updation, and risk categorisation into low, medium and high risk.

Deposits are classified by repayment: demand deposits (savings and current) are payable on demand; time deposits (fixed and recurring) are payable after the agreed period.

Fixed deposit interest may be paid monthly, quarterly or on maturity; premature withdrawal usually attracts a penalty of a fixed percentage below the applicable rate.

Interest on savings deposits is calculated on the daily balance method, with interest credited at quarterly or other prescribed intervals.

Recurring deposits require fixed monthly instalments for a fixed term, and the maturity value includes interest compounded as per the deposit card.

Deposit insurance: the Deposit Insurance and Credit Guarantee Corporation insures deposits up to ₹5,00,000 per depositor per bank, covering principal plus interest.

Bulk deposits and certificates of deposit are wholesale instruments; a CD is a negotiable money market instrument issued by banks with maturity of at least seven days.

NRE deposits are for non-resident Indians in foreign currency earnings, FCNR(B) deposits are foreign currency deposits, and NRO accounts hold rupee income earned in India.

Unclaimed deposits of ten years or more are transferred to the RBI's Depositor Education and Awareness Fund, and the depositor can still claim them from the bank.

Loan classification by security: secured (backed by hypothecation, mortgage, pledge or lien) and unsecured (clean loans, personal loans).

Forms of security: pledge is delivery of goods as security; hypothecation is a charge on movable assets without transfer of possession; mortgage is a charge on immovable property; lien is a right to retain property until a debt is paid.

The five Cs of credit: character, capacity, capital, collateral and conditions - the framework for assessing a borrower's creditworthiness.

Cash credit and overdraft are working capital facilities on a running account; a term loan is repaid in instalments over a defined period.

Priority sector lending targets: 40% of adjusted net bank credit for domestic commercial banks, 18% for agriculture, 7.5% for micro enterprises, and 12% for weaker sections.

NPA classification: a loan is a non-performing asset when interest or principal is overdue for more than 90 days; sub-standard, doubtful and loss assets follow the provisioning norms.

The SARFAESI Act, 2002 allows secured creditors to enforce security without court intervention after a 60-day notice; the Insolvency and Bankruptcy Code, 2016 provides the corporate resolution route.

A credit report from a credit information company (CIBIL, Experian, CRIF) records repayment history and is a key input to loan sanction and pricing.

Section 13 of the Negotiable Instruments Act, 1881 defines a negotiable instrument as a promissory note, bill of exchange or cheque payable either to order or to bearer.

Cheque: a bill of exchange drawn on a specified banker and payable on demand. It includes a truncated cheque and an electronic cheque.

Key parties: drawer (maker), drawee (bank), payee (beneficiary), endorser (who signs on the back) and endorsee (to whom transferred).

Crossing: a general crossing (two parallel lines) means payment only through a bank; a special crossing names a specific bank; an account payee crossing restricts collection to the payee's account.

A stale cheque (older than three months, unless otherwise validly presented) and a post-dated cheque are not payable on presentation; the RBI has capped cheque validity at three months.

Payment systems: RTGS for high-value real-time settlement (minimum ₹2 lakh), NEFT for batch retail transfers, IMPS for 24x7 instant transfers, and UPI for instant mobile payments.

CTS (Cheque Truncation System) replaces physical cheque movement with an electronic image and data; the collecting bank's image becomes the legal instrument.

Section 138 makes dishonour of a cheque for insufficiency of funds a criminal offence, with a demand notice within 30 days of intimation and a 15-day period for payment.

Insurance is a contract of indemnity in general insurance and a contract of benefit in life insurance; both rest on the pooling of risk across many policyholders.

Insurable interest is the legal right to insure arising from a financial relationship with the subject matter; it must exist at the time of the contract in life insurance and at the time of loss in general insurance.

Core principles: utmost good faith, insurable interest, indemnity, proximate cause, contribution, subrogation and mitigation of loss.

Utmost good faith requires the proposer to disclose all material facts; non-disclosure or misrepresentation can render the policy voidable.

A contract of insurance requires offer, acceptance, consideration (the premium), capacity, free consent and a lawful object.

Moral hazard is the risk that the insured's behaviour changes because of insurance; anti-selection (adverse selection) is the tendency of high-risk persons to buy cover.

Reinsurance is insurance of the insurer's own risk with another insurer; coinsurance is the sharing of a single risk by two or more insurers.

The Insurance Act, 1938, the IRDA Act, 1999 and the IRDAI regulations form the statutory framework for insurance in India.

Life insurance pays a sum assured on death or on survival at maturity; it is a contract of benefit, not of indemnity, because a human life cannot be valued in money.

Insurable interest in life insurance must exist at the time of the contract and is presumed for self, spouse and dependent relatives; it need not exist at the time of claim.

Types: term assurance (pure protection, no maturity benefit), whole life, endowment (death plus maturity), money-back, and unit-linked insurance plans (ULIPs).

Premium components: mortality charge, expense loading, savings/investment component and reserves; the net premium excludes expenses while the gross premium includes them.

Underwriting assesses the risk through age, health, occupation, family history and habits; loadings, exclusions or declinature follow.

Grace period for premium payment is typically 15 days for monthly and 30 days for other modes; the policy lapses if premium is unpaid beyond this.

Nomination names a person to receive the policy money; assignment transfers the policy rights to another person.

IRDAI rules: a free-look period of 15 days (30 days for distance marketing) allows cancellation, and ULIPs have a minimum lock-in of five years.

General insurance indemnifies actual loss, subject to the sum insured; the insured cannot profit from a claim.

Fire insurance covers damage to property by fire, lightning and explosion; marine insurance covers hull and cargo; motor insurance is compulsory for third-party liability under the Motor Vehicles Act.

Motor insurance has two parts: third-party liability (statutory, unlimited for death/injury) and own damage (optional, covering the insured vehicle).

Health insurance covers hospitalisation, pre- and post-hospitalisation, day-care procedures and specified exclusions; cashless facility is available at network hospitals.

A deductible is the amount the insured bears before the insurer pays; a franchise is a deductible that is waived if the loss exceeds it.

Average clause: if the sum insured is less than the value of the property, the claim is reduced in proportion - claim = (sum insured / property value) × loss.

Subrogation lets the insurer step into the insured's shoes to recover from a negligent third party after paying the claim.

Burglary, fidelity guarantee, crop, aviation, engineering and liability are other non-life classes; agricultural insurance is largely delivered through government schemes.

IRDAI was constituted under the IRDA Act, 1999, with its headquarters at Hyderabad; it regulates, promotes and ensures orderly growth of the insurance sector.

Intermediaries include insurance agents, corporate agents, brokers, surveyors and loss assessors, third-party administrators, web aggregators and insurance marketing firms.

A composite insurance agent may sell life and general products; a corporate agent is a firm or company appointed by an insurer to solicit business.

Insurance brokers act on behalf of the insured, not the insurer, and must hold a valid broker's licence and maintain the prescribed solvency margin.

Surveyors and loss assessors assess general insurance losses above the prescribed threshold; they are licensed by IRDAI and must be independent of the insurer.

TPAs (third-party administrators) administer health claims and cashless hospitalisation for insurers and are regulated under the IRDAI health regulations.

IRDAI regulations cover policyholder protection, grievance redressal through the Insurance Ombudsman, commissions and remuneration, and solvency margins.

The Insurance Ombudsman resolves complaints up to the prescribed monetary limit free of cost, with a time limit for the award, and the complainant may still approach a court.