Banking Operations and Deposit Rules
This domain tests how a bank actually works: which accounts exist, what each does, how money moves, and which numbers are fixed by law. Most marks come from rules rather than from theory.
Primary and secondary functions
Primary functions are accepting deposits (savings, current, fixed, recurring) and lending (term loan, cash credit, overdraft). Secondary functions are agency work (cheque collection, standing instructions, forex) and utility services (lockers, cards, fund transfers). A bank earns from the spread between the deposit rate it pays and the lending rate it charges.
Fixed rules to memorise
- A scheduled bank is one listed in the Second Schedule of the RBI Act, 1934.
- A cheque is valid for 3 months from the date written on it.
- Crossing (two parallel lines) means the amount is credited only to an account; an order cheque needs endorsement before payment.
- KYC is compulsory before an account is opened.
- DICGC insures deposits up to ₹5 lakh per depositor per bank.
- RTGS minimum is ₹2 lakh; NEFT has no minimum. UPI, IMPS, RuPay and AePS run on NPCI systems.
- Priority sector lending target for universal banks: 40% of adjusted net bank credit.
Worked example: fixed deposit maturity
₹20,000 at 7% p.a. compounded annually for 2 years. Year 1: 20,000 × 0.07 = ₹1,400 → ₹21,400. Year 2: 21,400 × 0.07 = ₹1,498 → ₹22,898. Total interest ₹2,898, not ₹2,800, because year-1 interest is added to the principal and earns interest itself.
Traps that cost marks
- Using simple interest when the question says compounded.
- Writing "₹5 lakh per account". The cover is per depositor per bank.
- Confusing RTGS (high value, real-time) with NEFT (batch settlement, any amount).
- Saying a current account earns interest. It does not.