Securities Issued by Banks

8/10/2019 Securities Issued by Banks

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A commercial bank is a type of retail bank

that provides services, such as accepting

deposits, giving business loans and basic

investment products.Commercial banks perform many functions.

Recently banks are widening their functions

and are becoming more customer friendly.

The functions of commercial banks aredivided into two categories: primary

functions and the secondary functions.


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Commercial banks accept various types of

deposits from public especially from its clients,

including saving account deposits, recurring

account deposits, and fixed deposits.

Commercial banks provide loans and advances of

various forms, including an overdraft facility,

cash credit, bill discounting, etc.

Credit creation is most significant function of

commercial banks. While sanctioning a loan to acustomer, they do not provide cash to the

borrower. Instead, they open a deposit account

from which the borrower can withdraw.


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Fixed deposit

It is a deposit which remains with the banker for acertain fixed period. The term of deposit varies fromthree months to five years.

Savings Account

The object of this account is to mobilize small savingsfrom general public. Withdrawal of money from thisaccount is restricted to a certain number of time.Customers earn fair amount of interest which isgenerally allowed on monthly basis.

Current AccountAccount for the purpose of providing frequent access to

funds on demand quickly. No notice is required towithdraw the money. Cheque leaves & ATM facilityare provided for withdrawing money to thecustomers.


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To collect and clear cheque, dividends and interestwarrant.

To make payments of rent, insurance premium, etc.

To deal in foreign exchange transactions.

To purchase and sell securities. To act as trusty, attorney, correspondent and

executor.

To accept tax proceeds and tax returns.

To provide money transfer facility. To issue traveller's cheque.

To provide merchant banking facility.

To provide various cards: credit cards, debit cards,smart cards, etc.


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Bank notes

Bank drafts

Credit cards

Smart cards

Travellers cheque

Bankers acceptance

Certificate of deposit


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A banknote is a type of negotiable

instrument known as a promissory note, made by

a bank, payable to the bearer on demand.

When banknotes were first introduced, they

were, in effect, a promise to pay the bearer

in coins, but gradually became a substitute for

the coins and a form of money in their own right.

Banknotes were originally issued by commercial

banks, but since their general acceptance as aform of money, most countries have assigned the

responsibility for issuing national banknotes to

a central bank.


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The idea of a using durable light-weight substance asevidence of a promise to pay a bearer on demandoriginated in China during the Han Dynasty in 118 BC,and was made of leather.

The first known banknote was first developed in

China during the Tang and Song dynasties, starting inthe 7th century.

Its roots were in merchant receipts of deposit duringthe Tang Dynastyas merchants and wholesalers desired to avoid theheavy bulk of copper coinage in large commercial

transactions. In Europe, the concept of banknotes was first

introduced during the 13th century by travelers suchas Marco Polo, with proper banknotes appearing in17th century Sweden.


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Prior to the introduction of banknotes, preciousor semi-precious metals minted into coins werewidely used as a medium of exchange.

Banknotes were originally a claim for the coins

held by the bank. Due to the ease with which they could be

transferred and the confidence that people hadin the capacity of the bank to settle the notes incoins, they gradually became a means ofexchange in their own right.

Banknotes have a natural advantage over coinsbecause they are lighter to carry but are alsoless durable.


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Generally, a central bank or treasury is solelyresponsible within a state for the issue of banknotes.

In the United States, commercial banks wereauthorized to issue banknotes from 1863 to 1935.

The issuing bank would stamp its name and promiseto pay, along with the signatures of its president andcashier on a preprinted note.

In a small number of countries, private banknoteissue continues even today.

Eg:- In the United Kingdom, certain commercialbanks in two of the union's four constituentcountries (Scotland and Northern Ireland) continue toprint their own banknotes for domestic circulation


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A type of cheque where the payment is

guaranteed to be available by issuing bank.

Banks will review the bank draft requester's

account to see if sufficient funds areavailable for the cheque to clear.

Once it has been confirmed that sufficient

funds are available, the bank effectively sets

aside the funds from the person's account tobe given out when the bank draft is used.


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(1) It is a very useful instrument for settlement of debts. A

debtor by purchasing a draft from a bank and sending it tothe creditor can clear the debt owned by him.

(2) The bankers drafts are used for remitting funds abroadas well as within the country.

(3) A payment through bankers draft can be made by AirMail Transfer (A.M.T.) or a Telegraphic Transfer (T.T.). Thepayment through T.T., though expensive, can be effectedwithin a few hours of dispatch.

(4) A draft is a very reliable and authenticated instrumentof credit for remitting money.

(5) The settlement of payment by draft has greatly helpedin the financing of domestic as well as foreign trade.


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A credit card is a payment card issued to

users as a system of payment.

It allows the cardholder to pay for goods and

services based on the holder's promise to payfor them.

The issuer of the card creates a revolving

account and grants a line of credit to

the consumer from which the user canborrow money for payment to a merchant or

as a cash advance to the user.
http://en.wikipedia.org/wiki/Credit_cardhttp://en.wikipedia.org/wiki/Credit_card


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The concept of using a card for purchases was

described in 1887 by Edward Bellamy in his utopian

novel Looking Backward. Bellamy used the

term credit cardeleven times in this novel.

The modern credit card was the successor of avariety of merchant credit schemes.

It was first used in the 1920s, in the United States,

specifically to sell fuel to a growing number

of automobile owners.

In 1938 several companies started to accept each

other's cards. Western Union had begun issuing

charge cards to its frequent customers in 1921. Some

charge cards were printed on paper card stock.


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Credit cards are issued by a credit card

issuer, such as a bank or credit union, after

an account has been approved by the credit

provider.

Cardholders can use it to make purchases

at merchants accepting that card.

Merchants often advertise which cards they

accept by displaying acceptance marks generally derived from logos or may

communicate this orally.


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When a purchase is made, the credit card user

agrees to pay the card issuer.

The cardholder indicates consent to pay by

signing a receipt with a record of the card

details and indicating the amount to be paid or

by entering a personal identification

number (PIN).

Electronic verification systems allow merchants

to verify in a few seconds that the card is validand the credit card customer has sufficient

credit to cover the purchase, allowing the

verification to happen at time of purchase.


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The main benefit to each customer is

convenience.

A credit card allows small short-term loans to

be quickly made to a customer who need notcalculate a balance remaining before every

transaction, provided the total charges do

not exceed the maximum credit line for the

card. Credit cards also provide more fraudprotection than debit cards.


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Cardholder: The holder of the card used to

make a purchase; the consumer.

Card-issuing bank: The financial institution or

other organization that issued the credit cardto the cardholder.

Merchant: The individual or business

accepting credit card payments for products

or services sold to the cardholder. Acquiring bank: The financial institution

accepting payment for the products or

services on behalf of the merchant.


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Independent sales organization: Resellers (to

merchants) of the services of the acquiring

bank.


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Premium Credit Cards, Cash Back

Credit,Cards Gold Credit Cards, Airline Credit

Cards, Silver Credit Cards, Business Credit

Cards, Balance Transfer Credit Cards, Co-

branded Credit Cards, Low Interest Credit

Cards, Lifetime Free Credit Cards.


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A small plastic card embedded with an IC chip.

A microprocessor capable of securely storing andprocessing information.

Smart Card has its origin in 1970s by inventors

from Germany, Japan and France. Until mid 80s most of the work on Smart Cards

was at the research and development level.

First use was with the integration of microchips

into all French debit cards. The major boom in smart card use came in the

1990s, with the introduction of the smart-card-based SIM used in GSM mobile phone.


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The benefits of smart cards are directly related

to the volume of information and applications

that are programmed for use.

A single contact/contactless smart card can be

programmed with multiple banking credentials,

medical entitlement, drivers license/public

transport entitlement, loyalty programs and club

memberships etc.

Governments and their local regional authoritiesgain a significant enhancement to the provision

of publicly funded services through the increased

security offered by smart cards.


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A travellers cheque is a check that is issued by afinancial institution that can be used as a formof payment.

Travellers cheques are most often used by those

traveling because they are widely accepted aspayment in many parts of the world, yet can bereplaced if lost or stolen by the issuing financialinstitution.

A traveler's cheque is a preprinted, fixed-

amount cheque designed to allow the personsigning it to make an unconditional payment tosomeone else as a result of having paid theissuer for that privilege.


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They were generally used by people on

vacation instead of cash as many businesses

used to accept traveller's cheques as

currency.

If a traveler's cheque were lost or stolen,

they could be replaced by the issuing

financial institution.


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Traveler's cheques were first issued on 1 January 1772 bythe London Credit Exchange Company for use in ninetyEuropean cities,

In 1874 Thomas Cook was issuing 'circular notes thatoperated in the manner of traveler's cheques.

American Express was the first company to develop alarge-scale traveller's cheque system in 1891,and is stillthe largest issuer of traveler's cheques today by volume.

Between the 1950s and the 1990s travelers chequesbecame one of the main ways that people tookmoney on vacation for use in foreign countries

without the risks associated with carrying largeamounts of cash.

Several brands of travelers cheques have beenmarketed; the most familiar of those were ThomasCook Group, Bank of America and American Express.


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A customer should be able topurchase travellers cheques from most majorfinancial institutions.

At the time of purchase, the customer will

be required to sign eachindividual travellers cheque.

The signature is one of the security featuresof travellers cheques as the user will be

required to countersign the check at thepoint of redemption.

If the signatures do not match,the cheque will not be accepted.


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At the time of purchase, the customer should

be provided with a listing of the serial

numbers of the cheques that were

purchased.

If any cheques are reported lost or stolen,

most banks will require the customer to

provide the serial numbers of the missing

cheques. This allows the bank to verify the validity of

the claim and the cheques.


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Using a travellers cheque is a fairly simple

process.

The customer simply provides the travellers

cheque to the merchant as payment. The customer will then need to sign

the travellers cheque in the presence of the

merchant.

Once the merchant verifies that bothsignatures on the cheques match, the

transaction is completed.


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It is a promised future payment or time draft

which is accepted and guaranteed by a bank and

drawn on a deposit at the bank.

It specifies the amount of money , the date and

the person to which the payment is due ,after

acceptance the draft becomes an unconditional

liability of the bank.

But the holder of the draft can sell it for cash at

a discount to a buyer who is willing to wait until

the maturity date for the funds in the deposit.


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A bankers acceptance starts as a time draftdrawn on a bank deposit by a banks customer topay money at a future date typically within sixmonths ,analogous to a post dated check.

The party that holds the bankers acceptance

may keep the acceptance until it matures andthereby allows the bank to make the promisedpayment ,or it may sell the acceptance at adiscount today to any party willing to wait forthe face value payment of the deposit on the

maturity date.

The rate at which they trade are called bankersacceptance rates


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Certificate of deposit is a negotiable money

market instrument issued in dematerialized

form or as a promissory note by scheduled

commercial banks ,including regional rural

banks and local area banks.

Certificates of deposits are discount

instruments and are issued at a discounted

price and redeemed at par value.


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The tenor of issue can range from 7 days to 1year ,however most certificates of depositsare issued by banks for 3,6,12 months.

Certificates of deposits can be issued to

individuals (other thanminors),corporations,companies trusts ,fundsassociations etc.

Non resident Indians may also subscribe to

certificate of deposits .However they aremainly subscribed to by banks ,mutualfunds,provident fund and pension fund andinsurance companies.


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The minimum amount of a certificate ofdeposit should be 1 lakh that is the minimumdeposit that can be accepted from a singlesubscriber should not be less than Rs 1 lakh

and in multiples Rs 1 lakh thereafter.

There exists an active secondary market for

CDs which witnesses an average volume ofRs 200-300crores per day worth demandand supply determined by the liquidityconditions in the market

Securities Issued by Banks

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