Banking Assignment

On

Term Deposit

Submitted By Nitin Jain

PGDFC 09FC021

Term Deposit A liability for bank

It refers to such deposit which are placed with the bank for a definite time period,

although the customers are free to withdraw their deposit as per there requirements.

What does Deposit Means?The term 'Deposit' means to keep something in safe custody of someone whom one

trust or for the purpose of generating trust, to be returned back when the need arises for the

same by the depositor, or when the purpose of the depositee has been served by the

depositor.

ELIGIBILITYTerm deposit accounts can be opened by the following ways

A person in his/her own name

Two or more persons in their joint names payable to:

-- Both or all of them or to the survivor(S)

-- Either or any one or more of them or to the survivor(s)

A natural guardian on behalf of a minor.

A natural guardian in the joint names of himself / herself and the minor, payable to

either or survivor.

A person in name of any minor of whom he / she is the guardian appointed by a

competent court.

A minor aged ten years or above in his / her single name to be operated upon by

himself / herself.

A club, association, society, educational institution and other such bodies.

Trustees / Executors / Administrators / Courts.

Proprietary concerns, Partnership firms and Limited Companies.

Central/State Government Departments / Corporations / Organizations, Local Bodies

and statutory authorities, Quasi Government Bodies etc.

Members of Staff / Ex-staff of Indian Overseas Bank.

Advantages of Term Deposit From depositor’s point of view

--Income from investment.

--Guaranteed return at a fairly high interest rate is the attraction.

--An effective way of locking away savings so that it will not be spent unnecessarily.

--Loan against the fixed deposit

From depository’s point of viewFrom depository’s point of view

--A source to provide advances.

Disadvantage of Term Deposit You can't get your money out until the term is completed.

It is mandatory to pay penalty for early withdrawal.

You may miss an opportunity to invest or make a big purchase, because your assets

are tied up.

You could end up with a cash-flow problem.

Account of blind and illiterate person: Accounts may be opened for blind persons or for illiterate persons using thumb

impression.

Such persons should call on the bank to know more details and for the precautions to

be taken by them for operations

Account of minors:

When accounts are opened in the sole name of the minors aged 10 years and above,

no advance will be allowed against the security the deposit.

No premature payment of the deposit will be allowed.

Where the account is opened by the guardian on behalf of the minor the deposit is

payable to the natural guardian on the due date.

However, if the minor attains majority on or before the due date of the deposit, the

amount will be payable only to the erstwhile minor and not to the guardian.

Irrespective of whether guardianship certificate is obtained or not. In the case of

accounts opened by a natural guardian in the joint names of himself and then minor

with “E or S” mandate the amount will be payable to the erstwhile minor or the

natural guardian on the due date.

Introduction: In case of an existing account holder of a Savings/Current/Term deposit account of

the bank.

When a reference to the existing account is given in the account opening form, bank

may not insist on introduction.

New accounts not having an account already with the bank should be properly

introduced to the satisfaction of the bank. Introduction to open an account may be

typically from any one of the following

a. An existing account holder who has been maintaining a satisfactorily conducted

account for a period of at least six months.

b. A respectable member of the public with acceptable bonafides and well known to

the bank.

c. Any permanent member of our bank’s staff.

Bank will open the account after verifying with the introducer.

TO OPEN AN ACCOUNT

Persons desiring to open a Term deposit Account must attend the Bank.

They will be furnished with a copy of these rules and a form of an application to open

an account.

The application form should be duly filled in and signed as per the requirements

mentioned therein.

Accounts opened by Individuals and Proprietary firms with the Bank would carry a

nomination and the depositor (s) shall at the time of opening the account nominate an

individual (not being a minor) of his/her/their choice and submit the application along

with the nomination form annexed to the account opening form) duly filled in and

signed.

Nomination in two or more names/proportionate nomination is not allowed.

The nomination can be changed any time by submitting the prescribed form to the

bank.

For customers who do not have already a relationship with the bank, every party to

the account is required to give two copies of latest passport size photographs and

the specimen signature clearly mentioning the authority for record.

The requirement of photographs is waived in case of Banks, Local Bodies and

Government Departments and Term Deposits for an amount up to and inclusive of

Rs. 10000/- (Ten Thousand only).

All the Partners / Directors / Trustees must sign the application form and the specimen

signature sheet.

The signature(s) must be legible and well formed. All letters to the bank must be

signed strictly in accordance with such specimen and as per authority furnished to the

bank.

Along with the applications, only in case of new customers to the bank every party

to the account is required to furnish a CROP (Customer's Record of Profile) form

duly filled in and signed to comply with Know Your Customers’ (KYC) norms as

prescribed by RBI.

This form would be updated every year by the customer. Bank will normally accept

the following documents for identification and Address proof:

• Present gas connection papers

• Telephone bill

• Electricity bill

• Voters’ ID card

• Driving license

• Passport

• Any other document approved by the bank

(Originals should be submitted with a photocopy. After perusal the bank will return the

original).

Every party to the account should furnish the PAN in the account opening form.

Interest payable It varies from bank to bank

Some charge fixed interest rates and some charge floating rates.

But banks generally do not encourage floating interest rates.

Tax deducted at source on the interest As per section 194- A of the Income tax act 1961.

Income tax would be deducted at source from the interest on time deposits (deposits

excluding Recurring deposits) with banks at prescribed rates if the amount of interest

credited or paid during a Financial year exceed Rupees Ten thousand only branch

wise.

Some frequently asked questions:

Whether banks can accept interest free deposits?

Banks cannot accept interest free deposits other than in current account.

Whether banks can pay interest on term deposits monthly?

Interest on term deposits is payable at quarterly or longer rests.

In case of monthly deposit schemes, as per banking practice, the interest is calculated

for the quarter and may be paid monthly at the discounted value.

Whether banks can pay differential rates of interest on term deposits aggregating

Rs.15 lakh and above?

Differential rates of interest can be paid on single term deposits of Rs.15 lakh and

above and not on the aggregate of individual deposits where the total exceeds Rs.15

lakh.

Whether banks can pay commission for mobilizing deposits?

Banks are prohibited from employing / engaging any individual, firm, company,

association, institution for collection of deposits or selling of deposit linked products

On payment of remuneration or fees or commission in any form or manner except

commission paid to agents employed to collect door-to-door deposits under a special

scheme.

Banks have also been permitted to use the services of Non-Governmental

Organizations (NGOs)/ Self Help Groups (SHGs) / Micro Finance Institutions (MFIs)

and other Civil Society Organizations (CSOs) as intermediaries in providing financial

and banking services including collection of deposits through the use of the Business

Facilitator and Business Correspondent models and pay reasonable commission/fees.

Whether banks can prematurely repay term deposits on their own?

A term deposit is a contract between the bank and the customer for a definite term and

it cannot be paid prematurely at the bank’s option.

However, a term deposit can be paid prematurely at the request of the customer

subject to the terms of the contract, including penalty, if any.

Whether banks can refuse premature withdrawal of term deposits?

Banks may not normally refuse premature withdrawal of term deposits of individuals

and Hindu Undivided Families (HUF),irrespective of the size of the deposit.

However,banks at their discretion, may disallow premature withdrawal of large

deposits held by entities other than individuals and Hindu Undivided Families.

Banks should notify such depositors of their policy of disallowing premature

withdrawals in advance, i.e. at the time of acceptance of deposits.

Whether banks can levy penalty for premature withdrawal?

Banks have the freedom to determine their own penal rates of interest for premature

withdrawal of term deposits.

How and when are banks required to pay interest on the deposits maturing on holiday/

non-business working day/ Sunday?

Banks should pay interest at the originally contracted rate on the deposit amount for

the holiday/ Sunday/ non-business working day  intervening between the date of

expiry of the specified term of the deposit and the date of payment of the proceeds of

the deposit on the succeeding working day.

Whether banks can pay additional interest admissible to banks' staff on the deposit

placed in the name of minor child/ children of the deceased members of staff?

No. Children (including minor) are not eligible for additional interest admissible to

banks' staff members/ retired staff members.

Whether additional interest admissible to banks' staff can be paid on the compensation

awarded by the court to a minor child and deposited in the joint names of minor child

and parent?

No. As the money belongs to the minor child and not the banks' staff, additional

interest cannot be paid.

Whether banks are permitted to offer differential rate of interest on other deposits?

Banks can formulate special fixed deposit schemes specifically for resident Indian

senior citizens offering higher and fixed rates of interest as compared to normal

deposits of any size.

Interest payable on a deposit standing in the name of a deceased deposit

In the case of a term deposit standing in the name/s of a deceased individual

depositor, or two or more joint depositors, where one of the depositors has died, the

criterion for payment of interest on matured deposits in the event of death of the

depositor in the above cases has been left to the discretion of individual banks subject

to their Board laying down a transparent policy in this regard.

In the case of balances lying in current account standing in the name of a deceased

individual depositor/ sole proprietorship concern, interest should be paid only from

May 1, 1983 or from the date of death of the depositor, whichever is later, till the date

of repayment to the claimant/s at the rate of interest applicable to savings deposits as

on the date of payment. However, in the case of NRE deposits, if the claimants are

residents, the deposit on maturity is treated as a domestic rupee deposit and interest is

paid for the subsequent period at the rate applicable to domestic deposits of similar

maturity.

Guidelines for renewal of overdue deposits All aspects concerning renewal of overdue deposits may be decided by individual

banks subject to their Board laying down a transparent policy in this regard and the

customers being notified of the terms and conditions of renewal.

Including interest rate, at the time of acceptance of the deposit.

The policy should be non-discretionary and non-discriminatory

Term deposit under different Banks:Term deposit under personal account of I.C.I.C.I Bank

Features

You can deposit any amount of money in Fixed Deposit for as long as you wish

between 15 days to 10 years.

All fixed deposits come with a set choice of investment plans.

Fixed Rate Deposit accounts also provide Fixed Loans.

Re-investment Fixed Deposit rates do not change but work likes a Recurring Debit

Account transaction.

In other words, Re-investment Plans are compounded over traditional deposits and

hence are more lucrative over different time periods.

Benefits

Fixed Deposits at ICICI Bank comes with nomination facility.

They also offer online access to your Fixed Deposits through our Internet Banking

channel.

Internet Banking at ICICI Bank allows you to connect your Credit Card, Loan and

your Fixed Deposit with your savings account.

In re-investment deposits, the interest is compounded quarterly and reinvested with

the principal.

Traditional term deposits provide tax shelter and shield you from factors affecting

fixed deposits in India over longer periods of fixed time.

Interest rates

Varies with time period and quantum of deposit

For unto 14 days (less than rs.15 lacs), no interest

For unto 14 days (more than Rs15 lacs), 2% interest is charged.

You can follow it from the ICICI official web site.

Term deposit of SBI

State Bank of India fixed deposit is a good option to earn higher income on surplus

funds.

Bank offers flexibility in period from 15 days to 10 years and can be opened with a

nominal amount of Rs. 1000/- only.

Against your fixed deposit you can take loan/overdraft during your urgent financial

requirement.

There is premature withdrawal facility, transfer of term deposit within bank network

with out any charge, interest is accumulated in your account timely and gets

compounded quarterly, automatic renewal of your deposits on maturity.

You can convert your special term deposit and vice versa.

Interest rates

For 15-45 days (1-15 lacs), 2.5% interest

You can analyze the interest rates given by SBI the official

Coclusion:

This was all about term deposits.