Bank Operations

What is the process through which system of banking operates? Banking is based on the basic maxim of trust.  We have this faith in the banks that when we need our money deposited in the bank, bank would pay the same to us. We have faith in the bank that when the check that we have written in favor of an entity or an individual, when is presented before the bank, it would honor the same. Here is a reality check. The money that you keep on depositing on a daily basis in the banks is being lent the same day by the banks to other clients, making income from the money that we are depositing faithfully.

Working of the banks

On a daily basis banks lends more credit than the deposits that they have with them. Does it sound some what scary, that the banks are living beyond their means? But if you want an assurance about your money, just walk into the bank and ask for it, and you will get the same. In a normal day if the bank is having about 500 deposit accounts, in the rush hour it so happens that about 200 persons may walk in and demand the money, but still deposit of 300 persons is with the banks. The problem would arise if each and every person who has deposited his or her money with the bank walks into the bank branch and demands to withdraw their deposits.

Though the constitutional provisions in all the countries have mandated that the banks keep a certain quantum as a reserve, if every person who holds the account decide to withdraw the money the reserves of the bank would fall woefully short of meeting the demand. If this happens, then there would be a failure of the bank. All the governments have also laid down norms for the quantum of deposits that has to be provided by the banks to tide over the situation of bank failure. The bank’s success however hinges on the confidence that the customer of the bank has in the ability of the bank to grow on a continuous basis and provide protection to the money deposited by you. The viability and vibrancy of a bank stems from the trust of the customers that they are able to cultivate for themselves, and use it as the building block to expand the operations and attain diversification as well. It is the trust which being the basis building block and the integrity that flows out of it, banks all over the world are governed by regulations in one form or the other by the government.

By: Suman Rai

Reserve Bank of India

Bank going by its definition in strict sense of terms is an entity on which you can have faith. This is precisely the maxim under which the banks operate. The functioning of the bank is derived from the trust that we bestow upon them as a custodian of our money. It is owing to this trust that we deposit our money with the banks for its safety. But what do the banks do with the money that we deposit with them. They lend it onwards to some other person and make money for themselves; mind you it is your money which has been lent onwards by the bank. So, the bank earns profit on the money that we have deposited with it, sort of a charge for keeping the money with it.

Origin of money

Though we are aware that banks lend our money onwards, still we have the trust and faith in the banks and deposit our surplus cash with the banks. Such is the trust that we hold in the banks that we are happy about it being deposited in the bank and not having the comfort to see it, while had it been kept below the mattress we would have had the satisfaction of seeing our money with our own eyes on a day-to-day basis.

What is the operative psychology which motivates us to keep our deposits with the bank? Is it the interest that we earn on our deposits which motivates and cajoles us to keep our deposits with the banks?  Is it, owing to the fact that if the money is in our hands, there would be an inherent temptation to spend it, while if it is deposited in the bank it would keep a tight leash on our spending habits? If such is the scenario what about the spending that are done on a lavish scale through the credit cards? Is the motivation to deposit the money with the banks guided by our convenience to issue checks and swipe the debit cards, and riding us of carrying fat cash in the wallets?

The answer could be one of the above reasons which motivate us to keep our money deposited with the banks, or it could be a combined effect of all of them, when viewed from the perspective of advent of the electronic banking in the modern times. Banking has now evolved in such a manner that mere press of a button on the computer to execute the command of “pay” on a website completes the process of making a payment and completing the transaction.

By: Suman Rai

The entire scenario for shopping this holiday season is changing with new developments. On a Black Friday sale, people would stand in the freezing cold and queue up outside the stores at 4am in the morning to grab the door buster deals. But now things are changing.

In a new development, the deals will be available from right now throughout the remainder of the holiday season online.

You can monitor the best deals out there on any number of Web sites dedicated to Black Friday deals. Check out blackfriday.info, gottadeal.com and bfads.net.

Buying extended warranties during this time of the year would be a sales pitch found everywhere. But Flat-panel LCD and plasma TVs fail at only a 3 percent rate during the first three years of ownership, according to Consumer Reports. So think before you shed in extra money to buy a warranty.

Yet there is a free way to extend a manufacturer’s warranty. Many credit card issuers will double the warranty up to one additional year if you use their card to make the purchase.

If you’re an online shopaholic, make sure you have a personal identification number (PIN)/password for your credit or debit cards. Otherwise, forget about using them for internet shopping from August 1.

A recent directive by the Reserve Bank of India makes it mandatory to have an additional authentication passcode verified by Visa or MSC (Mastercard Secure Code). This is in addition to the other information already on the card like name, card number, expiry date and CVV (card verification value) number.

So how do you get this new password? Credit/debit card users have to register online with their banks, giving personal and card details. They will then be given a PIN or password to be be used as an additional layer of security at the checkout point before completion of the transaction.

This will be known to the card holder only. So, even if somebody notes your card number, he can’t misuse it for online shopping.

With the date fixed for RBI directive to take effect getting close, banks are loaded with thousands of requests for additional authentication. Some are allowing customers to create passwords on their websites while others are busy sending fresh user IDs and passwords to customers via post. Some banks like Citibank are allowing customers to use net banking password as their password for e-commerce transactions.

“We have already started the process of making the consumer aware of the service using text message alerts, e-mails and advertisements. Having started the process much ahead, we are well equipped to implement the process fully,” said a spokesperson of ICICI Bank.

In fact, ICICI Bank has gone one step ahead. While generating 6-digit PIN as an additional security layer, it also asks its customer to type a message, known as personal assurance message (PAM) on the same web-page. This PAM is known only to customers. When you type your credit card number on the merchant’s website, it will take you to the bank’s website to complete the transaction, where you need to type in the PIN.

Prabhu Rangam, AGM (IT), State Bank of India, says, ‘‘SBI has already accommodated the required change. Our debit cards are PIN based, so they may not require another layer of security.’’ However, in case of credit card, the customers have to apply for PIN.

Industry observers feel that although RBI directive may be a dampener for e-commerce industry initially, in a few months it would help the space to grow faster as it will deter online frauds.

In their constant pursuit of recovering dues from credit card customers, banks are empowering themselves with a tool that allows them to ask employers to deduct the outstanding amount from the salary.

Employees who may have defaulted on payment, however, cannot object to this deduction of dues at source, according to the new clause introduced in the ‘terms and conditions’ by the country’s largest private sector lender ICICI Bank and expected to be adopted by others as well.

Such deductions will be remitted to the bank and will continue till the entire dues are recovered.

The amended ‘terms and conditions’ say that “no law or contract” governing either the card holder or employers prevents the bank from seeking such deduction and subsequent payment by the employer to the bank.

When contacted, an ICICI Bank spokesperson confirmed the new clause. “This clause is applicable only for customers who default on their credit card payments. Prior notice has already been sent out to all customers to make them aware of this clause,” the spokesperson said.

“Only the defaulters in repayment need to be concerned and it is not of concern to regular customers,” he added.

With this clause, ICICI Bank is now “entitled and authorised to contact and require the card holder’s/card member’s employers to make deduction/s from the salary/wages payable by the employer to the card holder/card member and to remit the same to ICICI Bank until all of the card holder/card member dues outstanding from the card holder/card member to ICICI Bank is/are completely discharged.”

Besides, as per the new clause, it would be the bank which would decide upon the quantum of the deduction.

“The deductions shall be of such amounts, and to such extent, as ICICI Bank may communicate to (and instruct) the card holder’s/card member’s employers,” says the revised terms and conditions of the bank.

“The card holder/card member shall not have, or raise/ create any objections to such deductions. No law or contract governing the card holder/card member and/or the card holder’s/card member’s employer prevents or restricts in any manner the aforesaid right of ICICI Bank to require such deduction and payment by the card holder’s/card member’s employer to ICICI Bank,” it adds.

The revised credit card terms and conditions, after incorporating the new clause, have come into effect from July 23, 2009.

London, May 13 (ANI): Visa is testing a credit card with an in-built display for its efficacy in reducing online fraud.

The Emue Card’s developers have revealed that it generates and displays a unique code each time it is used.

They claim that it will make the commission of online fraud very difficult because any transaction would require the pin to generate the code.

Presently, 500 employees of Deloitte are trying the car to assess the technology by the end of the year.

The new technology appears to be significant considering that it may help reduce the so-called card-not-present (CNP) fraud.

These transactions ask for the 16-digit code on the front of the card, and expiry date and some also ask for the three-digit security card on the back. All of these details are available to a criminal who has a stolen card.

Michelle Whiteman, a spokesperson for the Association for Payment Clearing Services (Apacs), revealed that authorities have been facing a number of problems in tackling CNP fraud.

“Firstly, you aren’t able to check the card’s physical security measures, such as the hologram or signature. Then, at present, there is no form of chip and pin security,” the BBC quoted her as saying.

“And finally, because of the anonymous nature of internet transactions, there fraudsters have a much lower chance of getting caught, which probably encourages some people who might otherwise not commit a crime,” she added.

According to Visa, the new Emue system may help combat this by adding an additional layer of security.

The company says that in addition to the three-figure security code, an additional four figure code, generated by the card, would also be required before a transaction could go through.

Sandra Alzetta, head of innovation at Visa, said that she was confident that banks and credit card companies would like to take up the new technology, once it was certified.

“I see this as a very consumer focused product and any Visa bank could add it to their commercial cards and make it available, assuming it passes muster,” she said.

The card’s developers have also tried to ensure that it can be handled like any other card without accidentally pressing buttons or breaking the display.

“We’ve made the buttons in such a way that you need to ‘pinch’ them, rather than just press, for them to work. One of the things we’re testing is how long the battery lasts – the plan is for it to work for more than three years, which means your card should expire before it runs out of power,” they say. (ANI)