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Introduction to Banking and Banking
Products

TYPES OF BANKING SERVICES
A -FEE BASED BANKING SERVICES
Fee-based banking services are those for which banks in India charge a specific fee to customers
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Instead, they are additional services that can help customers in various ways
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Demand Drafts and Pay Orders: These are used to make payments to someone when you don't want to use
cash or a cheque
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Customers pay an annual fee for using these lockers
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Forex Services: When you need foreign currency for travel or business, banks provide foreign exchange
services
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There may also be fees for late payments, exceeding credit limits, or using the card
abroad
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Financial Advisory Services: Banks offer advice on investments, insurance, and other financial matters
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This
fee is usually a percentage of the loan amount
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B-FUND BASED SERVICES
Fund-based banking services are those where banks in India provide money directly to customers
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Here’s a simple
explanation of some common fund-based banking services:
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Borrowers repay the loan amount with interest over a specified period
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Overdraft Facility: This service allows customers to withdraw more money than they have in their account,
up to a certain limit
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Banks allow businesses to
borrow money up to a certain limit against their inventory or receivables
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The borrowed amount needs to be repaid within a certain period, usually with interest if not paid in
full by the due date
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Term Deposits: Also known as fixed deposits, these are investment products where customers deposit a
lump sum of money for a fixed period
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Banks pay interest on
savings accounts (usually lower) and may charge fees for current accounts
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Mutual Funds and Investment Products: Some banks offer mutual funds and other investment products
where they pool money from various customers to invest in stocks, bonds, or other securities
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These fund-based services help banks earn interest and other forms of income, while providing customers
with the funds they need for various purposes
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These services ensure that companies can manage their incoming and outgoing cash smoothly
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Collection Services: Banks help businesses collect payments from customers quickly and efficiently
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- Cheques and Demand Drafts: Collecting cheques and demand drafts from customers and ensuring they are
deposited into the business’s account
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Disbursement Services: Banks assist businesses in making payments to suppliers, employees, and other
parties
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- Electronic Payments: Using methods like NEFT, RTGS, IMPS, or issuing cheques and demand drafts
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Liquidity Management: Banks help businesses manage their cash flow by providing tools to monitor and
optimize the use of available funds
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- Zero Balance Accounts (ZBA): Accounts that automatically transfer funds to and from a central account,
maintaining a zero balance at the end of the day
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Reconciliation Services: Banks provide detailed reports and tools to help businesses match their
transactions with bank statements
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- Vault Services: Providing secure storage for cash and valuables
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E-commerce and Payment Gateway Services: Helping businesses collect online payments from customers
through various digital channels like credit/debit cards, UPI, and net banking
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MERCHANT BANKING
Merchant banking services in India refer to a suite of financial services that banks and financial institutions
offer to corporations and high-net-worth individuals
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Project Financing
- Assessment and Funding: Merchant banks assess the viability of projects and provide funding through
loans or equity investments
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- Risk Management: Undertaking the risk by buying securities from the issuer and selling them to the
public
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Advisory Services
- Corporate Restructuring: Advising on mergers, acquisitions, and demergers
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- Private Placements: Facilitating the sale of securities to a select group of investors
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Loan Syndication
- Arranging Loans: Coordinating with multiple lenders to provide large loans to clients
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- Asset Management: Managing investment portfolios on behalf of clients
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Credit Syndication
- Coordination: Arranging credit facilities from multiple lenders
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- Advisory: Offering strategic advice and mentorship to fledgling companies
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Corporate Counseling
- Business Strategy: Advising on business planning, growth strategies, and market entry
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- Risk Management: Offering hedging solutions to manage currency risk
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Leasing and Hire Purchase
- Asset Financing: Providing leasing and hire purchase services for acquiring machinery, equipment, and
vehicles
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Regulatory Framework
Merchant banking activities in India are regulated by the Securities and Exchange Board of India (SEBI)
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Leading Merchant Banks in India
- ICICI Bank
- HDFC Bank
- Kotak Mahindra Bank
- State Bank of India (SBI)
- Axis Bank
- IDBI Bank
These banks offer a comprehensive range of services to support the financial and strategic needs of their
clients
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These services include a range of offerings that cater to individuals, businesses, and
institutional clients dealing with foreign currencies
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Currency Exchange
- Buying and Selling Foreign Currency: Banks buy and sell foreign currency notes for various purposes
such as travel, education, and medical expenses
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- Secure Payments: Ensuring secure and reliable international payments
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Wire Transfers and Remittances
- SWIFT Transfers: Facilitating international wire transfers through the SWIFT network for quick and
secure fund transfers
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- Foreign Currency Non-Resident (FCNR) Accounts: Offering FCNR accounts for Non-Resident Indians
(NRIs) to hold their deposits in foreign currencies
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Trade Finance Services
- Letters of Credit (LCs): Issuing and advising letters of credit to ensure payment security in international
trade
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- Bill Discounting: Discounting export bills to provide immediate liquidity to exporters
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Forex Cards
- Prepaid Travel Cards: Issuing prepaid forex travel cards loaded with multiple foreign currencies for
hassle-free international travel
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- Advisory Services: Providing advisory services to businesses on managing currency risk and optimizing
forex transactions
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Forex Derivatives
- Forward Contracts: Entering into forward contracts to lock in exchange rates for future transactions
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- Import Financing: Facilitating import financing through buyer’s credit and supplier’s credit arrangements
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Regulatory Compliance and Documentation
- Adherence to FEMA: Ensuring compliance with the Foreign Exchange Management Act (FEMA) and
other regulatory requirements
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LEASE FINANCE SERVICES
Lease finance services provided by banks in India are designed to help businesses and individuals acquire
assets without the need for outright purchase
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Here's an overview of the primary lease finance services offered by banks in
India:
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- Maintenance and Risk: The bank (lessor) retains ownership and responsibility for maintenance, insurance,
and obsolescence risks
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Finance Lease (Capital Lease)
- Long-term Leasing: Involves leasing assets for most of their useful life, with the lessee enjoying the
benefits and risks of ownership
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- Cash Flow Management: This helps improve liquidity and manage cash flows effectively
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Leveraged Lease
- Structured Finance: Involves multiple parties, including the lessee, lessor, and a lender, to finance the
acquisition of high-value assets
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- Customization: Tailored lease agreements to suit the cash flow and usage requirements of businesses
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Vehicle Leasing
- Fleet Management: Leasing options for corporate fleets, including cars, trucks, and commercial vehicles
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- Flexible Terms: Offering flexible lease terms to accommodate the business needs of clients
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Capital Conservation: Businesses can conserve capital by avoiding large upfront payments and using leased
assets
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Tax Advantages: Lease payments may be tax-deductible, reducing the overall tax burden
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Flexibility: Lease terms can be tailored to match the specific needs and cash flows of the business
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Risk Mitigation: The lessor bears the risks related to asset ownership, such as obsolescence and
depreciation
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Off-Balance Sheet Financing: Operating leases do not appear on the balance sheet, improving financial
ratios and borrowing capacity
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Banks must adhere to these regulations to ensure compliance and protect the
interests of both lessors and lessees

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