Cheat Sheet: Banks And The Magic Of Finance

1. Financial Infrastructure and Banks

1.1 Definition and Components

1.2 Connection with Physical Infrastructure

• Physical infrastructure supports economic activities driven by monetary transactions
• Financial infrastructure enables monetary transactions between people
• Financial infrastructure helps fund development and maintenance of physical infrastructure

1.3 Bank Services, Records and Key Terms

1.4 Types of Bank Accounts

1.5 How Banks Make Money and Financial Inclusion

• Income source: difference between interest charged on loans and interest paid on deposits
• Banks keep reserve money and do not lend all deposits
• Pradhan Mantri Jan Dhan Yojana launched in 2014 to expand bank access
• Before 2014: 15 crore Indians had bank accounts
• Since launch: over 50 crore accounts opened, mainly by women
• Jan Dhan accounts: no minimum balance or fees

2. Reserve Bank of India and Other Financial Institutions

2.1 Reserve Bank of India (RBI)

• Maintains accounts of other banks
• Facilitates exchange of funds between banks
• Provides loans to banks and the government
• Sets rules and regulations for printing and distributing Indian currency
• Fixes the benchmark interest rate for lending to commercial banks

2.2 Other Financial Institutions

3. Payment Modes and Systems

3.1 Payment System Definition

3.2 Withdrawing Cash from Bank Deposits

3.2.1 Withdrawal Slip at Bank

• Fill withdrawal slip at bank
• Submit slip at cash counter
• Withdraw cash from account

3.2.2 Debit Card and ATM

• Banks provide debit cards when customers open accounts
• ATMs allow cash withdrawal and are self-service
• ATMs available 24×7 at public places (bus depots, markets, railway stations, airports, malls)
• Steps to withdraw at ATM: insert debit card; input PIN; type amount; collect cash
• PIN (Personal Identification Number) is a numeric code usually 4 to 6 digits used for authentication

3.3 Transfer Methods

3.3.1 Cheque

• Cheque: paper instrument to pay someone directly from your bank account
• Bank provides a cheque book with multiple cheques
• Process: write amount, payee name and signature; payee deposits cheque; amount debited and credited
• Limitation: requires physical bank visit and takes time

3.3.2 Electronic Payment Methods

Debit Cards and POS Machines

• Debit cards enable payments at retail stores and cash withdrawal at ATMs
• POS process: card swiped/inserted; amount entered; customer enters PIN; amount deducted instantly

Internet Banking (Netbanking)

• Tool for transferring money via bank website or mobile application
• Allows checking balances and transaction history

Mobile Payments and UPI

• Mobile payments use digital payment applications such as BHIM
• Unified Payments Interface (UPI) is a fast and secure digital payment system
• UPI launched by National Payments Corporation of India (NPCI) in 2016
• UPI enables transfers using QR code or recipient phone number
• UPI process: sending application requests bank; bank forwards to NPCI; NPCI verifies and processes; recipient's bank receives funds; recipient receives payment
• Benefits: effortless digital transactions; user-friendly design in multiple languages; supported cashless payments during COVID-19
• International adoption: Nepal first adopted UPI in 2022; other adopters include United Arab Emirates, France, Sri Lanka, Bhutan, Mauritius

4. Stock Market

4.1 Shares, Stocks and Purpose

4.2 Stock Exchange and Price Movements

4.3 Share Price Fluctuations and Factors

• Stock market crash: many companies' share prices fall simultaneously
• Stock market boom: many companies' share prices rise simultaneously
• Company performance affects share prices: good performance raises value; problems lower value
• External factors affect share prices: government policy changes including tax rules; political instability and wars; economic shocks such as natural disasters or pandemics

5. Financial Frauds, Security and Reporting

5.1 Fraud Methods and Security Terms

5.2 Consequences and Reporting

• Fraudsters gain access to devices and personal data to steal money from accounts
• Report fraud via helpline 1930 or the National Cybercrime Reporting Portal