Other Activities Of Commercial Banks in India

Other Banking Activities broadly classified into

1. Other Basic Banking Activities
2. Para-banking Activities

All this activities are to attract depositors and borrowers to increase the income for the bank. Bank in turn earn fees by offering this services.

Other Basic Banking Activities

1. Foreign Exchange Services

Banks will do Foreign currency exchange services for the customer. Banks will earn income from the buying and selling exchange rates of foreign currency.

2. Banks' Services to Government

Government department services like tax collections,payments of salaries and pension etc will take care by banks and government pay fees for the services.

3. Payment and Settlement Systems 

It is a two way flow of payments between payer and beneficiary. Based on Payer requests bank will process the transfer to the beneficiary.

There are 2 types of Payments

1. Paper based Forms ( Cash,Cheque,Demand Draft)

2. Electronic Forms

Paper Based Forms

Cheque is the primary paper based form of payment. Payer will issue cheque on the name of beneficiary and deposit in hisbank account. If the beneficiary have account in the same city it will credit in the same day and if it is other city means then bank will ensure the funds are collected from payers bank through "Clearing House".

A Clearing house is an association of banks and act as a central meeting place for bankers to exchange the cheques and claim funds on the same.

Paper based clearing system comprises

• MICR Clearing - Magnetic Ink Character Recognition techology of processing of cheques through the information in the bottom strip of the cheque.
• Non-MICR Clearing
• High Value Clearing

Cheque Truncation

  It is a system of Cheque clearing and settlement between banks based on electronic data/images or both without physical exchange of instrument.

Electronic Payment System

Payments between payer and beneficiary by electronic instructions without cheque. It is faster and more secure than cheque payment system.

Various forms of Electronic payment system are RTGS,NEFT,ECS.

Real Time Gross Settlement introduced in March 2004 and it is useful for faster fund transfer and also for high value of money (more than 2 Lakhs) . It will credit immediately.

ECS (Electronic Clearing Service) is a retail payment system useful for bulk receipts and payments.

ECS-Credit -  to make bulk payments to vendors /  to pay salary to the employees

ECS-Debit - to receive bulk payments from individuals / EMI debit

Para Banking Activities

RBI allowed scheduled commercial banks to take the para banking activities and it also provides guidelines to SCB for the activities.

Para banking activities includes Investment banking, Merchant banker (SEBI) services, Mutual fund business,Pension funds management  (PPM) by banks,Wealth management etc.