Tag: Artificial Intelligence in Banking

Foreign banks play a crucial role in India’s financial ecosystem, offering specialized services, advanced technologies, and global expertise. These banks operate under the regulations of the Reserve Bank of India (RBI) and contribute to the growth of international trade, foreign investment, and the adoption of modern banking practices in the country.

Roles of Foreign Banks

• Promoting International Trade

Foreign banks facilitate international trade by providing essential financial services like letters of credit, trade finance, and forex services. They act as a bridge between Indian businesses and global markets, ensuring smooth transactions across borders.

• Encouraging Foreign Investments

By catering to multinational corporations and foreign investors, foreign banks attract and manage foreign direct investment (FDI) and portfolio investments. Their expertise in global financial markets makes them a preferred partner for foreign investors.

• Introducing Advanced Banking Practices

Foreign banks bring innovative products, advanced technology, and international best practices to India. Their services, such as digital banking, mobile payments, and AI-driven analytics, set high standards for the banking industry.

• Providing Specialized Financial Services

Foreign banks offer niche financial services, such as wealth management, investment banking, and treasury management, catering to high-net-worth individuals (HNWIs), corporations, and institutional investors.

• Enhancing Competition in the Banking Sector

The presence of foreign banks increases competition in the Indian banking system. This drives domestic banks to improve service quality, adopt new technologies, and enhance operational efficiency.

• Strengthening India’s Integration with the Global Economy

Foreign banks help Indian businesses and individuals access global financial systems. They provide exposure to international markets and help integrate India into the global financial framework.

• Channeling Global Expertise for Local Growth

With their international exposure, foreign banks contribute to the development of India’s financial infrastructure. They provide insights into global market trends, risk management strategies, and economic policies that benefit the local economy.

Functions of Foreign Banks

• Acceptance of Deposits

Foreign banks mobilize deposits from customers, including individuals, corporations, and institutions. They offer various deposit products, such as savings accounts, current accounts, and term deposits, often tailored for international clients.

• Providing Credit Facilities

Foreign banks extend credit to businesses, individuals, and multinational corporations. Their loans are typically geared toward trade finance, project financing, and working capital needs, with a focus on international operations and cross-border activities.

• Facilitating Foreign Exchange Transactions

One of the primary functions of foreign banks is offering foreign exchange services. They assist businesses and individuals in currency conversion, hedging foreign exchange risks, and managing international remittances.

• Offering Investment Banking Services

Foreign banks play a significant role in providing investment banking solutions, including mergers and acquisitions (M&A), equity issuance, debt restructuring, and corporate advisory services. These functions support corporate growth and capital market activities.

• Treasury and Risk Management

Foreign banks manage their clients’ financial risks, such as currency, interest rate, and commodity price risks, through their treasury operations. They provide sophisticated financial instruments like derivatives and swaps to help clients mitigate risks.

• Wealth and Asset Management

Foreign banks cater to HNWIs and institutional investors by offering wealth management and asset allocation services. They help clients build diversified portfolios, manage investments, and achieve long-term financial goals.

• Supporting Corporate and Institutional Banking

Foreign banks specialize in corporate banking services, including cash management, trade finance, and customized credit solutions. They also cater to the needs of multinational corporations, offering expertise in international financial systems.

Advantages

• Foreign banks enter host countries with new technology that contributes to the country’s technological development.
• The entry of foreign banks has a positive impact on the regulatory and supervisory regimes of the host country because they will be able to learn about the regulatory and supervisory regimes of foreign banks’ home countries.
• Foreign banks have a greater ability to invest in more sectors than domestic banks in the host country because they have a larger economic scale and risk diversification techniques.
• The presence of a foreign bank in a developing country also contributes to the transmission of best practices in the banking industry.
• The entry of a foreign bank increases competition, which has an automatic positive impact on the development of the country’s banking sector.
• Over the years, foreign banks have made significant contributions to the banking sector by bringing capital and global best practices, as well as grooming talent.

Challenges Faced by Foreign Banks

• Regulatory Constraints:

Operating under stringent RBI regulations, foreign banks must adapt their global practices to local requirements.

• Limited Branch Networks:

Foreign banks typically have fewer branches, restricting their reach in rural and semi-urban areas.

• High Competition:

They face stiff competition from established domestic banks and financial technology (fintech) companies.

Some foreign banks in India:

1. Citibank
2. Standard Chartered Bank
3. HSBC (Hongkong and Shanghai Banking Corporation)
4. Deutsche Bank
5. Barclays Bank
6. Bank of America
7. Royal Bank of Scotland (RBS)
8. JP Morgan Chase Bank
9. BNP Paribas
10. DBS Bank
11. UBS Bank
12. Credit Suisse
13. Wells Fargo Bank
14. Societe Generale
15. Industrial and Commercial Bank of China (ICBC)
16. Mizuho Bank
17. Sumitomo Mitsui Banking Corporation (SMBC)
18. CIMB Bank
19. Mashreq Bank
20. ANZ Bank (Australia and New Zealand Banking Group)

The post office savings account is one of the schemes that the Post Office offers. This post office savings scheme is available throughout India. Furthermore, the post office savings account offers a fixed interest rate on the deposit amount. Hence, the post office saving scheme is suitable for individuals seeking to earn fixed returns from their investments. One can open a savings account in post office with as low as INR 20.

This post office saving scheme is quite popular in the rural parts of India. The Central Government decides the rate of interest for the post office savings account. Often, the rates are similar to the bank savings account. The post office saving account has an interest rate around 4%, and the interest is calculated every month. Also, as per the Income Tax regulations, interest amount less than INR 50,000 per annum is tax-free in the hands of the depositor.

Furthermore, depositors can withdraw the deposits anytime they wish. However, they have to maintain a minimum balance of INR 50 in a generic account and INR 500 if they have a cheque facility. Also, the post office savings account can be easily transferred from one post office to the other.

Recurring Deposit

5 Year Post Office Recurring Deposit (PORD) Account allows investors to save on a monthly basis. The interest is compounded on a quarterly basis. This post office small savings scheme has a total of 60 monthly instalments. Post Office RD is suitable for individuals who wish to save through regular monthly deposits. The post office savings interest rates for this scheme is 5.8% per annum. Investors can estimate their returns from RD investments using RD calculator.

The minimum amount of investment is INR 10, with no cap on the maximum amount. All resident Indian nationals above the age of 18 years can open an account with the post office. Also, minors who are ten years old can open and operate the account jointly with their guardian. Furthermore, parents or guardians can open the account on behalf of their minor children.

One cannot prematurely withdraw their post office RD investments. However, in case of emergencies, one can break the RD. This comes with a penalty of INR 1 for every INR 100 investment. The RD account has a minimum lock-in period of three months. Also, if the premature withdrawal is made before three months, no interest is given. The depositors will only get back their principal amount.

Post Office Time Deposit Account (TD)

Post Office Time Deposit (POTD) Account is one of the most popular post office savings schemes. The interest rates are determined by the Finance Ministry every quarter. The rates are based on the yield of government securities and spread over the government sector yield.

Investments in a post office fixed deposit account have a minimum requirement of INR 1,000. One can open a TD account for any of the following tenures; one year, two years, three years and five years. Also, depositors can opt for reinvestment of the interest. However, this option is not available for one year TD. Additionally, one can also choose to redirect the interest to a five-year recurring deposit scheme.

Time deposits can also be transferred from one post office to the other. Also upon maturity, if the depositor doesn’t withdraw, then the amount will be reinvested for the initial tenure of the deposit at the new applicable interest rates.

Investments in the post office fixed deposits qualify for a tax deduction in Section 80C of the Income Tax Act. Investors can claim tax benefits up to INR 1.5 lakhs per annum. They can claim the tax benefit when they file income tax returns.

Post Office Monthly Income Scheme Account (MIS)

POMIS is a low-risk investment scheme that offers regular monthly income to the depositors in interest payments. The Government of India backs POMIS. The interest rates are announced every quarter. The current rate of interest is 6.60% (for January March 2021 quarter). POMIS has a lock-in period of five years. Upon maturity, the depositor can choose to either withdraw or reinvest the entire amount into the scheme.

The minimum amount for POMIS is INR 1,500, and the maximum limit is INR 4,50,000 per individual. However, for joint holding, the maximum limit is INR 9,00,000. Also, one can transfer their POMIS account from one post office to another. Furthermore, this post office savings scheme allows premature withdrawals post one year of account opening. However, these premature withdrawals have penalties.

Kishan Vikas Patra

A savings certificate scheme, Kisan Vikas Patra (KVP) was originally launched in the year 1988 by India Post. This is basically the Indian Government’s initiative to encourage small savings in the country for the investor’s secure future.

Kisan Vikas Patra Information

Benefits:

100% Security: We all want security on the investments that we make. The Kisan Vikas Patra scheme gives us just that. Since it is a Government owned scheme, the returns are fixed and secure. Since the amount that you will receive is declared on the certificate, you will have security on the investment that you have made and the amount that you will receive at the end of the term.

Long term Savings: With the Kisan Vikas Patra, you can start saving early with an amount as low as Rs. 1000. The Kisan Vikas Patra certificates can be bought for amounts as low as Rs. 1000 and going up to as much as you want. There is no upper limit on the amount that you wish to invest. The value is said to be doubled in 100 months i.e. 8 years and 4 months. The value that the holder will receive on the completion of the term is declared on the Kisan Vikas Patra certificate itself.

Fixed Rate of Interest: Kisan vikas patra interest rate fixed on the amount that you are investing. This rate of interest ensures doubling of the principal amount in 100 months and is secured since it is a government bond.

Non-Transferable: The benefits of kisan vikas patra is availed only by the holder of the Kisan Vikas Patra certificate. To have this transferred to another name, the permission of the Postmaster is required along with certain other formalities.

Collateral for Loan: The Kisan Vikas Patra certificate can be used as a collateral while applying for a loan. Most banks and financial institutions accept this certificate as collateral before issuing you any loan.

Tax Benefits: At the time of encashment or disbursal of the Kisan Vikas Patra scheme, tax is not deducted at source; it is TDS exempted and paid in full to the holder. However, it is the responsibility of the certificate holder to pay the taxes on the interest accrued over the term of the scheme. This scheme is completely exempted from Wealth Tax.

Physical Instruments of Investment: The Kisan Vikas Patra saving schemecomes as a simple printed certificate that can be saved in a physical form. There is no demat form for this certificate and cannot be traded for in the secondary market.

Fixed Lock-in Period: The fixed lock in period on this scheme is two and half years. If you have an emergency financial requirement, you can encash this money prematurely after two and half years from the date of issuance with some amount of interest on the same.

A cashless society describes an economic state whereby financial transactions are not conducted with money in the form of physical banknotes or coins, but rather through the transfer of digital information (usually an electronic representation of money) between the transacting parties. Cashless societies have existed from the time when human society came into existence, based on barter and other methods of exchange, and cashless transactions have also become possible in modern times using credit cards, debit cards, mobile payments, and digital currencies such as bitcoin. However this article discusses and focuses on the term “cashless society” in the sense of a move towards, and implications of, a society where cash is replaced by its digital equivalent in other words, legal tender (money) exists, is recorded, and is exchanged only in electronic digital form.

Such a concept has been discussed widely, particularly because the world is experiencing a rapid and increasing use of digital methods of recording, managing, and exchanging money in commerce, investment and daily life in many parts of the world, and transactions which would historically have been undertaken with cash are often now undertaken electronically. Some countries now set limits on transactions and transaction values for which non-electronic payment may be legally used.

Benefits:

Reduced business risks and costs

Cashless payments eliminate several risks, including counterfeit money (though stolen cards are still a risk), theft of cash by employees, and burglary or robbery of cash. The costs of physical security, physically processing cash (withdrawing from the bank, transporting, counting) are also reduced once a business goes completely cashless, as is the risk that the business will not have enough cash on hand to make the change.

Reducing transmittal of disease via cash

Cash provides a good home for disease-causing organisms (i.e. Staphylococcus aureus. Salmonella species, Escherichia coli, COVID-19…). However, cash has been found to be less likely to transmit disease than commonly touched items such as credit card terminals and pinpads. Such concerns prompted the German central bank, Deutsche Bundesbank, to state that “Cash poses no particular risk of infection for public”.

Transaction speed

Restaurant chain Sweetgreen found cashless locations (with customers using payment cards or the chain’s mobile app) could process transactions 15% faster.

Elimination of high-denomination notes for purposes of reducing criminal activity

One significant societal advantage cited by proponents is the difficulty of money laundering, tax evasion, performing illegal transactions, and funding illegal activity in a cashless society. Many countries have regulated, restricted, or banned private digital currencies such as Bitcoin, partly to prevent illegal transactions. Large amounts of value can also be stored in real estate, antiques, or commodities like diamonds, gold, silver, and platinum.

Some have proposed a “Reduced cash” system, where small bills and coins are available for anonymous, everyday transactions, but high-denomination notes are eliminated. This would make the amount of cash needed to move large amounts of value physically awkward and easier to detect. Large notes are also the most valuable to counterfeit.

Better collection of economic data

Rather than conducting “Costly and periodic” surveys and sampling of real-world transactions, “real data” collected on citizens’ spending can assist in devising and implementing policies that are deduced from actual data. With recorded financial transactions, the government can better track the movement of the money through financial records which enables them to track the black money and illegal transactions taking place in the country.

Flexibility

With advanced technology and payment systems at our disposal, going cashless is as good as having cash. You can use your money in several different ways, and often almost instantaneously. So, purchase air tickets, pay off your home loan EMI, or buy a life insurance policy without having to arrange for cash.

Easier consumer budgeting

As digital payments are made, transactions are kept in records. Cashless payments facilitate the tracking of spending expenditure and record the movement of money. Having recorded transactions, it can help citizens to refine their budget more efficiently because people can see their recorded transactions in their bank account and know where their ingoing’s and outgoings are occurring.

A medium-term loan is usually for a period of 2 to 5 years and can be said to be a hybrid of short and long-term loans. Such a loan is often taken for carrying repair or renovation of the fixed asset. For example, modernizing a showroom.

A medium-term loan is usually skipped when talking about the types of terms loans as people may go straight to the long-term loan after discussing the short-term loan. However, it is better to keep the duration of 2 to 5 years under medium-term as terms and condition for such a period is somewhat different from the long-term loan. Like, the interest rate is comparatively higher, while the documentation part is easier when compared to the long-term loans.

Advantages

• The rates of return on MTNs are usually higher than on other short-term investments.
• These notes are custom defined case by case and can be tailored to both issuers and investors needs (within legal requirements).
• For investors, it may serve as a compromise investment opportunity between short-term investments and bonds with long maturities.
• Availability to raise the funds non-publicly.

Disadvantages:

• Higher costs of servicing
• Due to strict issuance documentation requirements, issuers may prefer issuing public bonds instead.

Long Term Loans

These types of term loans are for more than five years. Most of the long-term loans are secured, for instance, home loans, car loans, loans against property. Since the loan is secured, the rate of interest is also lower. However, it can be unsecured as well. In an unsecured loan, no collateral or asset is needed, but the rate of interest is comparatively higher as the lender bears more risk.

EMI for such a loan is also quite low as the payment is spread over a long period. A long-term loan is credit-based, so the better your credit score is, the better are the chances that you get a lower interest rate. The amount of loan will also depend on your credit history and income.

Features:

Lower rate of interest

Since the time period of loan repayment is higher for long-term loans, banks and other lending entities levy lower rate of interest on these loans. Hence car loans and home loans come at lower rates than personal finance.

Higher loan amounts

Long-term loans generally come with higher loan amounts. Hence, home loans, auto loans etc. offer hefty loan amounts as compared to short-term loans like personal loans. Since, these loans are mostly secured via collateral submission hence banks are not apprehensive in lending heavy loan amounts to long-term loan applicants.

Collateral Submission

Since the loan amount involved in long-term loans is way higher than other types of loans, collaterals are almost always required to be submitted to the bank. This helps banks in recovering lost cash in case a borrower defaults to repay the loan.

Tax Benefits on long-term loans

Tax benefits are applicable on long-term loan repayment. However, this depends upon the type of loan. For example, an auto loan is a luxury loan and hence it does not offer any tax rebate whereas home loan is a loan for the basic need of housing and as such offers tax exemption on the repayment of loan. These tax benefits are subject to laws under the Income Tax Act.

Repayment in installments

Repayment of long-term loans generally happens in equated installments spread over a substantial period of time. These monthly installments are generally made up of two components, principal and interest.

Example:

Home loans

Home loans are one of the most suitable examples of long-term loans. The tenure for home loans goes much beyond 3 years and the loan amount is considerable. Collaterals require to be submitted to the bank and a guarantor also is required to sign the loan application. These loans offer pre-closure option to customers and depending upon the lending bank, this option may be charged or not charged. Home loans also give buyers the option of choosing between fixed and floating rate of interest.

Education Loans

Education loans or student loans are generally granted for a long period of time especially for courses like engineering and medical. These loans offer a longer repayment tenure to applicants. These loans are taken for a period of more than 3 years and this can go up to a period of 30 years. Education loans can be taken by applicants who wish to go for higher studies in India as well as abroad. The loan amount limit and the rate of interest might differ according to the lending entity as well as according to the course for which loan is being sought.

Personal Loans

Personal loans that offer a repayment tenure of more than 3 years come under the category of long-term loans. However, even when these loans are longer in tenure, the rate of interest offered is not low because personal loans are mostly unsecured loans and as such borrower does not need to submit any collateral as security. Banks do not have any collateral to fall back on in case a borrower defaults to pay back his/her personal loan.

Car Loans

Car loans have slowly become the most necessary loan instrument in recent times. Since the time banks eased the process of obtaining credit for purchase of vehicles, taking car or auto loans have been on the rise. Cars are considered as luxurious items and as such rates offered on these loans are higher than those for home loans. However, stiff competition among lending entities have forced banks to lower the rate of interest for car loans. A typical car loan may have a long-term payment tenure of up to 7 years. Pre-payment of loan is available for car loans and is subject to a pre-closure fee in case of certain banks. On the other hand, some banks do not levy any penalty fee on pre-payment of car loan amount.

Mobile Banking

It has been predicted that by 2025, approximately 4 billion people will use mobile banking and the users will be able to use apps to track, transact and spend from their apps. Apart from just attracting customers with the ease with which the apps work, the exposure to these apps also attracts prospective employees. All employees want to work with an employer who is represented by cutting edge technology and attractive apps.

Mobile Payments

A large number of users are now using mobile apps to make bill payments for various utilities like phone use, electricity bill, credit card bill, etc. This can easily be done through apps for mobile services. Payments always involve some amount of confidentiality and privacy. Apps help the users to keep the information confidential and safe. As the connectivity across areas and platforms is increasing, the mobile apps help the customers to transact with minimal effort and maximum confidentiality. Apart from this, mobile apps also provide many different ways to make the payment:

• Netbanking
• Credit card Payment
• Debit card Payment
• Mobile Wallets

Increase Business

Mobile Apps also ensure that the financial sector enterprise has maximum business. By making the business more accessible, mobile apps have ensured that the business captures maximum market share and increases sales. By providing safe and secure transactions, mobile apps have strengthened the bond between existing customers and the business as well. This ensures continued patronage and work. Mobile applications from finance organizations can supply underserved clients with a means to manage and leverage investment or business opportunities.

Reduce Operational Costs

The use of mobile apps has also ensured that the operational cost of running the business has been reduced. Mobile apps provide one-stop shops for buying, returning, acquiring, exchanging, and remitting of goods and services. Apart from this, mobile apps have also ensured that there is a seamless, virtual transfer of data from the customer to management and vice versa. Mobile apps have made space for virtual customer help stations and have reduced costs further.

Following the markets

Mobile apps in financial categories may send real-time stock and market warnings to the users’ mobile devices via push notifications. Thus, users may be informed about the performances of the investments anytime. In the finance sector in which responding quickly is important, institutions which have their mobile apps may often be preferred by the users.

Current account

Current bank account is opened by businessmen who have a higher number of regular transactions with the bank. It includes deposits, withdrawals, and contra transactions. It is also known as Demand Deposit Account.

Current account can be opened in co-operative bank and commercial bank. In current account, amount can be deposited and withdrawn at any time without giving any notice. It is also suitable for making payments to creditors by using cheques. Cheques received from customers can be deposited in this account for collection.

In India, current account can be opened by depositing Rs.5000 to Rs. 25,000. The customers are allowed to withdraw the amount with cheques, and they usually do not get any interest. Generally, current account holders do not get any interest on their balance lying in current account with the bank.

Current account holder gets one important advantage of overdraft facility.

Features of Current Bank Account:

• Current bank accounts are operated to run a business.
• It is a non-interest-bearing bank account.
• It needs a higher minimum balance to be maintained as compared to the savings account.
• Penalty is charged if minimum balance is not maintained in the current account.
• It charges interest on the short-term funds borrowed from the bank.
• It is of a continuing nature as there is no fixed period to hold a current account.
• It does not promote saving habits with its account holders.
• Banker requires KYC (Know your Customers) norms to be completed before opening a current account.
• The main objective of current bank account is to enable the businessmen to conduct their business transactions smoothly.
• There is no restriction on the number and amount of deposits.
• There is also no restriction on the number and amount of withdrawals made, as long as the current account holder has funds in his bank account.
• Generally, bank does not pay any interest on current account. Nowadays, some banks do pay interest on current accounts.

Advantages of having a Current Account

1. Current accounts allow handling of large volumes of receipts and/or payments systematically
2. Under these accounts, limitless withdrawals are allowed in line with the levied cash transaction fees.
3. There are no restrictions applied on the deposits made into the current accounts opened at the bank’s home branch. Additionally, account holders can also deposit cash at other branches upon paying small fees as applicable.
4. Cheques, pay-orders, or demand-drafts can be issued via a current account for making direct payments to creditors.
5. Overdraft facilities are also available for current account holders.
6. The presence of small interest earnings on account balance makes a current account all the more attractive for its users.
7. Businesses are further advantaged with various other benefits in the form of free inward remittances, deposit and withdrawals at any location, multi-location transfer etc.
8. The businessmen can withdraw from their current accounts without any limit, subject to banking cash transaction tax, if any levied by the government.
9. Assists creditors of the account holder who can have access to information on the account holder’s credit-worthiness through inter-bank connection.
10. It facilitates the industrial progress of the country. Without its help, businessmen would face difficulties in running their businesses.
11. Provides with Internet-banking and mobile-banking to enable businessmen carry out important business transactions promptly and with ease.
12. It also provides various other advantages (benefits) such as:

• Deposit and withdrawal of money (cash) at any location.
• Multi-location funds transfer.

Term Deposits

Term Deposits, popularly known as Fixed Deposit, is an investment instrument in which a lump-sum sum amount is deposited at an agreed rate of interest for a fixed period of time, ranging from 1 month to 5 years. Term Deposits can be availed at financial institutions like Banks, Non-Banking Financial Companies (NBFC), credit unions, post offices and building societies.

Characteristics of Term Deposits

Term Deposits have unique monetary features that have made them popular among the investment circles. The essential characteristics of term deposits are:

• Safety of investment: Since interest rates of the term deposit are not affected by the changes in the economy, it is one of the safest investment options available.
• Fixed rate of interest: The rate of interest for term deposits are fixed and are not subject to fluctuations in the market.
• Present investment period: The investor has the freedom to choose the tenor of the investment based on the plans offered by the financial institution. Normally the interest rate offered by the institution will be higher for a longer tenor. But it is advisable to compare the interest to tenor ratios before making the investment.
• Interest Payment: The investor has the option to choose to receive the interest income either on maturity or periodically; Monthly, quarterly or yearly.
• Rollover: An investor who does not require their money on the maturity of the term deposit has an option to roll over the deposit for a fresh term. ‘Rollover’ refers to the reinvesting of maturity proceeds in a new term deposit and adding on to the interest. So, an investor doesn’t have to utilize their money as soon as the term deposit matures.
• Wealth Generation: The stable interest received on the investment ensures that the investors’ wealth grows even during difficult times in the market.
• Penalty on premature withdrawal: Since term deposits come with a fixed tenor, it is considered ‘locked-in’. If the investor opts to withdraw from the deposit before the lock-in period ends they are liable to pay a penalty to the financial institution along with lowered interest income.
• Loan against deposit: If in a contingent situation the investor needs financial liquidity, they can avail a loan of up to 60-75% of the deposit amount.
• Taxation on interest: Under the Income Tax Act, the interest earned on the deposit is taxable income and can be subject to a Tax Deducted at the Source (TDS).
• Insurance on deposit: Under the RBI regulations, any deposit in a certified bank is eligible for an insurance cover of up to Rs 1 lakh under the Deposit Insurance and Credit Guarantee Corporation (DICGC).
• Low investment limit: The lower limit of investment varies as per the financial institution, but the lower limit is generally Rs 1000. Although, there is no upper limit on how much can be invested in term deposits.

Types of Term Deposit

• Sweep-in facility term deposit: Sweep-in is a feature that financial institutions provide where the individual can set an upper limit on their savings account. Any amount higher than that limit will be converted into a term deposit. If the savings account faces deficit, then the funds will be withdrawn from the term deposit with a loss of interest only on the funds swept in. Sweep-in term deposits usually provide a higher interest rate.
• Cumulative and Non-Cumulative deposits: Cumulative term deposit is an option provided for investors who don’t need regular monetary income from the deposit. Hence, the interest earned is reinvested into the deposit and paid out as a lump sum at the end of the tenor. A non-cumulative term deposit is for investors who are looking for a regular interest payout. With a non-cumulative term deposit, the interest will be credited in the investor’s account at regular intervals; Monthly, quarterly or yearly.
• Short-term and Long-term deposits: These term deposits have been classified based on the holding period of the investment. A short term deposit has a lock-in period ranging from 1 to 12 months. Short term deposits are ideal for investors looking for quick returns. Long term deposits have a lock-in period ranging from 1 to 10 years. These deposits provide a higher interest rate than the short term deposits.
• Senior Citizen term deposits: An individual over the age of 60 years is considered a senior citizen. Most banks or financial institutions provide a higher interest rate on term deposits for senior citizens. Senior citizens are also eligible for tax-saving term deposits at some banks.
• Special deposit schemes for children: There are a few special deposit scheme aimed the welfare of children. ‘Sukanya Samriddhi Account’ launched by the government aims at improving the financial stability of girl children above the age of 10 years. Different banks have different schemes focussed on the financial welfare of children e.g., ‘Sishu Mangal’ deposit scheme by Allahabad Bank, Balika Shiksha Scheme by Punjab National Bank etc.
• Post Office Time Deposit: Post offices also provide certain financial services. One such service is the Post Office Term Deposit. It can either be opened as an individual or joint account. One can transfer their post office term deposit accounts from one post office to another or own multiple accounts in the same post office. The minimum limit for the deposit is Rs.200 and the current interest rate is 7.9% for 5 years. Any deposit for a tenor longer than 5 years is eligible for the tax benefits prescribed under Section 80C of the Income Tax Act, 1961.
• Tax-saver term deposits: Tax-saver deposits are eligible for a tax deduction of up to Rs 1.5 lakh under Section 80C of the Income Tax Act. These tax saver term deposits have a lock-in period of 5 years and any income above Rs 40,000 is taxable. The usual interest rates range between 5.5%-7.75%.

The Eurobond market is made up of investors, banks, borrowers, and trading agents that buy, sell, and transfer Eurobonds. Eurobonds are a special kind of bond issued by European governments and companies, but often denominated in non-European currencies such as dollars and yen. They are also issued by international bodies such as the World Bank. The creation of the unified European currency, the euro, has stimulated strong interest in euro-denominated bonds as well; however, some observers warn that new European Union tax harmonization policies may lessen the bonds’ appeal.

Eurobonds are unique and complex instruments of relatively recent origin. They debuted in 1963, but didn’t gain international significance until the early 1980s. Since then, they have become a large and active component of international finance. Similar to foreign bonds, but with important differences, Eurobonds became popular with issuers and investors because they could offer certain tax shelters and anonymity to their buyers. They could also offer borrowers favourable interest rates and international exchange rates.

Notes Market

The primary objective of the issuance of Euro notes is to structure a debt instrument with short term maturities, generally 3, 6 or 9 months, tenors (duration) and place it in the market. However, the borrowing programme could be for medium or long term (say), 5-7 years or more. Banks that act as financial Market intermediaries agree to underwrite the paper (instrument). In reality, a borrower is able to borrow at short-term interest rates for short periods by issuing the “notes” ‘to investors. At the same time the borrower avails of the benefits and comfort of having a committed medium to long tern borrowing facility (underwritten by banks). The funding portion is divided into two separate components. The first, is a long term committed standby lending facility provided by banks. The second is a mechanism for the distribution of short-term debt instruments (the Euro note). The former component gives the borrower the long term assurance of availability of funds. The latter is the means by which cost-competitive funding can be achieved (since at any specific time, short term funding is usually cheaper than medium-long term funding).

Types of Euro Bonds

Straight Bond: Bond is one having a specified interest coupon and a specified maturity date. Straight bonds may issue with a floating rate of interest. Such bonds may have their interest rate fixed at six-month intervals of a stated margin over the LIBOR for deposits in the currency of the bond. So, in the case of a Eurodollar bond, the interest rate may base upon LIBOR for Eurodollar deposits.

Convertible Eurobond: The Eurobond is a bond having a specified interest coupon and maturity date. But, it includes an option for the hold to convert its bonds into an equity share of the company at a conversion price set at the time of issue.

Medium-term Eurobond: Medium-term Euro notes are shorter-term Eurobonds with maturities ranging from three to eight years. Their issuing procedure is less formal than for large bonds. Interest rates on Euro notes can fix or variable. Medium-term Euro-notes are similar to medium-term roll-over Eurodollar credits. The difference is that in the Eurodollar market lenders hold a claim on a bank and not directly on the borrower.

Benefits to Investors

The main benefit to local investors in purchasing a Eurobond is that it provides exposure to foreign investments staying in the home country. It also gives a sense of diversification, spreading out the risks.

As mentioned previously, Eurobonds are pretty cheap, with a small face value and are highly liquid.

If a Eurobond is denominated in a foreign currency and issued in a country with a strong economy (and currency), then the bond liquidity rises.

Benefits to Issuers

A list of benefits to Eurobond issuers consists of the following:

• A country choice with lower interest rates.
• Flexibility to choose a favorable country to originate bonds and currency.
• Avoidance of currency risk or forex risk by using Eurobonds.
• International bond trade despite being issued in a certain country that broadens potential investor base.
• Access to a huge range of bond maturity periods that can be chosen by the issuer.