Pariksha SaathiLesson 4 of 10 · Banking and Financial Awareness
Bank Accounts, NRI Deposits, Cheques, Loans and Deposit Insurance
Drafted with AI assistance and fact-checked on 28 October 2026; not yet read line by line by a human editor. Spotted a mistake? Tell us. Editorial standards & corrections
Deposit accounts
Deposits fall into two groups. Demand deposits, that is savings and current accounts, can be withdrawn at any time; time deposits, that is fixed and recurring deposits, are locked for a chosen period and so earn more. A savings account is for individuals; it pays interest calculated on the daily balance, and the RBI deregulated the savings rate in 2011, so each bank sets its own. A current account is for businesses with many transactions; it usually pays no interest but allows unlimited transactions and an overdraft. A fixed deposit is placed for a fixed period at a fixed rate, with a penalty for early withdrawal, while a recurring deposit collects a fixed sum every month. The share of current and savings deposits in total deposits, the CASA ratio, is watched closely because these are a bank's cheapest funds.
NRI accounts and KYC
Indians living abroad mainly use three accounts. The NRE (Non-Resident External) account is a rupee account for money earned abroad; principal and interest can be freely sent back (repatriated) and the interest is free of Indian income tax. The NRO (Non-Resident Ordinary) account is a rupee account for income earned in India, such as rent, pension or dividends; repatriation is limited and the interest is taxable. The FCNR(B) (Foreign Currency Non-Resident, Banks) account is a term deposit held in a foreign currency, which protects the depositor from exchange-rate risk. Before opening any account a bank must complete KYC (Know Your Customer), verifying identity and address through officially valid documents such as a passport, driving licence, voter ID or Aadhaar. KYC rests on the Prevention of Money Laundering Act 2002 and RBI directions, and is updated periodically according to the customer's risk category.
Cheques and drafts
A cheque, defined in section 6 of the Negotiable Instruments Act 1881, is a bill of exchange drawn on a specified banker and payable on demand. The person who writes it is the drawer, the bank is the drawee and the person to be paid is the payee. A bearer cheque is paid to whoever presents it; an order cheque only to the named payee or to the person he endorses it to. A crossed cheque, marked with two parallel lines, must be paid into a bank account, not over the counter; an account payee crossing means only the payee's account can be credited. A cheque is valid for three months from its date and becomes stale after that. Dishonour of a cheque for insufficient funds is an offence under section 138 of the Act. A demand draft is issued by a bank against money paid in advance, so it cannot bounce for lack of funds.
Cheque truncation and nomination
The Cheque Truncation System (CTS) stops the physical movement of cheques; the presenting bank sends an electronic image of the cheque, with its MICR data, for clearing. It began in the National Capital Region in 2008 and later spread across the country, using cheques of the CTS-2010 standard. Nomination, under sections 45ZA to 45ZF of the Banking Regulation Act, lets a depositor name a person to whom the bank pays the deposit, or hands over a safe-custody article or locker contents, after the depositor's death. The nominee receives the money as a trustee for the legal heirs, so nomination speeds up claims but does not decide inheritance.
Loans and interest
Banks give term loans repaid in equated monthly instalments (EMIs), and working-capital facilities such as cash credit and overdraft, where the borrower draws up to a limit and pays interest only on the amount used. Interest is either fixed, staying the same through the term, or floating, moving with a benchmark. Benchmarks have changed over time: the benchmark prime lending rate (2003) gave way to the base rate (July 2010) and then to the marginal cost of funds based lending rate, MCLR (April 2016), which reflects a bank's marginal cost of funds, the cost of keeping CRR, operating costs and a tenor premium. From 1 October 2019 new floating-rate loans to individuals and to micro and small enterprises must be linked to an external benchmark, such as the RBI's repo rate or a Treasury bill yield, so that policy changes reach borrowers faster.
Credit bureaus and deposit insurance
Credit information companies, licensed under the Credit Information Companies (Regulation) Act 2005, collect repayment records from lenders and give each borrower a credit report and score. TransUnion CIBIL, set up in 2000, is the best known; Equifax, Experian and CRIF High Mark are others. A CIBIL score runs from 300 to 900; the higher the better. Deposits are protected by the Deposit Insurance and Credit Guarantee Corporation (DICGC), an RBI subsidiary; deposit insurance in India began in 1962. It covers savings, current, fixed and recurring deposits in commercial banks (including foreign bank branches, small finance banks and payments banks), regional rural banks and co-operative banks, for principal and interest together up to a set limit per depositor in each bank. The banks pay the premium, not the depositors, and deposits of governments and of other banks are not covered.
Key facts
- Demand deposits: savings and current accounts; time deposits: fixed and recurring deposits; CASA = current and savings deposits, the cheapest funds for a bank.
- Savings bank interest is calculated on the daily balance and was deregulated by the RBI in 2011; current accounts usually pay no interest.
- NRE: rupee account for foreign earnings, fully repatriable, interest tax-free; NRO: income earned in India, limited repatriation, taxable; FCNR(B): term deposit in foreign currency.
- KYC rests on the Prevention of Money Laundering Act 2002 and RBI directions; officially valid documents include passport, driving licence, voter ID and Aadhaar.
- Cheque: section 6 of the Negotiable Instruments Act 1881; drawer writes it, drawee bank pays it, payee receives it; valid for three months from its date.
- Account payee crossing: only the payee's account can be credited; dishonour for insufficient funds is an offence under section 138 of the NI Act.
- CTS sends an image of the cheque instead of the paper; it began in the National Capital Region in 2008.
- Lending benchmarks: BPLR (2003), base rate (July 2010), MCLR (April 2016), external benchmark for new floating retail and MSE loans (1 October 2019).
- Credit Information Companies (Regulation) Act 2005; TransUnion CIBIL (2000) scores run from 300 to 900.
- DICGC, an RBI subsidiary, insures deposits per depositor in each bank up to a set limit; banks pay the premium; deposit insurance began in 1962.
Quick revision
Demand deposits (savings, current) vs time deposits (FD, RD); savings rate deregulated 2011; NRE (repatriable, tax-free) vs NRO (Indian income) vs FCNR(B) (foreign currency); KYC under PMLA 2002; cheque = section 6 NI Act 1881, valid three months, dishonour = section 138; CTS from NCR 2008; nomination sections 45ZA-45ZF BR Act; BPLR 2003, base rate 2010, MCLR 2016, external benchmark 1 October 2019; CICRA 2005, CIBIL 300-900; DICGC insures deposits, insurance since 1962.