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Banking Products and Services

Part of the IBPS Clerk study roadmap. ('awareness', 'General Awareness') topic genera-003 of ('awareness', 'General Awareness').

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Banking Products and Services

A thorough understanding of banking products and services is essential for any IBPS Clerk candidate, as this topic is directly relevant to day-to-day banking operations and forms a significant portion of the General Awareness section of the examination. Modern banks offer a comprehensive suite of products to meet the diverse financial needs of individuals, businesses, and government entities. These products are broadly categorized into deposit products, loan products, investment products, insurance products, and digital banking services. This chapter covers the key banking products and services that every aspiring bank clerk must know.

Deposit Products

Deposits are the primary source of funds for banks, and deposit products are the most basic banking products that individuals and businesses use.

Types of Deposit Accounts

1. Savings Bank Account: A deposit account designed for individuals to deposit their savings and earn interest. Key features:

  • Interest rate: Currently around 2.70–3.00% per annum (revised by banks periodically)
  • Nomination facility: Available
  • Cheque facility: Available
  • Withdrawal restrictions: The number of withdrawals may be limited depending on the bank’s terms (though most banks do not impose strict limits currently)
  • Minimum balance: Most banks require a minimum average quarterly balance (SABs: ₹500–₹1,000 for rural branches; ₹1,000–₹3,000 for urban/metropolitan branches)
  • Passbook/statement: Passbook issued; monthly statements for e-banking customers
  • Jan Dhan Sahaj Bank accounts: Under the PMJDY, zero-balance accounts are offered with a RuPay debit card and overdraft facility

2. Current Account: A deposit account primarily for business entities (companies, firms, professionals) that have frequent banking transactions. Key features:

  • No interest is paid on balances (and in some cases, banks may charge a fee for maintaining high balances)
  • Unlimited transactions (unlike savings accounts which may have restrictions)
  • Overdraft facility: Current account holders can be sanctioned an overdraft (OD) limit based on their relationship with the bank
  • Minimum balance: Typically higher than savings accounts
  • Cheque book facility: Standard
  • Collection and payment services: Business-oriented services including collection of cheques, bill payments, NEFT/RTGS facilitation

3. Fixed Deposit (Term Deposit): A deposit for a fixed period at a predetermined interest rate. Key features:

  • Tenure: Ranges from 7 days to 10 years
  • Interest rates: Higher than savings bank rate; senior citizens get an additional 0.50% per annum
  • Interest payout options: Monthly, quarterly, half-yearly, annually, or at maturity (compounded)
  • Premature withdrawal: Allowed, but attracts a penalty (typically 0.5–1% lower than the contracted rate)
  • Loan against FD: Banks offer loans/overdrafts up to 80–90% of the FD amount at attractive rates
  • Tax deduction at source (TDS): Interest earned is subject to TDS at 10% if interest exceeds ₹40,000 per year (₹50,000 for senior citizens)
  • Breakage amount: Tax saving FDs (5-year tax-saving FDs under Section 80C) are not eligible for premature withdrawal before 5 years

4. Recurring Deposit (RD): A deposit account where a fixed sum is deposited every month for a fixed tenure, earning interest at the applicable FD rate. At maturity, the depositor receives the lump sum of all deposits plus interest.

5. NRI Deposits: Non-Resident Indian (NRI) deposits include:

  • NRE (Non-Resident External) Account: Rupee-denominated account for depositing foreign earnings; repatriable (funds can be freely taken abroad); tax-free interest income in India
  • NRO (Non-Resident Ordinary) Account: For managing income earned in India (rent, dividends, pension); non-repatriable (only up to USD 1 million per financial year without RBI approval)
  • FCNR (Foreign Currency Non-Resident) Account: Denominated in foreign currency (USD, GBP, EUR, etc.); no exchange rate risk; interest is tax-free

Loan Products

Loans are the primary income-generating product for banks. The interest rate on loans is typically expressed as a floating rate (linked to the bank’s Marginal Cost of Funds based Lending Rate — MCLR — or the External Benchmark Rate) or as a fixed rate (for some retail loans).

Retail Loans (Personal Loans)

1. Personal Loan: Unsecured loan for personal purposes (wedding, home renovation, travel, medical expenses). Features:

  • No collateral/security required
  • Amount: Up to ₹25–30 lakhs depending on income and credit profile
  • Tenure: 1–5 years
  • Interest rate: Higher than secured loans (12–24% per annum)
  • Processing fee: 1–2% of loan amount
  • EMI (Equated Monthly Installment): Principal + Interest distributed equally over the tenure

2. Home Loan: Loan for purchase/construction of residential property. Features:

  • Secured loan (property is mortgaged to the bank)
  • Amount: Up to 80–90% of the property value (depending on the lender and loan amount)
  • Interest rate: 6.80–8.50% per annum (floating, linked to MCLR or EBLR)
  • Tenure: Up to 30 years
  • Tax benefits: Under Section 24(b) of the Income Tax Act, interest paid on self-occupied property up to ₹2 lakh per year is deductible. Under Section 80C, principal repayment up to ₹1.5 lakh is deductible
  • Part-prepayment: Allowed without penalty in most floating rate home loans

3. Car Loan (Vehicle Loan): Loan for purchase of new or pre-owned cars. Features:

  • Secured (vehicle is hypothecated to the bank)
  • Amount: Up to 85% of on-road price for new cars; 75–80% for used cars
  • Interest rate: 7.50–11.00% per annum
  • Tenure: Up to 7 years for new cars; up to 5 years for used cars

4. Education Loan: Loan for higher education in India or abroad. Features:

  • Secured (tangible collateral or third-party guarantee required for loans above a threshold)
  • Amount: Up to ₹20–30 lakhs for studies in India; up to ₹1 crore for studies abroad (depending on the course and bank)
  • Interest rate: 7.30–10.00% per annum (concessional for girl students)
  • Moratorium period: Course duration + 6–12 months after completion
  • Tax benefit: Under Section 80E, the entire interest paid on education loan is deductible from taxable income (no upper limit; for up to 8 years of repayment)

Business Loans

1. MSME Loans (Micro, Small, and Medium Enterprises): Loans to businesses in the MSME sector, a key focus of government policy and priority sector lending. Features:

  • Collateral-free loans: Under the CGTMSE scheme (Credit Guarantee Fund Trust for Micro and Small Enterprises), banks can lend up to ₹2 crore without collateral
  • Interest rate: Varies by bank and credit profile; government schemes like MUDRA provide subsidized credit
  • MUDRA Loans: Under the Pradhan Mantri MUDRA Yojana (PMMY), loans are categorized as:
    • Shishu: Up to ₹50,000
    • Kishore: ₹50,000 – ₹5 lakh
    • Tarun: ₹5 lakh – ₹10 lakh

2. Working Capital Finance: Short-term loans to meet day-to-day operational expenses of a business. Includes cash credit (CC) accounts, overdraft facilities, and invoice discounting.

3. Trade Finance: Services including letters of credit (LC), bank guarantees, bill discounting, and export/import financing.

Insurance Products Sold Through Banks

Banks act as bancassurance (bank + insurance) agents, offering life insurance and general insurance products to their customers. This is a significant source of fee income for banks.

Life Insurance products sold through banks:

  • Term plans: Pure protection products with no savings component
  • Endowment plans: Life insurance with savings element
  • Unit Linked Insurance Plans (ULIPs): Investment + insurance
  • Pension plans: Retirement-focused products

General insurance products:

  • Motor insurance (mandatory for vehicles)
  • Health insurance
  • Home insurance
  • Travel insurance
  • Crop insurance (under government schemes like PM Fasal Bima Yojana)

Digital Banking Services

Modern banks offer extensive digital services that are revolutionizing how banking is accessed:

1. Internet Banking (Net Banking): Online access to bank accounts for viewing balances, transferring funds (NEFT/RTGS/IMPS), paying bills, investing in mutual funds, and applying for products. The Retail Internet Banking platform of major banks serves millions of customers.

2. Mobile Banking: Dedicated mobile apps (UPI apps, bank-specific apps) that allow banking on smartphones. India has one of the world’s largest mobile banking user bases.

3. UPI (Unified Payments Interface): India’s flagship real-time payment system, launched in 2016 by the National Payments Corporation of India (NPCI). UPI allows instant money transfers between bank accounts using a Virtual Payment Address (VPA) or QR code, 24×7, without needing to know the recipient’s account number or IFSC code. Major UPI apps include BHIM, Google Pay, PhonePe, Paytm, and bank apps.

4. NEFT (National Electronic Funds Transfer): Electronic fund transfer system operated by RBI/NPCI. Transfers are settled in batches. Available 24×7 since 2019. No minimum or maximum amount limit.

5. RTGS (Real Time Gross Settlement): For high-value interbank transfers (minimum ₹2 lakh). Settled individually and immediately (real-time). Available 24×7.

6. IMPS (Immediate Payment Service): 24×7 instant interbank fund transfer service (maximum ₹5 lakh per transaction). Faster than NEFT.

7. ATM/Debit Cards: RuPay (domestic card network — promoted by NPCI), Visa, and MasterCard are the main card networks in India. ATMs allow cash withdrawal, balance enquiry, PIN change, mini statements, and interbank transfers.

⚡ Exam tip: The MCLR (Marginal Cost of Funds based Lending Rate) is the minimum lending rate below which banks cannot lend (except for loans linked to the External Benchmark Rate). UPI is operated by NPCI (National Payments Corporation of India). IMPS is available 24×7 with a maximum limit of ₹5 lakh. RTGS requires minimum ₹2 lakh. Education loans qualify for tax deduction under Section 80E. CGTMSE provides collateral-free loans up to ₹2 crore for MSMEs.

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