Meaning of Deposit

A deposit is an act of keeping or placing money with the bank. It is done through a bank account opened with the bank which may or may not provide interest to the depositor. Such accounts are opened as per the need of customers along with integrated facilities provided by a bank. Customers can withdraw their deposit with the bank at the time of their need with or without pre-information to the bank. Such deposit is collected by all types of banks which is used for credit and investment purposes of banks.It is the biggest liquidity in the banking system.

Deposit collected by banks from the public as individuals or institutions accounts for about 90 percent of the total deposit of such banks. Deposit is the liability to the banks as it belongs to others (owners of such deposit) which have to be given back at the time of their demand. It is the main source of bank’s lending and investment business. That’s why banks formulate different deposit schemes considering different deposit-providing segments of society. Such schemes ensure the safety of deposited sums along with attractive interest rates with additional utility functions. Higher the deposit collection and its mobilization, higher banking business with a higher level of profit will be earned for banks. Generally, banks collect a deposit in the form of a saving deposit, current deposit and fixed deposit.

Types of Deposit

Deposit is the main source on which the entire foundation of the banking business is laid. There is high competition among banks to attract and retain more deposits so as to increase their volume of business. Such an increased volume of business means a rise in profit as well as growth, stability and sustainability of the bank itself. The bank deposit collected are of the following types:

a.    Saving Deposits

These are deposits generated and collected through small savings. In such types of deposits, a certain sum can be deposited and withdrawn once or twice a week. It has a relatively lowinterest rate as compared to other types of deposits such as a fixed deposit. The deposit, withdrawal and interest aspects of such deposits are controlled by banks as per the guideline and direction of a central bank. People having fixed or salaried income generally opt for such deposits.

Features of Saving Deposits

• A certain level of interest is payable by the bank
• Focus on short term savings of the account holder
• A restricted number of deposits and withdrawals during a certain stated time
• Cheque deposit of cheques in the name of an account holder is possible
• Service like mobile banking, internet banking, locker, ATM card etc. are provided either at some charge or free of cost

b.    Current Deposits

These are the type of deposits in which there is no restriction for deposit and withdrawal. This means any amount can be put into or withdrawn from the account as per the demand of the depositor. Since the amount of such an account is always kept in cash by banks and paid to the depositor immediately at the demand, it bears no or very low level of interest. It is mostly suitable for traders and big businesses who have to make large and frequent deposits as well as withdrawals.

Features of Current Deposits

• No restriction on volume and frequency of transactions
• No interest payable by banks
• Overdraft facility as per the understanding of the bank and the depositor after specific or special arrangements

c.    Fixed Deposits

Fixed deposits are time-dependent deposits. These deposits are deposited into banks for a fixed period of time. Since it cannot be withdrawn before the expiry of the deposited time period, these are called time deposits. Such deposits carry high interest than all other forms of deposits. Such deposits can be maintained by individuals as well as institutions with the banks.

Features of Fixed Deposits

• No withdrawal before the expiry of the time
• High-interest rate as compared to saving or current deposits
• Loan against fixed deposits can be taken before the expiry of time upto 90% of the fixed deposit amount at a chargeable interest
• Easy renewal after the expiry date if permitted by its depositor
• Negotiable with prepaid interest having fixed maturity

d.Recurring Deposit

Recurring deposit is a special type of deposit. It bears the feature of both saving and fixed deposit. It is confined to deposit of specific sum every month or agreed tenure by the customer till its maturity is attained. It offers higher interest rate than saving deposit (equal to interest rate of fixed deposit). It is saving of small sum regularly for higher interest rate than saving deposit.

Deposit Mobilization

A deposit is a collection of scattered small to large saving through different schemes from individuals or institutions. Such collected deposit has to be utilized effectively and efficiently to ensure regular operation and profitability of banks. Mobilization of saving through deposits by banks and financial institutions is regarded as their key work or role in the economic development of a country. Banks and financial institutions mobilize such deposits through different investment and lending schemes. The interest and charges earned through such mobilization help to maintain operational expenses and profit for shareholders.

Deposit mobilization is the act and technique of collecting deposits and lending or investing it in a profitable manner. It is the way of gathering funds at cost of interest to be paid and making the fund available for those in need at higher chargeable interest along with some charges. It can be regarded as the overall process of deposit collection, maintaining statutory cash reserves, providing a loan, receiving and recovery of loans given by banks and financial institutions. While mobilizing deposit, different national interests, legal provisions, guidelines and directives of regulatory authority, market competition etc. have to be considered rationally. In precise, deposit mobilization is all about deposit collection, lending, adequate liquidity maintenance, investment in potentially profitable projects etc. safely with lower risk ensuring optimum profit for the deposit mobilizer ie. Baks and financial institutions.

Sources of Deposit in Banks

Sources	Collection Through
Deposit Accounts	Different saving, current, fixed deposit, call deposit and margin deposit are used
Bank’s Fund	Paid-up capital, reserve fund, retained earnings, borrowed fund etc.
Others	Bonds and debentures, cash certificates etc

Uses of Deposits by Banks

Uses	Form of Use
Loan and Advance	Loan and advance in the form of cash credit, demand loan, overdraft, short term loan, discounting bills of exchange etc
Liquid Fund	Cash in hand, balance with a central bank, balance with domestic banks, call money etc.
Investment	The surplus fund invested in securities (government or corporate), shares and debentures, joint venture, energy sector, deprived sector, priority sector etc.
Fixed Assets	Purchase of necessarily fixed assets such as land and building, furniture, vehicles and other concerned instruments
Administrative Expenses	Payment of salary and allowances, rent, income tax, donation, insurance, tour expenses, commission, pension etc.
Miscellaneous Expenses	Distribution of dividends to shareholders, to bear the loss in purchase or sales of fixed assets, maintenance expenses, reserve fund etc.