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Banks and the Magic of Finance – Class 7 Social Science notes, important questions and MCQs

NCERT Class 7 Social Science, chapter 20. Notes, key terms, important questions with answers and MCQs.

Chapter overview

Banks keep people's savings safe, pay interest on deposits and give loans to individuals and businesses. By lending out deposits, banks help money circulate and support farming, trade and industry. The Reserve Bank of India regulates banks, and schemes such as Jan Dhan and UPI have brought banking to millions.

What banks do

Accept deposits: savings accounts, current accounts and fixed deposits.
Give loans for homes, education, farming and business, and charge interest.
Banks pay lower interest on deposits than they charge on loans; the difference is their income.
Other services include ATMs, cheques, debit cards, net banking and money transfers.

Regulation and inclusion

The Reserve Bank of India (RBI), set up in 1935, is India's central bank; it issues currency and regulates banks.
The Pradhan Mantri Jan Dhan Yojana (2014) opened bank accounts for millions of people who had none.
UPI (2016) allows instant mobile payments and has made digital transactions common.

Using banks wisely

Saving regularly and borrowing only what can be repaid prevent debt problems.
Never share your PIN, password or OTP with anyone; banks never ask for them by phone.

Key terms

Deposit: money placed in a bank account for safekeeping
Loan: money borrowed from a bank or lender that must be repaid with interest
Interest: the extra amount paid for using borrowed money or earned on deposits
Financial inclusion: making banking and financial services available to all, including the poor

Important questions with answers

What are the main functions of a bank?2 marks

A bank accepts deposits from people and keeps their money safe, paying interest on savings. It gives loans to individuals and businesses for homes, education, farming and trade, and charges interest. It also provides services such as cheques, ATMs, debit cards, net banking and money transfers.

What is financial inclusion? How have Jan Dhan and UPI helped it?3 marks

Financial inclusion means making banking and financial services available to everyone, including the poor and people in remote areas. The Pradhan Mantri Jan Dhan Yojana (2014) opened bank accounts for millions of people who had none, and UPI (2016) made instant, low-cost mobile payments possible even for small amounts, bringing many people into formal banking.

Explain how banks work and why they are important for individuals and the economy. Mention safe banking habits.5 marks

Banks collect deposits from people through savings accounts, current accounts and fixed deposits and pay them interest. They keep a part of these deposits as cash and lend the rest to individuals and businesses for homes, education, farming, shops and factories, charging a higher rate of interest on loans; the difference between the two rates is the bank's income. For individuals, banks keep money safe, help it grow through interest, provide loans for important needs and make payments easy through cheques, cards and UPI. For the economy, banks channel savings into productive investment, which supports farming, trade and industry and creates jobs. The Reserve Bank of India, set up in 1935, regulates banks and issues currency, and schemes such as Jan Dhan (2014) and UPI (2016) have spread banking widely. Safe habits include saving regularly, borrowing only what can be repaid, keeping records, and never sharing a PIN, password or OTP with anyone, since banks never ask for them.

Quick revision

Banks accept deposits and give loans.
RBI (1935) regulates banks and issues currency.
Jan Dhan (2014) and UPI (2016) spread banking.
Never share OTP or PIN.

Exam tips

Remember the bank's basic cycle: deposits come in, loans go out, interest difference is income.
Always include a point on cyber safety in answers on digital banking.

Practice MCQs

India's central bank is the
1. State Bank of India
2. World Bank
3. Punjab National Bank
4. Reserve Bank of India
Show answer
Answer: (d) Reserve Bank of India. It was set up in 1935.
Money borrowed from a bank that must be repaid with interest is a
1. deposit
2. loan
3. gift
4. tax
Show answer
Answer: (b) loan. Banks earn interest on loans.
UPI is used for
1. measuring rainfall
2. printing currency
3. collecting taxes only
4. instant mobile payments
Show answer
Answer: (d) instant mobile payments. It was launched in 2016.
The main income of a bank comes from
1. the difference between interest on loans and on deposits
2. printing notes
3. selling land
4. government salaries
Show answer
Answer: (a) the difference between interest on loans and on deposits. Banks charge more on loans.
The Pradhan Mantri Jan Dhan Yojana (2014) aimed to
1. build roads
2. start new banks only in cities
3. issue passports
4. open bank accounts for all households
Show answer
Answer: (d) open bank accounts for all households. It promotes financial inclusion.
A deposit that is kept for a fixed period at a higher interest rate is a
1. savings account
2. fixed deposit
3. current account
4. loan
Show answer
Answer: (b) fixed deposit. Money stays locked for the chosen period.
Someone calls claiming to be from your bank and asks for your OTP. You should
1. share it quickly
2. refuse and report it, because banks never ask for OTPs
3. share only half of it
4. give your PIN instead
Show answer
Answer: (b) refuse and report it, because banks never ask for OTPs. Sharing OTPs leads to fraud.
How do banks help the economy grow
1. by keeping all deposits unused
2. by stopping savings
3. by lending deposits to farmers, traders and industries
4. by refusing loans
Show answer
Answer: (c) by lending deposits to farmers, traders and industries. Loans finance production and trade.

All chapters of Class 7 Social Science

Written by Kundali IQ from standard, well-established facts to help with revision. This is not an official NCERT publication; always read your textbook too.