NCERT Solutions for Class 7 Social Science Chapter 20 Banks and the Magic of Finance (PDF) – 2027

Financial infrastructure is a network of banks, payment systems, stock markets and other financial institutions that help people, businesses and the government carry out financial transactions and manage money.

It comprises: (1) banks, which hold deposits and give loans; (2) other financial institutions such as post offices and NABARD; (3) payment modes and systems such as cheques, debit cards, netbanking and UPI; and (4) the stock market, where shares are bought and sold. The RBI supervises the banks.

Banks perform two main functions:

1. Hold deposits — they keep people’s money safe in savings, current and fixed deposit accounts, and pay interest on it.
2. Offer loans (credit) — they lend money for houses, vehicles, education and business, and charge interest.

Impact on people’s lives: savings are safe and grow; people can borrow to start or expand work; wages and scholarships reach accounts directly, without middlemen.

Financial infrastructure promotes savings, credit and investment, which boost economic activity and add to the nation’s prosperity. Banks collect people’s savings and lend them to businesses and farmers; payment systems like UPI make transactions quick and recorded; the stock market helps companies raise funds; and post offices and NABARD reach villages and remote areas.

Yes. Money moves in a circle: the shopkeeper pays salaries to workers → the workers spend them on essential items → this spending becomes the income of other sellers and producers → who again pay salaries. Every rupee spent becomes someone else’s income.

Monetary transactions take place through banks and payment systems. People pay in cash (withdrawn at the bank counter or an ATM), by cheque, by debit card at a POS machine, through netbanking, or by UPI on a mobile phone. Except for cash handed over directly, these need a bank account.

It is funded out of savings that financial infrastructure collects and lends. Banks lend people’s deposits; the RBI gives loans to the government; NABARD funds roads and irrigation and the Industrial Finance Corporation of India funds power and textile businesses; companies raise money by issuing shares; and the government also uses taxes.

What the people are doing: two customers stand at the long counter at the back, where bank staff handle deposits and withdrawals; at the desks, customers sit with bank officers filling forms — perhaps opening an account or asking about a loan; others wait in chairs, one using her mobile phone.

Sample answer (from family): “My mother went to the bank to open a fixed deposit. She took her passbook and Aadhaar card, filled a form and got a receipt.”

Because money kept in a cupboard at home might not be safe — it can be stolen or lost. In the bank his money is safe, it earns interest and grows, every deposit and withdrawal is recorded in his passbook, and he can use it by cheque, debit card or UPI.

Yes, they can lend to each other directly, but problems could arise. They may not know or trust each other; Navdeep may not have as much as Rima needs; he may want his money back before she can repay; there may be no written agreement; and if Rima’s business fails, Navdeep could lose his savings. A bank avoids these problems by collecting many deposits and lending them carefully.

Through the passbook. It records every transaction — the date, the particulars, the cheque number (if any), the debit (money taken out), the credit (money received) and the balance left after it. It is updated at the bank. Today netbanking and UPI apps also show the balance and transaction history.

Debits (outflow): rent ₹6,000 (cheque no. 10523), Regal cinema ₹1,500, coffee house ₹400, SMS charges ₹12 — total ₹7,912.
Credits (inflow): salary ₹10,500, cash deposit ₹500, interest ₹1,327 — total ₹12,327.

Keeping records is important because it shows where our money goes, serves as proof of payments, helps us catch mistakes and fraud early, and helps us plan our spending and saving.

The Reserve Bank of India (RBI) sets these regulations. It is India’s central bank, the “banker to banks”, and supervises the banking system. Established in 1935, it has worked as the central bank since 1949. It keeps the accounts of other banks, lends to banks and the government, prints and distributes currency, and fixes the benchmark interest rate.

Temples in ancient India did part of a bank’s work. They did not take deposits from the public, but they lent money to artisans, merchants and the local government for building infrastructure. The agreements were etched on copper plates, which have survived and show us how the system worked. So lending on agreed terms is a very old practice in India.

The Kodumbalur inscription (13th century, Tamil Nadu) shows temples working like lenders. Communities borrowed money from the Tirumudukunramudaiya-Nayanar temple and agreed to pay interest — just like a modern loan, which is repaid later with interest. Because it was recorded at that time, it is reliable evidence of how temples functioned.

Yes. Kumar only scanned Piyush’s QR code and entered the amount and his UPI PIN; everything else happened by itself within moments. The app sent the request to Kumar’s bank, which forwarded it to NPCI; NPCI verified the PIN and processed the transfer; and the money reached Piyush’s bank account. No cash, cheque or bank visit was needed.

UPI is an Indian payment system that other countries now use. Launched by NPCI in 2016, it was first adopted by Nepal in 2022, and then by the UAE, France, Sri Lanka, Bhutan, Mauritius and others. They adopt it because it is instant, efficient, secure and easy to use in many languages — which is why the chapter calls it India’s gift to the world of payment systems.

Companies issue shares to raise funds for their operations, for example to expand or buy new machines. People buy shares to become part-owners of a company and to put their savings where they expect the value to grow.

Benefits: part-ownership, and a gain if the share price rises. But share prices can also fall, so owning shares can bring losses too.

This point sums up what financial infrastructure is and what it does. Its parts are banks, other financial institutions (post offices, NABARD), the RBI, payment systems (cheques, debit cards, UPI) and the stock market. Together they let money flow smoothly: people deposit savings in banks, banks lend to businesses, businesses pay wages, and the government sends wages and scholarships directly into accounts.

Financial infrastructure promotes three things. Savings — banks keep money safe and pay interest. Credit — savings are lent to people like Rima and to farmers. Investment — companies raise funds through shares, and NABARD funds roads and irrigation. When this money is put to use, businesses grow and incomes rise, which adds to the nation’s prosperity.

Financial infrastructure is the network of banks, payment systems, stock markets and other financial institutions that help people, businesses and the government carry out financial transactions and manage money.

It complements physical infrastructure because: (1) it funds roads, railways and bridges through bank loans, NABARD and taxes; (2) physical infrastructure such as electricity and mobile networks lets ATMs and UPI work; and (3) goods travel by road and rail, while payment for them travels through banks and UPI.

A bank account helps people keep money safe, earn interest, keep a record of transactions, borrow when needed, receive wages, scholarships and benefits directly, and pay easily by cheque, debit card or UPI.

Should everyone be required to have one? Everyone should be able to have an account and be encouraged to open one — with no minimum balance or fees and help in using it, as in the Jan Dhan Yojana — rather than being forced.

For savers: Advantage — interest is earned on earlier interest, so savings grow faster the longer they are kept (₹1000 at 6% becomes ₹2012.20 in 12 years). Disadvantage — the extra growth is lost if the money is withdrawn early.

For borrowers: Advantage — a loan lets them start or grow a business now. Disadvantage — unpaid interest is added to the loan, so the debt grows quickly and can become hard to repay.

Households deposit savings in banks → banks lend them to businesses → businesses buy materials and pay wages into workers’ accounts → households spend using cash, cards or UPI → businesses repay loans with interest, and banks pay interest to depositors.

The government can help by opening accounts for all (Jan Dhan Yojana), supporting payment systems like UPI, paying wages and scholarships directly into accounts, regulating banks through the RBI, and protecting users from fraud (helpline 1930).

In a fixed deposit the money stays with the bank for a fixed period (like 3 or 5 years), so the bank can lend it out for a long time and earn more from borrowers. The depositor also gives up the freedom to withdraw during that time. In a savings account money can be withdrawn at any time, so the bank must keep more of it ready and pays less interest.

As in the chapter’s ₹1000 example, the interest is added to the amount each year (compounding):

Sahil would have ₹14,049.28 after 3 years. (If only the original ₹10,000 earned interest each year, he would have ₹10,000 + 3 × ₹1,200 = ₹13,600.)

The stock market mobilises savings by letting many people put even small savings into companies, by buying shares at a stock exchange such as the Bombay Stock Exchange. They become part-owners and hope the value of their shares will rise.

Companies benefit because they raise funds for their operations — machinery, expansion, new products — from many people at once, and unlike a loan, this money does not have to be repaid on a fixed date.

We can keep using digital payments and follow simple safety rules: never share OTPs, PINs, passwords or account details with strangers; do not click unknown links or install apps a caller asks for; do not store PINs or passwords on devices; check the passbook or app history regularly; and report any fraud at once on helpline 1930 or the National Cybercrime Reporting Portal (cybercrime.gov.in).

(your own findings will differ):

Summary: everyone under 45 uses UPI for daily spending because it is quick and recorded; cash and cheques are used mostly by the oldest person and for a few fixed payments. Three of the five had received fake calls, messages or links, but nobody lost money.

Surprising insight: the person who uses the least technology saves the most.

Sample answer — a poster in words:

• Heading: “YOUR OTP IS YOUR MONEY. NEVER GIVE IT AWAY.”
• Left column (DO), green tick: Keep PINs secret · Check your passbook · Call your bank yourself · Cover the ATM keypad · Report immediately.
• Right column (DON’T), red cross: No OTPs to strangers · No unknown links · No PINs saved on the phone · No apps installed on a caller’s instruction.
• Bottom strip, bold: “Cheated? Call 1930 or report at cybercrime.gov.in — the same day.”

How to fill a cheque: write the date; after Pay, the name of the person or company to be paid; the amount in words ending with “only”; and the same amount in figures in the ₹ box. The account holder then signs in the signature space. The amounts in words and figures must match.

Sample: electricity bill — Pay: the company named on the bill; Rupees: Two thousand four hundred fifty only; ₹ 2,450/-; signed by my father.

Fill in: the branch name, the date, the amount in figures (₹10,000/-) and in words (Ten thousand rupees only), your account number, your name and your signature. Leave the “For Office Use” part blank. Then hand the slip in at the cash counter and collect the money.