NCERT Solutions for Class 7th Social Science Chapter 20 Banks and the Magic of Finance
Updated on 2026-09-19
About this chapter
Financial infrastructure is “a network of banks, payment systems, stock markets, and other financial institutions that help people, businesses, and the government facilitate financial transactions and manage money”. Chapter 19 was about physical infrastructure — roads, railways, telecom. This chapter is about the money side. Physical infrastructure moves goods and people; financial infrastructure moves money , and also pays for the physical infrastructure itself. A bank has two faces, and they are joined. It holds deposits — money people put in, kept safe and earning interest — and it offers loans out of that same money. Navdeep deposits ₹3000 of his salary; Rima, who makes bamboo products, borrows what she needs. The bank stands between them. It offers three kinds of accounts: a savings a
- Chapter opening
- Introduction
- Fig. 8.2, inside a bank branch
- End of ‘Other Financial Institutions’
- Temples as the banks of ancient India
- UPI beyond India’s borders
- After the account of share prices, booms and crashes
- The chapter in two points
- End-of-chapter exercise
Quick revision
| Term or fact | What it means | Where it appears in the chapter | Worth remembering |
|---|---|---|---|
| Financial infrastructure | 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 | Page 194, opening | The money-side twin of the physical infrastructure of Chapter 19 |
| Bank | A financial institution that collects money from people in the form of deposits and lends money to people or borrowers as loans | Margin note, page 194 | Two faces of one business: take in and lend out |
| Deposits | Money placed in a bank account that can be withdrawn as per the terms of the bank and often earns interest | Margin note, page 196 | Your deposit does not sit idle — it is lent to someone else |
| Savings account | For individuals who save regularly and earn interest; opens with a minimum deposit; limits on how often money can be withdrawn each month | Fig. 8.4, page 196 | Earns interest, but withdrawals are capped |
| Current account | For businesses and traders who often make and receive payments; earns no interest; generally no limit on deposits or withdrawals | Fig. 8.4, page 196 | No interest — you are paying for freedom of movement |
| Fixed deposit account | A one-time deposit kept for a fixed period like 3 or 5 years; the bank returns the original amount plus interest, usually higher than a savings account | Fig. 8.4, page 196 | Locked money earns more, because the bank can plan on it |
| Interest | The amount charged for borrowing money, or gained by lending money, usually expressed as a percentage | Margin note, page 197 | Paid to depositors and charged from borrowers |
| Compounding | Earning interest on the interest already earned in previous years | Page 197 | ₹1000 at 6% → ₹1060 → ₹1123.60 → … → ₹2012.20 in 12 years |
| Quarterly | Occurring four times a year, at the end of every three months | Margin note, page 197 | One of the periods over which banks pay interest |
| Loan | An amount borrowed from banks or financial institutions, with the obligation to repay it with interest at a later time | Margin note, page 199 | A house, a vehicle, education; machinery and raw material for a business |
| The bank’s income | Banks pay a lower rate to depositors and charge a higher rate to borrowers; the difference is their income | DON’T MISS OUT, page 199 and Fig. 8.8, page 200 | ₹210 repaid − ₹204 paid out = ₹6 earned; banks also keep reserve money |
| Debit and credit | Debit is taking money out of an account; credit is receiving money in an account | Margin note, page 198; Fig. 8.7 | In Fig. 8.7 the salary of ₹10,500 is a credit; the ₹6000 rent is a debit |
| Passbook | A diary-like document from the bank that keeps a record of all receipts and payment transactions, updated at the bank | Page 198 | Your own written proof of every rupee in and out |
| Pradhan Mantri Jan Dhan Yojana | 2014 scheme giving every Indian, especially low-income earners, a bank account with no minimum balance or fees | Page 200 | 15 crore account holders before 2014 → over 50 crore accounts since, mainly women |
| Reserve Bank of India (RBI) | India’s central bank — the bank that supervises the Indian banking system and is banker to the banks | Page 201 | Established 1935; central bank of independent India since 1949 |
| Benchmark interest rate | The base interest rate that the RBI fixes for lending money to commercial banks | Margin note, page 202 | RBI also prints and distributes banknotes |
| NABARD | National Bank for Agriculture and Rural Development — funds banks that lend for farming, village industries, roads and irrigation | Page 201 | Post offices, IFCI and NABARD reach where ordinary banks may not |
| Payment system | A mechanism that allows the clearing and settlement of financial transactions so individuals, businesses and organisations can transfer funds | Margin note, page 203 | Cash, cheque and debit card are modes; UPI is a system |
| UPI and NPCI | Unified Payments Interface, launched by the National Payments Corporation of India in 2016, transfers funds instantly using a QR code or phone number | Pages 206–207 | Nepal adopted it first, in 2022; UAE, France, Sri Lanka, Bhutan, Mauritius followed |
| Share and stock exchange | A share is a unit of ownership in a company; the buying and selling of shares takes place at a stock exchange | Pages 207–208 | Bombay Stock Exchange, 1875 — one of the oldest in the world |
| Stock market boom and crash | Share prices of many companies rising together is a boom; falling together is a crash | Figs. 8.21 and 8.22, page 209 | Causes: company performance, new laws, tax rules, political instability, wars, economic shocks |
| OTP and helpline 1930 | A One-Time Password is a temporary code used to verify identity or authorise a transaction; frauds are reported on helpline 1930 or the National Cybercrime Reporting Portal | Page 210 | Never share it — an OTP given away is money given away |
Exercises
- Chapter opening — The Big Questions Page 193
- Introduction — In-text Questions Page 194
- Fig. 8.2, inside a bank branch — LET’S EXPLORE Page 194
- After the story of Navdeep’s deposit and Rima’s loan (Fig. 8.3) — THINK ABOUT IT Page 196
- After the compounding example and the story of the king and the sage — THINK ABOUT IT Page 198
- End of ‘Other Financial Institutions’ — In-text Question Page 201
- Temples as the banks of ancient India — THINK ABOUT IT Page 202
- After the UPI transaction between Kumar and Piyush (Fig. 8.18) — In-text Question Page 207
- UPI beyond India’s borders — THINK ABOUT IT Page 207
- After the account of share prices, booms and crashes — THINK ABOUT IT Page 209
- The chapter in two points — Before we move on … Page 210
- End-of-chapter exercise — Questions and activities Page 211–212