Demand Liabilities and Time Liabilities
Banks have various kinds of liabilities that can be broadly categorized into two main types – demand liabilities and time liabilities.
Demand Liabilities
Demand liabilities refer to those liabilities which are payable by the bank on demand, without any prior notice. Some examples include:
- Current Account Deposits– The balance in a customer’s current account is payable on demand. If a customer wishes to withdraw funds from their current account, the bank has to pay it immediately.
- Savings Account Deposits– The demand liability portion of savings bank deposits also needs to be paid by the bank on demand. Customers can withdraw a certain amount from their savings account without prior notice.
- Outstanding Payment Instruments– Payment instruments like demand drafts, telegraphic transfers, mail transfers etc. issued by a bank also constitute demand liabilities. The bank has to honor these instruments and make the payment as and when they are presented.
- Unclaimed Deposits– Deposits that have remained unclaimed or inactive for a long time are also considered demand liabilities. Banks have to return these to the customers whenever demanded.
- Cash Credit Accounts– The balance in cash credit accounts given to businesses is a demand liability for the bank. The overdraft facility can be withdrawn by the customer anytime.
Time Liabilities
Time liabilities are those liabilities which are repayable after a specific time period. Some examples are:
- Fixed Deposits– The maturity amount of fixed deposits is payable only after the completion of the fixed tenure chosen by the customer.
- Recurring Deposits– Banks need to pay recurring deposits only on maturity after the specified installment amounts have been deposited every month.
- Savings Account Deposits– The time liability portion of savings accounts which is not meant for withdrawal on demand is payable after a notice period.
- Term Loans– The principal amount of term loans or retail loans like home loans, auto loans etc. is payable as per the repayment schedule and not on demand.
- Certificates of Deposit– Certificates of deposit issued to customers have a fixed maturity date after which the amount is paid by the bank.
By segregating liabilities into demand and time liabilities, banks are able to manage liquidity in a better manner. This categorization helps banks match their liabilities with assets of similar maturity profiles.
Originally written on
September 10, 2010
and last modified on
November 16, 2023.
Anonymous
October 20, 2010 at 11:51 amgood
Anonymous
March 17, 2011 at 2:32 amhelpful
raj
July 5, 2014 at 8:03 amExcellent
kiran
February 12, 2015 at 10:38 amwell explained
Mait
May 21, 2015 at 1:06 amThis was very helpful, easy to understand. Thank you