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Banking

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  • 1. A banking company in India is the one which transacts thebusiness of banking which means accepting, for the purpose oflending and investment of deposits of money from the public,repayable on demand or otherwise by cheques , draft, order orotherwise.In simple terms, a bank accepts money on deposits,repayable on demand and also earns a margin of profit bylending money.
  • 2. Role of Banking• It encourages savings habit amongst people and thereby makes fundsavailable for productive use.• It acts as an intermediary between people having surplus money andthose requiring money for various business activities.• It facilitates business transactions through receipts and payments bycheques instead of currency.• It provides loans and advances to businessmen for short term and long-term purposes.• It also facilitates import export transactions.• It helps in national development by providing credit to farmers, small-scale industries and self-employed people as well as to large businesshouses which lead to balanced economic development in the country.• It helps in raising the standard of living of people in general byproviding loans for purchase of consumer durable goods, houses,automobiles, etc.
  • 3. TYPES OF BANKS Central Cooperative Specialized Bank Commercial banks Banks Banks (RBI, in India) Primary Central StatePublic sector Private sector Foreign Credit Co-operative Co-operativeCommercial commercial Banks bank Societies Banks Banks bank
  • 4. Commercial banksCommercial banks are institutions dealing in money. Afinancial institution authorized to provide a variety offinancial services, including consumer and business loans(generally short-term), checking services, credit cards andsavings accounts.These are governed by Indian Banking regulation Act 1949and according o it banking means from the public for thepurpose of lending or investment.In addition to giving short-term loans, commercial banks also givemedium-term and long-term loan to business enterprises. Now-a-dayssome of the commercial banks are also providing housing loan on a long-term basis to individuals.
  • 5. Types Of Commercial BanksPublic Sector bankS- Public Sector Banks are those inwhich the government has a major stake and they usually need toemphasis on social objectives than on profitability .For example:-Itplays a crucial role in pushing the agricultural economy on to theprogressive pathway and helping develop rural India.Public sectors bank In India-
  • 6. Private Sector bankS -Private Sector Banks are owned ,managed and controlled by private promoters and they are free tooperate as per market forces. Private banks are banks that are notincorporated. A non-incorporated bank is owned by either an individual or a general partner(s) with limited partner(s). In case ofprivate sector banks majority of share capital of thebank is held by private individuals. These banks are registered ascompanies with limited liability. Private sectors bank In India-
  • 7. Foreign Banks: These banks are registered and havetheir headquarters in a foreign country but operatetheir branches in our country. The number of foreignbanks operating in our country has increased since thefinancial sector reforms of 1991. Foreign banks In India-
  • 8. Cooperative BanksThey are Member-owned organization, similar to a mutual Savings andLoan Association that makes loans and pays interest on pooled depositsThey are governed by the provisions of State Cooperative societies Actand meant essentially for providing cheap credit to their members. It isan important source of rural credit i.e., agricultural financing in India.People who come together to jointly serve their common interest often forma co-operative society under the Co-operative Societies Act. When a co-operative society engages itself in banking business it is called a Co-operative Bank. The society has to obtain a license from the Reserve Bankof India before starting banking business. Any co-operative bank as asociety is to function under the overall supervision of the Registrar, Co-operative Societies of the State. As regards banking business, the societymust follow the guidelines set and issued by the Reserve Bank of India.
  • 9. (i) Primary Credit Societies : These are formed at the village or townlevel with borrower and non-borrower members residing in one locality. Theoperations of each society are restricted to a small area so that themembers know each other and are able to watch over the activities of allmembers to prevent frauds.(ii) Central Co-operative Banks : These banks operate at the districtlevel having some of the primary credit societies belonging to the samedistrict as their members. These banks provide loans to their members (i.e.,primary credit societies) and function as a link between the primary creditsocieties and state co-operative banks.(iii) State Co-operative Banks : These are the apex (highest level) co-operative banks in all the states of the country. They mobilize funds andhelp in its proper canalization among various sectors. The money reachesthe individual borrowers from the state co-operative banks through thecentral co-operative banks and the primary credit societies.
  • 10. Specialized BanksSpecialized Banks are foreign exchange banks,industrial banks, development banks, export-importbanks catering to special needs of these uniqueactivities .These banks provide financial aid to industries,heavily turnkey projects and foreign trade. These specificbanks engage themselves in some area or activity andthus, are called specialized banks.
  • 11. i. Export Import Bank of India (EXIM Bank) : If you want to set up a business forexporting products abroad or importing products from foreign countries for sale in our country, EXIMbank can provide you the required support and assistance. The bank grants loans to exporters andimporters and also provides information about the international market. It gives guidance about theopportunities for export or import, the risks involved in it and the competition to be faced, etc.ii. Small Industries Development Bank of India (SIDBI): If you want to establish asmall-scale business unit or industry, loan on easy terms can be available through SIDBI. It alsofinances modernisation of small-scale industrial units, use of new technology and market activities. Theaim and focus of SIDBI is to promote, finance and develop small-scale industries.iii. National Bank for Agricultural and Rural Development (NABARD): It is acentral or apex institution for financing agricultural and rural sectors. If a person is engaged inagriculture or other activities like handloom weaving, fishing, etc. NABARD can provide credit, bothshort-term and long-term, through regional rural banks. It provides financial assistance, especially, toco-operative credit, in the field of agriculture, small-scale industries,cottage and village industrieshandicrafts and allied economic activities in rural areas.
  • 12. Central BankA bank which is entrusted with the functions of guiding and regulating the banking systemof a country is known as its Central bank. Such a bank does not deal with the generalpublic. It acts essentially as Government’s banker, maintain deposit accounts of all otherbanks and advances money to other banks, when needed. The Central Bank providesguidance to other banks whenever they face any problem. It is therefore known as thebanker’s bank. The Reserve Bank of India is the central bank of our country.The Central Bank maintains record of Government revenue and expenditure under variousheads. It also advises the Government on monetary and credit policies and decides on theinterest rates for bank deposits and bank loans. In addition, foreign exchange rates arealso determined by the central bank.Another important function of the Central Bank is the issuance of currency notes,regulating their circulation in the country by different methods. No other bank than theCentral Bank can issue currency.
  • 13. EstablishmentThe Reserve Bank of India was established on April 1, 1935 in accordance with theprovisions of the Reserve Bank of India Act, 1934.The Central Office of the Reserve Bank was initially established in Calcutta but waspermanently moved to Mumbai in 1937. The Central Office is where the Governor sits andwhere policies are formulated. Though originally privately owned, since nationalization in1949, the Reserve Bank is fully owned by the Government of India.PreambleThe Preamble of the Reserve Bank of India describes the basic functions of the ReserveBank as:"...to regulate the issue of Bank Notes and keeping of reserves with a view to securingmonetary stability in India and generally to operate the currency and credit system of thecountry to its advantage."
  • 14. Functions of Commercial BanksThe functions of commercial banks are of two types.(A) Primary functions; and(B) Secondary functions.Let us discuss details about these functions.(i) Primary functionsThe primary functions of a commercial bank include:a) Accepting deposits; andb) Granting loans and advances.
  • 15. a) Accepting depositsThe most important activity of a commercial bank is to mobilisedeposits from the public. People who have surplus income and savingsfind it convenient to deposit the amounts with banks.Depending upon the nature of deposits, funds deposited with bank alsoearn interest. Thus, deposits with the bank grow along with the interestearned. If the rate of interest is higher, public are motivated to depositmore funds with the bank. There is also safety of funds deposited withthe bank.b) Grant of loans and advancesThe second important function of a commercial bank is to grant loans andadvances. Such loans and advances are given to members of the public andto the business community at a higher rate of interest than allowed bybanks on various deposit accounts. The rate of interest charged on loansand advances varies according to the purpose and period of loan and alsothe mode of repayment.
  • 16. ii) Secondary functionsIn addition to the primary functions of accepting deposits and lending money, banks perform a number ofother functions, which are called secondary functions. These are as followsa. Issuing letters of credit, travelers cheque, etc.b. Undertaking safe custody of valuables, important document and securities by providing safe deposit vaultsor lockers.c. Providing customers with facilities of foreign exchange dealings.d. Transferring money from one account to another; and from one branch to anotherbranch of the bank through cheque, pay order, demand draft.e. Standing guarantee on behalf of its customers, for making payment for purchase ofgoods, machinery, vehicles etc.f. Collecting and supplying business information.g. Providing reports on the credit worthiness of customers.i. Providing consumer finance for individuals by way of loans on easy terms for purchaseof consumer durables like televisions, refrigerators, etc.j. Educational loans to students at reasonable rate of interest for higher studies, especially for professionalcourses.
  • 17. E-banking (Electronic Banking)With advancement in information and communication technology, bankingservices are also made available through computer. Now, in most of thebranches you see computers being used to record banking transactions.Information about the balance in your deposit account can be known throughcomputers. In most banks now a days human or manual teller counter is beingreplaced by the Automated Teller Machine (ATM). Banking activity carriedon through computers and other electronic means of communication is called‘electronic banking’ or ‘e-banking’. Let us now discuss about some of thesemodern trends in banking in India.
  • 18. • Automated Teller MachineBanks have now installed their own Automated Teller Machine (ATM) throughout thecountry at convenient locations. By using this, customers can deposit or withdraw moneyfrom their own account any time.• Debit CardBanks are now providing Debit Cards to their customers having savingor current account in the banks. The customers can use this card forpurchasing goods and services at different places in lieu of cash.The amount paid through debit card is automatically debited (deducted)from the customers’ account.• Credit CardCredit cards are issued by the bank to persons who may or may not have an account inthe bank. Just like debit cards, credit cards are used to make payments for purchase, sothat the individual does not have to carry cash. Banks allow certain credit period to thecredit cardholder to make payment of the credit amount. Interest is charged if acardholder is not able to pay back the credit extended to him within a stipulated period.This interest rate is generally quite high.
  • 19. • Net BankingWith the extensive use of computer and Internet, banks have nowstarted transactions over Internet. The customer having an account inthe bank can log into the bank’s website and access his bank account. Hecan make payments for bills, give instructions for money transfers,fixed deposits and collection of bill, etc.• Phone BankingIn case of phone banking, a customer of the bank having an account canget information of his account, make banking transactions like, fixeddeposits, money transfers, demand draft, collection and payment ofbills, etc. by using telephone .As more and more people are now using mobile phones, phone bankingis possible through mobile phones. In mobile phone a customer canreceive and send messages (SMS) from and to the bank in addition toall the functions possible through phone banking.
  • 20. Benefits of e-BankingBenefits to the customer•E-banking provides 24 hours, 365 days a year services to the customers of the bank;•Customers can make some of the permitted transactions from office or house orwhile traveling via mobile telephone;•It includes a sense of financial discipline by recording each and every transaction;•Greater customer satisfaction by offering unlimited access to the bank, not limited bythe walls of the branch and less risk and grater security to the customer as they canavoid traveling with cash.Benefits to the bank•E-banking provides competitive advantage to the bank:.•E-banking provides unlimited network to the bank and is not limited to the number ofbranches .any PC connected to a modem and with drawl needs of the customer•Load on branches can considerably reduced by establishing centralized data baseand by b taking over some of the accounting functions.
  • 21. Cheque, drawn by a bank against its own funds deposited in another bank. Banks frequently use bank drafts when it is more convenient to write a bank check than to use a customers check. For example,a banks customer needing funds payable the next day in New York can instruct his bank towrite a check drawn on its New York Correspondent. Banks charge a fee for the service
  • 22. It is a form whichis to be filled bythe depositor whenhe/she isdepositing moneyin his/her account.In this form adepositor issupposed to fill inthe details of thecash deposits.
  • 23. A cheque is a negotiable instrument instructing a financial institution to pay a specificamount of a specific currency from a specific demand account held in themaker/depositors name with that institution. Both the maker and payee may benatural persons or legal entities.
  • 24. A passbook is a paper book used to record bank transactions on adeposit account. Depending on the country or the financial institution, itcan be of the dimensions of a chequebook or a passport.