BANKING - INTRODUCTION - ORIGIN AND DEVELOPMENT OF BANKS - Meaning of Bank - FEATURES OF BANKING - LICENSING OF BANKS - IMPORTANCE OF BANKING - FUNCTIONS OF BANKS - COMMERCIAL BANKS - TYPE OF BANKING ON THE BASIS OF THEIR FUNCTION - CLASSIFICATION OF BANKS OR BANKING SYSTEMS AND STRUCTURE - FUNCTIONS OF COMMERCIAL BANKS - CENTRAL BANKING - DIFFERENT BETWEEN CENTRAL BANKING AND COMMERCIAL BANKING - RESERVE BANK OF INDIA - ORIGIN - MONETARY POLICY -MEANING - ONLINE BANKING

2. Today ban have become a part and parcel of our life. There
was a time when the dwellers of city alone could enjoy their
services. Now banks offer access to even a common man
and their activates extend to areas hitherto untouched. A part
from their traditional business oriented functions, they have
now come out fulfil natural responsibilities. Banks cater to
the needs of agriculturists, industrialist’s traders and to all
the other sectors of the society. It accelerates economic
growth of a country and stets the wheels of the country
towards its goal of self reliance in all fields.

3.  It is interesting to trace the origin of the word in the modern
sense to the German word Banck which means Heap or Mound
or Joint Stock fund. From this the Italian word ‘Banco’ meaning
heap of money was coined. Some people have the opinion that
the word bank is derived from the French word “Bancus or
Banque” Which means bench. Thus the origin that the word
bank can be traded as follows.
 Thus, the origin of the word bank can be traded as follows:
 Banck- German (joint stock fund)
 Banco- Italian (Heap of money)
 Bancus/Banque - French (Bench / Chest a place where valuable
are kept)
 Bank- English (common meaning prevalent today, i.e., as an
institution accepting money as deposit for lending)

4. A bank is an institution which an
individuals can deposit money. Banks
provide a system for easily transferring
money from one person or business to
another.

5. 1. Dealing in Money
The bank accepts deposit from the public and advancing them as loans to the needy
people. The deposits may be of different types –current, fixed, savings etc accounts.
The deposits are accepted on various terms and conditions.
2. Deposits must be Withdrawals
The deposit (other than fixed deposits) made by the public can be withdraw able by
cheques, draft or otherwise, i.e. the bank issue and pay cheques. The deposits are
usually withdrawal able on demand.
3. Dealing with Credit
The bank are the institutions that can create credit i.e., creation of money for
lending. Thus creation of credit is the unique features of banking.
4. Commercial in Nature
Since all the banking functions are carried on with the aim of making profits, it is
regarding as a commercial institution.
5. Nature of Agent
Besides the basic functions of accepting deposits and lending money as loans, banks
possess the characters of an agent because of its various agency services.

6. Section 22 of the Act requires every banking company to obtain a license from the
Reserve Bank India before commencing business. In granting the license, Reserve
Bank India will consider the following fact after inspecting the banking company
concerned.
Whether the bank is or will be in a position to pay its present or future depositor in
fall as their claims accrue.
Whether the affairs of the company are not being conducted to the determined of
the interest of the depositors.
In the case of foreign banks, in addition to the above requirements, the following
must be complied with
The law of the government of their origin does not discriminate in any way against
Indian banks.
Their business in India will be in the public interest.
They comply with all the provision of the Act of the country of their origin
If any defects are found out during inspecting the bank concerned will be informed
of them and will be asked to rectify them. The reserve bank of India will call for
periodical to watch the programs of the bank.
If defect are immaterial and the program is satisfactory, license will be
issued. Otherwise, it will be given to the bank to show program before refusing or
cancelling the license. If dissatisfied the aggrieved bank may apply to the central
government for financial decision.

7. In the process of economic development the significance or contribution of
banking system can be summarized as follows.
1 Capital Formation
The capital formation depends upon savings of various categories
of people / organization. Bank offer facilities for savings and thus,
encourage the habits of thrift and industry among people. They mobilize the
idle and dormant capital of a commodity and make it available for
productive purposes.
2. Creation of Money
Banks have become significant by their power to creation of
money. Bank money forms a large part of the total quantity of money
supply and represents a cheap, efficient and economical means of payment.
Banks are described as factories of credit. It results in the economic
progress of the country.
3. Strengthen the link between the Organized and Un organizes sectors
Indian money market consists of organized and un organized
sectors. Bothe of them are to be linked for the economic well being of the
country, As the nervous system of the economy, the banks link the
organized and unorganized sectors for the overall economic development.

8. 4. Provision of long term loans
Industrial development which is the rock-basis
for the economy depends upon the long term loans.
Banks provide medium and long –term loans for the
industries.
5. Rural development:
India is land of village. Banks adopt certain measures to
improve rural areas and undertake developmental
activities which in term will develop the whole nation.
6. Entrepreneurial development
Banks have special drives and specific schemes for the
development of entrepreneurship. They foster their
strength and health. This helps the nation as a whole in
various ways including the increase in productivity etc.

9. 7. Acting as a bridge between various sectors:
banking system act as a bridge between various sectors and
thereby helps for overall economic development of the country.
8. Instrument to implement the monetary policy:
The monetary policy of every country which regulates the
economy is possible only with the help of a well – organized banking
system.
9. Control the trade cycle:
With the help of the effective banking system the
government can control and regulate the circulation of money and
thereby controls the effect of the trade cycle to a certain level.
10. Facilitation with a good medium of exchange (cheques
system):
The cheques system provided by the banks as a medium is of
great use for all sorts of transactions and helps in the promotion of
trade and industry.

10. 1. MAIN FUNCTION
The banking companies are permitted to do the
following main activities.
 Borrowing , raising or taking up of money
 Lending of money with or without security.
 Granting and issuing of letters of credit of various kinds,
travelers cheques etc.
 Buying and selling of foreign exchange including foreign
currencies.
 Buying, selling and dealing in bullion/ species.
 Acquiring, holding, issuing on commission, under writing
and dealing in stock, funds, shares, debentures, bonds,
securities and investment of all kinds.

11. 2. SUBSIDIARY FUNCTION
In addition to the above main functions the banking companies are permitted to
render the following subsidiary services.
 Acting as agents for individual, government etc.
 Carrying on agency business of any description.
 Contracting, negotiating and issuing public and private loans.
 Effecting, insuring, guaranteeing, underwriting, and participating in managing and
carrying out of any issue, public or private.
 Carrying on and transacting every kind of guarantee and indemnity business.
 Managing, selling and realizing any property which may come into its possession in
satisfaction of any of its claims.
 Acquiring, holding and dealing with any property of right or title in such property which
may form the security for any loans.
 The acquisition, construction and alteration of any building if necessary and convenient
for the purposes of the company.
 Acting as trustees for customers.
 Undertaking of the administration of estates as executor or otherwise.
 Dealing with all or any part of the property and right of the company.
 Doing any other business notified by the central government as lawful for a banking
company.

12. Commercial banks constitute the major portion of
the country’s credit and banking institution in
simple terms a bank is a dealer in money like a
trader in goods. Commercial banks in India are
organised as joint stock companies and human as
banking companies. Commercial banks are the
earliest by origin and play an vital role in
financial accommodation to trade, business and
commerce.

13. 1. Central bank
2. Commercial Bank
3. Co-operative Banks
4. Industrial Banks
5. Development Banks
6. Land Development
Banks
7. Exchange Banks
8. Indigenous Banks
9. Regional Rural Banks
10. Saving Banks
11. Supranational Banks
12. International Banks
13. Agricultural Banks

14. 1. Branch Banking
2. Unit Banking
3. Group banking
4. Chain banking
5. Correspondent Banking
6. Deposit Banking or Pure
Banking:
7. Investment banking or
Industrial banking
8. Mixed Banking
9. Relationship Banking
10. Narrow Banking
11. Universal Banking
12. Regional Banking
13. Local area bank
14. Retail Banking
15. Wholesale Banking
16. Private Banking

15. 1. Acceptance of Deposits
Fixed Deposit
Current Account
Saving Bank Account
Recurring Deposit
2. Advancing Loans
Ordinary Loans
Over Draft
Cash Credit
Discounting Bills of
Exchange
3. Subsidiary Services
Agency Services
Transfer of Funds
Collection of Cheques, Bills
etc
Payment of Premia, Tax etc
Purchase and Sales of
Securities
Acting as Trustees
4. Other Functions
Safe Custody of Valuables
Providing Information
Collection of Statistics
Underwriting of Shares
Issue of Travellers Cheques
Accepting Bills of Exchange
Merchant Banking Services

16. The central bank is the apex bank in a
country. It is called by different names in
different country. It is the Reserve Bank
of India in India, The bank of England in
England, The Federal Reserve System in
America, and the bank of France in
France the risk bank in Sweden etc.

17. Sl.No BASIC CENTRAL BANKING COMMERCIAL BANKING
1 Position of the bank
It is the apex bank in the banking of
country
It is part of the banking system
2 Ownership
It is government owned bank Commercial bank include public
sector bank. Also foreign owned
bank
3 Basic motive
It aims at economic growth and price
stability and has no profit motive
They aim as maximization of
profit
4 Dealing with the public
Central bank does not deal directly
with the public
They deal directly with the
general public
5 Competition
Central bank does not compete with
commercial bank
Commercial bank compete among
themselves
6 Relationship
The relationship between the
central bank and commercial bank
is unique. The central bank has
power to exercise control over
bank.
Commercial banks are
functioning at the same level.
They cannot exercise control over
others except on their subsidiaries

18. Sl.No BASIC CENTRAL BANKING COMMERCIAL BANKING
7
Government
transaction
Central bank usually act as
advisor to the government and
also conducts government
transaction
Public sector bank
particularly undertakes
government transaction.
However, other commercial
banks also precluded from
such function.
8 Power of note issue
The central bank has the sole
authority to issue currency note
Commercial banks cannot
issue currency notes
9
Dealing with foreign
currency
Central bank has the
responsibility to maintain the
stability of foreign exchanges
rates
They do not have any such
responsibility
10 Role of banking
Central bank function as the
banter to the government
They are functioning as the
banker to general public
11 Basic function
Central bank acts as the bankers
and lender of last resort to the
commercial banks
They do not have such roles
and status
12 Responsibility
Central bank responsibility to
hold the price line and
inflation rate
The commercial banks do not
have responsibility

19. The attempts to establish a central bank in India took a definite shape,
when in 1927 a bill was introduced in the Indian legislative assembly, to
establish a gold standard currency for British India and constitute a
Reserve Bank of India. Thereafter various attempts were made and thus,
the Reserve Bank of India Act was passed in 1934 and the bank began
functioning from 1st April 1935. Later it was decided to nationalize the
bank and the Reserve Bank of India (transfer to public ownership) Act was
passed in September 1948 under which the ownership of the bank was
passed into the hands of the government of India with effect from 1st
January 1949.
At the time of establishment, Reserve Bank was a share holders
bank with a capital of 5 crore of rupees divided into shares of Rs. 100 each
fully paid. When it was decided to nationalize the Reserve Bank of India,
the shares held by private individuals were taken over by the government
by paying compensation at the rate of Rs. 118 for every share of Rs. 199
held by the shareholders. The government paid a total compensation of Rs
5.54 core for the entire shareholdings. The paid up capital of RBI
continues to remain at Rs. 5 crore. It has made a profit of Rs. 4483 crore
during 1998-99, and of which Rs. 4479 crore has been transferred to
central bank

20. MONETARY POLICY -MEANING
Monetary policy refers to the credit control measures adopted
by the central banks of a country.
ONLINE BANKING
E-Banking refers to electronic banking. That is E-banking is
one in which banking operations are carried through
electronic devices. E-Banking is the process by which a
customer can perform banking transactions electronically
without physically visiting the branch or financial
institutions. E-Banking means the provision of information
about a bank and its services via a home page on the www.