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DEVTECH FINANCE
BANKING SYSTEM MODULE
BANKING SYSTEM,
ITS FUNCTIONS
AND TYPES
INTRODUCTION TO BANK
• The term ‘bank’ is derived from the French word ‘Banco’ which
means a Bench or Money exchange table.
• A bank is a financial institution that provides banking and other
financial services to their customers such as accepting deposits,
lending loans, money transfer and selling third party products like
insurance, mutual fund and portfolio management.
• When banks accept deposits its liabilities increase as it has to pay
interest to the customer but when it provides loans/ advances its
assets increases as it earns interest.
• As financial intermediaries, banks stand between depositors who
supply capital and borrowers who demand capital.
FUNCTIONS OF BANK
FUNCTIONS
OF BANK
PRIMARY
FUNCTION
ACCEPTING
DEPOSIT
LENDING
LOAN
SECONDARY
FUNCTION
REMITTANCE
PRODUCT
FINANCIAL
SERVICES
PRIMARY FUNCTIONS OF BANK
• The functions of commercial banks can be broadly categorized into :-
a) Primary functions b) Secondary functions
• ACCEPTING DEPOSIT - The primary function of commercial banks is to
accept money from the people in the form of deposits which are usually
repayable on demand or after the expiry of a fixed period. The deposits may
be of various types such as savings deposits, current deposits, fixed deposits
and recurring deposits. For these deposits, the banks pay a rate of interest to
the depositors.
• LENDING LOANS - The second primary function of bank is to lend loans and
advances to the corporate sector and households. Normally, the rate of
interest levied on these loans and advances is higher than what it pays on
deposits. The difference in the interest rates is called Interest Spread, which
contributes to bank’s profitability.
SECONDARY FUNCTIONS OF BANK
• REMITTANCE PRODUCTS – These products enabled fund transfer
from one bank account to another across the globe. It has been
evolved over time from physical movement of remittance instruments
like cheques, demand drafts and bank orders to electronic fund
transfer services like NEFT, RTGS, IMPS.
• FINANCIAL SERVICES – Distribution of third party products like
mutual funds, insurance, demat & trading services, portfolio
management services has emerged as a key driver of revenue in form
of commission and fee for the banks in modern times. This concept of
selling products other than banking products is called “Para Banking”.
TYPES OF BANK
TYPES OF
BANK
ON THE BASIS
OF
OWNERSHIP
PUBLIC BANK
PRIVATE
BANK
FOREIGN
BANK
COOPERATIVE
BANK
ON THE BASIS
OF FUNCTION
COMMERCIAL
BANK
PAYMENT
BANK SMALL
FINANCE
BANK
INVESTMENT
BANK
EXCHANGE
BANK
TYPES OF BANK – OWNERSHIP BASIS
• PUBLIC SECTOR BANKS – Public Sector Banks are those banks in
which majority stake (i.e., more than 50% of the shares) is held by the
government of the country. Some examples of public sector banks in
India include State Bank of India, Punjab National Bank, Canara Bank,
Union Bank of India, Allahabad Bank and so on.
• PRIVATE SECTOR BANKS – Private Sector Banks are those banks
which are owned by group of private shareholders. They elect board of
directors which manages the affairs of the banks. Some examples of
private banks in India include HDFC Bank, Kotak Mahindra Bank,
ICICI Bank, Federal Bank, Axis Bank and so on.
TYPES OF BANK – OWNERSHIP BASIS
• FOREIGN BANKS – A foreign bank is one that has its headquarters in a
foreign country but operates in India as a private entity. These banks are under
the obligation to follow the regulations of its home country as well as the
country in which they are operating. Some examples of foreign banks in Indian
include ABM Amro bank, Standard Chartered Bank, JP Morgan Chase Bank
and so on.
• COOPERATIVE BANKS – Co-operative banks are registered under the
Cooperative Societies Act, 1912 and they are run by an elected managing
committee. These banks work on no-profit basis and mainly serve
entrepreneurs, small businesses, and self-employment in urban areas. In rural
areas, they mainly finance agriculture-based activities like farming and
livestock. Some examples of cooperative banks in India include Central
Cooperative Banks, State Cooperative Banks.
TYPES OF BANK – FUNCTION BASIS
• PAYMENT BANKS – These banks are a relatively new model of bank in the
Indian Banking industry. It do not provide loans/ advances and is allowed to
accept a restricted deposit. The amount is currently limited to Rs.1 Lakh per
customer. They also offer services like ATM cards, debit cards, net-banking
and mobile-banking.
• COMMERCIAL BANKS – These banks are regulated under the Banking
Regulation Act, 1949 and their business model is designed to make profit.
Their primary function is to accept deposits and grant loans to the general
public, corporate and government and carry many para-banking activities.
• FOREIGN EXCHANGE BANKS – These banks are incorporated outside the
country but carry out business in India. They provide foreign exchange subject
to the rules and regulations of the country in which they are operating. They
also provide finance to exporters and letter of credit/guarantee to importers.
TYPES OF BANK – FUNCTION BASIS
• INVESTMENT BANKS – These banks are specialized in assisting corporates
to raise finance for activities such as mergers & acquisitions, raising fund
through ipo, underwriting, financial advisory, research etc. Major investment
banks include JP Morgan Chase, Goldman Sachs, Morgan Stanley, Citigroup,
Bank of America.
• SMALL FINANCE BANKS – These banks function with primary objective of
providing supply of credit to small business units, farmers, micro and small
industries, unorganized sector. These banks mainly perform basic banking
activities such as acceptance of deposit, cheque clearance and providing loan
to unserved section of society. Some of the prominent small finance banks in
India are Ujjivan Small Finance Bank, A.U. Small Finance Bank, Equitas Small
Finance Bank, Janalakshmi Small Finance Bank.
THANK YOU FOR WATCHING
DEVTECH
FINANCE

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Indian Banking System

  • 1. DEVTECH FINANCE BANKING SYSTEM MODULE BANKING SYSTEM, ITS FUNCTIONS AND TYPES
  • 2. INTRODUCTION TO BANK • The term ‘bank’ is derived from the French word ‘Banco’ which means a Bench or Money exchange table. • A bank is a financial institution that provides banking and other financial services to their customers such as accepting deposits, lending loans, money transfer and selling third party products like insurance, mutual fund and portfolio management. • When banks accept deposits its liabilities increase as it has to pay interest to the customer but when it provides loans/ advances its assets increases as it earns interest. • As financial intermediaries, banks stand between depositors who supply capital and borrowers who demand capital.
  • 3. FUNCTIONS OF BANK FUNCTIONS OF BANK PRIMARY FUNCTION ACCEPTING DEPOSIT LENDING LOAN SECONDARY FUNCTION REMITTANCE PRODUCT FINANCIAL SERVICES
  • 4. PRIMARY FUNCTIONS OF BANK • The functions of commercial banks can be broadly categorized into :- a) Primary functions b) Secondary functions • ACCEPTING DEPOSIT - The primary function of commercial banks is to accept money from the people in the form of deposits which are usually repayable on demand or after the expiry of a fixed period. The deposits may be of various types such as savings deposits, current deposits, fixed deposits and recurring deposits. For these deposits, the banks pay a rate of interest to the depositors. • LENDING LOANS - The second primary function of bank is to lend loans and advances to the corporate sector and households. Normally, the rate of interest levied on these loans and advances is higher than what it pays on deposits. The difference in the interest rates is called Interest Spread, which contributes to bank’s profitability.
  • 5. SECONDARY FUNCTIONS OF BANK • REMITTANCE PRODUCTS – These products enabled fund transfer from one bank account to another across the globe. It has been evolved over time from physical movement of remittance instruments like cheques, demand drafts and bank orders to electronic fund transfer services like NEFT, RTGS, IMPS. • FINANCIAL SERVICES – Distribution of third party products like mutual funds, insurance, demat & trading services, portfolio management services has emerged as a key driver of revenue in form of commission and fee for the banks in modern times. This concept of selling products other than banking products is called “Para Banking”.
  • 6. TYPES OF BANK TYPES OF BANK ON THE BASIS OF OWNERSHIP PUBLIC BANK PRIVATE BANK FOREIGN BANK COOPERATIVE BANK ON THE BASIS OF FUNCTION COMMERCIAL BANK PAYMENT BANK SMALL FINANCE BANK INVESTMENT BANK EXCHANGE BANK
  • 7. TYPES OF BANK – OWNERSHIP BASIS • PUBLIC SECTOR BANKS – Public Sector Banks are those banks in which majority stake (i.e., more than 50% of the shares) is held by the government of the country. Some examples of public sector banks in India include State Bank of India, Punjab National Bank, Canara Bank, Union Bank of India, Allahabad Bank and so on. • PRIVATE SECTOR BANKS – Private Sector Banks are those banks which are owned by group of private shareholders. They elect board of directors which manages the affairs of the banks. Some examples of private banks in India include HDFC Bank, Kotak Mahindra Bank, ICICI Bank, Federal Bank, Axis Bank and so on.
  • 8. TYPES OF BANK – OWNERSHIP BASIS • FOREIGN BANKS – A foreign bank is one that has its headquarters in a foreign country but operates in India as a private entity. These banks are under the obligation to follow the regulations of its home country as well as the country in which they are operating. Some examples of foreign banks in Indian include ABM Amro bank, Standard Chartered Bank, JP Morgan Chase Bank and so on. • COOPERATIVE BANKS – Co-operative banks are registered under the Cooperative Societies Act, 1912 and they are run by an elected managing committee. These banks work on no-profit basis and mainly serve entrepreneurs, small businesses, and self-employment in urban areas. In rural areas, they mainly finance agriculture-based activities like farming and livestock. Some examples of cooperative banks in India include Central Cooperative Banks, State Cooperative Banks.
  • 9. TYPES OF BANK – FUNCTION BASIS • PAYMENT BANKS – These banks are a relatively new model of bank in the Indian Banking industry. It do not provide loans/ advances and is allowed to accept a restricted deposit. The amount is currently limited to Rs.1 Lakh per customer. They also offer services like ATM cards, debit cards, net-banking and mobile-banking. • COMMERCIAL BANKS – These banks are regulated under the Banking Regulation Act, 1949 and their business model is designed to make profit. Their primary function is to accept deposits and grant loans to the general public, corporate and government and carry many para-banking activities. • FOREIGN EXCHANGE BANKS – These banks are incorporated outside the country but carry out business in India. They provide foreign exchange subject to the rules and regulations of the country in which they are operating. They also provide finance to exporters and letter of credit/guarantee to importers.
  • 10. TYPES OF BANK – FUNCTION BASIS • INVESTMENT BANKS – These banks are specialized in assisting corporates to raise finance for activities such as mergers & acquisitions, raising fund through ipo, underwriting, financial advisory, research etc. Major investment banks include JP Morgan Chase, Goldman Sachs, Morgan Stanley, Citigroup, Bank of America. • SMALL FINANCE BANKS – These banks function with primary objective of providing supply of credit to small business units, farmers, micro and small industries, unorganized sector. These banks mainly perform basic banking activities such as acceptance of deposit, cheque clearance and providing loan to unserved section of society. Some of the prominent small finance banks in India are Ujjivan Small Finance Bank, A.U. Small Finance Bank, Equitas Small Finance Bank, Janalakshmi Small Finance Bank.
  • 11. THANK YOU FOR WATCHING DEVTECH FINANCE