This document discusses the roles of banks, including intermediation, payment systems, and financial services. It describes how banks transfer funds from savers to borrowers through intermediation, and how they facilitate payments through various systems like NEFT, EFT, NDS, and RTGS. It also outlines the types of financial services banks provide, dividing them into asset/fund-based services like term lending and bill discounting, and fee-based services like corporate and retail banking products.

1. BY :-Pradyumna kumar Behera

2. Banking is perhaps as old as civilization itself. When
‘money’ in its modern from was not in existence, people in
order to obtain goods and services, offered other goods and
services in return. This was barter- an inconvenient system.
Nevertheless people could lend or borrow in the form of
specific goods which they received back or repaid in the same
form or any other mutually acceptable form. Modern banking is
something radically different from mere lending. It is far more
sophisticated. Banking institution today form the heart of the
financial structure of any country, whether it is developed or
developing.

3. Role of Banks
Role of Banks
Intermediation Payment System Financial Services

4. Intermediation
The process of transferring the funds from the savers to the
entrepreneurs is called intermediation. The savings/investment process in
economies is organized around financial intermediation, making them a
central institution of economic growth. Financial intermediaries like
banks are firms that borrow from consumer/savers and lend to companies
that need resources for investment. Financial intermediaries facilitate
transfer of surplus funds from savers to borrowers.
The bank by issuing its own financial claims in essence transforms a
longer-term asset into a shorter-term one by giving the borrower a loan
for the length of time sought and the investor/depositor a financial asset
for the desired investment horizon. This function of a financial
intermediary is called maturity intermediation.
Conti....

5. Maturity intermediation has two implications for financial markets.
1) First, it provides investors with more choices concerning maturity for
their investments; borrowers have more choices for the length of their
debt obligations.
2) Second, because investors are naturally reluctant to commit funds for
a long period of time, they will require that long-term borrowers pay
a higher interest rate then on short-term borrowing. A financial
intermediary is willing to make longer-term loans, and at a lower cost
to the borrower then an individual investor would, by counting on
successive deposits providing the funds until maturity. Thus, the
second implication is that the cost of longer-term borrowing is like to
be reduced.
Conti....

6. Payment System
Banks play crucial role in providing a payments mechanism.
Most transactions made today are not done with cash. Instead,
payments are made using cheques, credit cards, debit cards,
and electronic transfers of funds. These methods for making
payments, called payment mechanisms, are provided by certain
financial intermediaries like banks.
Types of payment system offered by banks
National Electronic Funds Transfer (NEFT)
Electronic Funds Transfer (EFT)
Negotiated Dealing System (NDS)
Real Time Gross Settlement.

7. National Electronic Funds Transfer (NEFT)
National Electronic Funds Transfer (NEFT) is a
nation-wide system that facilitates individual, firms, and
corporate to electronically transfer funds from any bank branch
to any individual, firm or corporate having an account with any
other bank branch in the country.
Electronic Funds Transfer (EFT)
Electronic Funds Transfer (EFT) is the electronic
exchange or transfer of money from one account to another,
either within a single financial institution or across multiple
institutions, through computer-based systems.
Conti....

8. Following are the activities performed by EFT :
 Cardholder, initiated transactions, where a Cardholder makes use of a
payment card.
 Direct deposit payroll payments for a business to its employees, possibly
via payroll service bureau.
 Direct debit payments, sometimes called electronic cheques, for which a
business debits the consumer’s bank accounts for payment for goods or
services.
 Electronic bill payment in online banking, which may be delivered by EFT
or paper cheque.
 Transactions involving stored value of electronic money, possibly in a
private currency.
 Wire transfer via an international banking network.
 Electronic Benefit Transfer.
Conti....

9. Negotiated Dealing System (NDS)
One of the measures that has been instituted by RBI in order to
develop the infrastructural arrangements facilitating the secondary
market operations in Government Securities has been the introduction of
a screen-based trading platform called as the Negotiated Dealing System
(NDS). The NDS, which went live from 15 February 2002.
Real Time Gross Settlement.
The acronym ‘RTGS’ stands for Real Time Gross Settlement,
which can be defined as the continuous (real-time ) Settlement of funds
transfers individually on an order by order basis . ‘Real Time’ means the
processing of instruction at the time they are received rather than at some
later time Gross Settlement means the settlement of feel transfer
instructions occurs individually . Considering that the funds settlement
takes place in the books of the RBI, the payments are final and
irrevocable.

10. Financial Services
Financial services act as a link between investor and borrower. They
provide various avenues to the investor for profitable investment and
spreading out the risk.
The financial services industry may be defined as “the collection of
organization which intermediate and facilitate financial transactions of
individual and institutional investors resulting from their resource
allocation activities through time”. The financial services include all
activities connected with the transaction of savings into investment.
The financial intermediaries have been rendering a wide range of
services encompassing both capital and money market activities.
Traditional activities are divided into two categories fund based activities
and non fund based activities.

11. These are further classified as assets based financial services and
fee based financial services.
Financial Services
Asset/Fund-Based
Financial Services
Fee-Based
Financial Services
Working Capital Finance
Short Term Finance
Bill Discount
Export Finance
Term Lending
Buyer’s Credit/Supplier’s Credit
Corporate Fee based Banking
Products/Services
Retail Fee based Banking
Products/Services

12.  Asset Based Financial Services:
When financial services are used for creating assets or are supported
by assets where the funds are transformed into assets, they are known as
assets based financial services.
 Fee Based Financial Services:
Fee based financial services do not create immediate funds; they
enable the creation of funds through their services for which they charge
a fee.