THERE IS INTRODUCTION TO BANKING FUNCTIONS OF RBI AND ITS IMPORTANCE

1. BANKING THEORY LAW AND PRACTICE
F.JOSEPHINE LENTA,
ASSISTANT PROFESSOR,
DEPARTMENT OF COMMERCE,
COLLEGE OF SCIENCE AND HUMANITIES,
SRM IST,
RAMAPURAM
UNIT-1
ORIGIN AND DEVELOPMENT OF BANKING

2. UNIT 1
Definition of a Bank:
 Oxford Dictionary defines a bank as “an establishment for
custody of money, which it pays out on customer's order.”
 According to H. L. Hart, a banker is “one who in the
ordinary course of his business honours cheques drawn
upon him by person from and for whom he receives
money on current accounts”.
 Banking Regulation Act of 1949 defines banking as
“accepting for the purpose of lending or investment, of
deposits of money from the public, repayable on demand
or otherwise, and withdrawable by cheque, draft, order or
otherwise”.

3. Features of a Bank:
1. Dealing in Money : Bank is a financial institution which
deals with other people's money i.e. money given by
depositors.
2. Individual / Firm : A bank may be a person, firm or a
company. A banking company means a company which
is in the business of banking.
3. Acceptance of Deposit : A bank accepts money from
the people in the form of deposits which are usually
repayable on demand or after the expiry of a fixed
period. It gives safety to the deposits of its customers.
It also acts as a custodian of funds of its customers.
4. Giving Advances: A bank lends out money in the form
of loans to those who require it for different purposes.
5. Payment and Withdrawal : A bank provides easy
payment and withdrawal facility to its customers in the
form of cheques and drafts. It also brings bank money
in circulation. This money is in the form of cheques,
drafts, etc.
6. .Agency and Utility Services: A bank provides various
banking facilities to its customers. They include general
utility services and agency services.

4. The constituents of the Indian Banking System can
be broadly listed as under:
(a) Commercial Banks:
 Public Sector Banks
 Private Sector Banks
 Foreign Banks .
(b) Cooperative Banks:
 (i) Short term agricultural institutions
 (ii) Long term agricultural credit institutions
 (iii) Non-agricultural credit institutions
(c) Development Banks:
 (i) National Bank for Agriculture and Rural Development
(NABARD)
 (ii) Small Industries Development Bank of India (SIDBI)
 (iii) EXIM Bank
 (iv) National Housing Bank

5. CLASSIFICATION OF BANKS
A. On the Basis of Functions:
1. Commercial Banks
2. Industrial Banks
3. Regional Rural Banks
4. Exchange Banks
5. Central Banks
B. On the Basis of Ownership:
1. Public Sector Banks
2. Private Sector Banks
3. Co - operative Banks
C. On the Basis of Schedules of RBI:
1. Scheduled Bank
2. Non - Scheduled Bank

6. Central bank:
Every country has a central bank of its own which is called
as central bank. It is the apex bank and the statutory
institution in the money market of a country.
Reserve Bank of India:
Reserve Bank of India was established in 1935. It is the
central bank of India.
The following are the main objectives of RBI:
 To manage and regulate foreign exchange.
 To build a sound and adequate banking and credit
structure.
 To promote specialized institutions to increase the term
finance to industry.
 To give support to government and planning
authorities for the economic development of the
country.
 To control and manage the banking system in India.
 To execute the monetary policy of the country

7. The functions of a central bank can be discussed as
follows:
 Currency regulator or bank of issue
 Bank to the government
 Custodian of Cash reserves
 Custodian of International currency
 Lender of last resort
 Clearing house for transfer and settlement
 Controller of credit
 Protecting depositors interest

8. Credit control of RBI and its monetary measures
Quantitative Credit Control
Methods:
Qualitative Credit Control Methods:
 Bank Rate
 Open Market Operation
 Variable reserve ratio
 Fixation of Margin:
 Regulation of consumer credit
 Rationing of credit
 Direct action
 Moral Suasion

9. Features of Internet Banking :
The customer using this facility can conduct transactional
and non-transactional tasks including:
 The customer can view account statements.
 It is 24 x 7 services.
 The customer can check the history of the transactions
for a given period by the concerned bank.
 Bank, statements, various types of forms, applications
can be downloaded.
 The customer can transfer funds, pay any kind of bill,
recharge mobiles, DTH connections, etc.
 The customer can buy and sell on e-commerce
platforms.
 The customer can invest and conduct trade.
 The customer can book, transport, travel packages, and
medical packages.

10. The NEFT means National Electronic Funds Transfer:
It is a famous electronic fund transfer model wherein any
person can transfer funds from any account to any
account (belonging to any bank).
This system was started in India in 2005. It allows the
individuals, companies, firms, and corporations to transfer
the funds from any place to anywhere in India without
actually going to that place. It is a very suitable mode of
online payment which is available at an economical rate.
RTGS:
RTGS means Real-Time Gross Settlement. It enables
money to transfer from one bank to another on a gross
and real-time basis. In general terms, real-time means the
beneficiary bank receives the instructions for fund transfer
immediately and gross means that transactions happen
individually (without accumulation).

11.  CREDIT CARD:
A credit card is a system of payment named after the small
plastic issued to users of the system. A credit card is
different from a debit card in that it does not remove
money from the user’s account after every transaction. In
the case of credit cards, the issuer lends money to the
customer (or the user).
 DEBIT CARD:
A debit is an accounting item that diminishes the overall
value of an asset. Debit card is a plastic card which
provides an alternative payment method to cash when
making purchases. Functionally, it can be called an
electronic check, as the funds are withdrawn directly from
either the bank account, or from the remaining balance on
the card.