What is Banking?
Banking is directly or indirectly connected with the trade of a country and the life of each individual. It is an industry that manages credit, cash, and other financial transactions. In banking, the commercial bank is the most influential institution for any country’s economy or for providing any credit to its customers.
In India, a banking company is responsible for transacting all the business transactions including withdrawal of cheques, payments, investments, etc. In other words, the bank is involved in the deposit and withdrawal of money, repayable on demand, savings, and earning a decent amount of profits by lending money.
Banks also help to mobilise the savings of an individual, making funds accessible to businesses and help them to start a new venture.
However, unlike commercial banks, private sector banks are owned, operated, and regulated by private investors and have the right to operate according to the market forces.
Types of Banking
Banks are further segregated into four types.
Commercial banks: These banks are regulated by Banking Regulation Act, 1949. They accept the public deposit from the public for lending or investment.
Cooperative banks: Cooperative banks are undertaken by the State Cooperative Societies Act and give cheap credit to their members. The rural population is dependent on the cooperative banks for its financial backup.
Specialised banks: These banks provide financial help to special industries, foreign trade, etc. Few examples of specialised banks are foreign exchange banks, export and import banks, development banks, etc.
Central banks: These banks manage, check, and monitor all the activities of the commercial banks of a country.
Functions of Commercial Banks
(1) Acceptance of deposits
- Banks provide the loans only based on the amount deposited by the public.
- They lend money and get interested in them.
- They get funds for lending through deposits in current and savings accounts.
- They pay interest on deposits according to the rates decided by RBI.
(2) Lending of funds
- Providing loans to the public is an important function of banks.
- Advances can be made in the form of overdrafts, cash credits, term loans, etc.
(3) Cheque facilities
- Banks provide cheque facilities to the owners of savings and current accounts to withdraw their money.
- It is the most developed form of credit instrument.
- Banks also encash the cheques drawn on another bank.
- There are two types of cheques.
(a) Bearer cheques that are cashable immediately
(b) Crossed cheques that are to be credited to the payee’s account
(4) Remittance of funds
- Banks also provide the function of money transfer.
- It provides money transfer facilities through drafts, pays orders, net banking, NEFT/RTGS, etc., on nominal commission charges.
- A payee can present the cheques in the drawer bank to collect the funds.
Types of Commercial Banks
(1) Public sector banks
- Public sector banks are those banks in which the major holding is of the government.
- Examples: SBI, PNB, OBC, etc.
(2) Private sector banks
- Private sector banks are those banks that are owned, controlled, and managed by private promoters.
- They operate according to the market forces.
- Examples: HDFC, ICICI, Kotak Mahindra, etc.
What is e-banking? What are its benefits?
|E-banking||● It is the method by which the customer conducts transactions electronically via the internet.
● Some of the examples of e-banking are managing deposit account, online fund transfer, ATM, electronic data interchange, etc.
|Benefits||● It provides 24 hours and 365 days of banking services.
● The load on branches can be reduced by having a centralised database for faster processing.
● Customers can make a transaction from anywhere like the home office market, etc.
● It includes recording of every transaction.
● It provides greater customer satisfaction, higher security in terms of money.
|Q.1. Name the banks that are owned and controlled by the government of India?|
Public sector banks
|Q.2. Give four examples of private sector banks?|
HDFC, ICICI, IDFC, Axis Bank Limited
|Q.3. Name the banks that are operated under the provisions of Cooperative Societies Act 1912?|
|Q.4. Which bank is known as the ‘apex bank’ of India?|
Reserve Bank of India
|Q.5. Who is the bank of banks?|
Central bank of the country (RBI)
|Important Topics in Business Studies:|
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