IndianTechnoEra: Banks and its Types, Functions | IndianTechnoEra

 

Bank and Banking

What is bank?

A financial institution that allows people to make deposits and receive credit.

In India bank are licensed by the RBI. It operates to provide financial assistance to borrowers and allow cash transactions.

Banks and its Types, Functions | IndianTechnoEra

What is baking?

An industry that allows credit, handles deposits, and provides financial help to borrowers.

A network that facilitates the money flow in the economy.

Banks facilitate companies with an adequate amount of funds to finance their operations. 

What is the goal of banks?

Similar to other business the goal of bank it to earn profits.

Banks provide long term credit opportunities like credit cards, business lands, and mortgage

 

On 6% interest banks ear 4% profit from the borrowers and paying 2% interest to savings account holders.

Why is banking essential?

• Keep customers money secure.
• Allow interest on saving instead of keeping money at home
• More convenient to save money in banks
• Banking has become an integral part
• Also provides loans and credit card to different entities.

What are the types of banks?

There are the following types of banks-

1. Retail Banks
2. Exchange Banks
3. Co-operative Banks
4. Commercial Banks
5. Central Banks

What is Retail bankes?

Offer services to the public and dealer with retail market. Services known as general baking.

They provide facilities like savings accounts, current accounts, short-term loans, credit cards, personal loans etc.

They also provide wealth facilities to their customers and foreign exchange facilities to their NRI customers.

What is Exchange banks?

Exchange the currencies. Facilitate foreign trade in a country and they accept collect and allow discounting of bill of exchange. Deal buys and sell of foreign currencies along with general banking activates.

Ex: BOI, bank of Baroda, Dena, Federal, PNB, bank of Maharashtra, canard bank, HDFC, ICICI etc.

What is co-operative banks? 

Primary function to provide loans of farmers at low interest rate.

It provides both (long-short) term loan facilities.

There are two types of co-operative banks-

• Rural co-operative banks: state and district central cooperative banks
• Urban cooperative banks: scheduled and non scheduled UCBs

Ex of cooperative banks

• Sara swats Co-operative Bank. ...
• Cosmos Co-operative Bank. ...
• Sharma Vital Co-operative Bank (SVC Bank)...
• Abhyudaya Co-operative Bank Ltd....
• Bharat Co-operative Bank. ...
• TJSB Co-operative Bank. ...
• Ajanta Co-operative Bank. ...
• Caliper Commercial Co-operative Bank.

Types of loan

• Short-term loan: purchasing fertilizers, seed etc.
• Long-term funds: include credit offers for purchasing land.

What is commercial bakes?

A kind of financial also called corporate banks and provide specific service to the companies.

They offer cash management, trade finance, real estate, and employer service to their corporate clients.

Ex: SBI, HDFC, ICICI, Dena , Corporation, central bank

What are the types of commercial banks?

There are the following types of commercial banks-

1. Private bank
2. Public bank
3. Foreign bank

What is Private bank?

Recorded as companies with limited liability

Here private individuals and businesses own a majority of the share capital.

Ex: HDFC - Housing Development Finance Corporation Bank,Yes Bank, 

ICICI - Industrial Credit and Investment Corporation of India Bank, etc. 

What is Public bank?

Nationalized bank and the government hold a significant stake.

Ex: Bank of Baroda, State Bank of India (SBI), Dena Bank, Corporation Bank, and Punjab National Bank.

What is Foreign bank?

These banks are established in foreign countries and have branches in other countries.

For instance;

• American Express Bank,
• Hong Kong and Shanghai Banking Corporation (HSBC),
• Standard & Chartered Bank,
• Citibank etc.

Functions of Commercial Bank

• A. Primary Functions
• Accepts deposit
• Credit cash
• B. Secondary Functions

A. Primary Functions

Accepts deposit:

• Bank takes deposits in the form of saving, current, and fixed deposits
• Provides loan and advances:
• Provides loan and advances to the entrepreneurs and business people and collect interest
• In this process, a bank retains a small number of deposits as a reserve and offers (lends) the remaining amount to the borrowers in demand loans, overdraft, cash credit, short-run loans, and more such banks.

Credit cash:

• A customer get loan as credit amount after open an account in the bank. This process allows the bank to create money.

B. Secondary Functions

Discounting bills of exchange:

• A method of short-term financing provided by banks.
• It is a written agreement acknowledging the amount of money to be paid against the goods purchased at a given point of time in the future. The amount can also be cleared before the quoted time through a discounting method of a commercial bank. 

Overdraft facility:

• It allows you to withdraw from even though the balance is zero.
• It is an advance given to a customer by keeping the current account to overdraw up to the given limit. 

Purchasing and selling of the securities:

• The bank offers you with the facility of selling and buying the securities.

Locker facilities:

• A bank provides locker facilities to the customers to keep their valuables or documents safely. The banks charge a minimum of an annual fee for this service.

Paying and gathering the credit:

• It uses different instruments like a promissory note, cherubs, and bill of exchange.

What is central bank?

Doesn’t directly deal with general public.

Regulate other banks functions.

A lender of last resort.

Responsible for controlling inflation, rate of interest and monetary policy among other necessary functions in an economy.

Ex: RBI, 

Why is banking essential?

Keep customers money secure.

Allow interest on saving instead of keeping money at home

More convenient to save money in banks

Banking has become an integral part

Also provides loans and credit card to different entities.

Functions of Central Bank

The functions of a central bank can be discussed as follows:

• 1. Currency regulator or bank of issue 
• 2. Bank to the government 
• 3. Custodian of Cash reserves 
• 4. Custodian of International currency 
• 5. Lender of last resort 
• 6. Clearing house for transfer and settlement 
• 7. Controller of credit 
• 8. Protecting depositor’s interests 

Examples of Central Banks

Some of the well known central banks across the world are:

• 1. Federal Reserve (USA) 
• 2. Reserve Bank of India (India) 
• 3. People’s Bank of China (China) 
• 4. Bank of England (UK) 
• 5. European Central Bank (EU or European Union) yy