What are Banks? Types, role and functions of the bank.

Banks playing an important role in country’s economy. If we talk about banking in India, then it is considered to be the basis of economic progress of the country. In the last few years, according to the needs and requirements of the people, the banking system and management have seen major changes.

 As we all know very well that our country India got independence in the year 1947. But the history of banking is here, much before independence. That is, the beginning of the banking system in our country India had already started before independence.

 It is said that the first bank in our country, India, was established in the year 1770 AD, in the name of Bank of Hindustani, in the immediate capital of the country, Calcutta. But it failed to function well, and in 1832 the bank closed its operations. It is also said that even before independence, there were more than 600 banks registered in the country.

But only a few of these banks were able to do their job. During the British rule in India, the East India Company established three banks, the Bank of Bengal, the Bank of Bombay and the Bank of Madras (also known as Presidential Bank).

But in 1921, by merging these three banks, a new bank, Imperial Bank of India was established. And if we talk about the present, there are more than 21 private banks and more than 12 public banks are established in the country.

They have hundreds of branches, spread all over the country. Which are providing banking services to the people from cities to rural areas. Knowing about the banking system becomes essential because it is essential for an entrepreneur to run his business successfully.

What is Bank

A bank is a financial institution that performs the task of giving and receiving money. At the same time, a bank keeps people’s extra money with them, and provide interest on that money which is called depositing money.

Whereas the bank provides money to those who need money, but here those people have to provide the interest of this money to the bank. Therefore we can say that the bank performs the function of a medium between the money depositor and debtor.

banking system in India

In simple language, if we talk about bank, then it is a place where people can deposit their savings. So that when needed, they can withdraw those money. Apart from this, people who need money for their personal or business purpose. They also get loans from banks. Hence an institution, which is licensed by the government to deposit money, and to provide loans to the people, is called a bank.

The system under which a bank is providing financial services to its customers is called banking system. It is clear that the bank is such an institution that along with encouraging the habit of savings in the people, it also provides loans to the needy. In this way, it also helps in many tasks of agriculture and rural development.

Importance of Banks :

Without a smooth and effective banking system, no country can progress on the path of progress. Because for a healthy economy, smooth and effective banking is essential. That is to say, banks play an important role in the economic development of any country.

 It is through banks that such people are able to join who have more capital. And it is through these that finance reaches those who need it. If we talk about the importance of banking, then we found many importance of banks, from them some major importance are as below.

1. People get interest on the amount deposited in the bank, this gives rise to the spirit of saving among the people.
2. The banks acts as an intermediary between the capitalists and the needy.
3.  Economic development of any country is not possible as long as there is a shortage of capital. Banks work to bring people’s capital into the economy. In this way, they work to overcome the lack of capital formation.
4.  Financial resources are provided by banks to industrial units. Due to which industries increase their business, and thus more employment opportunities are created. Therefore, banks are also helpful in providing employment to the people.
5.  Banks also help in providing foreign loans for expansion, diversification, modernization or renovation of existing units and for setting up of new units.
6.  People in underdeveloped countries, or in developing countries, lack the necessary finances to buy houses, furniture, refrigerators, etc. Banks also help them in raising their standard of living by providing them advance loans.
7.  Commercial banks contribute significantly to the growth of a developing economy by providing loans to agriculture, trade and industry, helping in capital formation, and adhering to the country’s monetary policy.
8.  Many schemes and programs are run by the development banks to encourage new entrepreneurs.
9. Loans are provided by banks to farmers for marketing their produce, modernization and mechanization of fields, irrigation facilities, developing land etc. Because agriculture is the backbone of a developing country like India.

Types of Banks in India:

There can be many types of banks in India, but the banks of India can be mainly divided into five parts.

1. Central Bank
2. Commercial Bank
3. Development Bank
4.  Co-Operative Bank
5. Specialized Bank

1. Central Bank:

It is a bank that provides financial and banking services for the government and commercial banking system of the country. Along with this, it is also responsible for issuing currency in the country, and implementing monetary policy. The Central Bank of India is the Reserve Bank of India.

2. Commercial Banks

A commercial bank is a financial institution that accepts deposits from the general public and from businesses, provides loans. Such banks earn money by providing various types of loans to the customers, by charging interest. These include public sector banks, private sector banks, and foreign banks.

3. Development Banks

Development banks are those banks, which are established mainly for the purpose of providing basic facilities for the industrial development of the country. They provide financial assistance for the development of both private and private sector industries in the country.

4. Co-Operative Bank

If we talk about co-operative bank, then it is such a financial institution. Which is established on the basis of cooperation, or co-operation, of each other. Therefore, it pertains to the members of the co-operative bank only.

Which means, the customers of this bank are also its owners. These include primary credit societies, central co-operative banks, state co-operative banks.

5. Specialized Banks

 Specialized banks are financial institutions that are engaged in a specific area or activity. Export Import Bank of India (Exim), SIDBI, NABARD are examples of specialized banks.

Functions of Bank:

Banks do not just accept deposits, and provide loans to people. Rather, apart from these, there are many other tasks, which the banks have the responsibility to do. The functions of the bank can be broadly divided into two parts.

1. Primary Functions
2. Secondary Functions

1. Primary Functions:

The primary functions of the bank can also be divided into two parts. This includes the work of accepting the first deposit and the second of providing the loan.

Deposit Acceptance :

The functions of accepting deposits include opening of Current Account, Savings Account, Recurring Deposit Account, Fixed Deposit Account to provide financial facilities to the customers or to accept their deposits. Huh.

Loan disbursement :

 Loan disbursement includes the functions of providing various types of loans such as overdrafts, credit cards, cash loans, loans, discounting bills etc. to the customers or people.

2. Secondary Functions:

Secondary functions include such functions, which are necessary for the smooth running of the bank. These can also be mainly divided into two parts agency work and utility work.

Agency Functions

 Agency functions include those tasks that a bank has to perform for money transfers, periodic payments, collection of checks, portfolio management, periodic collections, etc.

Utility Functions

These are also called utility functions. These include the functions that the bank needs to perform for providing draft facility, lockers facility, estimating risk, project report, promotion of social welfare programs etc.

Objective of Banks:

Just imagine why people would have needed banks. As we all know, people need money to fulfill their responsibilities, and to improve their standard of living. And people have been saving money since ancient times. But at that time they used to deposit money in their homes only.

This put them at risk of theft, robbery or other incidents, thus people needed a place where people could safely deposit their money, and also withdraw it when needed. To serve this purpose in the beginning, banks may have originated. But today there are many purposes of banks, whose list is as follows.

1. The objective of the Bank is to establish itself to conduct overall economic activities, and to maximize profits.
2.  By taking idle money from the public at low interest, providing it to the needy people at high interest rates.
3. To encourage the tendency of saving among the people.
4.  Promote the tendency to make money from money, so that the money supply continues to grow.
5. Build large capital through savings.
6. Maintaining economic stability by controlling the money market.
7. To provide assistance and advice to the government on economic issues.
8. To assist the government for trade, trade and socioeconomic development.

Important Features of the Bank

Let us now know about some of the characteristics of the bank.

• It can be either Individual or Firm or any company.
• Bank is a profit and service oriented institution.
• It works as a connecting link between borrowers and lenders.
• Bank does business of money.
• It accepts deposits from the public.
• Bank provides Advances/Loans/Credit to the customers.
• It also provides Payment and Withdrawal facilities.
• Along with this, it also provides Agency and Utility Services.

Questions/Answers on Banks