Meaning Of Banking


 
 
Concept Explanation
 

Meaning Of Banking

Banking

Banking can be defined as the business activity accepting and safeguarding money owned by other individuals and entities, and then lending out this money in order to earn a profit.

Bank

Bank is a financial institution that undertakes the banking activity i.e., it accepts deposits and then lends the same to earn certain profit. Bank is a lawful organization, which accepts deposits that can be withdrawn on demand. It also lends money to individuals and business houses that need it

Role of Banking

Banks provide funds for business as well as personal needs of individuals. They play a significant role in the economy or a nation. Let us know about the role of banking-

  • It encourages savings habit among people and thereby makes funds available for productive use.
  • It acts as an intermediary between people having surplus money and those requiring money for various business activities.
  • It facilitates business transactions through receipts and payments by cheques instead of currency.
  • It provides loans and advances to businessmen for short term and long - term purposes.
  • It also facilitates import export transactions.
  • It helps in national development by providing credit to farmers, small-scale industries and self-employed people as well as to large business houses which lead to balanced economic development in the country.
  • It helps in raising the standard of living of people in general by providing loans for purchase of consumer durable goods, houses, automobiles, etc.
  • Types Of Banks

    There are various types of banks which operate in our country to meet the financial requirements of different categories of people engaged in agriculture, business, profession, etc. On the basis of functions, the banking institutions in India may be divided into the following types:

    1. Central Bank (RBI, in India)

    2. Commercial Banks

  • Public Sector Banks
  • Private Sector Banks
  • Foreign Banks
  • 3. Development Banks (IFCI, SFCs, SIDBI, NABARD)

    4. Co-operative Banks

  • State Co-operative Banks
  • Central Co-operative Banks
  • Primary Credit Societies
  • 5. Specialized Banks (EXIM Bank)

    Central Bank

    A bank which is entrusted with the functions of guiding and regulating the banking system of a country is known as its Central bank. Such a bank does not deal with the general public. It acts essentially as Government's banker, maintain deposit it accounts of all other banks and advances money to other banks, when needed. The Central Bank provides guidance to other banks whenever they face any problem. It is therefore known as the banker's bank. The Reserve Bank of India is the central bank of our country. The Central Bank maintains record of Government revenue and expenditure under various heads. It also advises the Government on monetary and credit policies and decides on the interest rates for bank deposits and bank loans. In addition. foreign exchange rates are also determined by the central bank. Another important function of the Central Bank is the issuance of currency notes, regulating their circulation in the country by different methods. No other bank than the Central Bank can issue currency.

    Commercial Banks

    Commercial Banks are banking institutions that accept deposits and grant short-term loans, and advances to their Customers. In addition to giving short-term loans, commercial banks also give medium - term and long - term loan to business enterprises. Now - a - days some of the commercial banks are also providing housing loan on a long-term basis to individuals. There are also many other functions of commercial banks.

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