banking definitions
TRANSCRIPT
-
7/29/2019 Banking Definitions
1/24
Banking
-
7/29/2019 Banking Definitions
2/24
Bank is a lawful organisation, which accepts
deposits that can be withdrawn on demand. It
also lends money to individuals and business
houses that need it.
Banks also render many other useful services like
collection of bills
payment of foreign bills
safe-keeping of jewellery and other valuable items
certifying the credit-worthiness of business
-
7/29/2019 Banking Definitions
3/24
Banks Vs Money lenders
Basis Banks Moneylenders
Entity Bank are organised
institutions
Moneylenders are
individuals
Activity Includes acceptance of
deposits and lending of
money
Usually dont include
acceptance of deposits
Clients General people and
Businesses
Agriculturists and poor
people
Security Tangible securities Jewellery, Land, etc
Process of recovery ofloans Flexible Rigid and Strict
Interest Rate Governed By RBI Not governed and Usually
high
-
7/29/2019 Banking Definitions
4/24
The role of banking in an Economy
It encourages savings habit amongst peopleand thereby makes funds available forproductive use
It acts as an intermediary between peoplehaving surplus money and those requiringmoney for various business activities
It facilitates business transactions throughreceipts and payments by cheques instead ofcurrency.
-
7/29/2019 Banking Definitions
5/24
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 economicdevelopment in the country
Raising the standard of living of people
-
7/29/2019 Banking Definitions
6/24
Types of Banks
-
7/29/2019 Banking Definitions
7/24
Central Bank
Defn - A bank which is entrusted with thefunctions of guiding and regulating the bankingsystem of a country is known as its Central bank Govt. Banker
Maintains deposits of all other banks and providesadvances to them
Advisor to other banks
Maintains records of govt incomes and expenses
Advices govt on monetary and credit policies Decides on Interest rates
Determines foreign exchange rates
-
7/29/2019 Banking Definitions
8/24
Commercial Banks
Defn- Commercial Banks are banking
institutions that accept deposits and grant
short-term, medium and long term loans and
advances to their customers
-
7/29/2019 Banking Definitions
9/24
Types of Commercial banks
Public sector banks - majority stake is held by theGovernment of India or Reserve Bank of India.
Ex SBI, Bank of Baroda, Dena Bank, etc
Private sector banks - majority of share capital of the
bank is held by private individuals, Registered ascompanies with limited liability
Ex J&Kbank, ICICI Bank, HDFC Bank, etc.
Foreign banks - registered and have their headquarters
in a foreign country but operate their branches in ourcountry,
Ex HSBC, Deutsche Bank, Citibank, etc.
-
7/29/2019 Banking Definitions
10/24
Development Banks
Provide funds for medium and long-termcapital for purchase of machinery andequipment, for using latest technology, or for
expansion and modernisation. Also undertake other development measures
like subscribing to the shares and debenturesissued by companies, in case of undersubscription of the issue by the public
Ex- IFCI, SFC, NHB, etc
-
7/29/2019 Banking Definitions
11/24
Co-operative Banks
People come together to jointly serve theircommon interest and form a co-operativesociety under the Co-operative Societies Act
When a co-operative society engages itself inbanking business it is called a Co-operativeBank
It has to obtain licence from RBI Functions under the overall supervision of the
Registrar, Co-operative Societies of the State
-
7/29/2019 Banking Definitions
12/24
Types of Co-operative Banks
Primary Credit Societies - The operations of each societyare restricted to a small area so that the members knoweach other and are able to watch over the activities of allmembers to prevent frauds. May be a town, or village orsmall areaEx- Nasik Merchant Cooperative Bank,
Central Co-operative Banks - These banks operate at thedistrict level having some of the primary credit societiesbelonging to the same district as their members Function as a link between the primary credit societies and state
co-operative banks
Ex- NDCC
-
7/29/2019 Banking Definitions
13/24
State Co-operative Banks - the apex co-
operative banks in all the states of the country
Regulation and monitoring the activities of
District and Primary cooperative banks
Ex - Maharashtra State cooperative Bank
-
7/29/2019 Banking Definitions
14/24
Specialised Banks
Specialised banks are foreign exchange banks,industrial banks, development banks, export-importbanks catering to specific needs of these uniqueactivities. These banks provide financial aid to
industries, heavy turnkey projects and foreign trade.
Banks which cater to the requirements and provideoverall support for setting up business in specific areasof activity
They engage themselves in some specific area oractivity and thus, are called specialised banks
Ex EXIM Bank, SIDBI, NABARD, etc
-
7/29/2019 Banking Definitions
15/24
Functions of Commercial Banks
The functions of commercial banks are of two
types.
(A) Primary functions
(B) Secondary functions
-
7/29/2019 Banking Definitions
16/24
Primary functions
Accepting deposits - Depending upon the
nature of deposits, funds deposited with bank
also earn interest
There is also safety of funds deposited with
the bank.
-
7/29/2019 Banking Definitions
17/24
Grant loans and advances
LOANS -
A loan is granted for a specific time period.Generally commercial banks provide short-termloans. But term loans, i.e., loans for more than ayear may also be granted.
The borrower may be given the entire amount inlump sum or in installments.
Loans are generally granted against the securityof certain assets.
A loan is normally repaid in installments.However, it may also be repaid in lump sum
-
7/29/2019 Banking Definitions
18/24
ADVANCESAn advance is a credit facility
provided by the bank to its customers for a
shorter period of time to meet day to day
expenses
Interest is charged only on the amount
withdrawn and not on the sanctioned amount
-
7/29/2019 Banking Definitions
19/24
Types of Advances
a) Cash Credit - Cash credit is an arrangementwhereby the bank allows the borrower to drawamount upto a specified limit
The amount is credited to the account of thecustomer.
The customer can withdraw this amount as andwhen he requires.
Interest is charged on the amount actuallywithdrawn.
Cash Credit is granted as per terms andconditions agreed with the customers
-
7/29/2019 Banking Definitions
20/24
b) Overdraft
Overdraft is also a credit facility granted by bank.
A customer who has a current account with the
bank is allowed to withdraw more than the
amount of credit balance in his account.
It is a temporary arrangement. Overdraft facility
with a specified limit may be allowed either onthe security of assets, or on personal security, or
both.
-
7/29/2019 Banking Definitions
21/24
c) Discounting of Bills
Banks provide short-term finance by discountingbills, that is, making payment of the amount
before the due date of the bills after deducting acertain rate of discount.
The party get the funds without waiting for thedate of maturity of the bills.
In case any bill is dishonoured on the due date,the bank can recover the amount from thecustomer.
-
7/29/2019 Banking Definitions
22/24
Secondary functions
Issuing letters of credit, travellers cheque, etc.
Undertaking safe custody of valuables, important
document and securities by providing safe
deposit vaults or lockers.
Providing customers with facilities of foreign
exchange dealings.
Transferring money from one account to another;and from one branch to another branch of the
bank through cheque, pay order, demand draft.
-
7/29/2019 Banking Definitions
23/24
Standing guarantee on behalf of its customers, formaking payment for purchase of goods, machinery,vehicles etc.
Collecting and supplying business information.
Providing reports on the credit worthiness ofcustomers.
Providing consumer finance for individuals by way ofloans on easy terms for purchase of consumer durableslike televisions, refrigerators, etc.
Educational loans to students at reasonable rate ofinterest for higher studies, especially for professionalcourses.
-
7/29/2019 Banking Definitions
24/24
Thank you