Banks project.....

BANKS

INTRODUCTION:

In the modern age, banks are the important part of man's economic

life.As we know that Finance is the life blood of the organization, banks help in

providing funds to the economy. In Modern times bank occupy pivotal position

in the development of business and industry. Finance is the lifeblood and

controlling nerve centre of business

and banks arrange right amount of

finance at right time. Today bank is

such an important industry that we

cannot imagine our day-to-day life

without bank. It has become part and

parcel of our life. Modern banks are

acting as friend, philosopher and guide

for the business and industry.

Numerous, varied and ever increasing

functions and services to the business and industry. We all are aware that war

devastated JAPAN and GERMANY economy was rehabilitated and restructured

only due to co-operation and support of Banks.

Banks are essential for the fast Economic Development of the nation.

Bank is a financial institution which deals with other people's money ie., money

given by depositors. Banks provide number of services to its customers as well

as to economic activities. There are different kinds of banks in an economy ie

private bank, government bank, etc. It also helps in strengthening the

commercial activities as well as domestic processes. Bank is one of the most

important aids to trade. Banks accept deposits, grant loans, make payment of

bills, rent, etc on behalf of its customers.

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HISTORY

Banking in India originated in the last decades of the 18th century. The

first banks were The General Bank of India which started in 1786, and the Bank

of Hindustan, both of which are now defunct. The oldest bank in existence in

India is the State Bank of India, which originated in the Bank of Calcutta in

June 1806, which almost immediately became the Bank of Bengal. This was

one of the three presidency banks, the other two being the Bank of Bombay and

the Bank of Madras, all three of which were established under charters from the

British East India Company. For many years the Presidency banks acted as

quasi-central banks, as did their successors. The three banks merged in 1921 to

form the Imperial Bank of India, which, upon India's independence, became the

State Bank of India.

Indian merchants in Calcutta established the Union Bank in 1839, but it

failed in 1848 as a consequence of the economic crisis of 1848-49.

The Allahabad Bank, established in 1865 and still functioning today, is the

oldest Joint Stock bank in India.(Joint Stock Bank: A company that issues stock

and requires shareholders to be held liable for the company's debt) It was not the

first though. That honor belongs to the Bank of Upper India, which was

established in 1863, and which survived until 1913, when it failed, with some of

its assets and liabilities being transferred to the Alliance Bank of Simla.

When the American Civil War stopped the supply of cotton

to Lancashire from the Confederate States, promoters opened banks to finance

trading in Indian cotton. With large exposure to speculative ventures, most of

the banks opened in India during that period failed. The depositors lost money

and lost interest in keeping deposits with banks. Subsequently, banking in India

remained the exclusive domain of Europeans for next several decades until the

beginning of the 20th century.

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Foreign banks too started to arrive, particularly in Calcutta, in the 1860s.

The Comptoire d'Escompte de Paris opened a branch in Calcutta in 1860, and

another in Bombay in 1862; branches in Madras and Puducherry, then a French

colony, followed. HSBC established itself in Bengalin 1869. Calcutta was the

most active trading port in India, mainly due to the trade of the British Empire,

and so became a banking center.

The first entirely Indian joint stock bank was the Oudh Commercial

Bank, established in 1881 in Faizabad. It failed in 1958. The next was thePunjab

National Bank, established in Lahore in 1895, which has survived to the present

and is now one of the largest banks in India.

Around the turn of the 20th Century, the Indian economy was passing

through a relative period of stability. Around five decades had elapsed since

the Indian Mutiny, and the social, industrial and other infrastructure had

improved. Indians had established small banks, most of which served particular

ethnic and religious communities.

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DEFINITION:

1. According to Dr.H.L.Hart.

"A banker is one who, in the ordinary course of his

business, honours cheques drawn upon him by person’s from and for

whom he receives money on current account."

2. According to SAYERS.

"Banks are institutions whose debts -usually referred to

as "bank deposits"-are commonly accepted in final settlement of other

people's debt."

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IMPORTANCE OF BANKS

Banks play very important role in the economic life of the nation. The health

of the economy is closely related to the soundness of its banking system.

Although banks create no new wealth but their borrowing, lending and related

activities facilitate the process of production, distribution, exchange and

consumption of wealth.

In this way they become very effective partners in the process of economic

development. Today, modern banks are very useful for the utilization of the

resources of the country. The banks are mobilizing the savings of the people for

the investment purposes. The savings are encouraged and saving rate increases.

If there would be no banks then a great portion of a capital of the country would

remain idle.

A bank as a matter of fact is just like a heart in the economic structure and

the Capital provided by it is like blood in it. As long as blood is in circulation

the organs will remain sound and healthy. If the blood is not supplied to any

organ then that part would become useless. So if the finance is not provided to

Agriculture sector or industrial sector, it will be destroyed. Loan facility

provided by banks works as an incentive to the producer to increase the

production.

Nobody wants to credit you money if you don't have a depository account.

You get superior interest rates when you have a good times past of barrowing

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money and paying it back. Good credit is an advantage. No credit or bad credit

is a Liability. No matter which that makes life easier is ok with me.

Without bank, there would be no investment. We would all run out of money

and back to bargain. By the time you earned enough to buy banquet you would

not have an adequate amount to pay for a bed to sleep in.Thus the banks form

the middle core of each and every nation of the world....

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FUNCTIONS OF BANKS:

Modern banks perform a large number of functions and services to

industry and commerce. It is not possible to make an exhaustive list of its

functions and services as they are diverse ,varied and ever-expanding.The

functions of banks are increasing day-by-day depending upon the environment

prevailing in the country. The functions and services rendered by modern banks

can be grouped under the following heads:

(A)Banking functions or Primary functions.

1. Receiving deposits. 2. Advancing loans.

3. Discounting of bills of exchange . 4. Credit creation

.

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(B)Nonbanking functions or secondary functions.

1. Agency services: The agency services are provided to regular customers of

the bank. While providing agency services ,bankers acts as the agent of the

customers. Some of the important services are :

(a)Payment of insurance premium, subscriptions and contributions etc. of

societies, club, association’s etc.which are of recurring nature.

(b)Collection of salary and pension bills, dividend coupons and interest payable

on debentures and other securities.

(c)Collection of postal orders.

(d)Execution of standing orders eg, payment of electric bills, water charges etc.

(e)Collection and payment of cheques ,bills ,and promissory notes.

2. General utility services: some important utility services are as follows:

(a)Issuing of letters of credit, circulars notes ,bank drafts ,travelers cheque etc.

(b)Providing master cards services.

(c)Acceptance of bills of exchange for customers.

(d)Receiving in safe custody customers valuables ,ornaments and

jewels ,documents and deeds.

(e)Providing internet banking services, Telebanking facility, which enables a

customer to perform banking operations through telephone

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TYPES OF ACCOUNTS

1. Current Account

Current Account indicates deposits always payable on demand. Hence

they are called demand deposits.

There is no restriction on the number and amount of withdrawals from

this account.

Banks insist on the maintenance of certain minimum balance on current

account. If the balance goes below this amount, the bank has a right to

close that account.

Generally no interest is paid on money deposited in this type of account.

Recently, banks have started giving lower interest on this account.

Overdraft facilities are given in case of current accounts only.

Current account suits the requirements of businessmen, joint stock

companies, institutions, societies, public authorities and public

corporations etc. whose banking transactions happen to be numerous on

every working day.

All banking services are made available to current account holders at

reasonable service charges.

Banks are given full freedom to decide the rules and regulations

regarding the operation of current

account.

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2. Savings Account:-

As the name indicates, these accounts are opened for the purpose

of mobilizing savings .These accounts are meant to encourage

savings and to develop the habit of thrift. It aims at checking

extravagance of the people .This account may be joint or single.

Though money can be deposited in this account as often as the

depositor wishes, it cannot be

withdrawn more than twice or thrice

a week. At present 25 withdrawals

are permitted quarterly by most of

the banks. Rules in this regard may

vary from bank to bank and from

time to time.

This account can be opened by

depositing nominal amount.

The rate of interest payable by the

banks on this account is generally

prescribed by Central Bank of the

country. It is generally 4% to

5% .Interest is calculated on minimum monthly balances at credit

of the account generally between the close of the tenth day or the

last day of each calendar month. Interest is paid twice a year.

Money from this account can be withdrawn by cheques or by using

bank’s withdrawal slips.

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No limit is prescribed in India for the maximum amount that may

be held in a savings bank account .But banks in India allow interest

on a maximum balance of Rs.1 lakh only in one account.

Savings account is not given overdraft facilities like current

account.

This account is more suitable to salary earners, wage earners and

persons of limited means.

Usual banking services are provided to savings bank account

holders.

This account is meant for all those who want to build up personal

savings for meeting emergencies and contingencies.

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Fixed Deposit Account:-

Fixed deposits are deposits received for a fixed period specified in

advance. No withdrawal is allowed during this period. Therefore they are

called time deposits.

The depositor is neither given a cheque book nor a pass book.

Withdrawal of interest or principal through cheque is not permitted. The

depositor gets a fixed deposit receipt, acknowledging the receipt of sum

of money specified therein.

The fixed deposit receipt is non-transferable; It is not a saleable asset.

The depositor gets attractive rate of interest on money deposited in this

account .The rate of interest allowed varies with the period of deposit.

The longer the period of deposit, higher the rate of interest .Interest paid

half yearly.

If the depositor is in need of money before the due date, he can borrow

from the same bank against the security of his fixed deposit receipt. Of

course, he has to pay a slightly higher rate of interest. In India the

directive of Reserve Bank of India requires the banks to charge a

minimum of 1% above the rate payable on such deposits.

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Individuals, firms or companies with surplus money may invest their idle

funds profitably in this account. The persons who want safety of funds

and steady return, deposit money in this account . These deposits are

called earning assets.

Some of the leading banks transfer funds in excess of some minimum

amount from current account to Time deposit so that the accountholder

gets income on the same.

According to recent Reserve bank circular, the Time deposits can be kept

even for a period of seven days for the amount in excess of 15 lakhs and

above.

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Recurring Deposit Account:-

This type of account is the latest innovation with most of the banks in

India .Banks have introduced this scheme with the object of affording

convenience and incentive to small depositors for savings.

A depositor opening a recurring deposit account is required to deposit an

amount chosen by him , generally a multiple of Rs.5/- or Rs10/- in his

account every month selected by him. The period for recurring deposit

varies from bank to bank two to ten years.

The rate of interest given on recurring account stands favorably as

compared with the savings bank account because the former partly

resembles the fixed deposit account. According to the latest directive of

the Reserve Bank of India, banks are required to ensure that the rates of

interest offered by them on recurring deposits are generally in accordance

with the rates prescribed for various term deposits.

As in savings bank account a customer is served with a passbook. The

passbook ordinarily has to accompany each installment as and when it

falls due. The account holder can give a standing order to deduct

installments from his saving bank account in the bank.

At the expiry of the period, the depositor gets a lump sum representing

the installments and handsome interest on his savings.

In case of depositor needs money before the due date he may borrow up

to 90% of the amount in the account at the prevailing rate of interest.

Recurring deposit accounts are transferrable from one branch to another.

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The recurring deposit account can be opened by any person, more than

one person jointly or severally, by a guardian in the name of a minor and

even by a major.

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TYPES OF BANKS

(1) COMMERCIAL BANK:

Commercial bank is the most important type of bank in every country. Most

Of the banks operating in every country are commercial bank. England is the

birth place of commercial banking .In England these bank are called

Joint stocks banks. The main activity of commercial is to accept deposits and to

grant loans, cash credits and overdrafts.

The functions of commercial banks are not the same anywhere. Actually

speaking, their functions differ from country to country and even from time to

time. In many countries, separate banking laws are made for regulating the

activities of commercial banks. They are now performing wide range of

functions. They are now performing function of other bank as well. It financier

and investor, providing foreign exchange and performing variety of functions to

help business and industry.

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(2) INDUSTRIAL BANK:

As the name indicates, Industrial banks provide long term to industry and help

the process of industrialization. Commercial banks do not give advances for

long period as their deposits are repayable on demand. Moreover, commercial

banks do not possess specialized and trained staff to understand intricacies of

industrial finance .Germany are the home of industrial banking. Such banks are

popular in Japan and Germany. The financial assistance provided by these

banks may take the following forms:

• Granting of loans and advances for long term period to industrial units.

• Subscribing directly to the shares and debentures of industrial concerns.

• Underwriting of shares, bonds or debentures issued by industrials units.

• Guaranteeing of loans raised by the industrial concerns which are repayable

after a long period.

• Providing technical, managerial and financial guidance to industrial units.

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(3) AGRICULTURAL BANKS:

Agricultural sector of the economy has

its own financial problems. In order to

tackle these problems, separate banks

are necessary. Commercial and other

banks are generally reluctant to

provide finance to agriculture because

of various reasons. Due to this, most

of the countries have established

separate banks to deal with the

agricultural sector. These banks

provide short term as well as long term

advances to agriculturists. They also play a very crucial role in rural

rehabilitation and reconstruction activities.

[A] Co-operative Banks:

The primary purpose of co-operative banks is to help the co-operative

movement in the country. Co-operative banks

constitute the pivotal of the co-operative movement

in the country. They provide short term advances to

agriculturists for purchasing seeds, manures and

short- term and to finance day to day agricultural

operations. They also develop among the members

spirit of self-help and thrift. Advances are given

only to the members of the society for productive

purposes. Loans may be secured or issued on personal security.

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[B]Land Development Banks:

These banks are called land development

banks because they mainly give advances

for the development of agricultural land.

The advances are given for different

purpose like construction of well, purchase

of tractor, purchasing costly agricultural

equipment, effecting permanent in land,

buying more land, etc. these banks are

supplementary to co-operative credit

agencies and provide long term credit to agriculture.

(4) Exchange banks foreign banks:

Foreign exchange business is a specialized type of business. Exchange banks

are necessary for financing the foreign trade and

for conducting foreign exchange transaction. The

main function of an exchange bank is to provide

foreign exchange for financing imports and

exports. Its brings about the settlement of debts

transactions between the different countries. It is

a specialized type of bank and deal mainly in

foreign exchange transactions. It opens branches

at important commercial and industrial centers and maintains worldwide

contacts.

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(5) SAVINGS BANK:

Savings is a bank established for

collecting savings of the people. Savings

banks are actually thrift promotion

institutions. They are established for the

mobilization of savings. Interest is also

paid on the deposits collected. These

banks collect small savings of the people

and impose indirect check on

extravagant spending.

(6) CONSUMERS BANKS:

Such banks are usually found only in

industrially advanced countries like

U.S.A and Germany. The main object

of this bank is to advances to the

consumers for the purchase of

consumer durables. The advances are

mainly granted for the purchase of

articles like motor car, washing

machine, television set, and furniture

etc. Consumers’ banks collect funds by

the shares, bonds and other securities. They also borrow from commercial and

industrial banks. Since advances are mainly provided to middle class people i.e.,

consumers for the purchase of consumption articles, they are called consumers

bank.

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(7) RURAL BANKS:

Rural banks are recently started in India. These banks are mainly for meeting

the commercial needs of rural sector. Rural bank provides financial facilities to

small and

manufactures in the

rural areas.

Financial help is

also given to

artisans engaged in

village industries

and agro-industries.

Rural banks are

mainly for rapid

growth of rural

sector economy.

Public sector banks

take active interest

in the formation of

rural banks. The

beneficiaries of rural

banks are mainly

small farmers, rural

artisans, craftsmen and other self employed persons. Rural banks are established

on a large scale in U.P. Bihar and other northern states. Rapid development of

rural areas is possible through rural banks.

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(8) INTERNATIONAL BANK:

International bank is international in character. It is regarded as an example of

international monetary co-operation. In fact, international financial institutions

are not banks in the usual sense of the term. They usually meet the development

needs of member countries. Important international banks are as follows:

a) International Bank for Reconstruction and Development popularly called

World Bank(IBRD)

b) Asian Development Bank (ADB)

c) International Finance Corporation (IFC)

d) International Monetary Fund (IMF)

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(9)CENTRAL BANK

Central bank stands at the top of all banking institution of the country .It is

regarded as the leader of the money market and also of the banking system. It is

different from the other types of the banks. Central bank is not the profit

hunting institution but concerned with the promotion of general monetary

stability. In the present century, all the countries of the world have independent

central banks. The Central Bank of our country is called Reserve Bank of India.

Central Banks are owned and managed by the Government.

Important functions of the Central Bank are as follows:

i. Acting as Bank of Notes Issue. It is given the monopoly of note issue.

ii. Acting as Government’s Banker, agent and adviser.

iii. Acting as banker’s bank and also as a lender of the last resort.

iv. Acting as a custodian of the Nation’s reserves of international currency. It

also keeps supervision and control on foreign exchange transaction.

v . Acting as controller of credit.

vi.Collection and publication of financial and statistical information.

vii. Performing any other function entrusted by the Government from time-to-

time.

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Conclusion

Banks, today, have become integral part of our society as well as of our nation.

Banks play a vital role in stabilizing the economic activities of the country.

Thus, from above statement6s we all can conclude that banks are very important

part our lives as well as for the fast economic growth of every country.

Banks are in existence since 18th century. We can say that banks are as old as

our civilization. Banks today perform various and innumerable functions which

has benefited human life. Thus, banks are useful in man’s economics as well as

personal life.

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