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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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BANKS
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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BANKS
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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BANKS
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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BANKS
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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BANKS
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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BANKS
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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BANKS
(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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BANKS
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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BANKS
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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BANKS
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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BANKS
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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BANKS
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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BANKS
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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BANKS
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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BANKS
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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BANKS
(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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BANKS
(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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BANKS
[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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BANKS
(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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BANKS
(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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BANKS
(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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BANKS
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