The Function of Bank – in India : the function of central bank

Query: Features of bank, definition and functions of bank, what is the definition of bank, types of Indian bank, how many types of bank are there
Question: What do you mean by bank? Mention the main functions and importance of modern banks.

Answer: Role and Evolution The term bank has become popular in the modern era. Lack of unanimity regarding the origin of the word bank 40 people consider its origin from the German word (BANCK) and some people from the Italian language ANCO) word which means “Common Fund” in the beloved language (BANKE) and English language In (BANK) is called. The history of banks is believed to be from the process of transaction work in the temples of Babylonia and Greece about 2000 years before Christ. Banks are estimated to have existed in India since the Vedic period.

the function of bank


Modern banking was first developed in Europe, while in Italy in 1157 the Office of Venice was established. After this, many banks were established, in which the names of Bank of Varcelona in 1401, Bank of Geneva in 1407 are known. The Bank of Amsterdam, established in 1609, was considered to be a great international bank in the 17th century. The rise of modern banking in England since 1640 is considered to be the most important event with the establishment of the Bank of England in 1694. During this period, bank growth remained slow. Gradually, till the commencement of the check system, due to the belief of the public, they took a scientific form. At the end of the 18th, the work of banking started being done by Joint Stock Panics, limited liability was recognized and legal arrangements were made for their control. Now the banking system has developed so much in the countries of the world that banks have become an integral part of the current economic system and business system.


Meaning and definitions of Bank:

In common parlance, the meaning of bank is applied to that institution, which receives money from the public on deposit and pays in the form of loan or on the demand of the depositors. In short, the institution which deals with the transaction of rupees is the bank. In the modern era, there has been so much change in the field of banking and its functioning that it is extremely difficult to give a universal definition of a bank. Nevertheless, the following definitions of some economists are noteworthy-



(A) Common definitions


(1) Kinley Bank is that institution, which takes care of the security of the money to be lent, gives loan to the individuals as per their need and to whom the money is handed over if the individuals do not have it.


(2) Heartbank is that institution, which receives money in its normal practice and makes payments to the banks of depositors and account holders.

(3) Virtbank is a dealer in capital or more precisely money.


(4) Cowber- The business of the banker is to take loans from the public and give securities in return and thus create money.


(B) Function wise definitions


Sir John Peasant has defined the bank according to its functions. Some say that the bank is the one who does the work of the bank. According to Vector Kosh, “Bank is an institution that does business in money. An establishment where deposits, protection and issue of money are made and where facilities for lending and deduction are provided and arrangements for sending money from one place to another.” Is performed.”


(C) statutory definitions


The definition of bank in various banking acts does not seem appropriate. According to the Indian Banking (Regulation) Act, 1949, “a banking company is a company which carries on the business of banking.” While giving the definition of the word banking, it has been told- Banking means depositing money from the public for lending or investment, which can be returned on demand and withdrawn by bank, draft and other types of orders. Similarly, according to the Indian Negotiable Instruments Act – “Every person doing banking work and post office savings bank are included under banking.”

According to the proper definition work, the definition given in Webster’s dictionary, which has been mentioned above, can be said to be the best and very simple definition “Bank is such an institution that does all the work related to money transactions for its customers. Is.”


Based on the above definitions, a bank has the following characteristics, on which Mr. Pageant has given special emphasis-


(i) Banking work is the main business, Indian moneylenders who do banking work with subsidiary business are not considered as banks.


(II) Has fame or reputation as a bank. There should be a reputation in the society as a banker and not in any other way.


(iii) The means of subsistence is the banking business itself, that is, banking work is done from the point of view of profit.



Types of Indian Banks / Types / Forms of Modern Banks

(Types of Modern Banks) Along with the changes in the economic world, there is also specificity in the work of banking institutions.


The way has been paved and due to the difference in these functions, many types of banks have been established. Banks of each class give loan for special type of business and work and difference is also found in the methods of raising financial resources due to the difference in the period of giving loan. Thus the main forms of modern banks are as follows-


(1) Commercial Banks – Commercial Banks General Banking

They work and provide short term loans to traders, industrialists and businessmen. The term of loans given by them is generally three months. Commercial banks in India work in the form of Joint Stock Companies. State Bank, UCO Bank, Bank of Baroda, Punjab National Bank, Central Bank, India Bank, Dena Bank etc. are commercial banks. Commercial banks receive deposits, pay check checks and do their agency work, give short term loans. The detailed description of their functions is given further. There were a total of 164 scheduled commercial banks in the country as on June 30, 2011, with approximately 90,775 branches. Apart from this, there were 5 non-scheduled banks and they had 55 branches. Thus the total number of branches of 169 commercial banks was 90,830.


(2) Industrial Banks- Industrial institutions require large amount of long term loans for construction works and expansion works etc. Commercial banks arrange only short term loans. Therefore, long term and big loans are met by industrial banks only. Their capital is relatively high. In the form of a joint stock company, the shares are also sold to investment institutions to obtain capital. Such banks also sell long term debentures to increase their lendable capital. Apart from the central bank and the government, foreign loan institutions also provide financial resources to such banks. These banks not only provide long term industrial loans in domestic currency but also lend in foreign currency. Some examples are Industrial Finance Corporation of India (IFCL), Industrial Development Bank of India, Industrial Development Credit and Investment Corporation of India (ICICI), 18 State Finance Corporations (S.F.C.) (for small-scale industries) in India. . Industrial Development Bank of India (IDBI) and ICICI have become commercial banks. Apart from giving loans, the work of these banks was also to do the work of under-writing the share capital and debentures of the industrial institutions.


(3) Agricultural Bank – In developed countries like Japan, America and Russia, special types of banks are working for the finance of agricultural development in the world. In agriculture, short-term, medium-term and long-term loans are provided by Agricultural Co-operative Banks and long-term loans should be provided by Land Development Banks. In India now full promotion of short term and medium term loans is being given through commercial banks. Co-operative banks include Agriculture Central Co-operative Bank, State Co-operative Bank etc. A National Bank of Agricultural & Rural Development (Nation) or NABARD has been established as an apex bank, which arranges long-term medium-term loans for agriculture, small scale industries and rural development.


(4) Foreign Exchange Banks – Foreign exchange banks are called those banks which deal in foreign exchange. In all countries, commercial banks deal in foreign exchange, buy and sell bills and finance foreign exchange to make foreign trade smooth and convenient. Earlier only branches of foreign banks used to do this work in India. Now in India also many commercial banks have started working as foreign exchange banks. These banks require relatively more financial resources to manage foreign exchange. There is no fully Indian Foreign Exchange Bank in India. Most exchange banks are branches of foreign exchange banks. As on June 30, 2011, there were 27 such banks located in India with 318 branches, which finance about 70% of India’s export trade and 90% of import trade. Indian banks have the least share in export trade.


(5) Saving Banks – Western nations England, America, Australia etc. have established savings banks to encourage small savings, in which small amounts are deposited but can be withdrawn only according to special conditions. Is. In India also, with a view to encourage small savings and to provide simple banking facility in rural areas, the system of Post Office Saving Bank Accounts is the same form. Commercial banks in India also perform the functions of savings banks.


(6) Indigenous Bankers – In the context of India, this type of banks include moneylenders, moneylenders and moneylenders. Not only do they have an important place in the rural and agricultural finance system of India, they have also contributed a lot in the finance system in urban and other businesses. Due to their exploitation tendency, the activities of these banks have reduced due to the strict control and regulation of the central bank.


(7) Private Sector Banks – The number of private sector banks in India was 21 as on June 30, 2011, in which private sector scheduled old banks 15 and their branches 4843 and private sector scheduled new banks 6 and their branches Thus the number of scheduled private sector banks in India is 21 and their branches are 11,842. Under this H.D.F. C. Bank, Lakshmi Vilas Bank, ICICI Dhan Lakshmi Bank, Axis Bank, Yash Bank etc. are included.


(8) Central Bank

Central Bank – Today, in all the nations of the world, central banks do the work of issuing controlled invariable paper currency, playing the role of banks and conducting monetary policy successfully with proper control over the amount of money. The Reserve Bank of India performs the above functions as the Central Bank.


(9) Export-Import Bank or EXIM (Bank) – These banks have been developed for the financing of import-export credit in international trade and protection against the risk of payments. Import Bank has been established.


(10) International Bank – Development of means of transport and communication has given emphasis to foreign trade, monetary and economic cooperation and cultural harmony. International Monetary Fund (I.M.F.), World Bank (World Bank), International Finance Corporation (I.F.C.), International Development Association (I.D.A.) etc. are prominent for providing loan at international level for monetary cooperation. They give loans in foreign currency, buy debentures or promote loans by giving guarantees.


(11) Others – In order to simplify the banking system for trade, industry etc. in different countries, Discount Houses, Acceptance Houses etc. respectively cut bills or provide acceptance on very low commission. Taxes help in credit expansion. Merchant bankers in England do the work of accepting commercial bills. They raise their financial resources for these activities from share capital and short term loans or deposits. Unit Trust is also a savings and investment bank in India.


Thus, it is clear from the above description that specialization in various sectors of the economy has strengthened the trend of specialization in banks as well. They are continuously moving in this direction.




Characteristics of a Bank / Characteristics of a Good Banking System
(Essentials of a Good Banking System)


In the modern era, a well-organised, well-developed and coordinated banking system is an integral part of the country’s economic development, which paves the way for progress in the industrial, commercial and economic sectors by the collection of financial resources and flow in their productive uses. From this point of view, it is considered necessary to have the following qualities and characteristics in a good banking system of the country-

The Function of Bank

(1) According to the conditions of the economy, the banking system of the country should be according to the conditions of the country, in which all the sections of the society can get benefits as per the requirement, the needs of agriculture should be fulfilled in the agricultural country. For example, there should be proper development of agricultural co-operative bank, land manager or land development bank etc. Commercial and industrial banks should be developed in a commercial and industrial country and if the country’s economy is dependent on foreign trade, there should be adequate development of foreign banks.


(2) Promotion of savings accumulation and capital formation Another important feature of the country’s banking system is that the banking system should be capable of collecting all the rich and poor people of the country. For example, the capital investments of the rich can be attracted by banks, while the lower classes can attract savings by opening post office savings accounts or commercial bank savings accounts. Mobilizing Savings Is Good Banking


is a property of the system. (3) Adequacy of Financial Resources A good banking system should have sufficient financial resources to meet the financial needs of the country so that economic development is not stunted due to lack of resources.


(4) Proper control of credit- Where credit creation in the country promotes economic progress on the one hand, uncontrolled credit proves fatal. Therefore, in a good banking system there should be control over the use and expansion of bank credit.


(5) Coordinating in the Banking System There should be such coordination in the banking system in the country that there is no unnecessary competition, there is no duplication in financial resources. The priority use of resources in the integrated banking system will encourage planned development and maximize economic benefits in the use of resources.


(6) Balanced development of banking system- A good banking system is one in which there is balanced development of banks in all sectors of the economy. If we look at India, earlier the banking system developed only in urban areas and the development in rural areas remained negligible. After the nationalization of banks, efforts for balanced development have started rapidly. Similarly, there has been a lot of expansion of commercial banks while the progress of industrial, agricultural banks and foreign exchange banks has been slow.


Looking at all these things, there is a lack of good banking system in India, but gradually these elements are being developed.


Functions of Modern Banks

(Functions of Modern Banks)


As it has been clarified while describing the types of banks, specialization in various sectors of the economy has given rise to specialization in the functions of banks as well.


(1) Receiving Deposits – The main function of banks is to create reserves by receiving money from the public which they can later lend. By depositing small amounts of personal and institutional savings, banks collect enormous amounts of money. Banks on deposits from the public, from the government, from other banks Rupee

Receive. They deposit money in four types of accounts keeping in view the size, nature etc. of the savings of the depositors-


(i) Fixed Deposit Account – It is also called Fixed Deposit and Time Deposit. It is for those who want to accumulate their savings for a fixed period. Before that they do not get this amount. This amount is deposited for a period of 3 months, 6 months, one year, 2, 3, 5, 10 years and up to about 20 years. A relatively higher rate of interest is paid on such deposits. The depositor receives a Fixed Deposit Receipt, in which the terms and conditions like last date of payment, rate of interest, etc., are briefly mentioned. On the last date interest and amount is returned or received on re-deposit. It is suitable for those rich people who do not want to take more risk and want to get higher than normal rate of interest on savings along with security. These accounts are also sometimes in the form of Indefinite Deposit.


(ii) Current Account Deposit – This account is suitable for traders, businessmen and industrialists who receive many payments and have to make many payments. Money can be deposited in this type of account whenever desired during the banking working hours and can be withdrawn through cheques, etc. Generally, no interest is given on deposits in these types of accounts, but some big banks pay interest at a very low rate and also provide the facility to withdraw more money from the deposit, but a relatively high rate of interest is charged on it so that Depositors are given pass book and check book to avoid unnecessary borrowing.


(III) Savings Account Deposit – This type of savings account is opened to encourage small savers, so that the bank can encourage capital formation in the country with small savings of low income earners and provide savings to the depositors. There should be motivation, security of savings and benefit of interest on savings. There is no condition for deposit, you can deposit whenever you want, but generally some conditions are imposed for withdrawal. But these conditions are not so harsh that the tendency to save is badly affected. Such accounts are suitable for salaried people and small businessmen. Savings bank is different in western countries but in India only commercial banks do this work. Post Office Savings Account is also its departmental form.


(iv) Home Safe Deposit Account – This is a method of accumulation of resources by encouraging savings among those who do not have the habit of saving, small children and elders, despite the limited income of all But a locked piggy bank, safe or savings box is given, in which even if deposited a little less daily or every week, a substantial amount is made in a year, sometimes the employees of the bank go home in the first week of the month. By roaming around the house and getting such savings, they benefit the undeserving and themselves. This practice has become prevalent in post office savings accounts and banks in Indian cities. In this, the rate of interest is very low and the withdrawal conditions are somewhat harsh.


(2) Advancing of Loans – Another important function of banks is to give loans. Most of the amount received on deposit is earned by giving loans or advances. Banks deposit money at a low rate of interest and lend at a higher rate of interest. Security of money is also taken care of while lending. Generally, the following are the methods of loan or advance-


(i) Loans & Advances – On the basis of proper security, banks give loans and advances for a specific purpose for a fixed period. Generally, instead of giving this amount in cash, the bank deposits that amount in the account of the borrower, so that he can withdraw money from that amount as per the requirement from time to time. The loan is considered to be terminated when the entire loan is repaid. Interest is charged on the total amount. The rate of interest is high and these loans are given according to the security on the collateral itself.


(ii) Overdraft – When the bank allows its current account customers to withdraw more money than their deposits, it is called overdraft. This is a facility provided only for a short period of time to customers having a Trust Current Account. It is worth keeping in mind that loans and advances can be given to anyone, but only the current account depositor has the right to overdraft. In overdraft, the policy of the government, the credit policy of the central bank as well as the creditworthiness of the customer are also taken care of.


(iii) Cash Credit – Under this, the bank gives a fixed amount of loan to the customers on the security of merchandise, approved securities, shares and bonds etc. The amount is credited to the customer’s account and the bailed articles are taken under the custody and custody of the bank. The borrower repays the loan from time to time and keeps taking the articles of his security. Interest is charged only on the outstanding amount. The fundamental difference between cash credit and overdraft is that cash credit can be accepted by anyone but overdraft is given only to the persons having current account. Cash credit is given on security for one year and at a slightly higher rate of interest, while overdrafts are given for emergency without security and at a lower rate of interest than cash credit.


(iv) Discounting of the Bills & Hundies – The withdrawal of their deposits by the banks

The incremental portion is appropriated in the form of commercial bills and bills. These are those letters of credit which are payable within a specified period in the form of a promise or order to pay for the goods sold on credit. The seller wants payment in cash immediately while the buyer wants payment after a fixed period. Banks fulfill the wishes of both of them. The seller gets the bill or hundi deducted from the bank or encashes it. The bank makes immediate cash payment to the seller after deducting interest up to the payment period from the amount mentioned in it and receives payment from the buyer on the due date.


(3) Creation of Credit by Banks – Banks receive and lend money from the public on deposits. Due to this, where on the one hand loans are generated from deposits, on the other hand deposits are born from loans. This process goes on continuously. This enables the banks to lend much more than the cash deposits with them. Banks also create credit by issuing notes. In India, the central bank (Reserve Bank) creates credit by issuing notes. Not other banks.


(4) Note issue (Issue of Paper Currency) – In the initial stage of paper currency development, many commercial banks used to issue notes. In India too, before 1935, Imperial Bank (now State Bank) and other big Presidency Banks used to issue notes, but since 1935, Reserve Bank has the monopoly to issue notes. Now, in almost all the countries of the world, the work of note issuance is not in the hands of the commercial banks but in the hands of the central bank of each country.


(5) Agency Representative Functions of Banks – This is also called agent function because modern banks provide many services as representatives of their customers. Some services are provided free of cost and some services are provided on a nominal charge. The main functions related to representation are as follows-


(i) Payment collection of cheques, hundis and bills of bank customers


Payment of cheques, bills, hoods and other letters of credit received by him as representative


Collects and collects and deposits in the customers account. local services often


Free and charges are levied for out station letters of credit.


(ii) Receipt of customers’ payments- In addition to the payment of the above-mentioned letters of credit, the bank collects the amount of dividend, interest, rent, commission etc. of the customers as a representative and deposits it in the customers’ account.


(iii) Banks whose letters of credit, bills and instruments are to be paid by the customers to other lenders on the last date, the bank makes payment and writes the amount in the name of the customers.


(iv) Payment of other payments to the customers – In the same way as the bank receives the payments of its customers, it also pays the payments on behalf of the customers i.e. interest, rent, dividend, insurance premium, commission and other dues. . For this the bank charges some commission.


(v) Buying and selling of shares and securities – Banks buy shares and securities for their customers as a representative and sell them when they are not required because banks are not well acquainted with the stock market as compared to their customers, but They have close contact with the brokers and commission agents of the stock exchanges. Banks charge some commission for this work.


(vi) Money Transfer and Remittance – Arrangements are made by banks to send money from one place to another for the convenience of their customers. Depositing cash and sending it to another place in the form of a bank draft or transferring money from one place to another in the same person’s account is an important service of banks.


(vii) Underwriting Banks take upon themselves the responsibility of selling share securities by their business customers. If ever the company is unable to sell the share-capital debentures within the prescribed period, the banks buy them. Due to this the company gets the money on time and the bank gets it. (MI) Bank acting as Trustee, Manager and Attorney


Undertaking to settle, divide or manage the property of his clients on their orders


Blows up and executes their wills posthumously. court and other


Also represents in ordered works. (6) General Utility Services – The general functions of the bank also include many functions, which they perform as their subsidiary functions.


Buying and selling of foreign exchange: Generally, Foreign Exchange Banks do the work of buying and selling of foreign exchange. But in countries where foreign exchange banks are not sufficiently developed, commercial banks also do this work. In India too, the work of buying and selling of foreign exchange is done either by commercial banks or by branches of foreign banks.


(ii) Economic management of internal and foreign trade- The work of economic management of trade is important in short term loans of banks. They do this by reselling or discounting bills, hundis, letters of credit.


(III) Traveller’s Bank and Letter of Credit Arrangement Banks finance their travel within the country and abroad by giving travelers checks and letters of credit to their customers. Money is deposited here and in the country and abroad

Ø They want to get paid, get paid as per pre-arranged arrangements. Banks thus get rid of the risk of carrying money or the problems of changing foreign currency.


(iv) Security of property or valuables Banks keep their customers safe with their gold-silver jewellery, risky documents, shares of companies, debentures by arranging lockers on a simple annual fee, which prevents robbery. And there is no fear of destruction etc.


(v) Compilation of economic data- Nowadays, the central bank and commercial banks of the country, on the basis of their business, compile the facts and figures related to currency, trade, industry etc. Build and operate. (vi) Consultancy on financial matters- Banks, being purely financial institutions, employ the services of financial experts and also give useful advice on financial matters to their customers.

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