Introduction to Banking. What is a Bank?


A bank is a financial institution that accepts deposits, pays interest at pre-determined rates, clears checks, creates loans and often acts as an intermediary in financial transactions. It also offers other financial services to its customers.

Bank management regulates various concerns related to the bank to maximize profit. Concerns include liquidity management, asset management, liability management and capital management, widely. We will discuss these areas in later chapters.

Origins of banks

In Babylonian period, the origin of the bank or banking activities can detect the Roman Empire. It was practiced on a very small scale, because banking and setting were not systematically compared to the modern day.

Modern banks are largely involved in banking activities and follow the rules made by the government. The government plays an important role in controlling the banking system. This invites the bank management, which further ensures the quality of service and the win status among the customers, the banks and the government for the customers.

Scheduled and non-scheduled bank

Scheduled and non-scheduled banks are classified by the norms or eligibility setup by the governing authority of a particular area. There is a fundamental difference between fixed and redundant banks in the Indian banking perspective.

Scheduled banks are those who have paid the total amount of capital and the Reserve Bank of India does not have deposits of less than five lakh rupees. All their banking businesses are done in India. Most of India’s banks fall into the Scheduled Bank category.

Non-scheduled banks are banks with reserve capital of less than five lakh rupees. There are very few banks that fall into this category.

Development of banks

The banking system has evolved from Vandal Banking, where loans were provided to the modern banking system, which caters to a series of financial services. Development of the banking system was gradual with development in every aspect of banking. Some major changes are as follows:

Barter system was replaced with money, which made the transaction equal

Equal laws have been enacted to increase public confidence

Central banks were set up to control other banks

Book keeping with the beginning of the computer was developed from paper to digital format

ATMs were setup for easy withdrawal of funds

Internet banking came into existence with the development of the Internet

The banking system has witnessed unprecedented growth and it will continue in the future of technology.

Development of banking system in India

The journey of the banking system in India can be kept in three different steps depending on the services provided by them. Full development of banking can be described in these different steps –

Phase 1

This was the initial phase of the banking system in India from 1786 to 1969. During this period, the establishment of Indian banks was done with more banks. Development at this level was very slow and the banking industry also experienced failures between 1913 and 1948.

Government of India came with Banking Company Act in 1949. This helped to streamline the functions and activities of banks. During this phase, there was little confidence in public banks and post offices were considered more secure to deposit money.

phase 2

This phase of banking was between 1969 and 1991, several major decisions were made in this phase. In 1969, fourteen major banks were nationalized. The Credit Guarantee Corporation was created in 1971. This helped people to get loans to set up business.

In 1975, Regional Rural Banks were created for the development of rural areas. These banks provided loans at low rates. People started to have enough confidence and confidence in the banking system, and deposits and advances were getting reduced.

Phase 3

This phase came into existence since 1991. The year 1991 marked the beginning of liberalization, and various strategies were implemented to ensure quality service and improve customer satisfaction.

In the ongoing phase, the ATM was launched with cash withdrawal facility. This phase was brought to Internet Banking for easy financial transactions from any part of the world. Banks are trying to provide better services and make financial transactions faster and more efficient.

Introduction to Banking. What is a Bank?


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