Indian Banking Services
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Indian Banking Services ††††† Jitendra K. Gajera (M.A., M.Phil) & Dinesh R. Chavda (M.Com, M.Phil, G-slet) II ARTICLE BY Jitendra K. Gajera & Dinesh R. Chavda © Kinjal J. Gajera First edition: 2013 Prize: 125 Copy: 500 Type & Setting: Dinesh R. Chavda At. - Kerala, Ta-Dist Junagadh Pin: 362310 ISBN: 978-81-925441-5-1 Publisor: Jitendra K. Gajera, At. - Makhiyala, Ta - Dist Junagadh Pin: 362014 Printed by: Vaibhav Printing Press – Makhiyala III Dedication “Supreme sacred respected father and my mother stages” IV PREFACE Banks are regarded as the blood of the nation’s economy without them one cannot imagine economy moving. Therefore banks should be operated very efficiently, public sector banks although a big part of whole banking system in India, but they are very important not only from economical point of view but also social point of view as it is more concerned about common people’s welfare and development. Banking is one of the most important of economy. Indian banking system over past few decades has played a very effective role in mobilization of savings of the economy spreading in banking habit to the furthest corner of the country and enlarged entrepreneurial base. Indian banks have multiplied their activities in volume variety and geographical coverage to meet the growing needs of society, the old methods and techniques of viability growth based formation of finance schemes of marketing. Instead of working for profits, they are required to participate in the nation building activities and help in bringing socio-economic change. I am sure that this work will prove useful all those interested in the subject, particularly researchers, manager, Professionals, Practitioners and policy makers. I wish all success and congratulation to the author. V INDIAN BANKING SERVICES INDEX SR. CHAPTER NAME PAGE NO NO 1 History of banking 1 2 Function of bank of India 21 3 Retail banking services – I 37 4 Retail banking services –II 74 5 Channels of banking sector in 107 India – I 6 Channels of banking sector in 128 India – II Bibliography VI CHAPTER 1 HISTORY OF BANKING 1.1 INTRODUCTION 1.2 NEED OF THE BANKS 1.3 ORIGIN OF THE WORD “BANK” 1.4 MEANING OF BANK 1.5 DEFINITIONS OF BANK 1.6 HISTORY OF BANKING IN INDIA 1.7 BANKING AFTER INDEPENDENCE IN INDIA 1.8 REFORMS IN BANKING SECTOR IN INDIA VII 1.1 INTRODUCTION A bank is a financial institution that provides banking and other financial services to their customers. A bank is generally understood as an institution which provides fundamental banking services such as accepting deposits and providing loans. There are also nonbanking institutions that provide certain banking services without meeting the legal definition of a bank. Banks are a subset of the financial services industry. A banking system also referred as a system provided by the bank which offers cash management services for customers, reporting the transactions of their accounts and portfolios, through-out the day. The banking system in India should not only be hassle free but it should be able to meet the new challenges posed by the technology and any other external and internal factors. For the past three decades, India’s banking system has several outstanding achievements to its credit. The Banks are the main participants of the financial system in India. The Banking sector offers several facilities and opportunities to their customers. All the banks safeguards the money and valuables and provide loans, credit, and payment services, such as checking accounts, money orders, and cashier’s cheques. The banks also offer investment and insurance products. As a variety of models for cooperation and integration among finance industries have emerged, some of the traditional distinctions between banks, insurance companies, and securities firms have diminished. In spite of these changes, banks continue to maintain and perform their primary role—accepting deposits and lending funds from these deposits. "With the monetary system we have now, the careful saving of a lifetime Can be wiped out in an eye blink” Larry Parks, Executive Director, FAME VIII Could you imagine a world without banks? At first, this might sound like a great thought! But banks (and financial institutions) have become cornerstones of our economy for several reasons. They transfer risk, provide liquidity, facilitate both major and minor transactions and provide financial information for both individuals and businesses. “Thank God, In Joy and Sorrow, to deposit and borrow, Banks are there Otherwise, the question would be funny, to keep and get money How and Where” These words indicate the importance of bank. Banking system plays an important role in growth of economy. The banking sector is the lifeline of any modern economy. It is one of the important pillars of financial system, which plays a vital role in the success or failure of an economy. It is a well known fact that banks are one of the oldest financial intermediaries in the financial system. They play a crucial role in the mobilization of deposits from the disbursement of credit to various sectors of the economy. The banking system reflects the economic health of the country. The strength of the economy of any country basically hinges on the strength and efficiency of its financial system, which in turn depends on a sound and solvent banking system. A Banking Sector performs three primary functions in economy, the operation of the payment system, the mobilization of savings and the allocation of saving to investment products. Banking industry has been changed after reforms process. The Government has taken this sector in a basic priority and this service sector has been changed according to the need of present days. Banking sector reforms in India Strive to increase efficiency and profitability of the banking institutions as well as brought the existing banking institutions face to face with global competition in globalization process. Different type of banks differs from each other in terms of operations, efficiency, productivity, profitability IX and credit efficiency. Indian banking sector is an important constituent of the Indian Financial System. The banking sector plays a vital role through promoting business in urban as well as rural area in recent year, without a sound and effective banking system, India cannot be considered as a healthy economy. 1.2 NEED OF THE BANKS Before the establishment of banks, the financial activities were handled by money lenders and individuals. At that time the interest rates were very high. Again there were no security of public savings and no uniformity regarding loans. So as to overcome such problems the organized banking sector was established, which was fully regulated by the government. The organized banking sector works within the financial system to provide loans, accept deposits and provide other services to their customers. The following functions of the bank explain the need of the bank and its importance: 1. To provide the security to the savings of customers. 2. To control the supply of money and credit 3. To encourage public confidence in the working of the financial system, increase savings speedily and efficiently. 4. To avoid focus of financial powers in the hands of a few individuals and institutions. 5. To set equal norms and conditions (i.e. rate of interest, period of lending etc) to all types of customers. 1.3 ORIGIN OF THE WORD “BANK” There seems no uniformity amongst the economist about the origin of the word “Bank “According to some authors the word “Bank”, itself is derived from the word “Bancus” or “Banque” that is a bench. The early bankers, the Jews in Lombardy, transacted their business on benches in the market X place, when, a Banker failed, his ‘Banco’ was broken up by the people; it was called ‘Bankrupt’. This etymology is however, ridiculed by McLeod on the ground that “The Italian Money changers as such were never called Bunchier in the middle ages.” It is generally said that the word "BANK" has been originated in Italy. In the middle of 12th century there was a great financial crisis in Italy due to war. To meet the war expenses, the government of that period a forced subscribed loan on citizens of the country at the interest of 5% per annum. Such loans were known as 'Compare', 'minto' etc. The most common name was "Monte'. In Germany the word 'Monte was named as 'Bank' or 'Banke'. According to some writers, the word 'Bank' has been derived from the word bank. It is also said that the word 'bank' has been derived from the word 'Banco' which means a bench. The Jews money lenders in Italy used to transact their business sitting on benches at different market places. When any of them used to fail to meet his obligations, his 'Banco' or banch or bench would be broken by the angry creditors. The word 'Bankrupt' seems to be originated from broken Banco. Since, the banking system has been originated from money leading business; it is rightly argued that the word 'Bank' has been originated from the word "Banco'. Whatever be the origin of the word ‘Bank’ as Professor Ram Chandra Rao says, “It would trace the history of banking in Europe from the middle Ages. Today the word bank is used as a comprehensive term for a number of institutions carrying on certain kinds of financial business. In practice, the word ‘Bank' means which borrows money from one class of people and again lends money to another class of people for interest or profit. Actually meaning of bank is not specifies in any regulation or act. In India, different people have different type of meaning XI for bank. Normal salary earner knows means of bank that it is a saving institution, for current account holder or businessman knows bank as a financial institutions and many other.