Notes

Class-12 Sub-Economics

Chapter-2

Money and Banking

Central Bank-

 Central bank is an ‘Apex’ body that controls,operates,regulates and direct the entire banking and monetary (related to money) structure of the country.  It is known as the apex (supreme) body because it occupies the top most position in the monetary and banking system of the country.  All the financially developed countries have their own central bank.  India’s central bank is the Reserve Bank of India (RBI).It was established in April 1,1935 under Reserve Bank of India act,1934.  Cental Bank is known by different name in different countries.In India it is RBI,in UK as Bank of England and in USA it is known as Federal Reserve System.

Commercial Bank-

 Commercial bank is an institution which performs the function of accepting deposits,granting loans and making investments with the aim of earning profit.  State Bank of India,Punjab National Bank,Allahabad Bank,Canara Bank are some of the commercial bank of India.  A financial institution can become a bank only when it performs two function i.e Accepting deposit from public Lending loan to the public  If a finance institution performs only one function i.e accepting only deposits it will not be called a bank.  For example post office savings accepts deposit from the public but they do not lend money to the public,hence it is not a bank.  Similarly,if a financial institution only lends the money to public, it can not be called a bank.  For example-Insurance corporation(LIC) UTI(unit trust of India),IDBI(industrial development bank of India).

Difference between cental bank and commercial bank

Central bank Commercial bank  It is the apex institution in the  It is only one of the unit in the money market. banking structure of the country and operates under the control of central bank.  It is generally governed and  It can be owned and governed by owned by the government. the government or private sector.  It operates in public interest  It aims to maximize profit. without profit.  It has authority to issue currency.  It has no power to issue currency.  It does not directly deal with the  It deals directly with the public. public.  There is only one central bank in  There are number of commercial a country,for example RBI in banks in a country,for example India. state bank of India in India.  Fedral Reserve System in USA.  Bank of America corps,citigroup Inc,Morgan Stanley.