Banking : Definition, Products, Banking Structure, Principles, Instruments , Reserve bank RBI and so on......

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BANKING INDUSTRY





    | Definition of Banking and Banking business in India |

  • Banking is an industry that handles cash, credit, and other financial transactions. Banks provide a safe place to store extra cash and credit. They offer savings accounts, certificates of deposit. Banks use these deposits to make loans. These loans include home mortgages, business loans, personal loans, and car loans.
  • The Banking Regulation Act, 1949 defines a banking company as a “company which transacts the business of banking in India”.
  • The term ‘banking’ has been defined as u/5(b) as “accepting for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise”. 
  • Further Section 6 of the Act gives the various forms of business in which a banking company may engage, such as agency services and general utility services.

| Basic Principles of Banking |

  1. Principles of Trust : Existing and potential customers trust in a bank is its hallmark as it connotes dependability in the opinion of its customers.
  2. Principles of Agency : Bank performs functions like buying and selling of securities or collects cheques on behalf of its clients, it is said to be acting as an agent of its customer/ client.
  3. Principles of Intermediation : banks mediate between the depositors (savers of money) and borrowers (users of money) and earn interest spread as a reward for risk-taking.
  4. Principle of Liquidity: Receiving of deposits (repayable on-demand or on certain maturity periods) and lending these funds to borrowers is done by bank simultaneously in a manner such that the bank would be able to arrange for the funds demanded by its depositors at any point in time. Also called Asset Liability Management.
  5. Principle of Profitability: Interest Income: Banks invest their surplus funds in securities and earn interest. Banks use this spread to meet the administrative expenses and making provision for some portions of loans that may turn bad.
  6. Principle of Solvency: Long-term financial soundness of a bank, achieved by compliance/ adherence to vigilant policies in banking. Maintaining profits for business growth.

          | Reserve Bank of India | Definition |

                                    
                                

    
  • The preamble of the Reserve Bank of India Act, 1934 defines the main functions of the Bank as “to regulate the issue of banknotes and the keeping of reserve with a view to securing monetary stability in India and generally to operate the currency, and credit system of the country to its advantage.”

       | Main Functions of Reserve Bank of India |

  • The main function of the Central Bank is to regulate the monetary mechanism comprising of the currency, banking and credit systems.
  • Monetary Management
  • Banker to the Central and State Governments
  • Banker to banks
  • Credit Control
  • Management of foreign exchange reserves and management
  • Oversight of the payment and settlement systems
  • Developmental role
  • Research and statistics
  • Regulation  and  supervision  of  the  banking  and non-banking financial institutions, including credit information companies, Money, forex and government securities markets, etc. 
    

       | Types of Banking Instruments |


              There are mainly two types of instruments which are used in the Banking sector
  1. Direct Instruments ( SLR, CRR )
      
              2.  Indirect Instruments ( Repo rate, Reverse repo rate )





       | Banking Structure in India |

  1. RBI ( Central Bank & Monetary Authority)
  2. 4 apex banks largely owned by RBI and depends on RBI for loans and advances which it may grant out of its National Industrial Credit ( Long Term Operations) Fund and National Housing Credit (Long term Operations )Fund .
  3. SIDBI(SSI) , NABARD (agriculture), EXIM(export -import),NHB (housing).
  4. Commercial banks ( Scheduled and non scheduled)
  5. Scheduled(PSB, Private, RRB) Non-Scheduled (LABs)
  6. Private ( Indian old, Indian new, Foreign)
  7. Cooperative Credit institutions (Urban, Rural)
  8. Development Banks (All India, State level)
  9. All India (SIDBI, IFCI, IIBI) State (SFC, SIDC, SIIC)
  10. Specialised Development Banks (IRFC,PFC,TFCI, IDFC,REC).








      



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