B&i - Unit I
B&i - Unit I
B&i - Unit I
1.1. Meaning of Banking Banking refers to the industry or system that manages money and
financial transactions. Banks are institutions authorized to accept deposits, provide loans, and
offer various financial services. The primary function of banking is to act as an intermediary
between savers and borrowers, facilitating the flow of funds within the economy.
Ancient Banking: Early forms of banking can be traced back to ancient Mesopotamia
around 2000 BC. Temples and palaces acted as depositories of grains and valuables,
providing loans in the form of grain.
Classical Banking: In ancient Greece and Rome, banking practices evolved with the
establishment of institutions that accepted deposits and provided loans. The Roman
Empire introduced the concept of “argentarii,” who handled banking activities.
Medieval Period: Banking expanded in medieval Europe with the rise of merchant
banks in Italy. Notable examples include the Medici Bank and the Bank of Venice,
which introduced innovations in banking operations and financial instruments.
17th Century: The Bank of England was established in 1694, marking a significant
development in modern banking by introducing central banking concepts and
government-backed currency.
19th Century: The industrial revolution spurred the growth of commercial banks,
which played a key role in financing industrial development and infrastructure
projects. Banking practices became more structured with regulatory frameworks.
20th Century: Technological advancements, including the advent of computers and
the internet, transformed banking operations. The establishment of central banks and
global financial institutions shaped modern banking practices.
21st Century: The digital revolution led to the rise of online and mobile banking. The
introduction of fintech and digital currencies has further revolutionized the banking
landscape.
3. Customer of a Bank
Individual Customers: Individuals use banks for personal financial needs such as
saving money, obtaining loans, and managing day-to-day transactions. They can open
savings accounts, fixed deposits, and personal loans.
Business Customers: Businesses use banking services for operational needs,
including managing cash flows, securing loans for expansion, and handling payments
and receipts. They use current accounts, business loans, and trade financing.
Government Entities: Governments use banks for managing public funds, disbursing
subsidies, and handling public transactions. Banks provide services for managing
government accounts and public debt.
Institutional Customers: Other financial institutions, such as insurance companies
and investment funds, engage with banks for various financial services, including
asset management and interbank transactions.
Deposits: Customers need a safe place to store money, earn interest, and manage their
finances. Types of deposits include savings accounts, fixed deposits, and recurring
deposits.
Loans and Credit: Access to credit for personal needs, business expansion, or
purchasing assets. Common types include personal loans, home loans, auto loans, and
business loans.
Investment Services: Customers seek advice and products for investing their money,
such as mutual funds, bonds, and equities. Banks often provide investment advisory
services and portfolio management.
Transaction Services: Facilities for making payments, transfers, and conducting
other financial transactions. This includes services like electronic funds transfers, bill
payments, and check clearing.
Reserve Bank of India (RBI): The central regulatory authority for the banking sector
in India. It formulates and implements monetary policy, supervises financial
institutions, and maintains financial stability.
Banking Regulation and Development Act, 1949: Governs the operations and
regulations of banks, including their formation, management, and supervision.
Agriculture: Banks provide agricultural loans and financial support for rural
development, helping farmers improve productivity and access modern farming
techniques.
Industry: Financing from banks supports industrial growth, including funding for
manufacturing, technology, and small and medium enterprises (SMEs). Banks also
facilitate trade finance and working capital.
Services: Banks support the service sector, including sectors like IT, education, and
healthcare, by providing financing, investment, and transactional services.
Formation: The Reserve Bank of India (RBI) was established on April 1, 1935, under
the Reserve Bank of India Act, 1934. It was set up to regulate the monetary and
financial system of India and to ensure financial stability.
Objectives: The primary objectives of RBI are to maintain price stability, ensure
financial stability, and support economic growth by formulating and implementing
monetary policy.
Digital Banking: The shift towards digital banking has transformed how customers
interact with banks. Online and mobile banking platforms offer a range of services,
including account management, fund transfers, and bill payments, all accessible from
digital devices.
Fintech Integration: Collaboration between banks and fintech companies has led to
innovations in payment systems, lending platforms, and investment management.
Fintech solutions provide faster and more efficient financial services.
Blockchain Technology: Blockchain technology is being explored for its potential to
enhance security, transparency, and efficiency in banking transactions. It is used in
applications such as cryptocurrency, smart contracts, and secure transaction records.
Expansion of Banking Services: Efforts are being made to extend banking services
to rural and underserved areas through technology and financial literacy programs.
Initiatives such as mobile banking units and agent banking are aimed at reaching
remote populations.
Government Schemes: Government-led schemes, such as Pradhan Mantri Jan Dhan
Yojana (PMJDY) and financial literacy programs, aim to increase access to banking
services and promote financial inclusion for all segments of society.