Banking and Accounts

7/29/2019 Banking and Accounts

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Definition

Banking regulation act 1949 defines banking

as accepting, for the purpose of lending or

investment, of deposits of money from the

public repayable on demand or otherwise and

withdraw able by cheque, draft, order or

otherwise.


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Origin of Banking

The banking activities were started in different

periods in different countries.

Bank is derived from the French word banco or

bancus or banc or banque. It means a bench.


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Banker

A person who is doing the banking business is

called a banker.

A banker performs multifarious functions.

A banker must be a man of wisdom.

A banker is not only acting as e depository,

agent, but also as a repository of financialadvices.


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Relationship with customer

A banker as a bailee.

A banker as a trustee.

Debtor creditor relationship. A banker as a creditor.


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TYPES OF BANKS

Public sector bank.

Private sector bank.

Co operative bank.


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Public sector bank

Public sector banks are banks where a majoritystake (i.e. more than 50%) is held by agovernment.

The shares of these banks are listed on stockexchanges.

There are a total of 26 public sector banks in india

e.g.:- Allahabad bank.

Andhra bank.Bank of India


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Private sector bank

All those banks where greater parts of stake or

equity are held by the private shareholders

and not by the government are called private

sector banks.

E.g.:- HDFC bank.

ICICI bank.


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Co-operative bank

Co-operative bank is an autonomousassociation of persons united voluntarily tomeet their member's financial (loans,

deposits, other services), economic, social,and cultural needs and aspirations through ademocratically controlled way.


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CLASSIFICATION OF BANKS

Commercial banks

Investment banks

Exchange banks Cooperative banks

Land development banks

Saving banks Central bank


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Commercial Banks

The commercial banks mobilise deposit from

the public which are repayable on demand or

at short notice.

They lend to traders and manufacturers for

short periods.

They provide the working capital to the

business in the form of overdraft and cashcredit.


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Investment/Industrial Banks

Investment banks provide medium and long -term finance to industries to meet their fixedcapital requirements.

They help to promote new industries byunderwriting the issue of securities. Theindustrial banks secure funds through share

capital and debuntures. They also receive deposits from the public for

long periods.


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Exchange Banks

Exchange banks specialise in financing the foreigntrade.

They supply necessary foreign exchange required

for settlement of transactions in foreign trade. The exchange banks discount foreign bills of

exchange.

Nowadays commercial banks themselvesundertake foreign exchange business. So there isno separate bank called

foreign exchange bank.


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Co-operative Banks

Banks formed on the principle of co-operationare called co-operative banks.

They provide short-term credit to

agriculturists, artisans, small farmers andsmall scale industries.

Co-operative banks accept all kinds of

deposits and make loan to the members atlower rate of interest.

These banks play a very useful role infinancing agriculture and allied activities.


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Land Development Banks

Agriculture require short-term and long-term

loans.

Land development banks provide long- termloans to agriculturists for purchasing tools and

equipments and cattle and making permanent

improvement in land.


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Savings Bank

Savings banks are specialized institutions to

collect savings from the poor and middle

income people of the society.

These banks primarily intended to encourage

habits of thrift and savings among people with

small income.


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Central Bank

Every country has generally one central bank.

The central bank acts as the leader of the

money market; supervising, controlling and

regulating the activities of the commercial

banks and other financial institutions.

It enforces monetary discipline in the

countrys economy.


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An organization structure outlines the

processes, policies and procedures a company

will use on a day-to-day basis.

Each company designs its structure based

upon factors such as its industry, product and

location.

Organizational structure in Banks


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Identification:

A banks organizational structure will usually

depend on its size. Banks may use a functionalstrategy, where divisions separate based onthe types of functions in which the bankengages.

Function:Banks typically have a formal structure. Thisresults in more bureaucracy than other

companies, because banks face more scrutinyfrom government regulators. Allowing toomany people decision-making authority cancreate compromising situations.


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Significance:

Organizational structures also help companies

create well-defined job positions with specific

responsibilities. Because large financial

institutions will offer several services--such as

business loans, mortgages and general

banking--individual responsibilities will ensureemployees only focus on their job.


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Role of bank in economy

Economic functions

The economic functions of banks include:-

Issue of money, in the form of banknotes and

current accounts subject to check or payment atthe customer's order. These claims on banks canact as money because they are negotiable orrepayable on demand, and hence valued at par.

They are effectively transferable by mere delivery,in the case of banknotes, or by drawing a checkthat the payee may bank or cash.


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Contd

Netting and settlement of payments

banks actas both collection and paying agents forcustomers, participating in interbank clearing andsettlement systems to collect, present, be

presented with, and pay payment instruments.This enables banks to economize on reserves heldfor settlement of payments, since inward andoutward payments offset each other. It also

enables the offsetting of payment flows betweengeographical areas, reducing the cost ofsettlement between them.


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Contd

Credit intermediation banks borrow and lend

back-to-back on their own account as middle

men.

Credit quality improvement banks lend moneyto ordinary commercial and personal borrowers

(ordinary credit quality), but are high quality

borrowers. The improvement comes fromdiversification of the bank's assets and capital

which provides a buffer to absorb losses without

defaulting on its obligations.


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Contd

Asset liability mismatch/Maturity

transformation banks borrow more on demand

debt and short term debt, but provide more long

term loans. In other words, they borrow short

and lend long.

Money creation whenever a bank gives out a

loan in a fractional-reserve banking system, anew sum of virtual money is created.


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Merits of Banking


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Demerits of Banking


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BANK ACCOUNTS

BANKING REGULATION ACT 1949

Accounting year 31 march to 1 April.

Documents

Banking and Accounts