Banking:WHAT IS BANK

Bank is an institution that deals in money and its substitutes and provides other financial services. It accepts deposits and make loans and derive a profit from the difference in the interest rates paid and charged, respectively Banks create money in the economy by making loans. The amount of money that banks can lend is directly affected by the reserve requirement set by the Federal/Reserve banks play an important role in the field of trade, commerce and industry.

They promote and mobilize savings by providing safety, confidentiality and attractive rate of interest. It can also be defined as an institution that utilizes the idle money with the people in a productive way by providing loan and hence lead to more and more circulation of money in the economy and balancing it through deposits. Banks provide an array of services and benefits such as checking accounts and savings accounts, credit cards, ATM machines, home loans, business loans, and equity lines of credit. Banks are in business to offer general services to individuals, corporations, and to other businesses, whether the business is large or small.
Types of Banks There are various types of banks in the world, and each has a certain role to play - as well as a specific domain - in which they operate. Broadly speaking, banks may be classified into several groups on the basis of their activities such as investment banks, private, retail, business, as well as corporate banks. Quite a few larger banks have multiple divisions that cover some or all of the mentioned categories.

Retail banks: are concerned directly with consumers and small business owners. Their focus lies on mass market products like current and savings accounts, mortgages and other loans, as well as credit cards. Private banks also provide wealth management services to high net worth individuals and families. Business banks: service the businesses and other organizations that are medium scale Corporate banks: serve clients who are usually major business entities. Investment banks: offer their services related to financial markets, for instance, mergers and acquisitions.

Another way in which banks may be classified is on the basis of their ownership. They may be either privately held or publicly owned banks.

Privately owned banks: are concerned with profits generated from their business operations. These banks are held by the state governments of individual countries and they serve as a nation's centralized bank, and an economic backbone for that particular country. These banks are also called central banks. Publicly owned banks: are controlled by the government, have several responsibilities that are related to the banking sector of the country, like administering various activities for the commercial banks of that country. They also are responsible for determining the rates of

interest offered by banks that are doing business in that country. These banks also play a major role in maintaining liquidity in banking sector. Apart frm this globally a number of banks are providing services to the borrowers such as

Commercial Bank Commercial banks are established with an objective to help businessmen. These banks collect money from general public and give short-term loans to businessmen by way of cash credits, overdrafts, etc. Commercial banks provide various services like collecting cheques, bill of exchange, remittance money from one place to another place. Savings Banks Saving banks are established to create saving habit among the people. These banks are helpful for salaried people and low income groups. The deposits collected from customers are invested in bonds, securities, etc. At present most of the commercial banks carry the functions of savings banks. Postal department also performs the functions of saving bank. Indigenous Banks Indigenous banks means Money Lenders and Sahukars. They collect deposits from general public and grant loans to the needy persons out of their own funds as well as from deposits. These indigenous banks are popular in villages and small towns. They perform combined functions of trading and banking activities. Certain well-known indian communities like Marwaries and Multani even today run specialised indigenous banks. Central / Federal / National Bank Every country of the world has a central bank.These central banks are the bankers of the other banks. They provide specialised functions i.e. issue of paper currency, working as bankers of government, supervising and controlling foreign exchange. A central bank is a non-profit making institution. It does not deal with the public but it deals with other banks. The principal responsibility of Central Bank is thorough control on currency of a country. Co-operative Banks In India, Co-operative banks are registered under the Co-operative Societies Act, 1912. They generally give credit facilities to small farmers, salaried employees, small-scale industries, etc. Cooperative Banks are available in rural as well as in urban areas. The functions of these banks are just similar to commercial banks.

Exchange Banks Hong Kong Bank, Bank of Tokyo, Bank of America are the examples of Foreign Banks working in India. These banks are mainly concerned with financing foreign trade. Following are the various functions of Exchange Banks :1. Remitting money from one country to another country, 2. Discounting of foreign bills, 3. Buying and Selling Gold and Silver, and 4. Helping Import and Export Trade. Consumers Banks Consumers bank is a new addition to the existing type of banks. Such banks are usually found only in advanced countries like U.S.A. and Germany. The main objective of this bank is to give loans to consumers for purchase of the durables like Motor car, television set, washing machine, furniture, etc. The consumers have to repay the loans in easy installments.

Functioning of a bank :Banks are just like other businesses. Their product just happens to be money. banks sell money -- in the form of loans, certificates of deposit (CDs) and other financial products. They make money on the interest they charge on loans because that interest is higher than the interest they pay on depositors' accounts. Another source of income for banks is investments and securities.

When you deposit your money in the bank, your money goes into a big pool of money along with everyone else's, and your account is credited with the amount of your deposit. When you write cheques or make withdrawals, that amount is deducted from your account balance. Interest you earn on your balance is also added to your account. The interest rate a bank charges its borrowers depends on both the number of people who want to borrow and the amount of money the bank has available to lend. Loaning money is also inherently risky. A bank never really knows if it'll get that money back. Therefore, the riskier the loan the higher the interest rate the bank charges. CREDIT CREATION BY BANKS Credit creation is the multiple expansions of banks demand deposits. Banks advance a major portion of their deposits to the borrowers and keep smaller parts of deposits (as per the CRR) to the customers on demand. Even then the customers of the banks have full confidence that the depositors lying in the banks are quite safe and can be withdrawn on demand. The banks exploit this trust of their clients and expand loans by much more time than the amount of demand deposits possessed by them. This tendency on the part of the commercial banks to expand their demand deposits as a multiple of their excess cash reserve is called creation of credit.

The banks add to the aggregate means of payments available to the market. The contribution of banks to money supply is in the form of bank deposits. These deposits may be divided into two categories, namely 1. Cash deposits Cash deposits refer to that form of deposits which are created when clients bring cash to a bank and deposit the same with it. In this process, the public finds that there is no net addition to the means of payments possessed by it. There is only a change in their form; that is, some cash is replaced by bank deposits. Cash deposits may also be referred to as primary deposits. 2. Credit deposits A bank is a financial firm and has the objective of earning a profit income. Its main source of operating surplus is the difference between interest paid on its liabilities and interest earned from its assets. Cash balances appear on the asset side of its balance sheet, But it cannot earn any interest income from them. It must acquire other income earning assets for this purpose. It finds that the maximum income which it can earn is from the loans and advances given by it to its clients or borrowers. Services provided by banks :1. Agency Services

2. Utility services

AGENCY SERVICES Purchase/Sale of Security - As we know, on an ordinary level, no one is so much familiar with whats going on in the economy and the banks have complete information regarding shares and basic economic scenario. So they provide consultancy to their customers regarding shares and stock market. Other than this for the benefit of consumers they help in matters regarding purchase, sell and security of shares. Remit money at distant places It is difficult for the for the MNCs to pay salary to its employees at distant places around the globe. Here comes the banks and provide facility to MNCs to remit money from their account to the employees account at an easy pace. It can be withdrawn through money drafts, cheques or through ATM banking etc. Purchase and Sale of dollars Bank plays a crucial role for tourists as earlier they need to carry different currencies of different countries while travelling, whereas now banks provide a unique facility in which while transferring money from one account to another it changes the money to respective currency of the country. Act as trustee for the property of the consumers For the trusted members of the bank, it acts as the trustee of their properties and when they wants to sell or purchase it, it guides them. It provides consultancy regarding that matter.

Tax - Banks also provide consultancy regarding tax saving.

UTILITY SERVICES Locker facility it is a facility in which banks provide lockers to the customers at fixed annual charges based on the size of locker in which they can keep their important belongings safely. As in the present scenario jewelry, high amount of money and important documents arent safe in our homes, it is a very helpful facility. Electronic facilities Banks provides the consumers with various facilities like ATM, Credit cards, Debit cards, Demand drafts etc. Loans Banks provide loans at some rate of interest to help the consumers. These are to be repaid in the form of EMIs (Equally Monthly Installments). For example, Home loans, Mortgage loans, Educational loans etc. Insurance Bank provides loans to safe guard consumers belongings. There are mainly two kinds of insurance General Insurance and Life Insurance. General Insurance are only for one year and have to be renewed each year, whereas, Life Insurance is for lifetime. Statistical Information Banks provide regarding investments, taxation and other economic statistics.