Banking – Meaning and Explanation of Banking
Quite a long time ago, many of us were curious to know about the banking sector. Why do we need a bank, what is banking? the purpose behind the origin and what is bank?
History in making with striking simplicity, the birth, and evolution of banking has many untold stories. It is narrative fascinating that banking introduced in the 14th century in the cities of Italy and the bank of England was the first to begin the permanent issue of banknotes in 1695. Banking is a financial institution and more about elaborative statics and technical jargon where individuals, ideas and ideologies move hand in hand and are highly regimented.
In today’s progressive world, the banking sector has become the backbone of every economy worldwide just like blood is to the veins and unique because of its formation, staffing and extraordinary services rendered by the industry. Banking sector works in the best interest of the country and due to their contribution in the financial stability, banking is highly regulated in most of the countries.
When the banking industry was born the primary job of banks was to mobilize money from individuals and lend most of the money to the companies. Of course, the major chunk was allocated to so-called priority sector of farming in most parts of the world and small-scale industries. But later the trend of lazy banking changed and scope of dynamism increased.
The biggest strength of an entity is the steadiness and banking sector has consistently performed better than others around the world over a few decades. Every company’s growth rate is determined by the industry it is in, and banking is a kind of industry where almost every company growth rate is compounded annually in deposits, advances, net interest income, and net profit margins. In the banking sector, the growth rate of every company is much higher as compared to other industries and in the remarkable history of banking, many companies have outperformed.
Functions of Banking
The primary functions of Banking are:
- Accepting Deposit: Banks accepts deposits from the people. Deposits are the amount of money submitted by the public in the banks as saving and or for future use. People do many kinds deposits such as fixed deposit, recurring deposit, current deposit and saving deposit.
- Granting loans and advances: Banks grants money to the individuals in the form of loans. Loans are lend to the people at a certain interest rate for a particular period of time. Banks also provide advances to their customers.
- Banks also provides the services such as overdraft, bill of exchange, bill discounting and loans too.
Banking is assumed to be the growth liner for every country with some conventional ideas about socio-economic growth especially for a developing country like India. In India, banking is regulated by a draconian regulatory regime known as Reserve bank of India (RBI) which also deals in issuing new banking licenses.
Long ago, when no public sector bank was listed so there was no pressure from investors to perform and the concept of customer care did not exist. The branch manager was just responding to collect the homage from corporate professionals and company promoters. Later RBI introduced new guidelines which allowed private sector banks as a part of financial sector reforms to provide efficient, competitive, and low-cost financial assistance by the use of modern technology.
After that, another era of banking started in India with the entry of private sector banks that followed the basic tenets of transparency, integrity, customer-centric services in line with the banking policies regulated by RBI. With the passage of time, private sector banking gained supremacy over the public sector as they are more capable of delivering the best globally and works for the benefit of their customers and investors. It also increase the functions of banking. The booming banking industry in India is a product of both innovation and technology which is much talked about nowadays.
In India, now banking is considered as a critical building block for cash management in all businesses who want to grab the opportunities that would arise at any point of time like mutual funds, insurance, property funds, and private equities, etc.
- Directing interest rates: Banking deals mainly in directing interest rates and framing credit flow policies thus serving humanity through their expanded network branches in a highly regulated manner.
- Compliance: In the banking sector, it is extremely noteworthy for bankers to exercise and vigil an account holder’s prudence in all transactions, including major compliance with ‘know your customer’ requirements.
- Special Privilege to Bankers: Banking job offers you respect in the society and position so, in especially India, bank employees enjoy special privilege as they are in great demand for marriage due to their job status and dignity though civil services remain the top choice for many parents.
To gain momentum and maintain the sanctity of the banking industry all companies in the industry need to contribute towards the enrichment of the banking sector to make it more resilient. We should refrain ourselves from doing unethical practices so that the influence of industry as a whole is enormous. So defining core values that govern the functions of an institution is, therefore, important and will keep the people’s trust in banking intact.
Banking in India: In India, Banking was start in the 18th century. First bank which was established in India was the ‘Bank of Hindustan’. It was established in 1770 and dissolve between 1829-1832. Now, Reserve Bank of India is the apex body, which controls the supply and issuance of Indian currency. It regulates the monetary policy.
Types of Banking: In India, banking has various types which formulated by using different concepts.
- Branch Banking
- Branch Banking
- Unit Banking
- Mixed Banking
- Chain Banking
- Retail Banking
- Wholesale Banking
- Universal Banking
- Social Banking
All these have different features according to their name.