BANKSINTRODUCTIONA bank is an institution which receives fund from the public and gives loans and advances to those who needs them.

According to Crowther: “A banker is a dealer in debts his own and other people.”

Banking occupies an important place in the modern economy. It is the longing of the chariot of economic progress. Bankers are dealers in credit. They borrow funds from public in the form of deposits offering a certain rate of interest and advance them to businessmen of higher rate of interest. The difference in the rate of interest is their profit. As it is given in the Banking Companies Act of India, Banking means “accepting for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise withdraw able by cheque, drafts, order or other ways.

Banking plays a crucial role in the economic development of a country. The government of India nationalized 14 major commercial banks in July 1969. Another 6 commercial banks were nationalized in April 1980 in order to bring commercial banks into the main stream of economic development with definite social obligations and objectives. In September 1993 the New Bank of India which was running at lose was merged with the Punjab National Bank. Thus 19 nationalized Banks along with State Bank of India which was nationalized in 1956 now constitute the public sector banks.

The names of Public Sector Banks are:-

Allahabad Bank, Andhra Bank, Bank of Baroda, Bank of India, Bank of Maharashtra, Canara Bank, Central bank of India, Corporation Bank, Dena Bank, Indian Bank, Indian Overseas Bank, Oriented Bank of Commerce, Punjab National Bank, Punjab and Sind Bank.

State bank of India and its subsidiary banks:-

Syndicate Bank, UCO Bank, Union Bank of India, Vijaya Bank.

State Bank of India is the largest commercial bank of the country and its among the 100 topmost banks of the world, outside the United States of America. The state bank has seven subsidiary banks attached to it. They are:-

1. State Bank of Bilcaner & Jaipur. 2. State Bank of Hyderabad.3. State Bank of Indore.4. State Bank of Mysore.

5. State Bank of Patiala.6. State Bank of Saurashtra.7. State Bank of Travancore.

COMMERCIAL BANKS Among the various types of financial institutions, commercial banks are really the most important. They are also known as Joint-Stock Banks. They are institutions that dominate the entire banking system of every country. Commercial banks deal primarily in short term credits. By accepting deposits and advancing loans to businessmen they play a very useful role in promoting industry and trade. These functions of commercial banks make them financial institutions. Accepting deposits along make financial institution Banks. Similarly lending money alone will not make financial institution banks. That is why LIC, UTI,…are not Banks.

FUNCTIONS OF COMMERCIAL BANKS

Commercial banks perform multifarious functions. It’s because of this, that they are considered ”the nerve centre of modern world”. They perform the following important functions:-

1. ACCEPTING DEPOSITS

The most important function of commercial banks is that of accepting deposits. The bank accepts three types of deposits from the public. They are:-

a. Fixed deposits or Time deposits.b. Current account deposits or demand deposits.c. Saving deposits.

2. ADVANCING LOANS

Another important function performed by commercial bank is the granting of loans to its customers. After keeping a portion of deposits received by the banks, they lend the rest to those who are in need of it. These loans are given to persons against collateral securities like buildings, property, etc. the various types of loans and advances given by banks are as follows;

CASH CREDIT: It is given by banks to manufactures and businessmen against the security of raw materials and finished products.

DEMAND LOANS: The loan that can be recalled on demands is called Demand loan.

SHORT TERM LOANS: These loans are secured loans. Secured loans are loans given against some securities.

OVER DRAFTS: an overdraft is an advance given by a bank allowing its customers to overdraw his current account up to an agreed limit.

DISCOUNTING BILLS of EXCHANGE: A bill of exchange is a discount acknowledging an amount of money owed in consideration of goods received.

PROMOTES THE USE OF CHEQUE: A cheque is a written order by a depositor directing his bank to pay money to some person.

3. INVESTMENT OF FUNDS

Banks invest their funds in Securities. There are three types of securities in which they invest. They are government securities, other approved securities and other securities.

4. AGENCY FUNCTIONS

In addition to the above commercial banks perform certain agency functions for the customers.

a) Transferring the funds of customers from one place to another.b) Collecting the customer’s funds from other banks and crediting them to their account.c) Collecting dividends on the shares of the customers.d) Paying premium to the insurance companies on behalf of its customers.e) Acting as the trustee and executor of the property of the customers.f) Acting as correspondent, agent or representative of customers.

CENTRAL BANKS “The central bank is an institution charged with the responsibility of managing the expansion and contraction of the volume of money in the interest of the general public welfare.” – R.P Kent.

The central bank is the pivot on which the whole money market of a country rotates. It’s the apex institution of a country’s monetary system. Every country at present has got a central bank of its own. In Indian the Reserve Bank of India is the central bank of the country.

FUNCTIONS OF CENTRAL BANK

The important functions performed by a central bank are the following:

1. BANK OF NOTE ISSUE OR CURRENCY AUTHORITY: The privilege note issue is the monopoly of the central bank. It’s for controlling the credit and price level in the country that the central bank is vested the authority of note issue.

2. BANKER TO THE GOVERNMENT: The central bank acts as a banker to the government. The government keeps its funds with the central bank. Whenever needed the government borrow from the central bank

3. BANKER’S BANK: The central bank act as a banker’s bank. It is the bank for all banks in the country. No bank can function without a license from the central bank. Every commercial bank maintains an account with the central bank.

4. CUSTODIAN OF NATION’S FOREIGN CURRENCY RESERVES: The foreign currency reserves of the nation are kept by the central bank. It’s the responsibility of the central bank to maintain the stability of foreign exchange rate.

5. LENDER OF LAST RESORT: The central bank also act as the “lender of last resorts” to commercial banks. When the commercial banks are in need of financial assistances they approach the central bank for help as a last resort.

6. CONTROLLER OF CREDIT: Controlling currency and credit is one of the most important functions of central bank. The volume credit in a country depends on the lending policy of the commercial bank. It’s the duty of the central bank to control the credit at reasonable level.

CONCLUSION “Banks are not merely traders in money but also important manufactures of money” – Sayers Every banks deal with money. It borrows as well as lends money. But the bank is not merely a trader in money.

REFERENCE

1. Indian Financial System, Pearson Edu. – Bharathi.v.Pathak (2004).2. Unit Trust of India and Mutual Funds : A study, UTI Institute of Capital Markets, Mumbai. –

Bhatt R.S. (1996)3. R.B.I (1985), Report of the Committee to review the working of the Monetary System.

Lectures on Economic, by Prashanthi Narendra Babu, publications.

CORRECTED BY,

Anupama M R

Lr. In Social Science