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Banking Company is one which transacts the business of banking which means the accepting for the purpose of lending or investment of deposits money from the public repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise”. . Dictionary meaning of the Word ‘Bank’ -The oxford dictionary defines a bank as “an establishment for custody of money received from or on behalf of its customers. It’s essential duty is to pay their drafts on it. It’s profits arises from the use of the money left employed by them.
There are various types of banks which operate in our country to meet the financial requirements of different categories of people engaged in agriculture, business, profession etc. Banks can be classified into various types on the bases of their functions, ownership, domicile, etc.
Classification on the Basis of functions:
• Central Bank
• Commercial Banks
• Industrial Banks
• Agricultural Banks
• Specialized Banks
• Exchange Banks
• Savings Bank
• World Bank
Classification on the Basis of Ownership:
• Public Sector Banks
• Private Sector Banks
• Co-operative Banks
Classification on the basis of Domicile
• Domestic banks
• Foreign banks
The structure of baking is also called organization of baking. It differs from country to another country, depending upon economic and political conditions. Over the years, the structure of banking also has undergone tremendous changes. The following are the several systems of banking.
• Unit Banking
• Branch Banking
• Group Banking
• Chain Banks
• Correspondent Banking System
i) Local interest: The unit bank serves the locality much better than the branch bank. It is because the management board of the unit bank can take up the decision on the spot itself. The local officers, who are permanent officers, can take necessary action without waiting for information from the head office.
ii) Convenience of management, supervision and control: The size of the bank is very small, its management, supervision and control are very easy. Along with this, wastage and delay, which are inherent weakness of branch banking, can be overcome in unit banking
iii) Check on the formation of monopolies: There is a bank for each locality. In this system, there is scope for competition only. Hence, there is no possibility of the growth of monopolies.
iv) Quick banking services: The services in unit banking are always quick, because the unit bank need not wait for directions from the central office. There is no delay in taking any decision regarding banking problems.
v) Initiative in business: The responsibility of development of banking lies with the bank itself. Therefore, the bank officer takes personal initiative on improving the business of the bank. Since the officers are well acquainted with the local problems, they can take the initiative in solving problems and taking decisions on various issues confronting the bank. This makes the banking system more elastic than what it is under the branch banking system.
vi) Upholding the local interest: The unit banks, in principle, are interested in upholding the local interest. The unit banks are mainly interested in the development of industries and agriculture keeping in view the local requirements.
vii) Other advantages: Since the unit banks are small when compared to the branch bank, any loss does not cause serious havoc to the credit structure of the country. Since the affairs of the banks are less scattered, there cannot be much of fraud and irregularities. Unit banking is free from diseconomies of large scale operations which are generally associated with branch banking.
i) Difficulty in management, supervision and control: If the expansion of the branches go beyond a limit, the administration of branches, supervision of the activities of the branches become difficult. Under expansion results in inefficient management. This also creates red tape, undue delay in decision and in action. For each and everything the branch managers seek direction from the superior officers. Ultimately, the board of management is troubled with not only decision-taking but also its day-to-day administration.
ii) Possibility of monopoly: Under branch banking, there is always the possibility of large banks to become monopolies. Emergence of monopoly in banks proves detrimental to the larger interest of the country.
iii) Unnecessary competition: The branches of competing banks tempt customers by offering special services and some concession. This naturally increases the expenditure of banks. Unhealthy competition may also result in the lowering of profitability.
iv) Expensiveness: Branch banking is highly expensive. Maintenance of branches with several officers and supervisors for control is very expensive. They also nave spend considerable sums of money for advertisement. All these lead more expenses. The cost of control also becomes prohibitive.
v) Continuance of non-profitable branches: The branches in many business places may work profitably, but the branches in residential localities and rural places may not get sufficient profitable business. As a result, the head office of the bank has to run non-profitable branches forcibly.
vi) Savings of rural places are transferred to urban places for investments: Normally, the excess of deposits mobilized in rural branches are transferred to branches in big cities for investment. Investment opportunities are denied in the rural areas. Banks consider that investment of funds in bigger cities and towns are more profitable than in smaller places and backward areas. This hinders economic development of backward areas.
Mixed banking is that system of banking under which the commercial banks perform the dual function of commercial banking and investment banking, i.e., it combines deposit and lending activity with investment banking. Commercial banks usually offer both short-term as well as medium term loans. The German banking system is the best example of mixed Banking where banks are permitted besides, lending activity, investment functioning also.
The Banks which perform all kinds of banking business and generally finance trade and commerce are called commercial banks. Since, their deposits are for a short period, these banks normally advance short term loans to businessmen and traders and avoid medium and long term and long term lending.
The functions of Reserve Bank of India (RBI) cab be broadly classified into to as follows:
1) Monetary Functions:
a) Bank of Note Issue
b) Currency Chest
c) Banker to Government
d) Bankers Bank
e) Lender of the Last Resort
f) Banker, Agent & Adviser to the Government
g) Custodian of the Cash Reserves of Commercial Banks
h) Custodian of Foreign Balances of the Country
i) Controller of Credit
2) Non-Monetary Functions:
a) Supervisory Functions
b) Promotional Functions
The shareholder of Industrial Finance Corporation of India are the IDBI (formerly these share were held by the Reserve Bank and the Central Government) and banking and other financial institutions, the resources of the corporations consist of its share capital and reserve, public deposits, advances from Reserve Bank of India, the world Bank and other international agencies and bonds and debentures issued in the open market.
The corporation performs three important functions;
• It grants loans and advances to industrial concerns. It grants both rupee loans and foreign currency loans.
• It guarantees loans raised by the industrial concerns in the market.
• It underwrites the issue of stocks, shares, bonds, debentures of industrial concerns provided such stocks, shares etc., are disposed of by the corporation within a period of seven years from the time of acquisition. It also subscribes to the equity and preference shares and debentures of companies. In recent years, IFCI assists industrial units under the equipment leasing scheme.
All types of industrial concerns can get accommodation from SFCs and in this sense the scope of activities of state corporations is wider than that of (IFCI). SFCs can:
• Guarantee loans raised by industrial concerns which are repayable within a period not exceeding 20 years and which are floated in the market.
• Underwrite the issue of stocks, shares, bonds pr debentures of industrial concerns;
• Grant loans or advances to industrial concerns repayable within a period not exceeding 20 year; and
• Subscribe to debenture floated by industrial concerns.
According to Crowther, “Money market is a collective name given to various firms and institutions that deal in the various grades of near money”. Features of Money Market:
• Money market is concerned with the borrowing and lending of short-term funds only.
• For the borrowing and lending funds, it is not necessary that the borrower and the lender should meet each other face to face at a particular place. They can carry on negotiations and effect their financial transactions through telephone, telegram, mail or any other means of communication.
• A money market is not a single homogeneous market. It is composed of several specialized sub-markets, such as call market, treasury bill market, discount market, collateral loan market, etc.
• As in any other market, in the money market also, there is a price for the money borrowed and lent. That price is called interest.
• There are a large number of borrowers and lenders in the money market.
• A large volume of short-term funds is traded in money market.
• Money market is the source of working capital finance. It is the major of working capital finance.
A Scheme of MMMFs was introduced by RBI in 1992. The goal was to provide an additional short-term avenue to individual investors. In November 1995 RBI made the scheme more flexible. The existing guidelines allow banks, public financial institutions and also private sector institutions to set up MMMFs. The ceiling of Rs. 50 crores on the size of MMMFs stipulated earlier, has been withdrawn.
MMMFs are allowed to issue units to corporate enterprises and others on par with other mutual funds. Resources mobilised by MMMFs are now required to be invested in call money, CD, CPs, Commercial Bills arising out of genuine trade transactions, treasury bills and government dated securities having an unexpired maturity up to one year. Since March 7, 2000 MMMFs have been brought under the purview of SEBI regulations.
Indian money market is relatively underdeveloped when compared with advanced markets like New York and London Money Markets. Its' main features / defects are as follows
II. Lack of Co-ordination and Integration
III. Diversity in Interest Rates
IV. Seasonality of Money Market
V. Shortage of Funds
VI. Absence of Organized Bill Market
VII. Inadequate Banking Facilities
VIII. Inefficient And Corrupt Management
An electronic purse is the store of value on a card, which can be used in a manner similar to cash to pay for travel or for other small-scale transactions. Electronic purse is the secure information stored in a dedicated area or file of a smart-card. The value is placed on the card in one of three ways:
(i) Preloaded on to the card (in the same manner as telephone cards), without the possibility to add further value. The intention is that the card is discarded when the value is expired,
(ii) Added to the card at the time the card is issued, or when the e-purse application is added to an existing card, and
(iii) Additional value added to an existing e-purse or top-up
NEFT offers many advantages to the customers over the other modes of funds transfer as listed below:
•The remitter need not send the physical Cheque or Demand Draft to the beneficiary.
•The beneficiary need not visit his/her bank for depositing the paper instruments.
•The beneficiary need not be apprehensive of loss/theft of physical instruments or the likelihood of fraudulent encashment thereof.
•Credit confirmation of the remittances sent by SMS or email.
• Remitter can initiate the remittances from his home/place of work using the internet banking also.
• Near real time transfer of the funds to the beneficiary account in a secure manner.
The Insurance organization developed in different forms with the advantages of insurance practices. Some of the forms are
• Self Insurance
• Individual Insurer
• Joint Stock Companies
• Mutual Companies
• Co-operative Insurance Organization
• Lloyd’s Association
• State Insurance
a) Risk management is a scientific approach to the problem of dealing with only pure risks and not any other risks faced by an individual or business.
b) Risk management gives importance to insurable and uninsurable risks and to me suitable techniques for problems dealing with all pure risks.
c) It mainly emphasizes reducing the cost of handling risk by using appropriate methods.
The principles of risk insurance management brought out by the following:
(1) Principles of Risk Identification
(2) Principles of Risk Analysis
(3) Principles of Risk Assessment
(4) Principles of Taking Corrective Decision
(5) Principles of Evaluation
(6) Principles of Alternative Course of Action
(7) Principles of Risk Control
(8) Principles of Risk Retention
(9) Principles of Risk Transfer
Life Insurance is a contract providing for payment of a sum of money to the person assured or the person entitled to receive the same on the happening of certain events, usually death life insurance is defined as a mutual agreement by which one party agrees to pay a given sum of money upon the happening of a particular event contingent upon the duration of human life, in consideration of the payment of a smaller sum immediately, or in periodical payments by the other party.
Life Insurance Corporation of India was organised with the objectives of assurance of
a) Family protection
b) Provision for old age
c) Tax concession
d) Housing loans
e) Loans advanced for educational purposes and
f) Donation to charitable institutions
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