BANKING

&
MICROFINACE - I

NAME : KOYEL HAZRA

REGISTRATION NO : 18149030639
SUBJECT : BANKING & MICRO FINANCE – I
SUBJECT CODE : 5.GV.01

NSHM KNOWLEDGE CAMPUS

DURGAPUR
ROLE AND IMPORTANCE OF BANKIS
IN INDIA:-
1. Removing the deficiency of capital formation :

In any economy, economic development is not possible unless there is an adequate amount of

Capital formation. The serious capital deficiency in developing Countries is removed by banks.A

sound banking system mobilizes small savings of the community and makes them available for

investment in productive enterprises. Banks mobilise deposits by offering attractive rates of

interest and thus convert savings into active capital. Otherwise that amount would have

remained idle. Banks distribute these savings through loans among productive enterprises

which are helpful in nation building. It facilitates the optimum utilization of the financial

resources of the community.

2. Helps in generating employment opportunity :

Banks helps in providing financial resources to industries and that helps in automatically generate

employment opportunity. Especially employment generated by banking sector every year runs in

millions. Equally revenue generation through tax and dividend collection by the government invested

every year. While revenue and employment generation are two very important contributions,

successfully maintaining healthy credit line to industrial sector as well as to overall economy is

another important contribution of financial sector.

3. Financial assistance to Industries :

The commercial banks finance the industrial sector in a number of ways. They provide short-term,

medium-term and long-term loans to industry .The Industrial Development Bank of India is the main

institution in India providing financial assistance to the industrial sector. It provides direct financial

assistance to the industrial enterprises in the form of granting loans and advances, and purchasing or

underwriting the issues of stocks, bonds or debentures.

4. Promote saving Habits of the people :

Bank attracts depositors by introducing attractive deposit schemes and providing higher rates of

interest. Banks providing different kinds of deposit schemes to its customers.

5. Financial assistance to Consumer Activities :

People in underdeveloped countries being poor and having low incomes do not have sufficient

financial resources to buy durable consumer goods. The commercial banks advance loans to

consumers for the purchase of such items as houses, furniture, refrigerators, etc. In this way, they also

help in raising the standard of living of the people in developing countries by providing loans for

consumption activities.

7. Financial facilities for Trade :

The commercial banks help in financing both internal and external trade. The banks provide

loans to retailers and wholesalers to purchase goods in which they deal. They also help in the

movement of goods from one place to another. Banks provide all types of facilities such as

discounting and accepting bills of exchange, providing overdraft facilities, issuing drafts, etc.

8. Foreign Currency Loans :

Foreign currency loans are meant for setting up of new industrial projects. Banks also helps in

providing loans for expansion, diversification, modernization or renovation of existing units.

Banks also helps in financing import of equipment from abroad and/or technical knowhow.

9. Promotion of New Entrepreneurs :

Development banks in India have also achieved a success in creating a new class of entrepreneurs

and spreading the industrial culture. Special capital and seed Capital schemes have been introduced to

provide equity type of assistance to new and technically skilled entrepreneurs who lack financial

resources of their own.

10. Balanced Development :

Modern banks spreading its operations throughout the world. We can see number of big banks like

citi bank, SBI, PNB, Baroda bank etc. It helps a country to spread banking activities in rural and

semi urban areas. With the spreading of banking operations all over the country, helps to attain

balanced regional development by promoting rural areas. The Reserve Bank of India (RBI) has

granted in-principle licenses to 10 applicants to open small finance banks, which will help expanding

access to financial services in rural and semi-urban areas.

VARIOUS ROLES OF RBI
1.Monetary Authority:

Formulates, implements and monitors the monetary policy for

A) maintaining price stability, keeping inflation in check ;

B) ensuring adequate flow of credit to productive sectors.

2.Regulator and supervisor of the financial system:

lays out parameters of banking operations within which the country’s banking and financial

system functions for- A) maintaining public confidence in the system, B) protecting

Depositors’ interest; C) providing cost-effective banking services to the general public.

3.Regulator and supervisor of the payment systems:

A) Authorises setting up of payment systems;

B) Lays down standards for working of the payment system;

C) lays down policies for encouraging the movement from paper-based payment systems to
electronic modes of payments.

D) Setting up of the regulatory framework of newer payment methods.

E) Enhancement of customer convenience in payment systems.

F) Improving security and efficiency in modes of payment.

4.Manager of Foreign Exchange:

RBI manages forex under the FEMA- Foreign Exchange Management Act, 1999. in order to

A) facilitate external trade and payment

B) promote the development of foreign exchange market in India.
 5.Issuer of currency:

RBI issues and exchanges currency as well as destroys currency & coins not fit for
circulation to ensure that the public has an adequate quantity of supplies of currency
notes and in good quality.

 Developmental role : RBI performs a wide range of promotional functions to support

national objectives. Under this it setup institutions like NABARD, IDBI, SIDBI,
NHB, etc.
 Banker to the Government: performs merchant banking function for the central and
the state governments; also acts as their banker.
 Banker to banks: An important role and function of RBI is to maintain the banking
accounts of all scheduled banks and acts as the banker of last resort.
 An agent of Government of India in the IMF.

VARIOUS TYPES OF BANK

Commercial banks:

Commercial banks are the most important types of banks. The term ‘commercial’ carries the
significance that banking is a business like any other business. In other words, commercial
banks are essentially profit-making institutions.

They collect deposits from the public and lend money to business firms (manufacturers),
traders, farmers and consumers. Commercial banks normally meets the working capital needs
of trade and industry and are a part of the money market.

The current account deposits of commercial banks are used as a medium of exchange, i.e., for
making transactions. Deposits of other banks are not so used. These are specialized
institutions which give loans to specific sectors of the economy. Here we are mainly
concerned with commercial banks. So we generally use the term ‘banks’ to refer to
commercial banks.

Development banks:

Development banks are parts of a country’s capital market. In India they are called public
financial institutions. They are specialized financial institutions which supply long-term
finance to large and medium industries. They also perform various promotional functions for
accelerating the rate of capital formation in the country.

In this way they promote industrial development in particular and economic development in general.
IFCI, IDBI and ICICI are examples of such banks. These institutions have assumed a crucial
importance in providing an ever-increasing proportion of industrial finance and various types of
development assistance to business enterprises in India.

Co-operative banks:

The co-operative banks are set up under the provisions of the co-operative society’s laws of a country.
In India such banks have been set up to provide credit to primary agricultural credit societies at low
rates of interest. However, some co-operative banks also function in rural areas.

Land development banks:

These banks (called land mortgage banks in India) provide long-term credit to farmers for land
development. They also give long-term loans to farmers for acquiring new land.

Investment banks:

When a corporate entity wants to issue new equity or debt securities, an investment bank serves the
role of an intermediary. They sometimes also make investment in these companies through purchase
of equity shares.

Merchant banks:

A merchant bank helps a company to sell its new shares to the general public. The main job of a
merchant bank is raise money to lend to industry. They do not lend money themselves but instead
help circulate money from those who want to lend to firms who wish to borrow.

Foreign banks:

There are many foreign banks in India like the Citi Bank, the Hong Kong and Sanghai Bank and the
Bank of America. These are not nationalized institutions like Indian commercial banks.
 Central bank:

The central bank is the bankers’ bank and is also the banker to the government. It controls the entire
banking system of the country. The Reserve Bank of India (RBI) is India’s central bank and the Bank
of England is that of England.

VARIOUS TYPES OF BANKING PRODUCTS

 Business loans.
 Checking accounts.
 Savings accounts.
 Debit and credit cards.
 Merchant services (credit card processing, reconciliation and reporting, check collection)
 Cash management (payroll services, deposit services, etc.)

VARIOUS TYPES OF BANKING SERVICES

1. Advancing of Loans.
2. Overdraft.
3. Discounting of Bills of Exchange.
4. Check/Cheque Payment
5. Collection and Payment Of Credit Instruments
6. Foreign Currency Exchange.
7. Consultancy.
8. Bank Guarantee.
9. Remittance of Funds.
10. Credit cards.
11. ATMs Services.
12. Debit cards.
13. Home banking.
14. Online banking.
15. Mobile Banking.
16. Accepting Deposit.
17. Priority banking.
18. Private banking