Banking Concept – Introduction to Banking
Banking Concept:
The banking concept section runs through all the aspects of Banking System in India. The banking concept remains the same but in past few years new players have added their mark on this industry. Some of the banks are Reserve Bank of India (RBI), the Indian Banks Association (IBA) and other top twenty banks such as IDBI, HSBC, ICICI, ABN AMRO, etc. The banker of all these banks are been well defined under one page with three separate banking concept heads dedicated to each bank.
The Banking Concept can be easily explained by the three different heads namely:
- History of Banking in India
- Nationalization of Banks in India
- Scheduled Commercial Banks in India
Let’s now talk about the History of banking in India, in the year 1969 the Government of India put the banking sector into systems and this further nationalized 14 private banking sector in 1969. Thus the second head came into existence The Nationalization of Banks in India. The last one Scheduled Commercial Banks in India explains about the scheduled and unscheduled banks. Section 42 (a) of RBI Act in 1934 lays down the condition of the Scheduled Commercial banks.
Banking Concept and its types:
As per banking concept, there are 2 types of distinct functions namely deposit banking and loan banking.
Deposit banking concept:
A bank saves the money which belongs to a person for trust, safety, security purposes. The bank will issue bank notes or challans, which are receipts for the cash (wealth) stored in the bank. The bank will deliver the saver or the depositor with an open-book bank account on which checks/draft can be written or printed. In any basis, deposits are exchangeable on demand to the owner of the account or bank note. The actual currency (gold, cash or paper) which is deposited at the bank is not a credit to the bank, but it is a bailment; the money remains the assets of the depositor at all periods and the bank may possibly not use the cash.
Loan banking concept:
A bank gives out saved money to borrowers. This requires principal or capital, either from the person like in merchant banking, investors or shareholders, who have deposited their funds at the bank not as a easy bailment, but as a mortgage, which in-turn will be loaned out by the concerned bank. Hence the funds are not available on demand. The depositor receives a gain on his savings.
When we talk about deposit banking concept, the bank is acting as a warehouse which stores money. People store their money in bank safely instead of keeping in their homes where the risk factor is high. So the depositor is paying the bank a mere amount for storing his money.
Whereas in loan banking concept the money is being distributed by the bank. The profit margin is been set and achieved from the interest income on the loan amount.
We will see more about this banking concept in our coming posts in detail.
Category: Money and Banking
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