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Unit 1: Introduction to Banks
section 42 (60) of the Act. This sub sector broadly consists of private sector banks, foreign banks. Notes
The banking sector is dominated by Scheduled Commercial Banks (SCBs).
Self Assessment
Fill in the blanks:
1. There are traces of banking activity even in ……………….. times.
2. Banks are a medium through which economic and fiscal ……………….. of the government
are materialized.
3. Financial institutions are the primary source of long term …………………. for large projects.
1.2 Characteristics of Indian Banking System
From the meaning and nature of banks mentioned in earlier section, the characteristics/features
of a bank may be listed as follows:
1. Dealing in Money: Bank is a business activity which deals with other people’s money i.e.
getting money from depositors and lending the same to borrowers.
2. Banking Business: A bank is a financial institution which does banking activities of selling
financial services like home loans, business loans, lockers, fixed deposit etc. In order to
enable people to confirm that it is a bank and is dealing in money, for easy identification,
a bank should add the word “bank” as its last name.
3. Acceptance of Deposit: A bank accepts money from the people in the form of deposits
where there is an obligation to refund deposits on demand or after the expiry of a fixed
tenure as they feel it is a safest place to deposit money.
4. Lending Money: A bank provides advance money in the form of loans to needy persons for
promotion & development of business, purchase of home, car etc.
5. Easy Payment and Withdrawal Facility: Payment & Withdrawal of money can be made
through issuance of cheques & drafts, ATM, Online Fund Transfer without the need for
carrying money in hand. A bank provides easy payment and withdrawal facility to its
customers in the form of cheques, drafts, ATM’s and ETF.
6. Motive of Profit with Service Orientation: A Bank has a motive of employing funds
received as deposits from the public in a profitable manner with service oriented approach.
7. Linking Bridge: Banks collect money from those who have surplus money and give the
same to those who are in need of money. It acts as a trust/custodian of funds of its
customers.
Notes A bank acts as a bridging link between borrowers and lenders of money.
8. Ever increasing Functions: Banking is an evolutionary concept. There is continuous
expansion and diversification as regards the functions, services and activities of a bank.
9. Banking Business: A bank’s main activity should be to do business of banking which
should not be subsidiary to any other business.
10. Name Identity: A bank should always add the word “bank” to its name to enable people
to know that it is a bank and that it is dealing in money.
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