The Main Working Concept Of Banks

1 year ago Sumit Gupta 0

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What is Bank? How it is work? What are the main working concept of banks? In this article we are going to tell you the importance terms of Banking industries & working concept. In this blog we would guide you  The Main Working Concept Of Banks. Each and every bank plays a vital role to represents the countries financial position around the Globe.
This Blog is so useful in aspects of everyone, specially if you want to work in banking industries than you will must to know the main working concept of banks.

In this blog you will know the  The Main Working Concept Of Banks

What is Banks?

Banks is a financial institution which gives loan and accept deposit.

Loan:  Loan is the biggest assets of the bank.
Deposit: Deposit is the biggest liability of the bank.

There are mainly 2 types of deposit:

Time deposit: The customer withdraw the amount after fixed period of time.Ex, Fixed deposit(FD) & Rec curing deposit(RD)

Demand deposit: The customer withdraw the amount after the demand of customer. Ex, current account, saving account

THE INTEREST ON SAVING ACCOUNT IS FIXED BY INDIVIDUAL BANK & MINIMUM SAVING DEPOSIT INTEREST WAS 4% FIXED RBI.

What are the main differences between current account & saving account?
In current account bank can’t give any interest.
In current account transactions are unlimited.




In saving account bank gives interest rate.
In saving account transactions are limited.

Non Performing Assets(NPA)
The loan given by bank which is not generating income is called NPA, it is also called bad loans or bad debts.

DUE DATE OF LOAN = 90 DAYS, ON 91st DAYS BANK DECLARE THE LOAN NPA.

CAR: Capital Adequacy Ratio
Every commercial banks is required to keep a minimum reserves of 9% of its total risk weighted assets is known as CAR.

BASEL2: Having three pillars

  • Capital Adequacy Ratio.
  • Super Visionary Review.
  • Market Discipline.

Minority Policy: Minority Policy is associated with supply of money in the economy. Through this policy RBI regulates liquidity in the market. Liquidity means cash or anythings which can be easily converted into cash like gold.

The instruments to controlling the liquidity are: Quantitative measure to control the bank

  • Repo Rate: The rate at which bank borrow money from RBI. Currently it is 7.25%, Repo is an agreement between RBI & Banks under which bank sell the government securities to RBI and agrees to repurchase it at fixed price and time.
  • Reverse Repo Rate: Reverse Repo rate is a rate at which RBI borrow loan from commercial banks. current reverse repo rate is = 6.25%.
  • CRR: every commercial banks is required to deposit a certain percentage of its total deposit with rbi. current crr is 4%.
  • SLR: every commercial bank is required to keep a certain percentage of its total deposite in the form of liquid. current SLR is 21.5%.
  • Open market operations: Sell and purchase of government securities by the RBI in the market is called OMU.
  • Bank rate: The rate at which RBI re discount bill of exchange and other commercial papersis called bank rate. it is also called discount rate. simply the rate at which RBI gives loan to the bank for long term is called bank rate. currently bank rate=8.25%.

Quantitative measures are:

  •  Moral suasion: When RBI persuade and pressurized the banks to follow its directive on the flow of credit it is called moral suasion.
  • Direct action: The RBI cancelled the license of banks than all the activities of banks become illegal.

Types of lending:




  • Prime Lending Rate: The rate at which bank give loan to its most credit worthy customer is called PLR. it is decided by individual.
  • Bench Mark Prime Lending: The minimum rate at which bank used to give loan to its customer is called bench mark prime lending, it has been replaced by base rate.
  • Base rate: The minimum rate at which bank gives loan to its customer is called base rate. no bank will give loan below the base rate.
  • Priority Sector Lending(PSL): Every commercial banks is required to give 40% of its total loan in the sector declared as priority sector by the government at concessional discount rate.

Some are as follows:
18% of total loan give in the field of agriculture.
10% of total loan gives to weaker section.
12% of total loan gives to other.

Selective Credit Control: It refers to the descrimentry credit policy of rbi. infavour of certain sector of the economy or certain section of the security.

Types of Bank:
Commercial Banks: Main objectives of public sector bank is to provide banking services to the common men. According to RBI commercial banks are categorized into
Nationalized Banks
SBI
RRB
Private Banks
Foreign Banks.

Development Banks: It is basically specialized financial institution. Ex NABARD(1982)(National Bank Of Agriculture And Rural Development)
Regulation of NBFC.

  • It regulate regional rural banks.
  • It regulate Kishan credit cards.
  • It regulate primary agriculture society.
  • It regulate micro credit/self help group.

EXIM: Export & Import Bank , established in 1982
ECGC: Export Credit Guarantee Coorperation
NHB: National Housing Bank
SIDBI: Small Industrial Development Bank Of India, established in 1991
IDBI: Industrial Development Bank Of India, established in 2004.(it is also called 1st public sector universal banks).

Regional banks: It is established in 2nd October 1975 as per the recommendation of Narsimbham committee. Initially it was started in 5 district named
Gorakhpur
Bhiwani
Jaipur
Malda

RRB ARE FOUND ALL OVER IN INDIA EXCEPT GOA AND SIKKIM.

The share holding in RRB as follows:

  • 50% – central government
  •   15% – state government
  •   35% – sponsored bank

C operative banks
NBFC banks

There are total of 56 RRB currently present in India.

At last see some important facts of Indian banking system

  • Repo rate come in 2003.
  • MSF comes in 2011(interest on msf = reporate+1% of interest).
  • Largest foreign banks in India = standard chartered(UK).
  • Largest private sector banks india = ICICI bank.
  • 2nd largest private sector banks India = HDFC.
  • FDI limit in private sector banks is 74%.
  • Biggest nationalized bank in India = Bank of Baroda.
  • Old days bank of India = Allahabad bank.
  • 1st Swadeshi bank = PNB.
  • Largest public sector bank of India = SBI.
  • 1st regional rural banks of India = Prathama bank.
  • Largest RRB in India = Uttar Bihar Gramin Bank.

Thanks for reading this blog. This blog contains the main working concept of banks. This blog is so useful for those who are preparing to go in a banking industries. Keep in touch for our coming blog which will be money market.

 

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