Banking Services: Meaning, Differences and Role of Banking (For CBSE, ICSE, IAS, NET, NRA 2022)

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Banking Services

There are various banks with names-Canara Bank, Punjab National Bank, State Bank of India, United Commercial Bank, etc. In bank we will see some employees sitting behind counters dealing with visitors standing in front of them. Bank include depositing counter while some are receiving cash counter. Behind the counters in the office, we will see tables and chairs occupied by officers. On one side of the office we will also see a chamber (small partitioned room) where the manager is sitting with papers on his table. This is the office of a ‘Bank’ .

Meaning of Bank

An establishment authorized by a Government to accept deposits, pay interest, clear cheques, advance loans, act as an intermediary in financial transactions, and provide other financial services to its customers. People earn money to meet their day-to-day expenses on food, clothing, education of children, housing, etc. They also need money to meet future expenses on marriage, higher education of children, house building and other social functions. These are heavy expenses, which can be met if some money is saved out of the present income. Saving of money is also necessary for old age and ill health when it may not be possible for people to work and earn their living.

In older days people used to keep money in their homes. With this practice, savings were available for use whenever needed, but it also involved the risk of loss by theft, robbery and other accidents. Thus, people needed a place where money could be saved safely and would be available when required. Banks are such places where people can deposit their savings with the assurance that they will be able to withdraw money from the deposits whenever required.

“Bank is a lawful organization, which accepts deposits that can be withdrawn on demand. It also lends money to individuals and business houses that need it.”

Banks also render many other useful services – like collection of bills, payment of foreign bills, safe-keeping of jewellery and other valuable items, certifying the credit-worthiness of business, and so on. Banks accept deposits from the general public as well as from the business community. Banks give two assurances to the depositors:

  • Safety of deposits, and
  • Withdrawal of deposits, whenever needed

On deposits, Banks give interest, which adds to the original amount of deposits. It is a great incentive to the depositors. It promotes saving habits among the public. On the basis of deposits banks also grant loans and advances to farmers, traders and businessmen for productive purposes. Thereby banks contribute to the economic development of the country and wellbeing of the people in general. Banks charge interest on loans. The rate of interest is generally higher than the rate of interest allowed on deposits. Banks also charge fees for the various other services, which they render to the business community and public in general. Interest received on loans and fees charged for services which exceed the interest allowed on deposits are the main sources of income for banks from which they meet their administrative expenses. The activities carried on by banks are called banking activities. ‘Banking’ as an activity involves acceptance of deposits and lending or investment of money.

Difference between Banks and Moneylenders

Bank and Moneylenders are seeming like same but bank is quite different from a moneylender. A Bank performs two main functions. Firstly, it accepts deposits, and on that basis, it lends money. The moneylenders, on the other hand, advance money out of their own private wealth and usually do not accept deposits from others. The following table shows the distinction between a bank and moneylender.

Table of Difference between Banks and Moneylenders
EntityBank are organised institutionsMoneylenders are individuals.
ActivityBanking activities include acceptance of deposits as not include acceptance of lending of money.Activities of moneylenders may

not include acceptance of deposits.

ClientBanks meet the needs people in general and the business community in particular.of Moneylenders meet the needs of agriculturists and poor people.
SecurityBanks accept tangible and personal security against loans.Moneylenders generally accept

gold, jewellery or land as security for giving loan.

Process of recovery of loanThe process of recovery is flexible.The process of recovery is rigid and strict.
Interest rateInterest charged by banks on loan is governed by RBI.Rate of Interest is decided by

the moneylender and is normally very high.

Role of Banking

Banks provide funds for the business and play a vital role in the development of a nation.

  • It encourages saving habits amongst people and thereby makes funds available for productive use.
  • It acts as an intermediary between people having surplus money and those requiring money for various business activities.
  • It facilitates business transactions through receipts and payments by cheques instead of currency.
  • It provides loans and advances to businessmen for short term and long-term purposes.
  • It also facilitates import export transactions.
  • It helps in national development by providing credit to farmers, small-scale industries and self-employed people as well as to large business houses which leads to balanced economic development in the country.
  • It helps in raising the standard of living of people in general by providing loans for purchase of consumer durable goods, houses, automobiles, etc.

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