Bank, Facilities, & Its Functions in Countries Development


By

R. Naveen Chandran
Shreyas. B.R
Pratap. B.N
Subramanian. V
Management Students
A.M.C. Engineering College
Bangalore
 


Introduction:

It is interesting to trace the origin of the word "bank" in the modern sense to the German word "bank" which means, heap or mound or joint stock fund. From this the Italian word "banco" mean heap of money was coined.

Some people have the opinion that the word "bank' is derived from the French words bancus or banque which means a "bench" initially ,the bankers, the Jews in Lombardy, transacted their business on benches in the market place & the bench resembled the banking counter. If a banker failed, his "banque" (bench) when broken up by the people, hence the word "bankrupt" has come. In simple term, bankrupt means a person who has lost all his money, wealth or financial resources.

Meaning & definition of bank:

A bank is a financial institution that accepts deposits & channels those deposits into lending activities.

"Bank can be defined as one that collects money from those who have it to spare or who are saving it out of their income & lends the money so collected to those who require it"

Types of banks:

I. Central bank:- This bank is normally government owned & charged with supervising commercial banks & control the cash rate. A central bank is a banking institution granted the exclusive privilege to lend a government its currency. Like a normal commercial bank, a central bank charges interest on the loans made to borrowers, primarily the government of whichever country the bank exists for, and to other commercial banks, typically as a 'lender of last resort'.

II. Commercial bank:-

The term referred to a bank or a division of a bank that mostly deals with deposits & loans from corporations or large business.
Commercial banking is also known as business banking. It is a bank that provides checking accounts, savings accounts, and money market accounts and that accepts time deposits

*
Community bank:-

Locally operated financial institutions that empower employs to make local decisions to serve their customers & the partners.

Savings bank:-

* These are the institutions which collect periodical savings of the general public.

* Cooperative bank:-

These are organized on co-operative principle of mutual help & assistance. They grant short –term loans to the agriculturist for purchase of seeds, harvesting & other expenses.
Cooperative banking  includes retail banking, as carried out by credit unions, mutual savings and loan associations, building societies and cooperatives, as well as commercial banking services provided by mutual organizations (such as cooperative federations) to cooperative businesses.

*
International banks:-

These are those which are operating in different countries. While the registered office /head office in situated in one country, they operate through their branches in other countries.

Instruments of banks:-

* Money & currency
* Cheque
* Bill of exchange or drafts
* Acceptance
* Promissory notes

Facilities provided by banks:-

* ATM: An automated teller machine is a computerized telecommunications device that provides the clients of a financial institution with access to financial transactions in a public space without the need for a cashier, human clerk or bank teller.

Using ATMs, customers can access their bank accounts in order to make cash withdrawals and check their account balances.

ATMs are placed not only near or inside the premises of banks, but also in locations such as shopping centers/malls, airports, restaurants, or any place large numbers of people may gather.

Most ATMs are connected to interbank networks, enabling people to withdraw and deposit money from machines not belonging to the bank where they have their account or in the country where their accounts are held (enabling cash withdrawals in local currency).

Some examples of interbank networks include PULSE, PLUS, Cirrus, INTERAC, INTERSWITCH, STAR, and LINK.

* ONLINE BANKING:   Online banking solutions have many features and capabilities in common, but traditionally also have some that are application specific.

The common features fall broadly into several categories

i. Transactional (e.g., performing a financial transaction such as an account to account transfer, paying a bill, etc.)
ii. Electronic bill presentment and payment – EBPP
iii. Funds transfer between a customer's own checking and savings accounts, or to another customer's account
iv. Investment purchase or sale
v. Loan applications and transactions, such as repayments of enrollments
vi. Non-transactional (e.g., online statements, check links, co browsing, chat)
vii. Bank statements
viii. Financial Institution Administration –
ix. Support of multiple users having varying levels of authority
x. Transaction approval process
xi. Wire transfer

Features commonly unique to online banking include

Personal financial management support, such as importing data into personal accounting software. Some online banking platforms support account aggregation to allow the customers to monitor all of their accounts in one place whether they are with their main bank or with other institutions.

*
E- BANKING:  E-banking means any user with a personal computer and a browser can get connected to his bank -s website to perform any of the virtual banking functions. In internet banking system the bank has a centralized database that is web-enabled. All the services that the bank has permitted on the internet are displayed in menu. Any service can be selected and further interaction is dictated by the nature of service. The traditional branch model of bank is now giving place to an alternative delivery channels with ATM network. Once the branch offices of bank are interconnected through terrestrial or satellite links, there would be no physical identity for any branch. It would a borderless entity permitting anytime, anywhere and anyhow banking.  

The network which connects the various locations and gives connectivity to the central office within the organization is called intranet. These networks are limited to organizations for which they are set up. SWIFT is a live example of intranet application.

Internet banking in India and their facilities:


The Reserve Bank of India constituted a working group on Internet Banking. The group divided the internet banking products in India into 3 types based on the levels of access granted. They are: 

i) Information Only System:  General purpose information like interest rates, branch location, bank products and their features, loan and deposit calculations are provided in the banks website. There exist facilities for downloading various types of application forms. The communication is normally done through e-mail. There is no interaction between the customer and bank's application system. No identification of the customer is done. In this system, there is no possibility of any unauthorized person getting into production systems of the bank through internet. 

ii) Electronic Information Transfer System:   The system provides customer- specific information in the form of account balances, transaction details, and statement of accounts. The information is still largely of the 'read only' format. Identification and authentication of the customer is through password. The information is fetched from the bank's application system either in batch mode or off-line. The application systems cannot directly access through the internet. 

iii) Fully Electronic Transactional System:  This system allows bi-directional capabilities. Transactions can be submitted by the customer for online update. This system requires high degree of security and control. In this environment, web server and application systems are linked over secure infrastructure. It comprises technology covering computerization, networking and security, inter-bank payment gateway and legal infrastructure. 

Automated Teller Machine (ATM): 

ATM is designed to perform the most important function of bank. It is operated by plastic card with its special features. The plastic card is replacing cheque, personal attendance of the customer, banking hour's restrictions and paper based verification. There are debit cards. ATMs used as spring board for Electronic Fund Transfer. ATM itself can provide information about customers account and also receive instructions from customers - ATM cardholders. An ATM is an Electronic Fund Transfer terminal capable of handling cash deposits, transfer between accounts, balance enquiries, cash withdrawals and pay bills. It may be on-line or 0ff-line. The on-line ATN enables the customer to avail banking facilities from anywhere. In off-line the facilities are confined to that particular ATM assigned. Any customer possessing ATM card issued by the Shared Payment Network System can go to any ATM linked to Shared Payment Networks and perform his transactions. 

Credit Cards/Debit Cards

The Credit Card holder is empowered to spend wherever and whenever he wants with his Credit Card within the limits fixed by his bank. Credit Card is a post paid card.  Debit Card, on the other hand, is a prepaid card with some stored value. Every time a person uses this card, the Internet Banking house gets money transferred to its account from the bank of the buyer. The buyers account is debited with the exact amount of purchases. An individual has to open an account with the issuing bank which gives debit card with a Personal Identification Number (PIN). When he makes a purchase, he enters his PIN on shops PIN pad. When the card is slurped through the electronic terminal, it dials the acquiring bank system - either Master Card or VISA that validates the PIN and finds out from the issuing bank whether to accept or decline the transactions. The customer can never overspend because the system rejects any transaction which exceeds the balance in his account. The bank never faces a default because the amount spent is debited immediately from the customer's account. 

Smart Card: 

Banks are adding chips to their current magnetic stripe cards to enhance security and offer new service, called Smart Cards. Smart Cards allow thousands of times of information storable on magnetic stripe cards. In addition, these cards are highly secure, more reliable and perform multiple functions. They hold a large amount of personal information, from medical and health history to personal banking and personal preferences. 

You can avail the following services through E-Banking.

Bill payment service 

You can facilitate payment of electricity and telephone bills, mobile phone, credit card and insurance premium bills as each bank has tie-ups with various utility companies, service providers and insurance companies, across the country. To pay your bills, all you need to do is complete a simple one-time registration for each biller. You can also set up standing instructions online to pay your recurring bills, automatically. Generally, the bank does not charge customers for online bill payment.

Fund transfer

You can transfer any amount from one account to another of the same or any another bank. Customers can send money anywhere in India. Once you login to your account, you need to mention the payees' account number, his bank and the branch. The transfer will take place in a day or so, whereas in a traditional method, it takes about three working days. ICICI Bank says that online bill payment service and fund transfer facility have been their most popular online services.

Credit card customers 

With Internet banking, customers can not only pay their credit card bills online but also get a loan on their cards. If you lose your credit card, you can report lost card online. 

Railway pass

This is something that would interest all the aam janta. Indian Railways has tied up with ICICI bank and you can now make your railway pass for local trains online. The pass will be delivered to you at your doorstep. But the facility is limited to Mumbai, Thane, Nashik, Surat and Pune.

Investing through Internet banking 

You can now open an FD online through funds transfer. Now investors with interlinked demat account and bank account can easily trade in the stock market and the amount will be automatically debited from their respective bank accounts and the shares will be credited in their demat account. Moreover, some banks even give you the facility to purchase mutual funds directly from the online banking system. 

Nowadays, most leading banks offer both online banking and demat account. However if you have your demat account with independent share brokers, then you need to sign a special form, which will link your two accounts.

Recharging your prepaid phone

Now just top-up your prepaid mobile cards by logging in to Internet banking. By just selecting your operator's name, entering your mobile number and the amount for recharge, your phone is again back in action within few minutes.

Shopping 

With a range of all kind of products, you can shop online and the payment is also made conveniently through your account. You can also buy railway and air tickets through Internet banking.

BANKS and Economic Development:

Banks play a very important role in the economic development of every nation they have control over a large part of the supply of money in circulation. Through their influence over the volume of bank money, they can influence the nature character production in ay country.

Economic development is a dynamic and continuous process banks are the main stay of the economic progress of a country. Because the economic development highly depends upon the extent of mobilization of resources and investment and on the operational efficiency of the various segment of the economy.

Economic functions

The economic functions of banks include:

1. Issue of Money, in the form of  banknotes and current accounts subject to cheque or payment at the customer's order. These claims on banks can act as money because they are negotiable and/or repayable on demand, and hence valued at par. They are effectively transferable by mere delivery, in the case of banknotes, or by drawing a cheque that the payee may bank or cash.

2. Netting And Settlement Of Payments – banks act as both collection and paying agents for customers, participating in interbank clearing and settlement systems to collect, present, be presented with, and pay payment instruments. This enables banks to economise on reserves held for settlement of payments, since inward and outward payments offset each other. It also enables the offsetting of payment flows between geographical areas, reducing the cost of settlement between them.

3. Credit Intermediation – banks borrow and lend back-to-back on their own account as middle men.

4. Credit Quality Improvement – banks lend money to ordinary commercial and personal borrowers (ordinary credit quality), but are high quality borrowers. The improvement comes from diversification of the bank's assets and capital which provides a buffer to absorb losses without defaulting on its obligations. However, banknotes and deposits are generally unsecured; if the bank gets into difficulty and pledges assets as security, to raise the funding it needs to continue to operate, this puts the note holders and depositors in an economically subordinated position.

5. Maturity Transformation – banks borrow more on demand debt and short term debt, but provide more long term loans. In other words, they borrow short and lend long. With a stronger credit quality than most other borrowers, banks can do this by aggregating issues (e.g. accepting deposits and issuing banknotes) and redemptions (e.g. withdrawals and redemptions of banknotes), maintaining reserves of cash, investing in marketable securities that can be readily converted to cash if needed, and raising replacement funding as needed from various sources (e.g. wholesale cash markets and securities markets).

Size of global banking industry:

Assets of the largest 1,000 banks in the world grew by 6.8% in the 2008/2009 financial year to a record $96.4 trillion while profits declined by 85% to $115bn. Growth in assets in adverse market conditions was largely a result of recapitalisation. EU banks held the largest share of the total, 56% in 2008/2009, down from 61% in the previous year. Asian banks' share increased from 12% to 14% during the year, while the share of US banks increased from 11% to 13%. Fee revenue generated by global investment banking totalled $66.3bn in 2009, up 12% on the previous year.

The United States has the most banks in the world in terms of institutions (7,085 at the end of 2008) and possibly branches (82,000).[citation needed] This is an indicator of the geography and regulatory structure of the USA, resulting in a large number of small to medium-sized institutions in its banking system. As of Nov 2009, China's top 4 banks have in excess of 67,000 branches (ICBC:18000+, BOC:12000+, CCB:13000+, ABC:24000+) with an additional 140 smaller banks with an undetermined number of branches. Japan had 129 banks and 12,000 branches. In 2004, Germany, France, and Italy each had more than 30,000 branches—more than double the 15,000 branches in the UK.

Future challenges of banks in India:-

The Indian banks are hopefully of becoming a global brand as they are the major source of financial sector revenue & profit growth. The financial services penetration   in India continues to be healthy. Thus the banking industry is also not far behind. As a result of this the profit for the Indian banking industry will surely surge a head, the profit pool of industry is probable to augment from us48 million $ in 2005 to us $ 20 billion in 2010. & expansion pace would be 2015 this growth & expansion pace would be driven by chunk of middle class population. The increase in the number of PVT Banks, the domestic credit market of India is estimated to grow from us $ 0.4 trillion in 2004 to us $ 23 trillion by 2050 3 rd longest banking hub globe by 2040.

CONCLUSION:-

Banks are important in economic developers of the country, each person will be depending in one or other form on bank, banks are main source for the creation, issues & circulation of currencies in any nation. Hence in recent economy every individual is aware of the bank facility & services.

Retrieved from:

Internet Banking and its Facilities
http://www.worldjute.com/ebank.html

ATM
http://en.wikipedia.org/wiki/Automated_teller_machine

Online Banking
http://en.wikipedia.org/wiki/Online_banking

Types of banks
http://en.wikipedia.org/wiki/Bank#Other_types_of_banks

REFERENCE:

1: P.K.SRIVATSAVA, BANKING THEORY & PRACTICES (Himalaya Publishing House)
 


R. Naveen Chandran
Shreyas. B.R
Pratap. B.N
Subramanian. V
Management Students
A.M.C. Engineering College
Bangalore
 

Source: E-mail July 12, 2010

 

           

 

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