Banking

Banking is the system where people and businesses keep their money safe and manage their finances. Banks offer services like saving accounts, loans, and credit cards. They help customers save money, earn interest, and borrow money when needed. Banks also facilitate transactions, making it easy to transfer money between accounts or pay for goods and services. Overall, banking plays a crucial role in the economy by helping people handle their money efficiently.

What is Banking?

The main job of banks is to help move money in the economy. They help people and businesses save, invest, and borrow money. The banking industry includes banks, credit unions, and non-banking financial companies (NBFCs).

Banks are really important for the economy. There are two main types of banks: retail banks and investment banks. 

• Retail banks help people and small businesses with withdrawals, deposits, and giving short-term loans. 
• Investment banks work with companies, helping them raise money and manage activities like mergers and acquisitions.

Let us understand the Indian banking system, its different types, what they do, and how banks support businesses.

Functions of Banks

Banks in India offer many services, including savings and checking accounts, personal and business loans, mortgages, credit cards, and investment services. They also offer electronic banking options, such as online and mobile banking. 

Here are some key functions of banks:

Accepting Deposits: Banks take money from customers and keep it safe, offering different types of accounts like savings and checking.

Providing Loans: Banks lend money to individuals and businesses for various purposes, such as personal needs, buying homes, or starting a business.

Facilitating Payments: Banks help people and businesses make payments through checks, debit cards, and online transfers.

Currency Exchange: Banks offer foreign exchange services, allowing customers to convert one currency into another.

Investment Services: Many banks provide investment options, such as mutual funds and stocks, to help customers grow their money.

Safekeeping Valuables: Some banks provide safety deposit boxes for customers to securely store important items.

Electronic Banking: Banks offer online and mobile banking services, making it easier for customers to manage their accounts anytime, anywhere.

Risk Management: Banks help individuals and businesses manage financial risks through various products, such as insurance and hedging options.

List of Banks in India

1. Central Bank

The Reserve Bank of India (RBI) is India's central bank. It manages the country's money and banking system.

1. Commercial Banks

These are the most common types of banks. They include public sector banks, private sector banks, and foreign banks, offering services like savings accounts, current accounts, loans, and investments.

• Public Sector Banks: These banks are owned by the government. Examples include the State Bank of India (SBI), Punjab National Bank (PNB), and Bank of Baroda (BOB).
• Private Sector Banks: These banks are privately owned. Some examples are HDFC Bank, ICICI Bank, and Axis Bank.
• Foreign Banks: These banks have branches in India but are based in other countries. Examples include Citibank, Standard Chartered, and HSBC. 
• Regional Rural Banks: These banks serve rural and semi-urban areas and are owned by the government, commercial banks, and state governments.

The below table represents a few commercial banks in India.

3) Cooperative Banks
    
A Co-operative Bank, established under the Co-operative Societies Act of 1912, operates under the governance of an elected managing committee. It functions on a non-profit, no-loss basis, primarily serving entrepreneurs, small businesses, and individuals engaged in self-employment in urban areas.

In rural regions, these banks primarily focus on financing agricultural activities, including farming, livestock, and hatcheries. There are two main types of Co-operative Banks:

4) Payment Bank
 Payment banks are a new type of bank introduced by the Reserve Bank of India (RBI). They can accept limited deposits, with a maximum of ₹1 lakh per customer. These banks offer services like ATM cards and online banking.

5) Small Finance Banks

Their main focus is to help people who are often overlooked by traditional banks, such as small businesses and low-income individuals. Payment banks are licensed under the Banking Regulation Act of 1949 and follow rules from the Provisions Act of 1934.

Below are a few examples of Small Finance Banks in India:

• AU Small Finance Bank Ltd.
• Utkarsh Small Finance Bank Ltd.
• Fincare Small Finance Bank Ltd.
• Ujjivan Small Finance Bank Ltd.
• Jana Small Finance Bank Ltd.

6) Scheduled Banks

The banks listed in the 2nd Schedule of the RBI Act 1934 must have a minimum paid-up capital of ₹5 lakhs or more. 

7) Non-Scheduled Banks

Non-scheduled banks, on the other hand, are local area banks that are not included in the 2nd Schedule.

Types of Bank Accounts in India

In India, there are several types of bank accounts catering to different financial needs. Here are the main types:

Savings Account:

• Aimed at individuals to save money while earning interest.
• Offers limited withdrawal options.

Current Account:

• Designed for businesses and frequent transactions.
• Allows unlimited withdrawals and deposits, but usually earns no interest.

Fixed Deposit (FD) Account:

• A savings account where money is deposited for a fixed term at a higher interest rate.
• Withdrawals before maturity may incur penalties. 

Recurring Deposit (RD) Account:

• Allows individuals to save a fixed amount regularly (monthly) and earn interest.
• Suitable for disciplined savings. 

Joint Account:

• Can be held by two or more individuals.
• Commonly used by couples or business partners. 

NRI Account:

• Specifically for Non-Resident Indians, including NRE (Non-Resident External) and NRO (Non-Resident Ordinary) accounts.
• Facilitates foreign currency deposits and investments. 

Zero Balance Account:

• Requires no minimum balance.
• Ideal for low-income individuals, often with limited features.

Corporate Account:

• Designed for companies to manage their finances.
• Offers features like overdraft facilities and business loans. 

Demat Account:

Used for holding shares and securities in electronic form.

Necessary for stock market investments. 

Public Provident Fund (PPF):

• A long-term savings scheme backed by the government, providing tax benefits and decent interest rates.
• Each account type serves specific purposes, so choosing one depends on individual financial needs and goals.

Modes of Banking

Modes of banking refer to the various methods through which banking services are delivered to customers. Here are some key modes:

Traditional Banking: This involves physical bank branches where customers can perform transactions face-to-face with bank staff.

Online Banking: Customers can access their bank accounts and perform transactions through the bank’s website or app, offering convenience and 24/7 access.

Mobile Banking: Similar to online banking, but specifically designed for mobile devices. It often includes features like mobile check deposits, bill payments, and fund transfers.

Automated Teller Machines (ATMs): Machines that allow customers to perform basic transactions, such as cash withdrawals, deposits, and balance inquiries, without the need for a bank representative.

Phone Banking: Customers can conduct banking transactions over the phone, often through an automated system or by speaking with a representative.

Digital Wallets: These are apps or services that store payment information and allow users to make transactions, often linked to bank accounts.

Neo Banking: 

Neobanks work only online and don't have any physical branches. They provide more flexibility and convenience than traditional banks, which often can't keep up with those features.

Factors to consider while choosing a Bank?

Choosing a bank is an important decision, and there are several factors to consider:

Fees: Look for account maintenance fees, ATM fees, overdraft fees, and any other charges. Some banks offer fee waivers under certain conditions.

Interest Rates: Compare interest rates for savings accounts, checking accounts, and loans. Higher interest rates can mean more earnings on savings and lower costs on loans.

Accessibility: Consider the bank’s branch and ATM locations, as well as online and mobile banking options. Convenience is key to managing your finances.

Customer Service: Research the bank’s reputation for customer service. Check reviews and ratings to see how they handle inquiries and complaints.

Account Options: Look for a variety of accounts that suit your needs, such as checking, savings, CDs, and investment accounts.

Technology: Evaluate the bank's online banking platform and mobile app for user-friendliness, security features, and available services.

Account Features: Check for features like mobile check deposit, bill pay, budgeting tools, and alerts.

Minimum Balance Requirements: Some accounts require a minimum balance to avoid fees or earn interest. Make sure you can meet those requirements.

Privacy and Security: Ensure the bank has strong security measures in place and a clear privacy policy regarding your data.

Understanding Banking Fees and Chargers

Here are some key points to help you understand banking fees and chargers:

Monthly Maintenance Fees: Charged for maintaining your account, often waived with a minimum balance.

ATM Fees: Charged for using out-of-network ATMs, can be both from your bank and the ATM owner.

Overdraft Fees: Charged when you spend more than your account balance.

Transfer Fees: Applied when transferring money between accounts, especially to different banks.

Wire Transfer Fees: Charged for sending or receiving money via wire transfer.

Foreign Transaction Fees: Applied to purchases made in a foreign currency or from foreign merchants.