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BM - Ref Note 1

1. I learned about the banking structure in India, which has a combination of branch and unit banking systems. This includes different types of banks like commercial banks, cooperative banks, and the central bank (RBI). 2. Banks make money through financial intermediation - accepting deposits and using those funds to issue loans. This channels funds from savers to borrowers and fuels economic activity. It also provides important services like payments, credit, liquidity, risk management, and remittances. 3. Branch banking has advantages like wide reach and economies of scale, while unit banking tries to customize services but at a higher operating cost. Financial inclusion is important for individuals and businesses to access financial services. There are

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Karan Trivedi
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38 views

BM - Ref Note 1

1. I learned about the banking structure in India, which has a combination of branch and unit banking systems. This includes different types of banks like commercial banks, cooperative banks, and the central bank (RBI). 2. Banks make money through financial intermediation - accepting deposits and using those funds to issue loans. This channels funds from savers to borrowers and fuels economic activity. It also provides important services like payments, credit, liquidity, risk management, and remittances. 3. Branch banking has advantages like wide reach and economies of scale, while unit banking tries to customize services but at a higher operating cost. Financial inclusion is important for individuals and businesses to access financial services. There are

Uploaded by

Karan Trivedi
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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1. What did I learn?

My learning began with understanding the banking structure which includes the classification
of the commercial banking system being followed in different foreign countries and in India.
I know that India has a combination of the commercial banking structure of the Branch and
System. The banking structure was studied with a focus on India, where I learned about
various types of banks, their classification basis, different levels of terminology and their
importance, and the type of customer or service they provide and cater for, respectively.
Banks such as RBI (central bank), scheduled and non-scheduled institutions, Cooperative and
commercial banks, public and private banks etc. I also learned about how banks earn money,
the sources of their earnings, and how they use the funds they have acquired. Understood the
products and services provided to their client by banks to retain them and attract new ones.

How did I learn it?

The learnings from the class included that which are the unit banks and branch banks in
India. I learnt from the article about the repo rate , the rate at which RBI lends to other banks
and the reverse repo rate. The article also included CRR( Cash Reserve Ratio) which is the
amount of funds that banks have to maintain with the Reserve Bank of India (RBI) at all
times and SLR Statutory Liquidity Ratio as the ratio of liquid assets like cash, gold, to
the demand and time . The learning included credit deposit ratio, which is deposits accepted
by the bank and the credits given by the bank. I also got to know about IRR in brief. It was
easy to know about the deposit schemes through the examples shared for each. The current
insights regarding CRR and SLR were also provided. CASA was explained as the largest
business generator for banks.

2. Why does it matter?

Banks accept deposits and make loans and derive a profit from the difference in the
interest rates paid and charged to depositors and borrowers respectively. The process
performed by banks of taking in funds from a depositor and then lending them out to a
borrower is known as financial intermediation.

Through the process of financial intermediation, certain assets are transformed into
different assets or liabilities. As such, financial intermediaries channel funds from
people who have extra money or surplus savings (savers) to those who do not have
enough money to carry out a desired activity (borrowers).

When one deposits money in the bank, the money goes into a big pool along with
everyone else’s, and your account is credited with the amount of your deposit. The role
of the bank is to provide a safe place to keep your money
Services like current and savings accounts provide convenient ways for one to pay
bills without the hustle of using cash. At the same time, the bank is able to give
some advance to cover up for shortfall through other depositors funds.

Credit provision — Credit fuels economic activity by allowing businesses to invest


beyond their cash on hand, households to purchase homes without saving the entire
cost in advance, and governments to smooth out their spending by mitigating the
cyclical pattern of tax revenues and to invest in infrastructure projects.

Liquidity provision — Businesses and households need to have protection against


unexpected needs for cash.

Risk management services — Banks allow businesses and households to pool their
risks from exposures to financial and commodity markets. 

Remittance of Money — Cash can be transferred easily from one place to another
and from one country to another by the help of a bank

Rapid Economic Development — The banks make available loans of different


periods to agriculture, industry and trade. 

Banks are vital institutions in any society as they significantly contribute to the
development of an economy through facilitation of business.

3. I learned that

Branch banking:

- Wide reach of banks


- Have advantage of economies of scale
- Has lower operating cost

Unit Banking:

- Number of banks are larger but most of the banks have limited borrowers
- These bank try to customize services
- Cost of operating is higher

Financial Inclusion:

Individuals and businesses have equal opportunities to access financial products and services
that helps them to meet their needs.

Types of deposits:
Transaction Accounts: These accounts facilitate the account holder a negotiable or
transferrable instrument. It includes current A/c and Savings A/c.

CASA: largest amount of business of banks comes through CASA

Non transaction Accounts:

One can keep money with bank but cannot do day to day transactions. It is kind of fixed
deposit where even if I don’t have current A/c or savings a/c , I can still make FD.

Deposit schemes:

Reinvestment deposit:

Interest is not given separately to depositor and is reinvested in the bank FD.

Cash Certificate:

It is money market instrument which is same as FD. The only difference is deposits in FDs
here are tradable in the markets. These are issued at discount to the face value

Recurring deposit:

Example: If a commitment of Rs 5000/month is given for 2 years to the bank from the
depositor, then every month the commitment is to be fulfilled.

4. This learning matters

This learning matters as the banking system plays an important role in the modern
economic world. Banks collect the savings of the individuals and lend them out to business-
people and manufacturers. Manufacturers borrow from banks the money needed for the
purchase of raw materials and to meet other requirements such as working capital. It is safe to
keep money in banks. Interest is also earned thereby. Thus, the desire to save is stimulated
and the volume of savings increases. The savings can be utilised to produce new capital
assets.

Banks arrange for the sale of shares and debentures. Thus, business houses and manufacturers
can get fixed capital with the aid of banks.

When business expands, more money is needed for exchange transactions. The legal tender
money of a country cannot usually be expanded quickly. Bank money can be increased
quickly and used when there is need of more money. In a developing economy (like that of
India) banks play an important part as supplier of money.

The banking system facilitates internal and international trade. A large part of trade is done
on credit. Banks provide references and guarantees, on behalf of their customers, on the basis
of which sellers can supply goods on credit. Trade is also assisted by the grant of loans by
discounting bills of exchange and in other ways. Foreign exchange transactions (the exchange
of one currency for another) are also done through banks.

Finally, banks act as advisers, counsellors and agents of business and industrial organisations.
They help the development of trade and industry

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