1.) Meaning and definition of banking?

Ans. Banking refers to the business activity of accepting and safeguarding money owned by
individuals and entities, as well as providing loans and other financial services. It involves activities
such as deposits, withdrawals, and lending, with banks acting as intermediaries between savers and
borrowers. Additionally, banks often offer services like checking accounts, savings accounts, and
investment products. The overall goal of banking is to facilitate the efficient flow of money within an
economy while managing risks associated with financial transactions.

2.) Need for bank?

Ans. Banks serve several crucial functions in an economy:

1.Financial Intermediation: Banks act as intermediaries between those who have excess funds
(depositors) and those who need funds (borrowers). They facilitate the flow of money from savers to
borrowers, promoting economic growth.

2.Safekeeping of Funds: Banks provide a secure place for individuals and businesses to deposit their
money. This safeguarding of funds is crucial for preventing theft or loss.

3.Payments and Settlements: Banks offer various payment services such as checks, electronic transfers,
and credit/debit cards, enabling efficient and secure transactions. This contributes to the smooth
functioning of the economy.

4.Credit Creation: Banks play a vital role in creating credit by lending money to individuals and
businesses. This credit helps stimulate economic activities, such as starting or expanding businesses,
buying homes, or pursuing education.

5.Capital Formation: Through lending and investment activities, banks contribute to the formation of
capital in an economy. This, in turn, supports long-term economic development.

6.Risk Management: Banks help manage financial risks by diversifying their portfolios, conducting risk
assessments, and implementing prudent financial practices. This stability is essential for the overall
economic health.

7.Facilitating Monetary Policy: Central banks use commercial banks to implement monetary policy by
influencing interest rates and controlling money supply. This allows for the regulation of inflation and
economic stability.

In summary, the presence of banks is vital for the functioning of a modern economy, providing essential
financial services, promoting economic growth, and contributing to overall stability.

3.) Scope of banks?

Ans. The scope of banks is extensive and includes:

2.Loans and Credit: Banks provide loans and credit facilities to individuals and businesses for various
purposes, including home loans, personal loans, and business loans.

3.Payment Services: Banks facilitate transactions through payment services like checks, electronic funds
transfers, and credit/debit cards.

4.Investment Banking: Some banks engage in investment banking activities, including underwriting
securities, facilitating mergers and acquisitions, and offering advisory services.

5.Wealth Management: Banks often provide wealth management services, including investment advice,
portfolio management, and estate planning.

6.Foreign Exchange Services: Banks facilitate currency exchange and international transactions, catering
to global trade and finance.

7.Risk Management: Banks help manage financial risks by offering insurance products, derivatives, and
other risk mitigation services.

8.Technology and Innovation: With advancements in technology, banks increasingly offer digital
services, online banking, and mobile banking to enhance customer experience and efficiency.

9.Central Banking: Central banks, which are part of the broader banking system, play a critical role in
monetary policy, currency issuance, and overall financial stability.

10.Community Development: Banks contribute to community development by supporting local

The scope of banks evolves with changes in economic, technological, and regulatory landscapes,
reflecting their adaptability to meet the diverse financial needs of individuals, businesses, and the overall
economy.

4.) Features of banks?

Ans. Key features of banks include:

1.Acceptance of Deposits: Banks take deposits from individuals and businesses, providing a safe place
for them to store money.

2.Lending and Credit: Banks extend loans and credit to individuals and businesses for various purposes,
contributing to economic activities.

3.Payment Services: Banks facilitate transactions through various payment services, such as checks,
electronic transfers, and credit/debit cards.

4.Safety and Security: Banks offer a secure environment for depositors, employing measures to protect
funds from theft, fraud, or loss.
5.Interest on Deposits: Banks pay interest on certain types of deposits, allowing depositors to earn a
return on their money.

6.Interest on Loans: Banks charge interest on loans and credit facilities provided to borrowers,
generating revenue.

7.Foreign Exchange Services: Banks facilitate currency exchange and offer services related to
international trade and transactions.

8.Investment Services: Some banks provide investment opportunities, including savings accounts, fixed
deposits, and investment advisory services.

9.Financial Intermediation: Banks act as intermediaries, connecting savers with funds to those in need
of capital, promoting economic growth.

10.Risk Management: Banks engage in risk management by diversifying portfolios, conducting risk
assessments, and implementing prudent financial practices.

11.Technology and Innovation: Banks leverage technology for online and mobile banking, enhancing
customer convenience and operational efficiency.

12.Regulatory Compliance: Banks adhere to regulatory requirements and standards set by financial
authorities to ensure stability and protect the interests of depositors and the financial system.

These features collectively define the role of banks in the financial system, emphasizing their
multifaceted functions and responsibilities.

5.) Functions of banks?

Ans. The functions of banks are diverse and vital to the overall functioning of the economy. Key
functions include:

1.Accepting Deposits: Banks provide a safe place for individuals and businesses to deposit their money,
offering various types of accounts such as savings, current, and fixed deposits.

2.Providing Loans and Credit: Banks extend loans and credit to individuals and businesses for various
purposes, promoting economic activities and development.

3.Payment Services: Banks facilitate transactions through payment services like checks, electronic funds
transfers, and credit/debit cards, contributing to the efficiency of the payment system.

4.Foreign Exchange Services: Banks enable currency exchange and handle international transactions,
supporting global trade and finance.

5.Investment Banking: Some banks engage in investment banking activities, including underwriting
securities, facilitating mergers and acquisitions, and providing financial advisory services.

6.Wealth Management: Banks offer wealth management services, including investment advice, portfolio
management, and estate planning for high-net-worth individuals.
7.Safekeeping and Custody: Banks safeguard valuable items such as documents, jewelry, and other
assets in safety deposit boxes, providing custodial services.

8.Electronic Banking: Banks leverage technology to offer online and mobile banking services, allowing
customers to access and manage their accounts conveniently.

9.Central Banking: Central banks, as part of the banking system, formulate and implement monetary
policy, regulate money supply, and maintain financial stability.

10.Risk Management: Banks manage financial risks through various means, including diversifying
portfolios, conducting risk assessments, and implementing risk mitigation strategies.

11.Community Development: Banks contribute to community development by supporting local bus

These functions collectively reflect the role of banks as financial intermediaries, facilitating the flow of
funds, managing risks, and supporting economic growth and stability.

6.) Fund-based services" and "fee-based services

Ans. 1.Fund-Based Services:

• Definition: These are services provided by financial institutions that involve the use or
management of funds. Examples include loans, credit facilities, and investment management services.

• Examples: Providing loans, issuing credit cards, managing investment funds.

2.Fee-Based Services:

 Definition: These are services for which a fee is charged, regardless of whether any funds are
involved. The fee is usually charged for the service provided rather than being tied to the
management of funds.
 Examples: Financial advisory services, wealth management, account management fees, and
consultancy services.

In summary, “fund-based services” involve the use or management of funds, while “fee-based
services” entail charging a fee for a specific service provided, irrespective of the use of funds.

7.) Functions of RBI ( RESERVE BANK OF INDIA)?

Ans. The Reserve Bank of India (RBI) serves as the central bank of India and performs various
functions to ensure the stability and development of the country’s monetary and financial system.
Key functions of the RBI include:

1.Monetary Policy Formulation: The RBI formulates and implements monetary policy to maintain price
stability and control inflation within a targeted range.

2.Currency Issuance: The RBI has the sole authority to issue and manage the currency in India, ensuring
an adequate supply of currency notes and coins.
3.Regulation of Money Supply: The RBI regulates the money supply in the economy to achieve
monetary policy objectives and control economic stability.

4.Banker to the Government: The RBI acts as the banker, agent, and advisor to the central and state
governments, managing their accounts, transactions, and debt issuance.

5.Banker’s Bank: The RBI serves as the banker to commercial banks, providing them with various
banking services, maintaining reserve requirements, and managing the interbank payment system.

6.Foreign Exchange Management: The RBI manages the country’s foreign exchange reserves and
formulates policies to promote the stability of the external value of the Indian rupee.

7.Regulation and Supervision of Banks: The RBI regulates and supervises commercial banks, financial
institutions, and non-banking financial companies to ensure the stability and soundness of the financial
system.

8.Developmental Functions: The RBI promotes the development of financial institutions and markets,
including initiatives to enhance financial inclusion and support economic growth.

9.Payment and Settlement Systems: The RBI oversees and regulates payment and settlement systems in
the country, ensuring the efficiency and security of financial transactions.

10.Consumer Protection: The RBI works to protect the interests of consumers in the financial sector,
promoting fair practices and transparency among financial institutions.

11.Research and Statistics: The RBI conducts economic and monetary research, publishes economic
indicators, and provides statistical information to support policymaking and public awareness.

12. Financial Stability: The RBI monitors and assesses the overall stability of the financial system, taking
measures to address systemic risks and crises.

These functions collectively contribute to the RBI’s role in maintaining monetary stability, fostering
economic development, and ensuring the soundness of the financial system in India.

8.) Role of RBI (RESERVE BANK OF INDIA)

Ans. The Reserve Bank of India (RBI) plays a crucial role in the Indian economy, and its functions
encompass various aspects of monetary policy, banking regulation, and financial stability. The key roles
of the RBI include:

1.Monetary Policy Formulation: The RBI formulates and implements monetary policy to achieve price
stability and control inflation within a targeted range. It uses instruments like interest rates and open
market operations to manage money supply.

2.Currency Issuance and Management: As the sole issuer of currency notes and coins in India, the RBI
ensures an adequate supply of currency and manages the overall currency system.
3.Banker to the Government: The RBI acts as the banker, agent, and advisor to the central and state
governments. It handles government transactions, manages public debt, and implements monetary
policy in coordination with fiscal policy.

4.Banker’s Bank: The RBI serves as the banker to commercial banks, maintaining their cash reserves,
providing them with funds, and overseeing the clearing and settlement of interbank transactions.

5.Regulation and Supervision: The RBI regulates and supervises banks, financial institutions, and non-
banking financial companies (NBFCs) to ensure their stability and adherence to prudential norms. It
issues guidelines and licenses to entities in the financial sector.

6.Foreign Exchange Management: The RBI manages the country’s foreign exchange reserves and
formulates policies to maintain the stability of the external value of the Indian rupee. It intervenes in the
foreign exchange market to manage currency fluctuations.

7.Payment and Settlement Systems: The RBI oversees payment and settlement systems, ensuring the
smooth and efficient functioning of financial transactions. It establishes and regulates payment systems
like RTGS (Real-Time Gross Settlement) and NEFT (National Electronic Funds Transfer).

8.Financial Stability: The RBI monitors and assesses the overall stability of the financial system, taking
measures to address systemic risks and maintain financial stability.

9.Developmental Functions: The RBI promotes the development of financial institutions and markets,
supporting initiatives to enhance financial inclusion, deepen financial markets, and foster economic
development.

10.Research and Statistics: The RBI conducts economic and monetary research, publishes statistical
data, and provides economic indicators. It contributes to informed policymaking and public awareness.

11.Consumer Protection: The RBI works to protect the interests of consumers in the financial sector,
promoting fair practices and transparency among financial institutions.

These roles collectively contribute to the RBI’s mandate to maintain monetary stability, regulate the
financial sector, and foster the overall economic development of India.

9.) Functions of commercial banks, call banks, development banks

Ans. 1.) Functions of Commercial Banks:

i.) Accepting Deposits: Commercial banks offer various types of deposit accounts, including savings
accounts, current accounts, and fixed deposits, allowing individuals and businesses to store their money
securely.

ii.) Providing Loans and Advances: Commercial banks extend loans and credit facilities to individuals and
businesses, fostering economic activities and helping with financial needs.

iii.) Credit Creation: Through the process of fractional reserve banking, commercial banks create credit
by lending more money than the actual reserves they hold, contributing to the expansion of the money
supply.
iv.) Payment Services: Banks facilitate transactions through various payment services such as checks,
electronic funds transfers, and debit/credit cards, making it easier for customers to conduct financial
transactions.

v.) Overdraft Facilities: Commercial banks offer overdraft facilities to account holders, allowing them to
withdraw more money than their account balance, subject to pre-defined terms.

vi.) Foreign Exchange Services: Banks provide services related to foreign exchange, allowing customers
to engage in international trade and currency exchange.

vii.) Safe Deposit Boxes: Commercial banks offer safe deposit boxes for customers to store valuable
items, important documents, or other possessions securely.

viii.) Investment Products: Banks provide investment options such as mutual funds, fixed deposits, and
other financial instruments to help customers grow their wealth.

2.)Functions of Central Banks (like the RBI in India):

i.) Monetary Policy Formulation: Central banks formulate and implement monetary policy to achieve
price stability and control inflation.

ii.) Currency Issuance: Central banks have the sole authority to issue and manage the country’s currency.

iii.) Banker to the Government: Central banks act as bankers to the government, managing government
accounts, handling debt issuance, and facilitating financial transactions.

iv.) Regulator and Supervisor: Central banks regulate and supervise commercial banks and financial
institutions to ensure stability and adherence to regulations.

v.) Foreign Exchange Management: Central banks manage foreign exchange reserves and implement
policies to stabilize the country’s currency.

3.) Functions of Development Banks:

i.) Providing Long-Term Finance: Development banks focus on providing long-term financial assistance
to support projects that contribute to economic development.

ii.) Infrastructure Financing: Development banks finance projects related to infrastructure, such as
roads, bridges, and energy, to foster overall economic growth.

iii.) Promoting Industrialization: These banks play a role in promoting industrialization by providing
funds and support to industries, especially in sectors crucial for development.

iv.) Risk Financing: Development banks often take on more significant risks than commercial banks by
financing projects that may be considered risky but have the potential for substantial developmental
impact.

v.) Technical Assistance: Development banks may offer technical expertise and advisory services to help
projects succeed and contribute to sustainable development.

vi.) Regional Development: Some development banks focus on regional development, addressing
economic disparities and promoting balanced growth across different regions.
Each type of bank serves specific roles within the financial system, catering to different needs and
contributing to economic development in various ways.

10.)Financial inclusion?

Ans. Financial inclusion refers to providing individuals and businesses access to essential financial
services, including banking, credit, insurance, and investments. The goal is to promote economic stability
and empower people in underserved or unbanked populations. It often involves leveraging technology
and innovative approaches to bridge gaps in financial access.

Short notes

1.) NBFC (Non-Banking Financial Companies)

Ans. Non-Banking Financial Companies (NBFCs) are financial institutions that provide banking services
without meeting the legal definition of a bank. They engage in activities like lending, investments, and
asset management. Unlike banks, NBFCs cannot accept demand deposits and do not form part of the
payment and settlement system. They play a crucial role in expanding financial inclusion by reaching
segments not adequately served by traditional banks. NBFCs are regulated by the Reserve Bank of India
(RBI) in India and by similar regulatory bodies in other countries.

2.) Financial market

Ans. A financial market is a platform where buyers and sellers engage in the trade of financial assets such
as stocks, bonds, currencies, and derivatives. It serves as a mechanism for price discovery, liquidity, and
capital allocation. Financial markets can be classified into primary markets (where new securities are
issued) and secondary markets (where existing securities are bought and sold). Participants include
investors, institutions, and intermediaries. These markets can be physical locations like stock exchanges
or electronic platforms facilitating online trading. Effective functioning of financial markets is crucial for
the efficient allocation of resources in an economy.

3.) Financial service

Ans. Financial services encompass a broad range of economic activities that facilitate the management of
money and financial transactions. These services include banking, insurance, investment, wealth
management, and payment services. Financial institutions, such as banks, credit unions, insurance
companies, and investment firms, provide these services to individuals, businesses, and governments.
The sector plays a pivotal role in supporting economic growth by fostering savings, risk mitigation, and
efficient capital allocation. Advancements in technology have led to the emergence of fintech, which
leverages digital innovation to enhance and expand financial services.
 4.) Banking ombudsman

Ans. The banking ombudsman is an independent authority appointed to resolve customer complaints
against banks in a fair and impartial manner, providing an alternative to legal proceedings. This
mechanism aims to ensure efficient redressal of grievances and maintain transparency in the banking
sector.

5.) Insurance ombudsman

Ans. The insurance ombudsman serves as an impartial adjudicator for policyholders’ complaints against
insurance companies. This regulatory body aims to resolve disputes efficiently, ensuring fair treatment
and adherence to contractual terms. It provides an accessible avenue for policyholders to seek resolution
without resorting to legal action, fostering trust in the insurance industry.

6.) Malhotra committee reform

Ans. The Malhotra Committee, formed in 1993, was a significant step in the reform of the insurance
sector in India. Led by former Finance Secretary R.N. Malhotra, the committee recommended
comprehensive changes to liberalize and modernize the insurance industry. Its key suggestions included
allowing private players into the insurance market, increasing the foreign direct investment (FDI) limit,
and introducing regulatory bodies to oversee the sector. These reforms paved the way for the opening
up of the insurance industry, promoting competition and improving services for consumers.

7.) Financial literacy

Ans. Financial literacy refers to the ability of individuals to understand and use various financial skills,
including budgeting, saving, investing, and managing debt. It empowers people to make informed
financial decisions, navigate the complexities of the financial system, and plan for their future. Financial
literacy is crucial in promoting economic well-being, reducing financial stress, and fostering a financially
responsible society. Efforts to enhance financial literacy often involve education programs and resources
aimed at equipping individuals with the knowledge and skills needed to navigate the financial landscape
effectively.

8.) E-banking

Ans. E-banking, or electronic banking, refers to the use of electronic channels, such as the internet and
mobile devices, for conducting various banking activities. This includes online account management,
fund transfers, bill payments, and accessing financial services remotely. E-banking provides customers
with convenience, real-time access to their accounts, and the ability to conduct transactions 24/7. While
enhancing efficiency, it also poses challenges related to cybersecurity and privacy, necessitating robust
security measures to protect users’ financial information in the digital space.
 9.) Life insurance claim settlement

Ans. Life insurance claim settlement is the process by which an insurance company disburses the sum
assured to the beneficiaries or nominees upon the death of the insured. It involves the submission of
required documents, such as the death certificate and policy-related papers, by the claimants to the
insurance company. The insurer then assesses the validity of the claim and, if approved, releases the
funds to the beneficiaries. Efficient and timely claim settlement is crucial for providing financial support
to the deceased’s dependents and maintaining trust in the life insurance industry. Clear communication
and documentation are key factors in expediting the claim settlement process.

10.)General insurance claim settlement

Ans. General insurance claim settlement involves the process by which an insured individual or entity
receives compensation from the insurance company for covered losses, excluding life insurance. When
an insured event occurs, such as damage to property or a liability claim, the policyholder submits a claim
to the insurer. The insurer then assesses the claim’s validity, often through inspection and
documentation verification. Once approved, the insurance company disburses the agreed-upon amount
to the policyholder to cover the incurred losses. Efficient and fair general insurance claim settlement is
essential for maintaining trust between insurers and policyholders, contributing to the overall reliability
of insurance services.