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Functions of Banks: The Functions of Banks mainly include accepting deposits and giving loans and advances to bank customers. All banks around the world generally serve their customers by taking their money as deposits and lending them money as loans. Apart from this, the bank has other functions that the bank performs like its service and organizational structure. In our blog, you can get the details of the Functions of Banks in India.
Functions of Banks
Knowing the various functions of banks in India is very important not only for the exam but also for practical reasons. Since many government and banking exams include questions about banks’ types, roles, and structure, candidates are expected to know about each of them and how banks perform different functions. To understand in detail how banks in India work, we must first learn the basics of banking. The primary functions of banks are divided into two types these are primary and secondary. The main functions of banks in India include:
- Accepting deposits
- Lending loans and advances
- Transfer of funds
- Issue of notes/ drafts
- Credit deposits
- Foreign exchange services
Primary Functions of Banks
Accepting deposits and issuing loans and advances are the two main functions of banks, which are described below:
1. Accepting Deposits
Banks accept deposits from their customers who can withdraw their money at will. Customers can deposit and deposit money in any bank account – savings account, current account, or fixed deposit. A savings bank also pays its customers interest on deposits. Such banks are very popular among small savers. A working account is a current account that can be used several times during the working day. Instead, a fixed deposit account is responsible for keeping deposits for a fixed term, and a higher interest rate is paid for such accounts.
2. Issuance of Loans and Advances
The bank lends money to those in need at a fixed interest rate. Banks give loans mainly to farmers, industrialists, and businessmen who intend to invest in their businesses for profit and promote the economic development of the country.
3.Issue of Notes/Drafts
The bank is also responsible for issuing bills of exchange and creating other convenient means of exchange in the form of bills or checks. In India, RBI is responsible for issuing currency notes and coins.
Banks create and facilitate the transfer of credit instruments such as bills, bank drafts, letters of credit, cheques, etc. These tools are very useful to save the use of metallic money and make money transfer cheap and convenient.
4.CreditDeposits
A bank can create deposits by offering loans to its customers. In such cases, the deposit is returned to the borrower and can be withdrawn if necessary. Customers usually deposit money borrowed from a bank in the same bank, either when the bank requires it or to take advantage of a checking account. Such deposits are also called Credit Deposits.
Indian Banking Structure
The Indian banking structure is generally classified into scheduled banks and non-scheduled banks. Scheduled banks are further divided into cooperative banks and commercial banks. Commercial banks include public sector banks, regional rural banks (RRBs), and foreign banks. The table below provides more information about different types of banks in India.
Types of Banks | Aspects |
Scheduled Banks |
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Non-Scheduled Banks |
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Commercial Banks |
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Public Sector Banks |
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Private Sector Banks |
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Foreign Banks |
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Regional Rural Banks (RRBs) |
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Cooperative Banks |
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What is e-banking?
Electronic banking or e-banking uses electronic means to allow customers to access their money. This eliminates the need for the customer to visit the bank to make a transaction. With the growth of the Internet, it has become even easier for customers to use Internet banking services. Internet banking has become convenient for both bankers and customers. Banks have to bear lower transaction costs as well as a significantly lower margin for human error. Fixed costs are also significantly reduced.
Customers have better access around the clock and do not have to visit the bank. This helps save the customer time and money. It also removes the geographical distance from certain banking transactions.
Types of Internet Banking
Internet BankingServices
Both monetary and non-monetary transactions can take place over the Internet. Customers can participate in various activities such as transferring money, checking balances and accounts, and paying electricity bills.
Automated Teller Machine (ATM)
An automated teller machine(ATM) is a computerized electronic device that allows customers to withdrawmoney, exchange personal identification numbers,and (in some cases) depositmoney.This eliminatestheentireneed forahuman interface.
Mobile Bank
TheMobileBank application is abankingweb portal that resemblesan onlinebank.Theapplication canbe downloadedto theiOS or Androidoperating systemand can beusedtoaccessbanking services.In addition to theusual services, it can also be used to locate thenearestATM to the customer.
Debit card
Debit cards allow customers to use money directly from their bank account. In this case, the transaction amount is deducted directly from the account. With a bank card, you can shop online, pay at POS points, and withdraw cash from an ATM. The banking world in India has seen major changes in recent times, which are sure to have far-reaching implications for the sector. Test your knowledge by finding the answers to the following questions.
Functions of Banks FAQs
Q1. What are the Functions of Banks?
Ans. The Functions of Banks are-
Accepting deposits
Lending loans and advances
Transfer of funds
Issue of notes/ drafts
Credit deposits
Foreign exchange services
Q2. What are the Types of Banks?
Ans. The different types of banks in India are – central banks, commercial banks, Specialised banks and Cq
Q3. What is e-Banking?
Ans. We have discussed the complete details of e-Banking including internet banking, ATM, Mobile Banking etc.