LOVINA TUTORIALS

BANKING AWARENESS
Chapter 1 – HISTORY OF BANKING

What is a Bank?
• A financial Institution which acts as an
intermediary between those who have
surplus funds and those who need it.
• A financial institution that provides
banking and other financial services to
their customers.
• An Institution that provides
fundamental banking services such as
accepting deposits and providing loans.

BANKING

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• Banking is a legally defined activity
means it is governed by the strict rules
and regulations.
• According to Section 5b of Banking
Regulation Act, 1949 “Banking is
defined as the acceptance of money
from the public for the purpose of
lending and/or investment.
• Banking thus refers to -
→ Accepting of deposits from the public.
→ Advancing of loans .
→ Withdrawl of money on demand or
through cheque.
• Besides these functions Banks are
allowed to undertake several other
functions like bank guarantees,
bond/debentures, letter of credit, bill
business etc as mentioned in Sec. 6 (BR
Act, 1949)

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 • Also, now adays Banking covers a large
no. of activities also like issuance of
debit/credit cards, providing safe
custody of valuable items, locker
facility, ATM Services, transfer of
funds, etc.

UNIQUE FEATURES OF BANKING

1. It is necessary for banks to incorporate
words like bank, banking, banker etc in
their names.
No organization is allowed to use such words
as part of its name.

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2. The banks are allowed to issue cheques
and no company other than a bank can
issue its own cheques.

3. The deposits are repayable on demand i.e.

whenever a depositor wants to withdraw
the money, bank will pay the money,
subject to applicable rules.
No company other than a bank can accept
deposits payable on demand.

BANKING COMPANY
• A company registered under the
companies Act, which transacts the
business of Banking as defined in
Banking Regulation Act is known as
Banking Company.
• Whereas some banks are statutory
organisations others are in the form of
registered company.
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TYPES OF BANKING
1. Branch Banking:
Branch of a bank is the face of the bank
where customers can visit and get
various services. The banks carry their
operations with the help of branch
network.

2. Online Banking:
Also called as Internet Banking. It is an
option offered by the banks in which
customers can get their services on
internet i.e. they can manage their
account over the internet. In this form
of banking customers do not need to
visit a physical bank branch and can
avail banking services like Bill
payment, fund transfer, viewing

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 account balance, bank statements 24*7
over the internet.

3. Retail Banking:
Works with individual customers
rather than companies or firms offering
basic banking services.
Also known as Consumer Banking.

4. Wholesale Banking:
Involves banking services for high net-
worth clients like corporates,
commercial banks, mid-size companies
etc.
Services involve wholesaling, mergers
and acquisitions, joint ventures, fund
management, etc.

5. Universal Banking:

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 Here, Financial Institutions and Banks
are allowed to undertake all kinds of
activities of banking, financing and
related businesses like Commercial
Banking, Investment Banking, and
insurance etc.

6. Rural Banking:
Simply a banking service that serves
smaller, rural communities.

7. Mixed Banking:
When the banks undertake activities of
commercial and investment banking
together, it is called Mixed Banking.
Helps in promoting rapid
industrialization.

8. Relationship Banking:

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 Involves going beyond the normal banking
services and understanding customers’
needs before offering him any special
product/service. The knowledge about
existing and potential clients is essential for
all banks.

9. Social Banking:
The concept of social banking was to
provide banking for the poor population. It
works for their development needs,
providing them with easy formal credit,
minimum requirements to open accounts,
ease of access and friendly staff, etc.

10. Chain Banking:

When a group of persons come together to
own and control three or more
independently chartered banks, it is called
chain banking.
Their management can also be established
via board of directors.
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11. Unit Banking:
Originated in USA.
A limited way of banking where banks
operate only from a single branch, taking
care of the local community.
It may have few branches but in same area.

12. Correspondent Banking:

An arrangement where one bank hold
deposits on behalf of the other bank. It
plays crucial role in supporting
international trade.
The services which come under this type of
banking are cash/fund management,
international fund transfers, clearance of
cheques, drawing of demand drafts, etc.

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