Banking Products & Services

The Banking sector offers several facilities to their customers including

safeguarding their money and valuables and providing them with numerous types
of credit loans to meet their many needs like home loans, consumer loans, personal
loans etc. Banks also provide additional services like credit, and payment services,
such as checking accounts, money orders, and cashier's cheques. The banks also
offer investment and insurance products. The key operational activities are listed
below:

1. Acceptance of Deposits
2. Lending of Funds
3. Clearing of Cheques
4. Remittance of Funds
5. Lockers & Safe Deposits
6. Bill Payment Services
7. Online Banking
8. Credit & Debit Cards
9. Overseas Banking Services
10.Wealth Management
11.Investment Banking
12.Social Objectives
Functions of Banking Industry

The banking industry is growing rapidly.. Bank provides various services and offer
many products. The following discussion explains key functions of the bank:

Provide security to the savings of customers by safeguarding it

Offering interest on the deposits kept with it
Control the supply of money and credit
Arrange funds to the parties who need them by borrowing from parties who have
surplus
Encourage public confidence in the working of the financial system
Increase savings speedily and efficiently
Avoid focus of financial powers in the hands of a few individuals and
institutions
Set equal norms and conditions to all types of customers

Dynamic Regulatory Environment

Banks operating in most of the countries are exposed to various stringent
regulations. Most governments enforce rules and procedures to govern their
operations and service offerings, and the manner in which they grow and expand
their facilities to better serve the public. A banker works within the financial
system to provide loans, accept deposits, and provide other services to their
customers. They must do so within a climate of extensive regulation, designed
primarily to protect the public interests. The main reasons why the banks are
heavily regulated are as follows:

• To protect the safety of the public's savings.

• To control the supply of money and credit in order to achieve a nation's broad
economic goal.
• To ensure equal opportunity and fairness in the public's access to credit and other
vital financial services.
• To promote public confidence in the financial system, so that savings are made
speedily and efficiently.
• To avoid concentrations of financial power in the hands of a few individuals and
institutions.
• Provide the Government with credit, tax revenues and other services.
• To help sectors of the economy that they have special credit needs for example
Housing, small business and agricultural loans etc.

Current Industry Trends

As a variety of models for cooperation and integration among finance industries
have emerged, some of the traditional distinctions between banks, insurance
companies, and securities firms are fast diminishing. In spite of all these
developments, banks continue to maintain and perform their primary role—
accepting deposits and lending funds from these deposits. During the recent times,
technological advances has enabled banks to extend their reach globally, and there
is no longer a need for customers to visit bank’s branches for every transaction, as
most of the transactions can happen online.

The growth in cross-border activities has also increased the demand for banks that
can provide various services across borders to different nationalities. Despite these
advances in cross-border activities, the banking industry is nowhere near as
globalized as some other industries. There is no doubt that “Technology” is going
to be catalyst in that growth, creating huge opportunities for professionals with
good understanding of banking industry domain.

Overview of Insurance Sector

Insurance is the equitable transfer of the risk of a loss, from one entity to another in
exchange for payment (known as insurance premium). It is a form of risk
management primarily used to hedge against the risk of a contingent, uncertain
loss. Insurance Industry manages the risk to people and businesses from the
dangers of their current circumstances.

Insurance is a contract between two parties, the insurer or the insurance company
and the insured or the person seeking insurance, whereby the insurer agrees to
hedge the risk of the insured against some specified future events or losses, in
return for a regular payment from the insured as premium. Insurance policy helps
in not only mitigating risks but also provides a financial cushion against adverse
financial burdens suffered. Insurance policies are a safeguard against the
uncertainties of life.

An insurer, or insurance carrier, is a company selling the insurance; the insured, or

policyholder, is the person or entity buying the insurance policy. The amount to be
charged for a certain amount of insurance coverage is called the premium. The
insurance company has to deal with the “Risk Management”, the practice of
appraising and controlling risk.

The transaction involves the insured assuming a guaranteed and known relatively
small loss in the form of payment to the insurer in exchange for the insurer's
promise to compensate (indemnify) the insured in the case of a financial (personal)
loss. The insured receives a contract, called the insurance policy, which details the
conditions and circumstances under which the insured will be financially
compensated.

How Insurance Works:

An insurer, or insurance carrier, is a company selling the insurance; the insured, or

policyholder, is the person or entity buying the insurance policy. The amount to be
charged for a certain amount of insurance coverage is called the premium. The
insurance company has to deal with the “Risk Management”, the practice of
appraising and controlling risk.

The transaction involves the insured assuming a guaranteed and known relatively
small loss in the form of payment to the insurer in exchange for the insurer's
promise to compensate (indemnify) the insured in the case of a financial (personal)
loss. The insured receives a contract, called the insurance policy, which details the
conditions and circumstances under which the insured will be financially
compensated.

Types of Insurance

Any risk that can be identified and quantified can potentially be insured. Specific
kinds of risk that may give rise to claims are known as perils. An insurance policy
will set out in detail which perils are covered by the policy and which is excluded.
Given below is a non-exhaustive list of the many different types of insurance that
exists in today’s world.

Auto Insurance/ Vehicle Insurance:

Auto insurance protects the policyholder against financial loss in the event of an
incident involving a vehicle they own, such as in a traffic collision. Any financial
loss arising due to accident of the vehicle owned by the policyholder is covered
under Vehicle Insurance policy. In some comprehensive policies the expenses on
medicines for treating injuries and any other medical expenses are also covered.
Coverage typically includes the damage to or theft of the car and legal
responsibility to others for bodily injury or property damage. Some policies may
cover the cost of treating injuries, rehabilitation and sometimes lost wages and
funeral expenses.

Gap Insurance:

Gap insurance covers the excess amount on your auto loan in an instance where
your insurance company does not cover the entire loan. Gap insurance is typically
offered by your finance company when you first purchase your vehicle.

Health insurance and Dental Insurance:

Health insurance covers various types of insurance related to health. Health

insurance is insurance against loss by illness or bodily injury. It provides coverage
for medicine, visits to the doctor or emergency room, hospital stays and other
medical expenses. Dental insurance, like medical insurance protects policyholders
for dental costs. In the US and Canada, dental insurance is often part of an
employer's benefits package, along with health insurance.

Accident, Sickness and Unemployment Insurance:

Workers' compensation, or employers' liability insurance, is compulsory in some

countries. Disability insurance policies provide financial support in the event of the
policyholder becoming unable to work because of disabling illness or injury. It
provides monthly support to help pay such obligations as mortgage loans and
credit cards. Short-term and long-term disability policies are available to
individuals, but considering the expense, long-term policies are generally obtained
only by those with at least six-figure incomes, such as doctors, lawyers, etc.

Casualty Insurance:

Casualty insurance insures against accidents, not necessarily tied to any specific
property. It is a broad spectrum of insurance that a number of other types of
insurance could be classified, such as auto, workers compensation, and some
liability insurances. Crime insurance is a form of casualty insurance that covers the
policyholder against losses arising from the criminal acts of third parties. Political
risk insurance is a form of casualty insurance that can be taken out by businesses
with operations in countries in which there is a risk that revolution or other
political conditions could result in a loss.

Life Insurance:

Life insurance is an agreement between insurer and policyholder that guarantees

payment of a stated amount of money and benefit either at the end of the policy or
at the death of the policyholder. Human life is subject to risks of death and
disability due to natural and accidental causes. When human life is lost or a person
is disabled permanently or temporarily, there is a loss of income to the household.
Life insurance provides a definite amount of money to the dependents of the
insured in case the insured dies during his active income earning period or
becomes disabled on account of an accident causing loss in his income earnings.
Life insurance provides a monetary benefit to a decedent's family or other
designated beneficiary, and may specifically provide for income to an insured
person's family, burial, funeral and other final expenses. Life insurance policies
often allow the option of having the proceeds paid to the beneficiary either in a
lump sum cash payment or an annuity.

Property Insurance:

Any financial loss to the property due to fire, theft, burglary or due to any other
natural calamity like flood, earthquake etc. are covered under Property Insurance
policy. This may include specialized forms of insurance such as fire insurance,
flood insurance, earthquake insurance, home insurance, inland marine insurance or
boiler insurance. The term property insurance may, like casualty insurance, be used
as a broad category of various subtypes of insurance. Home insurance, also
commonly called hazard insurance or homeowners insurance (often abbreviated in
the real estate industry as HOI), provides coverage for damage or destruction of the
policyholder's home.

Liability Insurance:

Liability insurance is a very broad superset that covers legal claims against the
insured. Many types of insurance include an aspect of liability coverage. The
protection offered by a liability insurance policy is twofold: a legal defense in the
event of a lawsuit commenced against the policyholder and indemnification
(payment on behalf of the insured) with respect to a settlement or court verdict.
Directors and officers liability insurance (D&O) protects an organization (usually a
corporation) from costs associated with litigation resulting from errors made by
directors and officers for which they are liable. Professional liability insurance,
also called professional indemnity insurance (PI), protects insured professionals
such as architectural corporations and medical practitioners against potential
negligence claims made by their patients/clients. Professional liability insurance
may take on different names depending on the profession. For example,
professional liability insurance in reference to the medical profession may be
called medical malpractice insurance.

Credit Insurance:

Credit insurance repays some or all of a loan when certain circumstances arise to
the borrower such as unemployment, disability, or death. Mortgage insurance
insures the lender against default by the borrower. Mortgage insurance is a form of
credit insurance, although the name "credit insurance" more often is used to refer
to policies that cover other kinds of debt. Credit insurance provides a business with
protection against the failure of a customer to pay their trade credit debts. This can
arise as a result of a customer becoming insolvent or because your customer fails
to pay within the agreed credit period. Credit insurance can reduce the unnecessary
cost of bad debt and protect the hard-earned success.

Travel Insurance:
Travel insurance is an insurance cover taken by those who travel abroad, which
covers certain losses such as medical expenses, loss of personal belongings, travel
delay, and personal liabilities. Travel insurance is the cover against risks during
domestic or international travel. A standard travel policy covers death, personal
accident, medical expenses, repatriation, loss or delay of checked baggage,
passport loss and third party liability.

Reinsurance:

Reinsurance is a type of insurance purchased by insurance companies or self-

insured employers to protect against unexpected losses. Financial reinsurance is a
form of reinsurance that is primarily used for capital management rather than to
transfer insurance risks

How money is made in Insurance Business:

The major income sources for Insurance Company are Earned Premium and
Investment Income. The expenses are Incurred Loss/Claims and Underwriting and
Other Expenses.

Earned premium, a source of income, is the total of all the premium payments
received by an insurer for the current coverage period. Premiums are not
considered "earned" until the policy period they cover is over. Investment income
is the residual income generated as a result of investing premiums in the capital
markets. Investment income also includes annuity considerations and asset
earnings.

Incurred loss is the sum of all claims paid, adjusted by the change in claims reserve
and related claim expenses for the same accounting period. Underwriting expenses
include all the costs associated with a policy, including commissions and the
portion of administrative, general, and other expenses attributable to underwriting.
Clubbed with other expenses the profit for the Insurance company is calculated by
subtracting from the total revenue.
Financial Institutions

What is a financial Institution?

A financial institution is an institution that provides financial services for its clients
or members. Probably the most important financial service provided by financial
institutions is acting as financial intermediaries. A bank is a financial intermediary
for the safeguarding, transferring, exchanging, or lending of money. The
government to safeguard depositor’s money generally heavily regulates most
financial institutions.

What are Financial Intermediaries?

Funds flow from lenders to borrowers indirectly through financial intermediaries,

such as banks, or directly through financial markets, such as the New York Stock
Exchange. If you get a loan from a bank the flow of funds to you as a loan is
known as indirect finance. The flow is indirect because the funds that the bank
lends you came from people who have put money in checking or savings deposits
in the bank. Hence, the bank is not lending its own funds directly to you. On the
other hand, if you buy stock that a firm has just issued, the flow of funds is direct
finance because the funds are flowing directly from you to the firm.

Types of Financial Institutions:

There are two primary types of financial institutions.

Depository Intermediaries are those that get funds from the public and use them
to finance their business. These are deposit-taking institutions that accept and
manage deposits and make loans, including banks. Depository intermediaries
receive deposits from customers and use the money to run their businesses. These
institutions may have other sources of income, but the bread and butter of their
business is handling deposits, paying interest on them, and lending money based
on those deposits.

Non-depository Intermediaries are those that do not take or hold deposits. They
earn their money selling specific services or policies. Examples are building
societies, credit unions, trust companies, mortgage loan companies and other
 contractual institutions like insurance companies, pension funds, investment
institutes, investment banks, underwriters and brokerage firms. As the name
suggests, non-depository intermediaries do not take deposits. Instead, they perform
other financial services and collect fees for them as their primary means of
business. In many cases, these institutions are private companies. Although the
government may regulate them, they are usually not backed or protected by the
government.

Distinction between Depository and Non-Depository:

A wide range of financial services is available from both depository and non-
depository intermediaries. Most of the non-depository institutions are private
companies earning money by performing specific services. You do not make
deposits, earn interest, or have checking or savings accounts with them. Non-
depository institutions are a part of the financial world and help move money
through the economy. However, they are not part of the banking system and may
not really be considered to be in the business of banking.

Financial Markets

A financial market is a market in which people and entities can trade financial
securities, commodities, and other financial assets at prices that reflect supply and
demand. Financial markets are places or channels for buying and selling stocks,
bonds, and other securities.

Securities include stocks and bonds, and commodities include precious metals or
agricultural goods. Markets work by placing many interested buyers and sellers,
including households, firms, and government agencies, in one "place", thus making
it easier for them to find each other. Traditionally dealers who would meet face-to-
face in the physical markets traded stocks and bonds. Today, most securities
trading takes place electronically between dealers linked by computers and is
referred to as “over-the-counter” trading.

Financial markets facilitate:

 The raising of capital (in the capital markets)

 The transfer of risk (in the derivatives markets)
 Price discovery
 Global transactions with integration of financial markets
 The transfer of liquidity (in the money markets)
 International trade (in the currency markets)

How the Financial System Works?

The financial system matches depositors and borrowers broadly by using two
channels; first being the banks & other financial intermediaries and the second
being the financial markets. These two channels are different because of the way
the funds flow from depositors, or lenders, to borrowers and by the financial
institutions involved.

Both Savers (Depositors) and borrowers can be households, firms, or governments,

both domestic and foreign. Savers receive their returns in various forms, including
dividend payments on stock, coupon payments on bonds, and interest payments on
loans. Financial markets facilitate the buying and selling of financial assets and
maintain liquidity in the market when depositors or savers want to have their
money back.

Key Services of the Financial System

Effective Payment System:

One of the biggest services provided by financial system is the effective payment
system. Financial systems make is possible in any economy the usage and
availability of money for its various purposes. The efficiency of any financial
system is the ability of its institutions (banks, trust companies, credit unions, and
so on) helping billions of exchanges to happen amongst millions of people
participating in the financial system. The financial system helps the process of
exchange by making it easier to exchange goods and services by enabling
consumers to purchase goods and services using money that the system helps to
provide and circulate.
Secondly effective payment system enables the usage of negotiable instruments
like cheques or promissory notes. In an economy with only cash, all transactions
have to be made in cash, which is not only burdensome but also risky. Financial
institutions and a financial system overcome the problems and risks of dealing in
cash. Cheques can be used to make many transactions, particularly larger ones,
easier and safer.

Intermediary to Investors and Borrowers:

In addition to providing an effective payments system, the financial system acts as

an intermediary, linking savers and borrowers and enabling purchasing power to be
transferred from one group to another. Financial intermediaries facilitate this
process by raising funds from depositors and lending the same funds to borrowers.
Commercial banks play a key role in the financial system by taking in deposits
from households and firms and investing most of those deposits, either by making
loans to households and firms or by buying securities, such as government bonds
or securitized loans.

Sharing of Economic & Financial Risk:

We know that the value of financial assets change over period based on a number
of factors. Some factors could be interest earned or expanded, inflation, growth of
economy, price in the share market, demand and supply ratio etc. Risk is the
chance that the value of financial assets will change relative to your expectation or
your current value. The financial system makes it possible for individual depositors
and borrowers to share the risk.

Diversification:

Most individual investors want to have a steady return on their assets rather than
erratic swings between high and low earnings. One way to improve the chances of
a steady return is by holding a portfolio of assets. This helps in distributing the
risk. For example, during any particular period one asset or set of assets may
perform well and another not so well, and having a diversified portfolio, tend to
average out the earnings. This splitting of wealth into many assets is known as
 diversification. The financial system provides risk sharing by allowing investors to
simultaneously invest in and hold many assets.

Liquidity:

The ability of the financial system to provide risk sharing added with the capability
to make investments repayable on demand, makes investors more willing to buy
stocks, bonds, and other financial assets. This willingness, in turn, increases the
ability of borrowers to raise funds in the financial system. This generates liquidity
on the systems. Liquidity is the ease with which an asset can be exchanged for
money. Liquid assets can be quickly and easily exchanged for money, while less
liquid or illiquid assets can be exchanged for money only after a delay or by
incurring costs. During the past two decades, the financial system has increased the
liquidity of many other assets besides stocks and bonds. The process of
securitization has made it possible to buy and sell securities based on loans. As a
result, mortgages and other loans have also become liquid assets that investors are
holding today.

Financial Information:

Financial system also facilitates collection and communication of information, or

facts about borrowers and expectations of returns on financial assets. Financial
intermediaries collect information on borrowers and perform their research to gain
ability to forecast likelihood of borrowers repaying the loans advanced to them.
Because these financial intermarries specializes in collecting and processing
information, the costs for information gathering are lower and available to a pool
of information users as many financial systems share the information with each
other. Further the financial markets convey information to both savers and
borrowers by determining the prices of stocks, bonds, and other securities. The
incorporation of available information into asset prices is an important feature of
well-functioning financial markets.

Associated Job roles in BFSI:

 Insurance agents: Insurance agents are professionals who represent an insurance
firm and sell policies to people on its behalf. Since this is a commission-based
service, agents try to attract as many clients as possible to generate maximum
 value for their respective insurance companies. They are the official
representatives of the company.
 Bank and Financial product sales executive: Bank sales consultants and sales
managers are responsible for handling and looking after the sales of all bank
products and financial services to the clients. Products include loans, credit cards,
mortgage, etc
 Equity product sales executive: Equity sales executives and/or equity dealers are
responsible for researching latest equity trends, fund management, and generating
total returns on allotted assets
Investment representatives: Investment representatives/financial
planners/advisors are professionals who work at either banks, credit unions, or
investment firms to provide advice related to investment products and other
financial services.
 Insurance agents: Insurance agents are professionals who represent an
insurancefirm and sell policies to people on its behalf. Since this is a commission-
based service, agents try to attract as many clients as possible to generate
maximum value for their respective insurance companies. They are the official
representatives of the company.
 Bank and Financial product sales executive: Bank sales consultants and sales
managers are responsible for handling and looking after the sales of all bank
products and financial services to the clients. Products include loans, credit cards,
mortgage, etc
 Equity product sales executive: Equity sales executives and/or equity dealers are
responsible for researching latest equity trends, fund management, and generating
total returns on allotted assets
 Investment representatives: Investment representatives/financial
planners/advisors are professionals who work at either banks, credit unions, or
investment firms to provide advice related to investment products and other
financial services. They offer representation and advice for various financial
products like - Annuities, Estate planning, Insurance, Mutual funds, Retirement
plans, Stocks, Education savings, and Trust funds
 Stockbrokers: Stockbrokers are registered specialists associated with brokerage
firms or are independent brokers who are responsible for buying and selling stocks
and other similar securities for retail as well as institutional patrons. The job is
usually carried out in exchange of a set fee or commission
Salary/Remuneration Package: Freshers in the BFSI industry can expect to get
up to Rs 10,000 to Rs 12,000 per month, while those with an experience of one
year and more can take home approximately Rs 15,000 to R 30,000. A seasoned
professional can also earn lots of incentives, like a 7-30 per cent share in sales
depending on the level of task accomplished.
Career projection: Individuals in this line of work can expect to take on advisory
roles after two to three years depending on their skills and industry knowledge.
Skills required: While each job role in this industry will require specific skills, the
most common requirements are: Proficiency in sales, stock market knowledge,
mathematical aptitude, mutual fund awareness, and knowledge about banking
operations.
Other aspects like good communication skills, confidence, and being well-groomed
can help individuals succeed, not just in the BFSI sector, but other industries as
well.
Apart from the skills mentioned, those looking for a career in the BFSI sector can
also improve their industry expertise by earning certificates, which can become an
added bonus to their budding career. Some companies organise regular training
sessions for employees to keep them abreast of latest trends in this space and
improve their efficiency.
Furthermore, earning certification from institutions like the National Institute of
Securities Markets (NISM), the Association of Mutual Funds in India (AMFI), and
Insurance Regulatory and Development Authority of India (IRDA) can help
candidates get lucrative job offers without any hassle.

Role of Banks in the Economic Development of a Country

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. Bank loans facilitate commerce.

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 stimu-
lated and the volume of savings increases. The savings can be utilised to produce
new capital assets.
Thus, the banks play an important role in the creation of new capital (or capital
formation) in a country and thus help the growth process.

Banks arrange for the sale of shares and debentures. Thus, business houses and
manufacturers can get fixed capital with the aid of banks. There are banks known
as industrial banks, which assist the formation of new companies and new
industrial enterprises and give long-term loans to manufacturers.

The banking system can create money. 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. This is
particularly important in international trade when the parties reside in different
countries and are very often unknown to one another.

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.

There are special types of banks which provide facilities to different kinds of
economic activities. Now-a-days in every country there is a central bank which
controls the activities of all other banks, endeavours to keep the price level steady,
and controls the rates of foreign exchange.

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).

Banking thrive on the financial intermediation abilities of financial

institutions that allow them to lend out money and receiving money on
deposit. The bank is the most important financial intermediary in the economy
as it connects surplus and deficit economic agents.

When you deposit your money in the bank, your 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 and sometimes the opportunity to earn interest on your deposits.

Services like current and savings accounts provide convenient ways for you to
pay your bills without the hustle of using cash. At the same time, when you
run short of liquidity, the bank is able to give you some advance to cover up
for your shortfall through other depositors funds.

In the absence of banks; where would you go to borrow money? What would
you do with your savings? Would you be able to borrow (save) as much as
you need, when you need it, in a form that would be convenient for you? What
risks might you face as a saver (borrower)?

Because of the power of financial intermediation of the banks, these puzzles

are resolved through the banking system hence they cease to be your problem
but the banks problem.

Banks are vital institutions in any society as they significantly contribute to

the development of an economy through facilitation of business. Banks also
facilitate the development of saving plans and are instruments of the
government’s monetary strategy among others.
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. Banks are the main direct providers of
liquidity, both through offering demand deposits that can be withdrawn any
time and by offering lines of credit. Further, banks and their affiliates are at
the core of the financial markets, offering to buy and sell securities and
related products at need, in large volumes, with relatively modest transaction
costs.

Risk management services — Banks allow businesses and households to pool

their risks from exposures to financial and commodity markets. Much of this
is provided by banks through derivatives instruments transactions. Banks also
enable individuals and businesses to take part in the global foreign exchange
and commodity markets indirectly. It would be very difficult for example for a
small company needing only a few million Japanese yen to import a vehicle
from Japan to get onto the global currency markets without the aid of a bank.

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. It has
facilitated transactions in distant places. This, in turn, has expanded the
internal and external trade and market. The men have become free of the risks
of carrying cash, gold, silver etc. The credit instruments issued by banks such
as cheque, draft, Real time gross settlement, credit cards have facilitated the
transfer of money.

Rapid Economic Development — The banks make available loans of different

periods to agriculture, industry and trade. They make direct investments in
industrial sectors. They provide industrial, agricultural and commercial
consultancy hence facilitating the process of economic development.

Promotion of Entrepreneurship — The role of private sector is crucial in

accelerating the pace of economic growth. The banks increase the
participation of the private sector in economic development by making
available the loans easily on reasonable rate of interest. The expansion of
financial sector encourages entrepreneurs to make investments by promoting
entrepreneurship

The aim of the banking system is to provide security and confidence in the
economy. If banks were allowed to go bankrupt and consumers lost savings; it
would cause widespread financial panic and many consumers would withdraw
their savings and hold as cash. If there was a withdrawal of money it would cause a
shortage of funds for lending. This is why Central banks act as lender of last resort.