Banking in order to improve people's living standards

The Reserve Bank of India is the Central Bank of India that takes all financial decisions under the Finance Ministry. The RBI has wide powers to monitor and control the banking structure of India and handle all monetary and banking structures of the country.

image in public domain edited MSPaint

The central banking systems of different countries, for example, the Federal Reserve Bank of America and the Bank of England in the UK, have the authority to plan and implement monetary and credit policies. The same way, The Reserve Bank of India is the central bank of our country. It occupies the highest position in the banking configuration. The Reserve Bank of India carries out various development and promotional functions under the RBI

The Reserve Bank of India handles exchange, remittance, and other banking operations, including managing the receipts and payments of the Central Government and the public debt of the Government. Also, the Reserve Bank of India handles foreign business on behalf of the Government of India.

The Reserve Bank of India carries on the normal banking business of governments through its own offices and commercial banks, both public and private, appointed as its agents. The RBI appoints scheduled commercial banks in various sectors as its representatives all over the country.

Indian banks work in various categories as commercial banks to provide service to various sectors in various areas. These banks are further classified into private, public, foreign, regional and rural banks. A commercial bank is an institution that accepts deposits, grants private and business loans, and offers services related to various financial services, such as accepting deposits and lending loans and advances to common customers and businesses.

Public Sector Banks:

Public-sector banks include nationalized banks, the public sector banks which account for 75 percent of the total banking business in our country. State Bank of India is the largest in public sector banks. Other leading banks in the public sector are Punjab National Bank, Bank of Baroda, etc.

Private Sector Banks:

Private sector banks in India have the majority shares or equity held by private shareholders, with no government share but run under government policies. Some of these private sector banks include Axis Bank, HDFC Bank, Kotak Mahindra Bank, Yes Bank, IDFC Bank, ICICI, etc.

*Foreign Banks like Citibank, HSBC, Standard Chartered, etc. in India run under their home countries but under the local banking rules. The credit limit for these banks depends on the capital base of the parent bank, so foreign banks provide more loans than other subsidiary banks do. At present, there are 36 foreign banks in India.

The primary aim of the Regional Rural Banks is to provide credit to the rural population and now our government is providing various subsidies and help to our rural citizens direct into their bank accounts. So I can say that banks in India play an important role in rural and urban population alike.

The role of banks in the economic development of the country

collection of savings

Capital Formation

Useful to the entire economy

Risk Management

The way the banking institutions finance economic activities with their activities, an all round development gets momentum. The basic function of these institutions is to collect savings and use them for productive work. Thus, these institutions are the links between demand and supply, i.e., depositors and credit seekers.

Capital Formation is the primary aim of the banking sector, which is useful to the entire economy. Banking institutions move the financial market and provide it with strength and stability, which leads to the expansion of activities related to production, consumption, and exchange.

Risk Management

Banking institutions collect money from the public and make investments from it. Because of the colossal size of the institutions, the services of large-scale investment experts, etc., the exposure by these institutions leads to minimizing risk, which benefits small savers. These savers also take advantage of their savings with interest in the long run.

creation of a new fund

Banking institutions create new funds or create credit through their financial activities. Banks help generate financial assets through their lending and deposit activities by using direct and indirect funds in various ways. Banking institutions significantly increase the stock of financial funds available in the financial market.

Benefits for Industry and Trade

Banking institutions fulfill the financial needs of business and industry through loans. On the one hand, these institutions convert the savings of businesses and industry into investments, and on the other, they also fulfill their financial demands. In this way, it performs very important work for trade and industry.

Liquidity in the Financial Market

Banking institutions can easily convert any asset into cash quickly and help maintain liquidity in the financial market. Financial institutions provide liquidity on short-term by financial institutions, which keeps the cash flow consistent and is one of the major source of banks.

Stability in the Financial Market

Banking institutions buy and sell various assets and liabilities, which establish coordination between the demand and supply of money in the financial market. Banking institutions also provide stability to the financial market by dealing with various types of securities and trading.

Important for the government

Banking institutions, on the one hand, help in buying and selling securities for the central government and also provide financial assistance to the state governments by buying securities. Banking institutions act as mediators for a smooth flow of funds between the central and state governments as well.

Beneficial for Lenders

Banking institutions contact the lenders for the borrowers. By depositing the financial funds of the lenders, they provide them with an interest as interest and, taking their own risk, give the money to the borrower as a loan and get the return as interest.

This increases the demand for goods and services in the market. In this way, these institutions benefit themselves, and the lenders also benefit.

Interest rates

Savings accounts range from 2.5 to 3%.

Fixed deposit: 3.5 to 7%

Recurring deposit same as on FD

Commercial loan 5% to 9%

A house loan is the same as a commercial loan.

personal loan, depending on the time limit and return of capital amount.

If we analyses the functions of banks, it will reveal the importance as there will hardly be any section of society that does not need their services. Banks have utility in all aspects of the economy, such as production, exchange, distribution, and revenue.

Banking institutions mobilize savings, maintain flexibility in the monetary system. Payments transferred easily therefore the banks have become so important in the modern day that we can’t even imagine life without banking system.

Financial Assistance

Banks not only collect financial funds, but these funds also flow continuously as finance to various sectors of the economy through loans, advances, cash-credits, overdrafts, reduction of bills of exchange, etc. Banking institutions not only help in accumulating economic resources, but they also contribute to the economic progress of the nation by using these resources in productive areas.

Accumulation of Capital

Banking institutions make possible the aggregation of capital funds by collecting the savings of the general public in the form of bank deposits in the course of their normal business activities. The banks provide support in the process of capital formation through individual and group savings.

Development of Industries

Financial institutions provide active cooperation in achieving the goal of planned industrial development.

Remittance Facilities

Banks provide different channels of remittance, such as checks, drafts, etc. As a result, the economic resources increases. These institutions continuously transfer funds from areas where there is surplus to the places where there is a shortage of funds thus keeping a balance on economy.

Creation of Credit

In the modern economy, “credit” is the lifeline of industry and trade. Credit facilities play an important role in the successful operation of business activities. The banks play an important role in currency circulation.

Banks monetize loans know as banks monetary debt- Banks generate demand deposits for other people’s loans against securities. The money generated by deposits is used to meet the financial needs of industry and trade.

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Expansion of Business Activities

The policy of credit expansion by banking institutions not only helps to maintain prices, but also has a tremendous impact on the expansion of economic and business activities. In the event of an increase or decrease in the amount of credit, business activities also increase or decrease. In a nutshell, banking institutions provide support to expand business activities.

The history of economic development is a testimony to the fact that there is a close relationship between the economic development of any nation and the banking system.

You can say banks are distributors of that liquid capital, which is the lifeline of our industrial and business activities and on which all economy depends.

Therefore, in every section of society, whether weak or upper class, professional or business class, individual or government sector, everyone is using banking facilities and taking its best advantage.

My Personal Banking

As far as my personal banking is concerned, I live in the capital city of my country, New Delhi, where every bank has multiple branches including all foreign banks. I bank with all three types of banks, namely the HDFC Bank, State Bank of India and an American Bank for my different needs. I have credit cards from an Indian and foreign bank and debit cards from all three banks.

However, I consider HDFC as my main bank for day-to-day transactions, as well as my bill payments on auto. I had mortgage for my house but I cleared that before taking an assignment in a foreign country back in 2010. Now I use my credit cards rarely or when there is an emergency, but I avoid using them.

Off late we have been hearing about online banks with no bricks and mortar but it will take time for them to reach to average person in India. So yeah, Banking is doing its best to improve people's living standards in all walks of life.

This post is in response to Banking in order to improve people's living standards by by @f2i5. I hereby invite @jurich60, @ edidiongeffiong and @doriscermeno27 for their views on this topic.

Disclaimer- Information about interest rates, etc. collected from various online sources which might differ or change from time to time.

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