Question: What are the main functions of banks?
Answer:
There are four types of banking
services. They are as follows-
1) Central banking services.
2) Commercial banking
services.
3) Specialized banking
services.
4) Non-banking financial
services.
Central banking services
The central bank of any
country-
1) Issues currency and bank
notes.
2) Discharges the treasury
functions of the Government.
3) Manages the money affairs
of the nation and regulates the internal and external value of money.
4) Acts as banker to the
govt.
5) Acts as banker’s bank.
Commercial banking services
Commercial banking services
include-
1) Receiving various types
of deposits.
2) Lending various types of
loans.
3) Extending some
non-banking customer services like facilities of locker, rendering services in
paying directly house rent, electricity bills, share calls, insurance premium
etc
Specialized banking services
They are estd for definite
specialized banking services like
1) Industrial banks to lend
long term loans and working capital for industrial purposes.
2) Land mortgage banks for
granting loans on equitable mortgage.
3) Rural credit banks for
generating funds for extending rural credit.
4) Developmental banks to
support any developmental activities.
These types of banks accept all
types of deposits but mobilize the amount in its specially focused area.
Non-banking financial services
Many banks are established for
carrying out non banking financial services. Mutual funds are institutions
accepting finances from its members and investing it in long term capital of
companies both directly in primary market as well as indirectly in the capital
market. Financial institutions acting as portfolio managers receive funds from
the public and manage the funds for or on behalf of its depositors. They
undertake to manage the funds of the principal so as to generate maximum
return.
Explain the role of banks in promoting economic development
Banks play a very significant
role in the economic development of the country. Banking system as a whole has
an imp influence on the tempo of economic activity. The economic importance of
banks are-
1) Banks mobilize the small,
scattered and idle savings of the people and make them available for productive
purposes. They help the process of capital formation.
2) By offering attractive
interests on the savings of the people deposited with them banks promote the habit
of saving in them.
3) By accepting the savings
of the people banks provide safety and security to the surplus money of the
customers.
4) Banks provide a
convenient and economical mean of transfer of funds from one place to another.
Even cheques are used for the movement of funds from one place to another.
5) Banks help the movement
of funds from one region where they are not very useful to regions where they
can be more usefully employed. By moving funds from one place to another banks
contribute to the economic development of backward regions.
6) Banks influence the rate
of interest in the money market, through the supply of money. They exercise a
powerful influence on the interest rate in money market.
7) Banks help trade,
commerce, industry and agriculture by meeting their financial requirements.
Without the financial assistance the growth of trade and commerce industry
would have been very slow.
8) Banks direct the flow of
funds into collective channels while lending money. They discriminate in favour
of essential activities as against non-essential activities. Thus they
encourage the development of right type of activities which the society
desires.
9) Banks help the
industrious, the prudent, the punctual, the honest and discourage the dishonest
by not giving finance for wrongful purpose. Thus banks act as public
conservator of commercial activities.
10) Banks serve as the best financial
intermediaries between the borrowers and the lenders.
11) Through the process of creation of
money, banks acquire control over the supply of money in the country. Through
their control over supply of money they influence economic activities,
employment, income and general price level in the economy.
12) Banks monetize the debts of others
that is cover t the debts of others into money by exchanging bank deposits in
return for securities.
Thus a strong and a sound
banking system is indispensable for the economic development of any country.
No comments:
Post a Comment