Banks are those organization or institutions which deal in exchange of money. They collect money deposits from one person and lend it to other, in shape of loans. In this way, banks regulates the idle money of the people, thus there is regulation of money in an economy, which shows the economic growth of the country. Banking is an old human society. When people know the importance of money as medium of exchange, they realize the importance of banking. Banking starts with receiving small deposits, and then notes are issued by gold smiths. After that, credit money started. In 17th century, cheque was issued first time by the banks. Now-a-days electronic banking takes birth.
Commercial banks are the back bone of any country. They perform many types of economic activities, which include receiving deposits of the customers and advancing loans. Commercial banks also provide certain facilities, like electronic banking, issuance of credit card, foreign exchange business transactions, and locker services, issuance of letter of credit, trade info, and utility bill collection. Commercial banks create credit which`s the most important function. As more the deposits are, more the credit creation. Commercial banks can create credit through granting of loans by over-draft, by discounting bill of exchange, and by making investment.
Central bank has the sole authority of issuing note. Industrial banks provide loans for establishing the industrial development of a country. Agricultural banks provide loans for the betterment of agriculture sector of a nation. Exchange banks deal in foreign currency. Investment banks are those which issue bond in securities. The saving banks are established to encourage the people by collecting their savings. Mortgage banks provide loans against the securities. Co-operate banks are those institutions, which deals in small business and provide small amount of loans to the people. Scheduled banks are those which registered in banking ordinance, they work under the rules and regulation of the law, mentioned in ordinance. Non-scheduled banks are not registered in banking ordinance, and are profits making organizations.
Banking plays an important role in an economy of the nation. As bank perform many activities, like transfer of money helps in import and export of the country. It encourages the savings of the people. It also increases the mobility in capital. Banks also act as an agent; they take security of the goods and wealth of people. And also promote capital and advises their customers in financial matters.
Banking sector uses different instruments which create credits. These instruments include negotiable and in negotiable instruments. Cheques, bill of exchange, and promissory note are included in negotiable, while letters of credit, Treasury bill are non negotiable instruments. Cheque is the best way to exchange of money. Crossed cheque, bearer cheque are the mainly used. Cheque can be dishonored if it`s not relevant to the same branch, if the amount of check differs in words and figures, there is cutting or alteration of check, if its mutilated cheque, or if signature are not matched or misplaced. Tone cheque and post-dated cheque can also be dishonored by bank.
Electronic banking plays an important role in the development of an economy. it`s also termed as Electronic Fund Transfer (EFT). Banking of electronic sector uses the computer and technology as a substitute for cheques. Providing the Automated Teller Machine`s facility, by giving ATM cards and Personal Identification Number (PIN) to their customers. ATM gives the facility to with draw of money, this services available at 24 hours. Electronic banking also provides debit and credit card facility to their customers, through which they can purchase without holding money. Electronic banking is the safe mode to exchange of money.
Banker is the one who deals in capital. Banker has a strong relationship with his customer, he make every tricks to encourage the people to make his customer, with the help of marketing. The relationship of banker and customer can be in many ways, like they may be debtor and creditor, or they can be principal or agent, lessor and lessee, mort gagor and mort gage, and bailer and bailee. The banker can provide the facility of discounting bills and payment of cheques but he can also refuse to payment if there is; credit balance, customers death, out dated cheque, joint account, closed account, company account, partnership account, and difference in words and figure in cheque.
Banks collect funds in shape of deposits of the people. Sources of collecting funds are time deposits and demand deposits. In banking sector, People deposits money in various accounts; like current account, fixed deposit account, profit and loss account, and foreign currency account. Banking sector use these funds as cash reserves, advancing loan, discounting bill, and also make investment in other business to earn maximum profit. Banking has much importance in the economy. And the whole process is considered a backbone in our system.