Read about what is banking definition, role of banking in an economy development, services offered by banks, factors for survival of banks. Banking is none other than business of accepting deposit and lending money to the public, individuals, entities. Banks accept the deposit from people to keep the money safe owned by them. Then lend out the money to the people who need it. Banks earn the profit by lending the money with interest.
Definition of banking and role of banking in economy growth and development
Different services offered by banks :
In modern time, banks have widened their banking activities. They are also offering other services to earn profit. Some of services other than deposit and lending are : credit card, debit card, safe deposit locker, ATM services, Net Banking, Mobile banking, NEFT, RTGS, insurance etc.
Banks are growth engine of economy and development :
Banks are the growth engine of any economy , plays a very important role in economy by mobilizing the blocked money. For example, if you have physical cash of rupees one lakh in your safe, but it is of no use now for you. If you deposit the money in bank, bank will not keep that amount in locker or safe. They lend the money to people who has use or need of it. Thus bank function as intermediary by pooling savings and channelizing then in various section of society for productive purpose.
Banking seems to be simple method or activity of accepting deposit and lending the money to borrower. If you imagine the world without bank today, your saving will be at your home in locker, any startup or entrepreneurs will find difficult to start business for lack of money, middle class people dreaming to buy home or purchasing card would not be able to do so, bright students seeking finance for their study would not be able to study further thus the economy and development of any country would come to halt.
In simple words, we can define the Bank as a financial institution that accepts deposits and lends the same to needy people to earn profit.
What is a Banking Institution and system?
You can define banking institution as any company engaged in banking business as defined above. Banking System is a mechanism which plays an important role in controlling and creating the money supply in market.
Most important factors for banks to survive
“Trust” is the most important elements in banking system. You will deposit the money in a bank only when if you have trust over that banking institution that money will be given back to you on demand.
In modern time, there are many factor which play the important role in survival for any bank. Some of the factors are Service, interest rate (on fixed deposit, loan etc), Ease of using service . People will prefer to open bank account in only that bank which give fast service. Customer will prefer the bank with high return or interest on fixed deposits, recurring deposit.