A bank is a financial institution that accepts money from the public and lending to people by loans with demand. Banking is a system that provides a safe place to save our money and supplies liquidity to the economy by providing loans to help businesses and also for the public to buy consumer products like homes, cars, lands, etc. Bank acts as a mid-way between savers and users of money. There are different types of banks. They are central banks, commercial banks, development banks, Cooperative banks, rural banks, etc. We can say that banking has gone through a metamorphosis. Nowadays there are a lot of ways to deposit and withdraw our money. With the advancement in technology, digital banking has reached its heights. Nowadays we use credit cards, debit cards, UPI transactions, Automated teller machines (ATM) for transactions of money.
WHAT DOES THE BANK DO?
- It collects money from the public through accounts.
- It lends the money to entrepreneurs through loans with demanding interest. It also issues loans to the public.
- The interest rate paid by the bank to the customers is less than the interest rate that the bank charges to the lenders. The difference between them is the gross margin.
- Banks’ s don’t work in isolation
- In India, all banks are regulated by the central bank i.e, The Reserve Bank of India (RBI).
COMMON BANKING PRODUCTS AVAILABLE:
- DEBIT CARDS: Debit card is the prepaid or pay now card that is linked to the card holder’s account. Debit cards quickly debit or subtract the money from one’s savings account. We can pay our expenses through debit cards. Once you use the debit card, the amount will be transferred to the merchant’s account. A debit card holds the card holder’s name, expiry date of the card, card number, card verification value (CVV). And the customer will be given a unique PIN (personal identification number) to access the card.
- CREDIT CARD: Credit card is postpaid or pays later card that draws money from the bank. The bank gives the grace period to pay the money he used. If the amount is not paid by the customer within the stipulated time, then the customer is charged with interest.
- AUTOMATED TELLER MACHINE (ATM): ATMs are used by banks for efficiently dealing the customers. Instead of going to the bank and filling the form to withdraw money, one can easily get their cash by using ATM. Insert the card and PIN then enter the amount you wish to withdraw. You can also transfer cash from your account to another account, view your account information using the ATM.
- ELECTRONIC FUNDS TRANSFER (ETF): This system helps to transfer the money in a faster way from one account to another. The sender and receiver of funds in this system may be in different cities and may have an account in different banks.
- TELEBANKING: Telebanking refers to banking on phone services. In this system, the user can access his/her account details in a telephone call by giving his/her PIN to the bank.
- MOBILE BANKING: A new revolution in e-banking is the emergence of mobile banking. In today’s world, most of us are using mobile phones. So, it becomes easier to transfer funds through mobile. Nowadays, we can pay the electric bills, gas bills, shopping bills, etc by sitting in the home with the help of a mobile phone.
WHAT TO LOOK FOR BEFORE INVESTING IN A BANK?
- GROSS NPA RATIO: NPA stands for Non-performing assets. The net NPA to loans ratio is to check the overall quality of the bank’s loan book. The higher the NPA, the higher is the risk to invest in this bank.
- NET NPA TO TOTAL ASSET: Net NPA is calculated by subtracting the provisions made from the gross NPA. The higher the net NPA, the worst the bank is.
- CASA RATIO: It stands for Current Account and Savings Account. Higher the CASA ratio, the better the bank is.
- NET INTEREST MARGIN: For banks, both the raw materials and finished product is money. So, the higher the net margin, the better the bank is.
- CAPITAL ADEQUACY RATIOS: It’s the bank’s capital ratio. The capital is lent to various parties at different risk proportions. The higher the capital adequacy ratio, the better the bank is.