banking System and its working.
Basic Idea About bank
Lets us know how our banking system works. They work because we trust on them and give our hard earned money to them. The bank utilizes that money to make extra money. They invest all money around the world. Banks get more credit from this investment and then return our money with some interest to our account. But we have still trust on the bank and continue to give our money to them. Lets us tell me what is the reason that make you force to keep your hard earned money in a bank rather than in your own locker. The bank is safe or you are greedy for the interest they have paid to you. The most accurate answer is if we have a money in your pocket then it might be easily spanned by you. Many people like a Credit card and Debit card given by the bank and they perform all their transactions by using this card. It is easy and safe to carry a card as compare to carry a money in your pocket. Your answer is any one among all the answer discuss above. Now a day people like electronic media such as ATM etc.. They do not want to pay their bill by writing on the Checkbook. They simply Swipe a card or use an internet payment option to pay all types of bill today. Lets us come to the main topic. In this article we are going to look how a banking system work and what are the requirement to start your own banking business and what make us to trust in them.
Define a bank
According to the definition:-
The banking system is a place where we can put our hard earned money as well as provide more Financial services to their customers. We can deposit our hard earned money in a bank and they also provide a different type of loan at the time of requirement. It is a backbone of our Indian economy. The most common function of a bank that they give different type of loan so that we can buy a Homes, Cars, Bikes, Start our business. The money is which you receive is not the money from a bank it is a money of their customer. They deposit the money in their account and bank give it to another customer and take some added interest too. When you go to the bank and deposit your hard earned money in your respective bank then that money is deposited in a large pool that is made especially by the bank along with all the other customer of a bank and at last it credited in your bank account. The money is deducted directly from your bank account number when you make any withdrawals from your bank account. In every six month an affordable amount of interest is added in your bank account number. In this process the bank also makes money. The banking system affects our Indian economy a lot. Let us see how it affects our economy. Suppose that when a any particular bank deposit a sum of amount 10 lakhs then according to the reserve requirement about 9 lakhs can be lent by the bank itself. After that this 9 lakhs is used by our Indian economy that is used for various purposes and at the last it is deposited into the other bank. The process continues each time till the amount is empty. Thus in this process this 10 lakhs can be used by our Indian economy.
Reason for the working of bank
The bank can run only because we trust in them. We put our money in a bank and suppose that when we demand our money it give to us. We must keep trust on being that every time pays to us. The money which we deposit in a bank and this money is given to other customer of a bank in the form of loans etc. It is a little fear in the mind that if you visit your bank and if you want a your hard earned money. Will you get it from a bank. It is very difficult to give all customers hard earned money at the same time. According to the act made by the Federal reserve it is essential for a bank to keep enough amount of money in the bank so that they can easily fulfill the demand of all customers at the same time. Suppose that a banking system has failed then at that moment your hard earned earned money is also protected and this is promise by an FDIC (Federal Deposit Insurance Corporation) The banking system is the largest network in the world and it insure you that your money is in the right hand. The most trust banking system is that which is regulated by the the government of India. And it also ensures customer too because the Government is itself a pillar of trust.
Various kinds of banks
There are different kinds of banks and their branches. All of them are looking different from each other.
If you are a business person then you move to the commercial banks that is mainly developed for them only. Now the time has change and commercial bank also opens for a common people too. Other classifieds kinds of banks are as Saving and loan banks, saving banks, Credit union banks and Cooperative banks. These all are known as a thrift institutions. This all banks are developing because to fulfill the demand of a customer that is not fulfilled by a commercial bank. If you're earning is low then there is a bank for you that is a saving banks that is found only in the middle or low class people. Another type of bank that is saving and loan bank that is founded in a year 1800.It is made for a People associated with a factory and people that earning is low as compare to other so that they can be able to buy their dream home. Suppose that you are a member of an organization or some company so that they can share a bond between them The basic purpose of a credit union bank is that you can get an emergency help in the form of money at any time against the traditional merchants who refuse to give loans. This money can be used for many purposes such as a money spent during medical emergency as well as for the repairing of your house. There is a difference between the Thrifts and the bank but their many functions are same for a common people like us.
In what way a bank makes its money?
It is one of the form of a Businesses. The product of the bank is not any gadgets. It is money. Unlike the other business organization's bank does not sell a gadget such as television, Radio, Cooler, Refrigerator, AC etc.. They only sell money in the various forms such as Loans for different purpose and other financial activities that gives him a certain amount of revenue. They give different type of loan to their customers and in return they get a handsome amount of interest and that interest is very high as compared to the interest that is given to the account holder account. The interest rate of the banking depends upon the amount of money or loan that the bank gives it to their loyal customer. There is a same principle come in that case. It totally depends upon the minimum reserve requirement that can be mention of the Federal Reserve policy book and it decide how much a loan is given to their customers. The time period of loans may be long or short. For longer period interest rate might be low whereas in a shorter period of loan has higher interest rate that is also decided by the policy of a minimum reserve requirement. It is very hard to understand the exact working of a Federal reserve but it is important to understand that if you plan to start your own banking business. It greatly influences our economy a lot. Taking loan or giving loan is also very risky for both the party. They must ensure everything before giving a loan to you. A time has come when the bank itself does not have nay idea whether a loan money is returned or not. This is the basic reason for that the bank add higher interest rate to the loan. You can enjoy with the money given to you by a bank. The only thing that you remember that must pay interest to the bank at a right time. It could not be a big task. It is impossible to build your own dream house with the money you save every month. It is not a good option. In that process you are not able even to collect the required money to buy a plot. Another source of a bank by which they make some amount of money is they charge a service task to utilize an ATM service, Draft service and they charge money if you withdraw a money from other bank ATM too. There is a certain amount of processing fee that can be imposed on a loans of various kinds. The most popular source of income of a particular bank is investments in varying fields.
Like it on Facebook, Tweet it or share this article on other bookmarking websites.