Type 1.

Saving Banks

Saving banks are established to create saving habit among the people. These banks are helpful for salaried people and low income groups. The deposits collected from customers are invested in bonds, securities, etc. At present most of the commercial banks carry the functions of savings banks. Postal department also performs the functions of saving bank.

Image Credits crispyteriyaki

Type 2. Commercial Banks

Commercial banks are established with an objective to help businessmen. These banks collect money from general public and give short-term loans to businessmen by way of cash credits, overdrafts, etc. Commercial banks provide various services like collecting cheques, bill of exchange, remittance money from one place to another place.

In India, commercial banks are established under Companies Act, 1956. In 1969, 14 commercial banks were nationalised by Government of India. The policies regarding deposits, loans, rate of interest, etc. of these banks are controlled by the Central Bank.

Type 3. Industrial Banks / Development Banks

Industrial / Development banks collect cash by issuing shares & debentures and providing long-term loans to industries. The main objective of these banks is to provide long-term loans for expansion and modernisation of industries.

In India such banks are established on a large scale after independence. They are Industrial Finance Corporation of India (IFCI), Industrial Credit and Investment Corporation of India (ICICI) and Industrial Development Bank of India (IDBI).

Type 4. Land Mortgage / Land Development Banks

Land Mortgage or Land Development banks are also known as Agricultural Banks because these are formed to finance agricultural sector. They also help in land development.

In India, Government has come forward to assist these banks. The Government has guaranteed the debentures issued by such banks. There is a great risk involved in the financing of agriculture and generally commercial banks do not take much interest in financing agricultural sector.

Type 5. Indigenous Banks

Indigenous banks means Money Lenders and Sahukars. They collect deposits from general public and grant loans to the needy persons out of their own funds as well as from deposits. These indigenous banks are popular in villages and small towns. They perform combined functions of trading and banking activities. Certain well-known indian communities like Marwaries and Multani even today run specialised indigenous banks.

Type 6. Central / Federal / National Bank

Every country of the world has a central bank. In India, Reserve Bank of India, in U.S.A, Federal Reserve and in U.K, Bank of England. These central banks are the bankers of the other banks. They provide specialised functions i.e. issue of paper currency, working as bankers of government, supervising and controlling foreign exchange. A central bank is a non-profit making institution. It does not deal with the public but it deals with other banks. The principal responsibility of Central Bank is thorough control on currency of a country.

Type 7. Co-operative Banks

In India, Co-operative banks are registered under the Co-operative Societies Act, 1912. They generally give credit facilities to small farmers, salaried employees, small-scale industries, etc. Co-operative Banks are available in rural as well as in urban areas. The functions of these banks are just similar to commercial banks.

Type 8. Exchange Banks

Hong Kong Bank, Bank of Tokyo, Bank of America are the examples of Foreign Banks working in India. These banks are mainly concerned with financing foreign trade.

Following are the various functions of Exchange Banks :-

1. 2. 3. 4.

Remitting money from one country to another country, Discounting of foreign bills, Buying and Selling Gold and Silver, and Helping Import and Export Trade.

Type 9. Consumers Banks

Consumers bank is a new addition to the existing type of banks. Such banks are usually found only in advanced countries like U.S.A. and Germany. The main objective of this bank is to give loans to consumers for purchase of the durables like Motor car, television set, washing machine, furniture, etc. The consumers have to repay the loans in easy installments.

What is E-Banking ? Online Banking

E-banking refers to electronic banking. It is like e-business in banking industry. E-banking is also called as "Virtual Banking" or "Online Banking".

E-banking is a result of the growing expectations of bank's customers.

Image Credits Jochem Koole.

E-banking involves information technology based banking. Under this I.T system, the banking services are delivered by way of a Computer-Controlled System. This system does involve direct interface with the customers. The customers do not have to visit the bank's premises.

Popular services covered under E-Banking

The popular services covered under E-banking include :-

1. 2. 3. 4. 5. 6. 7. 8. 9.

Automated Teller Machines, Credit Cards, Debit Cards, Smart Cards, Electronic Funds Transfer (EFT) System, Cheques Truncation Payment System, Mobile Banking, Internet Banking, Telephone Banking, etc.

Advantages of E-Banking

The main advantages of E-banking are :-

1. 2. 3. 4. 5. 6.

The operating cost per unit services is lower for the banks. It offers convenience to customers as they are not required to go to the bank's premises. There is very low incidence of errors. The customer can obtain funds at any time from ATM machines. The credit cards and debit cards enables the Customers to obtain discounts from retail outlets. The customer can easily transfer the funds from one place to another place electronically.

FM adviced kisan bima yojna and faster settlement of case in insurance

Nitin Aggarwal | 5:48 PM | 0 comments

Finance Minister Mr. Pranab Mukherjee has the meeting with public sector insurance companies. He delivered a speech in which he advised kisan bima yojna for agriculture and faster settlement of insurance cases for people good faith on insurance. This is the text speech of finance minister which he delivered during the meeting with public sector insurance companies.

I am happy to be with the Chairmen of PSU Insurance Companies today for reviewing their performance in 2011-12, resolving common issues and setting out broad strategy framework for the insurance sector during 2012-13 onwards.

On the economic front, as I pointed out during my meeting with the CEOs of Public Sector Banks and Financial Institutions yesterday, we faced a challenging situation in 2011-12. On Insurance Sector front too, there were natural calamities and catastrophic events in Japan, Thailand and elsewhere during the year which have affected Indian Insurance Companies.

I hope that the trough in the rate of growth cycle is behind us. Specifically in the Insurance Sector, I have had detailed interactions with IRDA during its last Board Meeting held on 4th April, where number of regulatory issues were discussed at length and I am hopeful that interactive process with the insurance regulator and other such associated issues will be streamlined soon. I am, likewise, happy to be here interacting with all PSU Insurance Companies after more than 2 years and I am sure it will set a path of healthy and sustainable insurance growth.

We have travelled a long distance since the time Insurance was nationalized in 1956. The growth in premium underwriting has witnessed strong CAGR of 18.85% since 2001. Insurance penetration and density has

improved since then. The public confidence in the industry is more positive today then it was earlier. Asia, excluding Japan, will contribute nearly a quarter of global growth in next 5 years and within Asia, India will be the fastest growing general insurance market during this period with an average expected growth of 15%. A welcome feature is that the share of life insurance premium in the gross domestic savings with the household is about 18% and is increasing over the years. There are strong underwriting growth drivers. The demand for insurance products is likely to increase due to growth of household savings and purchasing power. I wish to highlight these factors to drive home the fact that despite occasional hiccups, the future also looks bright for the insurance sector.

We are all aware that the insurance sector has been contributing immensely to the infrastructure development of the country. The total investments of the PSU insurance companies in infrastructure (as on 31st March, 2012) were to the tune of Rs.14.26 lakh crores, of which LIC alone has invested Rs.13 lakh crores.

In Life sector, LIC continues to be the leader and despite it being an open market, LIC has a market share of around 81% in terms of new business policies and 71.3% in terms of new business premium during 2011-12. I congratulate LIC for being the trust factor among the people. LIC also is successfully implementing Social Security Schemes Aam Aadmi Bimay Yojana and Janashree Bima Yojana (JBY). I would advise LIC to work out Kisaan Bima Yojana, a life insurance scheme for the farmers on the lines of JBY where the coverage can be extended up-to the age of 65 or 70 years and the additional premium could be borne by the farmers covered under the scheme.

In agriculture sector, I have noted the progress in terms of coverage of farmers under agriculture insurance. However, the number of non-loanee farmers has been coming down over the years. Agriculture Insurance Company of India Limited (AICL) should work for ensuring not only bringing all loanee farmers under the cover but also as many non-loanee farmers as possible. I feel this is the most marginalized group requiring agriculture insurance and should be covered on priority.

Reinsurance is an integral part of the insurance sector and GIC is the sole Indian reinsurer in the country. While the loss of Rs 2490 crores during 2011-12 is largely attributable to the natural catastrophes in Japan and Thailand and also due to the provisioning on account of motor pool, the larger policy issue of minimization of exposure risk, diversification of risk, due diligence while assessing the country specific risk etc remains and I am sure GIC is making all necessary efforts in this direction.

I have few concerns in the General Insurance non-life sector where the insurance market is structurally challenged in terms of profitability. India is the only country in Asia with a combined ratio of 105 and above consistently during the last 5 years and all the four PSU General Insurance Companies have been largely responsible for such a trend.

The combined ratio for four non-life PSU insurers, which was in the range of 136% to 140% during 2010-11, has come down and now is in the range of 120% to 129% for non-life general insurance companies. There is a desire in general insurance PSUs to grow

at a faster rate and be the market leader. The growth rate in GDPI for all four companies, during last year was 21.39% with a market share of 55.76%. While the emphasis on growth in premium is understandable, what is however concerning is the underwriting losses which stood at a whopping 6,134 crore during 2011-12. The overall profitability clearly is driven by the investment income, with continued deterioration in the core business of premium underwriting. It is well understood that growth in top line cannot be at the cost of bottom line. The Ministry has suggested certain welcome steps to curb the unhealthy competition in underwriting premiums and it will help restore the sustained business growth.

I complement the PSU insurance companies in reaching out to the people in far-flung areas. However, I have pointed out earlier in my Zonal Meetings the need to cover all the remaining un-served areas especially district headquarters. You will agree that the per capita income has grown over the years and a large number of people in smaller towns are saving and are looking for insurance products. It is in this regard that we have decided that LIC as well as PSU general insurance companies shall necessarily have a presence in all the towns up to Tier IV classification as per census. Such an early foothold will be advantageous in business sense also to the PSU Insurance Companies and It should be done without any further delay. A reorganization of the existing loss making Branches, especially those of non-life general insurance companies and also decongestion of branches which are concentrated in metros can help this expansion in un-served areas.

We have recently initiated, as part of Financial Inclusion, a detailed exercise to ensure the presence of Business Correspondents (BCAs) in all the revenue villages with a population of two thousand and above. It only makes business sense for insurance companies to appoint these BCAs as insurance agents to tap the huge potential of insurance coverage in rural areas.

Similarly, other mode of distribution such as Bancassurance must be adopted in a big way. Out of the available 80,000 bank branches, less than 7000 are being used by PSU insurers and we need to scale up Bancassurance immediately.

In order to tap the growing segment of insurable population who is IT savvy, you all must immediately take the e-governance route and ensure that all your policies, both new and renewal, are available online. This will also enable them to have direct access with you and dependence on brokers will come down. And in the process, some of your savings must be passed on the customers through discounts. E-governance, issuance of e-policies and epayment are no longer options but have become a necessity if one is to survive in the sector.

I would also like to highlight the need to ensure that claims are settled in the shortest possible time frame. I notice that large numbers of claims, especially in the General Insurance companies, are pending for final settlement. You may like to take up a drive to ensure that this pendency is minimized.

We have a long way to go if we have to grow on a sound footing. Policyholders trust is of utmost importance and all our functioning should be geared up with this philosophy. There is also a need to have a balance

between growth and profitability and our strategy in coming years should be guided accordingly. I have full confidence in all of you and your team and hope that PSU companies will continue to be the leaders in their respective segments and in a financially sound and healthy manner

Insurance Penetration in the Country

Press Information Bureau: May 15, 2012

The Insurance Regulatory and Development Authority (IRDA) has informed that the total insurance penetration, which is the ratio of insurance premium as a percentage of GDP has increased from 2.32 in 2000-01 to 5.10 in 2010-11. The life insurance penetration has decreased from 4.60 in 2009-10 to 4.40 in 2010-11, whereas the non-life insurance penetration has increased from 0.60 in 2009-10 to 0.71 in 2010-11. The insurance penetration is impacted by several macro-economic factors such as growth, inflation, interest rates, small savings return and returns of competing financial products offered by banks and mutual funds. The IRDA undertakes a sustained insurance education campaign under the brand name Bima Bemisaal. The campaign seeks to educate the uninsured and the insured about the need for insurance, rights, obligations of policyholders etc through various media channels viz. print, radio and television. IRDA also supports consumer bodies in conducting seminars and workshops on insurance in various parts of the country in order to create awareness about insurance. The Bima Bemisaal campaign is carried out in various Indian languages including Hindi, apart from English. IRDA has also brought out educational material for the public and policyholders. Further, to create awareness, IRDA over the last two years has started conducting yearly seminars exclusively on policyholder protection and welfare that brings together all stakeholders including consumer representatives. This information was given by the Minister of State for Finance, Shri Namo Narain Meena in written reply to a question in Rajya Sabha today.

What is a Bank ? Introduction

Finance is the life blood of trade, commerce and industry. Now-a-days, banking sector acts as the backbone of modern business. Development of any country mainly depends upon the banking system. The term bank is either derived from old Italian word banca or from a French word banque both mean a Bench or money exchange table. In olden days, European money lenders or money changers used to display (show) coins of different countries in big heaps (quantity) on benches or tables for the purpose of lending or exchanging.

Image Credits Tardiskey

A bank is a financial institution which deals with deposits and advances and other related services. It receives money from those who want to save in the form of deposits and it lends money to those who need it.

Definition of a Bank

Oxford Dictionary defines a bank as "an establishment for custody of money, which it pays out on customer's order."

Characteristics / Features of a Bank

1. Dealing in Money

Bank is a financial institution which deals with other people's money i.e. money given by depositors.

2. Individual / Firm / Company

A bank may be a person, firm or a company. A banking company means a company which is in the business of banking.

3. Acceptance of Deposit

A bank accepts money from the people in the form of deposits which are usually repayable on demand or after the expiry of a fixed period. It gives safety to the deposits of its customers. It also acts as a custodian of funds of its customers.

4. Giving Advances

A bank lends out money in the form of loans to those who require it for different purposes.

5. Payment and Withdrawal

A bank provides easy payment and withdrawal facility to its customers in the form of cheques and drafts, It also brings bank money in circulation. This money is in the form of cheques, drafts, etc.

6. Agency and Utility Services

A bank provides various banking facilities to its customers. They include general utility services and agency services.

7. Profit and Service Orientation

A bank is a profit seeking institution having service oriented approach.

8. Ever increasing Functions

Banking is an evolutionary concept. There is continuous expansion and diversification as regards the functions, services and activities of a bank.

9. Connecting Link

A bank acts as a connecting link between borrowers and lenders of money. Banks collect money from those who have surplus money and give the same to those who are in need of money.

10. Banking Business

A bank's main activity should be to do business of banking which should not be subsidiary to any other business.

11. Name Identity

A bank should always add the word "bank" to its name to enable people to know that it is a bank and that it is dealing in money.