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Dr.Raman c.

p Rajasthan conducted a study on the banking


habit of people in rural area. This study was undertaken to find
out the level of awareness and to identify the problems prevailing
in the banking services among the customers in rural area. A
through study of the profile of the customers and the banking
environment of thiruvallur district of tamilnadu was studied
various factors motivating the use of banking services were
analysed. The study revealed that many of the customers uses
ATM like facilities but there are many customers who have lack of
awareness in terms of agency services

Mr.Nair(2006)discuss the future


challenges of technology in banking the author also point out how
it posses a bright future in rural banking but it is neglected as it is
traditionally considered unviable in the rural segment
. A
successful bank has to be nimble and agile enough to respond to
the new market paradigm and ineffectively controlling risks.
Innovation will be the key extending the banking services to the
rural area.

Krishana et al. (2003), in their research


paper, Performance of Regional Rural Banks in Karnataka An
Application of Principal Components and Discriminant Function
Analysis tried to identify the important discriminating
characteristics of the two identified groups of Regional Rural
Banks in the state of Karnataka. They used the discriminate
function approach and sought to obtain linear discriminate
coefficient, such that the squared difference between the mean Zscore for the one group and the mean Z-score for the other group
was as large as possible in relation to the variation of Z-scores
within the groups. They concluded that the number of employees
per branch had maximum discriminating power to the extent of

55%, followed by amount of borrowings (18%), credit deposit ratio


(14%) and income to expenditure ratio (13%).

V. Bala Mohandas and P. Hrushi Kesava Rao (1986) in a


study on 'Bank's finance in Rural Development' suggest that
consumption loans should be combined with production loans.
This would wean such borrowers away from moneylender. In an
evaluation study entitled 'Rural Development' S. Giriappa (1993)
finds that the small and marginal farmers, fishermen, artisans,
labourers of scheduled castes and scheduled tribe households
and also female-headed households face the problem of low
income generation and low asset formation due to non-availability
of adequate finance from the banks

Burguess and Pande, (2003)explains that lack of


access to finance is often seen as a key reason why poor people
still remain poor. In this paper it uses data on the Indian rural
branch expansion program to provide importantevidence on
this case. In between 1977 and 1990 the Indian Central Bank
compulsorily announced that commercial banks can open a
branch in a location with one or more bank branches only if it
opens four in places with no bank branches. It is shown that in
between 1977 and 1990 this rule caused banks to open
relatively more rural branches in Indian state with lower
initial financial development. Reverse is true outside this
period and we exploit this fact to identify the impact of
opening a rural bank on output and poverty . The estimates
suggest that the Indian rural branch
expansion
program
significantly lowered rural poverty
and increased nonagricultural output. Burguess and Pande, (2003)explains that lack
of access to finance is often seen as a key reason why poor

people still remain poor. In this paper it uses data on the Indian
rural branch expansion program to provide importantevidence
on this case. In between 1977 and 1990 the Indian Central
Bank compulsorily announced that commercial banks can open a
branch in a location with one or more bank branches only if it
opens four in places with no bank branches. It is shown that in
between 1977 and 1990 this rule caused banks to open
relatively more rural branches in Indian state with lower
initial financial development. Reverse is true outside this
period and we exploit this fact to identify the impact of
opening a rural bank on output and poverty . The estimates
suggest that the Indian rural branch
expansion
program
significantly lowered rural poverty
and increased nonagricultural output.

BANKING
A bank is a financial institution that creates credit by lending
money to a borrower, thereby creating a corresponding deposit on
the bank's balance sheet. Lending activities can be performed
either directly or indirectly through capital markets. Due to their
importance in the financial system and influence on national
economies, banks are highly regulated in most countries. Most
nations have institutionalized a system known as fractional
reserve banking under which banks hold liquid assets equal to
only a portion of their current liabilities. In addition to other
regulations intended to ensure liquidity, banks are generally
subject to minimum capital requirements based on an
international set of capital standards, known as the Basel Accords

BANK MEANING
A bank is a financial institution which deals with money and
credit. it accept deposits and lends money to those who are in
need of it.itb helps to transfer money from one place to another

BANK DEFINITIONS
According to Herbert L. Hart, the banker is a person or a
company carrying on the business of receiving money and

collecting drafts for customers subject to the obligation of


honouring the cheques ,drawn up on him from time to time by
customers up to the amount available on their customers
account
According to Jhon Paget defines, a bank is an institution which
takes Deposit, current account , Issues and pay cheques, and
collects cheques of the customers. In this definition the lending
function of the bank is not specifically included.
In the words of Crowther, "A bank collects money from those who
have it to spare or who are saving it out of their inccmes, and
lends this money to those who require it."

HISTORY OF BANK
Banking begins with the first prototype banks of
merchants of the ancient world, which made grain loans to
farmers and traders who carried goods between cities. This began
around 2000 BC in Assyria and Babylonia. Later, in ancient Greece
and during the Roman Empire, lenders based in temples made
loans and added two important innovations: they accepted
deposits and changed money. Archaeology from this period in
ancient China and India also shows evidence of money lending
activity.
The origins of modern banking can be traced to medieval and
early Renaissance Italy, to the rich cities in the north like
Florence, Lucca, Siena, Venice and Genoa. The Bardi and Peruzzi
families dominated banking in 14th-century Florence, establishing
branches in many other parts of Europe. One of the most famous
Italian banks was the Medici Bank, set up by Giovanni di Bicci de'
Medici in 1397. The earliest known state deposit bank, Banco di
San Giorgio (Bank of St. George), was founded in 1407 at Genoa,
Italy]

Modern banking practices, including fractional reserve banking


and the issue of banknotes, emerged in the 17th and 18th
centuries. Merchants started to store their gold with the
goldsmiths of London, who possessed private vaults, and charged
a fee for that service. In exchange for each deposit of precious
metal, the goldsmiths issued receipts certifying the quantity and
purity of the metal they held as a bailee; these receipts could not
be assigned, only the original depositor could collect the stored
goods.
Gradually the goldsmiths began to lend the money out on behalf
of the depositor, which led to the development of modern banking
practices; promissory notes (which evolved into banknotes) were
issued for money deposited as a loan to the goldsmith. The
goldsmith paid interest on these deposits. Since the promissory
notes were payable on demand, and the advances (loans) to the
goldsmith's customers were repayable over a longer time period,
this was an early form of fractional reserve banking. The
promissory notes developed into an assignable instrument which
could circulate as a safe and convenient form of money backed by
the goldsmith's promise to pay .allowing goldsmiths to advance
loans with little risk of default.[6] Thus, the goldsmiths of London
became the forerunners of banking by creating new money based
on credit.
The Bank of England was the first to begin the permanent issue of
banknotes, in 1695.The Royal Bank of Scotland established the
first overdraft facility in 1728. By the beginning of the 19th
century a bankers' clearing house was established in London to
allow multiple banks to clear transactions. The Rothschilds
pioneered international finance on a large scale, financing the
purchase of the Suez canal for the British government.

HISTORY OF INDIAN BANKS

Banking in India in the modern sense originated in the


last decades of the 18th century. Among the first banks were the
Bank of Hindustan, which was established in 1770 and liquidated
in 1829-32; and the General Bank of India, established in 1786
but failed in 1791.The largest bank, and the oldest still in
existence, is the State Bank of India (S.B.I). It originated as the
Bank of Calcutta in June 1806. In 1809, it was renamed as the
Bank of Bengal. This was one of the three banks funded by a
presidency government, the other two were the Bank of Bombay
and the Bank of Madras. The three banks were merged in 1921 to
form the Imperial Bank of India, which upon India's independence,
became the State Bank of India in 1955. For many years the
presidency banks had acted as quasi-central banks, as did their
successors, until the Reserve Bank of India was established in
1935, under the Reserve Bank of India Act, 1934 In 1960, the
State Banks of India was given control of eight state-associated
banks under the State Bank of India (Subsidiary Banks) Act, 1959.
These are now called its associate banks.[5] In 1969 the Indian
government nationalised 14 major private banks. In 1980, 6 more
private banks were nationalised.[7] These nationalised banks are
the majority of lenders in the Indian economy. They dominate the
banking sector because of their large size and widespread
networks.The Indian banking sector is broadly classified into
scheduled banks and non-scheduled banks. The scheduled banks
are those which are included under the 2nd Schedule of the
Reserve Bank of India Act, 1934. The scheduled banks are further
classified into: nationalised banks; State Bank of India and its
associates; Regional Rural Banks (RRBs); foreign banks; and other
Indian private sector banks.[6] The term commercial banks refers
to both scheduled and non-scheduled commercial banks which
are regulated under the Banking Regulation Act, 1949.[9]

Generally banking in India is fairly mature in terms of supply,


product range and reach-even though reach in rural India and to
the poor still remains a challenge. The government has developed
initiatives to address this through the State Bank of India
expanding its branch network and through the National Bank for
Agriculture and Rural Development with facilities like
microfinance.

TYPES OF BANKS
Commercial banks: the term used for a normal bank to
distinguish it from an investment bank. After the Great
Depression, the U.S. Congress required that banks only engage
in banking activities, whereas investment banks were limited
to capital market activities. Since the two no longer have to be
under separate ownership, some use the term "commercial
bank" to refer to a bank or a division of a bank that mostly
deals with deposits and loans from corporations or large
businesses.

Community banks: locally operated financial institutions that


empower employees to make local decisions to serve their
customers and the partners.
Community development banks: regulated banks that
provide financial services and credit to under-served markets or
populations.
Land development banks: The special banks providing longterm loans are called land development banks (LDB). The
history of LDB is quite old. The first LDB was started at Jhang
in Punjab in 1920. The main objective of the LDBs are to
promote the development of land, agriculture and increase the
agricultural production. The LDBs provide long-term finance to
members directly through their branches.
Credit
unions
or co-operative
banks:
not-forprofit cooperatives owned by the depositors and often offering
rates more favorable than for-profit banks. Typically,
membership is restricted to employees of a particular
company, residents of a defined area, members of a
certain union or religious organizations, and their immediate
families.
Postal savings banks: savings banks associated with national
postal systems.
Private banks: banks that manage the assets of high-networth individuals. Historically a minimum of USD 1 million was
required to open an account, however, over the last years
many private banks have lowered their entry hurdles to USD
250,000 for private investors.
Offshore banks: banks located in jurisdictions with low
taxation and regulation. Many offshore banks are essentially
private banks.

Savings bank: in Europe, savings banks took their roots in the


19th or sometimes even in the 18th century. Their original
objective was to provide easily accessible savings products to
all strata of the population. In some countries, savings banks
were created on public initiative; in others, socially committed
individuals created foundations to put in place the necessary
infrastructure. Nowadays, European savings banks have kept
their focus on retail banking: payments, savings products,
credits and insurances for individuals or small and mediumsized enterprises. Apart from this retail focus, they also differ
from commercial banks by their broadly decentralized
distribution network, providing local and regional outreach
and by their socially responsible approach to business and
society.
Building societies and Landesbanks:
conduct retail banking.

institutions

that

Ethical banks: banks that prioritize the transparency of all


operations and make only what they consider to be socially
responsible investments.
A direct or internet-only bank is a banking operation
without any physical bank branches, conceived and
implemented wholly with networked computers.

DIFFERENT TYPES OF BANK


ACCOUNTS

Savings Bank Account

These deposits accounts are one of the most popular deposits for
individual accounts. These accounts not only provide cheque
facility but also have lot of flexibility for deposits and withdrawal
of funds from the account. Most of the banks have rules for the
maximum number of withdrawals in a period and the maximum
amount of withdrawal, but hardly any bank enforces these.
However, banks have every right to enforce such restrictions if it
is felt that the account is being misused as a current account. Till
24/10/2011, the interest on Saving Bank Accounts was regulared
by RBI and it was fixed at 4.00% on daily balance basis.
However, wef 25th October, 2011, RBI has deregulated Saving
Fund account interest rates and now banks are free to decide the
same within certain conditions imposed by RBI. Under directions
of RBI, now banks are also required to open no frill accounts (this
term is used for accounts which do not have any minimum
balance requirements). Although Public Sector Banks still pay
only 4% rate of interest, some private banks like Kotak Bank and
Yes Bank pay between 6% and 7% on such deposits. From the FY
2012-13, interest earned upto Rs 10,000 in a financial year on
Saving Bank accounts is exempted from tax.

Current Account

Current Accounts are basically meant for businessmen and are


never used for the purpose of investment or savings. These
deposits are the most liquid deposits and there are no limits for
number of transactions or the amount of transactions in a day.
Most of the current account are opened in the names of firm /
company accounts.
Cheque book facility is provided and the
account holder can deposit all types of the cheques and drafts in
their name or endorsed in their favour by third parties. No
interest is paid by banks on these accounts. On the other hand,
banks charges certain service charges, on such accounts.

Recurring Deposit Accounts


These are popularly known as RD accounts and are special kind of
Term Deposits and are suitable for people who do not have lump
sum amount of savings, but are ready to save a small amount
every month.
Normally, such deposits earn interest on the
amount already deposited (through monthly installments) at the
same rates as are applicable for Fixed Deposits / Term Deposits.
These are best if you wish to create a fund for your child's
education or marriage of your daughter or buy a car without loans
or save for the future.Under these type of deposits, the person
has to usually deposit a fixed amount of money every month
(usually a minimum of Rs,100/- p.m.). Any default in payment
within the month attracts a small penalty. However, some Banks
besides offering a fixed installment RD, have also introduced a
flexible / variable RD. Under these flexible RDs the person is
allowed to deposit even higher amount of installments, with an
upper limit fixed for the same e.g. 10 times of the minimum
amount agreed upon.These accounts can be funded by giving
Standing Instructions by which bank withdraws a fixed amount on
a fixed date of the month from the saving bank of the customer
(as per his mandate), and the same is credited to RD account.
Fixed Deposit Accounts

All Banks in India (including SBI, PNB, BoB, BoI, Canara Bank, ICICI
Bank, Yes Bank etc.) offer fixed deposits schemes with a wide
range of tenures for periods from 7 days to 10 years. These are
also popularly known as FD accounts. However, in some other
countries these are known as "Term Deposits" or even called
"Bond".
The term "fixed" in Fixed Deposits (FD) denotes the
period of maturity or tenor. Therefore, the depositors
are

supposed to continue such Fixed Deposits for the length of time


for which the depositor decides to keep the money with the bank.
However, in case of need, the depositor can ask for closing (or
breaking) the fixed deposit prematurely by paying paying a
penalty (usually of 1%, but some banks either charge less or no
penalty).
(Some banks
introduced variable interest fixed
deposits. The rate of interest on such deposits keeps on varying
with the prevalent market rates i.e. it will go up if market interest
rates goes and it will come down if the market rates fall.
However, such type of fixed deposits have not been popular till
date).
The rate of interest for Fixed Deposits differs from bank to bank
(unlike earlier when the same were regulated by RBI and all banks
used to have the same interest rate structure.
The present
trends indicate that private sector and foreign banks offer higher
rate of interest. The earlier trend that private sector and foreign
banks offer higher rate of interest is no more valid these days.
However, now a days small banks are forced to offer higher rate
of interest to attract more deposits. Usually a bank FD is paid in
lump sum on the date of maturity. However, most of the banks
have also facility to pay/ credit interest in saving account at the
end of every quarter. If one desires to get interest paid every
month, then the interest paid will be at a marginal discounted
rate. In the changed computerized environment, now the Interest
payable on Fixed Deposit can also be easily transferred on due
dates to Savings Bank or Current Account of the customer.

BENEFITS OF HAVING A BANK


ACCOUNT
1. Bank accounts offer convenience
For example, if you have a checking account, you can easily pay
by check or through online bill pay. It's also cheaper than buying a
money order (and you'll have proof of bank statements that you
paid your bills). If you get an Automated Teller Machine (ATM) or
debit card for the account, you can withdraw money easily or
make payments at stores. A debit card is usually accepted for
purchases anywhere credit cards are accepted.
2. Bank accounts are safe
Your money will be protected from theft and fires. Plus, your
money will be federally insured so if your bank or credit union
closes, you will get your money back. The maximum amount of
money that can be insured is $100,000.
3. It's an easy way to save money
Many banks offer an interest rate when you put your money in a
savings account. The interest will help your money grow over
time. Be sure to shop around and check what fees are involved you don't want to wind up paying more in fees than you are
gaining in interest.
If you have a checking and saving account with the same
institution, you can have your money transferred periodically from
checking to savings, putting the money aside to help grow your

savings.
4. Bank accounts are cheaper
Banks and credit unions generally offer their account holders free
or low-cost services:
Cashing checks: Using a check cashing outlet really adds
up. You can deposit and cash your checks at the institution
where you have a bank account for free.
Paying bills: Without a bank account, you probably rely on
check cashing outlets, telephone bill pay or money orders
all of which have attached feesto pay your bills. With a
checking account, you can write checks for free or pay online
at a low cost.
Transferring/wiring money: If you use a money transfer
company to wire money to another persons account, you
will pay a fee, usually a percentage of the amount of the
transfer. Depending on the amount you want to transfer, this
fee can be expensive. If you wire from your bank account to
another persons account, your bank will usually charge a
flat rate that is generally lower than the money transfer
company.
Accessing cash: When you need cash but dont have a bank
account, you may decide to use a credit card to get a cash
advance from an ATM. The credit card company will charge
you a transaction fee and interest. If you have a bank
account and an ATM or debit card, you can access your
money from your own banks ATM for free. Although you can
access your money from any ATM, you will likely pay a
transaction fee if you use an ATM other than your bank.
5. Bank accounts can help you access credit
Banks and credit unions can help you access credit to acquire a

home, a car, student or personal loan, because banks tend to


favor existing customers, particularly those who manage their
money well. Plus, going to small loan lenders that lend you cash
quickly can be quite expensive because they charge lending fees
and high interest rates.
While bank accounts are preferred over check cashers and piggy
banks, banks will also have fees that you should be aware of. For
example, banks will charge you if you use your debit card on an
ATM that is not theirs. Also, depending on the type of account you
have, you must maintain a minimum balance of a certain amount
to avoid being charged. It's always best to shop around for the
best product that fits your needs.

SERVICES PROVIDED BY BANK


1. Advancing of Loans
Banks are profit oriented business organizations. So they have to
advance loan to public and generate interest from them as profit.
After keeping certain cash reserves, banks provide short-term,
medium-term and long-term loans to needy borrowers.
2. Overdraft
Sometimes, the bank provides overdraft facilities to its customers
though which they are allowed to withdraw more than their
deposits. Interest is charged from the customers on the
overdrawn amount.
3. Discounting of Bills of Exchange
This is another popular type of lending by the modern banks.
Through this method, a holder of a bill of exchange can get it
discounted by the bank, in a bill of exchange, the debtor accepts
the bill drawn upon him by the creditor (i.e., holder of the bill) and
agrees to pay the amount mentioned on maturity. After making

some marginal deductions (in the form of commission), the bank


pays the value of the bill to the holder.
When the bill of exchange matures, the bank gets its payment
from the party, which had accepted the bill.
4. Cheque Payment
Banks provide cheque pads to the account holders. Account
holders can draw cheque upon bank to pay money. Banks pay for
cheques of customers after formal verification and official
procedures..
5. Collection and Payment Of Credit Instruments
In modern business, different types of credit instruments such as
bill of exchange, promissory notes, cheques etc. are used. Banks
deal with such instruments. Modern banks collect and pay
different types of credit instruments as the representative of the
customers.
6. Foreign Currency Exchange
Banks deal with foreign currencies. As the requirement of
customers, banks exchange foreign currencies with local
currencies, which is essential to settle down the dues in the
international trade.

7. Consultancy
Modern commercial banks are large organizations. They can
expand their function to consultancy business. In this function,
banks hire financial, legal and market experts who provide
advices to customers in regarding investment, industry, trade,
income, tax etc.

8. Bank Guarantee
Customers are provided the facility of bank guarantee by modern
commercial banks. When customers have to deposit certain fund
in governmental offices or courts for specific purpose, bank can
present itself as the guarantee for the customer, instead of
depositing fund by customers.
9. Remittance of Funds
Banks help their customers in transferring funds from one place to
another through cheques, drafts, etc.
10. Credit cards
Credit card are cards that allow their holders to make purchases
of goods and services in exchange for the credit cards provider
immediately paying for the goods or service, and the card holder
promising to pay back the amount of the purchase to the card
provider over a period of time, and with interest.
11. ATMs Services
ATMs replace human bank tellers in performing basic banking
functions such as deposits, withdrawals, account inquires. Key
advantages of ATMs include:
24 hour availability
Elimination of labor cost
Convenience of location
12. Debit cards
Debit cards are used to electronically withdraw funds directly from
the cardholders accounts. Most debit cards require a Personal
Identification Number (PIN) to be used to verify the transaction.

13. Home banking


Home banking is the process of completing financial transaction
from ones own home as opposed to utilizing a branch of a bank.
It includes actions such as making account inquiries, transferring
money, paying bills, applying for loans, directing deposits.
14. Online banking
Online banking is a service offered by banks that allows account
holders to access their account data via the internet. Online
banking is also known as "Internet banking" or "Web banking."
Online banking through traditional banks enable customers to
perform all routine transactions, such as account transfers,
balance inquiries, bill payments, and stop-payment requests, and
some even offer online loan and credit card applications. Account
information can be accessed anytime, day or night, and can be
done from anywhere.
15. Mobile Banking
Mobile banking (also known as M-Banking) is a term used for
performing balance checks, account transactions, payments,
credit applications and other banking transactions through a
mobile device such as a mobile phone or Personal Digital
Assistant (PDA),
16. Accepting Deposit
Accepting deposit from savers or account holders is the primary
function of bank. Banks accept deposit from those who can save
money, but cannot utilize in profitable sectors. People prefer to
deposit their savings in a bank because by doing so, they earn
interest.
17. Priority banking

Priority banking can include a number of various services, but


some of the popular ones include free checking, online bill pay,
financial consultation and information.
18. Private banking
Personalized financial and banking services that are traditionally
offered to a bank's rich, high net worth individuals (HNWIs). For
wealth management purposes, HNWIs have accrued far more
wealth than the average person, and therefore have the means to
access a larger variety of conventional and alternative
investments. Private Banks aim to match such individuals with the
most appropriate options.
19.CDM
CDM stands for cash depositary machine it help the users to
deposit money at any time