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What is a banker?
A banker is nothing but an institution/corporation which works as a mediator in various transactions and financial affairs between people or business organizations with different needs. Banks act as a connecting link or a bridge between the funding population and the population which seeks money to fund their business or other activities.
The origin of the word ‘Bank’ is in the German language, meaning a joint-stock fund. As a financial mediator, a bank accepts deposits from those who are willing to keep their money with the safety of the bank & seek small extra money for future needs. On the other end, the bank also lends money on loans to the needy and gains interest on that loan. The country’s central bank works as a supervisor for all other banks for regulation purposes and has some special functions & responsibilities.
Functions of bank/banker
Two principal functions of banks are- accepting deposits and availing loans & advances. We will discuss these two functions in quite detail in the following text:
1. Accepting deposits:
As mentioned earlier, banks accept money from the public or organizations/businesses and provide services for on-demand withdrawal and interests. There are primarily four types of deposit accounts as follows:
Saving deposit:
it is the simplest of all other types, and the important perk of this deposit account is the facility for on-demand payment. Depositors also get a small amount of interest on money deposited. Obligation to maintain a minimum balance amount and restriction on the amount & number of withdrawals one can make are the limitations of this account. This type is also known as a demand deposit.
Fixed deposit:
This type of deposit gets better interest, but a fixed amount of money has to be invested for a fixed period. The depositor can not make withdrawals before the maturity period. These are also called term/time deposits.
Recurring deposits:
This type of deposit, like fixed deposits, does not support withdrawal before the completion of the maturity period. This has a longer duration for maturity, and deposits have to be made at regular intervals.
Current deposits:
Unlike other call types, these deposits are neither bound to any withdrawal limitations nor provide any interest on deposits. These are usually used for business purposes.
2. Availing loans & advances:
As mentioned earlier, banks use the money collected in the form of deposits to offer loans with quite higher interests in return to the needy. Loans or advances offered by the bank are of the following types:
Cash credit facility:
Banks provide these short-term loans with higher interests to businesses, generally against some assets as a security.
Overdraft facility:
This service is also provided against some collateral and applies to current account holders. This facility enables bank users to have a current account for withdrawals of the high amount at the cost of high interests.
Bill/invoice discounting:
This is the discounting facility provided to businesses by a bank against due payments of organizations.
Loans:
Bank provides secured or unsecured loans to an individual like home loans, car loans, education loans, etc. these can be long-term/short term, and payments to a bank can be made in installments.
Other than these two principal functions, banks also deal with other work aiding Government or organizations policies and financial affairs. These are known as secondary functions of a bank, and these can be grouped into two broad categories-
Agency functions:
These include functions related to making bill payments, collection of due payments, etc. following are some specific examples of these functions-
Periodic payments
Periodic collection
Fund transfer
Cheques negotiation
Advisory services
Utility functions:
These include services such as locker services, house taxes, pension, AEPS withdrawal, etc.
What is a banker’s bank ?
Banker’s bank is a bigger, central banking institution that does not offer services directly to the general public. The banker’s bank deals with all other commercial banks as well as other financial institutions. Banker’s bank has an important, rather central role in the regulation of all types of financial affairs, transactions, rules & regulations. These are established to provide support to other commercial banking systems.
Banker’s Bank of India
The Reserve Bank of India is the banker’s bank of India. RBI is also known as the Government bank. RBI works to formulate regulatory policies for all other commercial banking as well as non-banking institutions and has the aim to provide easy access to banking systems for the general public of India and to protect depositors’ interests.
RBI was established in 1934 under the RBI Act and managed currency in India. With time functions, and responsibilities, RBI has increased dramatically. Here are some major functions of RBI, to name a few among many-
Regulating issues of banks notes
Maintaining the monetary stability of India
Regulating and operating currency and credit system in India, etc.
Conclusion
Banking institutions, both central and commercial, are very important for regulating a country’s economy and financial affairs. Banks work to connect two different economic classes for the welfare of the entire society. Accepting deposits and lending funds are two major functions of commercial banks, while regulating monetary issues and transactions and regulating currency are the important functions of central banks.
