The role of banks essay
Banks used to be mainly asset management based, however since the phases of deregulation and innovation and the introduction of NBFIs into the competition drove down profits of the banks. Fortunately, during the past about one decade there has been increased participation of the private sector in infrastructure projects. These banks have also given tough but healthy competition to the public sector banks. A fundamental method by which banks help in settling the financial transaction process is by issuing and paying cheques issued on behalf of customers.
Then, the central banks can manage inflation and deflation. It may also have supervisory powers, to ensure that banks and other financial institutions do not behave recklessly or fraudulently.
Indian history is also replete with the instances referring to indigenous money lenders, Sahukars and Zamindars involved in the business of money lending by mortgaging the landed property of the borrowers.
Where this was previously unattainable due to strict regulations in the banking industry, the deregulation that has taken place now creates a great incentive for banks to take on more risks in order to expand their balance sheets. US banks started to branch out to off shore operations in order to exploit the loosely regulated markets.
Thus, commercial banks play a crucial role in the context of growth and development—in less developed countries by offering a well organised credit market catering to all the financial needs of various sectors of the economy. Discuss the respective roles of asset and liability management in modern banking.
Finally, in emerging markets such as India, banks cater to the needs of a vast number of savers from the household sector, who prefer assured income and liquidity and safety of funds, because of their inadequate capacity to manage financial risks Definition of banks ‘accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable, by cheque, draft, order or otherwise three primary activities of a commercial bank i maintaining deposit accounts including current accounts, ii issue and pay cheques, and iii collect cheques for the bank’s customers Functions of Commercial Banks i Payment System Banks are at the core of the payments system in an economy.
Nationalisation of banks in two spells in and was a watershed in the annals ofbanking sector in India. It must also lend to others. This stimulates thrift as well as attracts idle savings into organised capital market of the country. Three things about deposits are noteworthy: An efficient banking system must cater to the needs of high end investors by making available high amounts of capital for big projects in the industrial, infrastructure and service sectors.
The new generation private banks have now established themselves in the system and have set new standards of service and efficiency. The risks they face include credit risk, market risk, business risk and interest rate risk to name a few.
This in general shows globalisation in the financial system and the growth of MNCs in general. IT does so by maximizing banks of pro-active measures such as strengthening and standardising banks infrastructure in respect of security, communication and networking, achieving inter branch connectivity, moving towards Real Time gross settlement RTGS environment the forecasting of liquidity by building real time databases, use of Magnetic Ink Character Recognition and Imaging technology for cheque clearing to name a few.