BANK is an organization where people and businesses can invest or borrow money, change
it to foreign money, etc., or a building where these services are offered.
Banking is the business activity of accepting and safeguarding money owned by other
individuals and entities, and then lending out this money in order to conduct economic
activities such as making profit or simply covering operating expenses.
Corporate banking refers to the aspect of banking that deals with corporate customers.
Corporate banking is a subset of business banking that involves a range of banking services
that are offered only to corporates. The services include the provision of credit, cash
management facilities, etc.
Commercial banks make loans that enable businesses to grow and hire people, contributing
to the expansion of the economy. Both types of banks offer various products and services.
Retail Banking refers to provision of banking products and services offered to individual
customers, typically for non-entrepreneurial purposes.
INDIAN BANKING SYSTEM – EVOLUTION
Genesis
Indian Banking System for the last two centuries has seen many developments. An
indigenous banking system was being carried out by the businessmen called Sharoffs,
Seths, Sahukars, Mahajans, Chettis, etc. since ancient time.
They performed the usual functions of lending moneys to traders and craftsmen and
sometimes placed funds at the disposal of kings for financing wars. The indigenous bankers
could not, however, develop to any considerable extent the system of obtaining deposits
from the public, which today is an important function of a bank.
Modern banking in India originated in the last decades of the 18th century. The first banks
were The General Bank of India which started in 1786, and the Bank of Hindustan.
Thereafter, three presidency banks namely the Bank of Bengal (this bank was originally
started in the year 1806 as Bank of Calcutta and then in the year 1809 became the Bank of
Bengal) , the Bank of Bombay and the Bank of Madras, were set up. For many years the
Presidency banks acted as quasi-central banks. The three banks merged in 1925 to form the
Imperial Bank of India. Indian merchants in Calcutta established the Union Bank in 1839, but
it failed in 1848 as a consequence of the economic crisis of 1848-49. Bank of Upper India
was established in 1863 but failed in 1913. The Allahabad Bank, established in 1865 , is the
oldest survived Joint Stock bank in India . Oudh Commercial Bank, established in 1881 in
Faizabad, failed in 1958. The next was the Punjab National Bank, established in Lahore in
1895, which is now one of the largest banks in India. The Swadeshi movement inspired local
businessmen and political figures to found banks of and for the Indian community during
1906 to 1911. A number of banks established then have survived to the present such as
Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and Central
Bank of India. A major landmark in Indian banking history took place in 1934 when a
decision was taken to establish ‘Reserve Bank of India’ which started functioning in 1935.
Since then, RBI, as a central bank of the country, has been regulating banking system.
Reserve Bank of India as a Central Bank of the Country, started their operations as a private
shareholder’s bank.
RBI replaced the Imperial Bank of India and started issuing the currency notes and acting as
the banker to the government. Imperial Bank of India was allowed to act as the agent of the
,RBI. RBI covered all over the undivided India. In order to have close integration between
policies of the Reserve Bank and those of the Government, It was decided to nationalize the
Reserve Bank immediately after the independence of the country.
From 1st January 1949, the Reserve Bank began functioning as a State-owned and State-
controlled Central Bank. To streamline the functioning of commercial banks, the Government
of India enacted the Banking Companies Act,1949 which was later changed as the Banking
Regulation Act 1949. RBI acts as a regulator of banks, banker to the Government and
banker’s bank. It controls financial system in the country through various measures.
Different types of Banks in India Reserve Bank of India Co-Operative Banks Development
Banks Short Term Credit Institutions public Sector Banks SIDBI Long Term Credit
Institutions Foreign Banks NABARD Old/New Private Sector Banks NHB Local Area Banks
Exim Bank Regional Rural Banks Commercial Banks [Scheduled Non Scheduled Banks] 6
PP-BL&P Constituents of the Indian Banking System The constituents of the Indian Banking
System can be broadly listed as under : (a) Commercial Banks: (i) Public Sector Banks (ii)
Private Sector Banks (iii) Foreign Banks (b) Cooperative Banks: (i) Short term agricultural
institutions (ii) Long term agricultural credit institutions (iii) Non-agricultural credit institutions
(c) Development Banks: (i) National Bank for Agriculture and Rural Development (NABARD)
(ii) Small Industries Development Bank of India (SIDBI) (iii) EXIM Bank (iv) National Housing
Bank.
Retail banking
Retail banking is intended to help consumers manage their money by giving them access to basic
banking services, a source of credit, and financial advice. The general public can access a variety of
services through a retail bank, including checking and savings accounts, mortgages, credit cards,
foreign currency and remittance services, and automobile financing.
The role of retail banking is to help individual consumers manage their money, gain access to credit,
and deposit their money in a secure way. Retail banks offer checking and savings accounts,
mortgages, personal loans, credit cards, and certificates of deposit (CDs).
Retail banks offer a variety of products and services to retail customers. When people think about a
bank, they usually think about a retail bank. In every city across the country, there are bank branches
that make banking services accessible to the general public. The most common services that retail
banks offer are checking and savings accounts, mortgages, personal loans, credit cards, and
certificates of deposit (CDs).
What Is a Current Account Savings Account (CASA)?
A current account savings account (CASA) is aimed at combining the features of savings and checking
accounts to entice customers to keep their money in the bank. It pays very low or no interest on the
current account and an above-average return on the savings portion. CASA is most commonly used
in West and Southeast Asia, though the CASA structure is available globally.
A CASA account pays no interest—or in some cases, low interest—on the current account and an
above-average return on the savings portion.
The CASA is a non-term deposit, meaning it is used for the everyday banking and savings needs of
the consumer. This type of account does not have a specific maturity or expiration date, so it is valid
,for as long as the account holder needs it to remain open. This is in contrast to a term deposit, which
is open for a certain period of time. After the maturity date, the bank or institution pays a certain
amount of interest on the principal balance.
How Current Account Savings Accounts (CASA) Work
A CASA operates like a normal bank account in which funds may be utilized at any time. It combines
both the checking and savings functions into one. Because of this flexibility, a CASA has a lower
interest rate than a term deposit, in which money is set aside to be untouched for a specific time
period with a guaranteed interest rate.
Most banks offer CASAs to their customers for free. In some cases, there may be a small fee,
depending on certain minimum or average balance requirements. These types of accounts attempt
to limit the disintermediation that occurs when bank deposit interest is lower than other available
short-term investments.
A CASA tends to be a cheaper way for a bank to raise money than issuing term deposits, such as
certificates of deposit (CDs), which offer higher interest rates to the customers.
Financial institutions encourage the use of a CASA because it generates a higher profit margin.
Because the interest paid on the CASA deposit is lower than on a term deposit, the bank’s net
interest income (NII) is higher. Thus, CASAs can be a cheaper source of funding for banks.
Demand deposits like CASAs let customers exchange a higher rate of interest for higher liquidity by
giving them immediate access to their funds. However, because of the uncertainty relating to when
a depositor will withdraw funds, CASA funds should not be utilized by a bank for long-term financing.
KEY TAKEAWAYS
Current Account Savings Accounts (CASA) are a type of non-term deposit account.
A CASA has a lower interest rate than term deposits, such as a certificate of deposit, and is thus a
cheaper source of funds for the financial institution.
A CASA combines the benefits of both a checking account and savings account, and it is indicative of
a competitive market in which banks need to offer new products to win over customers.
Current Account vs. Savings Account
As noted above, the current account portion of the CASA does not earn any interest. There are
generally no limits on deposits or withdrawals. The savings account portion does not have any
restrictions on the number of deposits an account holder can make. However, it typically has
, restrictions on the number of withdrawals a person can make. This is put in place in order to
encourage account holders to save. The maximum number of withdrawals permitted varies by
institution.
Current Account Savings Account Ratio
The percentage of total bank deposits that are in a CASA is an important metric to determine the
profitability of a bank. The CASA ratio indicates how much of a bank’s total deposits are in both
current and savings accounts.
The ratio can be calculated using the following formula:
CASA Ratio = CASA Deposits ÷ Total Deposits
A higher ratio means a larger portion of a bank’s deposits are in current and savings accounts, rather
than term deposit accounts. This is beneficial to a bank because it gets money at a lower cost.
Therefore, the CASA ratio is an indicator of the expense to raise funds and, therefore, is a reflection
of a bank’s profitability or likelihood of generating profit.
Special Considerations
The existence of the CASA can be seen as a product of especially competitive or saturated markets,
in which financial service companies have to create a steady stream of new products and features
that differentiate them among different providers. As it stands, very few people agree that any
market has one best bank. Globally, most people believe all banks and financial institutions are
roughly the same.
There may be times when you need to make multiple payments, receipts and other transactions,
similar to traders and entrepreneurs. They need to access their accounts frequently prefer using a
Current Account for this.
The relationship between a banker and his customer depends upon the nature of service provided
by a banker.
Accepting deposits and lending and/or investing are the core banking businesses of a bank. In
addition to its primary functions, it deals with various customers by providing other services like safe
custody services, safe deposit lockers, and assisting the clients by collecting their cheques and other
instruments as an agent and trustees for them. So, based on the above a banker customer
relationship can be classified as under:
Debtor/Creditor
Creditor/Debtor
it to foreign money, etc., or a building where these services are offered.
Banking is the business activity of accepting and safeguarding money owned by other
individuals and entities, and then lending out this money in order to conduct economic
activities such as making profit or simply covering operating expenses.
Corporate banking refers to the aspect of banking that deals with corporate customers.
Corporate banking is a subset of business banking that involves a range of banking services
that are offered only to corporates. The services include the provision of credit, cash
management facilities, etc.
Commercial banks make loans that enable businesses to grow and hire people, contributing
to the expansion of the economy. Both types of banks offer various products and services.
Retail Banking refers to provision of banking products and services offered to individual
customers, typically for non-entrepreneurial purposes.
INDIAN BANKING SYSTEM – EVOLUTION
Genesis
Indian Banking System for the last two centuries has seen many developments. An
indigenous banking system was being carried out by the businessmen called Sharoffs,
Seths, Sahukars, Mahajans, Chettis, etc. since ancient time.
They performed the usual functions of lending moneys to traders and craftsmen and
sometimes placed funds at the disposal of kings for financing wars. The indigenous bankers
could not, however, develop to any considerable extent the system of obtaining deposits
from the public, which today is an important function of a bank.
Modern banking in India originated in the last decades of the 18th century. The first banks
were The General Bank of India which started in 1786, and the Bank of Hindustan.
Thereafter, three presidency banks namely the Bank of Bengal (this bank was originally
started in the year 1806 as Bank of Calcutta and then in the year 1809 became the Bank of
Bengal) , the Bank of Bombay and the Bank of Madras, were set up. For many years the
Presidency banks acted as quasi-central banks. The three banks merged in 1925 to form the
Imperial Bank of India. Indian merchants in Calcutta established the Union Bank in 1839, but
it failed in 1848 as a consequence of the economic crisis of 1848-49. Bank of Upper India
was established in 1863 but failed in 1913. The Allahabad Bank, established in 1865 , is the
oldest survived Joint Stock bank in India . Oudh Commercial Bank, established in 1881 in
Faizabad, failed in 1958. The next was the Punjab National Bank, established in Lahore in
1895, which is now one of the largest banks in India. The Swadeshi movement inspired local
businessmen and political figures to found banks of and for the Indian community during
1906 to 1911. A number of banks established then have survived to the present such as
Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and Central
Bank of India. A major landmark in Indian banking history took place in 1934 when a
decision was taken to establish ‘Reserve Bank of India’ which started functioning in 1935.
Since then, RBI, as a central bank of the country, has been regulating banking system.
Reserve Bank of India as a Central Bank of the Country, started their operations as a private
shareholder’s bank.
RBI replaced the Imperial Bank of India and started issuing the currency notes and acting as
the banker to the government. Imperial Bank of India was allowed to act as the agent of the
,RBI. RBI covered all over the undivided India. In order to have close integration between
policies of the Reserve Bank and those of the Government, It was decided to nationalize the
Reserve Bank immediately after the independence of the country.
From 1st January 1949, the Reserve Bank began functioning as a State-owned and State-
controlled Central Bank. To streamline the functioning of commercial banks, the Government
of India enacted the Banking Companies Act,1949 which was later changed as the Banking
Regulation Act 1949. RBI acts as a regulator of banks, banker to the Government and
banker’s bank. It controls financial system in the country through various measures.
Different types of Banks in India Reserve Bank of India Co-Operative Banks Development
Banks Short Term Credit Institutions public Sector Banks SIDBI Long Term Credit
Institutions Foreign Banks NABARD Old/New Private Sector Banks NHB Local Area Banks
Exim Bank Regional Rural Banks Commercial Banks [Scheduled Non Scheduled Banks] 6
PP-BL&P Constituents of the Indian Banking System The constituents of the Indian Banking
System can be broadly listed as under : (a) Commercial Banks: (i) Public Sector Banks (ii)
Private Sector Banks (iii) Foreign Banks (b) Cooperative Banks: (i) Short term agricultural
institutions (ii) Long term agricultural credit institutions (iii) Non-agricultural credit institutions
(c) Development Banks: (i) National Bank for Agriculture and Rural Development (NABARD)
(ii) Small Industries Development Bank of India (SIDBI) (iii) EXIM Bank (iv) National Housing
Bank.
Retail banking
Retail banking is intended to help consumers manage their money by giving them access to basic
banking services, a source of credit, and financial advice. The general public can access a variety of
services through a retail bank, including checking and savings accounts, mortgages, credit cards,
foreign currency and remittance services, and automobile financing.
The role of retail banking is to help individual consumers manage their money, gain access to credit,
and deposit their money in a secure way. Retail banks offer checking and savings accounts,
mortgages, personal loans, credit cards, and certificates of deposit (CDs).
Retail banks offer a variety of products and services to retail customers. When people think about a
bank, they usually think about a retail bank. In every city across the country, there are bank branches
that make banking services accessible to the general public. The most common services that retail
banks offer are checking and savings accounts, mortgages, personal loans, credit cards, and
certificates of deposit (CDs).
What Is a Current Account Savings Account (CASA)?
A current account savings account (CASA) is aimed at combining the features of savings and checking
accounts to entice customers to keep their money in the bank. It pays very low or no interest on the
current account and an above-average return on the savings portion. CASA is most commonly used
in West and Southeast Asia, though the CASA structure is available globally.
A CASA account pays no interest—or in some cases, low interest—on the current account and an
above-average return on the savings portion.
The CASA is a non-term deposit, meaning it is used for the everyday banking and savings needs of
the consumer. This type of account does not have a specific maturity or expiration date, so it is valid
,for as long as the account holder needs it to remain open. This is in contrast to a term deposit, which
is open for a certain period of time. After the maturity date, the bank or institution pays a certain
amount of interest on the principal balance.
How Current Account Savings Accounts (CASA) Work
A CASA operates like a normal bank account in which funds may be utilized at any time. It combines
both the checking and savings functions into one. Because of this flexibility, a CASA has a lower
interest rate than a term deposit, in which money is set aside to be untouched for a specific time
period with a guaranteed interest rate.
Most banks offer CASAs to their customers for free. In some cases, there may be a small fee,
depending on certain minimum or average balance requirements. These types of accounts attempt
to limit the disintermediation that occurs when bank deposit interest is lower than other available
short-term investments.
A CASA tends to be a cheaper way for a bank to raise money than issuing term deposits, such as
certificates of deposit (CDs), which offer higher interest rates to the customers.
Financial institutions encourage the use of a CASA because it generates a higher profit margin.
Because the interest paid on the CASA deposit is lower than on a term deposit, the bank’s net
interest income (NII) is higher. Thus, CASAs can be a cheaper source of funding for banks.
Demand deposits like CASAs let customers exchange a higher rate of interest for higher liquidity by
giving them immediate access to their funds. However, because of the uncertainty relating to when
a depositor will withdraw funds, CASA funds should not be utilized by a bank for long-term financing.
KEY TAKEAWAYS
Current Account Savings Accounts (CASA) are a type of non-term deposit account.
A CASA has a lower interest rate than term deposits, such as a certificate of deposit, and is thus a
cheaper source of funds for the financial institution.
A CASA combines the benefits of both a checking account and savings account, and it is indicative of
a competitive market in which banks need to offer new products to win over customers.
Current Account vs. Savings Account
As noted above, the current account portion of the CASA does not earn any interest. There are
generally no limits on deposits or withdrawals. The savings account portion does not have any
restrictions on the number of deposits an account holder can make. However, it typically has
, restrictions on the number of withdrawals a person can make. This is put in place in order to
encourage account holders to save. The maximum number of withdrawals permitted varies by
institution.
Current Account Savings Account Ratio
The percentage of total bank deposits that are in a CASA is an important metric to determine the
profitability of a bank. The CASA ratio indicates how much of a bank’s total deposits are in both
current and savings accounts.
The ratio can be calculated using the following formula:
CASA Ratio = CASA Deposits ÷ Total Deposits
A higher ratio means a larger portion of a bank’s deposits are in current and savings accounts, rather
than term deposit accounts. This is beneficial to a bank because it gets money at a lower cost.
Therefore, the CASA ratio is an indicator of the expense to raise funds and, therefore, is a reflection
of a bank’s profitability or likelihood of generating profit.
Special Considerations
The existence of the CASA can be seen as a product of especially competitive or saturated markets,
in which financial service companies have to create a steady stream of new products and features
that differentiate them among different providers. As it stands, very few people agree that any
market has one best bank. Globally, most people believe all banks and financial institutions are
roughly the same.
There may be times when you need to make multiple payments, receipts and other transactions,
similar to traders and entrepreneurs. They need to access their accounts frequently prefer using a
Current Account for this.
The relationship between a banker and his customer depends upon the nature of service provided
by a banker.
Accepting deposits and lending and/or investing are the core banking businesses of a bank. In
addition to its primary functions, it deals with various customers by providing other services like safe
custody services, safe deposit lockers, and assisting the clients by collecting their cheques and other
instruments as an agent and trustees for them. So, based on the above a banker customer
relationship can be classified as under:
Debtor/Creditor
Creditor/Debtor
