Class notes B125 Money, Banking and Financial Markets
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B125
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Christ University
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Money, Banking and Financial Markets
Banking and Finance explores the dynamic, fast-paced world of money, shares, credit and investments. Finance is an essential part of our economy as it provides the liquidity in terms of money or assets required for individuals and businesses to invest for the future. It consits the basic chapters w...
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In d e x Term I
1. Evolution of Banking 1.1 to 1.28
2. Functions of Bank 2.1 to 2.24
3. Procedure for Opening & Operating of 3.1 to 3.48
Deposit Account
4. Methods of Remittances 4.1 to 4.28
Term II
5. Lending Principles, Credit Creation and 5.1 to 5.28
Balance Sheet of a Bank
6. Negotiable Instruments 6.1 to 6.32
7. Endorsement 7.1 to 7.16
8. Technology in Banking 8.1 to 8.40
.. v ..
, 1
Evolution of Banking
1.1 Origin of Banking
1.2 Bank :
1.3 Evolution of Banking in Other Countries :
1.4 Evolution of Banking in India
1.5 Structure of Indian Banking System
Introduction :
Banking is an integral part of the modern economy. But the
nature and functions of modern banks have evolved over a long
period of time. The idea of banking evolved with the idea of
money.Banking business is mainly linked to lending. Moneylender
is to be found in every society-ancient or modern; advanced or
backward. The ten commandments of Moses, Quoran,
Manusmrity, Kautilya’s Arthashastra all have references to
moneylenders and rate of interest. Modern banks also undertake
foreign exchange transactions. The priests in temples took
advantage of the sanctity of the temples, collected people’s savings
1.1
,Fundamental of Banking
and did lending business. In the middle ages, banking business
was carried by the individuals. Then came partnership and today
in all countries banking is carried out by joint stock companies
and is regulated by the Government.
1.1 Origin of Banking :
It is seen that banking transactions have been taking place
since last number of years. Even it is evidenced that the banking
system was prevailing at the time of Babilon culture. The banks
were in existence in Rome also. It was said that in the year 1171,
the authorities of Venice had taken loan from the people for meeting
the expenses of war and the arrangements for repayment were
also made by them. Such loan was called as ‘Mot’ in Italian
language. The meaning of mot in German language is ‘bank’. In
those days, there was German rule in many parts of Italy.
Afterwards, in Italian language it was called as banco. The German
word bank means a joint stock fund. This word bank was Italianised
into banco when the Germans were masters of a great part of
Italy. Afterwards in France and England this word was used. It is
seen that since 1646 the word ‘bank’ has been used in the articles.
Later on there were many banks who started using the word bank
in their names. e.g. Bank of Milan. However, there are some
philosophers according to whom the Italian word ‘banco’ means
table. In the old days, the money lenders used to do banking
transactions by keeping tables in the market and so the word ‘bank’
has been evolved.
1.2
, Evolution of Banking
1.2 Bank :
1.2.1 Meaning :
The word ‘Bank’ has been derived from the Latin word ‘bancus’
or ‘banque’. The meaning of it in English is a bench. The early
bankers transacted their business at benches in a market place.
According to some authorities, the word bank was originally derived
from German word bank. It means a joint stock fund. This word later
on was called as ‘banco’ in Italy when a great part of Italy was
ruled by the Germans.
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. A bank is a financial institution and a financial
intermediary that accepts deposits and channels those deposits
into lending activities, either directly by loaning or indirectly through
capital markets. A bank is the connection between customers
that have capital deficits and customers with capital surpluses.
Due to their influence within a financial system and an economy,
banks are generally highly regulated in most countries. Most banks
operate under a system known as fractional reserve banking where
they hold only a small reserve of the funds deposited and lend out
the rest for profit. They are generally subject to minimum capital
requirements which are based on an international set of capital
standards, known as the Basel Accords.
1.3
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