Definition of Banking

is an industry that deals with credit, cash, and numerous other

transactions. A bank provides a secure place where you can store some
additional credit and cash. Banks also propose Certificates of Deposit.
Savings accounts and checking accounts. A bank uses various deposits for
making loans, and they comprise business loans, car loans, and home
mortgages. Hence, banking is called the business activity to safeguard
and accept money that other entities and people own before this money is
lent out for earning a profit.

Ancient banking in india

Vedic Period (2000-1400 BCE): Banking practices were rudimentary with merchants and
traders relying on trust for financial transactions.

Mauryan and Gupta Periods (322 BCE - 550 CE): Under the Mauryan Empire, coins
became prominent for trade, managed by royal treasuries. In the Gupta period, local
moneylenders supported commerce, serving traders and artisans.

Medieval Period (8th - 18th Century): Indigenous banking evolved with Seths, Shroffs,
and Mahajans acting as moneylenders and issuing hundis (promissory notes) to facilitate
trade.

Colonial Era (17th - 19th Century): British colonial rule introduced modern banking.
European trading companies and banks like the Bank of Hindustan (1770) were established.
Banking regulations by the British East India Company laid the foundation for modern
banking in India.

Post-Independence: After 1947, India focused on expanding banking services nationwide.

Economic reforms in the 1990s brought liberalization to the banking sector.

Vedic Period During the Vedic period, economic activities were agrarian, with barter as the
primary transaction mode. Cowrie shells and precious metals also served as mediums of
exchange. Terms like "kusidin" (money-lender) and "vyavahara" (transaction) indicate
lending and financial transactions. Wealth was measured in cattle, reflecting nascent banking
practices.

Post-Vedic Period (500 BCE - 200 CE) The post-Vedic period saw the introduction of
coins, facilitating trade. Silver punch-marked coins were common. Merchant guilds or shrenis
emerged, providing loans and accepting deposits. The state began regulating trade more, and
organized banking practices developed, laying the groundwork for future advancements.

Maurya Period (322-185 BCE) Under the Maurya Empire, a regulated economic system
flourished. Kautilya's Arthashastra details economic policies, including banking and financial
regulation. Treasury departments facilitated transactions, and merchant guilds thrived. The
Arthashastra mentions interest rates and money-lending regulations, indicating a
sophisticated economic system.
Gupta Period (320-550 CE) The Gupta period, India's Golden Age, saw prosperity and
extensive trade. Banking activities were sophisticated, with merchant guilds central to
financial services. Financial instruments like "adesha" and "yogakshema" facilitated trade.
State regulation ensured economic stability and growth, supporting a flourishing economy.

Medieval Period (600-1200 CE) Temples became significant banking centers during the
medieval period, lending money from donations. The Hundi system, a precursor to bills of
exchange, facilitated trade. Merchant guilds remained influential, and ethical banking
guidelines were emphasized. Trade networks expanded, supported by an evolving banking
system.

Mughal Period (1526-1857 CE) The Mughal period saw advancements in banking, with the
state regulating economic activities. Domestic and international trade flourished, supported
by a network of merchants and bankers. Prominent banking families, like the Jagat Seths,
exemplified sophisticated financial systems. The use of hundis and organized money lending
prospered.

Colonial Period (1757-1947 CE) The colonial period introduced modern banks, starting with
the Bank of Hindustan in 1770. The Presidency Banks marked institutionalized banking's
beginning. British regulation and paper currency became widespread. Indigenous bankers, or
"shroffs," continued traditional practices alongside modern banks, reflecting significant
changes in India's banking system.

Post-Independence Period (1947-Present) Post-independence, banking reforms supported

economic development. The Reserve Bank of India (RBI) became the central regulator.
Nationalization in 1969 and 1980 ensured financial inclusion. The 1990s liberalization
introduced private and foreign banks, increasing competition. Technological advancements
like digital banking transformed the sector, making services widely accessible.

Types of Accounts

1. Savings Account
o Features:
 Designed for individuals to deposit money and earn
interest on the balance.
 Typically, interest rates are lower compared to other
accounts. Purpose:

 Provides a safe place to keep savings while earning a small amount

of interest.
 Suitable for everyday banking needs such as bill payments, and
emergencies.

Current Account

 Features:
 o Primarily designed for businesses, companies, and
entrepreneurs.
o Allows unlimited transactions such as deposits, withdrawals,
and transfers.

Purpose:

 Facilitates daily business operations with frequent transactions.

 Provides flexibility in managing cash flow and payments to suppliers
and vendors.

Fixed Deposit Account

 Features:
o Requires a lump sum amount to be deposited for a fixed term
o Generally, the deposited amount cannot be withdrawn before
maturity without incurring penalties

Purpose:

 Encourages individuals to invest surplus funds for a specific period

to earn higher interest rates.
 Helps in achieving financial goals such as education expenses, or
retirement planning.

Recurring Deposit Account

 Features:
o Involves regular monthly deposits of a fixed amount over a
predefined period
o Offers a fixed interest rate similar to fixed deposits, calculated
on the monthly deposits.
 Purpose

Provides a safe investment option with high returns

Ideal for short to medium-term financial goals like vacation

planning, or children's education expenses.

Cheques

A cheque is a document you can issue to your bank, directing it to

pay the specified sum mentioned in digits as well as words to the
person whose name is borne on the cheque
 TYPES OF CHEQUES

Bearer Cheque: This type of cheque is payable to the person who

presents it to the bank for payment.

Order Cheque: An order cheque is payable only to the person

named on the cheque.

Crossed Cheque: A Crossed cheque Cannot be cashed directly at

the bank and must be deposited into a bank account.

Advantages
 It is more convenient and safer to carry around than cash.
 It is a negotiable instrument that can be endorsed in favour of a
third party.
 They can be easily traced if lost.

DEMAND DRAFTS(DD’s)

A demand draft is a financial document issued by banks, known for its

trustworthiness and convenience. It provides a tangible assurance to
both the payer and payee that the agreed-upon funds will be
transferred securely.

A passbook is a small, physical booklet provided by banks to savings account

holders, recording all transactions such as deposits, withdrawals, and interest
earned. Each entry includes the date, description, and updated balance,
offering a clear, chronological record of account activity. Passbooks help
account holders track their finances, monitor their account, and plan
financially by providing a tangible record of all transactions. Despite the
growing popularity of digital banking, passbooks are still appreciated for
their simplicity, reliability, and ease of use, especially by those who prefer
traditional banking methods or have limited access to digital services..1.
Sight Demand Draft
This demand draft is typically paid to the payee immediately upon
presentation.

2. Time Demand Draft

This demand draft is paid by the bank only after a specific period of time has
passed, i.e. the demand draft clearing time.
A Demand Draft offers several advantages. Some of them are:

 DDs they cannot be counterfeited.

 they cannot be bounced due to insufficient funds in the payer’s
account.
 The payee does not need a bank account to encash a DD.

PASSBOOK

A bank passbook is a traditional method of keeping track of the transactions made in

a user account. It depicts all transactions, whether they are credited or debited. It
also shows where a person spent money and who credited it into his bank account.
In a bank passbook, everything is precisely printed.

Advantages:

 Accessibility: Provides a tangible record of transactions, useful for those who prefer
or require physical documentation over digital records.
 Verification: Useful for verifying account details and transaction history without
needing access to online banking.
 Transparency: Offers a clear and detailed view of all account activities, helping
users manage their finances effectively.

Record Keeping: Helps account holders maintain a physical record of all transactions, which
can be useful for personal accounting and tax purposes

Account Verification: Provides a reliable way to verify account details and transactions,
especially in areas with limited digital access.

A debit card is a payment card that deducts money directly from your
checking account. debit cards can be used to buy goods or services or to
get cash from an ATM.

Definition: A credit card is a payment card issued by financial institutions, allowing the
cardholder to borrow funds for purchases up to a pre-approved limit.

debit cards
  Convenient and widely accepted   Short-term financing
PROS option
 No annual fees
 Can build your credit
 Can help with budgeting history

 Interest-free  May offer cashback

rewards

 Strong fraud
protection

Cons  Limited fraud protection   Danger of

overspending
 Spending limit depends on checking
account balance  Interest payments

 Possible overdraft fees  Late payment fees

 Don’t build your credit  Can hurt your credit

score

ADVANTAGESOF DIGITAL BANKING

 Convenience

 24/7 Access: Customers can access their accounts and perform transactions anytime
and anywhere.
 Remote Banking: No need to visit a physical branch for most banking activities.

 Speed and Efficiency

 Instant Transactions: Real-time fund transfers and payments.

 Quick Processing: Faster processing of loan applications, credit card approvals, and
other banking services.

 Enhanced Security

 Encryption and Authentication: Advanced security measures like encryption, two-

factor authentication (2FA), and biometric verification.
 Fraud Detection: Real-time monitoring and alerts for suspicious activities.

Importance of Savings
  Financial Security
o Emergency Fund: Savings provide a safety net for unexpected expenses such
as medical emergencies, car repairs, or sudden job loss.
o Peace of Mind: Knowing that there is money set aside for emergencies
reduces stress and anxiety.
 Financial Independence
o Avoiding Debt: Savings enable you to pay for significant expenses without
resorting to credit cards or loans, reducing debt and interest payments.
o Investment Opportunities: Having savings allows you to invest in
opportunities that can grow your wealth, such as stocks, bonds, or starting a
business.
 Economic Stability
o Economic Downturns: Savings can help you navigate economic downturns
or recessions without drastically altering your lifestyle.
o Income Fluctuations: For individuals with irregular income, such as
freelancers or seasonal workers, savings can smooth out financial variability.

In conclusion, the landscape of banking has evolved significantly from its ancient roots to the
advanced digital services we have today. Understanding the various aspects of banking, such as the
types of accounts, the functions and uses of cheques, demand drafts, passbooks, debit and credit
cards, and the advantages of digital banking, provides a comprehensive view of how financial
systems operate and benefit individuals and businesses.