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Last updated date: 16th May 2024
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What is Banking?

What is banking is a simple question. To define the term banking, you must say it 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. 

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Explain Banking Activities

With passing time, banking activities have become widespread, and today, banks propose different other services. These days, banking services comprise the issuance of credit and debit cards. Again, banks also propose custody of people’s valuable items. You can also get lockers, online transfers of funds, and ATM services from banks. The most important thing is every person is required to have basic banking knowledge.

What is the Structure of a Banking System?

The banking system comprises some organizational features like:

  • Unit banking

  • Branch banking

  • Group banking or holding company

  • Chain banking

Banking systems are also formed on some functions or techniques:

  • Mixed banking

  • Deposit banking

  • Merchant banking

  • Investment banking

Group banking and chain banking are related to Unit Banking. The modern banking concepts have gone through a huge historical process based on geographical, political, and socio-economic factors, as historical experiences do vary from one nation to another.

Importance of Bank

The importance of bank can’t be denied at any point. Though banks do several things, their chief job is taking funds that are known as deposits. Banks lend them to people who require funds. The notable thing is banks work as intermediaries between depositors who lend cash to the banks and borrowers to whom the banks lend money. An amount the bank pays for the income, and the deposits it receives are known as interest.

A depositor can be households, people, non-financial and financial firms, local governments, and national governments. Again, borrowers too can have these identities. A deposit is made obtainable on-demand, like a checking account or with a few restrictions, like time deposits and savings.

The most important role that a bank plays is matching up borrowers and creditors. A bank becomes important to the international as well as a domestic payment system, and it forms money. Contrary to popular belief, only individuals do not need money as governments and businesses are required to borrow and deposit money. In this aspect, a bank plays a pivotal role. Banks process payments, and they range from little personal checks to high-value electronic payments.

The payment systems of banks are considered complex arrangements of national, local, and international banks. Most often, it includes private clearing facilities and government central banks that match up the things between banks.

What is a Banking Project?

Every person needs money for some commercial or personal purposes. A bank happens to be the oldest lending institution as it proposes countless facilities to every citizen. To survive in this highly competitive market, every bank does implement innovative strategies, ideas, and progressive technologies. And so, for this purpose, banks give all the details about their projects and institutions to people.

Banks propose ample facilities for contending their customers. They provide mobile banking, net banking, instant facility door-to-door facility, Demat facility, investment facility, loans, advances, credit card facility, account facility, and lots more.

What is Known as a Core Banking System?

A core banking system is recognized as the back-end system which processes regular banking transactions. Additionally, it posts updates to different financial records and accounts. The core banking systems commonly comprise loan processing capacities, credit processing capacities, and deposits with an interface to reporting tools and general ledger systems.

What are the Types of Deposits?

  • Time Deposit - A time deposit has got a fixed time of maturity. Some examples are recurring deposits, fixed deposits, staff security certificates, and cash certificates.

  • Demand Deposit - This deposit is made by the bank when the account holder demands it. Some instances are current account, savings in a bank account, and demand draft.


In Conclusion, banking holds a crucial role in our day-to-day life. We must adhere to the banking system as responsible citizens. The banking system acts as a crucial base for the financial system as well as the entire economic system of the country. It provides a base to the market and the companies. In a crux, we can say that it is the source of channeling the finance by the people of the country.

FAQs on Banking

1. What are the Different Kinds of Banks?

  • Retail Banks – A retail bank deals with retail customers specifically though a few global financial services companies comprise both commercial and retail banking divisions. A retail bank proposes some services, like savings and checking accounts, mortgage and loan services, and short-term loans, such as overdraft protection.

  • Corporate or Commercial Banks – These banks propose specialty services to many business clients that range from small business owners to large corporate entities. 

  • Investment Banks – An investment bank concentrates on proposing corporate clients with some financial transactions, like underwriting, as well as assisting with M&A (merger and acquisition) activities.

  • Central Banks – These banks do not deal with the public directly but remain liable for controlling inflation, currency stability, and overseeing the money supply of a country.

2. How does a bank differ from a credit union?

A credit union varies in size. Some tend to be small community-based entities whereas some are larger ones that have many branches all across the country. As there are many uses of bank, a credit union does the job of providing routine financial services to its clients who are known as members, and these services comprise withdrawal, deposit, and some basic credit services. 

However, there are some intrinsic differences between banks and credit unions. A bank happens to be a profit-driven entity, but a credit union emerges as a non-profit organization. As a credit union is a smaller entity, it proposes only some services in comparison to a bank. Nonetheless, credit unions have their locations and ATMs (automated teller machines).

3. What are the three common types of accounts of banks?

Banks are classed into three types of accounts:

  • Fixed Deposit Account – In a fixed deposit account, the amount is deposited in a fixed period. Here, customers get more benefits compared to a savings account.

  • Saving Bank Account – A saving bank account caters to small savers only. Its chief aim is to encourage the public’s habit of saving. To make the process enticing for people to save, some banks have introduced schemes like minor’s saving schemes, children saving schemes, and daily savings schemes.

  • Current Account – This is called a running account. The current account is meant for safeguarding the customers. So, it is ideal for companies, business concerns, and public undertakings.