Banking explained to a Novice

What is a Bank?

A bank is like a big piggy bank where people keep their money safe. But unlike a piggy bank at home, a bank can also give loans (money to borrow), help in payments, and even help people grow their money through interest.

Imagine you have ₹100, and you give it to the bank. The bank keeps it safe and may even give you ₹5 extra after some time (this is called interest). At the same time, the bank gives your money to someone else as a loan (like your friend borrowing money from you), but the bank charges them more interest (say ₹10). The bank keeps ₹5 profit and gives you ₹5 as a reward for keeping your money with them!

How Are Banks Created?

Creating a bank is not like opening a shop. It needs government permission and must follow strict rules to keep everyone’s money safe.

1. Permission from RBI – In India, the Reserve Bank of India (RBI) gives permission to start a bank.
2. Lots of Money Required – A new bank must have a lot of money to begin operations (for security).
3. Rules & Regulations – The bank must follow RBI’s rules to make sure it is not doing anything wrong.

Once approved, the bank can open branches, take money from people, and give loans!

Types of Banks

Banks are of different types, like different kinds of shops selling different things.

1. Commercial Banks – These are the regular banks where people open accounts, deposit money, and take loans. Example: SBI, HDFC, ICICI.
2. Cooperative Banks – These are small banks for farmers, traders, and small businesses. Example: District Cooperative Banks.
3. Payments Banks – These banks work mostly through mobile apps and do not give loans. Example: Paytm Payments Bank, Airtel Payments Bank.
4. Small Finance Banks – These banks give loans to small businesses and poor people. Example: Ujjivan Small Finance Bank.
5. Regional Rural Banks (RRBs) – These banks help farmers and villages. Example: Prathama Bank, Karnataka Gramin Bank.
6. Central Bank (RBI) – This is the boss of all banks in India. It makes the rules and ensures that banks work properly.

Benefits of Banking

Why should we use a bank instead of keeping cash at home?

1. Safety – Money in the bank is safe from theft and fire.
2. Interest – Banks give extra money (interest) on your savings.
3. Easy Payments – You can send money online, use a debit card, or withdraw from an ATM.
4. Loans – Banks give loans for homes, cars, education, and business.
5. Government Support – The government ensures that even if a bank fails, some money is protected.

Structure of the Indian Banking System

Imagine a pyramid with RBI at the top.

1. RBI (Reserve Bank of India) – The boss of all banks. It controls all the rules.
2. Commercial Banks – Big banks where most people have accounts (like SBI, ICICI, HDFC).
3. Cooperative Banks & Rural Banks – Banks that help small businesses, villages, and farmers.
4. Special Banks – Some banks only focus on one thing, like NABARD (for farmers) and SIDBI (for small businesses).

Functions of Various Types of Banks

Each type of bank does different work:

1. Commercial Banks (SBI, HDFC, ICICI)

   • Keep money safe
   • Give loans
   • Provide online payments, credit/debit cards

2. Cooperative Banks

   • Help farmers, small shopkeepers, and self-employed people
   • Give cheaper loans

3. Payments Banks (Paytm, Airtel)

   • No loans, only small deposits
   • Work through mobile apps

4. Small Finance Banks (Ujjivan, Jana Bank)

   • Give loans to small businesses and poor people

5. Regional Rural Banks (RRBs)

   • Help farmers and rural businesses with low-cost loans

6. Central Bank (RBI)

   • Controls all banks
   • Prints currency
   • Manages inflation and economy

This is banking in the simplest way! 

We hope you found this article helpful! If you have any questions, doubts, or feedback, feel free to ask in the comment box below. Your queries are important to us, and we will try to respond as soon as possible. Happy learning!