TOPIC CHOSEN:- AIDS TO TRADE (BANKING)

BUSINESS STUDIES PROJECT

AIDS TO TRADE• Aids to trade can be defined as the activities which facilitates

trade process such as transportation, marketing, banking, insurance etc …

• These activities help in removing various hindrances which arises in connection with production and distribution of goods.

• Transportation helps in movement of goods, marketing gives information of new products, insurance helps in covering the risk, banking helps in providing financial assistance for various firms.

• In this project we will be learning about banking.

• A banking company is one which transacts the business of banking which means accepting, for the purpose of lending and investment of deposits of money from the public, repayable on demand or otherwise and withdrawable by cheques, draft, order etc…

INTRODUCTION TO BANKING

TYPES OF BANKS• COMMERCIAL BANKS:- These are the banks governed by Indian Bank regulation Act 1949 and according to it banking means accepting deposits of money from the public for the purpose of lending or investment.Examples of commercial banks- SBI, PNB, IOB are public banks, HDFC, ICICI, are private banks.

COOPERATIVE BANKS:-• These are the banks which are governed by the provisions of

state Cooperative Societies Act and meant especially for providing cheap credit to their members. It is an important source of rural credit.

SPECIALISED BANKS:-• These banks are foreign exchange banks, export-import

banks, catering to specific need of these unique activities. These banks provides financial aid to heavy turnkey projects and foreign trade.

CENTRAL BANK:-• The central bank of any country supervises, controls and

regulates the activities of all commercial banks of that country. It also acts as a government banker. It controls and coordinates currency and credit policies of any country. The Reserve Bank of India is central bank of India.

FUNCTIONS OF COMMERCIAL BANKS• ACCEPTANCE OF DEPOSITS:-Deposits are the basis of the loan operations since banks are both borrowers and lenders of money. As borrowers they pay interest and as lenders they grant loan and interest. Deposits are taken through savings account, current account, fixed deposit account.Savings account are for encouraging savings by individuals. Banks pay rates of interest decided by RBI

• Current account deposits can be withdrawn to the extent of balance at any time without any prior notice.

• Fixed deposits account means are the accounts which charges high rates of interest than savings account. A premature withdrawal is permissible with a percentage of interest being forfeited.

• Second major activity of commercial banks is to give loans to people through the deposits which are taken from public. They charge high rates of interest on loans and low rates of interest on deposits difference in the interest rate is the main source of their income.

LENDING OF FUNDS:-

• Banks provide very important service to customers by collecting their cheques drawn on other banks. The cheque is the most developed credit instrument a unique feature and function of banks for the withdrawal of deposits.

• Bearer cheques which are encashable immediately at bank counters.

• Crossed cheques which are to be deposited only in payees account.

CHEQUE FACILITY:-

• Another salient function of commercial banks is providing the facility of fund transfer from one place to another place through interconnectivity of branches. This process is carried by drafts, pay orders or mail transfers.

REMITTANCE OF FUNDS:-

• In addition to above services banks also provide other services such as bill payments, locker facilities, underwriting services and other services like selling and buying of shares and debentures on instructions and other personal services such as payment of insurance premium, collection of dividend etc….

ALLIED SERVICES:-

• The growth of internet and ecommerce is drastically changing everyday with the world wide web and transforming the world into a digital global village. In simple terms user with a pc and a browser can get connected to the banks and avail all the functions provided by the bank.

• The range of services offered by e-banking are- Electronic Fund Transfer, Automated Teller Machine, Credit Cards etc..

e-BANKING

• e-banking provides 24 hours and 365 days services.• Customers can make some permitted transactions from the

office or house.• It inculcates a sense of financial discipline by recording each

and every transaction.• Load on branches can considerably reduced by establishing

centralised control.

ADVANTAGES OF e-BANKING

• Commercial banks do not create money--they are simply the intermediaries that move money from the capital markets to businesses and institutions. Banks get their money through business checking or deposit accounts, service fees and by issuing certificates of deposit (CD) and banker's acceptances--money market instruments that are collateralized by letters of credit (LOC) used in trade finance--and commercial paper. 

• Companies always need to borrow money to cover purchases of raw materials, machinery parts, inventory and/or payroll. Banks with overseas branches or affiliates can simplify the process of corporate finance throughout a company's organization by consolidating the transaction procedures, reporting and record keeping. 

ROLE OF BANKS IN BUSINESS

• Without commercial banks, the international finance and import-export industry would not exist. Commercial banks make possible the reliable transfer of funds and translation of business practices between different countries and different customs all over the world. 

DISCOUNTING OF BILL OF EXCHANGE

There are also bills drawn with a credit period (usance) which are payable after the credit period. Bank lending against such receivables is called discounting. The banks deduct the interest for the credit period and release the balance, that is they discount the bill.

• A letter of credit is a document from a bank guaranteeing that a seller will receive payment in full as long as certain delivery conditions have been met. In the event that the buyer is unable to make payment on the purchase, the bank will cover the outstanding amount.

• They are often used in international transactions to ensure that payment will be received where the buyer and seller may not know each other and are operating in different countries. In this case the seller is exposed to a number of risks such as credit risk, and legal riskcaused by the distance, differing laws and difficulty in knowing each party personally. A letter of credit provides the seller with a guarantee that they will get paid as long as certain delivery conditions have been met. For this reason the use of letters of credit has become a very important aspect of international trade.

LETTER OF CREDIT

• A non-bank financial institution (NBFI) is a financial institution that does not have a full banking license or is not supervised by a national or international banking regulatory agency. NBFIs facilitate bank-related financial services, such as investment, risk pooling, contractual savings, and market brokering.[1] Examples of these include insurance firms,pawn shops, cashier's check issuers, check cashing locations, payday lending, currency exchanges, and microloan organizations.[2][3][4] Alan Greenspan has identified the role of NBFIs in strengthening an economy, as they provide "multiple alternatives to transform an economy's savings into capital investment [which] act as backup facilities should the primary form of intermediation fail."[5]

NON INSTITUTIONAL SOURCES OF CREDIT

• The issues of land clearance and intensification of agriculture cannot be seen as issues related exclusively, or in many cases even primarily, to loan-making decisions by formal banking institutions. While banks are the principal institutional source of capital, they are not always the most important source of credit for agriculture. In fact, in most of the developing world, in terms of aggregate lending volumes, banks generally lend far less to agriculture than does the informal sector.

• In most countries, banks offer lower nominal lending rates to farmers than do informal lenders. However, the processing time, repeated travel from the borrower's home to the bank, the paperwork, literacy requirements, the demanding (and sometimes impossible) loan conditions as to equity, collateral, and credit histories, developed by bureaucrats in a distant urban area, as we]1 as the need to repay the loan in cash, add substantially to the cost of borrowing for small farmers. As a result, the effective borrowing rate, even in subsidized credit programs, is quite high. So high, in fact, that many farmers who could borrow at a formal banking institution opt for borrowing in the informal market.

DEPENDENCE ON NON INSTITUTIONAL SOURCES OF CREDIT

• Banking is one of the most sought after career choice among the students. It is an entry into a well paid, secure and status career. Though it may appear that these jobs are meant for commerce/economics students but the fact is that majority of bank officers are from different streams of education. Further, it is also not a fact that top positions in Foreign/Multinational Banks are held by MBA's from Premier Management Institutes. Though the Public sector Banks are now appointing management graduates, CAs and CFAs but bright graduates from any subject can get entry in the Public sector Banks through an All India Examination conducted by them.

• The emergence of technology-driven new private banks have broadened the scope and range of banking service and entry of Financial Institutions are into the short-term lending business, is resulting in needs for more professionals. Now banks are in the mutual funds , securitisation business credit cards, consumer loans, housing loans, housing loans besides trading in gold and forex activities.

• Generally banks look for good communication skills, good interpersonal skills, the ability to deal with customers, an alert nature, and basic knowledge of the industry. However to join foreign or private sector banks at higher than entry level one needs specialisation in some specific areas. For example expertise in project analysis, credit appraisal skills, managing huge loan portfolios general and foreign exchange and money .Good computer knowledge is always preferred.

CAREERS IN BANKING