Importance of Banks

Banks are the financial institutions that accept, deposit and also indulge in the various money lending activities. It plays a very important role in our economy. The capital required for all kinds of businesses is distributed by these institutions. The various activities involved in the banking system are:

  • Personal banking
  • Investment banking
  • Corporate banking
  • Insurance
  • Money market trading
  • Commodity trading
  • Trading in equities
  • Private banking
  • Consumer finance and so on.

There are also different types of outlets or channels through which banking can be easily done such as:

  • Online banking
  • Mobile banking
  • Automated Teller Machine (ATM) banking
  • Video banking, and also through
  • Direct selling agents
  • Different types of Banks

The different types of banks operating are:

  • Central banks
  • Commercial banks
  • Co-operative banks
  • Development banks
  • Specialized banks

importance of banks

In the olden times, sending and receiving money was a difficult process. Later, with the advent of technology, banks were developed to tackle this issue. Have you ever thought about what would have happened if there were no banks? In the current world, we cannot even imagine such a situation. Even though the banks do not create any wealth within themselves, the various functions performed by them have made these institutions, the cornerstone of our economy.

A bank plays a vital role in both our lives and in the economy. Let us have a look at how these financial institutions contribute to the growth of our economy

  • The major functions included in the banking system are lending loans and also accepting deposits from customers. They also provide different types of account depending on the requirement of the customer.
  • When a customer deposits a certain amount of money, it is invested by the bank in the various business sectors in the form of loans. This leads to the formation of capital and hence, enhances the economic growth.
  • The capital for various small-scale and large-scale businesses and farmers are lent through the banks.
  • The use of fake currency notes is a major problem while doing transactions. The banks help to rectify this situation by accepting deposits in the form of cheques and credit cards instead of liquid money.
  • The banks provide loans at concessional rates to the farmers and artisans to help the rural economy.
  • Different types of accounts like a current account, savings account, etc., operate with different rates of interest. This encourages the people to deposit their money into the banks.
  • Through the various deposit schemes, the banks are actually motivating the people to start the habit of saving money.
  • Banks also provide job opportunities to a lot of people.
  • The various channels of operations provided for banking such as ATM, internet banking, etc., help the people to make their transactions easier and smoother.
  • Banks also help to identify the industrially backward areas within the country and also provide them with loans at very reasonable rates.
  • They also facilitate import and export transactions. They also utilize the foreign exchange to develop the economy of the country.
  • The banks also have the facility to provide an overdraft to their trusted customers to help them from sudden and temporary financial crisis.
  • The money transfer between people or organizations has also become easier with the help of these banks. The banking system also allows the customers to use cheques and drafts, where huge payments are required to be done.

Banks, hence contribute to the economy of a country and also help to raise the standard of living of the people. One of the major advantages of a banking system is the security offered by the banks. You do not have to worry about your money, once it has been deposited in these institutions. With a valid bank account, you can also retrieve money through the banking channels from any part of the nation.

Earlier, we had to make all the purchases in the form of physical cash. Carrying huge amount of cash can always invite dangers like theft or pilfering. With the arrival of these financial institutions, payments can be easily done with the help of credit/debit cards or even through internet banking facilities.

Also read: Importance of economics

Banks also help us to manage our expenditure and budget by providing detailed statements every month. Banking is basically the continuation of the money lending system carried out in the ancient times. But with the technological development, the facilities of this system also have increased to help the customers more effectively. In short, banking is an inevitable part of the economy without which no progress is possible.

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