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Semester 4: B.Com Corporate Secretaryship
Origin of Banks
Origin of Banks
Historical Background
The concept of banking has roots in ancient civilizations, where merchants would store their goods in temples for safekeeping. Over time, these facilities evolved into places for the storage of currency.
Early Banking Systems
The earliest forms of banking can be traced to Mesopotamia around 2000 BCE, where grain loans were made and written records were kept on clay tablets.
Medieval Banking
In medieval Europe, banks began to emerge in response to trade and commerce. Italians in cities like Florence and Venice developed systems of deposits and loans.
Modern Banking Evolution
The modern banking system began in the 17th century with the establishment of banks like the Bank of England, which introduced formal banking practices that are still in use today.
Global Expansion of Banks
With the rise of colonial empires and international trade in the 18th and 19th centuries, banks expanded globally, adapting to various economic systems and regulatory environments.
Commercial Banks Functions
Commercial Banks Functions
Accepting Deposits
Commercial banks play a vital role in the economy by accepting deposits from individuals and businesses. These deposits can be in the form of savings accounts, current accounts, and fixed deposits. By collecting these funds, banks provide a secure place for money while also facilitating transactions through cheques and debit cards.
Providing Loans
One of the primary functions of commercial banks is to provide loans to individuals and businesses. Banks assess the creditworthiness of borrowers and offer various types of loans such as personal loans, home loans, and business loans. This lending activity supports economic growth by providing necessary capital for investments.
Creating Credit
Commercial banks have the ability to create credit through the process of fractional reserve banking. When banks accept deposits, they are required to keep a fraction in reserve but can lend out the rest, effectively increasing the money supply in the economy. This function supports liquidity and encourages spending and investment.
Facilitating Payments
Commercial banks facilitate payments and money transfers through various services. This includes processing cheques, electronic funds transfers, and credit card transactions. By providing these services, banks ensure smooth financial transactions and enhance the convenience of payments.
Providing Financial Services
Commercial banks offer a range of financial services beyond deposit and loan facilities. This includes wealth management, investment advice, foreign exchange services, and insurance products. These services cater to the diverse financial needs of consumers and businesses.
Custodial Services
Banks provide custodial services, safeguarding securities and handling transactions related to investments on behalf of clients. This function is crucial for institutional investors and individuals seeking to manage risk and ensure the safety of their investment assets.
Opening of an Account
Opening of an Account
Types of Accounts
1. Savings Account: Designed for individuals to save money and earn interest. 2. Current Account: Mainly for business purposes, offering no interest but allowing unlimited transactions. 3. Fixed Deposit Account: Locking funds for a fixed term at a higher interest rate.
Documents Required
1. Identity Proof: Aadhar Card, Passport, Voter ID, etc. 2. Address Proof: Utility bills, rental agreements, etc. 3. Passport-sized Photographs: Typically two to three photographs. 4. PAN Card: Mandatory for tax purposes.
Account Opening Process
1. Choosing the Bank: Research banks based on services and fees. 2. Filling Out Application: Complete the account opening form with accurate details. 3. Submission of Documents: Provide required documents along with the application. 4. Verification Process: The bank verifies the documents and KYC compliance.
Common Terms and Conditions
1. Minimum Balance Requirement: Many accounts require a specified minimum balance. 2. Charges and Fees: Account maintenance fees, withdrawal fees, etc. should be reviewed. 3. Online Banking: Terms for using online banking facilities securely.
Importance of Opening an Account
1. Financial Management: Helps in managing finances and budgeting effectively. 2. Earning Interest: Savings accounts provide interest on deposited money. 3. Easy Transactions: Facilitates easy fund transfers and payments.
Negotiable Instruments
Negotiable Instruments
Definition and Characteristics
Negotiable instruments are written documents that guarantee the payment of a specific amount of money, either on demand or at a set time. They are transferable by endorsement or delivery and represent a promise to pay. Key characteristics include: transferability, negotiability, and the right to receive payment.
Types of Negotiable Instruments
The primary types of negotiable instruments include checks, promissory notes, bills of exchange, and certificates of deposit. Each type has distinct features and uses, but all serve as a means of transferring money.
Legal Framework
The legal framework governing negotiable instruments varies by jurisdiction but typically includes legislation such as the Negotiable Instruments Act. This framework outlines the rights and obligations of parties involved in the issuance, endorsement, and payment of these instruments.
Parties Involved
Key parties involved in negotiable instruments include the maker or drawer (who creates the instrument), the payee (who receives the payment), and the endorser (who transfers the instrument to another party). Each party has specific rights and duties.
Negotiability and Transferability
Negotiability allows the instruments to be transferred from one party to another. A holder in due course, who acquires the instrument for value and without notice of defects in title, has enforceable rights.
Discharge of Negotiable Instruments
Negotiable instruments can be discharged through various means such as payment, cancellation, or expiration. Discharge refers to the elimination of the obligation to pay the instrument.
Applications in Business
Negotiable instruments play a crucial role in business transactions by facilitating payments and credit. They provide a reliable and formal method for settling debts and conducting trade.
Risks and Fraud Prevention
While negotiable instruments offer convenience, they also pose risks such as fraud, forgery, and default. Businesses must implement strong internal controls and verification processes to mitigate these risks.
Recent Trends in Banking
Recent Trends in Banking
Banking is undergoing significant digital transformation, with a move towards online services. Mobile banking and digital wallets are becoming mainstream, allowing customers to transact anytime and anywhere.
Traditional banks are increasingly collaborating with fintech companies to enhance service delivery, innovate products, and improve customer experience. This partnership fosters agility and technological advancement.
The banking sector is facing evolving regulatory landscapes aimed at enhancing security and consumer protection. These changes are often in response to emerging technologies and new financial practices.
Banks are focusing on creating personalized customer experiences. Data analytics is used to tailor products and services, improving customer satisfaction and loyalty.
There is a growing trend towards sustainability, with banks adopting environmentally friendly practices. This includes financing green projects and adopting sustainable operational practices.
