Banking System: Definition,Need & Benefits

by Arpita Wadhawan

Today the world is symbolized by emerging monetary institutions who have shaped our lives in many ways. Banking has given every individual a chance to save for their future. It plays the aspect of an intermediate between the ones who save and the other who borrows money for different purposes or investments.

Thus banking system can be defined as a grid of financial institutions that provides services like providing loans, taking deposits, money transfer or help with an investment to individuals or institutions with interest based on the amount of transaction.

Why do we need a banking system?

This system allows millions of us to pay for goods and services or transfer any amount of money whenever and wherever required. It provides a livelihood  to millions of people all across the world. It contributes billions of pounds in public services.

Benefits of the banking system :

  • It helps to set aside money through various types of bank accounts.
  • It provides an identity that is recognized by various government institutions.
  • The bank with more number of branches enjoys the benefit of large scale operations by appointing highly trained and experienced staff which results in the efficiency of management.
  • Funds are made available liberally and at a cheaper rate.
  • As the mobility of capital increases, it brings equality at the interest rate. Funds from the areas with excessive demand are transferred to areas with deficit demand.
  • Helps in the development of the backward region of the country.
  • Expenses can be paid as well as received

Thus banking provides deposit facilities to individuals which in turn provides credit to entrepreneurs. The profit earned comes back to the bank as interest. The process thus creates an asset which produces additional economic goods and services that provides employment, creation, and distribution of income which helps in the economic growth of the country.

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