Soul of Banking Awareness: IDEVENDRA VISHWAKARMA
Many of you are tensed about the SBI Clerk, UIIC AO & last but not the least, the back bone of Indian banking sector SBI PO. As we all know, Banking industry is now evolving so banks does not need employees who knows only freaking definitions they need the soul out of the body of banking sector.
Don’t be nervous just try to understand everything in a simplified way, try to relate it with your daily activities. Many of you are going to appear for for the first time, many had appeared earlier and gone through the tremendous pain of failure.
Remember my friends –
TREMENDOUS PAIN IS DIRECTLY
PROPORTIONAL TO TREMENDOUS GAIN
For SBI Clerk, UIIC AO & SBI PO Exam we are providing you various modules, which will surely help in your preparation.
Module 1 – In first module we will discuss on important issue – How the Bank functions? How will they get profit?
COST OF FUNDS
So let us look into the first and foremost part, please look into the figure and here a vertical line is given that vertical line basically it is interest percentage, when you go the banks there are primarily two things, either you are going to deposit money or to take some loan from bank.
So when we deposit money in the banking system, they are required to pay us interest, this vertical line you are seeing in the fig. is basically the interest rate, here if you look at
1. Current a/c Deposit – the interest rate will be zero, the second one is the
2. Saving a/c Deposit some interest is paid around 4% , next comes
3. Fixed deposit a/c and Recurring deposit a/c, then one more category is there
4. Bulk deposits – Bank deposits primarily constitutes these 5 types in general and when we deposit money with the bank they are required to pay interest to us and that interest varies, the interest which they pay varies depending on the deposit. As banks are required to pay us interest the deposits with the banks are known as liabilities.
Now what is liability? What is asset?
Suppose you have a brother who always gives you money, he is your asset. Look at the other scenario you have a brother who always asks you money, he will be your liability. Similarly when you deposit money with the banking system they are required to pay us interest and the avg. interest of all these deposits put together is known as COST OF FUNDS for banks. The cost of funds should be as low as possible.
Now how to reduce this cost of funds?
Cost of funds can be reduced if banks have more current a/c and saving a/c depositsbecause –
1. In Current a/c banks are not required to pay any interest and
2. In Saving a/c the interest rate is very less around 4%.
But if banks have more fixed deposits, the cost of funds will be more. That’s why in the banking system banks requires more current a/c and saving a/c deposits, but the problem here is CASA deposits can be withdrawn at any point of time, they are unstable deposits, today he may deposit 10 crores , tomorrow he may withdraw all the 10 crores, that’s why they are volatile deposits.
But fixed deposits, they are for fixed terms, banks can plan their activities, so the advantage of having more fixed deposits is, these deposits are stable, banks can plan their loans. That’s why banks have to judiciously mix support these deposits.
YIELD OR INCOME