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Working of the banks

Reserve Bank of India

Reserve Bank of India

Bank going by its definition in strict sense of terms is an entity on which you can have faith. This is precisely the maxim under which the banks operate. The functioning of the bank is derived from the trust that we bestow upon them as a custodian of our money. It is owing to this trust that we deposit our money with the banks for its safety. But what do the banks do with the money that we deposit with them. They lend it onwards to some other person and make money for themselves; mind you it is your money which has been lent onwards by the bank. So, the bank earns profit on the money that we have deposited with it, sort of a charge for keeping the money with it.

Origin of money

Though we are aware that banks lend our money onwards, still we have the trust and faith in the banks and deposit our surplus cash with the banks. Such is the trust that we hold in the banks that we are happy about it being deposited in the bank and not having the comfort to see it, while had it been kept below the mattress we would have had the satisfaction of seeing our money with our own eyes on a day-to-day basis.

What is the operative psychology which motivates us to keep our deposits with the bank? Is it the interest that we earn on our deposits which motivates and cajoles us to keep our deposits with the banks?  Is it, owing to the fact that if the money is in our hands, there would be an inherent temptation to spend it, while if it is deposited in the bank it would keep a tight leash on our spending habits? If such is the scenario what about the spending that are done on a lavish scale through the credit cards? Is the motivation to deposit the money with the banks guided by our convenience to issue checks and swipe the debit cards, and riding us of carrying fat cash in the wallets?

The answer could be one of the above reasons which motivate us to keep our money deposited with the banks, or it could be a combined effect of all of them, when viewed from the perspective of advent of the electronic banking in the modern times. Banking has now evolved in such a manner that mere press of a button on the computer to execute the command of “pay” on a website completes the process of making a payment and completing the transaction.

By: Suman Rai

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