BANKING

Before we were introduced to banks it was a barter system which changed to currency as a measure and then to private money lending or depositing to the evolution of banks .

Do banks have relevance in our lives today? How to make the best use of them till we come to some thing better with new technology, may be digital.

In India we have the nationalized banks, private banks , cooperative banks and also some NBFCs. Then we have the regulator in RBI.

For a common man knowing and using these banks is what I am discussing here.

1. Use banking and be included in the financial system of the nation so do have an account and do all or most transactions using this account.

2. Nationalized banks are better for normal personal banking purposes, as risk of banks getting into trouble and putting your money in the bank at greater risk is more in cooperative banks,

3. Nationalized banks don’t get after you with dubious means for recovery of loans which is likely in case of cooperative banks and NBFCs.

4. Being nationalized deposits in nationalized banks are safer than otherwise and also insured and assured till 1 Lakh.

5. Fixed deposits earn a rate of interest related to inflation and thus are not a good investment of your savings, but can be used to keep your Emergency fund as getting loans against these FDs is very easy and quick in case of any emergency or you can even keep the facility of loan against FD ready to use when required.

6. I will recommend using separate banks for business and personal/ family finance too.

7. Fixed deposits be they in banks or companies are not the ideal place to park your savings, even though company fixed deposits give higher rate of interest they also have higher risk of losing your savings capital too. Some amounts of bank and company FDs may suit some particular people for reasons of age,tax considerations etc.

8. Last but not the least don’t forget to help all poor and uneducated people like maids, servants etc you know to open their bank accounts and take insurance which has been made available by this Government of 4 Lakhs at just rupee a day premium. Please also educate them to ensure that they keep adequate balance in their accounts for banks to deduct yearly premiums.Poor people mostly get into trouble and financial debt crisis because of not having insurance when their bread earner falls sick or dies

9. As regards the use of banks for opening your investment accounts for investments in mutual funds, ETF and equity I will deal with it in the future blogs when discussing these investments.

A very simplified crude example of what happens when you put Rs. 100 in FD at 6% with the bank after one year when inflation is 8%

l Your money becomes 106 and its purchasing power is reduced as what you could buy in 100 is costing 108 now.

l Bank lends it at 11% so makes a profit of at least 2-3 percent after the costs

l Person who borrows it utilizes it to make at least 15 % and repays the loan and makes 2-3 % and also gets experience and knowledge of how to make money at 15% so will continue to earn at that rate even after repaying loan and generating his own capital and becomes rich

That is why it serves only for rich to become richer and those keeping money in the Banks poorer in real terms. Decide what you want to be a depositor, lender ( not directly but investing in equity) or a beneficiary by taking loan and becoming self employed.