The purpose of banks is to serve their customers and make a profit. These institutions perform banking activities such as withdrawals, deposits, and currency exchange. They also offer services like wealth management. They make their money by charging fees and service charges. In addition, banks offer passbooks free of charge to their customers.
- Banks Perform a Variety of Services
Banks have a variety of services that benefit consumers. One of the most important is performing withdrawals and deposits. Banks perform these tasks by acquiring government and corporate securities. They also handle the foreign exchange, cash, or securities denominated in foreign currencies, and quick cash loans like MaxLend loans for instance.
Banks generate revenue in several ways. Interest, transaction fees, and financial advice are all sources of revenue. For example, most banks earn revenue by charging higher interest rates on loans and debts than they do on savings accounts. In addition, they also offer a variety of financial products and services. For example, some banks offer investment management, insurance, and consumer finance.
- Offer Free Passbooks to Customers
The Reserve Bank of India recently directed all banks to offer a free passbook facility to customers with a savings account. However, there are reports that some banks are still not offering passbooks to their customers and are only issuing computer-generated account statements. These banks should follow the instructions of the Reserve Bank closely.
- Make Money from Service Charges
Service charges make up about 75% of all deposit income at banks, credit unions, and thrifts. Consumers and small business owners can reduce monthly fees by placing all their services with one institution. This practice is known as relationship pricing and is more profitable for the institution. However, it also reduces fee revenue. Service charges make up $43.6 billion of total depositories’ revenue, with banks, credit unions, and thrifts accounting for 79.5% of total revenue.
Many banks charge monthly account fees, ranging from $5 to $25 per month. These fees may be waived if you meet certain requirements, such as maintaining a minimum balance. However, it is still wise to check the bank’s service fee schedule before opening an account with them.
- Profit-Seeking Organizations
A profit-seeking organization receives deposits from individuals and corporations. Part of that money is then used to make loans. The rest is kept for investment and other purposes. This is an essential part of a banking institution. The main difference between a profit organization and a non-profit is the nature of its ownership. Profit organizations require fees to start and run and are generally traded on the stock market. They are owned by shareholders, while non-profit entities aren’t.
- Low Level of Concentration
The banking industry has a relatively low concentration level compared to other economic sectors. This is reflected in two measures of industry concentration. The first measures the number of banks and the second measures the percentage of assets held by the largest five banks. The first measure is more concentrated than the latter, at twenty-six percent. The second measure shows that the top five banks hold only forty percent of the industry’s assets. The trend is similar for the top ten banks.
While banks are not overly concentrated, some claim the industry is. However, evidence from the past thirty years suggests that the banking industry has remained fairly stable in recent years. One such indicator is the ratio of bank profits to total assets. This has been relatively stable for decades and has averaged 0.9 percent over the entire period.
