What are the objectives of the Bank?
Objectives and importance of Bank
Bank has various objectives as per other financial organizations. But the banking organization viewpoint is exceptional than others. The objectives of the bank can be viewed from three different perspectives:
1) The objective from the viewpoint of Bank owners,
2) The objective from the viewpoint of the government and
3) The objective from the viewpoint of Bank customers.
1. The objective from the viewpoint of Bank owners
i) Earning profit: The profit motive of the owners of the Bank acts as a driving force in engaging themselves in the business of banking like all other businesses.
ii) Rendering Services: Bank renders various services to the society as a part of their social commitment and this is a prime objective for engaging in the banking business. Bankers are not only to make a profit but also to do some good to society.
iii) Investment of fund: The owners of the bank treat the bank as a suitable sector to invest their accumulated saved money.
iv) Earning goodwill: The owners of the bank take banks as a way of earning goodwill by enhancing the periphery of their banking business.
v) Raising efficiency: The owners sharpen their managerial skill and efficiency by ensuring smooth operation of their banking business.
2. The objective from the viewpoint of the government
i) Issuance of Note and currency notes: Government issues notes and currency as a medium of exchange through banks.
ii) Formation of capital: The government always encourages the formation of capital in society through households and banks act as a catalyzing force in the formation of capital in different sectors of the society.
iii) Investment of capital and industrialization: Bank helps investment of ideal money through its various asset products and expedites industrialization. Eventually, this helps the growth of GDP, alleviating poverty and ensures equal distribution of wealth.
iv) Control of money market: Bank by its various products helps in controlling the money market (supply of money in the market) and guards against the economy to be inflated.
v) Creation of employment: Bank to fulfill its human resource requirements and create large employment opportunities.
vi) Counseling in financial matters: Banks sometimes put up effective suggestions to Govt in financial matters from their part
3. The objective from the viewpoint of bank customers
i) Safe custodian of public money: Bank acts as a safe custodian of public money. By depositing their own money into a Bank account people get rid of worries like theft, burglary, and snatching.
ii) custodian of public money: Sometimes bank acts as financial advisers and counselor to its customers in various aspects.
iii) Representative or trustee: Bank sometimes performs the role of a representative or trustee on behalf of its customers.
iv) Providing credit facility: Bank provides credit facility to its customers and makes opportunities to invest in the profitable sector and by the process create income opportunities for customers.
The objectives of a bank are multifaceted, encompassing a range of financial, economic, and societal goals. These objectives are designed to ensure the smooth functioning of the banking institution and contribute to the overall well-being of the economy. Here are the primary objectives of a bank:
- Facilitating Economic Growth:
- Banks play a crucial role in fostering economic development by providing financial resources to businesses and individuals. Through loans and other financial services, banks contribute to the growth of various sectors, thereby stimulating overall economic progress.
- Providing Financial Intermediation:
- One of the fundamental roles of a bank is to act as a financial intermediary. Banks gather funds from depositors and channel them to borrowers in the form of loans. This intermediation process ensures efficient capital allocation in the economy.
- Ensuring Financial Stability:
- Banks are integral to maintaining financial stability. By managing liquidity, monitoring risks, and adhering to prudent financial practices, banks contribute to the stability of the financial system. This stability, in turn, promotes confidence among depositors and investors.
- Encouraging Savings and Investments:
- Banks encourage individuals and businesses to save by offering various deposit products. These savings, in turn, are utilized to provide loans for investments. By promoting a culture of saving and investment, banks contribute to the accumulation of capital in the economy.
- Ensuring Payment System Efficiency:
- Banks facilitate the efficient functioning of the payment system. Through services such as electronic funds transfers, checks, and online banking, banks ensure that transactions between individuals and businesses occur smoothly and securely.
- Providing Liquidity:
- Banks serve as liquidity providers by maintaining reserves and readily convertible assets. This liquidity is crucial for meeting the day-to-day financial needs of depositors and borrowers and contributes to the stability of the banking system.
- Risk Diversification:
- Banks engage in a variety of financial activities, including lending, investment, and trading. This diversification of activities allows banks to manage and spread risks, reducing the impact of adverse economic conditions on their overall financial health.
- Supporting Government Monetary Policy:
- Banks play a role in implementing and supporting the monetary policy of the government. Through mechanisms such as open market operations and control over interest rates, banks contribute to achieving the broader economic goals set by monetary authorities.
- Social and Community Development:
- Banks often engage in corporate social responsibility (CSR) initiatives to contribute to the social and community development of the areas they serve. This may include supporting education, healthcare, and environmental sustainability projects.
- Customer Service and Satisfaction:
- Meeting the financial needs of customers is a primary objective. Banks aim to provide a range of services that meet the diverse requirements of individuals and businesses while ensuring a high level of customer satisfaction.
Understanding and fulfilling these objectives collectively enable banks to play a pivotal role in the economic and financial landscape, contributing to stability, growth, and the overall welfare of society.