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Introduction to Banking

Fund based and Non Fund based services

As we discussed earlier, banks in today's world offer a vast number of products to their customers. Similarly, they also offer a whole host of services as well.  The services can be divided into two categories -

  • Fund based services.
  • Non-fund based services.

Fund based services are those where banks provide short and long term funds to individuals and businesses. The financing is provided based on the repayment power of an individual or a business. These are basically different types of loans offered by banks.


Non-fund based services or fee-based services, on the other hand, are those where banks operate certain functions and earn a fee out of the same. This fee can be in the form of dividends or brokerages or a commission. 


Types of fund based services offered by banks to individuals:

Banks offer a variety of fund based services to individuals which help individual customers to fulfil their dreams and aspirations.


The most common ones include: 



The rates of interest and the tenure for different loans are different. While in most cases customers pledge collateral with the banks (such as a house in case of a home loan), some loans may not involve a collateral (such as a personal loan). 


Types of fund-based services offered by banks to businesses:

Most banks also offer a range of fund-based services to businesses. From setting up a business to expanding it, these loans are provided for a variety of purposes. They help in establishing, running, and expanding a business. 


The most common kinds of loans provided to businesses include:

  • Lease financing
  • Hire purchase
  • Consumer credit/consumer finance
  • Factoring
  • Venture capital financing
  • Housing finance

Customers have to submit documentation as stipulated by the bank to obtain fund-based services. Upon evaluating a customer's repaying power, a bank decides whether it will provide the loan. The decision of approving a loan is solely at the discretion of the bank.


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Types of non-fund-based services offered by banks to individuals and businesses

Banks offer a wide-range of non-fund based services to individuals as well as businesses. Some of these include:

  • Credit cards
  • Debit cards
  • Smart cards
  • Safe deposit lockers
  • Cheque 
  • Demand draft
  • Insurance
  • Mutual Funds
  • Financial products issued by other financial institutions

These non-fund based products offer convenience to customers as well as help them invest their funds in different avenues.

By the end of the discussion, Satish had an idea of not only what account he wants to open, but also what banking is all about. He was now determined to go home and research the different aspects he just learned. 

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