Hinglish

What Banks Do

Class 7 Social Science · Chapter 20: Banks and the Magic of Finance · NCERT Exploring Society: India and Beyond section 20.1

Learn

Roads and railways are physical infrastructure; financial infrastructure is the network of banks, payment systems, stock markets and other institutions that help people, businesses and the government move and manage money. Neel's aunt saves ₹3,000 a month but worries about keeping cash in a cupboard, so she deposits it in a bank. Meanwhile, Meher's mother needs money to expand her bamboo-craft business; friends can lend only a little, so she takes a loan from the bank. The bank connects the two: it collects savers' deposits and lends to borrowers.

To use a bank you open an account. A savings account is for individuals who save regularly; it earns interest and allows limited withdrawals. A current account is for businesses with many payments; it earns no interest but has no limit on transactions. A fixed deposit locks money for a set time, such as 3 or 5 years, at a higher interest rate. A passbook records every credit (money in) and debit (money out).

Explore: which account?

  1. Sort each need.

Remember

  • Financial infrastructure moves money among people, businesses and government.
  • Banks hold deposits in savings, current and fixed deposit accounts and lend to borrowers.

Quick check

Why might a fixed deposit pay more interest than a savings account?

  1. the bank can use the money for a fixed, longer time
  2. it has no rules
  3. it is not kept in a bank
  4. it earns no interest
Answer

the bank can use the money for a fixed, longer time. Money that stays put lets the bank plan longer loans.

Think about it

Could savers and borrowers simply lend to each other without a bank? What could go wrong?

One answer

They might not find each other, could not judge whether the borrower will repay, and the saver might lose everything; banks spread risk, check borrowers and keep money safe.

Practice

Practise with fresh questions at three levels (easy, medium, hard), some answered hands-on, with hints and worked answers. Get 4 of your last 5 right to finish the topic.