NCERT Textbook: Banking | Financial Literacy for Class 6 PDF Download

 Page 1


Central Board of Secondary Education
Unit 3
Banking
The objective of this unit is to make students aware of the purpose and function of 
Banks This unit focuses on:
• Importance and purpose of Banks
• The various functions performed by Banks
Learning Outcomes:
Location Learning Outcome Knowledge 
Evaluation
Performance 
Evaluation
Teaching and 
Training Method
Classroom Understand the 
purpose and func-
tions of Banks
Describe the 
importance of 
banks and their 
purpose as finan -
cial institutions
Enlist the func-
tions performed 
by banks
Interactive 
Lecture: Role 
and importance 
of banks
Activity: Discuss 
with your parents 
which bank they 
are associated 
with and which 
services they 
have availed
3.1 Evolution of Money
As you can see that a Barter-like exchange system has its limitations and only works 
when you have something to offer that the other person needs and vice versa. It may 
not always be the situation. The limitations of the Barter System led to the evolution 
of money.
As you may be aware, gold coins were used as a mode of currency in ancient India. 
Similarly, different regions in the world have been us-
ing other precious/semi-precious products as a unit 
of trade.
For example, the ancient Aztecs used beans as a 
trade currency, and Norwegians used butter. Simi-
larly, US colonists used tobacco leaves and animal 
hides as a form of currency.
Gradually, however, as human civilisation pro-
gressed, coins and currency notes came into circu-
lation. In fact, the development of currency has been 
representative of the development level of an econ-
omy across ages.
Page 2


Central Board of Secondary Education
Unit 3
Banking
The objective of this unit is to make students aware of the purpose and function of 
Banks This unit focuses on:
• Importance and purpose of Banks
• The various functions performed by Banks
Learning Outcomes:
Location Learning Outcome Knowledge 
Evaluation
Performance 
Evaluation
Teaching and 
Training Method
Classroom Understand the 
purpose and func-
tions of Banks
Describe the 
importance of 
banks and their 
purpose as finan -
cial institutions
Enlist the func-
tions performed 
by banks
Interactive 
Lecture: Role 
and importance 
of banks
Activity: Discuss 
with your parents 
which bank they 
are associated 
with and which 
services they 
have availed
3.1 Evolution of Money
As you can see that a Barter-like exchange system has its limitations and only works 
when you have something to offer that the other person needs and vice versa. It may 
not always be the situation. The limitations of the Barter System led to the evolution 
of money.
As you may be aware, gold coins were used as a mode of currency in ancient India. 
Similarly, different regions in the world have been us-
ing other precious/semi-precious products as a unit 
of trade.
For example, the ancient Aztecs used beans as a 
trade currency, and Norwegians used butter. Simi-
larly, US colonists used tobacco leaves and animal 
hides as a form of currency.
Gradually, however, as human civilisation pro-
gressed, coins and currency notes came into circu-
lation. In fact, the development of currency has been 
representative of the development level of an econ-
omy across ages.
Central Board of Secondary Education
The earliest coins were made in the kingdom of Lydia (now in Turkey) in the 7th cen-
tury BC. The use of coins spread rapidly across the world from Lydia to the Africa and 
Europe. The transition to paper currency is said to have occurred in China during the 
10th century.
In ancient India too, metal coins came into circulation around the 6th century BC. 
Paper currency is said to have been introduced in India by the Mughals in the year  
1236 AD.
3.2 Banks and their Importance
As a young child, you may have used a piggy bank. You deposit a small amount of 
cash or coins into a piggy bank, and when you open it finally, it reveals a handsome 
amount for you to use. That is how a bank works in real life too. However, it works 
according to strict rules and also serves many more functions that are important to 
individuals and businesses.
To explain in simple words, a bank is an institution where people deposit their funds as 
savings and are able to withdraw the same when required. In this sense, a bank acts 
as a ‘vault’ for safekeeping of funds. There are situations when people may need funds 
more than their savings to purchase high-value products such as cars, bikes et cetera. 
In such situations, banks also provide ‘loan’ to the ‘deposit holders’.
Page 3


Central Board of Secondary Education
Unit 3
Banking
The objective of this unit is to make students aware of the purpose and function of 
Banks This unit focuses on:
• Importance and purpose of Banks
• The various functions performed by Banks
Learning Outcomes:
Location Learning Outcome Knowledge 
Evaluation
Performance 
Evaluation
Teaching and 
Training Method
Classroom Understand the 
purpose and func-
tions of Banks
Describe the 
importance of 
banks and their 
purpose as finan -
cial institutions
Enlist the func-
tions performed 
by banks
Interactive 
Lecture: Role 
and importance 
of banks
Activity: Discuss 
with your parents 
which bank they 
are associated 
with and which 
services they 
have availed
3.1 Evolution of Money
As you can see that a Barter-like exchange system has its limitations and only works 
when you have something to offer that the other person needs and vice versa. It may 
not always be the situation. The limitations of the Barter System led to the evolution 
of money.
As you may be aware, gold coins were used as a mode of currency in ancient India. 
Similarly, different regions in the world have been us-
ing other precious/semi-precious products as a unit 
of trade.
For example, the ancient Aztecs used beans as a 
trade currency, and Norwegians used butter. Simi-
larly, US colonists used tobacco leaves and animal 
hides as a form of currency.
Gradually, however, as human civilisation pro-
gressed, coins and currency notes came into circu-
lation. In fact, the development of currency has been 
representative of the development level of an econ-
omy across ages.
Central Board of Secondary Education
The earliest coins were made in the kingdom of Lydia (now in Turkey) in the 7th cen-
tury BC. The use of coins spread rapidly across the world from Lydia to the Africa and 
Europe. The transition to paper currency is said to have occurred in China during the 
10th century.
In ancient India too, metal coins came into circulation around the 6th century BC. 
Paper currency is said to have been introduced in India by the Mughals in the year  
1236 AD.
3.2 Banks and their Importance
As a young child, you may have used a piggy bank. You deposit a small amount of 
cash or coins into a piggy bank, and when you open it finally, it reveals a handsome 
amount for you to use. That is how a bank works in real life too. However, it works 
according to strict rules and also serves many more functions that are important to 
individuals and businesses.
To explain in simple words, a bank is an institution where people deposit their funds as 
savings and are able to withdraw the same when required. In this sense, a bank acts 
as a ‘vault’ for safekeeping of funds. There are situations when people may need funds 
more than their savings to purchase high-value products such as cars, bikes et cetera. 
In such situations, banks also provide ‘loan’ to the ‘deposit holders’.
Central Board of Secondary Education
3.3 Origins of Banking
In ancient human history, banking is said to have started in the temples and palaces of 
Babylonia even before 2000 BC. Ancient Greeks too developed a system of transfer-
ring money in the form of book entries.
Banking in India started in a major way in the form of the Imperial Bank of India in 
1921. This was later renamed as the State Bank of India (SBI) in 1955. 
3.4 Types of Banks
Banks are of different types and can be categorised on the basis of their ownership 
and services they offer:
Central Bank: The Central Bank is an extremely important institution in the financial 
system of any country. In India, the Reserve Bank of India (RBI) plays the role of the 
central bank. It is responsible for the overall management of the nation’s currency to 
ensure an adequate supply of genuine notes. As the central bank, RBI also performs 
various other important functions such as acting as a banker to the government and 
implementing monetary policies for the country. 
Page 4


Central Board of Secondary Education
Unit 3
Banking
The objective of this unit is to make students aware of the purpose and function of 
Banks This unit focuses on:
• Importance and purpose of Banks
• The various functions performed by Banks
Learning Outcomes:
Location Learning Outcome Knowledge 
Evaluation
Performance 
Evaluation
Teaching and 
Training Method
Classroom Understand the 
purpose and func-
tions of Banks
Describe the 
importance of 
banks and their 
purpose as finan -
cial institutions
Enlist the func-
tions performed 
by banks
Interactive 
Lecture: Role 
and importance 
of banks
Activity: Discuss 
with your parents 
which bank they 
are associated 
with and which 
services they 
have availed
3.1 Evolution of Money
As you can see that a Barter-like exchange system has its limitations and only works 
when you have something to offer that the other person needs and vice versa. It may 
not always be the situation. The limitations of the Barter System led to the evolution 
of money.
As you may be aware, gold coins were used as a mode of currency in ancient India. 
Similarly, different regions in the world have been us-
ing other precious/semi-precious products as a unit 
of trade.
For example, the ancient Aztecs used beans as a 
trade currency, and Norwegians used butter. Simi-
larly, US colonists used tobacco leaves and animal 
hides as a form of currency.
Gradually, however, as human civilisation pro-
gressed, coins and currency notes came into circu-
lation. In fact, the development of currency has been 
representative of the development level of an econ-
omy across ages.
Central Board of Secondary Education
The earliest coins were made in the kingdom of Lydia (now in Turkey) in the 7th cen-
tury BC. The use of coins spread rapidly across the world from Lydia to the Africa and 
Europe. The transition to paper currency is said to have occurred in China during the 
10th century.
In ancient India too, metal coins came into circulation around the 6th century BC. 
Paper currency is said to have been introduced in India by the Mughals in the year  
1236 AD.
3.2 Banks and their Importance
As a young child, you may have used a piggy bank. You deposit a small amount of 
cash or coins into a piggy bank, and when you open it finally, it reveals a handsome 
amount for you to use. That is how a bank works in real life too. However, it works 
according to strict rules and also serves many more functions that are important to 
individuals and businesses.
To explain in simple words, a bank is an institution where people deposit their funds as 
savings and are able to withdraw the same when required. In this sense, a bank acts 
as a ‘vault’ for safekeeping of funds. There are situations when people may need funds 
more than their savings to purchase high-value products such as cars, bikes et cetera. 
In such situations, banks also provide ‘loan’ to the ‘deposit holders’.
Central Board of Secondary Education
3.3 Origins of Banking
In ancient human history, banking is said to have started in the temples and palaces of 
Babylonia even before 2000 BC. Ancient Greeks too developed a system of transfer-
ring money in the form of book entries.
Banking in India started in a major way in the form of the Imperial Bank of India in 
1921. This was later renamed as the State Bank of India (SBI) in 1955. 
3.4 Types of Banks
Banks are of different types and can be categorised on the basis of their ownership 
and services they offer:
Central Bank: The Central Bank is an extremely important institution in the financial 
system of any country. In India, the Reserve Bank of India (RBI) plays the role of the 
central bank. It is responsible for the overall management of the nation’s currency to 
ensure an adequate supply of genuine notes. As the central bank, RBI also performs 
various other important functions such as acting as a banker to the government and 
implementing monetary policies for the country. 
Central Board of Secondary Education
Commercial Banks: These include public sector banks owned by the Government 
and also the private banks. Commercial banks provide a direct interface to the people 
allowing them to open and manage accounts, to obtain loans and other financial ser-
vices.
3.5 Opening a Bank Account
A bank account can be opened in the name of an individual singly or jointly with a fam-
ily member by submitting the following documents:
• Passport size photographs
• Identity proof
• Address proof
• Opening amount 
Once the account is opened, the bank provides to the account holder an account 
number and cheque book to operate the account. Some banks also provide account 
holders with access to mobile banking.
3.6 Types of Bank Accounts
Page 5


Central Board of Secondary Education
Unit 3
Banking
The objective of this unit is to make students aware of the purpose and function of 
Banks This unit focuses on:
• Importance and purpose of Banks
• The various functions performed by Banks
Learning Outcomes:
Location Learning Outcome Knowledge 
Evaluation
Performance 
Evaluation
Teaching and 
Training Method
Classroom Understand the 
purpose and func-
tions of Banks
Describe the 
importance of 
banks and their 
purpose as finan -
cial institutions
Enlist the func-
tions performed 
by banks
Interactive 
Lecture: Role 
and importance 
of banks
Activity: Discuss 
with your parents 
which bank they 
are associated 
with and which 
services they 
have availed
3.1 Evolution of Money
As you can see that a Barter-like exchange system has its limitations and only works 
when you have something to offer that the other person needs and vice versa. It may 
not always be the situation. The limitations of the Barter System led to the evolution 
of money.
As you may be aware, gold coins were used as a mode of currency in ancient India. 
Similarly, different regions in the world have been us-
ing other precious/semi-precious products as a unit 
of trade.
For example, the ancient Aztecs used beans as a 
trade currency, and Norwegians used butter. Simi-
larly, US colonists used tobacco leaves and animal 
hides as a form of currency.
Gradually, however, as human civilisation pro-
gressed, coins and currency notes came into circu-
lation. In fact, the development of currency has been 
representative of the development level of an econ-
omy across ages.
Central Board of Secondary Education
The earliest coins were made in the kingdom of Lydia (now in Turkey) in the 7th cen-
tury BC. The use of coins spread rapidly across the world from Lydia to the Africa and 
Europe. The transition to paper currency is said to have occurred in China during the 
10th century.
In ancient India too, metal coins came into circulation around the 6th century BC. 
Paper currency is said to have been introduced in India by the Mughals in the year  
1236 AD.
3.2 Banks and their Importance
As a young child, you may have used a piggy bank. You deposit a small amount of 
cash or coins into a piggy bank, and when you open it finally, it reveals a handsome 
amount for you to use. That is how a bank works in real life too. However, it works 
according to strict rules and also serves many more functions that are important to 
individuals and businesses.
To explain in simple words, a bank is an institution where people deposit their funds as 
savings and are able to withdraw the same when required. In this sense, a bank acts 
as a ‘vault’ for safekeeping of funds. There are situations when people may need funds 
more than their savings to purchase high-value products such as cars, bikes et cetera. 
In such situations, banks also provide ‘loan’ to the ‘deposit holders’.
Central Board of Secondary Education
3.3 Origins of Banking
In ancient human history, banking is said to have started in the temples and palaces of 
Babylonia even before 2000 BC. Ancient Greeks too developed a system of transfer-
ring money in the form of book entries.
Banking in India started in a major way in the form of the Imperial Bank of India in 
1921. This was later renamed as the State Bank of India (SBI) in 1955. 
3.4 Types of Banks
Banks are of different types and can be categorised on the basis of their ownership 
and services they offer:
Central Bank: The Central Bank is an extremely important institution in the financial 
system of any country. In India, the Reserve Bank of India (RBI) plays the role of the 
central bank. It is responsible for the overall management of the nation’s currency to 
ensure an adequate supply of genuine notes. As the central bank, RBI also performs 
various other important functions such as acting as a banker to the government and 
implementing monetary policies for the country. 
Central Board of Secondary Education
Commercial Banks: These include public sector banks owned by the Government 
and also the private banks. Commercial banks provide a direct interface to the people 
allowing them to open and manage accounts, to obtain loans and other financial ser-
vices.
3.5 Opening a Bank Account
A bank account can be opened in the name of an individual singly or jointly with a fam-
ily member by submitting the following documents:
• Passport size photographs
• Identity proof
• Address proof
• Opening amount 
Once the account is opened, the bank provides to the account holder an account 
number and cheque book to operate the account. Some banks also provide account 
holders with access to mobile banking.
3.6 Types of Bank Accounts
Central Board of Secondary Education
Savings Account: TThese are the accounts opened in banks with the key purpose 
of inculcating the habit of saving among people. Savings accounts allow maximum 
flexibility to deposit any amount of their liking, thus making it easy and convenient for 
common people. This kind of account is popular with students, salaried individuals, 
and senior citizens. Savings accounts earn a nominal interest which is based on the 
time period the funds are parked in the account.
Current Account: These accounts are opened by business owners as they meet their 
requirement for an unlimited number of cash deposits and withdrawals. The important 
thing to note in case of current accounts is that they do not earn interest. On the other 
hand, banks charge interest from account holders for an overdraft facility. When banks 
allow account holders to withdraw more than their account balance in order to meet 
their business requirements, it is known as an overdraft.
 
Fixed Deposit: This account type is ideal for depositors who wish to park their funds 
in the bank for a long period of time. The key benefit of fixed deposit is that it provides 
a substantially higher rate of interest compared to savings accounts.
Recurring Deposit: Very popular with students, recurring deposits are designed to 
encourage the habit of regular savings amongst people. These deposits too earn in-
terest higher than savings accounts. An example of a Recurring Deposit is when a 
depositor plans to deposit a fixed amount of Rs.1000 per month for a period of 24 
months. On the completion of the 24 months period, the depositor gets back the base 
amount of Rs. 24,000, along with the interest amount.
3.7 Cheque ? an instrument of exchange
Cheques have been the most popular instrument for money transfer for many de-
cades. Although today more and more people are using the option of online banking, 
yet cheques continue to remain at the very core of the banking industry.