How Banks Work? | Where Does Your Money Go? | Banking System Explained Simply|

How Banks Work – Complete Banking System Explained Simply**

Have you ever wondered *where your money goes after you deposit it in a bank?*
Does it just sit safely in a locker, or does the bank use it somewhere else?
In this video, we will clearly understand **how banks work**, step by step, in a simple and practical way.

When the public deposits money in a bank through savings accounts, current accounts, or fixed deposits, that money does *not remain idle**. Banks keep only a **small portion* of total deposits as a safety reserve, and the remaining money is *used for lending loans**—such as home loans, education loans, business loans, and personal loans. This is how banks earn money: they pay you a **lower interest* on deposits and charge a *higher interest* on loans. The difference is the bank’s profit.

Banks operate under a system called the **Fractional Reserve System**. This means if a bank receives ₹100, it may keep only ₹10–₹20 as reserve and lend the rest. This system helps the economy grow by increasing credit availability, but it also needs strict control to avoid risk.

To manage inflation and deflation, banks follow a *reserve ratio system**, guided by the **central bank**. In India, the Reserve Bank of India (RBI) controls tools like **CRR (Cash Reserve Ratio)* and **SLR (Statutory Liquidity Ratio)**.

When inflation is high, RBI increases these ratios so banks lend less money.
When the economy slows down, RBI reduces these ratios to increase lending and spending.

Now let’s talk about banks in India. *HDFC Bank* is the *largest private sector bank in the world by market value**, known for efficiency and technology-driven services. On the other hand, **SBI (State Bank of India)* is India’s **largest public sector bank**, trusted for its wide network and government backing. Both play a major role in India’s banking and economic system.

But who actually **prints money**?
In India, **RBI prints currency**, while coins are minted by the Government of India. The money is printed at government presses and then distributed to banks through RBI, from where it reaches the public via withdrawals, salaries, loans, and government spending.

Finally, here’s the most important truth:
*Your money is not deposited to grow—it is deposited to avoid depreciation.*
Because inflation continuously reduces the value of money, keeping cash idle means losing purchasing power. Banks help you **protect, circulate, and slightly grow your money**, but real wealth is created when money is **invested wisely**, not just saved.

👉 Understanding how banks work helps you make smarter financial decisions and take control of your financial future.