What banks are for

The chapter opens with the economist Joseph Schumpeter: a banker is not just a middleman; by giving credit (loans), the banker helps people with ideas turn them into reality. Someone may have a great idea for a business but no money; a bank loan can turn that idea into a factory.

In the last chapter you met India's physical infrastructure. But how do people pay each other, and how are huge projects like roads and railways paid for?

That is done by financial infrastructure: a network of banks, payment systems, stock markets and other institutions that help people, businesses and the government handle money. A bank collects money from people as deposits and lends money to borrowers as loans.

See how the two halves fit. Navdeep saves ₹3,000 from his salary every month. Keeping it all in his cupboard might not be safe, so he deposits it in a bank.

Rima runs a business making bamboo products and needs money for it. Her friends and family can't lend enough, so she takes a loan from the bank, to repay later.

The bank uses money like Navdeep's to lend Rima what she needs. Navdeep has money he doesn't need yet; Rima needs money she doesn't have. The bank connects two strangers who would never have found each other. (And unlike lending to a friend, you can be sure of getting your savings back from the bank when you need them.)

Banks make money matters easier by letting people save, withdraw (take out) and borrow. Farmers, shopkeepers, nurses, businesses and institutions all use them. To use a bank, you first open an account and become an account holder.

Three kinds of account:

• Savings account — for people who save regularly; it earns interest, but there are limits on how often you can withdraw each month.
• Current account — for businesses and traders who make and receive many payments; it earns no interest, but usually has no limit on deposits and withdrawals.
• Fixed deposit — money put in once for a fixed time, like 3 or 5 years; at the end the bank returns it with interest, usually higher than a savings account.