1. BANKING – ITS DEFINITION AND FUNCTIONS
CHAPTER 1

2. ORIGIN OF THE WORD “BANK”
The word Bank is derived from
Greek- ‘Banque’
French-Banke means chest(deposit)
German-Banck means heap or mound( a group/collection of things)
Italians-Banco means accumulation of money or stock

3. DEFINITION OF BANK
According to The Banking Companies (Regulation) Act of India,1949. Banking means
“The accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft and otherwise”.

4. CHARACTERISTICS OF COMMERCIAL BANKS
Commercial Establishment
Accept Deposits
Repayment of Accepted Deposits
Financial Intermediary
Withdrawable by Cheques, drafts or otherwise
Advancing Loans to public
Earning profits

5. FUNCTIONS OF COMMERCIAL BANKS
Developme-ntal
functions
Modern
functions
Primary
functions
Secondary
functions

6. I. PRIMARY FUNCTIONS OTHERS ACID TEST FUNCTIONS Credit Creation
Cheque sysem of payment of funds
Advancing
Loans
Accepting
Deposits

7. 1. ACCEPTING DEPOSITS
The Deposits withdrawable by cheques which distinguish a commercial bank from certain other non banking institutions
A bank accepts non-chequable deposits also, it must accept chequable deposits
Deposits are accepted from the public at large and not merely from its shareholders or members
Different types of accounts are Fixed deposit, savings bank deposit, current & flexible a/c.

8. 2. LENDING AND ADVANCING LOANS
A commercial bank must lend the deposits or make advances to the public directly or indirectly.
Methods to make advances are
a. Money at call
b. overdraft
c. Cash Credit
d. Discounting of bills
e. Term Loans
f. Credit to Govt.

9. 3.CREDIT CREATION
Banks are able to create credit because the demand deposits i.e. a claim against the bank is accepted by the public in settlement of their debts.
As these claims, against the banks are accepted by the publec for settling their debts, it is an important part of money supply
This topic will be taken up later in detail
4. CHEQUE SYSTEM OF PAYMENT OF FUNDS

10. II. SECONDARY FUNCTIONS
General utility services
Agency functions

11. i. AGENCY FUNCTIONS
Collection & payment of credit and other instruments e.g. cheques,BOE, hundies.
Purchase and sale of stock exchange securities
Administration of wills and trusteeship
Remittance of funds- remit funds on behalf of clients through cheques, drafts, main transfers etc
Representation and correspondence
Bullion trading

12. ii. GENERAL UTILITY SERVICES
Receiving of valuables for safe custody
Acting as a referee
Issuing letters of credit
Acting as underwriters
Acting as information banks
Issuing of travellers cheques
Dealing in foreign exchange
Merchant banking services

13. III. RESULTATIVE/ DEVELOPMENTAL FUNCTIONS
Mobilisation of savings
Extension of banking services in rural area
Providing loans to weaker sections
Assisstance to capital market

14. IV. MODERN FUNCTIONS Automatic teller machines cum debit cards
Credit cards
Mail transfer and telegraphic transfer
Tele banking
Internet banking
Round the clock banking

15. ROLE OF COMMERCIAL BANKS IN ECONOMIC DEVELOPMENT
Helpful in mobilisation of savings
Assist in innovations
Role in implementation of monetary policy
Directing funds into desired channels
Implementation of the policies of the govt.