Banking Evolution of banking There are views about the origin of the word ‘bank’. One view is that it is derived from an Italian word ‘benque’ which means a bench. The other point of view is that it has originated from the German word banc which means a joint stock firm. As regard the growth of modern commercial bank, it can be traced to as early as 600 BC. G Crowther in his famous book “ an outline of money', has traced the history of modern English commercial banking. According to him the present day banker has three ancestors; (1)The Merchants (2) The goldsmiths and (3) The money lenders.

`Functions of commercial bank What is commercial bank? ‘A bank is a firm which collects money from those who have it spare. It lends money to those who require it.’ in the words of Mr. parking. ‘A bank is a firm that takes deposits from households and firms and makes loans to other households and firms.’ Functions of a commercial bank. (A)Basic Functions. 1.Accepting of deposits. bank in order to increase saving keeps different three types of deposits or accounts. a.Current Account. The businesses and traders usually maintain their funds in current account. Current account is one where money is constantly being drawn and put in. the bank does not pay any interest on this account because bank does not pay any interest. b.Saving account: the pay interest on this account so small income group save money in this account.

c.Fixed deposit account. Fixed deposits are kept with the banks for a specified period of time. The rate of interest on fixed deposits are fairly high. The longer the period of deposits, the higher is the rate of interest. 2.Making loans. The lending of money may in any of the following forms. i)Loans: the commercial banks grant short and long term loans to individual, firms and companies mostly against securities. The amount of loan is credited to the borrower's account who withdraws it as per his requirements. ii)Cash Credit: It is a very common form of borrowing by business concerns. The banks advances loans to the commercial and industrial units against the security of goods. iii)Overdraft:It is a convenient form of short term financing by a bank. Under this facility, a customer may arrange with his bank to permit him to over-draw on his current account, known as an overdraft (O/D) up to a certain limitation providing security.

iv. Discounting of bills. The bank also makes loans to their customers by discounting bills of exchange. Discounting of bills refers to making the payment of bill before its maturity. (B)SECONDARY FUNCTIONS:The secondary functions of a bank are classified as (a) Agency Functions and (b) Utility Functions (a)Agency Functions.Banks act as agents of their customers in various ways as. i.Collection of cheques.It acts as agents to its customers in the collection and payment of cheques, bill and promissory notes. ii.Collection of dividends.The bank provides a very useful service in the collection of dividends or interest earned on shares held by its customers. iii.Purchase or Sale of Securities. The bank, if authorized by the customer, purchases or sells securities on his behalf and thus adds another benefit to its portfolio. iv.Execution of standing instructions.The customer may order in writing to his bank to make payments of regularly recurring nature to an individual or firm by debiting them to his account. The bank will make payments and charge a small commission. The payments will be stopped on written instructions of the customer only.

v.Acting as Trustee or Executor. If a client directs his bank to act as trustee or executor in the administration of a Will or in any business settlement requiring a technical knowledge, the bank will take this responsibility also for the benefit of its customer and charge a small fee for providing this essential service. (b)GENERAL UTILITY SERVICE. A bank perform a number of other general utility services to its clients which are summed up as under: i.Foreign exchange Business: A bank transacts foreign exchange business by discounting foreign bills of exchange and thus provides facilities for financing the foreign trade. The transaction of foreign exchange business is a profitable source of income for a bank. ii.Issue of Traveler's cheque. The bank also issues traveler's cheques for the convenience of the travelers and charges a nominal commission. iii.Supplying of trade information. In many countries of the world, renowned commercial banks publish a monthly bulletin which contains all information relating to trade business and industry. The journal is supplied to the customers free of cost. The customers benefit a lot from this valuable economic and financial information.

iv.Export promotion cell. In order to boost the exports of the country the banks have establish export promotion cells. These cells provide information and guidance to the exporters at no extra cost. v.Advice on financial matters. Sometimes the banks give valuable advices on various financial matters to their customers. vi.Safe custody of valuable. The banks keep valuables ornaments, documents etc. for safe custody.

Role of commercial banks in the economic development of a country Commercial banks play an important and active role in the economic development of a country. If the banking system in a country is effective, efficient and disciplined. It brings about a rapid growth in the various sectors of the economy. The economics significance of commercial banks is given in brief. 1.Banks promote capital formation. 2.Investment in new enterprises. 3.Promotion of trade and industry. 4.Development of agriculture. 5.Balance development of different regions. 6.Influence economic activity 7.Implementation of monetary policy. 8.Monetization of the economy. 9.Export promotion cells.