Presentation on theme: "BANKING – ITS DEFINITION AND FUNCTIONS"— Presentation transcript:
1 BANKING – ITS DEFINITION AND FUNCTIONS CHAPTER 1
2 ORIGIN OF THE WORD “BANK” The word Bank is derived fromGreek- ‘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 BANKAccording 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 EstablishmentAccept DepositsRepayment of Accepted DepositsFinancial IntermediaryWithdrawable by Cheques, drafts or otherwiseAdvancing Loans to publicEarning profits
5 FUNCTIONS OF COMMERCIAL BANKS Developme-ntalfunctionsModernfunctionsPrimaryfunctionsSecondaryfunctions
6 I. PRIMARY FUNCTIONS OTHERS ACID TEST FUNCTIONS Credit Creation Cheque sysem of payment of fundsAdvancingLoansAcceptingDeposits
7 1. ACCEPTING DEPOSITSThe Deposits withdrawable by cheques which distinguish a commercial bank from certain other non banking institutionsA bank accepts non-chequable deposits also, it must accept chequable depositsDeposits are accepted from the public at large and not merely from its shareholders or membersDifferent 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 area. Money at callb. overdraftc. Cash Creditd. Discounting of billse. Term Loansf. Credit to Govt.
9 3.CREDIT CREATIONBanks 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 supplyThis topic will be taken up later in detail4. CHEQUE SYSTEM OF PAYMENT OF FUNDS
10 II. SECONDARY FUNCTIONS General utility servicesAgency functions
11 i. AGENCY FUNCTIONSCollection & payment of credit and other instruments e.g. cheques,BOE, hundies.Purchase and sale of stock exchange securitiesAdministration of wills and trusteeshipRemittance of funds- remit funds on behalf of clients through cheques, drafts, main transfers etcRepresentation and correspondenceBullion trading
12 ii. GENERAL UTILITY SERVICES Receiving of valuables for safe custodyActing as a refereeIssuing letters of creditActing as underwritersActing as information banksIssuing of travellers chequesDealing in foreign exchangeMerchant banking services
13 III. RESULTATIVE/ DEVELOPMENTAL FUNCTIONS Mobilisation of savingsExtension of banking services in rural areaProviding loans to weaker sectionsAssisstance to capital market
14 IV. MODERN FUNCTIONS Automatic teller machines cum debit cards Credit cardsMail transfer and telegraphic transferTele bankingInternet bankingRound the clock banking
15 ROLE OF COMMERCIAL BANKS IN ECONOMIC DEVELOPMENT Helpful in mobilisation of savingsAssist in innovationsRole in implementation of monetary policyDirecting funds into desired channelsImplementation of the policies of the govt.