Meaning and Features of Bank
Indian Banking System Notes
B.Com CBCS Pattern
Meaning of Banks and Banking System
Meaning of Banks
A bank is a financial institution which deals in money and credit. It provides fundamental banking services such as accepting deposits and lending loans. As financial intermediaries, a bank acts as a connecting link between borrowers and lenders of money. Banks collect money from those who have surplus money and give the same to those who are in need of money. When banks accept deposits its liabilities increase and it becomes a debtor, but when it makes advances its assets increases and it becomes a creditor.
Meaning of Banking System
Banking systems refer to a structural
network of institutions that provide financial in a country. It deals with the
ownership of banks, the structure of banking system, functions performed and
the nature of business. The element of the banking system includes commercial
banks, Investment banks and Central bank.
The commercial banks accept deposits and lend loans and advances;
the investment banks deal with capital market issues and trading; and the
central bank regulates the banking system by setting monetary policies besides
many other functions like currency issue.
Definitions of banks and banking System, given by various writers are
given below:
Crowther defines a bank as, "one that
collects money from those who have it to spare or who are saving it out of
their income and lends the money so collected to those who require it".
In the words of Professor Sayers, “Commercial banks are
institutions, whose debts- usually referred to as bank deposits are commonly
accepted in final settlement of other people’s debt”.
According to Prof. Kinley, “A bank
is an establishment which makes to individuals such advances of money as may be
required and safely made, and to which individuals entrust money when it
required by them for use”.
The above definitions of bank reveal that bank is an Business
institution which deals in money and use of money. We can say that any person,
institution, company or enterprise can be a bank. The business of a bank
consists of acceptance of deposits, withdrawals of deposits, Making loans and
advances, investments on account of which credit is exacted by banks.
Features of Banking
From the views of above authorities, we can derive the following
basic characteristics of Banking:
1) Dealing in money and credit:
A bank is an institution which deals in money. The banks accept deposits from
the public and advancing them as loans to the needy people. The deposits may be
of different types – current, fixed, saving etc. accounts.
2) Credit
Creation: The banks are the institutions that can create credit i.e., creation
of additional money for lending. Thus, "creation of credit' is the unique
feature of banking.
3) Acceptance
of Deposit: A bank accepts money from the people in the
form of deposits which are usually repayable on demand or after the expiry of a
fixed period. It gives safety to the deposits of its customers. It also acts as
a custodian of funds of its customers.
4) Deposits must be withdrawn
able: The deposits (other than fixed deposits) made
by the public can be withdraw able by cheques, draft or otherwise, i.e., the
bank issue and pay cheques. The deposits are usually withdrawn able on demand.
5) Individual
/ Firm / Company: A bank may be a person, firm or a company. A
banking company means a company which is in the business of banking.
6) Commercial in nature: Since
all the banking functions are carried on with the aim of making profit, it is
regarded as a commercial institution. A bank is a profit seeking institution
having service oriented approach.
7) Agency
and Utility Services: A bank provides various banking facilities
to its customers. They include general utility services and agency services.
8) Connecting
Link: A bank acts as a connecting link between borrowers and lenders
of money. Banks collect money from those who have surplus money and give the
same to those who are in need of money.
9) Banking
Business: A bank's main activity should be to do business of banking which
should not be subsidiary to any other business.
10) Name
Identity: A bank should always add the word "bank" to its name
to enable people to know that it is a bank and that it is dealing in money.
Business in which a banking company may engage
Section 6 of the Banking Regulation Act, 1949
specifies the forms of business in which a banking company may engage. These
are:
1) Borrowing, raising or taking up of money, lending or advancing of
money; handling in all manners Bills of exchange/hundies/promissory notes.
2) Acting as agents for any government or local authority or any other
person,
3) Managing issues of shares, stock, debentures etc. including
underwriting guaranteeing,
4) Carrying on and transacting every kind of guarantee and indemnity
business.
5) Managing, selling and realizing property which may come into the
possession of the banking company in satisfaction of its claims.
6) Acquiring and holding and generally dealing with any property or any
right, title or interest in such property which may form the security for any
loans and advances.
7) Underwriting and executing trusts.
8) Establishing and supporting or aiding in the establishment and
support of institutions, funds, trusts etc.
9) Acquisition, construction, maintenance and alteration of any
building and works necessary for the purpose of the banking company.
10) Selling, improving, managing, developing, or otherwise dealing with
property and rights of the company.
11) Acquiring and undertaking whole or any part of the business of any
person or company.
12) Doing all such other things as are incidental or conductive to the
promotion or advancement of the business of the banking company.
13) Any other business which the Central Government may specify.