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Introduction to banking
1. INTRODUCTION TO BANKING
1.1 Introduction
Modern commercial banking, in its present form, is of recent origin. Though bank is
considered to be an ancient institution just like money. It’s evolution can be traced in the
functions of money lender, the goldsmiths and the merchants. A bank has been often
described as an institution engaged in accepting of deposits and granting loans. It can also be
described as an institution which borrows idle resources, makes funds available to. It does
not refer only to a place of tending and depositing money, but looks after the financial
problems of its consumers. This era is the age of specialization with the changing situation in
the world economy, banking functions have broadened. Financial institutions which are
shaped by the general economic structures of the country concerned vary from one country to
another. Hence, a rigid classification of banks is bound to the unrealistic.
2. 1.2 Origin and Development of Banking
There seem so be no uniformity amongst the economist about the origin of the word ‘Bank’.
It has been believed that the word ‘Bank’ has been derived from the German word ‘Bank’
which means joint stock of firm or from the Italian word ‘Banco’ which means a heap or
mound. In India the ancient Hindu scriptures refers to the money - lending activities in vedic
period. They performed most of those functions which banks perform in modern times.
During Ramayana and Mahabharata eras also banking had become a full-fledged business
activity. In other words the development of commercial banking in ancient times was closely
associated with the business of money changing. In simple words, bank refers to an
institution that deals in money. This institution accepts deposits from the people and gives
loans to those who are in need. Besides dealing in money, bank these days perform 2 various
other functions, such as credit creation, agency job and general service. Bank, therefore is
such an institution which accepts deposits from the people, gives loans, creates credit and
undertakes agency work.
3. 1.3 Meaning and Definition of Banking
Meaning of Banking You know people earn money to meet their day to day expenses on
food, clothing, education of children, having etc. They also need money to meet future
expenses on marriage, higher education of children housing building and social functions.
These are heavy expenses, which can be met if some money is saved out of the present
income. With this practice, savings were available for use whenever needed, but it also
involved the risk of loss by theft, robbery and other accidents. Thus, people were in need of a
place where money could be saved safely and would be available when required. Banks are
such places where people can deposit their savings with the assurance that they will be able
to with draw money from the deposits whenever required. Bank is a lawful organization
which accepts deposits that can be withdrawn on demand. It also tends money to individuals
and business houses that need it. Definitions of Bank 1. Indian Banking Companies Act -
“Banking Company is one which transacts the business of banking which means the
accepting for the purpose of lending or investment of deposits money from the public
repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise”. 2.
Dictionary Meaning of the Word ‘Bank’ -The oxford dictionary defines a bank as “an
establishment for custody of money received from or on behalf of its customers. It’s essential
duty is to pay their drafts on it. It’s profits arises from the use of the money left employed by
them”. 3. The Webster’s Dictionary Defines a bank as “an institution which trades in money,
establishment for the deposit, custody and issue of money, as also for making loans and
discounts and facilitating the transmission of remittances from one place to another”. 4.
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 deal in money and use of money. Thus a proper and scientific
definition of the bank should include various functions performed by a bank in a proper
manner. 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.