CHAPTER 1
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
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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”.
1.
2.
3.
4.
5.
6.
7.
Commercial Establishment
Accept Deposits
Repayment of Accepted Deposits
Financial Intermediary
Withdrawable by Cheques, drafts or
otherwise
Advancing Loans to public
Earning profits
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FUNCTIONS OF COMMERCIAL BANKS
Primary
functions
Secondary
functions
Developmental
functions
Modern
functions
PRIMARY FUNCTIONS
OTHERS
ACID TEST
FUNCTIONS
Accepting
Deposits
Advancing
Loans
Credit
Creation
Cheque sysem
of payment of
funds
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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.
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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.

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
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4. CHEQUE SYSTEM OF PAYMENT OF FUNDS
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Agency
functions
SECONDARY FUNCTIONS
General utility
services
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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
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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
1.
2.
3.
4.
Mobilisation of savings
Extension of banking services in rural area
Providing loans to weaker sections
Assisstance to capital market
1.
2.
3.
4.
5.
6.
Automatic teller machines cum debit cards
Credit cards
Mail transfer and telegraphic transfer
Tele banking
Internet banking
Round the clock banking
1.
2.
3.
4.
5.
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.