Meaning of banking

Bank is a lawful organization which accepts deposits that can be withdrawn on demand.It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. Banks as institutions
which channel people's savings into productive loans and investments. Thus banking
mainly refers to deposits and loans. A broader definition of banking is any financial
institution that receives, collects, transfers, pays, exchanges, lends, invests, or
safeguards money for its customers. Investment banks, financing companies, and
money lenders are just some of the institutions that have engaged in banking.

Definition of banking
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”.

“ Bank is a financial intermediary institution which deals in loans and advances”--- Cairn
Cross.

“ Bank provides service to its clients and in turn receives perquisites in different forms.”---
P.A. Samuelson.

Types of banks

1. Central Banks:
Over and above the various types of banks mentioned above, there exists in almost all
countries today a Central Bank. It is usually controlled and quite often owned by the
government of the country.

Commercial Banks:
These banks play the most important role in modern economic organisation. Their business
mainly consists of receiving deposits, giving loans and financing the trade of a country. They
provide short-term credit, i.e., lend money for short periods. This is their special feature.
3. development banks: Development banks are those which have been set up mainly to
provide infrastructure facilities for the industrial growth of the country. They provide
financial assistance for both public and private sector industries.

4. Co-operative banks are financial entities established on a co-operative basis and

belonging to their members. This means that the customers of a co-operative bank are also
its owners. These banks provide a wide range of regular banking and financial services.

5.Specialized bank: The specialized banks are defined as those banks that

are banking operations that serve a specific type of economic activity, such as industrial
activity or agricultural or real estate

6.Indigenous bank: Indigenous banking system is the system of banking that involves private

firms or individuals who act as banks by providing financial services such as loans and
accepting deposits.

7. Regional Rural Banks (RRBs) are Indian Scheduled

Commercial Banks (Government Banks) operating at regional level in different States of
India. They have been created with a view of serving primarily the rural areas of India with
basic banking and financial services.

8.saving bank: A savings bank is a financial institution whose primary purpose is accepting
savings deposits and paying interest on those deposits.

9. export- import bank: A savings bank is a financial institution whose primary purpose is
accepting savings deposits and paying interest on those deposits.

10. foreign exchange bank means a bank which performs the conversion of foreign
exchange in local currency, while doing so the Banks earn some commissions for such
conversion.

Types of banking:

Various types of banks operating in the world economy to meet the financial requirements
of different categories of people engaged in agriculture, business, profession, and more.

A. Walk in banking: Walking bank is a settlement portfolio product that customers use
the exclusive vouchers in non-account opening banks within the system of Bank of
China, to handle the business of bank draft issuance, agency collection and payment
by transfer, remittance, consignment collection, agency collection and payment in
cash.
B. in recent years, there has been a decline in drive-through banking due to increased traffic
congestion and the increased availability of automated teller machines and telephone and
internet banking.[citation needed] However, many bank buildings now feature drive-through
ATMs.

C. ATMs allow banking customers to avail quick self-serviced transactions, such as cash

withdrawal, deposit, and fund transfers.

D. Online banking, also known as internet banking or web banking, is an electronic payment
system that enables customers of a bank or other financial institution to conduct a range of
financial transactions through the financial institution's website

Meaning of commercial bank:

The term commercial bank refers to a financial institution that accepts deposits, offers
checking account services, makes various loans, and offers basic financial products like
certificates of deposit (CDs) and savings accounts to individuals and small businesses. A
commercial bank is where most people do their banking.

Examples of commercial banks –

ICICI Bank,

State Bank of India, Axis Bank, and

HDFC Bank

Features of commercial banking:

1.Commercial establishment

2.Accept deposits

3.Repayment of accepted deposits

4.Advancing loans to public

5.Earning profit
Functions of commercial banks:

Primary functions:
Accepts deposit – The bank takes deposits in the form of saving, current and fixed deposits.
The surplus balances collected from the firm and individuals are lent to the temporary
required of commercial transactions.

Provides Loan and Advances – Another critical function of this bank is to offer loans and
advances to the entrepreneurs and business people and collect interest. For every bank, it is
the primary source of making profits. Like overdraft, cash credit and short-run loans, etc.

Credit Cash- When a customer is provided with credit or loan, they are not provided with
liquid cash. First, a bank account is opened for the customer and then the money is
transferred to the account.

Secondary functions:
Discounting bills of exchange – It is a written agreement acknowledging the amount of
money to be paid against the goods purchased at a given point of time in the future.

Overdraft Facility – It is an advance given to a customer by keeping the current account to

overdraw up to the given limit.

Purchasing and Selling of the Securities – The bank offers you with the facility of selling and
buying the securities.

Locker Facilities – Bank provides lockers facility to the customers to keep their valuable
belonging or documents safely. Banks charge a minimum of an annual fee for this service.

Paying and Gather the Credit – It uses different instruments like a promissory note,
cheques and bill of exchange.
Others functions:
Credit creation.

Investment of funds.

Discounting bills of exchange.

Offering overdraft facilities.

Agency functions.

Offering the locker facility.

Dealing in foreign exchange.

Exchanging securities.

Types of commercial banks:

 Public bank
 Private bank
 Foreign bank

1. Public Bank : Refer to a type of commercial banks that are nationalized by the
government of a country. In public sector banks, the major stake is held by the
government. Public sector banks operate under the guidelines of Central bank.

2. Private Bank : Refer to a kind of commercial banks in which major part of share
capital is held by private businesses and individuals. These banks are registered as
companies with limited liability.

3. Foreign Bank : Foreign Banks are international bank which are setup or registered in
foreign countries and are obligated to follow regulations of both its home and host
country. For Example, KFC, G.T. Bank, ADBank, Canera Bank and so on.

Sigificance of commercial banks:

(i) They promote savings and accelerate the rate of capital formation.
 (ii) They are source of finance and credit for trade and industry.
(iii) They promote balanced regional development by opening branches in backward
areas.
(iv) Bank credit enables entrepreneurs to innovate and invest which accelerates the
process of economic
(v) They help in promoting large-scale production and growth of priority sectors such
as agriculture, small-scale industry, retail trade and export.
(vi) They create credit in the sense that they are able to give more loans and
advances than the cash position of the depositor’s
permits.
(vii)They help commerce and industry to expand their field of operation.
(viii) Thus, they make optimum utilization of resources possible.

Commercial Banking System consists of:

 Scheduled banks
 Non-scheduled banks

Meaning of scheduled banks:

Scheduled Banks in India refer to those banks which have been included in the Second
Schedule of Reserve Bank of India Act, 1934. RBI in turn includes only those banks in this
Schedule which satisfy the criteria laid down vide section 42 of the said Act. Banks not
under this Schedule are called Non-Scheduled Banks.

Meaning of Non-scheduled banks:

are those that do not adhere to the RBI's regulations. They are not mentioned in the Second
Schedule of the RBI Act, 1934, and are therefore deemed incapable of serving and
protecting depositors' interests