Q.Define a bank and explain its essential characteristics.

A bank is best understood by what it is licensed and trusted to do with the public's money, not just by the counter and passbook most people associate with it.

Its essential characteristics follow directly from this: it deals in money and credit as its core business, accepts deposits repayable on demand or after a fixed period, lends or invests those funds to earn income, and — because it handles public money rather than only its own capital — operates only under a licence and close regulatory supervision.

A bank is a financial institution licensed to accept deposits of money from the public and to lend that money to individuals, businesses and governments, while also providing related financial services. Unlike an ordinary money-lender who lends only personal capital, a bank lends money that ultimately belongs to its depositors, which is why banking is treated as a position of public trust rather than an ordinary private business.

Its essential characteristics are: (1) dealing in money and credit as its central business, rather than in goods or services; (2) accepting deposits repayable to the depositor either on demand or after an agreed period, forming the raw material of banking; (3) lending and investing those collected funds to generate income, mainly through the interest-rate margin between what it pays depositors and what it charges borrowers; (4) acting as a financial intermediary, standing between savers with a surplus and borrowers with a need; and (5) operating only under a licence and continuous regulatory supervision, since it handles public money and public confidence, not merely its own capital — in India this supervision is exercised by the Reserve Bank of India.

Build the definition first (what a bank does), then derive each characteristic as a direct consequence, ending with why regulation is essential.

Do not define a bank only as 'a place that keeps money safe' — that describes a locker, not a bank; the lending side is equally essential to the definition.