Q.What is Bank?
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Start your 14-day free trial to unlock the full solution →A bank is a financial institution that accepts deposits from the public for lending and investment and provides various money-related services. The two primary functions of a commercial bank are accepting deposits and lending money.
Meaning of Bank
A bank is a financial institution that deals in money and credit. It accepts deposits of money from the public, which are repayable on demand or after a certain period, and uses this money to lend and invest for earning profit. In simple words, a bank collects the savings of people and makes that money available to those who need it, while also providing various other financial services.
Primary Functions of Commercial Banks
The primary (main) functions of a commercial bank are of two kinds — accepting deposits and lending money.
A) Accepting Deposits — This is the basic function by which a bank collects the savings of the public. Deposits are of the following main types:
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Savings Deposit Account — Meant for salaried persons and small savers to encourage the habit of saving. There are some restrictions on withdrawals, and the bank pays a moderate rate of interest.
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Current Deposit Account — Meant mainly for businessmen who make frequent transactions. Money can be deposited and withdrawn any number of times; usually no interest is paid and an overdraft facility may be allowed.
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Fixed / Term Deposit Account — A fixed sum is deposited for a fixed period. It cannot normally be withdrawn before maturity and earns a higher rate of interest.
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Recurring Deposit Account — A fixed amount is deposited at regular intervals (e.g. monthly) for a certain period and repaid with interest on maturity; it suits those who save regularly.
B) Lending Money (Granting Loans and Advances) — The bank lends the deposited money to individuals and businesses and charges interest, which is its main source of income. The chief forms are:
- Loans — A fixed amount is granted for a fixed period against security; interest is charged on the whole amount, and it is repaid in instalments or lump sum. …
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