Q.Define banking and explain the functions of banking.

Banking is the business of accepting public deposits repayable on demand or otherwise, for the purpose of lending or investment. A commercial bank's functions fall into primary functions (accepting deposits and making advances) and secondary functions (agency services and general utility services).

Meaning of Banking

Under the Banking Regulation Act, 1949, banking means "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, order or otherwise." In simple words, a bank collects surplus money from those who have it (depositors) and lends it to those who need it (borrowers), earning its profit from the difference between the interest it pays on deposits and the interest it charges on loans. This is a core chapter of the TS Intermediate 2nd-year Commerce banking unit.

Functions of a Bank

A. Primary (main) functions

1. Accepting deposits

• Current account (demand deposit): chiefly for businesses; money can be withdrawn any number of times; usually carries little or no interest.
• Savings account: for small savers; withdrawals are limited; earns moderate interest.
• Fixed (time) deposit: money kept for a fixed period; carries the highest rate of interest.
• Recurring deposit: a fixed amount deposited every month for a period, repaid with interest on maturity.

2. Advancing loans

• Loans: a lump-sum advance against security, repaid in instalments.
• Cash credit: credit allowed against stock or security up to a sanctioned limit.
• Overdraft: a current-account holder is allowed to overdraw up to a limit.
• Discounting of bills of exchange: the bank pays the holder of a bill its value (less a discount) before the due date.

B. Secondary functions

…