Q.Define banking and explain the functions of banking.

Banking is the business of accepting deposits from the public for lending or investment, where the deposits are repayable on demand or otherwise and can be withdrawn by cheque or order. A commercial bank performs primary functions (accepting deposits and advancing loans) and secondary functions, the latter divided into agency functions and general utility functions.

Meaning of Banking

As defined in 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 terms, a bank collects idle money from those who have surplus (depositors) and lends it to those who need it (borrowers), earning its profit mainly from the difference between the interest it charges on loans and the interest it pays on deposits.

This is a standard TS Intermediate 2nd-year Commerce topic, and the TS commerce syllabus on banking aligns closely with the NCERT/CBSE commerce curriculum.

Functions of a Bank

A. Primary Functions

1. Accepting deposits — the bank accepts money from the public under different accounts:
   • Saving deposits — for small savers; moderate interest with limited withdrawals.
   • Current deposits — for businesses; no interest but frequent withdrawals and overdraft facility.
   • Fixed (term) deposits — money kept for a fixed period at a higher rate of interest.
   • Recurring deposits — a fixed sum deposited every month for a set period.
2. Granting loans and advances — the bank lends the deposited money through:
   • Term loans, cash credit, overdraft and discounting of bills of exchange.

B. Secondary Functions

(i) Agency functions (performed on behalf of customers, often for a small charge):

• Collecting and paying cheques, bills and promissory notes.
• Collecting dividends and interest and paying insurance premiums, rent and other bills.
• Transferring funds from one place or account to another.
• Acting as trustee, executor and agent for customers.
• Buying and selling securities on customer instructions. …