Q.Define banking and explain the functions of the banking.

Define banking using the Banking Regulation Act, 1949, then explain the functions under two heads: primary functions (accepting deposits and advancing loans) and secondary functions (agency services and general utility services). This is a standard TS Intermediate 2nd-year Commerce 10-mark answer.

Definition of Banking

According to the Banking Regulation Act, 1949, banking means "the 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 surplus money from those who have it (depositors) and lends it to those who need it (borrowers), earning the difference between lending and deposit interest.

Functions of a Bank

A. Primary functions (main functions):

1. Accepting deposits —
   • Current account (demand deposit, mainly for businessmen, no/low interest, frequent transactions).
   • Savings account (for small savers, moderate interest, some withdrawal limits).
   • Fixed/Term deposit (lump sum for a fixed period at higher interest).
   • Recurring deposit (fixed amount deposited every month for a period).
2. Advancing loans and advances —
   • Loans (lump-sum advance for a fixed period).
   • Cash credit (borrowing against security up to a sanctioned limit).
   • Overdraft (current-account holder allowed to withdraw more than the balance up to a limit).
   • Discounting of bills of exchange (paying the bill holder before maturity, less discount).

B. Secondary functions:

1. Agency functions (as agent of the customer) — collection of cheques and bills, payment of insurance premiums, rent and other bills, periodic collection of dividends and interest, transfer of funds, acting as trustee or executor. …