Q.Define banking. Explain the functions of the banking.

A bank accepts deposits of money from the public for lending or investment, repayable on demand or otherwise and withdrawable by cheque or order. Its functions are primary (accepting deposits and advancing loans) and secondary (agency services and general utility services).

Meaning of Banking

Banking is the business of accepting, for the purpose of lending or investment, deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise. A bank acts as a link between people who have surplus money (depositors) and those who need money (borrowers). This definition is in line with the Banking Regulation Act and is the standard framing used in AP Intermediate 2nd-year Commerce, which aligns closely with the NCERT/CBSE commerce curriculum.

Functions of a Bank

A. Primary Functions

1. Accepting Deposits — the bank mobilises public savings through different accounts:
   • Current Account (Demand Deposit): meant for traders and businesses; money can be withdrawn any number of times; usually no interest.
   • Savings Account: for individuals to encourage saving; withdrawals are restricted; moderate interest.
   • Fixed Deposit (Time Deposit): money is kept for a fixed period; highest rate of interest.
   • Recurring Deposit: a fixed sum is deposited every month for an agreed period.
2. Advancing Loans — the bank lends the deposited money and earns interest:
   • Loans: a lump-sum amount sanctioned against security.
   • Cash Credit: credit allowed against stock or security up to a limit.
   • Overdraft: a current-account holder is allowed to overdraw up to a limit.
   • Discounting of Bills of Exchange: the bank pays the bill amount after deducting a discount before maturity.

B. Secondary Functions

3. Agency Services (performed as an agent of the customer): collection of cheques and bills, payment of insurance premium, rent and other bills, purchase and sale of securities, collection of dividends and interest, and transfer of funds. …