Q.Define Banking. Explain the functions of the Banking.

Banking means accepting deposits from the public for lending or investment, repayable on demand and withdrawable by cheque or order. A commercial bank performs primary functions (accepting various deposits, and lending through loans, cash credit, overdraft and discounting of bills) and secondary functions (agency services such as collection of cheques and payment of bills, and general utility services such as lockers, drafts and foreign exchange). ## Meaning of Banking According to the Banking Regulation Act, 1949, banking is 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 words a bank collects idle money from savers as deposits and makes it available to traders, farmers and industrialists as loans, earning its income from the difference between the interest it pays on deposits and the interest it charges on loans. ## Functions of a Bank ### A. Primary Functions 1. Accepting Deposits. This is the most basic function. Banks accept money in several forms: - Savings Deposit — for households and small savers; moderate interest with limited withdrawals. - Current Deposit — for traders and businesses; no interest, unlimited transactions, overdraft facility. - Fixed (Term) Deposit — money kept for a fixed period at a higher rate of interest. - Recurring Deposit — a fixed sum deposited every month for a set period. 2. Advancing Loans. The bank lends the deposited money to earn interest, through: - Term loans for a fixed period against security. - Cash credit against the security of stock or goods up to a sanctioned limit. - Overdraft allowing a current-account holder to withdraw more than the balance. - Discounting of bills of exchange, giving the holder cash before the bill matures. ### B. Secondary Functions 1. Agency Functions (performed on behalf of customers): collection of cheques, bills and dividends; payment of insurance premiums, rent and other bills on standing instruction; purchase and sale of shares and securities; acting as trustee or executor. 2. General Utility Functions: issuing drafts, pay orders and letters of credit; providing safe-deposit lockers; dealing in …