Definitions [2]
Definitions: Commercial Banks
- “A bank collects money from those who have it to spare or who are saving it out of their incomes and it lends this money to those who require it.” — Crowther
- “Bank 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 or otherwise.” — According to Indian Companies Act, 1949
- Banking Regulation Act of 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, demand draft, order or otherwise.”
- Prof. Cairncross: “A bank is a financial intermediary, a dealer in loans and debts.”
Definition: Banking
“Ordinary banking business consists of changing cash for bank deposit and bank deposit for cash, transferring bank deposit from one person to another, giving bank deposit in exchange for government bonds, the recurring promises of businessmen to repay and so forth.” — Prof. Sayer’s
Key Points
Key Points: Commercial Banks
- Commercial banks are profit-seeking intermediaries connecting savers and borrowers.
- Their primary functions are accepting deposits and granting loans.
- India has 89 scheduled commercial banks divided into PSBs, RRBs, Private Banks, and Foreign Banks.
- Nationalisation in 1969 and 1980 expanded banking access to rural and priority sectors.
- SBI is India's largest bank — 25% market share, 45 crore customers, top 5 globally.
- RRBs serve rural India at lower interest rates and are the backbone of rural credit.
- Private and foreign banks drive technology, innovation, and competition in banking.
- Commercial banks are regulated by the Reserve Bank of India (RBI) and governed by the Banking Regulation Act, 1949.
Key Points: Banking > Functions of Commercial Bank
- Accept Deposits – Main source of funds: Demand Deposits (Current/Savings Accounts) & Time Deposits (Fixed/Recurring Deposits)
- Grant Loans & Advances – Cash Credit, Overdraft, Term Loans, Bill Discounting (banks profit from interest spread)
- Cheque System – Safe payment method using cheques (principal business payment tool)
- Transfer of Funds – Fast/safe money transfer via drafts, pay orders, mail/telegraphic transfers (essential for commerce)
- Credit Creation – Banks multiply money: loans create new deposits (Initial Deposit × 1/CRR formula)
- Financing Trade – Bill discounting + short-term trade loans (facilitates internal/external trade)
- Foreign Exchange & Utility Services – Currency exchange + lockers, travel cheques, mobile banking, agency functions
