Definitions [1]
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: 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
