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Definition of Bank - Indian Banking System, Indian Financial System | Indian Financial System - B Com PDF Download
Finance is the life blood of trade, commerce and industry. Now-a-days, banking sector acts as the backbone of modern business. Development of any country mainly depends upon the banking system.
The term bank is either derived from old Italian word banca or from a French word banque both mean a Bench or money exchange table. In olden days, European money lenders or money changers used to display (show) coins of different countries in big heaps (quantity) on benches or tables for the purpose of lending or exchanging.
A bank is a financial institution which deals with deposits and advances and other related services. It receives money from those who want to save in the form of deposits and it lends money to those who need it.
Definition of a Bank
Oxford Dictionary defines a bank as "an establishment for custody of money, which it pays out on customer's order."
Characteristics / Features of a Bank
1. Dealing in Money
Bank is a financial institution which deals with other people's money i.e. money given by depositors.
2. Individual / Firm / Company
A bank may be a person, firm or a company. A banking company means a company which is in the business of banking.
3. Acceptance of Deposit
A bank accepts money from the people in the form of deposits which are usually repayable on demand or after the expiry of a fixed period. It gives safety to the deposits of its customers. It also acts as a custodian of funds of its customers.
4. Giving Advances
A bank lends out money in the form of loans to those who require it for different purposes.
5. Payment and Withdrawal
A bank provides easy payment and withdrawal facility to its customers in the form of cheques and drafts, It also brings bank money in circulation. This money is in the form of cheques, drafts, etc.
6. Agency and Utility Services
A bank provides various banking facilities to its customers. They include general utility services and agency services.
7. Profit and Service Orientation
A bank is a profit seeking institution having service oriented approach.
8. Ever increasing Functions
Banking is an evolutionary concept. There is continuous expansion and diversification as regards the functions, services and activities of a bank.
9. Connecting Link
A bank acts as a connecting link between borrowers and lenders of money. Banks collect money from those who have surplus money and give the same to those who are in need of money.
10. Banking Business
A bank's main activity should be to do business of banking which should not be subsidiary to any other business.
11. Name Identity
A bank should always add the word "bank" to its name to enable people to know that it is a bank and that it is dealing in money
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FAQs on Definition of Bank - Indian Banking System, Indian Financial System - Indian Financial System - B Com
| 1. What is the definition of a bank in the Indian banking system? |  |
Ans. In the Indian banking system, a bank is a financial institution that accepts deposits, provides loans, and offers various financial services to individuals, businesses, and the government. It acts as an intermediary between those who have surplus funds and those who need funds.
| 2. What is the Indian financial system? | |
Ans. The Indian financial system refers to the network of financial institutions, markets, instruments, and services that facilitate the flow of funds within the country's economy. It includes banks, non-banking financial companies (NBFCs), stock exchanges, insurance companies, mutual funds, and other entities that contribute to the functioning of the financial sector.
| 3. What are the key functions of banks in the Indian banking system? | |
Ans. Banks in the Indian banking system perform several important functions, including:
a) Accepting deposits: Banks collect deposits from individuals, businesses, and the government, which can be withdrawn as and when required.
b) Providing loans: Banks lend funds to individuals, businesses, and the government for various purposes such as buying homes, starting businesses, or financing infrastructure projects.
c) Issuing credit cards: Banks issue credit cards that allow individuals to make purchases on credit and repay it later.
d) Facilitating payments: Banks provide various payment services such as issuing checks, online banking, and electronic fund transfers, making it easier for individuals and businesses to make transactions.
e) Offering investment and insurance products: Banks offer investment options such as fixed deposits, mutual funds, and insurance products to help customers grow their wealth and protect against risks.
| 4. How does the Indian banking system contribute to the country's economic development? | |
Ans. The Indian banking system plays a crucial role in the country's economic development in the following ways:
a) Mobilizing savings: Banks collect savings from individuals and channelize them towards productive investments, which promotes capital formation and economic growth.
b) Providing credit: Banks provide loans to individuals and businesses, enabling them to invest in productive activities, expand their businesses, and create employment opportunities.
c) Facilitating trade and commerce: Banks offer various services like trade finance, letters of credit, and export-import financing, which facilitate domestic and international trade, boosting economic activity.
d) Promoting financial inclusion: Banks extend their services to remote and underserved areas, promoting financial inclusion and enabling individuals to participate in economic activities.
e) Strengthening monetary policy: Banks act as intermediaries in implementing the monetary policy of the central bank by influencing the money supply, interest rates, and credit availability in the economy.
| 5. What are the regulatory bodies governing the Indian banking system and financial system? | |
Ans. The Indian banking system and financial system are regulated and supervised by the following regulatory bodies:
a) Reserve Bank of India (RBI): The RBI is the central bank of India and regulates the functioning of banks, NBFCs, and other financial institutions. It formulates monetary policy, issues licenses, and supervises the overall functioning of the financial system.
b) Securities and Exchange Board of India (SEBI): SEBI is the regulatory body for the securities market in India. It regulates stock exchanges, intermediaries, and securities-related activities to protect investors' interests and ensure the fair and transparent functioning of the capital market.
c) Insurance Regulatory and Development Authority of India (IRDAI): IRDAI is responsible for regulating and promoting the insurance sector in India. It supervises insurance companies, protects policyholders' interests, and ensures the stability and growth of the insurance industry.
d) Ministry of Finance: The Ministry of Finance formulates policies and regulations related to the banking and financial sector in India. It oversees the functioning of various regulatory bodies, such as RBI, SEBI, and IRDAI, and plays a crucial role in shaping the overall financial system of the country.
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