Meaning,Definition and Features of Banking

What is Banking

The word ‘Bank’ has derived from German language, Which has the literal meaning ‘to collect’. Initially the function of a bank was to collect money from public in the form of deposits. Banks entered into other areas of function like lending of money,etc. In the next stage of their evolution. In the current context,they are one of the most significant constituents of our country’s economic framework. Consequent upon the nationalization of major banks in 1969, they have played a vital role as agents and facilitators of achieving the social objectives set forth by the government of India.

Definition of Banking

Section 5(1) (b) of the Banking Regulation Act, 1949 banking as, “The accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdraw able by cheque, draft, and order or otherwise”.

Section 5(1) (c) defines a banking company as, “Any company which transacts the business of banking in India”.

According to Justice Homes, “The real business of a banker is to obtain deposits of money which he may use for his own profit by lending it out again”.

Thus, banks are financial intermediaries, which are engaged in the business of (i) acting as a ‘payment agent’ on behalf of their customers, and (ii) borrowing and lending of money.


Features of Banking

  1. Acceptance of deposits and borrowing/raising of money.
  2. Lending of money either against appropriate tangible securities or without any security.
  3. Dealing in various types of financial instruments like bills of exchange,hundies,promissory notes,coupons,drafts,bills of lending,railway receipts,warrants,debentures,certificates,scrips, etc. By way of drawing,accepting,discounting,buying,selling,and collecting them on behalf of their customers. Such instruments may be ‘negotiable or non-negotiable’ and transferable or non-transferable’.
  4. Buying and selling of foreign exchange and different forex currencies.
  5. Issuing of letters of credit (L/C),traveller’s cheques,drafts,circular notes,etc. On behalf of their customers.