In this post we are going to discuss about origin of the word bank.
📌What is bank?
📌Origin of the word bank.
📌What are the features of a bank
📌 What are the primary function of bank?
📌 What are the secondary function of a bank?
📌 General Utility function of bank.
Q:What is a bank?
Ans: In Simple words , we can say that Bank is a financial institution that undertakes baking activities i.e. it accepts deposits and then lends them to make certain profits.
Origin of the word bank:
The word has been used for a long time, but there is no clear idea of ​​its origin. According to one viewpoint, Italian moneylenders were known as ‘Banechi’ or ‘Benchri’ because these people used a special type of table to to transact their business called ‘Banchi’. According to another theory, the word bank is derived from the German word ‘banck’ which means heap or mound. The Italians started using the name ‘Banco’ which meant accumulation of money or stock.
The features of a bank are:
1)A Bank is a profit seeking enterprise.
2) It deals in money i.e it accepts deposit from the public and advances loan to the needy borrowers.
3) It deals with credit. It generates credit for t lending purposes.
4) The deposit made with the bank are repayable on demand and can be withdrawn by the depositor by means of any instruments whether a cheque or otherwise.
Q: what are the primary function of a bank?
Ans : The primary function of a bank are :
1) Acceptance of deposit: It is the most important function of a bank . According to this function, the commercial banks accept deposit from different individuals and organisations,the bank accept deposit from them and provide all securities to them.
2) Making loans and advances: The second important function of bank is advancing loan.The commercial banks earn interest by lending money.
3) Investment of funds : Besides loans and advances banks also invest a part of its funds in govt. and industrial securities. Banks purchase both govt. and industrial securities like govt. bills, shares , debentures etc from their market.
4) credit creation: The banks create credit. When a bank advances a loan , it does not give cash to the borrower. The borrower is allowed to repay by check whenever needed. This is known as credit creation.
primary function of a bank in breif:
1.Accepting Deposits :Deposits constitutes a important source of funds for banks . the main purpose of commercial Bank is acceptance of deposits from the public .this function is vital because banks mostly depends on the funds deposited with them by the public. The banks collect money from those who have surplus to lend to those who need loans and deposits must be of money and not of other assets. Bank accept deposits by mobilizing the sale of the public commercial banks interest on the deposits to mobilize the savings and to hold deposits.
2.Advancing loans: One of the important primary financial services of the commercial banks is to advance loans. A certain part of the cash received by the banks as deposits is kept in the reserve and the remaining is given as loan. Banks advance loans mainly for productive purposes against approved securities. The amount of loans is usually less than the value of security. Banks charge further more on the loans that they pay on deposit and difference constitutes their profits.
3. Creation of Credit: Commercial banks generate demand deposit and assist in circulating it as medium of exchange .This is also called credit creation. When a bank advances a loan or credit , if doesn’t lend cash but opens and account in favour of the customer and Credits the amount to the account. It produces a claim against itself which is acceptable by the public for settlement of debts. In this process the bank generates money.
4: Check system of payment funds :A cheque as a negotiable instrument is one of the most popular credit instruments that customers use to make payments. The cheque system was developed in the early stages of banking and has now become an important source of credit instruments in banking terms. By cheque, the customer directs the bank to make payment to the payee .
Q: what are the secondary function of a bank?
Ans: The secondary function of a bank are:
1: Agency function: These functions are performed by the banker for its customers. For those services the bank charges , certain commission for its customers. These functions are:
a: Remittance of funds
b: Collection and payment of credit instruments.
c: Execution of standing orders.
d: Purchase and sale of Securities
e: Collection of dividend and interest.
f: Income tax consultancy
Secondary Financial services:
A. Agency financial services: Secondary financial services: Banks offer a wide range of useful services to customers in addition to performing basic functions. Commercial banks act as agents for their customers in the following ways.
1. Collecting and payment of credit: Commercial banks collect and pay for various communication tools such as checks, bill exchanges, promissory notes etc. Banks also pay rent, income tax, fees, insurance, premiums on behalf of the consumer. The customer has to stay with the bank for various payments from time to time to ensure regular payments and avoid hassle in performing it himself.
2.Buying and selling of securities: Modern commercial banks have also started buying and selling securities such as shares, stocks, bond units and debentures from consumers. Banks act as a broker and do not provide adequate security advice.
3. Trustee and Executor: Trustees and Executors: Banks also act as trustees and executors of the property of their advice. Banks manage wills and settlement and trusteeship functions through their expert staff and specialized departments. Sometimes banks also offer income tax services on behalf of customers.
4. Remittance of Money: Banks also send money from one place to another. Commercial banks send remittances from one place to another by customers through cheques, drafts, mail transfers, telegraphic transfers etc.
5. Representation and correspondence: Sometimes commercial banks have access to their representatives and or correspondents of the clients, especially in obtaining passports, travel tickets, car bookings, plots, etc.
General Utility function:These are certain utility function performed by the modern commercial banks to its customers for the community. These are:
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- Safe custody of valuables.
- ​Issuing Letter of credit.
- ​Gift Cheques
- ​Dealing in foreign exchange.
- ​Credit cards
- Collection of statistics.
Banks provide more utility services in addition to agency services:
1 . Locker facilities: Banks provide locker facilities to their customers.people can keep their gold or silver jewellery or other important documents in these lockers at a very nominal annual rent. In this way bank accepts the valuable articles and documents for safe custody.
2.Banks also act as referees. Banks inform domestic and foreign merchants about the economic position of their customers. Banks can be referred to for information on the financial status of customers through third parties. The bank will act as a referee only if it is desired by the customer, otherwise the security of a customer’s account is maintained very carefully.
3 . Letter of credit: The Letter of Credit is a very popular document in foreign trade. In a way, banks verify the creditworthiness of their customers by issuing letters of credit. Issuance of Letters of Credit to their customers to enable them to go abroad.
4. Issuing of travellers cheque: Banks are providing great services by issuing traveller’s Cheques which enables a person to travel without fear of theft or loss of money. Now, some banks have introduced a credit card system that allows a credit card holder to obtain a loan from listed outlets at no extra cost or effort. Therefore, credit card holders do not have to carry cash all the time.
5. Issuing of Gift Cheques: Some banks have issued gift Cheques of different denominations. Some Indian banks have issued gift cheques worth Rs 11,31,501. These are usually issued for free.
6. Dealing in foreign exchange: Large commercial banks also trade in foreign exchange through their major branches. Commercial banks are the main authorized foreign exchange dealers in India.
7. Merchant banking services: Commercial banks also provide merchant banking services to customers. They help to get a loan from a non-banking financial institution. However, in the recent past, most banks have transferred merchant banking services to their separate subsidiaries.