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3bank is an institution that accepts deposits of money from the public withdraw-able by cheque and used for lending.
Thus, there are two essential functions which make a financial institution a bank:
(1) Acceptance of chequable deposits (of money) from the public and
(2) Lending.
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The former is its unique or most distinctive function.
Three things about deposits are noteworthy:
(i) They are deposits of money and not of goods or non-money financial assets;
(ii) Deposits are accepted from the public at large and not merely from its shareholders or members;
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iii) The deposits are repayable on demand and withdraw-able by cheque, i.e., the deposits are demand deposits.
The second essential function relates to the use of deposits. They are used for lending to others, and not for financing its own business of any kind (say manufacturing or trade).
In fact, as bank (under the Banking Regulation Act, 1949) is not allowed to carry on any such business (other than that of banking). The word lending is used here broadly to include both direct lending to borrowers and indirect lending through investment in open-market securities.
The above discussion implies that neither of the functions alone is sufficient to earn an institution the status of a bank (in the modem sense of the term). Thus, acceptance, of chequable deposits from the public is only a necessary, but not a -sufficient, function of a bank. It must also lend to others. For this reason, Post Office savings banks are not banks in the accepted sense of a bank, even though some of them accept chequable deposits.
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3bank is an institution that accepts deposits of money from the public withdraw-able by cheque and used for lending.
Thus, there are two essential functions which make a financial institution a bank:
(1) Acceptance of chequable deposits (of money) from the public and
(2) Lending.
ADVERTISEMENTS:
CLICK HERE JOIN MY WHATSAPP GROUP
The former is its unique or most distinctive function.
Three things about deposits are noteworthy:
(i) They are deposits of money and not of goods or non-money financial assets;
(ii) Deposits are accepted from the public at large and not merely from its shareholders or members;
ADVERTISEMENTS:
iii) The deposits are repayable on demand and withdraw-able by cheque, i.e., the deposits are demand deposits.
The second essential function relates to the use of deposits. They are used for lending to others, and not for financing its own business of any kind (say manufacturing or trade).
In fact, as bank (under the Banking Regulation Act, 1949) is not allowed to carry on any such business (other than that of banking). The word lending is used here broadly to include both direct lending to borrowers and indirect lending through investment in open-market securities.
The above discussion implies that neither of the functions alone is sufficient to earn an institution the status of a bank (in the modem sense of the term). Thus, acceptance, of chequable deposits from the public is only a necessary, but not a -sufficient, function of a bank. It must also lend to others. For this reason, Post Office savings banks are not banks in the accepted sense of a bank, even though some of them accept chequable deposits.
> Click here to View Details
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