learning objective
1: meaning of Banking
2: type of Banking
3:Functional of Commercial Banks
4: Functional of central Bank
5:Control of Credit by Reserve Bank of India
6:Role of Bank in Economic Development.
7: Advantage of Opening a Bank Account
8: Types of Deposit Account
9: Meaning and Advantage of a cheque
10: Kinds of Cheques
11: Dishonouring of a Cheques
12: Pass Book
13: Bank Draft, Pay – in- slip Book and Traveller’s Cheques
14: Bill of Exchange

Banking is an important branch of commerce and banks are essential commercial institution which facilitate trade . Bank occupy an important position in the modern business would . No county can make commercial and industrial progress without a well -organised banking system . By providing facilities for deposit ,banks encourage the habit of saving among people . they mobilise small saving and channelise them into productive uses. they provide facilities for save custody ,investment and transfer of money . Banks provide both short -term and long -term finance to businessmen. the credit policy of banks determines the level of economic activity in the country .                          

                      Meaning of Banking
A Bank may be defined as a company which collects mony from the public in the form of deposits and lends the same to borrowers. it is an institution that provides facilities for safe keeping , lending and transfer of mony According to the Banking Regulatiin Act, 1949, “banking means the accepting , for the purpose of lending or investment , of deposit of mony from the public , repayable on demand or otherwise and withdrawal by cheque , daft,order or otherwise .”
Banks are sometimes described as dealer in money and credit because banks accept deposit  from the public and lend money . when a bank accepts deposits, it purchase money at a certain rate of interest . when it lend money , it sells money at a higher rate of interest . the difference is its profit .
Bank is an establishment which makes to indivisuals such advances of money as may be required and safely made . and two which individuals entrust money when not required by them for use.

An organisation whose principal operations are concerned with the accumulation of the temporarily idle money of the general public for the purpose of advancing to other for expenditure.

the banker’s  business is to take the debts og other people to offer his own in exchange and thereby create mony.”

Thus , a bank is an institution which accepts deposits from the public and advance loans . it purchases and sells money  , and transacts other related business . A bank is different  from other financial institution which may accept deposits and make advances but they cannot create credit.

                      TYPES OF BANKS
Bank are  of the following types.
1.Central Banks: the central bank of a country serves as the leader of the banking system and the money market . Every country has central bank which regulates money supply and credit with the help of the government . it exercise supervision an control over all other banks in the country . the Reserve Bank of India is the central bank of our country . it acts as the bankers bank . it carries out the country’s monetary policy . it occupies a central position in the banking system of the country .

2. Commercial Bank: These are joint stock banks which receive deposit from the public and business firm. They also provide short -term and medium -term loans to customers. these banks carry on all kinds of banking function within the framework of the banking Regulation ACT , 1949 in India commercial banks  are classified in two broad categories —- schedule and non schedule banks . scheduled bank are those included in the second schedule to the Reserve Bank of India Act. commercial bank not included in this schedule are non -schedule banks.
in India commercial bank are owned and controlled by the government .private businessman and foreign businessman . state Bank of India and Bank of Baroda are examples of public sector banks . global Trust Bank and Bank of Rajasthan are example of private sector banks . Citi Bank,ANZ Grindlays Bank and American Express Bank are examples of foreign banks.  State Bank of India is the largest commercial bank of our country .

3.Industrial Bank  : These bank provide finance to industrial concerns for medium -term and long -term periods . they also purchase and underwrite shares and debentures of industrial enterprises. They also provide managerial and Technical advise and assistance to industries These banks are also called development banks or developmental financial institutions .
(IDBI) Industrial Development Bank of India , Industrial Credit and investment corporation of India (ICICI) , Industrial finance corporation of India (IFCI) , are examples of industrial development banks in our country . each state in India has its own financial corporation Industrial banks play a vital role in the industrial development of a country .

4. Merchant Banks: These banks perform merchant banking function such as underwriting of securities . They serve as issue houses, underwriters  lead managers , brokers , etc., for companies which issue shares and debentures . SBI capital markets is an example of merchant banks.

5. Exchange Banks :These banks provide foreign currency and other related facilities to importers and exporters . They buy and sell foreign exchange and specialise in financing foreign trade . They are also called foreign exchange bank. These banks also render certain services such as collecting and supplying information about the foreign customers ,remittance of founds from the country to another etc.. The Export Import (EXIM)Bank of India was established on January 1,1982 with the purpose of promoting , financing and facilitating export and import of goods and service . it provides expert advice , viability studies, trade information and other facilities so as to promote the country’s foreign trade an commerce .

6: post office savings Banks : post offices serve as savings banks for the benefit of general public . these banks accept various types of deposits from the public and allow interest on these deposits. Generally , restrictions are placed on the number and amount of withdrawals during a month . savings banks encourage savings and thrift . They collect the small savings of people but do not advance loans .

1.Accepting Deposits :Accepting deposits is the main function of a commercial bank. it attracts deposits for the purpose of making loans and investments . people deposts their money in banks for the sake of safety and for earning interest . commercial bank receive deposits from individuals. firms and other institutions Banks offer different types of deposit account to suit the needs of various depositors. public deposits constitute the main resources of a bank . Bank receive the following types of deposits .

fixed deposit : A Iumpsum is deposited for a fixed time period. these deposits are repayable on the expiry of the stated period . Generally ,the time period varies from three months to five years . the rate of interest on these deposits is higher than that payable on other deposits.
the actual rate depends on the period for which the deposit is made . A receipt is issued to the depositor.

Saving deposits. This account is opened for the purpose of depositing small savings, in these deposits money can be withdrawn for a specified number of times in a week . But deposits can be made any number of times. Rate of interest allowed on such deposits in higher than that on current deposits but lower that then allowed  on fixed deposits . the depositor has to open an account with the bank and is given a pass book the main objective of savings deposits is to promote the habit of savings among people .

Current deposits : such deposits are made by business firms in current accounts Money can be deposited and withdrawn as often as the depositor wants . Generally , no interest is allowed on these deposits . A small fee , know as  ,’bank charge ‘ or ‘incidental charge ‘ is often charge maintaining current deposits . Overdraft facility is available on current accounts.

central bank means the bank which regulates the entire banking system in a country and carries out its monetary policy. According to R.S. Sayers , “the business of a central bank as distinguished from a commercial bank is to control the commercial banks in such a way , as the promote the general monetary policy of the state” .  Central bank is the apex bank, and every country has a central bank . Reserve bank of India is the central bank of our country . it was set up in 1935 under the Reserve bank of India Act 1934 . the Reserve Bank of India is managed by a board of Director consisting of the Governors , one Government official from the ministry of a Finance and ten directors nominated by the central Government . Four of these directors represent the four local board . The Governor is the Chairman of the board . The head office of the Reserve bank of India  plays very important role is stabilising the country’s economy. it tackles the balance of payments and foreign exchange problem of India .
     as the central bank , the Reserve bank of India performs the following function .

Government’s Banks : The central bank acts as a banker , fiscal agent and advisor to the government . it makes and receives payment on behalf to the government . It floats and manages public debts for the government . as  a fiscal agent the central bank advises the government on matters concerning monetary and banking policies. It also serves as a representative of the Government in international conference on monetary and economic matters.


A cheque is an unconditional order in writing , drawn and signed by a customer on his bank , requesting the bank to pay on demand the specified amount of money to the person named therein or to his order or to the bearer of the instrument, when a bank account is opened the bank issues cheque book to the account holder the cheque book contains printed blank form of cheques which the customer can fill in and sing whenever he wants to pay money to somebody or for himself . cheque forms are numbered serially and the account number is stated on them . A cheque may be drawn  payable to self or in in favour of other parties . when a cheque book is fully used the bank issues a new cheque book . for this purpose the account holder has to sing and present to the bank a requisition from which is inserted in every cheque book.

A cheque is dishonouring when the bank on which it is drawn refuses to pay on it . when the payment refused. the bank states the reason for dishonour and returns the cheque to the payee.

A bank can dishonour a cheque in the following circumstance :

1:the amount of the cheque is greater then the balance standing to the credit of the drawers account .

2: the cheque is not properly drawn e.g. alterations are not not signed date is not mentioned , etc.

3: the amounts in figures and words differ .

4: the drawers signatures do not tally with the specimen signatures or the drawer has not signed the cheque at all.

5: the cheque is mutilated , post dated or stale . A cheque which is more than six months old is called outdated or style .

6: the bank has received notice of the drawer’s death , insanity , bankruptcy .

7: the drawer has stopped or countermanded payment of the cheque.

8: the bank receives an order from a court attaching the drawers account .

9: the bank comes to know of defect in the title of the person who presents the cheque for payment,

10: the bank is notified of an assignment by the drawer of his credit balance .

11: the drawer has closed his account before the presentation of the cheque .

12: A crossed cheque is presented for payment at the bank counter

13 Endorsement on the cheque is irregular.

                              PASS BOOK
 A Pass Book is a book issued by the bank to to its customer . As the book passes from banker to customer , it is known as pass book , a pass book issued when a bank account is opened . it contains entire relating to the deposits and withdrawals made by the customer from his bank account . the pass book contains a true copy of the customers account as it appears in the banks ledger . whenever the customer deposits cash/cheque or earns some interest , a  credit entry is made in the passbook . a debit entry is made whenever the customer withdraws money from his account . regular intervals the customers sends the pass book to the banker and entries are recorded . the balance to the customers account is shown on specified dates .


                           BANK DRAFT 
 A bank draft is a type of cheque it is drawn by a bank either on its own branch or o another bank . therefore , it is also called ” bankers ” cheque Bank draft is a very convenient , cheap and safe method of remitting money from one place to another . in order to remit money through a bank draft , a person first obtain the bank draft from the bank . for this purpose he fills in a form and pays the amount of the draft along with the prescribed commission he than . sends the bank draft to the receiver  by the post when the receiver the gets the bank draft by post he deposits it in his bank. The bank collects the payment from the concerned bank and credits to the customer account . as a draft is drawn by a banker , there is no risk of its dishonour .

 you read the difference cheque and draft:

 cheque: i) it is drawn by a  person (ii) it is dishonoured in cash of  inadequate funds in the bank account of the drawer .. (iii) the payee has to bear the collection charges in cash of an outstation cheque. (iv)  the payment of an outstation cheque can be collected only by depositing it in a bank account .
Draft: (i) it is drawn by a bank (ii)the draft amount is taken in advance by the bank . therefore the question of its dishonour does not arise .
(iii) the draft commission is paid in advance by the sender of the bank draft  .
(iv) the payment of an uncrossed bank draft can be collected at the counter of the bank on which it is drawn .

BILL OF EXCHANGE ->  A bill of exchange is an instrument in writing containing an unconditional order , signed by the maker directing a certain person , to pay a certain sum of money only to or to the order of a certain person or to the bearer of the instrument . the main characteristics of a bill of exchange are as follow:
i) It must be in writing
ii) It must be an unconditional order too pay
iii) it must be signed by the maker
iv) the maker must direct a certain person to pay money
v) the payment must be of a specified sum of money
 A bill of exchange is a useful instrument . it serves as a proof of debt and facilitates payment are both internal and foreign trade . it is easily transferable . it serves as a reminder of payment . it holder can discount it from banks to obtain money before due date. it also saves money transaction .

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