MEANING AND DEFINITION OF A BANK
It is very difficult to giver a precise definition of a bank due to the fact that a modern bank performs a variety of functions. Ordinarily a ‘Bank’ is an institution which deals with the money and credit in such a manner that it accepts deposits from the public and makes the surplus funds available to those who need them, and helps in remitting money from one place to another safely. Different economists have given different definition of a bank. Some of the important definitions are as under :
“A bank collects money from those who have it to spare or who are saving it out of their incomes, and it lends this money to those who require it.” G.Crother
“Banking means the accepting for the purpose of Indian companies lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft or otherwise.” The Banking Companies (Regulation) Act, 1949
An ideal definition of a bank can be given as under :-
“A bank is a commercial establishment which deals in debts and aims at earning profits by accepting deposits from general public at large, which is repayable on demand or otherwise through cheques or bank drafts and otherwise which are used for lending to the borrowers or invested in Government securities.”
As for as the origin of the present banking system in the world is concerned, the first bank called the “Bank of Venice” is believed to be established in Italy in the year 1157. The first bank in India was started in the year 1770 by the Alexander & Co., an English Agency as “Bank of Hindustan” which failed in 1782 due to the closure of the Agency House in India. The first bank in the modern sense was established in the Bengal Presidency as “Bank of Bengal” in the year 1806.
According to G. Crowther the modern banking has three ancestors in the history of banking in this world :-
i) The Merchants
ii) The Goldsmiths
iii) The Money Lenders
i) The Merchants
It were the merchant who first evolved the system of banking as the trading activities required remittances of money from one place to another place which is one of the important functions of a bank even now. Because of the possibility of theft of money during physical transportation of money, the traders began to issue the documents which were taken as titles of money. This system gave rise to the institution of “Hundi” which means a letter of transfer whereby a merchant directs another merchant to pay the bearer of Hundi the specified amount of money in the Hundi and debit this amount against the drawer of Hundi.
ii) The Goldsmiths
The second stage in the growth of banking was the role of goldsmiths. The business of goldsmiths was such that he had to secure safe to protect the gold against theft and take special precautions. In a period when paper was not in circulation and the money consisted of gold and silver, the people started leaving their precious bullion and coins in the custody of goldsmiths. As this practice spread, the goldsmiths started charging something for taking care of the gold and silver. As the evidence of receiving valuables, he stared to issue a receipt. Since the gold and silver coins had no mark of the owners, the goldsmiths started lending them. The goldsmiths were prepared to issue an equal amount of gold or silver money to the receipt holder, the goldsmith receipts became like cheques as a medium of exchange and a means of payment by one merchant to the other merchant.
iii) The money lenders
The third stage in the growth of banking system is the changing of the character of goldsmiths into that of the money lenders. With the passing of time and on the basis of experience the goldsmiths found that the withdrawals of coins were much less than the deposits with them and it was not necessary to hold the whole of the coins with them. After keeping the contingency reserve, the goldsmiths started advancing the coins on loan by charging interest. In this way the goldsmith money lender became a banker who started performing two important functions of the modern banking system, that of accepting deposits and advancing loans. The only difference is that now it is the paper money and then its was gold or silver coins.
It is very difficult to giver a precise definition of a bank due to the fact that a modern bank performs a variety of functions. Ordinarily a ‘Bank’ is an institution which deals with the money and credit in such a manner that it accepts deposits from the public and makes the surplus funds available to those who need them, and helps in remitting money from one place to another safely. Different economists have given different definition of a bank. Some of the important definitions are as under :
“A bank collects money from those who have it to spare or who are saving it out of their incomes, and it lends this money to those who require it.” G.Crother
“Banking means the accepting for the purpose of Indian companies lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft or otherwise.” The Banking Companies (Regulation) Act, 1949
An ideal definition of a bank can be given as under :-
“A bank is a commercial establishment which deals in debts and aims at earning profits by accepting deposits from general public at large, which is repayable on demand or otherwise through cheques or bank drafts and otherwise which are used for lending to the borrowers or invested in Government securities.”
As for as the origin of the present banking system in the world is concerned, the first bank called the “Bank of Venice” is believed to be established in Italy in the year 1157. The first bank in India was started in the year 1770 by the Alexander & Co., an English Agency as “Bank of Hindustan” which failed in 1782 due to the closure of the Agency House in India. The first bank in the modern sense was established in the Bengal Presidency as “Bank of Bengal” in the year 1806.
According to G. Crowther the modern banking has three ancestors in the history of banking in this world :-
i) The Merchants
ii) The Goldsmiths
iii) The Money Lenders
i) The Merchants
It were the merchant who first evolved the system of banking as the trading activities required remittances of money from one place to another place which is one of the important functions of a bank even now. Because of the possibility of theft of money during physical transportation of money, the traders began to issue the documents which were taken as titles of money. This system gave rise to the institution of “Hundi” which means a letter of transfer whereby a merchant directs another merchant to pay the bearer of Hundi the specified amount of money in the Hundi and debit this amount against the drawer of Hundi.
ii) The Goldsmiths
The second stage in the growth of banking was the role of goldsmiths. The business of goldsmiths was such that he had to secure safe to protect the gold against theft and take special precautions. In a period when paper was not in circulation and the money consisted of gold and silver, the people started leaving their precious bullion and coins in the custody of goldsmiths. As this practice spread, the goldsmiths started charging something for taking care of the gold and silver. As the evidence of receiving valuables, he stared to issue a receipt. Since the gold and silver coins had no mark of the owners, the goldsmiths started lending them. The goldsmiths were prepared to issue an equal amount of gold or silver money to the receipt holder, the goldsmith receipts became like cheques as a medium of exchange and a means of payment by one merchant to the other merchant.
iii) The money lenders
The third stage in the growth of banking system is the changing of the character of goldsmiths into that of the money lenders. With the passing of time and on the basis of experience the goldsmiths found that the withdrawals of coins were much less than the deposits with them and it was not necessary to hold the whole of the coins with them. After keeping the contingency reserve, the goldsmiths started advancing the coins on loan by charging interest. In this way the goldsmith money lender became a banker who started performing two important functions of the modern banking system, that of accepting deposits and advancing loans. The only difference is that now it is the paper money and then its was gold or silver coins.
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