SUBMITTED TO:

SUBMITTED BY:
Mrs. Sumeet Kaur
Srishti Pahwa
Professor-G.G.D.S.D College,
M.com 3rd sem.
Chandigarh
Roll No- 1515021

Introduction
Today banks are part and parcel of our daily life. Bankers meet the needs and
requirements of farmers, businessmen, governments and other segments of
society. Banks contribute to speed up the economic growth of a country by
mobilizing scarce financial resources for productive purposes.

Origin of banks
The idea of banks began as long ago as 1,800 BC in Babylon.
In early civilizations temples were considered the safest place . In Egypt
and Mesopotamia gold and wealth was deposited in temples for safekeeping. Later on people realized that it lies idle there, while others in the
trading community or in government have desperate need of it. In Babylon ,
in the 18th century BC, loans were granted by the priests of the temple to
those in need. Thus the concept of banking arrived.

History of banks
The oldest bank still in existence is Monte dei Paschi di Siena, headquartered in Siena, Italy,
which has been operating continuously since 1472. Today it stands out as the oldest existing
bank in the world by far, and remains an esteemed bank that has branches throughout Italy.

Banking in India in the modern sense originated in the last decades of the 18th century.
Among the first banks were the Bank of Hindustan, which was established in 1770 and
liquidated in 1829-32; and the General Bank of India, established 1786 but failed in 1791.
The largest bank, and the oldest still in existence, is the State Bank of India. It originated as
the Bank of Calcutta in June 1806. This was one of the three banks funded by a presidency
government, the other two were the Bank of Bombay and the Bank of Madras. The three banks
were merged in 1921 to form the Imperial Bank of India, which upon India's independence,
became the State Bank of India in 1955. For many years the presidency banks had acted as
quasi-central banks, as did their successors, until the Reserve Bank of India was established in
1935, under the Reserve Bank of India Act, 1934.
In 1960, the State Banks of India was given control of eight state-associated banks under the
State Bank of India (Subsidiary Banks) Act, 1959. These are now called its associate banks. In
1969 the Indian government nationalised 14 major private banks. In 1980, 6 more private banks
were nationalized. These nationalized banks are the majority of lenders in the Indian economy.

Meaning of bank
The term bank is derived from old Italian word banca which means
a Bench or money exchange table. In olden days, European money
lenders or money changers used to display (show) coins of different
countries in big heaps (quantity) on benches or tables for the purpose of
lending or exchanging.
Bank refers to an institution that deals in money. This institution accepts
deposits from public and advances loans to those who are in need. These
days banks perform various other functions such as credit creation, agency
work and general services besides dealing in money. It borrows money from
a group of people at a lower rate of interest and lends to the other group of
people at some higher rate of interest. The difference between the two rates
of interest is the profit of the bank.

Definition of a Bank
Oxford Dictionary defines a bank as "an establishment for custody of money,
which it pays out on customer's order."
As per banking companies regulation act 1949- bank is a commercial
establishment which accepts the deposits and which are repayable on

demand or otherwise through cheques, drafts etc and which are used for
lending or investment.

Characteristics
1. Deals in Money
Bank is a financial institution which deals with other people's money i.e.
money given by depositors.
2. Individual / Firm / Company
A bank may be a person, firm or a company. A banking company means a
company which is in the business of banking.
3. Acceptance of Deposit
A bank accepts money from the people in the form of deposits which are
usually repayable on demand or after the expiry of a fixed period. It gives
safety to the deposits of its customers. It also acts as a custodian of funds of
its customers.
4. Giving Advances
A bank lends out money in the form of loans to those who require it for
different purposes.
5. Payment and Withdrawal
A bank provides easy payment and withdrawal facility to its customers in the
form of cheques and drafts, It also brings bank money in circulation. This
money is in the form of cheques, drafts, etc.
6. Agency and Utility Services
A bank provides various banking facilities to its customers. They include
general utility services eg. Locker facility, underwriting facility, travelers
cheques etc. and agency services eg. Borrowing and lending facility.
7. Profit and Service Orientation

A bank is a profit seeking institution having service oriented approach.

8. Connecting Link
A bank acts as a connecting link between borrowers and lenders of money.
Banks collect money from those who have surplus money and give the same
to those who are in need of money.
9. Risky business
Banking business is very risky, as it depends on the deposits of customers,
which are uncertain, moreover the lending business suffers from risk of non
payment.
10. Name Identity
A bank should always add the word "bank" to its name to enable people to
know that it is a bank and that it is dealing in money.

Importance of banks
1. Promote Saving Habits among People
Bank attracts depositors by introducing attractive deposit schemes and
providing rewards or return in the form of interest. Banks providing different
kinds of deposit schemes to its customers. It enables to create banking
habits or saving habits among people.
2. Capital Formation and Promoting of Industries
Capital is one of the most important part of any business or industry. It is the
life blood of business. Banks can increase capital formation by collecting
deposits from depositors and convert these deposits into loans advances to
industries.
3. Easiness of Trade and Commerce Functions
In this modern era trade and commerce plays vital role between any
countries. So, the money transaction should be user friendly. A modern bank
helps its customers to send funds to anywhere and receive funds from
anywhere of the world. A well developed banking system provides various

attractive services like mobile banking, internet banking, debit cards, credit
cards etc. these kinds of services fast and smooth the transactions. So, bank
helps to develop trade and commerce.
4. Generate Employment Opportunities
Since a bank promote industry and investment, there automatically generate
employment opportunity. So, a bank enables an economy to generate
employment opportunity.
5. Promote Agricultural Development
Agricultural sector is one of the integral part of any economy. Food self
sufficiency is the major challenge and goal of any country. Modern bank
promote agricultural sector by providing loans and advances with low rate of
interest compared to other loans and advances schemes.
6. Implementation of Monetary Policy
The commercial banks help the economic development of a country by
faithfully following the monetary policy of the central bank. In fact, the
central bank depends upon the commercial banks for the success of its
policy of monetary management in keeping with requirements of a
developing economy. Thus the commercial banks contribute much to the
growth of a developing economy by granting loans to agriculture, trade and
industry, by helping in physical and human capital formation and by
following the monetary policy of the country.
7. Balanced Development
Modern banks spreading its operations throughout the world. we can see
number of big banks like citi bank, Baroda bank etc. It helps a country to
spread banking activities in rural and semi urban areas. With the spreading
of banking operations around the country, helps to attain balanced
development by promoting rural areas. Modern bank plays vital role in the
socio- economic development of the country. A developed banking system
enables the country to attain balanced development without any special
consideration of rich and poor, cities and rural areas etc.

8. Financing Employment Generating Activities

The commercial banks finance employment generating activities in
developing countries. They provide loans for the education of young persons
studying in engineering, medical and other vocational institutes of higher
learning. They advance loans to young entrepreneurs, medical and
engineering graduates, and other technically trained persons in establishing
their own business. Such loan facilities are being provided by a number of
commercial banks in India. Thus the banks not only help inhuman capital
formation but also in increasing entrepreneurial activities in developing
countries
9. Financing Consumer Activities:
People in underdeveloped countries being poor and having low incomes do
not possess sufficient financial resources to buy durable consumer goods.
The commercial banks advance loans to consumers for the purchase of such
items as houses, scooters, fans, refrigerators, etc. In this way, they also help
in raising the standard of living of the people in developing countries by
providing loans for consumptive activities.