CBSE Book Class 11 Accounting Banking Transactions

Banking Transactions

Meaning of Bank

Bank is a German word which means ‘to collect’. The main function of the banks is collection of funds as deposit's. with time bank have started performing other functions such as lending money, etc.

Banks have now occupied a very important place in the economic structure of the country. After independence, in order to achieve the social objectives of the country, banks were nationallised. According to the 20 Point Programme of then government, banks were entrusted with the responsibility of developing the undeveloped regions of the country. With time, the functions of banks have evolved may be defined as they financial institutions dealing in money and credit to achieve the economic and social objectives of the business. According to the Indian Banking Companies Act 1949, “A bank is an institution accepting, for the purpose of lending or investment, in deposit money from public repayable on demand or otherwise, withdrawal by cheque, drafts, order or otherwise”.

In the words of R.S. Mayers, “Banks are institutions whose debts are referred to as ‘bank deposits’ and they are commonly accepted in final settlment of other peoples debts”.

According to Justice Homes, “The real business of a banker is to obtain deposits of money which he may use for his own profit by lending it out again”.

There are various types of banks as shown below.

• Commercial Banks – These banks have been established to assist trade, commerce and industry in their efforts towords development. Commercial banks assist their customers by depositing their funds in various accounts and releasing them as per their requirement. In current account overdraft facilities are also granted. Assistance is also provided by financing trade, commerce and industry. Individual persons can also open their account in commercial banks. In addition to the main functions of accepting deposits and lending money, commercial banks render various agency and other services.

• Agricultural Banks – Agriculture needs both short-term and long-term loans. The former loans are required for purchasing seeds, manure, oxen and plough etc. These short-term needs are met by cooperative banks. Long-term financial needs are regarding purchase of land, tractor, other equipments and for installation of tubewells. These needs are met by land mortgage to banks also known as agricultural banks.

• Industrial Banks – Industry needs long-term funds and this requirement cannot be effectively met by commercial banks. It is, therefore, necessary that industrial banks, be set up to meet the financial requirements of industrial enterprises. Unfortunately, in India, we do not have sufficient number of industrial banks. Instead, we haveIndustrial Development Bank of India and various financial corporate to meet the financial needs of industrial enterprises. In western countries like UK and USA, there are a large number of industrial banks.

• Exchange Banks – These banks help in the payments and financing of foreign trade. Many Indian commercial banks provide exchange services also. Mostly foreign banks work as exchange banks in India. Such banks are Citibank, Bank of Tokyo, Grindlays Bank, Chartered Bank etc. These banks deal in foreign exchange.

• Indigenous Banks – Before Independence, the financial needs of farmers and small business units were met by indigenous banks in rural areas. These banks were operated by seths, sahukars, mahajans, sardars etc. The special feature of these banks to advance loans at a very high rate of interest. Farmers and borrowers may approach them at any time. However, they have to pledge their ornaments, land or valuables. These banks are virtually exploiters of poor rural people. In spite of our development in financial fields by establishing big banks and financial corporations, indigenous banks are still serving the needs of the poor masses.

• Cooperative Banks – These banks are formed on a cooperative basis to meet the financial requirements of their members . The rate of interest is very low. The idea behind formation of these banks is to provide financial assistance to the weaker sections of the society. The government makes funds available to these banks at concessional rates.

• Central Bank – Every country has a central bank which is responsible for the overall control of cash and credit money. In India, Reserve Bank of India works as the central bank of the country.

Please refer to the link below - CBSE Class 11 Accounting-Banking Transactions