Meaning, Definitions and Features of Banking

Banking is the business of protecting money for others. Banks lend this money, generating interest that creates profits for the bank and its customers.

A bank is a financial institution licensed to accept deposits and make loans. But they may also perform other financial services.

The term “bank” can refer to many different types of financial institutions; including bank and trust companies, savings and loan associations, credit unions or any other type of institution that accepts deposits.

Some people go to banks in search of a safe place to keep their money. Others are seeking to borrow money to buy a house or a car, start a business, expand a farm, pay for college, or do other things that require borrowing money.

Your savings are combined with the savings of others to form a big pool of money, and the bank uses that money to make loans. The money doesn’t belong to the bank’s president, board of directors, or stockholders. It belongs to you and the other depositors. That’s why bankers have a special obligation not to take big risks when they make loans.

Definitions:

Chamber’s Twentieth Century Dictionary defines a bank as an “institution for the keeping, lending and exchanging, etc of money.

According to Crowther, “The banker’s business is to take the debts of other people to offer his own in exchange, and thereby create money.” A similar definition of the meaning of Banking has been given by Kent who defines a bank as “an organization whose principal operations are concerned with the accumulation of the temporarily idle money of the general public for the purpose of advancing to others for expenditure.”

A person or company carrying on the business of receiving moneys, and collecting drafts, for customers subject to the obligation of honoring cheques drawn upon them from time to time by the customers to the extent of the amounts available on the current accounts.

Sayets, on the other hand, gives a still more detailed definition of a bank thus: Ordinary banking business consists of changing cash for bank deposits and band deposits for cash; transferring bank deposits from one person or corporation (one ‘depositor’) to another; giving bank deposit in exchange for bills of exchange, government bonds, the secured or unsecured promises of businessmen to repay, etc.

Features:

Financial Intermediation

The process of taking funds from the depositor and then lending them out to a borrower is known as Financial Intermediation. Through the process of Financial Intermediation, banks transform assets into liabilities. Thus, promoting economic growth by channelling funds from those who have surplus money to those who do not have desired money to carry out productive investment.

The bank also acts as a risk mitigator by allowing savers to deposit their money safely (reducing the risk of theft, robbery) and also earns interest on the same deposit. Bank provides services like saving account deposits and demand deposits which allow savers to withdraw money on an immediate basis thus, providing liquidity (which is as good as holding cash) with security.

Security

Banks protect your cash from theft and natural disasters like fires or floods. Your insurance may not cover money lost in your home, car or on your person. But banks don’t typically carry the same risk.

Insurance

Banking security is more than just vaults and guards. Most of your assets are federally insured up to Rs. 5,00,000 by the central government if the institution fails. The RBI insures assets in banks. RBI laws also require institutions to maintain minimum levels to help them remain solvent.

Convenience

Banks allow you to access your money when you need it. They can also provide “one-stop shopping” for financial needs from investments to home and auto loans, along with other financial services. Convenience, along with interest rates and low fees, are major selling points for banks.

Services to Grow Your Wealth

Banks offer many services that can help you grow wealth. These include high-yield checking or savings accounts,