Definition of a Bank and its Functions

Study Notes

The Banking Regulation Act of 1949 defines the business of banking and permissible activities
A bank is an institution that deals in money and its substitutes and provides related services
The primary function of a bank is to accept deposits from the public and provide loans, advances, and cash credit
Deposits are repayable on demand or withdrawal by cheque or draft
Before independence, banking activities were controlled by the Imperial Bank of India (managed by the British government)
The Reserve Bank of India (RBI) was established on April 1, 1932, under the RBI Act of 1934
The RBI took over the activities of the Imperial Bank of India in 1949
Banking - Defined as accepting money deposits from the public for lending or investment purposes, which are repayable on demand, by cheque, draft, or otherwise.
Banking Company - A company engaged in banking activities (in India). This does NOT include companies involved in manufacturing, trade, and accepting public deposits for financing
Branch or Branch Office - Any branch office or pay/sub-pay office of a banking company, where deposits are received, cheques are cashed, or money is lent.

Primary Functions
- Accepting Deposits: Includes savings accounts and current accounts
- Advancing Loans: Includes overdrafts and cash credit
- Banks are also permitted to deal in corporate securities
Secondary Functions
- Transfer of Funds: Helping customers transfer funds within and outside the country
- Agency services (purchasing, selling, and regular collection of interest etc.), acting as trustees or representatives, and income-tax collection
- General Utility services: Includes safety vaults, cashing/issuing travel documents, issuing letters of credit for customers, issuing debit/credit cards, and underwriting shares