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CHAPTER ONE
1.1 INTRODUCTION
The name bank derives from the Italian word banco
"desk/bench",used during the Renaissance era by Florentine bankers,
who used to maketheir transactions above a desk covered by a green
tablecloth. However,traces of banking activity can be found even in
ancient times. In fact, theword traces its origins back to the
Ancient Roman Empire, wheremoneylenders would set up their stalls
in the middle of enclosedcourtyards called macella on a long bench
called a bancu , from which thewords banco and bank are derived. As
a moneychanger, the merchant atthe bancu did not so much invest
money as merely convert the foreigncurrency into the only legal
tender in Rome that of the Imperial Mint.
Commercial banks engage in the following activities:
processing of payments by way of telegraphic transfer, EFTPOS,
internetbanking, or other means
issuing bank drafts and bank cheques
accepting money on term deposit
lending money by overdraft, installment loan, or other means
providing documentary and standby letter of credit,
guarantees,performance bonds, securities underwriting commitments
and other formsof off balance sheet exposures
safekeeping of documents and other items in safe deposit
boxes
sales, distribution or brokerage, with or without advice, of:
insurance, unittrusts and similar financial products as a financial
supermarket
cash management and treasury
merchant banking and private equity financing
Traditionally, large commercial banks also underwrite bonds,
andmake markets in currency, interest rates, and credit-related
securities, buttoday large commercial banks usually have an
investment bank arm that
is involved in the aforementioned activities
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1.2 Background to the study
Banking occupies one of the most important positions in
themodern economic world. It is necessary for trade and industry.
Hence it isone of the great agencies of commerce. Although banking
in one form oranother has been in existence from very early times,
modern banking is of recent origin. It is one of the results of the
Industrial Revolution and thechild of economic necessity. Its
presence is very helpful to the economicactivity and industrial
progress of a country.
A commercial bank is a profit-seeking business firm, dealing in
moneyand credit. It is a financial institution dealing in money in
the sense that itaccepts deposits of money from the public to keep
them in its custody forsafety. So also, it deals in credit, i.e.,
it creates credit by making advancesout of the funds received as
deposits to needy people. It thus, functions asa mobiliser of
saving in the economy. A bank is, therefore like a reservoirinto
which flow the savings, the idle surplus money of households
andfrom which loans are given on interest to businessmen and others
whoneed them for investment or productive uses. The term Bank has
beendefined in different ways by different economists. A few
definitions are:
According to Walter Leaf A bank is a person or corporation which
holdsitself out to receive from the public, deposits payable on
demand bycheque. Horace White has defined a bank, as a manufacture
of creditand a machine for facilitating exchange.
According to Prof. Kinley, A bank is an establishment which
makes toindividuals such advances of money as may be required and
safely made,and to which individuals entrust money when not
required by them foruse. The Banking Companies Act of India defines
Bank as A Bank is afinancial institution which accepts money from
the public for the purposeof lending or investment repayable on
demand or otherwise withdrawable
by cheques, drafts or order or otherwise.
Thus, we can say that a bank is a financial institution which
deals in debts
and credits. It accepts deposits, lends money and also creates
money. It
