1.1 Background of the Study
Most essential factors for development of any country are capital. Handicapped by numerous constraints economic development is a challenging task in most of the countries. Reduction of the prevalent is the biggest obstacle today therefore countries need to grow more rapidly by generating adequate income earning and generating employment opportunity which in turn result in political and social stability. Bank is vital to develop and spread industries to boost the trade and commerce activities and for international trade.
Thus a bank through its operation acts as a mediator between the saver and investors and generates profit for self-existence. The bank will generate their income from different ways. They acquires fund from one group of surplus spending unit and make these fund available to other deficit unit. They make profit by paying low rate to the saver and charge high rate on borrowers. Bank also generate income by providing other service for which they charges fees and commission such service include trust administration, safety deposit, L/C (letter of credit) facility, credit cards etc. meanwhile banks have also enter into financial advisory services, foreign trading, processing and investments.
There are different opinions on the origin of the bank the term bank was originated from Italian word “Banco” which meant bench; in which bank will deeps its money and its records. Some opinion trace it was originated from French word Banque.
Banking has come to the present advance from through various stages. Traditional forms of banking were traced during the civilization of Greek, Rome and Mesopotamia. The first modern bank was introduced in Italy on 1157 AD as “the bank of Venice”. Respectively the, the new banks was introduced as bank of Barcelona(1401), bank of Genoa(1408), Bank of Amsterdam(1609),in reality the history of modern banking had started from bank of England in 1694as the central bank adding strong brick on the development of the banking sector. But the modern joint stock banks were established in England only in 1833 and Banque De France in 1807. After this evolution, there came a remarkable change in the process of establishing the banking institution. This was big landmark in the history of banking and development rapidly spread all over the world only after the foundation of this bank.
In general bank means an institution that accepts deposit in different account and provides loans of different types. A bank is an institution in which those people who have spared cash deposit it and those who need funds borrow from it. The ideas of commercial bank come rapidly spread all over the world only after the foundation of this bank.
According to Crowther, “A bank is a dealer in debts. The banker business is then to take the debt of other people to offer his own in exchange and thereby to create money.”
According to the World Bank “Banks are financial institutions that accept fund in the form of deposits repayable on demand or in short notice.”
Chambers twentieth century dictionary define “As an institute for keeping lending, and exchanging etc of money.”
By us law “Any institution offering deposits subject to withdraw on demand and making loan of commercial of business nature is a bank”
Summarizing the above, banks are those financial institutions that offer the widest range of financial service –especially credit, saving and payments services and perform the widest range of financial function of any business firm in the economy. This multiplicity of banks services and function has led to banks being labeled “Financial Supermarket” and such familiar advertising slogan as your bank-full financial institution. Vital functions perform by full service financial institutions are:-
1. The trust function
2. The insurance function
3. The credit function
4. The investment/planning function
5. The payment function...