Sbi's Financial Statement

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32
Nature and Scope of Banking

32.1 Introduction
You have studied in lessons 7 and 10 that banking is an important aid t idsr ad tae ad ta i as poie a vrey o srie
o nuty n rd, n ht t lo rvds
ait f evcs
to the public in general. Indeed banking may be regarded as an indispensable part of the economy of every country. The significance of banking has increased all over the world with the rise in income levels and growth in the volume of financial transactions.

In this lesson, we shall study about the nature and socpe of banking ad is atvte.
n t ciiis

32.2 Objectives
After studying this lesson, you will be able to —
l

describe the terms bank and banking;

l

distinguish between banks and money lenders;

l

classify the various types of banks;

l

explain the nature and scope of banking activities;

l

enumerate the advantages of commercial banks;

l

describe how suspension of banking activities will affect trade, commerce and industry.

2 :: Business Studies

32.3 Meaning of the terms Bank and Banking
Bank is an institution which deals in money and credit. It accepts deposits from the public and grants loans and advances to those who are in need of funds for various purposes.
Banking is an activity which involves acceptance of deposits for the purpose of lending or investing. In addition to accepting deposits and lending funds, banking also involves providing various other services alongwith its main banking activity. These are mainly agency services, but include several general services as well.

A banker is one who undertakes banking activities, accepting deposits and lending money for different purposes. The Banking Regulation Act, 1949 defines banking as an activity of accepting funds from the public for the purpose of lending or investment.

The essential features of banking activities are as follows:i )

accepting deposits from public;

i
i
)

lending or investment of such deposits;

ii
i)

incidental to the activities of accepting deposits for lending or investing, banks undertake activities like —
a
)

Promoting and mobilizing savings of the public;

b
)

Poiig fns t tae ad idsr b wy o dsonig
rvdn ud o rd n nuty y a f icutn
bls oedat cs cei fclt, ad tase o fns
il, vrrf, ah rdt aiiy n rnfr f ud
from one place to another;

c
)

Providing agency services to customers, such as collection
of bills, payment of insurance premium, purchase and sale
o scrte, ec, ad ohr gnrl srie, sc a ise
f euiis t. n te eea evcs uh s su
o taelr’ ceus cei crs lce fclt, ec
f rvles hqe, rdt ad, okr aiiy t;
Money deposited with the bank is assured as far as its
safety is concerned. Further the depositor is allowed to
withdraw it whenever required. Banks allow interest on
deposits. Such interest helps in the growth of funds
dpstd wt te bn. Tu te rt o itrs poie
eoie ih h ak hs h ae f neet rvdd
on deposits acts as an incentive to the depositors.

Nature and Scope of Banking :: 3

Intext Questions 32.1
Write “T” against the statements which are true and “F” against those which are false.
i
)

Banks do not deal with public funds.

i
i
)

Banks accept deposits only from businessmen.

ii
i)

Banking is an activity concerned with accepting deposits

i)
v

Banking Regulation Act 1949 has defined banking in terms of its mi atvte.
an ciiis

v
)

Banks promote the saving habit of people.

v)
i

A Bank cannot purchase or sell securities for its own customers.

vi
i)

Banks do not allow interest on deposits.

vi)
ii

Only the depositors of money are granted loan by the bank.

32.4 Distinction between Banks and Money Lenders
I odr t dsigih bten bns ad mny lnes i i ncsay
n re o itnus ewe ak n oe edr, t s eesr
to known who is a money lender. A money lender is an individual who lends money to meet the cash requirements of people. He may or may not be a professional money lender.
A professional money lender is one who is...
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