What Is Bank?

“The term, Bank (ing) means accepting for the purpose of lending or investment of deposits of money received from the public, repayable on demand or otherwise & withdraw able by cheque, draft, order or otherwise.”

****  Banking Regulation Act 1949, Section 5(b)

Clearly, a Bank is called a Bank only if it fulfills the following requirements:

(a)    A bank must accept the deposits of money and the deposits of money must be from the public.

[Note: (1): In the case entitle Mahalaxmi Bank Limited vs. Registrar of Companies, it was decided that if a company gave loan to the public but did not accept deposits from the public, it could not be considered as a banking company under Section 5 of the Banking Regulation Act

(2): Nidhis, multi-benefit societies and cooperative societies are not the banks because they only accept deposits from their members.]

(b)   Acceptance of deposits should be for the purpose of lending or investment.

[Note: An institution accepting deposits of money without any purpose or with a purpose other than lending or investment cannot be termed as a bank.]

     (c) Deposits of money may be repayable either on demand or if they are term deposits, on the expiry of the stipulated term or period.

(d)   The deposits may be withdrawal by cheque, drafts, order or otherwise.

Other important aspects of Banks are:-

1. Only a firm or company and not an individual are permitted to act as a Bank.
2. A firm consisting of not more than 10 partners or a company incorporated under Indian Companies Act 1956 can be a Bank, a banker or a banking company.

[Note: 1: Under Section 5© of the Banking Regulation Act, Banking Company means any company that transacts the business of banking in India

2: Under Section 7 (1) of the Banking Regulation Act, the use of words like banker or banking or banking company by a company other than a bank is prohibited.

3. Under Section 7(2) of the Banking Regulation Act, the use of words like banker or banking or banking company by an individual or a group of individual or a firm is prohibited. ]

3. Indian moneylenders or mahajans , sahukars or shettys are not bankers

[Note: They do not run their business as a company registered under the provisions of the Companies Act and the Banking Regulation Act]

# What/Who is a Banker?

The Banker is engaged in the business of accepting deposits from the public and utilizing such deposits either for the purpose of lending or for the purpose of investment.

Principal Function of Banks

1.      According toe Section 5 (b) of Banking Regulation Act, 1949, the principal function of the bank is to accept deposits from the public for the purpose of lending and investment.

2.      According to the Section 6 of Banking Regulation Act, 1949 the important functions of a bank are- Remittances, Collection of cheque & bills, Safe custody of articles, Hiring safe deposit lockers, Conducting foreign exchange or central or state government transactions, Issuing letters of credit and guarantees etc.

THANKS!!!