Page 6 - DCOM208_BANKING_THEORY_AND_PRACTICE

Rupesh Roshan Singh, Lovely Professional University
Unit 1: Introduction to Banks

Unit 1: Introduction to Banks Notes

CONTENTS
Objectives
Introduction

1.1 Meaning and Nature of Bank
1.1.1 Origin of the Word ‘Bank’
1.2 Characteristics of Indian Banking System

1.3 Functions of Commercial Banks
1.3.1 Primary Functions
1.3.2 Secondary Functions
1.4 Agency Functions and General Utility Functions
1.5 Summary

1.6 Keywords
1.7 Review Questions
1.8 Further Readings

Objectives

After studying this unit, you will be able to:
Explain the meaning and nature of bank

Discuss about the origin of the bank
Discuss the characteristics of Indian Banking System
Describe functions of commercial banks
Elaborate the agency functions and general utility functions

Introduction

This unit will help you to understand the meaning and nature of bank. The various section and
sub-section of this unit will also summarize the characteristics of Indian Banking System and
several functions of commercial banks. The banking system in India is significantly different
from that of other Asian nations. In this unit, you will study about the banks. Banks play a key
role in growth of a nation and its economy. Banks provides a number of services which can be
categorized on the bases of different criteria. A bank takes in money from one group of people
(depositors) and lends it to another (borrowers). It is (almost) certain that it will have to repay
depositors; it is not certain that it will be repaid by borrowers. This means that there must be a
gross profit margin made from loans advanced which can be set against borrower defaults. The
business of lending is the same as any other business, in that increased profit comes at the
expense of increased risk. Thus a bank may lend either at very high rates to very risky borrowers
and hope that the default rate is sufficiently low to leave it in profit or at very low rates to

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