bank

A bank is a financial intermediary that accepts deposits and channels those deposits into lending
activities, either directly or through capital markets. A bank connects customers with capital def-
icits to customers with capital surpluses.

Banking is generally a highly regulated industry, and government restrictions on financial activi-
ties by banks have varied over time and location. The current set of global bank capital standards
are called Basel II. In some countries such as Germany, banks have historically owned major
stakes in industrial corporations while in other countries such as the United States banks are pro-
hibited from owning non-financial companies. In Japan, banks are usually the nexus of a cross-
share holding entity known as the keiretsu. In Iceland banks had very light regulation prior to
2008 collapse.

The oldest bank still in existence is Monte dei Paschi di Siena, headquartered in Siena, Italy,
which has been operating continuously since 1472.[1]

History
Main article: History of banking

The earliest known state deposit bank, Banco di San Giorgio (Bank of St. George), was founded
in 1407 at Genoa, Italy.[2] Banking in the modern sense of the word can be traced to medieval
and early Renaissance Italy, to the rich cities in the north like Florence, Venice and Genoa. The
Bardi and Peruzzi families dominated banking in 14th century Florence, establishing branches in
many other parts of Europe.[3] Perhaps the most famous Italian bank was the Medici bank, set up
by Giovanni Medici in 1397.[4]

Banking in India
Banking in India originated in the last decades of the 18th century. The first banks were The
General Bank of India which started in 1786, and the Bank of Hindustan, both of which are now
defunct. The oldest bank in existence in India is the State Bank of India, which originated in the
Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal. This was
one of the three presidency banks, the other two being the Bank of Bombay and the Bank of
Madras, all three of which were established under charters from the British East India Company.
For many years the Presidency banks acted as quasi-central banks, as did their successors. The
three banks merged in 1921 to form the Imperial Bank of India, which, upon India's independ-
ence, became the State Bank of India.
Indian merchants in Calcutta established the Union Bank in 1839, but it failed in 1848 as a con-
sequence of the economic crisis of 1848-49. The Allahabad Bank, established in 1865 and still
functioning today, is the oldest Joint Stock bank in India.(Joint Stock Bank: A company that
issues stock and requires shareholders to be held liable for the company's debt) It was not the
first though. That honor belongs to the Bank of Upper India, which was established in 1863, and
which survived until 1913, when it failed, with some of its assets and liabilities being transferred
to the Alliance Bank of Simla.

The period between 1906 and 1911, saw the establishment of banks inspired by the Swadeshi
movement. A number of banks established then have survived to the present such as Bank of In-
dia, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and Central Bank of In-
dia.The fervour of Swadeshi movement lead to establishing of many private banks in Dakshina
Kannada and Udupi district which were unified earlier and known by the name South Canara (
South Kanara ) district. Four nationalised banks started in this district and also a leading private
sector bank. Hence undivided Dakshina Kannada district is known as "Cradle of Indian Bank-
ing".

MAIN FUNCTIONS & SERVICES OF BANK

Accepting Deposits from public/others (Deposits)
Banks are also called custodians of public money. Basically, the money is accepted as deposit for safe
keeping. But since the Banks use this money to earn interest from people who need money, Banks share
a part of this interest with the depositors. However, accepting deposits and keeping track of the money
involves a lot of book-keeping and other operations.

Lending money to public (Loans)

Lending money is one of the two major activities of any Bank. In a way, the Bank acts as an intermediary
between the people who have the money to lend and those who have the need for money to carry out
business transactions.

Transferring money from one place to another (Remittances)

Apart from accepting deposits and lending money, Banks also carry out, on behalf of their customers the
act of transfer of money - both domestic and foreign.- from one place to another. This activity is known
as "remittance business" . Banks issue Demand Drafts, Banker's Cheques, Money Orders etc. for trans-
ferring the money. Banks also have the facility of quick transfer of money also know as Telegraphic
Transfer or Tele Cash Orders.

Acting as trustees
Banks also act as trustees for various purposes. For example, whenever a company wishes to issue se-
cured debentures, it has to appoint a financial intermediary as trustee who takes charge of the security
for the debenture and looks after the interests of the debenture holders. Such entity necessarily have to
have expertise in financial matters and also be of sufficient standing in the market/society to generate
confidence in the minds of potential subscribers to the debenture.
Keeping valuables in safe custody
Bankers are in the business of providing security to the money and valuables of the general public.
While security of money is taken care of through offering various type of deposit schemes, security of
valuables is provided through making secured space available to general public for keeping these valua-
bles. These spaces are available in the shape of LOCKERS. The latter are small compartments with dual
locking facility built into strong cupboards. These are stored in the Bank's Strong Room and are fully se-
cure. Lockers can neither be opened by the hirer or the Bank individually. Both must come together and
use their respective keys to open the locker

Government business

Earlier Government business used to be exclusively carried out by Governement Treasuries where all
type of transactions took place. However, now Banks act on behalf of the Government to accept its tax
and non tax receipts. Most of the Government disbursements like pension payments and tax refunds
also take place through banks. While the Banks carry out this business for a fee to be paid by the Gov-
ernment, providing this service requires a lot of effort and organisation

Types of accounts in banks

Saving accounts
A savings account typically refers to an account in which one places money to earn a small amount of interest. Un-
like a 401k or an IRA, the savings account funds are usually easily accessible, though some banks do charge for
withdrawing money early. In most cases, people can withdraw money from a savings account at any time, at least at
any time the bank is open, or one has access to the bank’s ATM.

Current account
In economics, the current account, is one of the two primary components of the balance of payments,
the other being the capital account. The current acount is the sum of the balance of trade (exports mi-
nus imports of goods and services), net factor income (such as interest and dividends) and net transfer
payments (such as foreign aid). You may refer to the list of countries by current account balance .
The current account balance is one of two major measures of the nature of a country's foreign trade
(the other being the net capital outflow). A current account surplus increases a country's net foreign
assets by the corresponding amount, and a current account deficit does the reverse. Both government
and private payments are included in the calculation. It is called the current account because goods and
services are generally consumed in the current period.[1]
The balance of trade is the difference between a nation's exports of goods and services and its imports
of goods and services, if all financial transfers, investments and other components are ignored. A nation
is said to have a trade deficit if it is importing more than it exports.
Positive net sales abroad generally contributes to a current account surplus; negative net sales abroad
generally contributes to a current account deficit. Because exports generate positive net sales, and be-
cause the trade balance is typically the largest component of the current account, a current account
surplus is usually associated with positive net exports. This however is not always the case with open
economies such as that of Australia featuring an income deficit larger than its trade deficit[2].
In the traditional accounting of balance of payments, the current account equals the change in net for-
eign assets. A current account deficit implies a paralleled reduction of the net foreign assets.
current account = changes in net foreign assets

TYPES OF LOANS PROVIDED BY BANKS

A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets
over time, between the lender and the borrower.
In a loan, the borrower initially receives or borrows an amount of money, called the principal, from the
lender, and is obligated to pay back or repay an equal amount of money to the lender at a later time.
Typically, the money is paid back in regular installments, or partial repayments; in an annuity, each in-
stallment is the same amount. The loan is generally provided at a cost, referred to as interest on the
debt, which provides an incentive for the lender to engage in the loan. In a legal loan, each of these obli-
gations and restrictions is enforced by contract, which can also place the borrower under additional re-
strictions known as loan covenants. Although this article focuses on monetary loans, in practice any ma-
terial object might be lent.
Acting as a provider of loans is one of the principal tasks for financial institutions. For other institutions,
issuing of debt contracts such as bonds is a typical source of funding.
Unsecured Personal Loans
 An unsecured personal loan allows a borrower to get a check or cash and pay it back in set
installments over a fixed period of time. No collateral or specific loan purpose is required.
Secured Personal Loans
 A secured personal loan issues cash or a check to the borrower. However, the borrower must
provide the bank with interest in collateral such as a savings account or a home in case the loan
is not repaid.
Computer Loans
 Most banks offer loans for people to buy new computers from major companies. The loan
check is given to the computer company, and the borrower chooses goods as approved and
then makes payments.
Auto Loans
 Virtually every bank provides auto loans for new and used vehicles. This allows the consumer
to drive a car while paying for it each month. The car is repossessed if the payments are not
made.
Mortgage Loans
 Many banks offer mortgage loans, which permit borrowers to live in a home while paying it off
over time. A cash down payment of 5 percent to 20 percent is usually required, and the house is
seized in foreclosure if payments are not made.

STUDENT LOANS
A student loan is designed to help students pay for university tuition, books, and living expenses. It dif-
fers from other types of loans in that the interest rate is substantially lower and the repayment schedule
is deferred while the student is still in school. Before accepting any kind of student loan one should be
familiar with its basic attributes.

New facilities provided by the banks

ATM CARD
An ATM card (also known as a bank card, client card, key card or cash card) is a card issued by a bank,
credit union or building society that can be used at an ATM for deposits, withdrawals, account infor-
mation, and other types of transactions, often through interbank networks.
Some ATM cards can also be used:
at a branch, as identification for in-person transactions
at merchants, for EFTPOS (point of sale) purchases
Unlike a debit card, in-store purchases or refunds with an ATM card can generally be made in person
only, as they require authentication through a personal identification number or PIN. In other words,
ATM cards cannot be used at merchants that only accept credit cards.
However, other types of transactions through telephone or online banking may be performed with an
ATM card without in-person authentication. This includes account balance inquiries, electronic bill pay-
ments or in some cases, online purchases (see Interac Online).
In some countries, the two functions of ATM cards and debit cards are combined into a single card called
a debit card or also commonly called a bank card. These are able to perform banking tasks at ATMs and
also make point-of-sale transactions, both functions using a PIN. Canada's Interac and Europe's Maestro
are examples of networks that link bank accounts with point-of-sale equipment.
Magnetic stripe cloning can be detected by the implementation of magnetic card reader heads and
firmware that can read a signature embedded in all magnetic stripes during the card production process.
This signature known as a "MagnePrint" or "BluPrint" can be used in conjunction with common two fac-
tor authentication schemes utilized in ATM, debit/retail point-of-sale and prepaid card applications.[1][2]
Due to increased card fraud with magnetic stripe cloning, the European Payments Council established a
Card Fraud Prevention Task Force in 2003 that spawned a commitment to migrate all ATMs and POS ap-
plications to use a chip-and-pin solution until the end of 2010.[3] The "SEPA for Cards"[4] has completely
removed the magnetic stripe requirement from the former Maestro debit cards, and the savings banks
have announced that they will ship their debit cards without a magnetic stripe beginning in 2012.[5]

DEBIT CARD
A debit card (also known as a bank card or check card) is a plastic card that provides an alternative
payment method to cash when making purchases. Functionally, it can be called an electronic cheque, as
the funds are withdrawn directly from either the bank account, or from the remaining balance on the
card. In some cases, the cards are designed exclusively for use on the Internet, and so there is no physi-
cal card.[1][2]
In many countries the use of debit cards has become so widespread that their volume of use has over-
taken the cheque and, in some instances, cash transactions. Like credit cards, debit cards are used wide-
ly for telephone and Internet purchases and, unlike credit cards, the funds are transferred immediately
from the bearer's bank account instead of having the bearer pay back the money at a later date.
Debit cards may also allow for instant withdrawal of cash, acting as the ATM card for withdrawing cash
and as a cheque guarantee card. Merchants may also offer cashback facilities to customers, where a cus-
tomer can withdraw cash along with their purchase.
CREDIT CARD
A credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy
goods and services based on the holder's promise to pay for these goods and services.[1] The issuer of
the card grants a line of credit to the consumer (or the user) from which the user can borrow money for
payment to a merchant or as a cash advance to the user. Usage of the term "credit card" to imply a
credit card account is a metonym.
A credit card is different from a charge card: a charge card requires the balance to be paid in full each
month. In contrast, credit cards allow the consumers a continuing balance of debt, subject to interest
being charged. Most credit cards are issued by banks or credit unions, and are the shape and size speci-
fied by the ISO/IEC 7810 standard as ID-1. This is defined as 85.60 × 53.98 mm (3.370 × 2.125 in) (33/8 ×
21/8 in) in size.

CHEQUES
A cheque or check (American English) is a piece of paper (usually) that orders a payment of money. The
person writing the cheque, the drawer, usually has a chequing account where their money is deposited.
The drawer writes the various details including the money amount, date, and a payee on the cheque,
and signs it, ordering their bank, know as the drawee, to pay this person or company the amount of
money stated.
Cheques are a type of bill of exchange and were developed as a way to make payments without the
need to carry around large amounts of gold and silver. Paper money also evolved from bills of exchange,
and are similar to cheques in that they are a written order to pay the given amount to whoever had it in
their possession (the "bearer").
Technically, a cheque is a negotiable instrument[nb 1] instructing a financial institution to pay a specific
amount of a specific currency from a specified demand account held in the drawer/depositor's name
with that institution. Both the drawer and payee may be natural persons or legal entities.
Although cheques have been around since at least 9th century, it was during the 20th century that
cheques became a highly popular non-cash method for making payments and the usage of cheques
peaked. By the second half of the 20th century, as cheque processing became automated, billions were
issued each year with volumes peaking in or around the early 1990s[1]. Since that time cheque usage has
seen significant decline as electronic payment systems started to replaced physical cheques. In a num-
ber of countries cheques have become a marginal payment system or have been phased out completely.

Others activities provided by banks

The Functions Of Banking

The most important functions of banking may be classified as follows: (1) to assemble capital and make it
effective; (2) to receive deposits and make collections; (3) to check out and transfer funds; (4) to discount
or lend; (5) to exercise fiduciary or trust powers; (6) to issue circulating notes. Every bank which expects
to succeed must first of all prove its value to the community. The services which a bank performs are so
generally taken for granted that the public is unaware of the real extent of the facilities offered. Banks are
equipped to utilize funds, for either a short or long period of time, safely, and with some profit. Depositors
individually do not enjoy the same ability. An individual's unused funds are perhaps small in amount, can-
not be loaned to advantage with the assurance of immediate return when desired, and the care of the
money involves worry and risk. The bank, on the other hand, possesses the necessary men, machinery
and experience. By obtaining deposits, each perhaps small in itself, from many people, it acquires a large
reservoir of funds. From this supply, which is constantly being increased by additional deposits and de-
creased by withdrawals according to the needs and circumstances of the depositors, the bank can now
make loans and other investments from time to time. It is known as a place where loans may be sought,
and it is protected in making these loans of funds which it has had left with it on deposit by the law of av-
erages which usually operates in such a way that withdrawals and deposits about balance each other, the
normal tendency being in favor of a net increase. By receiving deposits and making collections the bank
saves the depositor much personal effort. To receive or deposit in one city a check made payable in an-
other, hundreds or thousands of miles away, to convert that check in a relatively short time into cash
available for the depositor's use, and all this with no direct assistance from the customer and at a very
slight expense to him or none at all, is indeed service. So also is the willingness of the bank to collect
promissory notes , drafts and other negotiable paper in a similar way. In addition to taking care of funds
without charge and making collections, the bank provides the means of withdrawing and transferring
funds readily by giving its customer a book of blank checks. If a depositor owes another man one hundred
dollars, the depositor need not go to the bank, withdraw the cash and pay his debt. He can give his credi-
tor an order on the bank, which can be presented at the bank in person and the cash obtained, or it can
be deposited in this or another bank. By lending money the bank benefits the community to the extent
that it supplies funds to assist worthy business. Temporary working capital to assist in the commercial,
agricultural or industrial life of a community is very important. Borrowers logically look to a bank for such
assistance and are thereby saved the necessity of either going without the funds they need or spending
an endless amount of time and effort in negotiating many small loans from individuals. Note issue, origi-
nally a common right of a bank, is now restricted by law to National banks, Federal Reserve banks and
the Government, and is chiefly valuable as a means of putting additional currency in circulation according
to the needs of trade. There has been such an enormous growth in the business done by trust companies
and by trust departments of banks in the last few years by acting in various fiduciary capacities that it
seems necessary to include this as one of the important banking functions, which will be more fully dis-
cussed a little later….