After reading this article you will learn about:- 1. Meaning of Banking Company 2. Products and Services Offered by Banking Company 3. Forms of Business.
Meaning of Banking Company:
A Bank is an establishment, office, and a company, which deals in money. A bank receives money in deposit accounts of its customers on certain conditions in different type of deposit accounts. The conditions of these accounts differ from the nature of accounts.
In deposit accounts banks also pay interest to its customers as per the nature and conditions of the account. A bank also lends money to its customers as per decided guideline. Although no statuary definition of a bank is given anywhere but as per section 5(c) of Banking Regulation Act 1949 a “Banking Company” means any company which transacts the business of a Banking Company in India.
The term has been further elaborated under section 5(B) of the said Act which says. The Banking means the accepting for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable able by cheque, draft, pay order or otherwise.
One thing is very important to understand that any Bank functioning in India is bound to obey the rules of the Reserve Bank of India. A better care of the customers is taken by all banks is ensured by the Reserve Bank of India. As such the Reserve Bank of India keeps an attentive eye on the functioning of banks in India and also takes corrective steps whenever required to protect the interest of each banking customer.
The Role of Banks is Co-related with their functions. The functions of banks are always based on the frame work of banking regulations act of 1949 prescribes banking as acceptance for the purpose of lending or investment deposits of money from the public repayable on demand or otherwise and withdrawals by cheques, drafts or otherwise.
The functions of any Banking Company can be divided into two parts the main functions and the allied functions. The main function as already stated above is accepting money as deposits and lending and investing such deposited money. Although banks accept deposits from public but each bank is free to formulate their own schemes of deposits to attract maximum number of customers in order to be able to mobilize maximum deposits (the raw material) of banking industry.
They are also free to fix the rate of interest on deposits (except Saving account deposited which is same and fixed by RBI for all banks) depending on the individual policy of accepting deposits by each bank which is always based on the basis of cost of funds for each bank. Accordingly each bank prepares its own schemes for mobilizing deposits but all such schemes are subject to banking regulations.
Another main function of banks is to provide loans. It may be for Industries, trade, Retail business, Agriculture, Housing Finance, Education or for personal needs of customers. Like deposits banks also prepare different kind of schemes to attract more and more borrowers but each scheme is required to be framed within banking regulations.
While accepting deposits banks commit to pay interest on deposit accounts as per rules of payment of interest. Likewise while lending money banks also charge interest on loans as per scheme of specified type of loans the details of types of loans is discussed in the relevant part of this book.
In addition to main functions of accepting deposits and lending banks also performs many type of other functions which can be nomenclature as Non-fund based functions like issuing of Letter of Credits, Letter of Bank guarantees, Safe custody vaults. Locker Facilities, issuing of credit worthy certificate, collection of cheques, bills, Local taxes, Agency functions for Govt. and local bodies, collection of payments for govt. agencies. And so on. The list not exhaustive.
Products and Services Offered by Banking Company:
In brief we may sum up the products and services offered by banking company:
a. Deposits like Current Account, Saving Account, Term or Fixed Deposits, Recurring Deposits, PPF Accounts and all other deposit accounts.
b. Payment Services: such as pension, payment orders, remittances by way of Demand Drafts and wire services.
c. Banking services related to Government transactions.
d. Demand accounts, equity, government bonds.
e. Indian currency notes exchange facility.
f. Collection of cheques, Safe Custody services, Safe deposit locker facility.
g. Loans and Overdrafts.
h. Foreign Exchange services including money changing.
i. Third party insurance and investment products.
j. Card products including Credit Cards, Debit Cards, ATM Cards etc.
Whatever functions a bank performs is subject to restrictions and controls as provided under the Banking Regulations Act 1949.
Forms of Business of Banking Company:
Forms of business in which banking companies may engage:
In addition to the business of banking, a banking company may engage in any one or more of the following forms of business, namely:
(a) The borrowing, raising, or taking up of money; the lending or advancing of money either upon or without security; the drawing, making, accepting, discounting, buying, selling, collecting and dealing in bills of exchange, hundies, promissory notes, coupons, drafts, bills of lading, railway receipts, warrants, debentures, certificates, scrips and other instruments and securities whether transferable or negotiable or not; the granting and issuing of letters of credit, traveller’s cheques and circular notes; the buying, selling and dealing in bullion and specie; the buying and selling of foreign exchange including foreign bank notes; the acquiring, holding, issuing on commission, underwriting and dealing in stock, funds, shares, debentures, debenture stock, bonds, obligations, securities and investments of all kinds; the purchasing and selling of bonds, scrips or other forms of securities on behalf of constituents or others, the negotiating of loans and advances; the receiving of all kinds of bonds, scrips or valuables on deposit or for safe custody or otherwise; the providing of safe deposit vaults; the collecting and transmitting of money and securities;
(b) Acting as agents for any Government or local authority or any other person or persons; the carrying on of agency business of any description including the clearing and forwarding of goods, giving of receipts and discharges and otherwise acting as an attorney on behalf of customers, but excluding the business of a managing agent or secretary and treasurer of a company;
(c) Contracting for public and private loans and negotiating and issuing the same;
(d) The effecting, insuring, guaranteeing, underwriting, participating in managing and carrying out of any issue, public or private, of State, municipal or other loans or of shares, stock, debentures, or debenture stock of any company, corporation or association and the lending of money for the purpose of any such issue;
(e) Carrying on and transacting every kind of guarantee and indemnity business;
(f) Managing, selling and realising any property which may come into the possession of the company in satisfaction or part satisfaction of any of its claims;
(g) Acquiring and holding and generally dealing with any property or any right, title or interest in any such property which may form the security or part of the security for any loans or advances or which may be connected with any such security;
(h) Undertaking and executing trusts;
(i) Undertaking the administration of estates as executor, trustee or otherwise;
(j) Establishing and supporting or aiding in the establishment and support of associations, institutions, funds, trusts and conveniences calculated to benefit employees or ex- employees of the company or the dependents or connections of such persons; granting pensions and allowances and making payments towards insurance; subscribing to or guaranteeing moneys for charitable or benevolent objects or for any exhibition or for any public, general or useful object;
(k) The acquisition, construction, maintenance and alteration of any building or works necessary or convenient for the purposes of the company;
(l) Selling, improving, managing, developing, exchanging, leasing, mortgaging, disposing of or turning into account or otherwise dealing with all or any part of the property and rights of the company;
(m) Acquiring and undertaking the whole or any part of the business of any person or company, when such business is of a nature enumerated or described in this sub- section;
(n) Doing all such other things as are incidental or conducive to the promotion or advancement of the business of the company;
(o) Any other form of business which the Central Government may, by notification in the Official Gazette, specify as a form of business in which it is lawful for a banking company to engage.