Banking

Actually there is no statutory definition for the phrase banking. The bills of exchange Act of 1882, the phrase banking is a body of persons whether incorporated or not who carry on the business of banking. But what is banking business? According to a well trained financial expert, Dr Harts, a banker is one who in ordinary course of his business honors cheques drawn upon him by persons from and for whom he receives moneys on current account, although in the ordinary course of his business, a banker undertakes many functions besides the receipt of money and the repayment of it by cheque. A correct understanding of the term is of importance and judges of high courts have more than once protested against the indiscriminate use of the word. A bank has been aptly said as an institution whose debts are widely accepted in the settlement of people’s debts to each other. This is perhaps a more succinct approach, but the purport is the same.

FUNCTIONS OF A BANK-

The relationship between a banker and customer is in general that of debtor and a creditor. A banker’s functions and also the services rendered by him to the community, may be set out as accordingly-

        (1)      To receive money from customers.

        (2)       To collect money for customers

        (3)      To repay money to customers

        (4)      To lend  money to customers

        (5)      To assist customers  credit

        (6)      To buy and sell securities  for customers

        (7)      To issue foreign drafts and other forms of remittance e.g. western union money transfers 

        (8)      To issue Travelers’ letters of credit

        (9)      To make periodical payments on behalf of customers

        (10)   To undertake the duties of executors and trustees

In addition, to mention above, a banker must make such arrangements with other bankers as are necessary to efficient conduct of his own business. For instance, a British banking house that is not a member of the bankers clearing house in London can appoint foreign banking houses to act as their agent aboard and foreign banks will appoint foreign banking house to act as their agents abroad and foreign banks will appoint London banks to act as their agents here. It could very helpful and useful to enlarge a little upon the borrowing facilities afforded by banking institutions. Business men as already mentioned require from time to time borrowing money for short period’s e.g.  in order to take advantage of a favorable opportunity  for buying raw materials or to defray increased expenses due to the expanding trade activity or to finance importation, exportation. In these situations they naturally turn to their bankers for assistance. Now it is a cardinal principle that a bank‘s fund must be kept as liquid as possible. A banker must not lock his/her funds in loans for long periods so that any considerable part of his assets becomes frozen. He is always ready to assist bona fide trade transactions that require the use of additional capital for short periods  up to  may be three months , the average  period being much less. That is one of the banker’s chief functions.

Large, established firms can normally raise capital in the market but smaller ones cannot, neither can they raise it from their banks. Special institutions were needed and some of them were forthcoming before the coming of the second world war for instance Agricultural, Mortgage Bank, Bankers Industrial Development Company. Immediately after the Second World War 2, the finance corporation for industry was established and that has done much to fill the breach.

PROCESS OF AND REQUIREMENTS FOR A BANK ACCOUNT-

When a sole proprietor wants to open a bank account, he seeks an introduction to the manager of the particular branch of the particular bank which he elects to use. At the interview, the prospective customer will give particulars of his business, his financial standing and his probable future business dealings with the bank. He will open a current account by paying in a sum of money there and then and perhaps also he will open a deposit account and he may, in addition, open a private account for his personal use, as distinct from the firm’s use. It is customary for large firms to maintain special   banking  accounts e. g  private  account  on which  is fed by transfers from the general account on which  the partners  periodically  draw cheques in respect  of their  shares of profit. Limited  companies may have accounts  to which  the profits available for dividends  are transferred , the shareholders being  paid  their dividends  by warrants  drawn  on these accounts. A company may also open a special account when making a share or debenture issues. In this case all moneys received in respect of the particular share or debenture issue are credited temporarily to the account to the account of the particular issue, and subsequently transferred to the company’s ordinary account in one amount when the issue is complete.

As soon as the opening of the bank account is set, the customer is requested to sign his name in a book or on a card in the style that he ordinarily uses. These specimen signatures are kept on record and referred to should doubt arise as to the genuineness of a customer’s signature on a particular cheque or bill of exchange. In the case of a firm or a limited company, a bank form will be filled up giving the bank the names of those authorized to sign cheques and bills of exchange on behalf of the firm or company and specimen signatures of each authorized signing official.