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Banking Definition

According to some economists, the word ‘Bank’ has been derived from the German word ‘BANC’ which means a joint stock firm. But some other economists say that it has been derived from the Italian word ‘BANCO’ which means a heap or mound. As the matter of fact, at the time of establishment of Bank of Venice in 1157, the Germans were influential and hence, perhaps the word Banc or ‘Banco’ was used by Italians to denote the accumulation of securities or money with a joint stock firm which later on with the passage of time came to be known as ‘Bank’.

There is still another group of people who believe that the word ‘Bank’ has been derived from the Greek word ‘BANQUE’ which means a bench. In the older days, when Jews started their money transactions business as bankers they started using a bench for sitting and if they were not able to pay their obligations, the bench would be broken into pieces and he was taken as Bankrupt. Thus, both the words Bank or Bankrupt are said to have their origin from the word ‘Banque’.


Various authorities have defined the term 'banking'. The definition of 'banking' is given in section 5(b) of Banking Regulation Act 1949. First of all we may discuss the definition given under Banking Regulation Act 1949.

Sec. 5 (b) “Banking” means the accepting for the purpose of lending or investment, of deposit of money from public, repayable on demand or otherwise, and withdraw able by cheque, draft, order or otherwise.

According to, Sir John Paget “No person or body, corporate or otherwise, can be a banker who does not:

  1. take deposit accounts,
  2. take current account,
  3. issue and pay cheque and
  4. collect cheques, crossed and uncrossed, for his customers.”

This definition denotes only the essential feature of Banking company stead of Banking. ‘Banking company’ means that which transacts the business of banking in India.

Explanation: Any company which is engaged in the manufacture of goods or carries on any trade and which accepts deposits of money from the public merely for the purpose of financing its business; as such manufacturer or trader shall not be deemed to transact the business of banking within the meaning of this clause.1)

Forms of Business in which banking company may engage

According to sec 6, the following business may be undertaken by a banking company -

a) The following functions form the bulk of a bank’s activities and are called its main functions:

I. The borrowing, raising or taking of money;

II. The lending or advancing of money either upon security or without security;

III. The drawing, making, accepting, discounting, buying, selling, collecting and dealing in bills of exchange, hundis, promissory notes, coupons, drafts, bills of lending, railway receipts, warrants, debentures, certificates, scripts and other instruments and securities whether transferable or negotiable or not;

IV. The granting and issuing of letters of credit, travellers’ cheques and circular notes;

V. The buying, selling and dealing in bullion and species;

VI. The buying and selling of foreign exchange including foreign bank notes;

VII. The acquiring, holding, issuing on commission, underwriting and dealing in stock, funds, shares, debentures, debenture stock, bonds, obligations, securities and investments of all kinds;

VIII. The purchasing and selling of bonds, scrips and other forms of securities on behalf of constituents or others;

IX. the negotiating of loans and advances;

X. The receiving of all kinds of bonds, scrips and other forms of securities on behalf of constituents or others;

XI. The providing of safe deposit vaults; and

XII. The collecting and transmitting of money and securities.

  1. It may act as an agent of the Government, local authority or person and can carry on agency business but it cannot act as secretary and treasurer of a company.
  2. It may contract for public and private loans and negotiate and issue the same.
  3. It may effect, insure, guarantee, underwrite, participate in managing and carrying out of any issue of State, municipal or other loans or of shares, stock, debenture stock of companies and may lend money for the purpose of any such issue.
  4. It may carry on and transact every kind of guarantee and indemnity business.
  5. It may manage, sell and realise any property which may come into its possession in satisfaction of its claims.
  6. It may acquire and hold and deal with any property or any right, title or interest in any such property which may form the security for any loan or advance.
  7. It may undertake and execute trusts.
  8. It may undertake the administration of estate as executor, trustee or otherwise.
  9. It may establish, support and aid associations, institutions, funds, trusts, etc., for the benefit of its present or past employees and may grant money for charitable purposes.
  10. It may acquire, construct and maintain any building for its own purpose.
  11. It may sell, improve, manage, develop, exchange, lease, mortgage, dispose of all or any part of the property and rights of the economy.
  12. It may acquire and undertake the whole or any part of the business of any person or company, when such business is of a nature described in Sec. 6(1).
  13. It may do all such things which are incidental or conducive to the promotion or advancement of the business of the company.
  14. It may undertake any other form of business which the Central Government may specify as a form of business in which it is lawful for a banking company to engage.
Sec 5(c) of Banking Regulation Act 1949

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