A bank is an institution which deals with money and credit. It accepts deposits from the public, makes the funds available to those who need them, and helps in the remittance of money from one place to another. In fact, a modem bank performs such a variety of functions that it is difficult to give a precise and general definition of it. It is because of this reason that different economists give different definitions of the bank.
According to Crowther, a bank “collects money from those who have it to spare or who are saving it out of their incomes, and it lends this money to those who require it.”
In the words of Kinley, “A bank is an establishment which makes to individuals such advances of money as may be required and safely made, and to which individuals entrust money when not required by them for use.”
According to John Paget, “Nobody can be a banker who does not (i) take deposit accounts, (h) take current accounts, (iii) issue and pay cheques, and (iv) collects cheques-crossed and uncrossed-for its customers,”
Prof. Sayers defines the terms bank and banking distinctly. He defines a bank as “an institution whose debts (bank deposits) are widely accepted in settlement of other people’s debts to each other.”
Again, according to Sayers, “Ordinary banking business consists cash for bank deposits and bank deposits for cash; transferring bank deposits from one person or corporation to another; giving bank deposits in exchange for bills of exchange, government bonds, the secured promises of businessmen to repay and so forth”.
According to the Indian Companies Act, 1949, banking means “the accepting for the purpose of Indian Companies lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdraw able by cheque, draft or otherwise.”
In short, the term bank in the modern times refers to an institution having the following features:
(i) It deals with money; it accepts deposits and advances loans.
(ii) It also deals with credit; it has the ability to create credit, i.e., the ability to expand its liabilities as a multiple of its reserves.
(iii) It is commercial institution; it aims at earning profit.
(iv) It is a unique financial institution that creates demand deposits which serve as a medium of exchange and, as a result, the banks manage the payment system of the country.