Banking

Definition Of Commercial Bank And Its Characteristics

A commercial bank is a financial intermediary that oporates for profit motive. It collects savings from public by acceptin their surplus as deposits and grants loans to individuals, firms and the government. In modern times, the bank also acts as an agent for its customers. A few definitions are given hereunder to make the meaning of the term ‘bank’ more clear.

(1) Findlay Shirras. Defines a banker or a bank as “a person, firm or company having a place of business where credits are opened by deposits or collection of money or currency where money is advanced or loaned.”

(2) Crowther describes bank as an institution which “collects money from those who have it to spare or who are saving it out of their income, and lends this money out to those who require it”

(3) According to Companies Act, A banking company is a company which carries on as its principal business, the accepting of deposits of money on current account or otherwise subject to withdrawal by cheque, draft or otherwise.

(4) Commercial Bank under the Banking Regulation Act consists in “the accepting for the purpose of lending or investment, deposits of money from the public repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise.”

From the above definitions, the following characteristics may emerge—

i) acceptance of deposits (of money) from the public on various accounts ;

ii) main purpose of accepting deposits should be to lend the money to individuals, firms and the government or invest it;

iii) the deposits are repayable on demand or otherwise as directed by the depositor ; and

(iv) the deposits can be withdrawn by means of an instrument whether a cheque, draft, withdrawal form or otherwise.

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