Banking: Meaning, Difference between Bank and Banking

A bank is an intermediary financial institution that makes a relationship between the owner of surplus savings and the investor of deficit capital.

Meaning of Banking

Banking is the function of a financial institution that deals with deposits, advances, and other related services. It receives money from those who want to save in deposits and lends money to those who need it.

A banker is a person, firm, or company having a place of business where credits are opened by the deposit or collection of money or currency, or subject to be paid or remitted upon draft, checks, or where money is advanced or loaned on stocks, bonds, bullion, and bill of exchange and promissory notes are received for discount and sale.

Banking is the business of accepting deposits and lending money. It is carried out by financial intermediaries, which safeguard deposits and provide public loans.

Definition Meaning of Banking

Banking is the business conducted or services offered by a bank. In a broad sense, banking is an industry that handles cash, credit, and other financial transactions.

A commercial bank is a trader of substitute currencies such as currency, check, and bill of exchange.” -New Encyclopedia Britannica.

“A bank provides service activity and acts as an intermediary between creditor and lender. In a broader sense, it is said that the bank is the heart of the complex financial structure.” -American Institute of Bankers.

Professor Hart says, “A banker is one. who, in the ordinary course of his business, receives money which he repays by honoring checks of the person from whom or on whose account he receives it”.

According to S. A. Shakoor, “Banking can be defined as the business activity of accepting and safeguarding money owned by other individuals and entities, and then lending out this money to earn a profit.”

A banker is a dealer in the capital or, more properly, a money dealer. He is the intermediate party and lends to another, and the difference between the terms he borrows and those he lends form the source of his profit.

Difference Between Bank and Banking (10 Points)

The bank is a financial institution that accepts the surplus money of the people in the form of deposits and gives it to others in the form of loans and advances.

On the other hand, banking is the process of performing the activities of a bank. The difference between banks and banking are given in the following diagram:

Factors	Bank	Banking
Nature	A bank is an intermediary financial institution.	Banking is the activities of a bank.
Organizational structure.	It may be a sole proprietorship, partnership, or any other form of organization.	Banking has no such structure.,
Functions	Bank performs the banking functions.	Collection of loans etc. are banking.
Liability	The banker is liable for the bank’s activities.	The bank is liable for the banking activities
Success	The success of a bank depends on the efficiency of the banker.	The success of banking depends on the size &form of the bank.
Relationships	Bank makes a relationship with the customers.	Banking makes a relationship with the bank.
Dissolution	The local banking law does the dissolution of the bank.	When a bank dissolves, then the banking activities end.
Dependency	The bank is dependent on banker	Banking is dependent on the bank.
Initiation	Banker initiates bank	Bank initiates banking.
Entity	As a financial institution, it has a separate entity.	Banking has no separate entity; it is based on the entity of the bank.

Business of Banking

Though a bank performs many subsidiary services like collecting bills, checks, drafts, buying and selling securities, etc., the bank’s primary function is to accept public deposits and lend them short-term loans to traders and manufacturers. They provide working capital to the business through overdraft and cash credit.

1. Receiving Deposits: The most important function of a bank is to attract deposits from people who cannot profitably use it. A bank generally receives deposits utilizing the following accounts.
   1. Current Accounts: On current or demand deposits bank pays practically no interest. The amount can be withdrawn in part or in full at any time by issuing a check.
   2. Saving Account: In this case, there is a limit to the total weekly withdrawals regarding the amount and frequency of money drawings. A moderate interest is paid.
   3. Fixed Accounts: Such deposits are left with the bank for a certain fixed period before the expiry, of which they cannot be withdrawn. A higher rate of interest is paid on such deposits.
2. Advancing Loans: The second major function of a bank is to issue loans and make advances out of public deposits. The bank makes provisions by keeping reserves to meet the demand liabilities of the depositors and advances excess deposits to earn interest in different channels. Loans may be:
   1. Secured: against which security is demanded, or property mortgaged.
   2. Unsecured: an advance on personal reputation and goodwill without any security.

A bank creates advances in the following ways.

• Intermediary loans.
• Short term Loans
• Bank overdrafts.
• Cash Credit.
• By discounting bills.