Meaning of Bank

bank is a financial institution dealing with money or monetary transactions. It is a licensed and regulated institution involved in accepting the deposit, creating credit and performing other monetary transactions. Bank collect money from those having a surplus of it and lend the collected money to those who are in a deficit of it.Bank raises funds through acceptance of deposits, borrowing of funds and the issue of equities. Such collected fund is used to invest in securities and lending in form of loans or credit. Banks allow interest on deposits and charge interest on loan. Apart from deposit and loan, the bank is involved in other financial transactions such as remittance, government transactions, ATM (Automated Teller Machine) transactions, mobile banking services, creation of cashless economy via QR (Quick Response)  merchant services and POS (Point Of Sales), assistance to the capital market etc. in the modern era.

Key Definitions

Defined By	Definition
Crowther	“Bank is an institution which collects the money from those who have it to spare and who are saving it out of their income and lends this money out to those who require it”
U.S. Law	“Any kind of institution offering deposit subject to withdrawal on demand and making loans of a commercial or business nature is a bank”
World Bank	“Banks are financial institutions that fund in the form of deposit repayable on-demand or the short notice”
Kent	“A bank is an organization whose principal operation is concerned with the accumulation of the temporarilidle money of the general public to advance to other for expenditure”
Bank and Financaila Institution Act (BAFIA), 2073	“Bank refers to a corporate body which is incorporated to perform banking and financial transaction and the term includes branches of a foreign bank in Nepal, branch of Nepalese banks outside the country as well as an infrastructure development bank and its branches”

From thebove discussion and definitions:

• A bank is a financial institution involved in a trade of money and money-related transactions.
• It collects deposit from those having surplus or saving of money at an attractive rate of interest and lend it for personal, businesses and commercial purposes of those in need of money at a certain chargeable interest rate.
• A bank is a facilitator for saving, mobilization of saving, digital banking services, creation of cashless economy, implementation of fiscal policy of a government, financial accessibility, financial awareness and literacy etc. for economic growth, prosperity and development of a country.
• A bank is an institution dealing with money and financial services for credit creation, economic advancement, accessibility to multiple banking services and overall personal, social and national financial progress of a country.

Evolution of Bank

The history of banking is as old as the development of the currency. Anciently, the temple used to be the bank where gold was used to be stored or deposited. The security of such gold stored in the temple was guaranteed as people fear of god and do not opt for stealing such gold. Later, during the barter system, people used to give crops and foodgrains to others and take back more than they provided. The addition while receiving back was the interest in lent crops or food grains. With the evolution of currency, people with surplus money started lending to others who do not have it. Such lending was subject to the addition of some money while returning it to the lender. This went to the open bench practice of such lending in France. Similarly, such practice of giving loans and receiving more than the loan amount flourished as work done in a group or as an association in Rome. The word ‘Bank’ is derived from the Latin word ‘Bancus’, the Italian word ‘Banca”, the French word “Banque” which means “a bench” and the German word “Bank” which means joint-stock company.

The modern era of banking started in 1157 AD with the establishment of the Bank of Venice as the first bank of the world in Venice, Italy. This bank was established to finance the monarch in his war. This concept of banking grew and the Bank of Barcelona was established in 1401 AD in Barcelona of Spain. Immediately after which Bank of Genoa was established in 1407 AD in Italy. In 1694 AD, the Bank of England was established which is considered a key milestone in the development of banking. The establishment of a commercial bank as a joint-stock company was initiated by an enactment of the banking act in 1833 AD. Full-fledged development of modern banks around the world was ensured in the 19^th century in almost all leading countries of the world. The practice of establishing banks become rapid with sufficient support and development of technical, infrastructural, legal and social aspects required for banks. In the 20^th century, banking shifted from manual or semi-technical to a highly modern technical era with the development of bank accounting software, automated teller machines, global integration of banking channels etc. With the beginning of the 21^st century, the era of mobile and internet banking has boomed at an extreme pace of rapidity, banking accessibility from super modern cities to extremely rural areas, more integrated banking payment systems, digital banking wallets, robotization in banking, cashless economy etc. At present, banks are focused on banking transformation by integrating AI (Artificial Intelligence) in facilities and services provided by them.

Importance of Bank

It is to be understood that a bank is an essential part of the economy of a country. It deals with money and money-related transactions of an individual, businesses, enterprises, government, traders and the general public. Every aspect of a society or economy is connected with a bank one way or the other. That’s why, it has become a more significant part of personal, industrial, commercial, social and national financial affairs. The importance of bank can be outlined as below:

1. Capital is formulated through the lending of spare money collected by banks in different sectors like industry, trade and commerce
2. Bank encourages saving and such saving is brought into the banking system through attractive interest rates and additional banking services such as internet banking, mobile banking, card services, locker facilities, share transaction services etc.
3. A loan is granted to different sectors as justified by collateral and income which help in the progress and development of the related sector as well as the national economy of the country
4. It underwrites shares and debentures of existing as well as new industries along with providing capital to such industries
5. Bank exchange foreign currencies as per rate and guidance of the central bank which facilitate in remittance conversion, foreign trade payments, foreign loan and investment conversion etc.
6. Bank ensure promotion, development, expansion and growth of trade, manufacturing and service sector through differentfinancial and other assistance to them
7. Agency functions for collection of dividends on shares, receiving interest on debentures, making payments as per standing order, collection of rent etc. are performed by a bank on behalf of its customer
8. Bank play important role in implementing fiscal policy, transferring budget to local bodies, collection of tax and duties, revenue collection etc. for government
9. Prompt remittance of money from one place to another through credit instruments like bank draft, letter of credit, telegraphic transfer (TT) etc.
10. Facilitates in the creation of digital and cashless economy through ATM services, POS, QR merchant payment, smart teller, online interbank payment system etc.

Types of Bank

A bank is an essential part of the financial system of a country. There are different types of banks divisible as per nature, function, operation horizon and specific task performed. Such different types of bank have been explained below:

1. Central Bank: Central bank is the licensing, supervising, monitoring and controlling authority for different banks and financial institutions. It performs the function of note issue and its management. It is the bank of other banks and government banks. It studies, analyzes, predicts and advises on general economic scenarios of a nation’s economy. It issues, reviews and amends the monetary affairs of a country through monetary policy, laws and directives.
2. Commercial Bank: Commercial bank is involved in collection of deposit from different sources offering attractive interest rate and other services. It lends money in form of credit at a chargeable interest rate to different sectors like trade, industries, agriculture, hydropower, tourism and service. It is also involved in other digital and non-digital banking services as per prevailing law, act and directives.
3. Development Bank: Development bank is established to promote and develop the industrial, rural and commercial sectors of a country. It is also involved in deposit collection and mobilization. It also provides both short-term and long-term financial assistance and technical support to different sectors. However, it has a limited business scope as compared to commercial banks defined and directed by a central bank, its regulatory policies and directives.
4. Agriculture Bank: This bank is established to support farmers and develop the agriculture sector. It provides short-term credit to farmers to purchase seeds and fertilizers as well as to pay agriculture laborers. Similarly, it provides long-term credit to farmers to purchases land and heavy agricultural equipment. Generally, the interest rate on such credit provided by agriculture banks is low and subsidized by the government.
5. Industrial Bank: Industrial bank is established to promote and develop industries. It provides financial and technical assistance to establish and expand industries. It provides loans to such industries for both the short term and long term. It underwrites the share and debenture of these industries. In some cases, industrial banks also invest in setting and operating industries.
6. Exchange Bank: This bank is established to support foreign trade and deals with foreign currency. It helped in foreign trade and settlement of debt between two countries by providing a loan. It discounts bills and provides loans to importers. Not just this, exchange banks also remit payment due of importers to their concerned parties.
7. Saving Bank: This is a special type of bank involved in the collection of scattered savings of small-income people through the postal system. Such collected small saving is mobilized through credit schemes by the bank. People open accounts in such banks and postal cash certification (PCC) is issued to them. With the help of such postal cash certification, a related account holder can withdraw a definite amount every week.
8. Cooperative Bank: Such a type of bank is established under the model of a cooperative. It is established by a group of people for their collective benefit. Initially, it evolved in the agriculture and farming sector. But it is being adopted in almost every sector these days.