CHAPTER ONE

Introduction Banking Business Management

Meaning and Origin of Bank

Meaning:

A bank is a financial institution licensed to receive deposits and make loans. Banks may also
provide financial services such as wealth management, currency exchange, and safe deposit
boxes.

There are several different kinds of banks including

 Retail banks,
 Commercial or corporate banks,
 Investment banks and
 Central banks
In most countries, banks are regulated by the national government or central bank. Banks
make a profit by charging more interest to borrowers than they pay on savings accounts.

Cambridge dictionary: “bank is an organization where people and businesses can invest or
borrow money, change it to foreign money, etc., or a building where these services are
offered”.

“Bank is such an institution which creates money by money only.” -----W. Hock. “Bank is a
financial intermediary institution which deals in loans and advances (Cairn Cross).

“Bank is an institution which collects idle money temporarily from the public and lends to
other people as per need.” ---- R.P. Kent. “Bank provides service to its clients and in turn
receives perquisites in different forms.” --- P.A. Samuelson
 Origin of Bank

The origin of English word “Bank” came into being (when, where and how) which could not
be specifically identified. According to some writer the word the “Bank” was derived from
“Banco”, “Bancus”, “Banque” or “Banc” all of which mean a bench upon which the
mediaeval European

Money-lenders and Money –Changers used to display their coins. French words “Banque”,
“Bangko” were used to mean stool or bench and in course of time the word “Bank” came into
effect. The modern banking system started with establishment of Bank of Venice in 1157 AD
in Italy. This was followed with the opening of Bank of Barcelona in 1401 Ad, Bank of
Amsterdam in 1609 A, Bank of Hamburg in 1609 AD, Bank of England in 1694 AD which
played important role in the overall advancement of banking system in the world.
The Bank of England originated the permanent issue of banknotes in 1695 AD. The Royal
Bank of Scotland established the first overdraft facility in 1728. By the beginning of the 19th
century Lubbock's Bank had established a bankers' clearing house in London to allow multiple
banks to clear transactions.

Contributions of Goldsmith:

From the very ancient periods the Goldsmiths, over and above their own activities, used to act
as custodians of the surplus funds of the general people of the society. For that reason, they
were recognized as a symbol of honesty, sincerity, solvency and security. On receipt of
money, they used to issue receipts and on return of money they used to take
acknowledgements. Later on, these receipts were treated deposit slip and cheque respectively.
The deposits receipts were undoubtedly acceptable and popular as notes of the Goldsmiths and
afterwards converted into bank notes. Besides these, they used to lend money with interest to
the needy people and thus, the words interest and profit were introduced. In the Middle Ages,
the Goldsmiths became very rich and affluent. At one time Goldsmiths used to deposit their
money with the treasury of England. During the regime of King, the First Charles, in 1640,

Contribution of the Money-Lenders:

The Money-Lenders (Mahajan) also played an important role for the growth and development
of modern banking. They used to keep surplus money of the people and refund those in case of
need. Later, they took it as a profession. They used to pay interest to the depositors and earn
interest on loans. They also used to take security, Mahajan a Sanskrit term meaning 'a great
man'. But technically, it applies to a merchant, a dealer, a banker and so on.
 Contribution of the Money-Lenders:

The Money-Lenders (Mahajan) also played an important role for the growth and development of
modern banking. They used to keep surplus money of the people and refund those in case of need.
Later, they took it as a profession. They used to pay interest to the depositors and earn interest on loans.
They also used to take security, Mahajan a Sanskrit term meaning 'a great man'. But technically, it
applies to a merchant, a dealer, a banker and so on.

Contribution of Businessmen:

Business Class also played vital role for the growth and development of modern banking. From the
ancient periods the Business Class were trustworthy to the general people. They were honest, faithful
and solvent. As a result, general people used to deposit money to them for the safety and security of
fund. In course of time, they were involved in money-lending business.

The businessmen of seven-hills of Rome were world-famous.

 The Role of Banks in the Economy

Banks in Europe from the 16th century onward could be divided into two classes: Exchange
banks and banks of deposit. The last were banks that, besides receiving deposits, made loans
and thus associated themselves with the trade and industries of a country. The exchange banks
included in former years’ institutions such as the Bank of Hamburg and the Bank of
Amsterdam. These were established to deal with foreign exchange and to facilitate trade with
other countries. Banks are called lifeblood of the economy and financial system.

The others—founded at very different dates—were established as, or early became, banks of
deposit, such as the Bank of England, the Bank of Venice, the Bank of Sweden, the Bank of
France, the Bank of Germany, and others. Important as exchange banks were in their day, the
period of their activity had generally passed by the last half of the 19th century.
Banking is one of the oldest businesses in the world and it is the backbone of most successful
economies. However, it has changed significantly since the commodity banks of the past, and financial
institutions continue to adapt to the most complicated issues.

Modern banks have evolved to minimize challenges for businesses and individuals. By understanding
these developments, firms can forecast where the industry is headed next, adapt quickly to new
developments, and stay ahead of their competition.

Necessity of Bank and Financial Institution

Financial institutions provide consumers and commercial clients with a wide range of services and
different types of banking products. The importance of financial institutions to the wider economy is
apparent during market booms and recessions. During economic upturns, financial institutions provide
the financing that drives economic growth, and during recessions, banks curtail lending. This can
exacerbate a country's financial problems and draw attention to the fact that economies are heavily
reliant upon the financial sector.
During economic upturns, financial institutions provide the financing that drives economic
growth, and during recessions, banks curtail lending. This can exacerbate a country's financial
problems and draw attention to the fact that economies are heavily reliant upon the financial
sector.

The objectives of a commercial bank:

• To collect savings or idle money from the public at a lower rate of interests and lend these public
monies at a higher rate of interests.

• To motivate people for investing money with a view to bringing solvency in them.

• To promote liquidity.

• To extend services to the customers.

• To maintain economic stability.

 Types of commercial banks

1. Retail (Consumer) Banks

Retail banks focus on providing banking services to individuals and small businesses.
Their services include savings accounts, current accounts, personal loans, mortgages, debit
and credit cards, and payment services. Retail banks play a key role in financial inclusion by
offering accessible banking services to the general public (McGraw-Hill Education, 2017).

2. Corporate (Wholesale) Banks

Corporate banks mainly serve large businesses, corporations, and government

institutions. They provide services such as large-scale loans, cash management, trade finance,
and foreign exchange services. These banks support business expansion, international trade,
and large investment projects.
3. Universal Banks

Universal banks offer a wide range of financial services under one institution,
including commercial banking, investment banking, insurance, and asset management.
According to Rose and Hudgins (2017), universal banking allows institutions to diversify
income sources and reduce risk, although it may increase complexity and regulatory
challenges.

4. Online and Digital Banks

Digital banks operate primarily through electronic platforms without extensive

physical branch networks. They provide services such as online accounts, mobile payments,
and digital lending. McGraw-Hill Education (2017) notes that technological innovation has
increased efficiency and reduced operating costs in modern banking.
5. Specialized Commercial Banks

Some commercial banks focus on specific sectors, such as agriculture, housing, or

small and medium-sized enterprises (SMEs). These banks provide targeted financial services
to support priority economic sectors and development goals.

Functions of commercial banks

General Functions:

Accepts deposit: The bank takes deposits in the form of saving, current, and fixed
deposits. The surplus balances collected from the firm and individuals are lent to the
temporary requirements of the commercial transactions.
  Provides loan and advances: Another critical function of this bank is to offer loans and
advances to the entrepreneurs and business people, and collect interest. For every bank,
it is the primary source of making profits. In this process, a bank retains a small number
of deposits as a reserve and offers (lends) the remaining amount to the borrowers
 Formation of capital: Commercial Bank extends financial assistance for the formation
of capital in the trade, commerce and industry in the country which expedites its
economic development.

Public Utility Functions:

1. Remittance of Money: Remittance of money to the public from one place to another is
one of the functions of commercial bank. Remittance is affected in the form of demand
draft, telegraphic transfer etc. through different branches and correspondents’ home and
abroad.
2. Help in trade and commerce: Commercial Bank helps expand trade and commerce. In
Inland and foreign trade customers are allowed credit accommodation in the form of letter
of credit, bill purchased and discounted etc.

3. Collect utility service bills: As a social commitment, Commercial Bank collects utility
service bills e.g., water, electricity, gas, telephone etc. from the public.

4. Help people travel abroad: Commercial Bank helps customers in traveling abroad
through issuance of traveler’s cheques, drafts, cash etc. in favor of the customers.
 Agency Functions:

1. Collection and payment: Commercial Bank is engaged in collection and payment of

cheque, bill of exchange, promissory notes, pension, dividends, subscription, insurance
premium, interest etc. on behalf of the clients.

2. Purchase and sale of shares and securities: Commercial Bank is entrusted with the
responsibility of purchase and sale of shares and securities on behalf of the customers.

3. Maintenance of secrecy: Maintenance of secrecy is one of the most important functions

of commercial bank.

4. Economic Development and Welfare activities: Commercial Bank contributes much for
the welfare and economic development of the country.
 Management Process
According to F.W. Taylor, “Management is an art of knowing what to do, when to do and see
that it is done in the best and cheapest way”.

According to George R. Terry, “Management is a distinct process consisting of planning,

organizing, actuating and controlling, performed to determine and accomplish stated
Functions of Management the most widely accepted are functions of management given by
KOONTZ and O’DONNEL i.e.
Planning,
Organizing,
Staffing,
Directing and
Controlling.
Planning

It is the basic function of management. It deals with chalking out a future course of action &
deciding in advance the most appropriate course of actions for achievement of pre-determined
goals.

According to KOONTZ, “Planning is deciding in advance - what to do, when to do & how to
do. It bridges the gap from where we are & where we want to be”.

Planning is necessary to ensure proper utilization of human & non-human resources. It is all
pervasive, it is an intellectual activity and it also helps in avoiding confusion, uncertainties,
risks, wastages etc.
Organizing

It is the process of bringing together physical, financial and human resources and developing
productive relationship amongst them for achievement of organizational goals.

According to Henry Fayol, “To organize a business is to provide it with everything useful or its
functioning i.e., raw material, tools, capital and personnel’s”. To organize a business involves
determining & providing human and non-human resources to the organizational structure.

Organizing as a process involves:

Identification of activities.

Classification of grouping of activities

Assignment of duties.

Delegation of authority and creation of responsibility.

Coordinating authority and responsibility relationships.

Staffing

It is the function of manning the organization structure and keeping it manned. Staffing has
assumed greater importance in the recent years due to advancement of technology, increase in
size of business, complexity of human behavior etc.

The main purpose of staffing is to put right man/woman on right job i.e., square pegs in
square holes and round pegs in round holes.

Directing

It is that part of managerial function which actuates the organizational methods to work
efficiently for achievement of organizational purposes.

It is considered life-spark of the enterprise which sets it in motion and action of people,
because planning, organizing and staffing are the mere preparations for doing the work.
Direction is that inter-personnel aspect of management which deals directly with influencing,
guiding, supervising, motivating sub-ordinate for the achievement of organizational goals.

Direction has following elements:

Controlling

It implies measurement of accomplishment against the standards and correction of deviation if

any to ensure achievement of organizational goals.

The purpose of controlling is to ensure that everything occurs in conformities with the
standards. An efficient system of control helps to predict deviations before they actually occur.

According to Theo Haimann, “Controlling is the process of checking whether or not proper
progress is being made towards the objectives and goals and acting, if necessary, to correct
any deviation”.
 Management Process
(Short meaning)

Planning → Setting goals and deciding in advance what to do and how to do it.

Organizing → Dividing work and arranging resources (Financial, Human, Physical and Information resource) in a clear

structure.

Staffing → Hiring and developing the right people for the right jobs.

Directing → Guiding and motivating employees to achieve organizational goals.

Controlling → Checking performance and correcting mistakes to ensure goals are achieved.

Level of management

 Top management level or executive

 Middle management

 Lower level of management

Levels of Management

Management in an organization is generally divided into three main levels:

1. Top-Level Management (Executive Management)

Top-level management is the highest level in the organizational hierarchy.

It consists of senior executives such as:

• Chief Executive Officer (CEO)

• Managing Director

• President

• Board of Directors
Responsibilities:

• Organizational goals and overall policies

• Making strategic decisions

• Designing long-term plans

• Representing the organization externally

• Ensuring the growth of the organization

Top management focuses mainly on strategic planning and long-term

success.
2. Middle-Level Management

Middle-level management connects top management with lower-level

management. It includes:

• Departmental Managers

• Branch Managers

• Division Managers

• Operations Managers
Responsibilities:

• Implementing policies made by top management

• Preparing departmental plans

• Coordinating activities between departments

• Supervising lower-level managers

• Reporting performance to top management

Middle managers focus on Action planning and translating strategy into

action.
3. Lower-Level Management (Supervisory Management)

Lower-level management is the lowest level in the management hierarchy.

It includes:

• Supervisors

• Team Leaders

• Section Officers
Responsibilities:

• Direct supervision of employees

• Assigning daily tasks

• Monitoring employee performance

• Maintaining discipline

• Reporting to middle management

Lower-level managers focus on operational activities and day-to-day

operations.
END