DEFINITION
According to Gilbert "A banker is a dealer in money. or more properly a dealer in money. He is an intermediary between the borrower and the lender."
According to Sayers "A bank is an institution whose debts are widely accepted in settlement of other people's debt to each other.
Functions of a Bank
I. RECEIVING DEPOSITS The primary function of a commercial bank is to receive deposits.
a) Demand Deposits
on them bank pays no interest.
b) Saving Deposits
These deposits have been introduced particularly for middle income groups such as wages or fixed earning groups.
c) Fixed / Time Deposits
In such types of accounts the amount remains with the bank for a fixed period of time. Owing to this the bank pays interest at the highest rate on amounts deposited in such accounts.
d) Profit and loss
TO eliminate interest based banking in Pakistan, PLS deposits have been introduced in Pakistan. It offers saving as well as time deposits. The only difference between the conventional saving PLS saving is that in such deposits Profit is paid instead of interest.
2. ADVANCING LOANS
Banks receive money to lend it to those people who need it. The banks utilize the deposits of the customers. Banks give short term as well as long term loans. However they need security in the form of property or some other form etc. the loan may in any of the following form:
a) Overdraft
In case of overdraft, the customers are allowed to draw certain amount of money over and above their deposited amount. Interest is charged only on the amount withdrawn. For the regular customers, the banks fix a limit of OD permanently,so that they don't have to apply for this facility again and again.
b) Cash Credit
In case of cash credit, a definite amount is credited to the customer's account. Interest is - charged on the amount withdrawn and interest is also charged on some percentage of the unutilized amount.
