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Documents (7)

1. 4.1 Not mere Depositories

Client/Matter: -None-
2. 4.2 Non-interference in banking transactions
Client/Matter: -None-
3. 4.3 Modern banks perform miscellaneous services
Client/Matter: -None-
4. 4.4 Para-banking Services by Banks
Client/Matter: -None-
5. 4.5 Agency Services—Bankers as Agent of Customers
Client/Matter: -None-
6. 4.6 Miscellaneous or General Utility Services
Client/Matter: -None-
7. 4.7 Functions, Products and Services of Banks in India
Client/Matter: -None-

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 4.1 Not mere Depositories
M L Tannan: Banking Law & Practice in India, 28th edn
M L Tannan Vinod Kothari

M L Tannan: Banking Law & Practice in India, 28th edn > M L Tannan: Banking Law & Practice in
India, 28th edn > CHAPTER 4 FUNCTIONS OF COMMERCIAL BANKS > FUNCTIONS OF
COMMERCIAL BANKS

CHAPTER 4 FUNCTIONS OF COMMERCIAL BANKS

FUNCTIONS OF COMMERCIAL BANKS

4.1 Not mere Depositories

A bank is usually thought of as a reliable agency with which money is deposited. The idea behind the same is
precision. Banks do receive valuables for safe custody and undertake to return them, but that is only a subsidiary
function. Usually it is jewellery, deeds, securities and similar articles, which are given to the bank for safe custody.
But the services rendered by a bank either as depository or as trustee are only a few of the many services that a
modern commercial bank renders. In very general terms, the functions of a commercial bank can be classified
under the following main heads:
4.1.1 Receiving of money on deposit

This is, perhaps, the most important function of almost all modern banks, as it is largely by means of deposits that a
bank prepares the basis for several other activities. The money power of a bank, by which it helps largely the
business community, depends considerably upon the amounts it can borrow by way of deposits, which may be in
the form of fixed, savings or current deposits. All these go towards augmenting its resources.

The money received on fixed deposits can be used without any risk of withdrawal before the due date, and, in the
case of savings deposits, a bank can use a very large part of them, as generally the demands of customers having
such deposits are comparatively small, on account of restrictions placed as to the amount to be withdrawn and the
number of withdrawals to be made within a week. By the opening of current accounts, a bank not only obtains
funds, but also provides its clients with deposit currency, which is both more convenient and more economical than
other forms of currency.

By taking money on deposit, a bank provides safe-keeping for people’s money. But the money is not set apart in a
strong room. It is replaced by a debt due from a banker, who ordinarily pays interest so long as the money is
retained by him as a deposit.

The principal amount or sum deposited together with interest is returned when claimed in accordance with the
terms of the contract.
4.1.2 Issuing of notes

This function, which was once considered to be the most paying part of a banker’s business, is in modern times
performed generally by central banking institutions in most of the countries of the world. Its importance to banks in
general has dwindled in some of the countries, in which the cheque currency has replaced bank-notes to a large
extent. For instance, in England and in the United States of America, the part which is played by bank-notes is
becoming less and less significant although they are still very popular in certain European countries such as France
and Germany, where serious efforts are being made to popularise the use of cheques as a means of payment.
4.1.3 Lending of money

This function is the main source of profit for banks. When a bank gives funds in exchange for a promissory note or a
 Page 2 of 2
4.1 Not mere Depositories

bill of exchange, the transaction is known either as a discount or a loan. In either case, the bank agrees to place
funds at the disposal of the borrower, in exchange for a promise of payment at a future date. This enables those
persons and corporations, who find their own capital insufficient for carrying on business on a large scale, to do so
with the help of the funds borrowed from a bank, and thus use their capital more profitably than they could
otherwise do.

In order to sustain a case for recovery of funds so lent, the plaintiff needs to establish that he is a money lender in
regular course of business. It is an admitted fact that plaintiff has got no licence to run the money lending business.1
4.1.4 Transferring money from place to place

Modern banks are, generally, in a position to remit money, from one place or country to another, by means of drafts
drawn upon their branches or agents. They can, also, by purchasing bills of exchange, enable merchants and
others to receive money from their debtors, in other cities or countries. Now most of the transfers are made
electronically.

These facilities are the driving force of not only the internal trade of different countries, but also the international
commerce. It will be evident that the great strides which have been made by trade and commerce, which, in turn,
have been to a large extent responsible for the industrial development of different parts of the world, would have
been impossibility but for the facilities of exchange provided by banks.

1 K. Kantamma v Sabitri Patrani, I (2003) BC 182 (Ori).

End of Document
 4.2 Non-interference in banking transactions
M L Tannan: Banking Law & Practice in India, 28th edn
M L Tannan Vinod Kothari

M L Tannan: Banking Law & Practice in India, 28th edn > M L Tannan: Banking Law & Practice in
India, 28th edn > CHAPTER 4 FUNCTIONS OF COMMERCIAL BANKS > FUNCTIONS OF
COMMERCIAL BANKS

CHAPTER 4 FUNCTIONS OF COMMERCIAL BANKS

FUNCTIONS OF COMMERCIAL BANKS

4.2 Non-interference in banking transactions

One bank cannot interfere with another bank in its banking transactions including opening and closing of accounts.2

2 Indian Overseas Bank v Bismillah Trading Co, (2001) 2 BC 783 (Mad).

End of Document
 4.3 Modern banks perform miscellaneous services
M L Tannan: Banking Law & Practice in India, 28th edn
M L Tannan Vinod Kothari

M L Tannan: Banking Law & Practice in India, 28th edn > M L Tannan: Banking Law & Practice in
India, 28th edn > CHAPTER 4 FUNCTIONS OF COMMERCIAL BANKS > MISCELLANEOUS
FUNCTIONS AND SERVICES

CHAPTER 4 FUNCTIONS OF COMMERCIAL BANKS

MISCELLANEOUS FUNCTIONS AND SERVICES

4.3 Modern banks perform miscellaneous services

In addition to the main functions of Commercial Banks stated above, the modern banks perform several
Miscellaneous, Subsidiary, Special and Para-Banking Services, such as:

(i) issue of various forms of credits, e.g., letters of credit, travellers’ cheques, credit cards and circular notes; (ii)
under-writing of capital issues; (iii) acceptance of bills of exchange, whereby banker lends his name to his
customers in return for a commission; (iv) factoring; (v) safe custody of valuables; (vi) acting as executors and
trustees for customers; (vii) preparing income-tax returns for their customers; (viii) furnishing guarantees on behalf
of customers; (ix) mutual funds, insurance and bancassurance; and (x) a host of other miscellaneous, subsidiary,
special and para-banking services.

End of Document
 4.4 Para-banking Services by Banks
M L Tannan: Banking Law & Practice in India, 28th edn
M L Tannan Vinod Kothari

M L Tannan: Banking Law & Practice in India, 28th edn > M L Tannan: Banking Law & Practice in
India, 28th edn > CHAPTER 4 FUNCTIONS OF COMMERCIAL BANKS > MISCELLANEOUS
FUNCTIONS AND SERVICES

CHAPTER 4 FUNCTIONS OF COMMERCIAL BANKS

MISCELLANEOUS FUNCTIONS AND SERVICES

4.4 Para-banking Services by Banks

These services may be classified broadly into:

(a) Agency Services; and

(b) Miscellaneous or General Utility Services.

End of Document
 4.5 Agency Services—Bankers as Agent of Customers
M L Tannan: Banking Law & Practice in India, 28th edn
M L Tannan Vinod Kothari

M L Tannan: Banking Law & Practice in India, 28th edn > M L Tannan: Banking Law & Practice in
India, 28th edn > CHAPTER 4 FUNCTIONS OF COMMERCIAL BANKS > MISCELLANEOUS
FUNCTIONS AND SERVICES

CHAPTER 4 FUNCTIONS OF COMMERCIAL BANKS

MISCELLANEOUS FUNCTIONS AND SERVICES

4.5 Agency Services—Bankers as Agent of Customers

Modern Commercial Banks act as Special Agent of its Customer in the performance of the following important
Functions and Services:

(i) Collection and Payment of Cheques and Bills;

(ii) Collection and Payment of Promissory Notes, Pronotes and Hundies;
(iii) Payment of Subscriptions, Premia, Rents, etc;
(iv) Collection and Payment of Coupons and Postal Orders;
(v) Payment of Dividends and Interest Warrants;
(vi) Payment of Salaries, Pensions, etc;
(vii) Purchase and Sale of Stocks and Shares; Physical and Demat;
(viii) Demat Accounts, Net Banking and Online Trading;
(ix) Acting as Trustees, Executors, Administrators and Attorneys;
(x) Service as Correspondents and Representatives of its Customers;
(xi) Service as Correspondents and Representatives of other Banks/FIs; and
(xii) Other Agency Services, e.g., Passports, Railway Tickets, etc.

End of Document
 4.6 Miscellaneous or General Utility Services
M L Tannan: Banking Law & Practice in India, 28th edn
M L Tannan Vinod Kothari

M L Tannan: Banking Law & Practice in India, 28th edn > M L Tannan: Banking Law & Practice in
India, 28th edn > CHAPTER 4 FUNCTIONS OF COMMERCIAL BANKS > MISCELLANEOUS
FUNCTIONS AND SERVICES

CHAPTER 4 FUNCTIONS OF COMMERCIAL BANKS

MISCELLANEOUS FUNCTIONS AND SERVICES

4.6 Miscellaneous or General Utility Services

Miscellaneous utility services rendered by Modern Commercial Banks in performance of which the banker’s position
is not that of an agent for his customer are:

(i) Receiving of Deeds, Securities and other Valuables for Safe Custody;
(ii) Safe Deposit Vaults, Safety Lockers or Bank Lockers;
(iii) Issuing of Letters of Credit and Letters of Indication;
(iv) Circular Notes, Travellers’ Cheques;
(v) Gift Cheques, Emergency Vouchers, etc.;
(vi) Bank Guarantees—(a) Performance, and (b) Financial;
(vii) Collection of Interest on Securities/Debentures;
(viii) Collection of Dividend on Shares, Pension Bills;
(ix) Remittance of Funds—Banker’s Cheques, Bank Drafts/Demand Drafts (DDs), Mail Transfers (MTs),
Telegraphic Transfers (TTs) to the other parts of the Country and to Foreign Countries;
(x) Credit Transfers; National Electronic Funds Transfer (NEFT);
(xi) Dealing in Foreign Exchanges; Foreign Exchange business by Banks;
(xii) Off-Shore Banking Services to Non-Residents (NRIs), etc;
(xiii) Executor and Trustees—(a) Executor and Trustees under a Will, (b) Trustees under a Trust Deed Securing
Mortgage Debentures, (c) Trustee under a Deed of Settlement, (d) Trustee for Life Insurance Policies
under the Married Women’s Property Act, 1874 (3 of 1874);
(xiv) Providing Specialised Advisory Services to Customers;
(xv) Para-Banking Activities;
(xvii) Smart Card/Debit Card Business;
(xviii) Credit Cards;
(xix) Hire-Purchase, Lease Financing, Equipment Leasing and Factoring Business;
(xx) Primary Dealerships (PDs) Business;
(xxi) Mutual Fund business;
(xxii) Sale of National Savings Certificates (NSCs), Mutual Funds, Units, etc;
(xxiii) Money Market Mutual Funds (MMMFs);
 Page 2 of 2
4.6 Miscellaneous or General Utility Services

(xxiv) Entry of Banks into Insurance Business; Banc assurance;

(xxv) Pension Fund Management (PFM) by banks;
(xxvi) Investment Facilities, Underwriting, Bankers to new Issues, Merchant Banking, Guidance to
investment, Stock Exchanges Assistance, etc;
(xxvii) Underwriting of Corporate Shares and Debentures;
(xxviii) Underwriting of Bonds of Public Sector Undertakings;
(xxix) Underwriting of Loans raised by Governments;
(xxx) Underwriting of Loans raised by Public Bodies and Trading Corporations;
(xxxi) ‘Safety Net’ Schemes; and
(xxxii) Referral Services; Serving as Referees as to the financial standing, business reputation and
respectability of their customers, etc.

For details, specifically refer Chapter 36 Financial Services by Banks.

End of Document
 4.7 Functions, Products and Services of Banks in India
M L Tannan: Banking Law & Practice in India, 28th edn
M L Tannan Vinod Kothari

M L Tannan: Banking Law & Practice in India, 28th edn > M L Tannan: Banking Law & Practice in
India, 28th edn > CHAPTER 4 FUNCTIONS OF COMMERCIAL BANKS > MISCELLANEOUS
FUNCTIONS AND SERVICES

CHAPTER 4 FUNCTIONS OF COMMERCIAL BANKS

MISCELLANEOUS FUNCTIONS AND SERVICES

4.7 Functions, Products and Services of Banks in India

Banking System and Banks in India and Activities, Functions and Performance of Scheduled Commercial Banks
(SCBs), Public Sector Banks (PSBs), the State Bank of India (SBI) and its Subsidiary Banks, Nationalised Banks,
Co-operative Banks and the Regional Rural Banks (RRBs), etc., have been dealt with in succeeding chapters.

Main Functions and Services of Banks as well as Miscellaneous, Subsidiary, Special and Para-Banking Services by
Banks now popularly termed as Products and Services of Banks along with Banking Laws, Statutes, RBI Master
Circulars, and Legal Decisions affecting Bankers, etc., are dealt with in respective later chapters.

See also, discussion on Payment Banks, Small Finance Banks, etc. in chapter 2.

End of Document