Page 63 - Account 10

There are different views about the origin of bank. According to one view, the word
‘bank’ is derived from the Italian word ‘Banco’ which means a bench. In the early days,
monetary/banking activities were done by sitting on a bench by Italian goldsmith. Then,
banco became bank. The first bank called the “Bank of Venice” as established in Venice,
Italy in 1157 AD. It was established to finance the monarch in his wars. The modern
commercial banking institutions have been developed after the enactment of Banking Act
in 1833 AD, which provided freedom for the establishment of commercial banks.
A bank simply is a financial institution, which deals with the monetary activities by
accepting deposits, lending to the various parties against securities and performing
agency services to its client/customer.
According to the Oxford Advanced Learner’s Dictionary, “The term ‘bank’ means an
establishment for keeping money and valuables safely, the money being paid out on the customer’s
order or cheques.”
Similarly, in the words of Kent, “A bank is an organization whose principal operations are
concerned with the accumulation of the temporarily idle money of the general public for the purpose
of advancing to others for expenditure.”
“Banks are financial institutions that fund in the form of deposit repayable in demand or in short
notice”. World Bank.
According to dictionary of Banking and Finance, “Business which holds money for its clients
which leads money at interest and trades generally in money.”
In the modern day business world, the scope of bank has
become so wide that it covers all the financial activities
from the issue of money to the performance of agency
services to its clients/customers. In this sense, a bank may
be defined as a financial institution, which accepts the
deposit for the purpose of lending or investment from the
public, repayable on demand through cheques, drafts or
otherwise and also performs a number of agency services
to its clients on instruction. The central bank of a country
issues the paper notes as its basic function. First World Bank
A bank draws surplus money from the public who are not using it at the time, and lends
to those who are in a position to use it for productive purposes. Thus, a bank lends what
it has borrowed from others. The bank pays interest at certain rate on the money it has
borrowed, and charges interest at certain rate on the money lent. The rate of interest on
the money lent is always greater than that on deposits. The difference between the two
rates is the bank’s margin of income. Moreover, the commission charged from the clients
against the agency services is the other source of income to the banks. In the banking
history of Nepal, Nepal Bank Ltd. was established in 1994 B.S. as the first bank and then
Nepal Rastra Bank in 2013 B.S. as the Central Bank of the country. Then other banks were
established with the passage of time.

Key Point A bank is a financial institution, which accepts money as deposit from
individuals and organisations and lends it to those who need it against their
security deposit.

62 Aakar’s Office Practice and Accountancy - 10 Financial Institutions 63