Unit1

Introduction to the
Business of Bank
Content
• Meaning,
• Origin and necessity of bank and financial
institutions,
• an overview of Nepalese financial system,
• Distinguish between banking and other
business.
 Concept of bank
• Jock of Bob Hope
“a bank is a financial institution where you can borrow
money only if you can prove you don’t need it”
• Financial intermediary, deposit taking institution, role of
intermediation
• It makes trade easy (goods and services and fund)
• Large part of financial service industry
• Dominant role in economic development
• Most regulated area of the economy
 Meaning
• According to Nepal Rastra Bank Act (2002),
“Bank is a financial institution, which provides financial services
that may be in the form of accepting deposits, advancing loan,
providing necessary technical advices, dealing over foreign
currencies, remitting funds, etc.”
• According to Joanes
“Bank is an organization offering financial services, especially loans
and the safekeeping of customer’s money”.
• According to shorter oxford English dictionary,
“A bank is an establishment for the custody of money, received from
or on behalf of each customer. Essential duty is to pay their draft on
each profit area from its use of the money left unemployed by them.”
 Contd …
• On the basis of economic function it serves:
They are financial intermediaries involved in transferring fund
from savers to borrowers
• On the basis of the services it offers to its customers:
General financial service providers: checking and debit accounts;
credit cards; saving plans; loan for customers, business and
government; investment banking; insurance protection; financial
planning; advice for merging companies; sale of risk management
services; agency services and more.
• On legal basis:
As defined by act (what should they do and what should not do)
 Origin
The word bank is derived from the Latin word "bancus" which means
bench. In the ancient time the Italian goldsmiths used to sit on benches
when they are in work of exchanging of money; trading of gold and silver.
The word bench means "Bank" in German, "Banca" in Italian and
"Banquee" in French, from which it used as "Bank" in English language.
History of banking:
Services Offered by Bank (for centuries)
• Carrying out currency exchange
• Discounting commercial notes and making business loan
• Offering saving deposits
• Safekeeping of valuables and certification of value
• Supporting government with credit
• Offering checking accounts
• Offering trust services
Service in past century
• Granting consumer loans
• Financial advising
• Managing cash
• Offering equipment leasing
• Making venture capital loan
• Selling insurance policies
• Selling and making retirement plans
• Offering security brokerage and investment banking
• Offering mutual funds, annuities
• Offering merchant banking services
• Offering risk management and hedging services
• Banknotes in Nepal weren’t introduced up until the mid-1940s. It
was in the year 1945 that the earliest banknotes were issued by
the treasury “Sadar Muluki Khana”. These notes were signed by
a “Khajanchi”, the head of the treasury who also was a high Hindu
Priest.
• year 1937 AD with the establishment of Nepal Bank Limited as
the first commercial bank in Nepal
• Later in the year 1955, Nepal Rastra Bank Act was formulated for
a better banking system and Nepal Rastra Bank was established in
1956 as the Central Bank of Nepal accordingly.