Commercial Banks

A business organization which deals in

money; it borrows and lends money. In the process of borrowing and lending of money it makes profit. According to the Banking Regulations Act, 1949 banking system means the accepting for the purpose of lending or investment, deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft , order or otherwise.

Evolution of Commercial Banking in India. I

Modern banking in India is said to be developed

during the British era.

In the first half of the 19th century, the British East

India Company established three banks -The Bank of Bengal in 1806 -The Bank of Bombay in 1840 -The Bank of Madras in 1843

Contd
But in the course of time these three banks were

amalgamated to a new bank called Imperial Bank and later it was taken over by the State Bank of India in 1955.
Allahabad Bank was the first fully Indian owned

bank. Followed by other banks like Punjab National Bank, Bank of India, Canara Bank and Indian Bank.

Functions of Commercial Banks

iPrimary functions, and Secondary functions including agency functions.

Primary functions: The primary functions of a commercial bank include a) accepting deposits; and b) granting loans and advances;

Different modes of Acceptance of Deposits

Current deposit Saving deposit Fixed deposit Recurring deposit

Different methods of Granting Loans

Cash credit Loans Bank overdraft, and Discounting of Bills

Agency Services
Collection and payment of cheques and bills on behalf of the customers;
Collection & Payment of rent, interest, insurance premium, dividends, etc. on behalf of customers, if so instructed by them; Purchase and sale of shares and securities on behalf of customers;

Acting as a trustee or executor;

General utility services

Issuing letters of credit and travelers' cheques; Underwriting of shares, debentures, etc.; Safe-keeping of valuables in safe deposit locker; Underwriting loans floated by government and public bodies Supplying trade information and statistical data useful to customers; Acting as a referee regarding the financial status of customers; Undertaking foreign exchange business.

Classification of banks
Based on functioning
Commercial banks Co-operative banks Development banks Reserve bank of india

Commercial banks
Commercial banks Scheduled banks Non-scheduled banks Scheduled banks One which is registered in the schedule of rbi. Come under purview of various credit control measures of rbi. Required to maintain certain minimum balance with rbi. Entitled to borrow from rbi.

Scheduled commercial banks

Public sector commercial banks State bank of india and its subsidiaries; 19 nationalised banks; Private sector commercial banks Other indian scheduled banks that do not fall in the above group

 Non-scheduled banks Those which are not included in schedule of rbi They are not entitled to borrowings and rediscouting facilities from rbi Based on ownership Nationalised banks Private banks Foreign banks Regional rural banks

 1949 : Enactment of Banking Regulation Act.

1955 : Nationalisation of State Bank of India.

1959 : Nationalisation of SBI subsidiaries. 1969 : Nationalisation of 14 major banks.

1971 : Creation of credit guarantee corporation.

1975 : Creation of regional rural banks. 1980 : Nationalisation of six banks with deposits

over 200 crore.

The Different Uses of Information Technology: Any Time Banking Automated Teller Machines Telebanking Home Banking Electronic Fund Transfer Plastic Cards as Media for Payment 1. Credit Card 2. Debit Card 3. Smart Card 4. ATM Card

Any Time Banking: This refers to banking service available 24 hours a day and 365 days a year. Such facility is made available to the customer through the Automated Teller machine. Each customer is willing to pay a price for the services provided it is made available to him when he wants and where he wants. The concept of banking hours has been changed from the fixed 4 hours to 24 hours. Some banks have introduced the practice of Sunday Banking or Holiday Banking.

Telebanking: From the conventional banking, where the services were provided manually across the table, it has come to a stage where the customer is not required to visit the bank enquiry of balance in the account, sending a remittance, to get a statement of account, etc.. Telebanking services are, generally, provided by the bank over the telephone on a special number.

Home Banking: Under home banking the customer is served at his residence and there is no need for the customer to visit the banks premises for a number of routine transactions. If the customer needs some information the same can be got by contacting the bank over the phone as described in the telebanking. If the customer wants to put through transaction and wishes to see his account or to get a statement of his account, he may have to use a PC.

Electronic Fund Transfer (EFT): In India the fund transfers are basically done through Mail Transfer, Draft or Telegraphic Transfer.

In case of Telegraphic Transfer (TT) again the Department of Telecommunication was the sole provider of Telephone, Telex and Telegram facilities.

Credit Cards: The credit card enables the cardholders to: Purchase any item like clothes, jewelry, railway/air tickets, etc. Pay bills for dining in a restaurant or boarding and lodging in a hotel Avail of any service like car rental, etc.

Debit Cards: A debit card is issued on payment of a specified amount by the issuing company or on debiting his account by a bank. It may be noted that while through a credit card, the customer first makes a purchase or avails service and pays later on, but for getting the debit card, a customer has to first pay the due amount and then make a purchase or avail the service. For this reason, debit card are not as popular as credit cards.

Smart Cards: Smart Cards have a built-in microcomputer chip, which can be used for storing and processing information. For example, a person can have a smart card from a bank with the specified amount stored electronically on it. As he goes on making transactions with the help of the card, the balance keeps on reducing electronically. When the specified amount is utilized by the customer, he can approach the bank to get his card validated for a further specified amount. Such cards are used for paying small amounts like telephone calls, petrol bills, etc.

ATM Cards: The card contains a PIN (Personal Identification Number) which is selected by the customer or conveyed to the customer and enables him to withdraw cash up to the transaction limit for the day. He can also deposit cash or cheque.

Merchant banking
Merchant banking may be defined as an institution which covers a wide range of activities such as underwriting of shares, portfolio management, project counseling, insurance etcThey render all these services for a fee.

Microfinance
Microfinance is defined as the provision of saving, credit and other financial services and products of small amount to the poor for enabling them to raise their income level and improve living.

RETAIL BANKING
When services are offered to individuals as their personal requirements, it is called Retail Banking. Retail Banking should encompass all institutional who provide a range of banking services-money transmittion,deposit and credit service and some form of financial advice. Retail Banking consists of large volumes of low value transactions. Retail Banking refers to the mobilization of deposit from individual and lending to small business and in retail loan market.

Role of Commercial Banks in Economic Development Need for a sound banking system Capital formation rate of saving is low in underdeveloped economy due to poverty. Finance for priority sector Innovation innovation can be done through bank credit by entrepreneur. Micro finance Provision for long term finance Cheap money policy to stimulate economic activity

Current Scenario and Trends

Network Expansion Growth of deposits and credits Foreign Businesses of Indian Banks Rural banking Technological Infrastructure Increased Funding to SMEs