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Commercial Banks

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Banks Credit creation depends on the excessreserves.

Excess reserves = actual reserves required

reserves. If reserves required ratio is 10%, banks can

create a loan of 9000 on 1000 deposits.

The total money supply in the economy is10000.

The Creation of Money

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Bank position deposits loans reserves

--------------------------------------------------------------------------------------------

Original bank 1000 900 1002nd bank 900 810 90

3d bank 810 729 81

4th Bank 729 656 72.9

5th Bank 656 590.49 65.61

6th Bank 590.49 531.44 59.057th Bank 531.44 478.30 53.14

8th Bank 478.30 430.47 47.80

9th Bank 430.47 387.42 43.05

10th Bank 387.42 348.68 38.04

_____________________________________________________

Sum 10,000 9,000 1,000

Process of credit creation

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Origin of commercial bank can be traced back in vedic

period( use of hundi)

Middle of 19th century Indigenous banking

First bank Bank of Hindustan

(1770)

Later we had Presidency Bank in Calcutta Bombay &

Madras

1919 Imperial Bank of India

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Growth and Structure of commercial bank

Importance of Indian commercial Banks in National Economy

YearYear Deposit/N.I.Deposit/N.I. Deposit /Deposit /

SavingSaving

Share inShare in

financialfinancial

assetasset

19511951--5656 1010 16.616.6

19601960--6161 1313 14.214.2

19751975--7676 2424 41.841.8

19801980--8181 35.935.9 45.845.8 73.873.8

19901990--9191 48.148.1 31.831.8 65.565.519941994--9595 5252 40.240.2 64.864.8

19951995--9696 44.8244.82 28.228.2 64.764.7

20012001--0202 61.561.5 37.8337.83 72.272.2

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Indian Banking system

RBI

Schedule BanksNon Scheduled Bank

State Coop. Commercial

Bank

BanksIndian Foreign

PSU Pvt. Sector

BankBanks

SBI & its

subsidaries

Other nationalized

bank

Regional rural

bank

Central Coop. bank

Bank and Primary Credit

Societies

Commercial

Bank

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Apart from usual function, foreign bank are now playing a special

role in shaping the attitude ,perceptions and policies of foreign

government, corporate, and other clients towards India

(a)Structuring and syndicating project finance for crucial sector

(b)Advising and introducing overseas companies in joint venture

and collaboration with Indian Companies

Helping to bring the FII and Indian companies(d) Managing and syndicating the euro issue of debt and equity

(e) Introducing new technology in data management and

information system

The Indian Banks include 27 PSU banks ,196 RRB,30 private

sector bank and 44 Foreign banks in 2001-02

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Liabilities of Banks

Demand deposit

Current deposit

Call deposit

Term deposit

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Banking Assets

Investment:

1.Cash in hand and balance with RBI

2.A

sset with banking system3.Investment in government and other approved

securities

4.Bank credit among these assets, and is

influence by the RBI policy, quantitatively, bankcredit and investment in government securities.

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Govt. of India securities

Other approved Securities

Non approved securities

Commercial Banks Investment

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Increase in National Income

Expansion of banking facilities in new area & for

new class of people Increase in banking habit

Increase in relative rate of return

Increase in deficit financing Increase in bank credit

Inflow of deposit by NRIs

Growth in substitutes

Factor affecting Composition of Bank

Deposit

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Banking Innovations

I) Retail Banking

II) Bank as authorized dealerIII) Customer service

IV) Lead Bank scheme

V) Service area approach

VI) Action plans

VII)Micro finance

VIII)Banking Advisory services

IX) Participation Certificate and inter bank deposit

X) Consortium approach

XI) Credit cardsXII)New technology in Banking

XIII)Local Area Banks

XIV)Asset Liability Management

XV)Other diversification in Banking