l11...Commercial Banks

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COMMERCIAL BANKS


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2Brief History of Banks in India

In the first half of the 19th century, the East Indiacompany established 3 banks The Bank of Bengal in 1809 The Bank of Bombay in 1840 and

The Bank of Madras in 1843.

These 3 banks were also known as Presidency Banks

All the three presidency banks were amalgamatedon 27th. Jan. 1921 and theImperial Bank ofIndia was established

The Bank of Bengal,

which later became the State Bank of India.
http://en.wikipedia.org/wiki/Image:Bank_of_Bengal.jpghttp://en.wikipedia.org/wiki/Bank_of_Bengalhttp://en.wikipedia.org/wiki/State_Bank_of_Indiahttp://en.wikipedia.org/wiki/State_Bank_of_Indiahttp://en.wikipedia.org/wiki/Bank_of_Bengalhttp://en.wikipedia.org/wiki/Image:Bank_of_Bengal.jpg


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COMMERCIAL BANKSIn India, only those bank are called Commercial

Banks which have been established in accordance

with Indian Companies Act 1913.

Bank of Hindustan was the First commercial bankin India.


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Meaning An institution which accepts deposits, makes

business loans, and offers related services.

Commercial banks also allow for a variety of depositaccounts, such as checking, savings, and timedeposit.

While commercial banks offer services toindividuals, they are primarily concerned withreceiving deposits and lending to businesses.


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A bank is.

A commercial establishment

Aiming at profits

By accepting deposits from public

Which are repayable on demand

Through cheques, drafts etc.

Which are used for lending or investment


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6Kinds of Commercial Banks

Scheduled Banks:According to Reserve Bank of India Act 1934,a scheduled bank is that bank which has been included inthe second scheduled of the Reserve Bank

To be include in the schedule, a bank must satisfy thefollowing three condition:

1. It must have a paid up capital and reserves of anaggregate value of at least Rs. 5 lakhs.

2. It must satisfy the RBI that its affairs are not conductedin a manner detrimental to the interest of its depositors.

3. It must be a corporation and not a partnership or asingle owner firm.


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Non-Scheduled Banks:Banks whose name do

not figure in the second Schedule of theReserve Bank of India Act are non-scheduled

banks.


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Functions

1. Primary function:

Accepting deposits

Granting loans

Loans and advances


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Modes of short term financialassistance Cash credit

Bank overdraft

Discounting of bills


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2. Agencyfunction:

Collection & payment of credit on behalf ofcustomers

Collection of dividend, interest & rent onbehalf of customers.

Purchase & sale of securities Acting as trustee

Acting as agents


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3. General utility services:

Issuing letter of credit & traveler's cheques.

Safe-keeping of valuables in safe-depositlocker.

Undertaking foreign exchange business.

Merchant banker services.


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12STRUCTURE OF COMMERCIAL BANKS

SCHEDULED BANKS NON-SCHEDULED BANKS

PUBLIC SECTOR

BANKS

PRIVATE SECTOR

BANKS

STATE BANK

OF INDIA

& ITS

SUBSIDIARIES

NATIONALISED

BANKS

REGIONALRURAL BANKS

PRIVATE

BANKS

FOREIGN

BANKS


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STATE BANK OF INDIA

&ITS SUBSIDIARIES

On the recommendation of All India RuralCredit Survey Committee, Imperial Bank wasnationalized to become State Bank of India onJuly1, 1955.

SBI was established under State Bank of IndiaAct, 1955


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14Nationalised Bank The term public sector banks by itself connotes a

situation where the major/full stake in the banksare held by the government.

Nationalised banks have been permitted to offer

their equity shares to the public to the extent of49% of their capital.

Ex: Indian overseas bank, Canara bank, Bank ofIndia.


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15Regional Rural Banks

Regional Rural Banks were set up on therecommendation of a working group M.Narasimham in 1975.

The main objective is to extend loan & otherfacilities to the small and marginal farmers,agricultural labourers and artisans.

These are governed byRegional Rural BankAct, 1976.


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Private Banks

By private sector banks we mean those bankswhere equity is held by private share holders,

that is to say there is no government holding ofthe equity shares.

Ex: ICICI Bank, HDFC Bank, Yes Bank etc.


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Investment policy

Allocation of funds such that main objectives ofliquidity, solvency & profitabilityare achieved.

Obligations towards owners, workers,depositors- all are kept in mind while framinginvestment policy.


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Funds of a bank may be deployedfor: Investment in government and corporate

securities.

Extending loans and advances to the customersin form of cash credits, overdraft, term loans,bills purchased and discounted.

Purchase of fixed assets. Keeping cash in hand and with RBI etc.


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Principles of investment policy

1. Liquidity:

Capacity of bank to make cash available ondemand.

Proportion of assets maintained as liquidassets depend on:

Ownership of demand deposits Cash reserve

Banking habits

Seasonal needs


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2. Solvency:

Capacity to meets its liabilities in long run.

3. Profitability:


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E- Banking

Making banking products and services availableto wholesale and retail customers, through an

electronic distribution channel is called e-banking

Devices have been Telephone, personal computers

including ATM.


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Level of Services

Level-I :

the basic level service is the bank website,which disseminates information on differentproduct and services. This is generally,combined with e-mail to receive and answer

queries.


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Level-II:

In this type of e-banking customers are

allowed to submit their instruction or applicationor queries on their bank balances or status ofcertain transaction etc.

Level-III:In this banking services are offered throughFully Transactional Web sites.

This permits customers to operate their account

through internet.


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E-TradingRefers to electronic settlement of trading ofsecurities.

In simple words, it refers to purchase and sale ofsecurities in electronic form.SEBI has made compulsory trading of shares ofall the companies listed in Stock Exchange, in

Demat form with effect from 2nd Jan., 2002.

Documents

l11...Commercial Banks