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Commercial banks
Presented by,
Neethi Gireesh (2407)
Mitika Kumari (2411)
Purnima Gupta (2415)
Roshika (2419)Konica Aggarwal (2421)
Pankaj Mohan Azad (2429)
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First : Banks take leading role in developing other financialintermediaries and markets.
Banks
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Second : Corporate sector heavily depends on banks to meetits financial needs.
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Finally : Banks cater to needs of vast number of savers fromthe household sector.
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Commercial Banks in India
Scheduled Commercial Banks
Unscheduled Commercial Banks.
A commercial bank is a financial intermediarywhich collects credit from lenders in the form ofdeposits and lends in the form of loans. Acommercial bank holds deposits for individuals and
businesses in the form of checking and savingsaccounts and certificates of deposit of varyingmaturities while a commercial bank issues loans inthe form of personal and business loans as well asmortgages.
Commercial Banks
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What are scheduled commercial banks?The Scheduled Commercial Banks have been listedunder the Second Schedule of the Reserve Bank of India
Act, 1934. The selection measure for listing a bank underthe Second Schedule was provided in section 42, of theReserve Bank of India Act, 1934.Eg. SBI, Associates of SBI, Allahabad Bank, PNB, UCO
Bank, etc.
What are unscheduled banks?
Non-scheduled or unscheduled banks are those bankswhich are not registered under schedule of RBI act, 1934.
Eg. City Union Bank Ltd., Ing Vysya Bank Ltd., SBICommercial & International Bank Ltd., The Federal BankLtd.
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INDIAN BANKING SYSTEM
RBI
SCHEDULED BANKS NON-SCHEDULED
BANKS
STATE COMMERCIAL CENTRALCOMMERCIAL BANKS
CO-OPERATIVE BANKS CO-OPERATIVE BANKSBANK & PRIMARY CREDIT
SOCIETIES
INDIAN FOREIGN
INDIAN BANKING SYSTEM
RBI
SCHEDULED BANKS NON-SCHEDULED
BANKS
STATE COMMERCIAL CENTRALCOMMERCIAL BANKS
CO-OPERATIVE BANKS CO-OPERATIVE BANKSBANK & PRIMARY CREDIT
SOCIETIES
INDIAN FOREIGN
PUBLIC SECTOR PRIVATE SECTOR
BANKS BANKS
SBI AND ITS OTHER NATIONALIZED REGIONAL RURAL
SUBSIDIARIES BANKS BANKS
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FUNCTIONS OF COMMERCIAL BANKS
PRIMARY
Accepting deposits
Grant of loan and advances
SECONDARY
Issuing letters of credit, travelers chequesetc.
Undertaking safe custody of valuables,important documents and securities byproviding safe deposit vaults or lockers.
Providing customers with facilities offoreign exchange.
Transferring money from one place toanother, and from one branch to anotherbranch of the bank
Standing guarantee on behalf of itscustomers for making payments forpurchase of goods , machinery, vehiclesetc.
Collecting and supplying businessinformation.
Issuing demand drafts and pay orders.
Providing reports on the credit worthinessof customers.
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I. Primary Functions
Accepting deposits: Mobilize deposits from public.
Grant of loans and advances: Given to members ofpublic and to the business organizations at a higher rate
of interest.
The difference between the rate of interest allowed ondeposits and the rate charged on the loans, is the mainsource of a banks income.
II. Secondary Functions Issuing letters of credit, travelers cheques, circular notes,
etc.
Undertaking safe custody of valuables, importantdocuments and securities by providing safe deposit
vaults or lockers. Providin customers with facilities of forei n exchan e.
Functions of
Commercial Bank
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Transferring money from one place to another,and from one branch to another branch of thebank.
Standing guarantee on behalf of its customersfor making payments for purchase of goods,machinery, vehicles, etc.
Collecting and supplying business information.
Issuing demand drafts and pay orders.
Providing reports on the credit worthiness of
customers.
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Each bank is responsible for framing its own InternalInvestment Policy Guidelines.
The Asset Liability Committee (ALCO) of a bank,
comprising senior bank officials, headed by the CEO, draftthe investment policy of the bank.
The aim of an Investment Policy of a bank is to create abroad framework within which investment decisions of theBank could be taken.
The Investment Policy outlines general instructionsnecessary to ensure that operations in securities areconducted in accordance with sound and acceptablebusiness practices.
Investment Policies of
Commercial Bank
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While the policy remains within the framework of the RBIguidelines, with respect to bank investment, it also takes intoconsideration certain bank-specific factors, viz., the bank'sliquidity condition and its ability to take credit risk, interest rate
risk and market risk. The Investment Policy provides guidelines with respect to
investment instruments, maturity mix of investment portfolio,exposure ceilings, minimum rating of bonds/ debentures,trading policy, accounting standards, valuation of securities
and income recognition norms, audit review and reportingand provisions for Non-Performing Investments (NPI).
It also outlines functions of front office/ back office/ mid office,delegation of financial powers as a part of expeditiousdecision-making process in treasury operations, handling ofasset liability management (ALM) issues, etc.
Based on the market environment envisaged by AssetLiability Committee (ALCO) in the Asset Liability Management(ALM) Policy, a Strategy Paper on investments and expectedyield is usually prepared which is placed before the CEO ofthe Bank. A review of the Strategy Paper may be done at, sayhalf yearly basis and put up to the CEO.
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Activities of
Commercial Bank
These can be broadly classified as:
Basic Banking activitiesForeign exchange Services
Banks services to Government
Payment and Settlement Systems
Paper based clearing systems
Cheque Truncation
Electronic Payment Systems
NRI Remittances
Cash Management services and Remittances
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Continued
Para-Banking activities Primary Dealership Business
Investment Banking /Merchant Banking services
Mutual Funds Business
Pension Funds Management (PFM) by Banks
Depository Services
Wealth Management/Portfolio Management Services
Bancassurance
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Technology
Outsourcing of services
Financial inclusion
Recent Trends
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Major advantage of Indian Banks are the availability of majorIT companies in India, who are the world leaders in ITapplication.
Internet Banking: Online access to account information
and payment and fund transfer facilities.
Technology
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Mobile Banking Transactions: Geographical reach ofmobile phones. RBI has adopted Bank Led Model inwhich mobile phone banking is promoted through
business correspondents of banks.Till June 30, 2009, 32 banks had been granted permission tooperate Mobile Banking in India, of which 7 belonged to theState Bank Group, 12 to nationalized banks and 13 to private/foreign banks.
Source: Report on Trends and Progress of Banking in India2008-09, RBI.
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Point of Sale (PoS) Terminals: In recent years, banks aremaking efforts to acquire Point of Sale (PoS) terminals at thepremises of merchants across the country as a relatively new
source of income. The installer of the PoS terminals is theacquirer of the terminal and the merchants are required tohold an account with the acquirer bank. The acquirer banklevies each transaction with a charge, say 1% of thetransaction value. This amount is payable by the merchant.
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Growing competition in thebanking sector has forcedbanks to outsource some oftheir activities to maintaintheir competitive edge.
Decision to outsource couldbe on cost considerationsas well as lack of expertisein banks in delivering certainservices.
Outsourcing of Services
Risks involved in the process of outsourcing to a third partymay include non-compliance with regulations, loss of controlover business, leakage of customer data, lack of expertise ofthe third party, poor service from third party, etc.
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Financial Inclusion implies providing financial services viz.,access to payments and remittance facilities, savings, loans andinsurance services at affordable cost to those who are excludedfrom the formal financial system.
Financial Inclusion
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Initiatives taken by the RBI:
The Lead Bank Scheme introduced by the RBI in 1969.
Under the scheme, designated banks are made keyinstruments for local development and entrusted with theresponsibility of identifying growth centers, assessingdeposit potential and credit gaps and evolving acoordinated approach for credit deployment in eachdistrict.
As at March 2009, there were 26 banks, mostly in thepublic sector, which have been assigned leadresponsibility in 622 districts of the country.
The RBI's recent measures to promote financial inclusionincludes:
Advising banks to open 'no frills' accounts.
Introduction of Business Correspondent (BC)/ BusinessFacilitator (BF) model.
Adoption of Information and Communication Technology(ICT) solutions.
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Micro-Credit:Provision of credit and other financial services and productsof very small amount to the poor in rural, semi-urban and
urban areas for enabling them to raise their income levels.
Banks are allowed to devise appropriate loan and savings
products and the related terms and conditions including sizeof the loan, unit cost, unit size, maturity period, grace period,margins, etc.
Such credit covers not only consumption and productionloans for various farm and nonfarm activities of the poor but
also includes their other credit needs such as housing and
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