Download - Commercial banks in india
![Page 1: Commercial banks in india](https://reader033.vdocuments.net/reader033/viewer/2022061601/55490eebb4c9056b458bcad5/html5/thumbnails/1.jpg)
COMMERCIAL BANKS IN
INDIA
![Page 2: Commercial banks in india](https://reader033.vdocuments.net/reader033/viewer/2022061601/55490eebb4c9056b458bcad5/html5/thumbnails/2.jpg)
Definition of banking
• “Bank is an institution which collects money from those who have in spare or who are saving it out of their income ; and lend this money out to those who require it.”
• All those institutions which are in the business of banking are called financial institutions.
![Page 3: Commercial banks in india](https://reader033.vdocuments.net/reader033/viewer/2022061601/55490eebb4c9056b458bcad5/html5/thumbnails/3.jpg)
Definition contd...
• Commercial Banks are like other financial institutions ( e.g.: money lenders, indigenous bankers, cooperative societies, agricultural and industrial credit institutions) which are in the business of lending and borrowing of money or credit.
![Page 4: Commercial banks in india](https://reader033.vdocuments.net/reader033/viewer/2022061601/55490eebb4c9056b458bcad5/html5/thumbnails/4.jpg)
Yes
• Commercial Banks are the most important credit institutions in the country in the business of lending and borrowing of money and credit creation.
![Page 5: Commercial banks in india](https://reader033.vdocuments.net/reader033/viewer/2022061601/55490eebb4c9056b458bcad5/html5/thumbnails/5.jpg)
Functions of Commercial Banks
• Accepting deposits• Advancing Loans• Discounting Bills of exchange• Agency services • General services
![Page 6: Commercial banks in india](https://reader033.vdocuments.net/reader033/viewer/2022061601/55490eebb4c9056b458bcad5/html5/thumbnails/6.jpg)
Functions of Commercial Banks
• Accepting Deposits Demand or Current Account Deposits:
- A depositor can withdraw it in part or in full at any time he likes without notice It carries no interest
-Only small savings of businessmen Cheque facilities
![Page 7: Commercial banks in india](https://reader033.vdocuments.net/reader033/viewer/2022061601/55490eebb4c9056b458bcad5/html5/thumbnails/7.jpg)
Fixed Deposits or Time Deposits
– Fixed deposits for 15days to few years – Withdrawn at expiry of term– High rate of interest – A source of investment
![Page 8: Commercial banks in india](https://reader033.vdocuments.net/reader033/viewer/2022061601/55490eebb4c9056b458bcad5/html5/thumbnails/8.jpg)
Saving Bank Deposits
• small saving deposits • salaried people• less rate of interest• money can be withdrawn • through cheques
![Page 9: Commercial banks in india](https://reader033.vdocuments.net/reader033/viewer/2022061601/55490eebb4c9056b458bcad5/html5/thumbnails/9.jpg)
Advancing Loans
• This is the most important means of earnings for the banks
• Giving loans to businessmen• But it keeps a fine balance between
deposits and loans• Banks profitability depends on this as well.
![Page 10: Commercial banks in india](https://reader033.vdocuments.net/reader033/viewer/2022061601/55490eebb4c9056b458bcad5/html5/thumbnails/10.jpg)
Two ways of advancing loans
By allowing an over draft facility cheques are honoured even if deposits is less
facility for businessmen only interest on overdraft amount
![Page 11: Commercial banks in india](https://reader033.vdocuments.net/reader033/viewer/2022061601/55490eebb4c9056b458bcad5/html5/thumbnails/11.jpg)
Loans by creating a deposit
• Banks give loans to people by charging interest
• Bank asks for security• Simply opens an account in name of
needy person and issues a cheque book to transact
• Loans granted mostly for business
![Page 12: Commercial banks in india](https://reader033.vdocuments.net/reader033/viewer/2022061601/55490eebb4c9056b458bcad5/html5/thumbnails/12.jpg)
Discounting Bills of Exchange
• If a seller sells some goods to a buyer who does not pay in cash. But the seller draws a bill of exchange which is signed by buyer
• There is maturity or payment period, say one month
• Now the seller can give this exchange bill to a bank which will give him cash against it
• Bank charges interest on it till one month
![Page 13: Commercial banks in india](https://reader033.vdocuments.net/reader033/viewer/2022061601/55490eebb4c9056b458bcad5/html5/thumbnails/13.jpg)
Agency Services
• Collection of bills, cheques• Collection of dividends, interest, premium• Purchase and sale of shares and
debentures• Payment of insurance premiums• Acts as trustee when nominated
![Page 14: Commercial banks in india](https://reader033.vdocuments.net/reader033/viewer/2022061601/55490eebb4c9056b458bcad5/html5/thumbnails/14.jpg)
General services
• Traveller’s cheques, bank draft• Safe vaults for valuables• Supplying trade information • Economic surveys• Projects report preparation
![Page 15: Commercial banks in india](https://reader033.vdocuments.net/reader033/viewer/2022061601/55490eebb4c9056b458bcad5/html5/thumbnails/15.jpg)
Classification of banks
• Central bank• Commercial Banks : short term credit • Industrial Banks: long term capital needs• Exchange Banks: Finance export import• Land Mortgage or land Development Bank: long
term credit for agriculture• Cooperative banks: small saving as joint effort of
members, low interest rate, registered under Cooperative Society’s Acts.
![Page 16: Commercial banks in india](https://reader033.vdocuments.net/reader033/viewer/2022061601/55490eebb4c9056b458bcad5/html5/thumbnails/16.jpg)
Credit Creation
• Banks create credit by creating cheque money or deposit money which on account of its free acceptability, circulates like legal tender money.
• This increases or decreases money in circulation without increase or decrease in currency or legal tender money.
![Page 17: Commercial banks in india](https://reader033.vdocuments.net/reader033/viewer/2022061601/55490eebb4c9056b458bcad5/html5/thumbnails/17.jpg)
Credit Creation By Banks
• Definition: It is the process of creation of credit by commercial banks. More use of DD and cheques is CC and not cash.
• Cheques and deposit money are as good as legal tender money on account of their acceptability by the general public .
![Page 18: Commercial banks in india](https://reader033.vdocuments.net/reader033/viewer/2022061601/55490eebb4c9056b458bcad5/html5/thumbnails/18.jpg)
Assumptions of credit creation:
• Adjusts assets balance between deposit liability and cash reserves
• Cash reserve ratio remains same• There should be sound banking system• No credit control policy of central bank• Business is normal, no depression
![Page 19: Commercial banks in india](https://reader033.vdocuments.net/reader033/viewer/2022061601/55490eebb4c9056b458bcad5/html5/thumbnails/19.jpg)
Limits of credit creation
• 1) Amount of cash of banks. Greater is amount, larger is its capacity for c.c.
• 2) Cash reserve ratio: lower is crr, higher is credit creation capacity
• 3) External drain: larger is amount of money withdrawn from bank, lower is its cc.
• 4) extent of borrowing of funds by business. More c.c. when business is prospering.
![Page 20: Commercial banks in india](https://reader033.vdocuments.net/reader033/viewer/2022061601/55490eebb4c9056b458bcad5/html5/thumbnails/20.jpg)
Limits of credit creation Continue.......
• supply or collateral security: larger and better is availability of security against loan, greater is extent of C.C.
• Banking habit of people: if people use more of cash and less of cheque then CC is not possible.
• Monetary policy of central bank: central bank can influence CC by credit control tools
![Page 21: Commercial banks in india](https://reader033.vdocuments.net/reader033/viewer/2022061601/55490eebb4c9056b458bcad5/html5/thumbnails/21.jpg)
Nationalization of banks in India
What is Nationalization of banks• The process of transferring ownership and operational
rights of a bank from private or trusts to the government of the country.
• In India also, 14 leading banks were nationalized on July 18, 1969.
• Each one’s deposits were more than Rs 50 crores.• Their share in total deposits and advances were
almost two third of all scheduled banks in nation
![Page 22: Commercial banks in india](https://reader033.vdocuments.net/reader033/viewer/2022061601/55490eebb4c9056b458bcad5/html5/thumbnails/22.jpg)
Nationalization of banks in India continues
• Nationalized banks were forced to follow directions and guidelines issued by government.
• At that time there were more than 645 banks having more than 4800 branches.
• They were serving only urban areas, big industrial houses at the cost of rural areas and small industries.
![Page 23: Commercial banks in india](https://reader033.vdocuments.net/reader033/viewer/2022061601/55490eebb4c9056b458bcad5/html5/thumbnails/23.jpg)
Nationalization of banks in India continues
• Indira Gandhi was the then P.M.• 6 more banks were nationalized in 1980.• National credit council was implementing
body.• In 1993 two banks were nationalized and
no. of nationalized banks is 19.
![Page 24: Commercial banks in india](https://reader033.vdocuments.net/reader033/viewer/2022061601/55490eebb4c9056b458bcad5/html5/thumbnails/24.jpg)
Objectives Of Nationalization• to reduce concentration of economic powers with only
a few industrial magnets and to prevent monopolies.• Mobilize resources even from backward and rural
areas• To prevent lopsided regional development• To prevent corruption and misuse of firms: the trustees
were only benefiting from huge resources and it was at the cost of general development in the country.
![Page 25: Commercial banks in india](https://reader033.vdocuments.net/reader033/viewer/2022061601/55490eebb4c9056b458bcad5/html5/thumbnails/25.jpg)
Objectives Of Nationalization Continues...
• To provide aid to the poor, small artisans and small scale industries. Small scale industries contributed 40% of industrial output but received only 4% of bank funds.
• To fulfil credit needs of farmers: hardly 2.2% of funds were available for agriculture.
![Page 26: Commercial banks in india](https://reader033.vdocuments.net/reader033/viewer/2022061601/55490eebb4c9056b458bcad5/html5/thumbnails/26.jpg)
Objectives Of Nationalization continues....
• To finance government’s development projects; specially five year plans
• To prevent giving loans to those firms were not existing in the priority list
• To prevent loan/advances to black marketers and hoarders.
![Page 27: Commercial banks in india](https://reader033.vdocuments.net/reader033/viewer/2022061601/55490eebb4c9056b458bcad5/html5/thumbnails/27.jpg)
Promotion of new entrepreneurship
• Banks have been actively financing IRDP, NREP, TRYSEM, JRY, NRY.
• The banks have been lending to the high priority projects in the economy.
![Page 28: Commercial banks in india](https://reader033.vdocuments.net/reader033/viewer/2022061601/55490eebb4c9056b458bcad5/html5/thumbnails/28.jpg)
THANK YOU