Banking in India

Bank of Bengalpresidency governmentBank of BombayBank of MadrasImperial Bank of

IndiaState Bank of IndiaReserve Bank of IndiaReserve Bank of India Act, 1934
associate banksIndian governmentnationalisedIndian economy
scheduled banksState Bank of IndiaRegional Rural BanksBanking Regulation Act, 1949
National Bank for Agriculture and Rural Developmentmicrofinance

Indian Banking - Introduction

The Indian banking can be broadly categorized into nationalized
(government owned), private banks and specialized banking
institutions.The Reserve Bank of India acts a centralized body
monitoring any discrepancies and shortcoming in the system. Since the
nationalization of banks in 1969, the public sector banks or the
nationalized banks have acquired a place of prominence and has since
then seen tremendous progress. The need to become highly customer
focused has forced the slow-moving public sector banks to adopt a fast
track approach. The unleashing of products and services through the
net has galvanized players at all levels of the banking and financial
institutions market grid to look anew at their existing portfolio offering.
Conservative banking practices allowed Indian banks to be insulated
partially from the Asian currency crisis.Indian banks are now quoting al
higher valuation when compared to banks in other Asian countries (viz.
Hong Kong, Singapore, Philippines etc.) that have major problems
linked to huge Non Performing Assets (NPAs) and payment defaults.
Co-operative banks are nimble footed in approach and armed with

efficient branch networks focus primarily on the high revenue niche

retail segments.
The Indian banking has finally worked up to the competitive dynamics
of the new Indian market and is addressing the relevant issues to take
on the multifarious challenges of globalization. Banks that employ IT
solutions are perceived to be futuristic and proactive players capable
of meeting the multifarious requirements of the large customers base.
Private banks have been fast on the uptake and are reorienting their
strategies using the internet as a medium The Internet has emerged as
the new and challenging frontier of marketing with the conventional
physical world tenets being just as applicable like in any other
marketing medium.
The Indian banking has come from a long way from being a sleepy
business institution to a highly proactive and dynamic entity. This
transformation has been largely brought about by the large dose of
liberalization and economic reforms that allowed banks to explore new
business opportunities rather than generating revenues from
conventional streams (i.e. borrowing and lending). The banking in
India is highly fragmented with 30 banking units contributing to almost
50% of deposits and 60% of advances. Indian nationalized banks
(banks owned by the government) continue to be the major lenders in
the economy due to their sheer size and penetrative networks which
assures them high deposit mobilization. The Indian banking can be
broadly categorized into nationalized, private banks and specialized
banking institutions.
The Reserve Bank of India act as a centralized body monitoring any
discrepancies and shortcoming in the system. It is the foremost
monitoring body in the Indian financial sector. The nationalized banks
(i.e. government-owned banks) continue to dominate the Indian
banking arena. Industry estimates indicate that out of 274 commercial
banks operating in India, 223 banks are in the public sector and 51 are
in the private sector. The private sector bank grid also includes 24
foreign banks that have started their operations here. Under the ambit
of the nationalized banks come the specialized banking
institutions. These co-operatives, rural banks focus on areas of
agriculture, rural development etc.,

Cash advances

A cash advance is a service provided by most credit card and charge card issuers.
The service allows cardholders to withdraw cash, either through an ATM or over the
counter at a bank or other financial agency, up to a certain limit. For a credit card,
this will be the credit limit (or some percentage of it).
Cash advances often incur a fee of 3 to 5 percent of the amount being borrowed.
When made on a credit card, the interest is often higher than other credit card
transactions. The interest compounds daily starting from the day cash is borrowed.
Some "purchases" made with a credit card of items that are viewed as cash are also
considered to be cash advances in accordance with the credit card network's
guidelines, thereby incurring the higher interest rate and the lack of the grace period.
These often include money orders, lottery tickets, gaming chips, and certain taxes
and fees paid to certain governments. However, should the merchant not disclose
the actual nature of the transactions, these will be processed as regular credit card
transactions. Many merchants have passed on the credit card processing fees to the
credit card holders in spite of the credit card network's guidelines, which state the
credit card holders should not have any extra fee for doing a transaction with a credit
card.
Under card scheme rules, a credit card holder presenting an accepted form of
identification must be issued a cash advance over the counter at any bank which
issues that type of credit card, even if the cardholder cannot give his or her PIN.
Types of cash advance
There are a few different types of cash advances with varying features, but the
common denominators among all cash advances are the high interest rates and
fees. The most popular type of cash advance is borrowing on a line of credit through
a credit card. Cash can be withdrawn at an ATM or, depending on the credit card
company, from a check provided by the company that is deposited or cashed at a
bank. Cash advances on a credit card often come with much higher interest rates
than credit purchases and include a fee for cashing out your credit. Credit card
companies either charge a flat rate cash advance fee or charge a percentage of the
amount. Additionally, if you use an ATM to access the cash, you are charged a small
ATM usage fee.
Credit card cash advances carry a separate balance from credit purchases, along
with separate interest rates, but the monthly payment is potentially applied to both
balances. However, if you are only making the minimum payment, credit card
companies are allowed by federal law to apply the minimum payment only to the
balance with the smallest interest rate, which could cause the cash advance balance
to sit and accrue interest if only minimum payments are made. Cash advance

interest rates and fees vary by credit card company, so it is wise to learn the different
features of your specific card before borrowing through a cash advance.
Another common type of cash advance is the payday loan. As with a credit card cash
advance, payday loans also have high interest rates and fees. Payday lenders issue
loans anywhere from $50 to $1,000 but with interest rates exceeding 100%. The
loans are short-term and are required to be paid back on the borrower's payday,
unless he or she wishes to extend the loan, and in that case additional interest is
charged. To get a payday loan, you write a post-dated check made out to the payday
lender for the amount you plan to borrow, including the fees. The lender in turn
immediately issues the borrowed amount but waits to cash your check until your
payday comes. People with bad credit or no credit are the most likely to use this type
of cash advance as it may be their only option for a loan since banks require a
minimum credit score.
Another type of cash advance is to go directly through an employer. Availability of the
service, as well as applicable fees and interest, vary by employer, though oftentimes
no fees or interest are charged. Before borrowing from any cash advance program, it
is wise to do your research to find the best option for your financial needs .

Forms of Advances Given by

Banks
Commercial banks advances are made in different forms such as
cash credit, overdraft, loans, purchasing and Discounting Bills etc.
Commercial banks advances are made in different forms such as cash
credit, overdraft, loans, purchasing and Discounting Bills etc.. These
forms of advances are explained below.

Cash Credit : Cash Credit is an arrangement by which the customer is allowed

to borrow money up to a certain limit known as the cash credit limit.
Usually the borrower is required to provide security in the form of pledge
or hypothecation of tangible securities. Sometimes, this facility is also
provided against personal security.
1 his is a permanent arrangement and the customer need not draw the
sanctioned amount at once, but draw the amount as and when required.

He can put back any surplus amount which he may find with him. Thus
cash credit is an active and running account to which deposits and
withdrawals may be affected frequently
Interest is charged only for the amount withdrawn and not for the whole
amount approved. If the customer does not use the cash limit to the foil
extent, a commitment charge is made by the bank. This charge is
imposed on the un-utilized portion of cash credit only.
Cash credit provides an elastic form of borrowing since the limit fluctuates
according to the needs of the business. Cash credits are the most
favorable mode of financing by large commercial and industrial concerns .

Overdraft
Oxford Dictionary of Finance and Banking defines overdraft as "a loan
made to a customer with a cheque account at a bank or building society,
in which the account is allowed to go into debit, usually up to a specified
limit.
According to Cambridge Advanced Learners Dictionary, overdraft means
an amount of money that a customer with a bank account is temporarily
allowed to owe to the bank, or the agreement which allows this.
The Economist defines overdraft as "a credit facility that allows borrowers
to draw upon it (up to a specified limit) as and when they need to.
Borrowers pay only for what they use.
Overdraft is an arrangement between a banker and his customer by which
the latter is allowed to withdraw over and above his credit balance in the
current account up to an agreed limit. This is only a temporary
accommodation usually granted against security.
The borrower is permitted to draw and repay any number of times,
provided the total amount overdrawn does not exceed the agreed limit.
The interest is charged only for the amount drawn and not for the whole
amount sanctioned
A cash credit differs from an overdraft in one respect. A cash credit is used
for long-term by businesses in doing regular business whereas overdraft is
made occasionally and for short duration.
Banks sometimes grant unsecured overdraft for small amounts to
customers having current account with them. Such customers may be
government employees with fixed income or traders. Temporary

overdrafts are permitted only where reliable source of funds are available
to a borrower for repayment.

Loans
As defined in Oxford Dictionary of Finance and Banking, loan is the
money lent on condition by a bank that it is repaid, either in installments
or all at once, on agreed dates and usually that the borrower pays the
lender an agreed rate of interest (unless it is ail interest-live loan).
Oxford Dictionary of Finance and Banking defines bank loan as a
specified sum of money lent by a bank to a customer, usually for a
specified time, at a specified rate of interest.
According to Cambridge Advanced Learners Dictionary, loan means a
sum of money which is borrowed, often from a bank, and has to be paid
back, usually together with an extra amount of money that you have to
pay as a charge for borrowing.
I imotby W. Kocli defines loans as formal agreement between a bank and
borrower to provide a fixed amount of credit for a specified period.
hi ease of loan, the banker advances a lump sum for a certain period at an
agreed rate of interest- The entire amount is paid on an occasion either in
cash or by credit in his current account which he can draw at any time.
The interest is charged for the full amount sanctioned whether he
withdraws the money from his account or not.
The loans may be repaid in installments or at the expiry of a certain
period. The loan may be made with or without security. A loan once repaid
in full or in part cannot be withdrawn again by the customer. In case a
borrower wants further loan, he has to arrange for a fresh loan.

Demand Loan Vs Term Loan

Loan may be a demand loan or a term loan. Demand loan is payable on
demand. It is for a short period and usually granted to meet working
capital needs of the borrower. Term loans may be medium-term or longterm. Medium-term loans are granted for a period ranging from one year
to five years for the purpose of vehicles, tools, and equipments.
Long-term loans are granted for capital expenditures such as purchase of
land, construction of factory building, purchase of new machinery and
modernization of plant.

Secured Vs Unsecured Loan

According to section 5(e) of The Bank Companies Act, 1991, Secured
loan or advance means such a loan or advance as made against the
security assets, market value of which is not at any means less than the
amount of such loan or advance and unsecured loan or advance is that
loan or advance or part of it does not require sanctioning against the
security.
Participation Loan or Consortium Loan
Where one single loan is granted by more than one financing agency, it is
termed as a participation or consortium loan. Such participation becomes
necessary where either the risk involved is too large for one or more of
the participating institutions to take individually or there are
administrative or other difficulties in servicing and follow up of the loan.

Purchasing and Discounting Bills

Bills of exchange, as defined in The Negotiable Instruments Act, 1 SSI, is
an instrument in writing containing an unconditional order, signed by the
maker, directing a certain person to pay (on demand or at a fixed or
determinable future time) a certain sum of money only to, or to the order
of, a certain person or to the bearer of the instrument.
Banks grant advances to their customers by discounting bills of exchange.
The net amount, after deducting the amount of interest/discount from the
amount of the installment, is credited in the account of the customer. In
this form of lending, the interest is received by the banker in advance.
Banks sometimes purchase the bills instead of discounting them. Bills
which are accompanied by documents or title to goods such as bills of
lading or railway receipt are purchased by the bankers. In such cases, the
banker grants loan in the form of overdraft or cash credit against the
security of the bills.
The term bill purchased' seems to imply that the bank becomes the
purchaser or owner of such bills. But in almost all cases the bank holds the
bill only as a security for the advance.