COMMERCIAL BANK

PRESENTED BY :MEGHA DHIGRA SHIVANGI TRIPATHI SHAWAN DAS HARENDRA SINGH

DISCUSSION POINT : Banking  what is commercial bank  History  Overview of Indian commercial banks  Functions  Classification of commercial Banks in India.  Role of commercial banks in economic growth  challenges facing commercial banking industry in India

BANKING :THE NAME BANK DERIVES FROM THE ITALIAN WORD BANCO DESK/BENCH , USED DURING THE RENAISSANCE BY FLORENTINE BANKERS.

Banking operations started in India as early as 1870 with the establishment of the Bank of Hindustan, considered as the first bank in India.

What is commercial bank

 A commercial bank is a type of financial intermediary & a type of bank. An institution which accepts deposits, makes business loans, & offers related services. Commercial banks also allow for a variety of deposit accounts, such as checking, savings & time deposit. These institutions are run to make a profit & owned by a group of individuals.  Commercial banking is also known as BUSINESS BANKING.

History :Ancient Indian writings mention banking practiced by Vaishya, the merchants and landowners, who are ranked third of four among the castes. By the time of Buddha, circa 500 BCE, even top-ranked Brahmins were involved in banking. After economic liberalization in the 1990s, more than 50 major domestic and foreign commercial banks operate in India, as well as many state-owned banks, co-op banks and smaller commercial banks.

East India Company

In 1786, British East India Company's employees in Calcutta formed India's first corporate venture, the General Bank. Calcutta was the capital of British India. By 1790, the Bengal Bank operated for Europeans in the same market. Both banks had local officers and corporate board management structure. In 1791, General Bank became General Bank of India

Presidency Banks
After 1766, the East India Company's Calcutta administration was known as the Bengal Presidency. The Banks of Bengal, Bombay and Madras, established from 1809 to 1843, were Presidency Banks, which was 20 percent government owned. Treasury deposits were their largest capitalization. By 1835, "chartered" Presidency banks standardized national currency, and "unchartered" commercial banks lost their regional currency exchange income. In 1861, currency issue became the exclusive right of government. In 1862, Presidency banks entered an agreement to distribute currency, receiving treasury deposits at any place where they would open branches.

Privatization
In 1876, each Presidency bank had about 15 branches, meeting the needs of main commerce centers. That year, the Presidency banks were privatized. Treasury reserves were established for government funds. Government could loan treasury funds, but the banks had no right to those funds. Without government deposits to capitalize new branches, expansion slowed. The Presidency banks became the main financiers for the industrial growth of India in the next three decades

Nationalization
The Presidency banks merged in 1921 to form the Imperial Bank of India, a commercial bank that acted as a government bank until the establishment of the Reserve Bank of India in 1935. After that year, the Imperial Bank continued to act as a central bank for other banks, and was an agent for the Reserve Bank at some locations. After India's independence from Britain, the Imperial Bank was not immediately responsive to development needs in rural areas. In 1955, Parliament established the State Bank of India, which included the nationalized assets of the Imperial Bank.

Overview of Indian commercial Banks

 222 commercial banks in India.  Operating with 68,681 branches  Nearly 70% of branches are in rural/semi-urban areas  Bulk of commercial bank finance is for short-term working capital needs of industry, trade, agriculture & personal segment.  Banks are supporting growth in the economy by financing Productive sectors.

Functions of a commercial Bank :They are divided into two categories: (i) Primary functions (ii) secondary functions

Primary functions
a) Accepting Deposits (i) Current deposit (ii) Fixed deposit (iii) Saving deposit b) Granting loans and advances (i) Demand loan (ii) Term loan

Secondary Functions
Issue of circular cheques, travellers cheques, circular notes etc. Safe custody of valuable. Bankers drafts and letters of credit. Issuing demand drafts & pay orders. providing customers with facilities of foreign exchange. Transferring money from one place to another; & from one branch to another branch of the bank. Collecting & supplying business information Providing reports on the credit worthiness of customers.

Types of loans granted by commercial banks

Secured loan : A secured loan is a loan in which the borrower pledges some
asset (e.g., a car or property) as collateral (i.e., security) for the loan.  Mortgage loan : A mortgage loan is a very common type of debt instrument, used to purchase real estate. Commercial banks, however, are given security - a lien on the title to the house - until the mortgage is paid off in full. If the borrower default on the loan, the bank would have the legal right to repossess the house and sell it, to recover sums owing to it.

 Unsecured loan : Unsecured loan are monetary loans that are not secured against the borrowers assets (i.e., no collateral is involved). These may be available from financial institutions under many different guises or marketing packages: Bank overdrafts corporate bonds credit card debt credit facilities or lines of credit personal loans

Classification of commercial banks in India

Banks in India can be categorized into non-scheduled banks & scheduled banks . Scheduled banks constitute of commercial banks & co-operative banks. There are around 67,000 branches of scheduled banks spread across India . Currently, India has 88 scheduled commercial banks (SCBs) 27 public sector banks ( i.e. with the government of India holding a stake) after merger of New Bank of India in Punjab National Bank in 1993, 29 private banks( these do not have government stake; they may be publicly listed & traded on stock exchanges) & 31 foreign banks.

Cont..
They have a combined network of over 53,000 branches & 17,000 ATMs According to a report by ICRA limited , a rating agency, the public sector banks hold over 75 percent of total assets of the banking industry, with private and foreign banks holding 18.2% & 6.5% respectively. Indusland Bank was the first private bank to be set up in India. IDBI, ING Vyasa Bank, SBI commercial & International Bank Ltd, Dhanalaskhmi Bank Ltd, Karur Vysya Bank Ltd, Bank of Rajasthan Ltd etc are some of private sector banks. Banks from the public sector include Punjab National bank, vijaya Bank, UCO, Oriental Bank, Allahabad Bank, Andhra Bank etc. ANZ Grind lays Bank , ABN-ABRO Bank, American Express Bank Ltd, Citibank etc are some foreign banks operating in India.

Role of commercial banks in economic growth :Commercial banks help the economy to grow in these ways: Mobilization of savings Creation of credit Channelising the funds into productive investment. Banks facilitate uniform growth of all regions. Fuller utilisation of resoures Encourage right type of industries Finance to government