PRESENTATION

ON

“COMMERCIAL
BANKING”
 BANK

A bank is a financial institution that accepts deposits and channels those

deposits into lending activities. Banks primarily provide financial services
to customers while enriching investors. Banks are important players in
financial markets and offer services such as investment funds and loans.
Government restrictions on financial activities by banks vary over time
and location.

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 A BRIEF 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.
Some indigenous bankers were also there like sahukars, shroffs, seths,
baniye who did the work on lending money on interest.
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. Post
liberalization, state-run banks are divesting government capital.

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 PHASES OF INDIAN BANKING
 Bank of Hindustan (1770)
 General bank of India (1786)
 Presidency bank and bank of Bengal (1809)
 Bank of Bombay (1840)
 Bank of Madras (1843)
 Imperial bank of India (1921)
 RBI (1949)
 Pre nationalization (1786-1969)
 Post nationalization (1969-1991)
 Liberalization phase (1992)
 BNP paribus bank (1860)
 HDFC bank (1994)

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 STRUCTURE OF INDIAN BANKING IN INDIA

RBI

COMMERCIAL CO-OPERATIVE DEVELOPMENT

BANKS BANKS BANKS

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 COMMERCIAL BANK

A commercial bank is a type of financial intermediary and a type of

bank. Commercial banking is also known as business banking. It is a
bank that provides checking accounts, savings accounts, money market
accounts, accepts time deposits and primarily deals with deposits and
loans from corporations or large businesses.

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 ROLE OF COMMERCIAL BANKS
 Processing of payments by way of telegraphic transfer, internet banking.
 issuing drafts and cheques.
 accepting money on term deposit.
 lending money by overdraft, installment loan, or other means
 providing documentary and standby letter of credit,
guarantees, performance bonds, securities underwriting commitments etc.
 safekeeping of documents and other items in safe deposit boxes
 sale, distribution or brokerage, with or without advice, of insurance, unit
trusts and similar financial products as a “financial supermarket”
 traditionally, large commercial banks also underwrite bonds, and make
markets in currency, interest rates, and credit-related securities, but today
large commercial banks usually have an investment bank arm that is
involved in the mentioned activities.

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 COMMERCIAL BANKS ARE DIVIDED AS:-

COMMERCIAL
BANKS

SCHEDULED NON- SCHEDULED

COMMERCIAL BANKS COMMERCIAL BANKS

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 Scheduled banks in India" means the State Bank of India constituted
under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank
as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of
1959), a corresponding new bank constituted under section 3 of the
Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970
(5 of 1970), or under section 3 of the Banking Companies (Acquisition
and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank
being a bank included in the Second Schedule to the Reserve Bank of
India Act, 1934 (2 of 1934), but does not include a co-operative bank". 

Non-scheduled bank in India means a banking company as defined in

clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949),
which is not a scheduled bank. 

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 PUBLIC SECTOR SCHEDULED
BANKS
 State Bank of India
 State Bank of Bikaner and Jaipur
 State Bank of Hyderabad
 State Bank of Indore
 State Bank of Mysore
 State Bank of Saurashtra
 State Bank of Travancore
 Andhra Bank
 Allahabad Bank
 Bank of Baroda
 Bank of India
 Bank of Maharashtra
 Canara Bank
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 Corporation Bank
 Dena Bank
 Indian Overseas Bank
 Indian Bank
 Oriental Bank of Commerce
 Punjab National Bank
 Punjab and Sind Bank
 Syndicate Bank
 Union Bank of India
 United Bank of India
 UCO Bank
 Vijaya Bank
 Central Bank of India
 PRIVATE SECTOR SCHEDULED SCHEDULED FOREIGN BANKS
BANKS
 American Express Bank Ltd.
 ING Vysya Bank Ltd
 ANZ Gridlays Bank Plc.
 Axis Bank Ltd
 Bank of America NT & SA
 Indusind Bank Ltd
 Bank of Tokyo Ltd.
 ICICI Bank Ltd
 Banquc Nationale de Paris
 South Indian Bank
 Barclays Bank Plc
 HDFC Bank Ltd
 Citi Bank N.C.
 Centurion Bank Ltd
 Deutsche Bank A.G.
 Bank of Punjab Ltd
 Hongkong and Shanghai Banking
 IDBI Bank Ltd Corporation
 Bank of Rajasthan  Standard Chartered Bank.
 The Chase Manhattan Bank Ltd.
 Dresdner Bank AG.

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Page  12
 RBI – THE REGULATORY OVER BANKS

The Reserve Bank of India is the central bank of India and the regulatory

body for the banking sector. It controls the monetary policy of
the rupee as well as US-Dollar currency reserves in the country. The
institution was established on 1 April 1935 during the British-Raj in
accordance with the provisions of the Reserve Bank of India Act,
1934 and plays an important part in the development strategy of the
government.
For the smooth running of the economy, RBI controls inflation, FOREX
reserves and exercise several instruments like CRR, SLR, PLR, bank
rates, repo rate, reserve repo rate etc. It also deals in money market
instruments to inject liquidity and for funding big corporate houses.

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 RBI FUNCTIONS

 Monetary Authority
 Manager of exchange control
 Regulator and supervisor of the financial system
 Developmental role
 Issuer of currency
 Bankers bank
 Govt. bank

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 CREDIT CREATION BY COMMERCIAL BANKS

The commercial banks are the second most important sources of money
supply after RBI. The money that commercial banks supply is called credit
money. 

The process of 'Credit Creation' begins with banks lending money out of
primary deposits. Primary deposits are those deposits which are
deposited in banks. In fact banks cannot lend the entire primary deposits
as they are required to maintain a certain proportion of primary deposits in
the form of reserves with the RBI under RBI & Banking Regulation Act.
After maintaining the required reserves, the bank can lend the remaining
portion of primary deposits. Here bank's lend the money and the process
of credit creation starts.

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 EXAMPLE:
Suppose there are a number of Commercial Banks in the Banking
System – Bank 1, Bank 2, Bank 3, & So on.

To begin with let us suppose that an individual "A" makes a deposit of Rs.
100 in bank 1. Bank "1" is required to maintain a Cash Reserve
Requirement of 5% (Prevailing Rate) which is decided by the RBI's
Monetary Policy from the deposits made by 'A'. Bank "1" is required to
maintain a cash reserve of Rs. 5 (5% of 100). The bank has now lendable
funds of Rs. 95(100 – 5). Let the Bank "1" lend Rs. 95 to a borrower; say
B. the method of lending is the same that is bank 1 opens an account in
the name of the borrower cheque for the loan amount. At the end of the
process of deposits & lending, the balance sheet of bank reads as given
below:-

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 BALANCE SHEET OF BANK 1:

Liabilities Amount Assets Amount

A's deposits 100 Cash Reserve 5

Loan to "B" 95
   

Total 100 Total 100

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 Now suppose that money that borrowed from bank "1" is paid to individual
"C" in settlement of his past debts. The individual "C" deposits the money
in his bank say, bank 2. Now bank 2 carries out its banking transaction.
It keeps a cash reserve to the extend of 5%, that is Rs. 4.75 (5% of 95)
and lend Rs. 90.5 to a borrower D. at the end of the process the balance
sheet of Bank 2 will be look like:-

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 BALANCE SHEET OF BANK 2:

Liabilities Amount Assets Amount

B's deposits 95 Cash Reserve 4.75

Loan to "C" 90.5

   

Total 95 Total 95

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 THE COMBINED BALANCE
SHEET OF BANKS
The amount advanced to D will return Bank Liabilities  Assets Reser Total
Deposit Credits ve Assets
ultimately to the banking system, as s
described in case of B and the
process of deposits and credit creation
Bank 100 95 5 100
will continue until the reserve with the 1
banks is reduced to zero.
Bank 95 90.5 4.75 95
2

The final picture that would emerge at Bank

3
90.5 85.98 4.52 90.5

the end of the process of deposit &

credit creation by the banking system is - - - - -

presented in the consolidated balance - - - - -

sheet of all banks are as under:- Bank 00 00 00 00
n

Total 2,000 1,900 100 2,000

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 It can be seen from the combined balance sheet that a primary deposits
of Rs. 100 in a bank 1 leads to the creation of the total deposit of Rs.
2,000. The combined balance sheet also shows that the banks have
created a total credit of Rs. 2,000. And maintained a total cash reserve of
Rs.100.Which equals the primary deposits. The total deposit created by
the commercial banks constitutes the money supply by the banks. 
 To conclude, we can say that credit creation by banks is one of the
important & only sources to generate income. And when the reserve
requirement increased by the central bank it would directly affect on the
credit creation by bank because then the lendable funds with the bank
decreases and vice versa.

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Thank you