Professional Documents
Culture Documents
COMMERCIAL BANKING
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The first bank called the Bank of Venice was established in Venice, Italy
in 1157 to finance the monarch in this wars.
The bankers of Lombardy were famous in England, but modern banking
began with the English Goldsmiths only after 1640.
The First Bank in India was Bank of Hindustan started in 1770 by Alexender
and Co.
But the first bank in modern sense was established in the Bengal
Presidency as the Bank of Bengal in 1806.
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Meaning of Bank
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Two
Essential
Functions
Borrowing &
Lending
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Credit Creation
of payment etc.)
Agency Services
Miscellaneous Services
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Commercial Banking
in India
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TOPICS For
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Evolution Phase
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Foundation Phase
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Expansion Phase
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Backdrop: In the early decades the banking system in India came to suffer from the following
weaknesses:
The banking system was localised in a few metropolitan and urban cities, neglecting the vast
and potential rural areas as unbanked
The banking system remained confined to industry and trade, ignoring the vital interests of the
priority and neglected sectors, including agriculture and small scale industries and artisans.
Enormous concentration of economic power existed in the banking sector. A few business
houses were in effective control of powerful banks. Thus commercial banks contributed to the
enormous growth of big business houses, leading to emergence of industrial monopolies.
In view of the above weaknesses it was necessary to align bank credit flows into broader
areas.
Priority Sector Lending became the principle focus.
The other focus was to make the banks vibrant and potent instrument of development and
making them a mass institution.
Thus the scheme of social control was introduced in 1968 with the main objectives of achieving
a wider spread of bank credit, rectifying sectoral and regional imbalances, and directing credit
flows to priority sector.
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Consolidation Phase
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Reformatory Phase
Continued financial profligacy (decadence) of the
Government coupled with close monitoring and control
rendered the banking system on the verge of bankruptcy,
and thus drastic reforms were inevitable.
In the same period, India, for the first time faced the
problem of defaulting on its international commitments and
the access to external commercial credit markets was
completely denied, International credit ratings had been
downgraded and the International financial communities'
confidence in Indias ability to manage its economy had
been severely eroded.
Thus the Govt. had to initiate swift action to restore
international confidence.
Various macro economic structural reformatory measures
were undertaken in the field of Foreign trade, tax system,
industrial policy and financial and other sectors
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Recommendations of Narsimham
Committee 1 Report
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Major
Recommendations:
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Action on the
Recommendations:
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Asset Classification:
Transparency:
Capital Adequacy:
Minimum capital to riskweighted-asset ratio
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Loan Recovery:
Tackling of DD:
Private Banks:
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Major Recommendations
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Verma Committee
Report::
Report
The NC-II rep. defined a weak bank as one whose accumulated losses and
NPA exceeds its net worth and whose adjusted operating profits (op
profits income on recapitalisation bonds) was negative for three
consecutive years.
Based on this the Verma Committee on Restructuring of Weak Banks set up
by the RBI in Feb, 99 identified 3 banks as weak banks. (UCO, UBI and
Indian Bank)
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