COMMERCIAL BANKING MANAGEMENT Page 1

A PROJECT REPORT ON
ROLE OF MONETARY POLICY IN INDIA

SUBMITTED
TO THE UNIVERSITY OF MUMBAI

AS A PARTIAL REQUIREMENT FOR COMPLETING THE POST
GRADUATION OF
M.COM PART –I (BANKING AND FINANCE) SEMESTER -I

SUBMITTED BY:
ANJALI
ROLL NO: 03


UNDER THE GUIDANCE OF
DR. AARTI KALYANARAMAN


COMMERCIAL BANKING MANAGEMENT Page 2


SIES COLLEGE OF COMMERCE AND ECONOMICS,
PLOT NO. 71/72, SION MATUNGA ESTATE
T.V. CHIDAMBARAM MARG,
SION (EAST), MUMBAI – 400022.

CERTIFICATE
This is to certify that Mr.__________________________________
__________________________________________________________
of M.Com (Banking and Finance) Semester I (academic year
2014-2015) has successfully completed the project on
______________________________________________________under the
Guidance of Dr. __________________________________________.

_________________ ___________________
(Project Guide) (Course Co-ordinator)

___________________ ___________________
(External Examiner) (Principal)
Place: _____________
Date: ___________
COMMERCIAL BANKING MANAGEMENT Page 3

DECLARATION


I, __________________________________________________
Student of M.Com (Banking and Finance) Semester I (academic year
2014-2015) hereby declare that, I have completed the project on
______________________________________________________________.
The information presented in this project is true and original
to the best of my knowledge.






Place: _____________
Date:_____________
___________________
Name:
Roll No.:


COMMERCIAL BANKING MANAGEMENT Page 4

ACKNOWLEDGEMENT

I would like to thank the University of Mumbai, for introducing
M.Com (Banking and Finance) course, thereby giving its students a
platform to be abreast with changing business scenario, with the
help of theory as a base and practical as a solution.
I am indebted to the reviewer of the project Dr. Aarti
kalyanaraman my project guide who is also our principal, for her
support and guidance. I would sincerely like to thank her for all her
efforts.
Last but not the least; I would like to thank my parents for
giving the best education and for their support and contribution
without which this project would not have been possible.


______________________

Name :
Roll no:




COMMERCIAL BANKING MANAGEMENT Page 5


EXECUTIVE SUMMARY
Abstract:
Banks play an important role in development of Indian economy. After
liberalization, the banking industry underwent major changes. The economic
reforms totally have changed the banking sector. RBI permitted new banks to be
started in the private sector as per there commendation of Narasimham committee.
The Indian banking industry was dominated by public sector banks. But now the
situations have changed. New generation banks with used of technology and
professional management has gained a reasonable position in the banking industry.
In this paper we look at the type of banks, their role and functioning, Establishment
and Role of India’s Central Bank
- RBI and the recent banking reforms .We perform a comparative data analysis
between GDP and total advances & deposits .We also check whether the Credit
Deposit Ratio has any relationship with the GDP. We then perform a regression
analysis to check whether there is any relationship between GDP and Bank lending
interest rates. We also compare the Flow of credit to Agricultural Sector with the
Growth of Agriculture Sector. We conclude the analysis by an overview and
analysis of the sector deployment of gross bank credit over the last two financial year.

COMMERCIAL BANKING MANAGEMENT Page 6

RESEARCH METHODOLOGY

 The research will be based upon the secondary sources of data as the purview of
the research is restricted to application of the BCG concept onto Videocon
Company. The company is not involved in research methodology any way.
 In order to achieve the first objective secondary sources of data will be referred
i.e. books, internet, magazines, articles, websites, etc.
 To fulfill the last two objectives, the help of hard facts and statistical data will
be taken, for such data collection various market surveys will be helpful. The
data will be analyzed and valuable inputs will be given in form of suggested
strategies.









COMMERCIAL BANKING MANAGEMENT Page 7

INTRODUCTION
What is a bank?
A bank is a financial intermediary that accepts deposits and channels those
deposits into lending activities, either directly by loaning or indirectly
through capital markets. A bank links together customers that have capital deficits
and customers with capital surpluses.
Due to their importance in the financial system and influence on
national economies, banks are highly regulated in most countries. Most nations
have institutionalized a system known as fractional reserve banking, under which
banks hold liquid assets equal to only a portion of their current liabilities. In
addition to other regulations intended to ensure liquidity, banks are generally
subject to minimum capital requirements based on an international set of capital
standards, known as the Basel Accords.
Banking in its modern sense evolved in the 14th century in the rich cities
of Renaissance Italy but in many ways was a continuation of ideas and concepts
of credit and lending that had its roots in the ancient world. In the history of
banking, a number of banking dynasties—notably the Medicis, the Fuggers,
the Welsers, the Berenbergs, and the Rothschilds—have played a central role over
COMMERCIAL BANKING MANAGEMENT Page 8

many centuries. The oldest existing retail bank is Monte dei Paschi di Siena, while
the oldest existing merchant bank is Berenberg Bank.















COMMERCIAL BANKING MANAGEMENT Page 9

History of banking
The history of banking begins with the first prototype banks of merchants of the
ancient world, which made loans to farmers and traders who carried goods between
cities. This began around 2000 BC in Assyria and Babylonia. Later, in ancient and
during the Roman Empire, lenders based in temples made loans and added two
important innovations: they accepted deposits and changed money. Archaeology
from this period in ancient China and India also shows evidence of money
lending activity.
Banking, in the modern sense of the word, can be traced to medieval and
early Renaissance Italy, to the rich cities in the north such
as Florence, Venice and Genoa. The Bardi and Peruzzi families dominated banking
in 14th century Florence, establishing branches in many other parts
of Europe. Perhaps the most famous Italian bank was the Medici bank, established
by Giovanni Medici in 1397. The oldest bank still in existence is Monte dei Paschi
di Siena, headquartered in Siena, Italy, which has been operating continuously
since 1472.
The development of banking spread from northern Italy throughout the Holy
Roman Empire, and in the 15th and 16th century to northern Europe. This was
followed by a number of important innovations that took place
in Amsterdam during the Dutch Republic in the 17th century and in London in the
COMMERCIAL BANKING MANAGEMENT Page 10

18th century. During the 20th century, developments in telecommunications and
computing caused major changes to banks' operations and let banks dramatically
increase in size and geographic spread. The financial crisis of 2007–2008 caused
many bank failures, including some of the world's largest banks, and provoked
much debate about bank regulation.













COMMERCIAL BANKING MANAGEMENT Page 11

Functions of a Bank
Functioning of a Bank is among the more complicated of corporate operations.
Since Banking involves dealing directly with money, governments in most
countries regulate this sector rather stringently. In India, the regulation traditionally
has been very strict and in the opinion of certain quarters, responsible for the
present condition of banks, where NPAs are of a very high order. The process of
financial reforms, which started in 1991, has cleared the cobwebs somewhat but a
lot remains to be done. The multiplicity of policy and regulations that a Bank has
to work with makes its operations even more complicated, sometimes bordering on
illogical. This section attempts to give an overview of the functions in as simple
manner as possible. Banking Regulation Act of India, 1949 defines Banking as
"accepting, for the purpose of lending or investment of deposits of money from the
public, repayable on demand or otherwise and withdraw able by cheques, draft,
and order or otherwise". Deriving from this definition and viewed solely from the
point of view of the customers,
 Banks essentially perform the following functions:
 Accepting Deposits from public/others (Deposits)
 Lending money to public (Loans)
 Transferring money from one place to another (Remittances)
 Credit Creation
COMMERCIAL BANKING MANAGEMENT Page 12

 Acting as trustees
 Keeping valuables in safe custody
 Investment Decisions and analysis
 Government business.
 Other types of lending and transactions.
In addition to providing a safe custodian of money, banks also loan money to
businesses and consumers. A large portion of a bank's business is lending. How do
banks get the money they loan? The money comes from depositors who intend to
save a portion of their wealth. Banks acting as intermediaries use these deposits
as loans to prospective borrowers. The objective of commercial banks like any
other organization is profit maximisation. This profit generally originates from the
interest differential between borrowers and lenders. In the present day, however,
the banking operation has extended much beyond simple lending exercise. So there
are other different channels of profit ensuing from other investment programmes
as well. However, it should be mentioned in this context that the entire deposit held
by a bank cannot be given as loans as the Central Bank retains a portion of this
money in the form of cash-reserve for unforeseen circumstances. Banks create
money in the economy by making loans. The amount of money that banks can lend
is directly affected by the reserve requirement set by the Federal Reserve. The
reserve requirement is currently 3 percent to 10 percent of a bank's total deposits.
COMMERCIAL BANKING MANAGEMENT Page 13

This amount can be held either in cash on hand or in the bank's reserve account
with the Fed. To see how this affects the economy, think about it like this. When a
bank gets a deposit of $100, assuming a reserve requirement of 10 percent, the
bank can then lend out $90. That $90 goes back into the economy, purchasing
goods or services, and usually ends up deposited in another bank. That bank can
then lend out $81 of that $90 deposit, and that $81 goes into the economy to
purchase goods or services and ultimately is deposited into another bank that
proceeds to lend out a percentage of it. In this way, money grows and flows
throughout the community in a much greater amount than physically exists. That
$100 makes a much larger ripple in the economy than you may realize!

Other Services Offered by Banks

 Credit Cards
 Personal Loans
 Home and Car Loans
 Mutual Funds
 Business Loans
 Safe Deposit Boxes
 Debit Cards
COMMERCIAL BANKING MANAGEMENT Page 14

 Trust Services
 Signature Guarantees
…and many other investment services.











COMMERCIAL BANKING MANAGEMENT Page 15

Types of banks
There are various types of banks. The necessity for the variety among these banks
is because each bank is specialized in their own field. Each bank has its own
principles and policies. Different rates of interests are also noted among these
banks. All these banks are listed as below:
Savings Banks – these banks are suited for employees with a monthly salary. Low
waged people may open an account in the savings bank.
Commercial Banks – These banks collects money from people in various sectors
and gives the same as a loan to business men and make profits in interests these
business men pay. Since the loan is large the interest rates are also high.
Industrial Development Bank – these banks are committed towards enhancing
the growth of industries by providing loans for a very long period of time. This is
vital for the long term growth of the industries.
Land Development’s Bank – these banks promote growth in the food sector, by
giving loans to farmer at a relatively lower interest rate. The loan is usually given
on the basis of land. If a farmer has lots of agricultural fields then the more will be
the loan provided.
COMMERCIAL BANKING MANAGEMENT Page 16

Indigenous Banks – native banks. They are normal moneylenders; only this time,
handling huge amounts of money. They collect money from the community and
provide loans to business men and industrialists for a short amount of time.
Mortgage Banks – these banks are specialized in providing mortgage loans alone.
In order to sell loans they depend solely on the secondary market.
Spare Bank – these banks are present in Norway. They promote both savings and
commercial facilities to the both people and organizations in Norway.
Federal or National Banks – these banks control the principles and policies of
other banks across the country. These banks are managed and run by the
government. This bank provides benchmarks which other banks should follow.
Co operative banks: co operative banks as the name suggests gets money from the
general community without any bias and provide loans to all sections of people in
the neighborhood. Their motto is not profit alone, but service.
Exchange Banks – these banks will be available in more than a single country.
They provide services for the buying and selling of gold and silver; transactions
will be in foreign currencies.
Consumer’s Bank – these are consumer friendly banks; they encourage the
consumer in buying commercial products and provide options for easy repay of the
loan amount.
COMMERCIAL BANKING MANAGEMENT Page 17

Community Development Banks – these banks provide services to the
community; where there has been nothing or very little development over the
years.
Credit Unions – they act just like a co operative bank except that they provide
services to only one employee union in the community. Low interest rates and easy
installment paybacks are features of this bank
Postal savings bank: these banks are oriented with postal services. People save
money for a defined period of time and are paid with standard interest rates.
Private Banks – these banks are not for the general public or community. They
serve entirely for private personnel’s assets and transactions alone.
Offshore Banks – they are also private banks except that they have little tax to pay
for their transactions; there is very little regulation for this bank.
Ethical Banks – as the name implies ethical banks promote candid transactions;
between various customers of the bank. Policies and rules are transparent in nature.
Internet Bank – provides banking facilities only via internet. There will be no
physical contact with the bank. All transactions are permitted only through online.
COMMERCIAL BANKING MANAGEMENT Page 18

Investment Banks – these banks are pertinent to large organization’s investment
ventures across the industry. They provide advice in the investments and promote
corporate transactions.
Merchant Banks – these banks exist for a long time. They promote investing in
organizations that reap huge benefits for a long time rather than brand new
organizations.
Universal Banks – these banks have a wide spectrum of financial assistances to
provide. Insurances to stocks, they promote everything across all countries around
the globe.
Islamic Banks – these banks are based on the principles of the religion Islam.
There are no interests for loans acquired from this bank. Service charges may
apply.
The above are some of the types of banks around the globe. They may be further
classified according to their role and designation,



COMMERCIAL BANKING MANAGEMENT Page 19

Role of Banks
A proper financial sector is of special importance for the economic growth of
developing and underdeveloped countries. The commercial banking sector which
forms one of the backbones of the financial sector should be well organized and
efficient for the growth dynamics of a growing economy. No underdeveloped
country can progress without first setting up a sound system of commercial
banking. The importance of a sound system of commercial banking for a
developing country may be depicted as follows:
Capital Formation
: The rate of saving is generally low in an underdeveloped economy due to the
existence of deep-rooted poverty among the people. Even the potential savings of
the country cannot be realized due to lack of adequate banking facilities in the
country. To mobilize dormant savings and to make them available to the
entrepreneurs for productive purposes, the development of a sound system
of commercial banking is essential for a developing economy .
Monetization
: An underdeveloped economy is characterized by the existence of a large no
monetized sector, particularly, in the backward and inaccessible areas of the
country . The existence of this non monetized sector is a hindrance in the economic
COMMERCIAL BANKING MANAGEMENT Page 20

development of the country. The banks, by opening branches in rural and
backward areas , can promote the process of monetization in the economy .
Innovations
: Innovations are an essential prerequisite for economic progress. These
innovations are mostly financed by bank credit in the developed countries. But the
entrepreneurs in underdeveloped countries cannot bring about these innovations for
lack of bank credit in an adequate measure. The banks should, therefore, pay
special attention to the financing of business innovations by
providing adequate and cheap credit to entrepreneurs.
Finance for Priority Sectors
: The commercial banks in underdeveloped countries generally hesitate in
extending financial accommodation to such sectors as agriculture and small scale
industries, on account of the risks involved there in. They mostly extend credit to
trade and commerce where the risk involved is far less .But for the development of
these countries it is essential that the banks take risk in extending credit facilities to
the priority sectors , such as agriculture and small scale industries .
Provision for Medium and Long term Finance
: The commercial banks in underdeveloped countries invariably give loans and
advances for a short period of time. They generally hesitate to extend medium
and long term loans to businessmen. As is well known, the new business need
COMMERCIAL BANKING MANAGEMENT Page 21

medium and long term loans for their proper establishment. The commercial banks
should, therefore, change their policies in favor of granting medium and long term
accommodation to business and industry.
Cheap Money Policy
: The commercial banks in an underdeveloped economy should follow cheap
money policy to stimulate economic activity or to meet the threat of business
recession. In fact, cheap money policy is the only policy which can help promote
the economic growth of an underdeveloped country. It is heartening to note that
recently the commercial banks have reduced their lending interest rates
considerably.
Need for a Sound Banking System:
A sound system of commercial banking is an essential prerequisite for the
economic development of a backward country






COMMERCIAL BANKING MANAGEMENT Page 22

Banking Sector in India
Central Bank
The Reserve Bank of India is the central Bank that is fully owned by the
Government. Itis governed by a central board (headed by a Governor) appointed by
the Central Government. It issues guidelines for the functioning of all banks
operating within the country.
Public Sector Banks
A. State Bank of India and its associate banks called the State Bank Group
B.21 nationalized banks
C.Regional rural banks mainly sponsored by public sector banks
Private Sector Banks
a. Old generation private banks
b. New generation private banks
c. Foreign banks operating in India
d. Scheduled co-operative banks
e. Non-scheduled banks
Co-operative Sector
The co-operative sector is very much useful for rural people. The co-operative
banking sector is divided into the following categories.
a. State co-operative Banks
COMMERCIAL BANKING MANAGEMENT Page 23

b. Central co-operative banks
c. Primary Agriculture Credit Societies
Development Banks/Financial Institutions
 IFCI,IDBI , ICICI Bank , IIBI
 SCICI Ltd.
 NABARD
 Export-Import Bank of India
 National Housing Bank
 Small Industries Development Bank of India
 North Eastern Development Finance Corporation

Banking system plays a very significant role in the economy of a country. It
is central to a nation’s economy as it caters to the needs of credit for all the
sections of the society. Money-lending in one form or the other has evolved along
with the history of mankind. Even in the ancient times, there are references to the
money-lenders, in the form of sahukars and zamindars who lend money by
mortgaging the land property of the borrowers.
Towards the beginning of the 20 century, with the onset of modern industry
in our country, the need for government-regulated banking system was felt. The
British government began to pay attention towards the need for an organized
COMMERCIAL BANKING MANAGEMENT Page 24

banking sector in the country and the Reserve Bank of India was set up to regulate
the formal banking sector in the country. Ever since they were nationalized in
1969, banks have been playing a major role in the socio-economic life of the
country. They have to act not only as purveyors of credit, but also as harbingers of
social and economic development through a variety of enterprises, many of which
may tiny and yet capable of generating productive energies.














COMMERCIAL BANKING MANAGEMENT Page 25

Role of banks in Indian economy
India is not only the world’s largest independent democracy, but also an
emerging economic giant. Without a sound and effective banking system, no
country can have a healthy economy. For the past three decades, India’s banking
system has several outstanding achievements to its credit. It is no longer confined
to only the metropolitans, but has reached even to the remote corners of the
country. This is one of the reasons of India’s growth process.
Agriculture in India has a significant history and it is demographically the
broadest economic sector and plays a significant role in the overall socio-economic
fabric of India. Finance in agriculture is an important as development of
technologies. A dynamic and growing agricultural sector needs adequate finance
through banks to accelerate overall growth. Most of the credit-related schemes of
the government to uplift the poorer and the under-privileged sections have been
implemented through the banking sector. With the passing of the Reserve Bank of
India Act 1934, there were improvements in agricultural credit. Earlier, the co-
operative banks were the main institutional agencies providing finance to
agriculture. But after nationalization of 14 major commercial banks, it was
mandatory for them to provide finance to agriculture as a priority sector. Thus,
agricultural credit acquired multi-agency dimension.
COMMERCIAL BANKING MANAGEMENT Page 26

The government has allocated `10000 crore to the National Bank for
Agriculture and Rural Development (NABARD) for refinancing Regional Rural
Banks (RRBs) to disburse short term crop loans to small and marginal farmers.
The short-term crop loans scheme offers credit to farmers at 7 per cent interest rate.
Besides, in order to reduce post-harvest losses, farmers are eligible to get post-
harvest loans up to six months at 4 per cent interest rate provided they keep their
produce in warehouses. The rural sector in a country like India can growth only if
cheaper credit is available to the farmers for their short-and medium-term loans. In
addition, the farmers get loans for purchase of electric motors with pump, tractors
and other machinery, digging wells or boring wells, purchase of dairy animals and
for many other allied enterprises.
The Industrial Development Bank of India (IDBI) is the premier institution
in India purveying financial assistance to the industrial sector projects. It provides
direct financial assistance to the industrial concerns in the form of granting loans
and advances, and purchasing or underwriting the issues of stocks, bonds or
debentures. The creation of the Development Assistance Fund is the special of the
IDBI. The Fund is used to provide assistance to those industries which are not able
to obtain funds mainly because of heavy investment involved or low expected rate
of returns. Assistance from the Fund requires the prior approval by the
government. Apart from this, the IDBI even gives guidance to start a business.
COMMERCIAL BANKING MANAGEMENT Page 27

In addition to the above traditional roles, banks also perform certain new age
functions which could not be thought of a couple of decades ago. Today, the
banking sector is one of the biggest service sectors in India. Availability of quality
services is vital for the well-being of the economy. The focus of banks has shifted
from customer acquisition to customer retention. With the stepping in of
information technology in the banking sector, the working strategy of the banking
sector has been revolutionary changes. Various customer-oriented products like
internet banking, ATM services, telebanking and electronic payment have lessened
the workload of customers. The facility of internet banking enables a consumer to
access and operate his bank account without actually visiting the bank premises.
The facility of ATMs and credit/debit cards has revolutionized the choices
available with the customers. Banks also serve as alternative gateways for making
payments on account of income-tax and online payment of various bills like the
telephone, electricity and tax. In the modern-day economy where people have not
time to make these payments by standing in queue, the services provided by banks
are commendable.
To conclude, we can say that the modern economies of the world have
developed primarily by making best use of the credit availability in their
systems. India is on the march; far reaching socio-economic changes are taking
place and Indian banks should come forward to play this role in the process. The
COMMERCIAL BANKING MANAGEMENT Page 28

role of banks has been important, but it is going to be even more important in the
future.


















COMMERCIAL BANKING MANAGEMENT Page 29

Role and Importance of Commercial Banks:
The functions of commercial banks explain their importance in the economic
development of a country.
Banks help in accelerating the economic growth of a country in the following
ways:
1. Accelerating the Rate of Capital Formation:
Commercial banks encourage the habit of thrift and mobilise the savings of people.
These savings are effectively allocated among the ultimate users of funds, i.e.,
investors for productive investment. So, savings of people result in capital
formation which forms the basis of economic development.
2. Provision of Finance and Credit:
Commercial banks are a very important source of finance and credit for trade and
industry. The activities of commercial banks are not only confined to domestic
trade and commerce, but extend to foreign trade also.
3. Developing Entrepreneurship:
Banks promote entrepreneurship by underwriting the shares of new and existing
companies and granting assistance in promoting new ventures or financing
promotional activities. Banks finance sick (loss-making) industries for making
them viable units.
4. Promoting Balanced Regional Development:
Commercial banks provide credit facilities to rural people by opening branches in
the backward areas. The funds collected in developed regions may be channelised
for investments in the under developed regions of the country. In this way, they
bring about more balanced regional development.
5. Help to Consumers:
Commercial banks advance credit for purchase of durable consumer items like
Vehicles, T.V., refrigerator etc., which are out of reach for some consumers due to
COMMERCIAL BANKING MANAGEMENT Page 30

their limited paying capacity. In this way, banks help in creating demand for such
consumer goods.
2. Structure of Commercial Banks in India:
The commercial banks can be broadly classified under two heads:

1. Scheduled Banks:
Scheduled Banks refer to those banks which have been included in the Second
Schedule of Reserve Bank of India Act, 1934.
In India, scheduled commercial banks are of three types:
(i) Public Sector Banks:
These banks are owned and controlled by the government. The main objective of
these banks is to provide service to the society, not to make profits. State Bank of
India, Bank of India, Punjab National Bank, Canada Bank and Corporation Bank
are some examples of public sector banks.
Public sector banks are of two types:
(a) SBI and its subsidiaries;
(b) Other nationalized banks.
(ii) Private Sector Banks:
COMMERCIAL BANKING MANAGEMENT Page 31

These banks are owned and controlled by private businessmen. Their main
objective is to earn profits. ICICI Bank, HDFC Bank, IDBI Bank is some examples
of private sector banks.
(iii) Foreign Banks:
These banks are owned and controlled by foreign promoters. Their number has
grown rapidly since 1991, when the process of economic liberalization had started
in India. Bank of America, American Express Bank, Standard Chartered Bank are
examples of foreign banks.
2. Non-Scheduled Banks:
Non-Scheduled banks refer to those banks which are not included in the Second
Schedule of Reserve Bank of India Act, 1934.













Cooperative banks
Larger institutions are often called cooperative banks. Some are tightly integrated
federations of credit unions, though those member credit unions may not subscribe
COMMERCIAL BANKING MANAGEMENT Page 32

to all nine of the strict principles of the World Council of Credit Unions
(WOCCU).
Like credit unions, cooperative banks are owned by their customers and follow the
cooperative principle of one person, one vote. Unlike credit unions, however,
cooperative banks are often regulated under both banking and cooperative
legislation. They provide services such as savings and loans to non-members as
well as to members, and some participate in the wholesale markets for bonds,
money and even equities.
[2]
Many cooperative banks are traded on public stock
markets, with the result that they are partly owned by non-members. Member
control is diluted by these outside stakes, so they may be regarded as semi-
cooperative.
Cooperative banking systems are also usually more integrated than credit union
systems. Local branches of cooperative banks select their own boards of directors
and manage their own operations, but most strategic decisions require approval
from a central office. Credit unions usually retain strategic decision-making at a
local level, though they share back-office functions, such as access to the global
payments system, by federating.
Some cooperative banks are criticized for diluting their cooperative principles.
Principles 2-4 of the "Statement on the Co-operative Identity" can be interpreted to
require that members must control both the governance systems and capital of their
cooperatives. A cooperative bank that raises capital on public stock markets creates
a second class of shareholders who compete with the members for control. In some
circumstances, the members may lose control. This effectively means that the bank
ceases to be a cooperative. Accepting deposits from non-members may also lead to
a dilution of member control.










COMMERCIAL BANKING MANAGEMENT Page 33