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Banking occupies one of the most important positions in the modern economic world. It is
necessary for trade and industry. Hence it is one of the great agencies of commerce. It is one of
the results of the Industrial Revolution and the child of economic necessity. Its presence is very
helpful to the economic activity and industrial progress of a country.
A bank is a commercial establishment Aiming at profits By accepting deposits from public
Which are repayable on demand Through cheques, drafts etc. Which are used for lending or
A commercial bank is a profit-seeking business firm, dealing in money and credit. It is a
financial institution dealing in money in the sense that it accepts deposits of money from the
public to keep them in its custody for safety. So also, it deals in credit, i.e., it creates credit by
making advances out of the funds received as deposits to needy people. It thus, functions as a
mobiliser of saving in the economy. A bank is, therefore like a reservoir into which flow the
savings, the idle surplus money of households and from which loans are given on interest to
businessmen and others who need them for investment or productive uses.
The Banking Companies Act of India defines Bank as A Bank is a financial institution which
accepts money from the public for the purpose of lending or investment repayable on demand or
otherwise withdrawable by cheques, drafts or order or otherwise.
Thus, Bank is a financial institution which deals in debts and credits. It accepts deposits, lends
money and also creates money. It bridges the gap between the savers and borrowers. Banks are
not merely traders in money but also in an important sense manufacturers of money.
Commercial banks are those which provide banking services for profit. The central bank
has the function of controlling commercial banks and various other economic activities. There
are many types of commercial banks such as deposit banks, industrial banks, savings banks,
agricultural banks, exchange banks, and miscellaneous banks.
In India, only those bank are called Commercial Banks which have been established in
accordance with Indian Companies Act 1913. Bank of Hindustan was the First commercial bank
in India.

Research Methodology:
This Research Project is descriptive and analytical in nature. Accumulation of the information on
the topic includes wide use of primary sources cases as well as secondary sources like books, earticles etc. The matter from these sources have been compiled and analysed to understand the
concept. Websites and articles have also been referred.

The objectives of the current project are:
1. To Analyze the function of commercial bank in India.
2. To Examine the Critical Analysis On Liberty

Scope of the Study:

The current project attempts to Analyse only the commercial banking system in India. It also
examine with the various types and function of commercial banks in India. Further this project
also describe the John S. Mill Life.

Organization of the Study:

This project report has been organized into five sections. The first section deals with the
introduction along with the Research methodology employed in preparation of this project. The
second section comprises of about the J.S. Mills life. The third section deals with the Idea on
Liberty. The fourth section deals with the Critical Analysis of the Essay on liberty. Lastly the
fifth section deals with the Conclusion to this project.

Types of Commercial banks

1. Deposit Banks: The most important type of deposit banks is the commercial banks. They have
connection with the commercial class of people. These banks accept deposits from the public and
lend them to needy parties. Since their deposits are for short period only, these banks extend
loans only for a short period. Ordinarily these banks lend money for a period between 3 to 6
months. They do not like to lend money for long periods or to invest their funds in any way in
long term securities.
2. Industrial Banks: Industries require a huge capital for a long period to buy machinery and
equipment. Industrial banks help such industrialists. They provide long term loans to industries.
Besides, they buy shares and debentures of companies, and enable them to have fixed capital.
Sometimes, they even underwrite the debentures and shares of big industrial concerns. The
important functions of industrial banks are: 2 Banking 1. They accept long term deposits. 2. They
meet the credit requirements of industries by extending long term loans. 3. These banks advise
the industrial firms regarding the sale and purchase of shares and debentures. The industrial
banks play a vital role in accelerating industrial development. In India, after attainment of
independence, several industrial banks were started with large paid up capital. They are, The
Industrial Finance Corporation (I.F.C.), The State Financial Corporations (S.F.C.), Industrial
Credit and Investment Corporation of India (ICICI) and Industrial Development Bank of India
(IDBI) etc.
3. Savings Banks: These banks were specially established to encourage thrift among small
savers and therefore, they were willing to accept small sums as deposits. They encourage savings
of the poor and middle class people. In India we do not have such special institutions, but post
offices perform such functions. After nationalisation most of the nationalised banks accept the
saving deposits.
4. Agricultural Banks: Agriculture has its own problems and hence there are separate banks to
finance it. These banks are organised on co-operative lines and therefore do not work on the
principle of maximum profit for the shareholders. These banks meet the credit requirements of
the farmers through term loans, viz., short, medium and long term loans. There are two types of
agricultural banks, (a) Agricultural Co-operative Banks, and (b) Land Mortgage Banks. Co-

operative Banks are mainly for short periods. For long periods there are Land Mortgage Banks.
Both these types of banks are performing useful functions in India.
5. Exchange Banks: These banks finance mostly for the foreign trade of a country. Their main
function is to discount, accept and collect foreign bills of exchange. They buy and sell foreign
currency and thus help businessmen in their transactions. They also carry on the ordinary
banking business. In India, there are some commercial banks which are branches of foreign
banks. These banks facilitate for the conversion of Indian currency into foreign currency to make
payments to foreign exporters. They purchase bills from exporters and sell their proceeds to
importers. They purchase and sell forward exchange too and thus minimise the difference in
exchange rates between different periods, and also protect merchants from losses arising out of
exchange fluctuations by bearing the risk. The industrial and commercial development of a
country depends these days, largely upon the efficiency of these institutions.
6. Miscellaneous Banks: There are certain kinds of banks which have arisen in due course to
meet the specialised needs of the people. In England and America, there are investment banks
whose object is to control the distribution of capital into several uses. American Trade Unions
have got labour banks, where the savings of the labourers are pooled together. In London, there
are the London Discount House whose business is to go about the city seeking for bills to
discount. There are numerous types of different banks in the world, carrying on one or the other
banking business.

FUNCTIONS OF COMMERCIAL BANKS :Modern commercial banks perform a variety of functions. They keep the wheels of
commerce, trade and industry always revolving. Major functions of a commercial
bank are: - Primary or Banking functions and Secondary or Non-Banking functions.


Primary / Banking Functions :-

Commercial banks have two important banking functions. One is accepting deposits
and other is advancing loans.

Deposits :-

One of the main function of a bank is to accept deposits from the public. Deposits
are accepted by the banks in various forms.

Current Account Deposits :Current Accounts are usually opened by businessmen who have a number of

regular transactions with the bank, both deposits and withdrawls. There is no
restriction on number and amount of deposits. There is also no restriction on
withdrawls. No interest is paid on current deposits. Banks may even charge interest
for providing this facility. These accounts are also known as demand deposits as
amount can be withdrawn on demand.

Saving Account Deposits :-

Saving Accounts are opened by salaried and other less income people. There is no
restriction on number and amount of deposits. withdrawls are subject to certain
restrictions. It earns Interest but less than fixed deposits. It encourages saving habit
among salary earners and others. Saving deposits are an important source of funds
for banks.

Fixed Account Deposits :-

Deposits in fixed account are time deposits. Money under this account is deposited
for a certain fixed period of time varying from 15 days to several years. A high rate
of interest is paid. If money is withdrawn before expiry date, the depositor receives
lower rate of interest. Deposits can be renewed for further period. Many banks
sanction loans against security of fixed deposits.

Recurring Account Deposits :-

In Recurring deposit, a specified amount is regularly deposited by account holder, at

an internal of usually a month. This is to form the habit of small savings among the
people. At the end of maturity period, the account holder gets a substantial amount.
Interest on this type of deposit is almost equal to fixed deposits.
Thus by creating variety of deposits, banks motivate people in a variety of ways and
encourage savings in the economy.

Loans And Advances :-

Banks not only mobilize money but also lend to its credit worthy customers for
maximizing profits. Loans and Advances are granted To :a)

Business And Trade :Commercial banks grant short-term loans to business and trade activities in

following forms:-


Overdraft :Commercial banks grant overdraft facility to current account holders Under this

system a borrower is allowed to draw more than what is deposited in his account.
The borrower is granted to a fixed additional amount against collateral security.
Interest is charged for actual amount drawn.

Cash Credit :-

Cash credit is given by the bank to any businessman to meet regular working
capital needs, against the security of goods or personal security. Interest is charged
on actual amount drawn by the customer.

Discounting Of Bills :-

When the holder of the bill is not in a position to wait till the maturity of the bill
and requires cash urgently, he sells the bill of exchange to bank. Bank advance
credit by discounting bills of exchange, government securities or any other
approved financial instruments. The bank purchases the instruments at a discount.


Money At Call :-

Banks also grant loans for a very short period, generally not exceeding 7 days.
Such advances are repayable immediately at a short notice hence they are called as
Money at Call or Call money. These loans are given to dealers or brokers in stock
market against Collateral Securities.

Direct Loans :Loans are given to customers against the security of moveable properties. Their

maturity varies from 1 to 10 years. Interest has to be paid on entire loan amount
sanctioned. Loans are of many types like :- personal loans, term loans, call loans,
participative loans, collateral loans etc.

Loans to Agriculture :Banks grant short-term credit to agriculture at a lower rate of interest. Loans are

granted for irrigation, purchase of equipments, inputs, cattle etc.


Loans To Industries :-

Banks grant secured loans to small and medium scale industries to meet their
working capital needs. The time period may be from one to five years. It may be in
the form of Overdraft, cash credit or direct loan.

Loans To Foreign Trade :-

Loans are granted to export and import in the form of direct loans, discounting of
bills, guarantee for deferred payments etc. Here the rate of interest is low.

Consumer Credit / Personal loans :-

Banks also grant credit to household in a limited amount to buy some durable
consumer goods like television sets, refrigerators, washing machine etc. Such
consumer credit is repayable in installments. Under 20-point programme, the scope
of consumer credit has been extended to cover expenses on marriage, funeral etc.,
as well.

Miscellaneous Advances :-

Banks also gives advances like packing credits to exporters, export bill purchased or
discounted, import finance, finance to self-employed, credit to weaker sections of
society at concessional rates etc.

Secondary / Non-banking Functions :-

Banks gives various forms of services to public. Such services are termed as nonbanking or secondary functions :-


Agency Services:-

Banks perform certain functions on behalf of their customers. While performing

these services, banks act as agents to their customers, hence these are called as
agency services. Important agency functions are :a)

Collection :Commercial








dividends, subscriptions, rents and any other receipts which are to be received by
the customer. For these services banks charge a nominal amount.

payment :-

Banks also makes payments on behalf of their customers like paying

insurance premium, rent, taxes, electricity and telephone bills etc for such services
commission is charged.

Income Tax Consultant :Commercial banks acts as income-tax consultants. They prepare and

finalise the income tax returns of their clients.


Sale And Purchase Of Financial Assets :As per the customers instruction banks undertake sale and purchase of

securities, shares and any other financial assets. Nominal charges are charged by a

Trustee, Executor And Attorney :As a trustee, banks becomes the custodian and manager of customer

funds. Bank also acts as executor of deceased customers will. As an Attorney the
banks sign the documents on behalf of customer.

E- Banking :Through Electronic Banking, a customer can operate his bank account

through internet. He can make payments of various bills. He can even transfer
money from one place to another.

Utility Services :Modern Commercial banks also performs certain general utility services for the

community, such as :a) Letter Of Credit :Banks also deal in foreign trade. They issue letter of credit and provide
guarantee to foreign traders for the soundness of their customers.
b) Transfer Of Funds :-

Banks arrange transfer of funds cheaply and safely from one place to
another. Transfer can be in the form of Demand draft, Mail transfer Travellers
cheques etc.
c) Guarantor :Banks offer a guarantee of payment on behalf of importer to facilitate
imports with deferred payments.
d) Underwriting :This facility is provided to Joint Stock Companies and to government to enable
them to raise funds. Banks guarantee the purchase of certain proportion of shares,
if not sold in the market.
e) Locker Facility :Safe Lockers are provided to the customers. So that they can deposit
their valuables like Jewellary, Securities, Shares and otherdocuments.
f) Referee :Banks may act as referee with respect to financial standing, business
reputation and respectability of customers.
g) Credit Cards :Credit card facility have been introduced by commercial banks. It enables
the holder to minimize the use of hard cash. Credit card is a convenient medium of
exchange which enables its holder to buy goods and services from member
establishment without using money.

Subsidiary Activities :Many commercial banks also undertakes subsidiary activities such as :-


Housing Finance :-

Housing finance is provided against the security of immoveable property of land and
buildings. Many banks such as SBI, Bank of India etc. have set up housing finance

Mutual Funds :-

A Mutual fund is a financial intermediary that pools the savings of investors for
collective investment in diversified portfolio securities Many banks like SBI, Indian
Bank etc. have set up mutual fund subsidiaries.

Merchant Banking :A variety of services are offered by merchant banking like :-

Management, Marketing and Underwriting of new issues, project promotion,

corporate advisory services, investment advisory services etc.

Venture Capital Fund :-

Venture capital fund provides start-up share capital to new ventures of little known,
unregistered, risky, young and small private business, especially in technology
oriented and knowledge intensive business. Many commercial banks like SBI,
Canara Bank etc. have set up venture Capital Fund Subsidiaries.

Factoring :-

Factoring is a continuing arrangement between a financial intermediary (factor) and

a business concern (client) where by the factor purchases the clients accounts
recieveable. Banks like SBI and Canara Bank have established subsidiaries to
provide factoring services.
Thus various services are provided by commercial Banks.

we can say that, commercial banks form the most important part of financial
intermediaries. It accepts deposits from the general public and extends loans to the
households, firms and the government. Banks form a significant part of the
infrastructure essential for breaking vicious circle of poverty and promoting
economic growth.