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A

Project
on
Commercial Bank In India
SUBMITTED BY
Tejas Makwana
Roll No : 51

T.Y.B.B.I. SEMESTER - V
PROJECT GUIDE
PROF. ARCHANA MAINKAR

SUBMITTED TO
UNIVERSITY OF MUMBAI
RAJASTHANI SAMMELAN'S
Ghanshyamdas Saraf College
of Arts & Commerce
Affiliated to University of Mumbai
Reaccredited by NAAC with 'A' Grade
S.V. Road, Malad (West)
Mumbai - 400064
A.Y. 2016 - 17
1

A
Project
on
Commercial Bank in India
SUBMITTED BY
Tejas Makwana
Roll No : 51

T.Y.B.B.I. SEMESTER - V
PROJECT GUIDE
PROF. ARCHANA MAINKAR

SUBMITTED TO
UNIVERSITY OF MUMBAI
RAJASTHANI SAMMELAN'S
Ghanshyamdas Saraf College
of Arts & Commerce
Affiliated to University of Mumbai
Reaccredited by NAAC with 'A' Grade
S.V. Road, Malad (West)
Mumbai - 400064
A.Y. 2016 - 17
2

RAJASTHANI SAMMELAN'S
Ghanshyamdas Saraf College
of Arts & Commerce
Affiliated to University of Mumbai
Reaccredited by NAAC with 'A' Grade
S.V. Road, Malad (West)
Mumbai - 400064
A.Y. 2016 - 17

CERTIFICATE
This is to certify that Mr. Tejas Makwana Roll no : 51 of Third Year
B.com (Banking & Insurance)

Semester

has

Successfully

completed the project on "COMMERCIAL BANK IN INDIA " under


the guidance of Prof. Archana Mainkar in the Academic Year2016 2017

Project

Guide

Principal :
Date :

External Examiner :

College

Seal :
Date :

DECLARATION
I, Tejas Makwana a Student of Ghanshyamdas Saraf College
of Arts & Commerce, Malad (West) T.Y.B.Com (Banking &
Insurance)

SEMESTER - V Hereby declare that I have

completed my project on "COMMERCIAL BANK IN INDIA" In


the academic Year 2016-2017. This Information is true and
original to the best of my knowledge.

Date

Signature of Student :

ACKNOWLEDGEMENT
To list who all have helped me in difficult because they are so
numerous and the depth is so enormous.

would

like

to

acknowledge

the

following

as being

idealistic

channels and fresh dimensions in the completion of this project.

I take this opportunity to thank the university

of Mumbai for

giving me chance to do this project.

would

like

to

thank

my

Principle

Dr.

Sujata

Karmakar

for

providing the necessary facilities required for completion of this


project.

I take this opportunity to thank our Chief Coordinator Dr. Lipi


Mukherjee and Course Coordinator Prof. Urvi Jain for their moral
support and guidance.

would also like

Project

Guide

to express

Prof.

my

sincere

Archana Mainkar

gratitude

who's

towards

guidance

and

my
care

made the project successful.

I would like to thank my College library, for having provided


various references books and magazines related to my project.

INDEX

CHAPT
ER
1

PARTICULARS

PAG
E
NO.

INDIAN BANKING SYSTEM


1.1 MEANING OF BANK

1.2 FEATURES OF BANK

1.3 TYPES OF BANK

COMMERCIAL BANK
9

2.1 INTRODUCTION

11

2.2 CLASSIFICATION OF COMMERCIAL BANKS


2.3

ADVANTAGES

&

DISADVANTAGES

OF

11

COMMERCIAL BANKING
2.4 FUNCTIONS OF COMMERCIAL BANKS
2.5 CREATION OF CREDIT
2.6 SERVICES OFFERED BY COMMERCIAL BANKS
2.7 POLICIES OFFERED BY COMMERCIAL BANKS

14
25
29
33

STATISTICAL DATA
3.1 Movement in assets, credit and deposit

38

growth of the SCBs


3.2 Growth in CASA deposits of the SCBs
3.3

Trend in maturity profile of assets and

liabilities
3.4 Maturity profile of select liabilities / assets of

40
41
42

the SCBs
3.5

39

Growth of select items of income and

expenditure

CASE STUDIES
4.1 HISTORY OF ICICI BANK

44

4.2 DIFFRENT TYPES OF LOAN PROVIDED BY ICICI

45

BANK

46

4.3 ARTICLE ON ICICI BANK


4.4 QUESTIONARIES
4.5 CONCLUSION

48
53
54

4.6 BIBIOLIOGRAPHY

54

4.7 REFRENCE

CHAPTER 1. INDIAN BANKING SYSTEM


1.1 MEANING OF BANK

A bank is a financial institution and a financial intermediary that


accepts deposits and channels those deposits into lending activities,
either directly or through capital markets. A bank connects customers
8

that have capital deficits to customers with capital surpluses. The term
bank is derived from the French word Bunco which means a Bench or
Money exchange table. In olden days, European money lenders or
money changers used to display (show) coins of different countries in
big heaps (quantity) on benches or tables for the purpose of lending or
exchanging.

1.2 CHARACTERISTICS / FEATURES

Dealing in Money:

Bank is a financial institution which deals with other people's money


i.e. money given by depositors.

Individual / Firm / Company:

A bank may be a person, firm or a company. A banking company


means a company which is in the business of banking.

Acceptance of Deposit:

A bank accepts money from the people in the form of deposits which
are usually repayable on demand or after the expiry of a fixed period. It
gives safety to the deposits of its customers. It also acts as a custodian
of funds of its customers.

Giving Advances:

A bank lends out money in the form of loans to those who require it for
different purposes.

Payment and Withdrawal:

A bank provides easy payment and withdrawal facility to its customers


in the form of cheques and drafts; it also brings bank money in
circulation. This money is in the form of cheques, drafts, etc.

Agency and Utility Services:

A bank provides various banking facilities to its customers. They


include general utility services and agency services.

Profit and Service Orientation:

A bank is a profit seeking institution having service oriented approach.

Ever increasing Functions:

Banking is an evolutionary concept. There is continuous expansion and


diversification as regards the functions, services and activities of a
bank.

Connecting Link:

10

A bank acts as a
connecting
between
borrowers

Saving
Banks

link

and

Consumers
Banks

Commercial
Banks

lenders of money.
Banks

collect

money

from

Industrial
Banks /
Developmen
t Banks

Exchange
Banks

those who have


surplus
and

money

give

same

to

the

Cooperative
Banks

those

who are in need


of money.

Land
Developmen
t Banks
Central /
Federal /
National
Bank

Indigenous
Banks

Banking Business:

A bank's main activity should be to do business of banking which


should not be subsidiary to any other business.

Name Identity:

A bank should always add the word "bank" to its name to enable
people to know that it is a bank and that it is dealing in money.

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1.3 TYPES OF BANK


1. Central Bank

Central
Bank
Export Import Bank

Commercial
Banks

Developmen
t Banks

Saving
Banks

Rural
Banking

Cooperative
Banks

Indigenous
Bankers

Specialized
Banks

A central bank functions as the apex controlling institution in the


banking and financial system of the country. It functions as the
controller of credit, bankers bank and also enjoys the monopoly of
issuing currency on behalf of the government. A central bank is usually

12

control and quite often owned, by the government of a country. The


Reserve Bank of India (RBI) is such a bank within an India.
2. Commercial Banks
It operates for profit. It accepts deposits from the general public and
extends loans to the households, the firms and the government. The
essential characteristics of commercial banking are as follows:
- Acceptance of deposits from public - For the purpose of lending or
investment - Repayable on demand or lending or investment. Withdrawal by means of an instrument, whether a cheque or
otherwise.
Another distinguish feature of commercial bank is that a large part of
their deposits are demand deposits withdraw able and transferable by
cheque.
3. Development Banks
It is considered as a hybrid institution which combines in itself the
functions of a finance corporation and a development corporation.
They also act as a catalytic agent in promoting balanced and viable
development by assuming promotional role of discovering project
ideas, undertaking feasibility studies and also provide technical,
financial and managerial assistance for the implementation of project.
In India Industrial Development Bank on India (IDBI) is the unique
example of development bank. It has been designated as the principal
institution of the country for co-coordinating the working of the
institutions engaged in financing, promoting or development of
industry.
13

4. Co-operative Banks
The main business of co-operative banks is to provide finance to
agriculture. They aim at developing a system of credit. Agriculture
finance is a special field. The co-operative banks play a useful role in
providing cheap exit facilities to the farmers.
In India there are three wings of co-operative credit system namely
(i)
(ii)
(iii)
(iv)

Short term,
Medium-term,
Long term credit.
The former has a three tier structure consisting of state

5. Specialized Banks
These banks are established and controlled under the special act of
parliament. These banks have got the special status. One of the major
bank is National Bank for Agricultural and Rural development
(NABARD) established in 1982, as an apex institution in the field of
agricultural and other economic activities in rural areas. In 1990 a
special bank named small industries development Bank of India (SIDBI)
was established. It was the subsidiary of Industrial development Bank
of India. This bank was established for providing loan facilities,
discounting and rediscounting of bills, direct assistance and leasing
facility.
6. Indigenous Bankers
That unorganized unit which provides productive, unproductive, long
term, medium term and short term loan at the higher interest rate are
known as indigenous bankers. These banks can be found everywhere
in cities, towns, mandis and villages.
14

7. Rural Banking
A set of financial institution engaged in financing of rural sector is
termed as Rural Banking. the policy of financing of these banks has
been designed in such a way so that these institution can play catalyst
role in the process of rural development.
8. Saving Banks
These banks perform the useful services of collecting small savings
commercial banks also run saving bank to mobilize the savings of
men of small means. Different countries have different types of savings
bank viz. Mutual savings bank, Post office saving, commercial saving
banks etc.
9. Export - Import Bank
These banks have been established for the purpose of financing
foreign trade. They concentrate their working on medium and longterm financing. The Export-Import Bank of India (EXIM Bank) was
established on January 1, 1982 as a statutory corporation wholly
owned by the central government.
10. Foreign Exchange Banks
These banks finance mostly to the foreign trade of a country. Their
main function is to discount, accept and collect foreign bulls of
exchange. They also buy and self-foreign currencies and help
businessmen to convert their money into any foreign currency they
need. Over a dozen foreign exchange banks branches are working in
India have their head offices in foreign countries.
15

11. International Banks


The basic list of those International Banks within India which help the
banking sector of India to develop in International market.

CHAPTER 2. COMMERCIAL BANKS


2.1 INTRODUCTION
The Indian Government at the time established three Presidency
banks, viz., the Bank of Bengal (established in 1809), the Bank of
Bombay (established in 1840) and the Bank of Madras (established in
1843).
After independence, the Government of India started taking steps to
encourage the spread of banking in India. In order to serve the
economy in general and the rural sector in particular, the All India
Rural Credit Survey Committee recommended the creation of a statepartnered and state-sponsored bank taking over the Imperial Bank of
India and integrating with it, the former state-owned and stateassociate banks. Accordingly, State Bank of India (SBI) was constituted
in 1955.
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Commercial banking is the most important part of modern banking set


up. These days, the function of commercial banks are confined not only
to advancing loans to the public and accepting their deposits, their
contribution in accelerating the rate of economic development in
under-developed and developing countries like that of India is very
effective. Not only is that, banking highly effective and useful in the
fulfillment of various socio-economic objectives of the Government.
Commercial banking in India occupies an important place in the
banking set-up of the country, these days. Up to, 1969, the operation
and functioning of commercial banks in India was confined only to
medium and large sized towns and economically rich people.
Agriculture, small scale and cottage industries and rural areas were
generally neglected by these banks. With the nationalization of
commercial banks in 1969, now these priority sectors have started
getting attention, with the result they get more credit and more
branches of these banks are being opened in rural areas also.

MEANING OF COMMERCIAL BANKS


Commercial Banks are like other financial institutions (e.g. money
lenders, indigenous bankers, cooperative societies, agricultural and
industrial credit institutions) which are in the business of lending and
borrowing of money or credit. Commercial banks are an organization
which normally performs certain financial transactions. It performs the
twin task of accepting deposits from members of public and make
advances to needy and worthy people from the society.
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DEFINITIONS OF COMMERCIAL BANKS


According to the Indian Banking Company Act 1949, "A banking
company means any company which transacts the business of
banking. Banking means accepting for the purpose of lending of
investment of deposits of money from the public, payable on demand
or other wise and withdraw able by cheque, draft or otherwise."

2.2 CLASSIFICATION OF COMMERCIAL BANKS


1. Scheduled banks : Banks which have been included in the Second
Schedule of RBI Act 1934. They are categorized as follows:

Public Sector Banks : are those banks in which majority

of stake are held by the government. E.g. SBI, PNB, Syndicate


Bank, Union Bank of India etc.

Private Sector Banks : are those banks in which majority


of stake are held by private individuals. E.g. ICICI Bank, IDBI
Bank, HDFC Bank, AXIS Bank etc.

Foreign Banks : are the banks with Head office outside


the country in which they are located. E.g. Citi Bank, Standard
Chartered Bank, Bank of Tokyo Ltd. etc.
2. Non-scheduled commercial bank s: Banks which are not
included in the Second Schedule of RBI Act 1934.

18

2.3 ADVANTAGES & DISADVANTAGES OF COMMERCIAL


BANKING
ADVANTAGES :
The following are the advantages of commercial banks in India:
INVESTMENT :
For any new business to get off the ground and begin operations there
must be capital available that can be used to purchase necessary
equipment and property. Commercial banks make this capital available
to new entrepreneurs through the great number of loans that they
provide. If it wasn't for the role that commercial banks play, capital for
starting a business would only be available to the very rich.
MORTGAGES :
The flat price of a home is beyond the purchasing power of most
people. Only through the creation of mortgages by commercial banks
is the ability to purchase a house given to the average person. A
mortgage involves a fixed series of annual payments to a bank over a
long period of time in exchange for the bank paying the full price of the
purchase in the short term.
SAVINGS :
Rather than merely keeping your money in a safe place, by placing
your money in a bank account you add to your wealth as the bank
pays interest on the amount. This has a further advantage for society
at large: As money saved in the bank isn't merely dead capital but
money that the bank is actively investing in other enterprises, it helps
to grow the wealth of society overall.
PAYMENT :
Commercial banks have devised a number of ways to aid clients in the
payment of their debts. The first paper currency was created by
19

commercial banks as issued credits on physical wealth, such as gold


kept in bank vaults. Commercial bank customers can use checks as
well as debit cards and online bill-paying services to make payments in
a quick, easy way.

DISADVANTAGES :
The Following are the Disadvantages of Commercial Banks in India:
LOAN APPROVALS :
One disadvantage of using a large, commercial bank can easily be
seen if you're trying to get a loan. Unlike a local bank, or a relatively
small bank, a larger, commercial bank will have to put a loan through
several different departments. Beyond that, you may have to have
dozens of people sign off on a single loan. This can lead to many more
people getting involved in saying yes or no to your loan, and it may
lead to a lot more negotiation than you were hoping to conduct. This is
especially true for a simple, relatively straightforward home or
business loan.
RIGID STANDARDS :
Another downside of using commercial banks is that they have very
rigid standards more often than not. All banks have to follow the
financial laws put forth by the U.S. government, but commercial banks
may treat their own, additional rules as if they're set in stone. Again,
this is most often seen in the loan process. Commercial banks, due to
their size and the sheer volume of the market that they command, are

20

often less likely to make concessions to customers. This can lead to a


very "my way or the highway" attitude from a commercial bank.

SECURITY :
One of the biggest concerns that a person has with their bank is
whether or not their money is insured. If you put $10,000 in a savings
account, you want to be sure that money will be available, regardless
of what expenses your bank has to deal with. This is why the U.S.
government created FDIC insurance, which insures up to $100,000
worth of money (though it's more than $200,000 until 2013) per
depositor so that those depositors can have faith in the bank.

2.4 FUNCTIONS OF COMMERCIAL BANKS


1.
2.

PRIMARY FUNCTIONS
SECONDARY FUNCTIONS

PRIMARY FUNCTIONS
Primary banking functions of the commercial banks include:

Acceptance of deposits
Advancing loans
Creation of credit
Clearing of cheques
Financing foreign trade
Remittance of funds

21

1)

ACCEPTANCE OF DEPOSITS :

Accepting deposits is the primary function of a commercial bank


mobilizes savings of the household sector. Banks generally accept
three types of deposits viz., (a) Current Deposits (b) Savings Deposits,
and (c) Fixed Deposits.
Current Deposits:
These deposits are also known as demand deposits. These deposits
can be withdrawn at any time. Generally, no interest is allowed on
current deposits, and in case, the customer is required to leave a
minimum balance undrawn with the bank. Cheques are used to
withdraw the amount. These deposits are kept by businessmen and
industrialists who receive and make large payments through banks.
The bank levies certain incidental charges on the customer for the
services rendered by it.
Savings Deposits:
This is meant mainly for professional men and middle class people to
help them deposit their small savings. It can be opened without any
introduction. Money can be deposited at any time but the maximum
cannot go beyond a certain limit. There is a restriction on the amount
that can be withdrawn at a particular time or during a week. If the
customer wishes to withdraw more than the specified amount at any
one time, he has to give prior notice. Interest is allowed on the credit
balance of this account. The rate of interest is greater than the rate of

22

interest on the current deposits and less than that on fixed deposit.
This system greatly encourages the habit of thrift or savings.
Fixed Deposits:
These deposits are also known as time deposits. These deposits cannot
be withdrawn before the expiry of the period for which they are
deposited or without giving a prior notice for withdrawal. If the
depositor is in need of money, he has to borrow on the security of this
account and pay a slightly higher rate of interest to the bank. They are
attracted by the payment of interest which is usually higher for longer
period. Fixed deposits are liked by depositors both for their safety and
as well as for their interest. In India, they are accepted between three
months and ten years.

2) ADVANCING LOANS:
The second primary function of a commercial bank is to make loans
and advances to all types of persons, particularly to businessmen and
entrepreneurs. Loans are made against personal security, gold and
silver, stocks of goods and other assets. The most common way of
lending is by
Overdraft Facilities:
In this case, the depositor in a current account is allowed to draw over
and above his account up to a previously agreed limit. Suppose a
businessman has only Rs. 30,000/- in his current account in a bank but
requires Rs. 60,000/- to meet his expenses. He may approach his bank
and borrow the additional amount of Rs. 30,000/-. The bank allows the
23

customer to overdraw his account through cheques. The bank,


however, charges interest only on the amount overdrawn from the
account. This type of loan is very popular with the Indian businessmen.
Cash Credit:
Under this account, the bank gives loans to the borrowers against
certain security. But the entire loan is not given at one particular time,
instead the amount is credited into his account in the bank; but under
emergency cash will be given. The borrower is required to pay interest
only on the amount of credit availed to him. He will be allowed to
withdraw small sums of money according to his requirements through
cheques, but he cannot exceed the credit limit allowed to him. Besides,
the bank can also give specified loan to a person, for a firm against
some collateral security. The bank can recall such loans at its option.
Discounting Bills of Exchange:
This is another type of lending which is very popular with the modern
banks. The holder of a bill can get it discounted by the bank, when he
is in need of money. After deducting its commission, the bank for a
bank, they provide a very liquid asset which can be quickly turned into
cash. The commercial banks can rediscount the discounted bills with
the central banks when they are in need of money. These bills are safe
and secured bills. When the bill matures the bank can secure its
payment from the party which had accepted the bill.
Money at Call:

24

Bank also grant loans for a very short period, generally not exceeding
7 days to the borrowers, usually dealers or brokers in stock exchange
markets against collateral securities like stock or equity shares,
debentures, etc., offered by them. Such advances are repayable
immediately at short notice hence; they are described as money at call
or call money.
Term Loans:
Banks give term

loans

to

traders,

industrialists

and

now

to

agriculturists also against some collateral securities. Term loans are socalled because their maturity period varies between 1 to 10 years.
Term loans; as such provide intermediate or working capital funds to
the borrowers. Sometimes, two or more banks may jointly provide
large term loans to the borrower against a common security. Such
loans are called participation loans or consortium finance.
Consumer Credit:
Banks also grant credit to households in a limited amount to buy some
durable consumer goods such as television sets, refrigerators, etc., or
to meet some personal needs like payment of hospital bills etc. Such
consumer credit is made in a lump sum and is repayable in
installments in a short time. Under the 20-point programme, the scope
of consumer credit has been extended to cover expenses on marriage,
funeral etc., as well.
Miscellaneous Advances:
Among other forms of bank advances there are packing credits given
to exporters for a short duration, export bills purchased/discounted,
25

import finance-advances against import bills, finance to the selfemployed, credit to the public sector, and credit to the cooperative
sector and above all, credit to the weaker sections of the community at
concessional rates.

3) CREATION OF CREDIT:
A unique function of the bank is to create credit. Banks supply money
to traders and manufacturers. They also create or manufacture money.
Bank deposits are regarded as money. They are as good as cash. The
reason is they can be used for the purchase of goods and services and
also in payment of debts. When a bank grants a loan to its customer, it
does not pay cash. It simply credits the account of the borrower. He
can withdraw the amount whenever he wants by a cheque. In this
case, bank has created a deposit without receiving cash. That is, banks
are said to have created credit. Sayers says banks are not merely
purveyors of money, but also in an important sense, manufacturers of
money.
Promote the Use of Cheques:
The commercial banks render an important service by providing to
their customers a cheap medium of exchange like cheques. It is found
much more convenient to settle debts through cheques rather than
through the use of cash. The cheque is the most developed type of
credit instrument in the money market.
Financing Internal and Foreign Trade:

26

The bank finances internal and foreign trade through discounting of


exchange bills. Sometimes, the bank gives short-term loans to traders
on the security of commercial papers. This discounting business
greatly facilitates the movement of internal and external trade.
Remittance of Funds:
Commercial banks, on account of their network of branches throughout
the country, also provide facilities to remit funds from one place to
another for their customers by issuing bank drafts, mail transfers or
telegraphic transfers on nominal commission charges. As compared to
the postal money orders or other instruments, bank drafts have proved
to be a much cheaper mode of transferring money and have helped
the business community considerably.

4) Promote the Use of Cheques:


The commercial banks render an important service by providing to
their customers a cheap medium of exchange like cheques. It is found
much more convenient to settle debts through cheques rather than
through the use of cash. The cheque is the most developed type of
credit instrument in the money market.
5)Financing Internal and Foreign Trade:
The bank finances internal and foreign trade through discounting of
exchange bills. Sometimes, the bank gives short-term loans to traders
on the security of commercial papers. This discounting business
greatly facilitates the movement of internal and external trade.
6)Remittance of Funds:

27

Commercial banks, on account of their network of branches throughout


the country, also provide facilities to remit funds from one place to
another for their customers by issuing bank drafts, mail transfers or
telegraphic transfers on nominal commission charges. As compared to
the postal money orders or other instruments, bank drafts have proved
to be a much cheaper mode of transferring money and have helped
the business community considerably.

SECONDARY FUNCTIONS
1) AGENCY SERVICES :
Banks also perform certain agency functions for and on behalf of their
customers. The agency services are of immense value to the people at
large. The various agency services rendered by banks are as follows:
Collection and Payment of Credit Instruments:
Banks collect and pay various credit instruments like cheques, bills of
exchange, promissory notes etc., on behalf of their customers.
Purchase and Sale of Securities:
Banks purchase and sell various securities like shares, stocks, bonds,
debentures on behalf of their customers.
Collection of Dividends on Shares:
Banks collect dividends and interest on shares and debentures of their
customers and credit them to their accounts.
Acts as Correspondent:

28

Sometimes banks act as representative and correspondents of their


customers. They get passports, travelers tickets and even secure air
and sea passages for their customers.
Income-tax Consultancy:
Banks may also employ income tax experts to prepare income tax
returns for their customers and to help them to get refund of income
tax.
Execution of Standing Orders:
Banks execute the standing instructions of their customers for making
various periodic payments. They pay subscriptions, rents, insurance
premium etc., on behalf of their customers.
Acts as Trustee and Executor:
Banks preserve the Wills of their customers and execute them after
their death.
2) GENERAL UTILITY SERVICES:
In addition to agency services, the modern banks provide many
general utility services for the community as given.
Locker Facility:
Bank provides locker facility to their customers. The customers can
keep their valuables, such as gold and silver ornaments, important
documents; shares and debentures in these lockers for safe custody.
Travelers Cheques and Credit Cards:
Banks issue travelers cheques to help their customers to travel
without the fear of theft or loss of money. With this facility, the
customers need not take the risk of carrying cash with them during
their travels.
29

Letter of Credit:
Letters of credit are issued by the banks to their customers certifying
their credit worthiness. Letters of credit are very useful in foreign
trade.

Collection of Statistics:
Banks collect statistics giving important information relating to trade,
commerce, industries, money and banking. They also publish valuable
journals and bulletins containing articles on economic and financial
matters.
Acting Referee:
Banks may act as referees with respect to the financial standing,
business reputation and respectability of customers.
Underwriting Securities:
Banks underwrite the shares

and

debentures

issued

by

the

Government, public or private companies.


Gift Cheques:
Some banks issue cheques of various denominations to be used on
auspicious occasions.
Accepting Bills of Exchange on Behalf of Customers:
Sometimes, banks accept bills of exchange, internal as well as foreign,
on behalf of their customers. It enables customers to import goods.

Merchant Banking:
Some commercial banks have opened merchant banking divisions to
provide merchant banking services.
30

2.5 CREATION OF CREDIT


A unique function of the bank is to create credit. Banks supply money
to traders and manufacturers. They also create or manufacture money.
Bank deposits are regarded as money. They are as good as cash. The
reason is they can be used for the purchase of goods and services and
also in payment of debts. When a bank grants a loan to its customer, it
does not pay cash. It simply credits the account of the borrower. He
can withdraw the amount whenever he wants by a cheque. In this
case, bank has created a deposit without receiving cash. That is, banks
are said to have created credit. Sayers says banks are not merely
purveyors of money, but also in an important sense, manufacturers of
money.
Promote the Use of Cheques :
The commercial banks render an important service by providing to
their customers a cheap medium of exchange like cheques. It is found
much more convenient to settle debts through cheques rather than
through the use of cash. The cheque is the most developed type of
credit instrument in the money market.

Financing Internal and Foreign Trade :


The bank finances internal and foreign trade through discounting of
exchange bills. Sometimes, the bank gives short-term loans to traders
on the security of commercial papers. This discounting business
greatly facilitates the movement of internal and external trade.
Remittance of Funds :
31

Commercial banks, on account of their network of branches throughout


the country, also provide facilities to remit funds from one place to
another for their customers by issuing bank drafts, mail transfers or
telegraphic transfers on nominal commission charges. As compared to
the postal money orders or other instruments, bank drafts have proved
to be a much cheaper mode of transferring money and have helped
the business community considerably.
LIMITATIONS OF CREDIT CREATION
Commercial Banks though have the power to create credit, their
powers are not unlimited. Certain points affect the process of credit
creation. They are termed as limitations to credit creation by
commercial banks.
1. Amount of Deposit
The most important factor which decides credit creation is the amount
of deposits made by the depositors. Higher is the amount of deposits;
greater is the supply of credit and vice versa
2. Cash Reserve Ratio (CRR)
There exists an indirect relationship between Credit Creation and Cash
Reserve Ratio (CRR). Higher is the Cash Reserve Ratio (CRR) more will
be the reserves to be maintained and less credit will be created by
banks. The CRR is fixed by the RBI in India. It ranges between 3% to
15%.
3. Banking Habits of People
If the banking habits of the people are well-developed, then all their
transactions would be through banks, and this will lead to expansion of
credit and vice-versa.
32

4. Supply of Securities
Loans are sanctioned on the basis of the securities provided to the
banks. If securities are available then the credit creation will be more
and vice-versa.
5. Willingness of people to borrow
Commercial banks may have enough money to lend. Customers should
be willing to borrow from the banks to facilitate credit creation. If they
are willing to borrow, then the credit created by banks will be less.
6. Monetary Policy of Central Bank
While credit is created by commercial banks, it is controlled by the
Central Bank. Credit control is one important function of the central
bank. Central Bank uses various methods of Credit Control from time to
time and thus influences the banks to expand or contract credit.
7. External Drain
External Drain refers to withdrawal of cash from the banking system by
the public. It lowers the reserves of the banks and limits the credit
creation.
8. Uniform Policy
If all the commercial banks follow a uniform policy related to CRR, then
credit creation would be smooth. If some banks follow liberal and
others follow a conservative one, then credit creation would be
affected.

2.6 SERVICES OFFERED BY COMMERCIAL BANKS


INTRODUCTION
Commercial banks provide a variety of important products and
services. In contrast to investment banks, which deal primarily with the
33

securities markets, commercial banks accept a variety of deposit


types, make various kinds loans and provide other services including
checking and savings accounts, credit cards, ATM networks, safe
deposit boxes, and custodial and trustee services.
TYPES OF SERVICES
1. PRIMARY SERVICES
2. SECONDARY SERVICES
1. PRIMARY SERVICES :
Commercial banks also provide other services to businesses and
consumers for which they earn various fees. These include investment
advisory services, corporate finance consulting, custodial services for
estates and trusts, safekeeping of securities and other valuable items,
and money transfer services.
Some of the different services available from commercial
banks to its customers are :

Checking/Current account
Savings accounts
Internet/Mobile Banking
ATM Cards
Check Books
Deposit Accounts
Loans
Credit Cards etc.

A bank cannot survive without performing the following nonbanking activities :

Banks help their customers to make utility payments with ease.


They perform merchant banking for their customers.
They provide factoring services to their clients.
34

They
They
They
They

accounts.
They offer credit and debit cards facility.
They also offer leasing services.
They give hire-purchase services to owners of various goods.
They are now allowed to offer insurance services.
They provide funds (capital) for starting new ventures.

manage mutual funds and minimize investment risks.


issue gift cheques to the people.
conduct feasibility study and submit the feasibility report.
facilitate the share transactions by maintaining demat

2. SECONDARY SERVICES
MODERN TECHNOLOGICAL SERVICES
Technology :
Banks in India have started using technology in a proactive manner.
The huge number of bank customers and their myriad needs are being
met in increasingly sophisticated ways. In a number of areas, the
foreign banks and the new private sector banks have been the first
movers in the application of technology, but public sector banks are
also catching up. One major advantage that Indian banks have is the
availability of major IT companies in India who are the world leaders in
IT applications.
Mobile Banking :
Some banks have started offering mobile banking and tele-banking to
customers. The expansion in the use and geographical reach of mobile
phones has created new opportunities for banks to use this mode for
banking transactions and also provide an opportunity to extend
banking facilities to the hitherto excluded sections of the society.
With ICICI Bank Mobile Banking, you can have following access through
your mobile
35

Check your account balance


Transfer funds 24 x 7
Pay your bills
Book bus and flight tickets
Recharge your prepaid mobile or
DTH connection

Our Mobile Banking services work with almost all types of handsets
and help you access your ICICI Bank account easily and securely.
Internet Banking :
Through its website, a bank may offer its customers online access to
account information and payment and fund transfer facilities. The
range of services offered differs from bank to bank depending mainly
on the type and size of the bank. Internet banking is changing the
banking industry and affecting banking relationships in a major way.
The services provided through internet banking are:

Money manager
Fund transfer
Bills payment
Quick pay
Receive funds
Prepaid mobile recharge

Electronic Banking :
Electronic banking services provided by commercial banks include :

The maintenance and expansion of 24-hour ATM networks.


Wire transfers.
Banking websites that allow consumers and business to

obtain account information.

Open new accounts.

Order checks.
36

Transfer funds between accounts.


Bill payments.

2.7 POLICIES OFFERED BY COMMERCIAL BANKS

INVESTMENT POLICY
The financial position of a commercial bank is reflected in its balance
sheet. The balance sheet is a statement of the assets and liabilities of
the bank. The assets of the bank are distributed in accordance with
certain guiding principles. These principles underline the investment
policy of the bank. They are discussed below:

Liquidity :
In the context of the balance sheet of a bank the term liquidity has two
interpretations. First, it refers to the ability of the bank to honor the
claims of the depositors. Second, it connotes the ability of the bank to
convert its non-cash assets into cash easily and without loss.
It is a well-known fact that a bank deals in funds belonging to the
public. Hence, the bank should always be on its guard in handling
these funds. The bank should always have enough cash to meet the
demands of the depositors. In fact, the success of a bank depends to a
considerable extent upon the degree of confidence it can instill in the
minds of its depositors. If the depositors lose confidence in the
integrity of their bank, the very existence of the bank will be at stake.
So, the bank should always be prepared to meet the claims of the
depositors by having enough cash. Among the various items on the
37

assets side of the balance sheet, cash on hand represents the most
liquid asset. Next comes cash with other banks and the central bank.
The order of liquidity goes on descending.
Liquidity also means the ability of the bank to convert its non-cash
assets into cash easily and without loss. The bank cannot have all its
assets in the form of cash because each is an idle asset which does not
fetch any return to the bank. So some of the assets of the bank, money
at call and short notice, bills discounted, etc. could be made liquid
easily and without loss.

Profitability :

A commercial bank by definition is a profit hunting institution. The


bank has to earn profit to earn income to pay salaries to the staff,
interest to the depositors, dividend to the shareholders and to meet
the day-to-day expenditure. Since cash is the least profitable asset to
the bank, there is no point in keeping all the assets in the form of cash
on hand. The bank has got to earn income. Hence, some of the items
on the assets side are profit yielding assets. They include money at call
and short notice, bills discounted, investments, loans and advances,
etc. Loans and advances, though the least liquid asset, constitute the
most profitable asset to the bank. Much of the income of the bank
accrues by way of interest charged on loans and advances. But, the
bank has to be highly discreet while advancing loans.
38

Safety or Security :

Apart from liquidity and profitability, the bank should look to the
principle of safety of its funds also for its smooth working. While
advancing loans, it is necessary that the bank should consider the
three Cs of credit character, capacity and the collateral of the
borrower. The bank cannot afford to invest its funds recklessly without
considering the principle of safety. The loans and investments made by
the bank should be adequately secured. For this purpose, the bank
should always insist on security of the borrower. Of late, somehow or
other the banks have not been paying adequate importance to safety,
particularly in India.

Diversity :

The bank should invest its funds in such a way as to secure for itself an
adequate and permanent return. And while investing its funds, the
bank should not keep all its eggs in the same basket. Diversification of
investment is necessary to avoid the dangerous consequences of
investing in one or two channels. If the bank invest its funds in
different types of securities or makes loans and advances to different
objectives and enterprises, it shall ensure for itself a regular flow of
income.

39

Salability of Securities :

Further, the bank should invest its funds in such types of securities as
can be easily marketed at a time of emergency. The bank cannot afford
to invest its funds in very long term securities or those securities which
are unsalable. It is necessary for the bank to invest its funds in
government or in first class securities or in debentures of reputed
firms. It should also advance loans against stocks which can be easily
sold.

Stability in the Value of Investments :

The bank should invest its funds in those stocks and securities the
prices of which are more or less stable. The bank cannot afford to
invest its funds in securities, the prices of which are subject to frequent
fluctuations.

Principles of Tax-Exemption of Investments :

Finally, the investment policy of a bank should be based on the


principle of tax exemption of investments. The bank should invest in
those government securities which are exempted from income and
other taxes. This will help the bank to increase its profits. Of late, there
has been a controversy regarding the relative importance of the
40

various principles influencing the investment policy of a bank


particularly between liquidity and profitability. It is interesting to
examine this controversy.

LENDING POLICY
Types of Lending
A. Fund based (Current & Fixed Assets)

Overdrafts
Cash Credits
Bills Finance Demand or Usance Bills
Demand Loans
5.Term Loans
Other Loans - Car Loans, Consumer Durables, Educational

Loans, Housing Loans, Professionals Personal Loans, Credit Cards


and so on
B. Non-Fund based (Fee based)

C. Others

Issue of Guarantees
Issue of Letters of Credit
Deferred Payments Guarantees
Lease Finance
Hire Purchase Finance

41

CHAPTER 3 : STATISTICAL DATA


3.1 Movement in assets, credit and deposit growth of
the SCBs

The slowdown in growth in the balance sheets of banks witnessed


since 2011-12 continued during 2014-15. The moderation in assets
growth of scheduled commercial banks (SCBs) was mainly attributed to
tepid growth in loans and advances to below 10 per cent (Chart 1).
Growth in investments also slowed down marginally. The decline in
credit growth reflected the slowdown in industrial growth, poor
earnings growth reported by the corporate, risk aversion on the part of
42

banks in the background of rising bad loans and governance related


issues. Further, with the availability of alternative sources, corporate
also switched part of their financing needs to other sources such as
external

commercial

borrowings

(ECBs),

corporate

bonds

and

commercial papers. On the liabilities side, growth in deposits and


borrowings also declined signify cantly. Bank-group wise, public sector
banks (PSBs) witnessed deceleration in credit growth in 2014-15;
private sector banks (PVBs) and foreign banks (FBs), however,
indicated higher credit growth.

3.2 Growth in CASA deposits of the SCBs

Growth in current account and saving account (CASA) deposits


moderated due to decline in saving deposits which in turn got reflected
in deceleration in overall deposit growth (Chart 2). Bank-group wise,
43

PSBs recorded decline in CASA deposits while PVBs and FBs recorded
higher growth during 2014-15.

3.3 Trend in maturity profile of assets and liabilities

The

maturity

profile

of

liabilities

of

the

SCBs

witnessed

an

improvement during 2014-15 as the proportion of short-term liabilities


declined and that of long-term liabilities increased. On the assets side,
share of long-term assets declined and the share of short-term assets
increased marginally (Chart 3). This can be seen in the light of risk
44

aversion on the part of banks in the backdrop of rising share of


nonperforming loans. The proportion of long-term loans and advances
declined to 27.3 per cent in 2014-15 from 28.9 per cent in the previous
year (Chart 4).

3.4 Maturity profile of select liabilities / assets of the


SCBs

The PSBs, however, had 52 per cent of their investments in more than
5 year maturity bracket during 2014-15 while investments of the PVBs
45

and FBs in that tenor, aggregated 30.4 per cent and 5.6 per cent,
respectively.

3.5 Growth of select items of income and expenditure

46

Both interest earnings and interest expended recorded a lower growth


during 2014-15 as compared to the previous year. Interest earnings
reflected the impact of slower credit growth. However, decline in
interest income was marginally higher than interest expended. As a
result, net interest income grew less than the previous year despite an
improvement in the operating expenses (through reduction in the
growth of wage bill). Also, the pace of increase in provisions and
contingencies due to delinquent loans declined sharply. This led to an
increase in net profits at the aggregate level by 10.1 per cent during
2014-15 as against a decline in net profits during the previous year.

Table 1 : ROA and ROE of SCBs Bank-group wise

Bank group

Return on assets

Return on equity

Public sector banks


1.1 Nationalized

0.50
0.45

0.46
0.37

8.47
7.76

7.76
6.44

banks
1.2 State Bank
Private sector banks
Foreign banks
All SCBs

0.63
1.65
1.54
0.81

0.66
1.68
1.87
0.81

10.03
16.22
9.03
10.68

10.56
15.74
10.24
10.42

Notes: Return on Assets = Net profit/Average total assets. Return on


Equity = Net profit/Average total equity. * : Nationalized banks include
IDBI Bank Ltd. Source: Annual accounts of banks and RBI staff
calculations.

47

CHAPTER 4. CASE STUDY


ICICI BANK CASE STUDY

4.1 HISTORY
ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian
financial institution, and was its wholly-owned subsidiary. ICICI's
shareholding in ICICI Bank was reduced to 46% through a public
offering of shares in India in fiscal 1998, an equity offering in the form
of ADRs listed on the NYSE in fiscal 2000, ICICI Bank's acquisition of
Bank of Madura Limited in an all-stock amalgamation in fiscal 2001,
and secondary market sales by ICICI to institutional investors in fiscal
48

2001 and fiscal 2002. ICICI was formed in 1955 at the initiative of the
World Bank, the Government of India and representatives of Indian
industry. The principal objective was to create a development financial
institution for providing medium-term and long-term project financing
to Indian businesses. ICICI Bank has formulated a Code of Business
Conduct and Ethics for its directors and employees. ICICI Bank is one of
the Big Four banks of India, along with State Bank of India, Punjab
National Bank and HDFC Bank.
Loans provided by ICICI Banks :
ICICI Bank offers wide variety of Loans Products to suit your
requirements. Coupled with convenience of networked branches/ ATMs
and facility of E-channels like Internet and Mobile Banking, ICICI Bank
brings banking at your doorstep. Select any of our loan product and
provide your details online and our representative will contact you for
getting loans.

4.2 Different types of loans provided by ICICI Bank:

Home Loans

The No. 1 Home Loans Provider in the country, ICICI Bank Home Loans
offers some unbeatable benefits to its customers - Doorstep Service,
Simplified Documentation and Guidance throughout the Process. It's
really easy!

Personal Loans
49

If you're looking for a personal loan that's easy to get, your search
ends here. ICICI Bank Personal Loans are easy to get and absolutely
hassle free. With minimum documentation you can now secure a loan
for an amount up to Rs. 15 lakhs.

Car Loans

The most preferred financier for car loans in the country. Network of
more than 1000 channel partners in over 200 locations. Tie-ups with all
leading automobile manufacturers to ensure the best deals. Flexible
schemes & quick processing. Hassle free application process on the
click of a mouse.

Commercial Vehicle Loans

We have extended products like funding of new vehicles, finance on


used vehicles, top up on existing loans, working capital loans & other
banking products.

Loans against Securities

You dont have to sell your securities. All you have to do is pledge your
securities in favor of ICICI Bank. We will then grant you an overdraft
facility up to a value determined on the basis of the securities pledged
by you.

50

4.3 Article on ICICI Bank


ICICI Bank follow SBI; revise FD rates by up to 0.5 pc
MUMBAI: Private sector banks like ICICI Bank and HDFC Bank on
Wednesday reduced interest rates on fixed deposits by at least 50
basis point. The reduction in deposit rates comes at a time when the
economy is slowing down and credit pick up is slack. One basis point is
equal to one hundredth of a percentage. Last week, State Bank of India
had reduced interest rate on deposits by as much as 100 basis points
across maturities to maintain profitability after lowering lending rates.
ICICI Bank has cut rates across maturities ranging from 91 days to less
than five years. It now offers a maximum 8.75 per cent interest on
retail term deposits compared to 9.25 per cent earlier. In the shorter
tenure ranging between seven days to 45 days, however, the bank has
increased rate by 50-75 basis points.
A reduction in statutory reserve ratio, the amount of funds to be held in
government bonds, by a percentage point is also help the banks lend
Rs 15,000 crore more to corporate or retail customers. Deposits grew
14.1% year on year against RBI's projection of 16%.
Pratip Chaudari, chairman State Bank of India had said, As of now, we
are surplus in deposit for SBI," said Chaudhuri. ""The challenge is more
on pushing credit."" Also, the cut in SLR is providing some comfort.
This is helping banks in meeting the credit demand, which is climbing
marginally. Recent RBI data shows that credit has grown 16.7% year on
year.

51

We could see the private players now reduce lending rates to get
competitive as many public sector banks like State Bank of India and
Andhra Bank have cut rates on select retail products,'' said a banking
analyst with a domestic brokerage.
ICICI Bank is also doing this to maintain a healthy margin of over 3%,''
he added.

4.4 Questions Asked To the


Branch Manager of ICICI Bank
1.

What is the Balance that is required for ICICI Savings

Account?
- ICICI Savings account requires an Average Monthly Balance of Rs.
75,000 in a combination of savings account/ current account and fixed
deposits including a minimum monthly balance of Rs. 25,000 in the
savings account / current account or Smart Money facility with a
minimum fixed deposit of Rs. 200,000. However, a "No Frills" Account
can be opened with Zero balance.
2.

What is the Average Monthly Balance (AMB) required to

be maintained in the case of an ICICI Savings Account? How is


the AMB calculated?
- The minimum AMB required to be maintained for ICICI Savings
Account is Rs. 75,000. The AMB is calculated by adding the end of day
balances for each day in the month and dividing it by the number of
days in that month.

52

3.

Is

there

charge

for

non-maintenance

of

Average

Monthly Balance (AMB)?


- There is a charge levied for non-maintenance of AMB. The charge is
Rs. 250+ per month. You may please refer to our tariff on
www.icici.co.in for further details on applicable charges.
4.

Do I need to give an advance notice for withdrawal of

cash beyond a limit from a branch?


- Prior notice (normally 24 hours) is to be given to the branch from
where the cash withdrawal is to be made for an amount greater than
Rs.1, 00,000.
5.

How can I earn higher returns on funds in my Current /

Savings Account?
- Currently, as per RBI regulations you earn interest at 4.00% p.a. (paid
half yearly) on your Savings Account balances and NIL interest on your
Current Account balances. However, if you choose, the moment your
savings cross the required balance amount, the excess amount will get
transferred to a Fixed Deposit, thereby earning you a higher rate of
interest.
6.

Can I access my account when I am out of town /

travelling in India?
- Yes, you can check both the balances in your account as well as your
transaction history at any of our branches or ATMs. Moreover you can
also apply for our Internet Banking or Phone Banking facility which will
give you access to your account balances and other services anytime,
anywhere.
53

7.

Can I withdraw cash in any other city where I do not have

a Current / Savings Account?


- It is possible to withdraw cash using the debit card at any ICICI or non
ICICI VISA ATM in India or overseas (a transaction fee is applicable for
withdrawals from non-ICICI ATMs in India and from any ATM overseas).
8.

What if I need foreign exchange for my current account

transactions?
- In respect of any other current account transaction please approach
the branch with:
A letter detailing and self-certifying the details of remittance and the
beneficiary to whom it is being made.
Supporting document detailing the nature of the transaction, value and
beneficiary
Complete the following forms given to you by the branch:
Application in Form A2 signed by the remitter
FEMA declaration
Draft or Telegraphic transfer application form
Once the Bank is satisfied with the nature of the transaction the Bank
will be able to effect the remittance as required. While most
transactions would be processed by the bank on the basis of the
above, there could be situations that could call for supplementary
information or reference to Reserve Bank. The Branch staff will guide
you on this when they are contacted.
9.

Can I use my International credit/debit card to meet my

expenses?
Your International/debit card can be put to good use on various
occasions:
While you are on holiday outside India to meet your expenses.
54

When you are outside India to purchase an item of import.


When you are in India, to make a payment in foreign exchange for
purchase of books and other items through Internet.

10.

I am having a Saving Bank / Current account with ICICI. I

want to register for Online ICICI now. What do I do?


- By visiting the branch we can request for internet banking password.
After 8 days we can access our account online. It passes through 3
channels:

Branch
Phone-banking
Internet banking

11. What is the present CRR & SLR in ICICI BANK?


- CRR-4.5% & SLR-23%.
12. What is impact of IT development on commercial banks?
- As it is in need to adopt supervision technology, it develops the
transaction of banks faster. It is also convenient to customers, staff as
well as experts.
13. How much % of loan is given against asset?
- Maximum 85% of asset value is given by ICICI Bank.
14. Is the prime lending rate same for all types of loan?
- It depends on the loan taken by the borrower.
15. How the NPAs are managed?
- The NPAs are managed by experts. Its not branch activity; its
conducted by divisional head office. The managed activities of overall
banks NPAs are under RBI guidelines.

55

4.5 CONCLUSION :
My study concludes 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.
A commercial bank is a bank that operates with a profit earning goal
i.e. a business bank while a non-commercial bank is a financial
institution that operates with the aim of alleviatingbanking on the
development of bank-customer relationship in the value creation
process.
Banks are financial institutions that can make or break economy.
Unsupervised and uncontrolled behavior from banks can spell doom to
the economy and for the customers as well. Banks are the regular
banks that provide basic banking facilities to its customers.
I also conclude that I had done my field study on ICICI Bank as a
commercial bank in India & collected many information related to its
services, relations with customers and many more aspects.
ICICI Bank provides a great customer service. They treat well to
their customers,

be it a new or the older ones. They provide all types


56

of facilities under one roof. My family being a member of ICICI Bank is


very much satisfied by the care they provide.

4.6 WEBLIOGRAPHY :

www.Scribd.Com

www.Slideshare.Net

www.indian.bank.com

www.commercialbank.com

www.rbi .com

4.7 BOOKS& REFERENCES :

International Banking & Insurance


Innovation in Banking &Insurance

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