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Commercial Banking In India

OBJECTIVES

The following are the objectives of my study:

To access practical knowledge about the commercial banking in


India.

To study what is the role of commercial banking in the economy.

This project is also made to know the future prospectus of


commercial banking in India.

To study the differences between commercial banks and central


banks.

To study the role of reserve bank of India vis--vis commercial


banks.

To evaluate the services offered by commercial banks in India.


To study the trends in commercial banks in India.

Commercial Banking In India

EXECUTIVE SUMMARY

The whole project icon study of commercial banking in India. This


project is based on analysis determining the working of the
commercial banks in the current privatized sector boost-up in
banking industry.

The whole project is divided into two parts consisting of the


information regarding the banking in India and second part will be
giving the view about the commercial banking in India.

The project will be giving in brief the evolution of banking i.e. how
the banks have evaluated and their progress. After evolution of the
banking, the project further states about the function, services,
policies, types, advantages & disadvantages and its investment in
commercial banking in India.

The project will be continued by detailed information about credit


creation policy, role of commercial banks. The project consists of
questionnaire which was asked to the branch manager of ICICI Bank
as a type of commercial banking in India.

Commercial Banking In India

INDEX
SR.NO.

1.
2.
3.
4.
5.
6.
7.

TOPIC

Introduction
Field Study
Literature Review
Annexure
Conclusion.
Research Methodology
Bibliography & References.

PAGE
NO.

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29-41
42
43-50
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Commercial Banking In India

CHAPTER 1: INTRODUCTION

INTRODUCTION TO
BANKS IN INDIA:
MEANING

Commercial Banking In India

DEFINITION
FEATURES
OBJECTIVES
NEED & IMPORTANCE
TYPES
MEANING:
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 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.

DEFINITION:
Oxford Dictionary defines a bank as an establishment for custody of money,
which it pays out on customer's order."
The definition of a bank varies from country to country. Under English common law,
a banker is defined as a person who carries on the business of banking, which is
specified as:
conducting current accounts for his customers,
paying cheques drawn on him, and
Collecting cheques for his customers.

CHARACTERISTICS / FEATURES:

Dealing in Money:

Commercial Banking In India


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:
A bank acts as a connecting link between borrowers and lenders of money. Banks
collect money from those who have surplus money and give the same to those who
are in need of money.
Banking Business:

Commercial Banking In India


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.

OBJECTIVES:
The following are the objectives of the banks in India:
Social Welfare:
It was the need of the hour to direct the funds for the needy and required sectors of the
Indian economy. Sector such as agriculture, small and village industries were in need
of funds for their expansion and further economic development.
Controlling Private Monopolies:
Prior to nationalization many banks were controlled by private business houses and
corporate families. It was necessary to check these monopolies in order to ensure a
smooth supply of credit to socially desirable sections.
Expansion of Banking:
In a large country like India the numbers of banks existing those days were certainly
inadequate. It was necessary to spread banking across the country. It could be done
through expanding banking network (by opening new bank branches) in the unbanked areas.
Reducing Regional Imbalance:
In a country like India where we have an urban-rural divide; it was necessary for
banks to go in the rural areas where the banking facilities were not available. In order
to reduce this regional imbalance nationalization was justified.
Priority Sector Lending:
In India, the agriculture sector and its allied activities were the largest contributor to
the national income. Thus these were labeled as the priority sectors. But unfortunately
they were deprived of their due share in the credit. Nationalization was urgently
needed for catering funds to them.

Commercial Banking In India


Developing Banking Habits:
In India more than 110% population used to stay in rural areas. It was necessary to
develop the banking habit among such a large population.

NEED & IMPORTANCE OF BANKS:


For the economy to function smoothly, it is important that consumers have access to
credit and are sincere towards repayments. Otherwise, the entire consumer economy
could collapse.
Most of us take loans one time or the other to buy a car or home or even consumer
durables. Some take loans for a foreign vacation or wedding. Currently borrowers pay
similar interest rates irrespective of the track record good or bad. But this is
changing. Because:

Form 1st July RBI guidelines ensure that banks will follow the base rate
system to price loans. Banks will add a risk premium that will be specific to
the kind of risk that the bank perceives you to carry, based on your
creditworthiness (on previous history).
Banks are increasingly accessing your credit history or your past records if
you have taken loans and analyzing how disciplined you have been to pay
them back on time and in full.

Commercial Banking In India

DIFFERENT TYPES OF BANKS:-

Commercial Banking In India

EVOLUTION OF
COMMERCIAL BANKS

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Commercial Banking In India

CONTENT

INTRODUCTION
MEANING

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Commercial Banking In India

DEFINITION
CLASSIFICATION OF COMMERCIAL BANKS
IMPORTANCE OF COMMERCIAL BANKS
INVESTMENT OF COMMERCIAL BANKS
LIST OF COMMERCIAL BANKS IN INDIA

INTRODUCTION:
The commercial banking industry in India started in 11186 with the establishment of
the Bank of Bengal in Calcutta. 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

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Commercial Banking In India


sector in particular, the All India Rural Credit Survey Committee recommended the
creation of a state-partnered and state-sponsored bank taking over the Imperial Bank
of India and integrating with it, the former state-owned and state-associate banks.
Accordingly, State Bank of India (SBI) was constituted in 1955.
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 form the society.

DEFINITIONS OF COMMERCIAL BANKS


According to Prof. Sayers, "A bank is an institution whose debts are widely
accepted in settlement of other people's debts to each other."
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

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Commercial Banking In India


public, payable on demand or other wise and withdraw able by cheque, draft or
otherwise."

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:
o 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.
o 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.
o 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 banks: -Banks which are not included in the
Second Schedule of RBI Act 1934.

IMPORTANCE OF COMMERCIAL BANKS


Commercial banks are the oldest and most diversified of all
financial intermediaries.
Banks are important in the money supply process.
Banks create money by lending or buying the securities.
Depository institutions play a key role in channeling funds
from savers to borrowers.
Commercial banks dominate among depository institutions.

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Commercial Banking In India

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Commercial Banking In India

INVESTMENT IN COMMERCIAL BANKS

Banks have four categories of assets:

Cash in hand and balances with RBI.


Assets with the banking system.
Investment in government and other approved securities, and
Bank credit.

Among these assets, investment in cash and government securities serves the liquidity
requirements of banks and is influenced by RBI policy.
Commercial banks investments are of three types:

Government of India securities.


Other approved securities, and
Non-approved securities.

The first two types are known as SLR securities whereas the other one is NON-SLR
securities.

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Commercial Banking In India

LIST OF COMMERCIAL BANKS IN INDIA

Allahabad Bank
Andhra bank
Bank Of Baroda
Bank Of India
Bank Of Maharashtra
Canara Bank
Central Bank Of India
China trust commercial bank
Citi union bank
Corporation Bank
Cosmos bank
Dena Bank
Development credit bank ltd.
Export import bank of India
Federal bank limited
Global trust bank limited
ICICI Bank
IDBI Bank Ltd
Indian Bank
Indian Overseas Bank
Indusland bank limited
NABARD Bank
Oriental Bank of Commerce
Punjab And Sind Bank
Punjab National Bank
State Bank Of Hyderabad
State Bank Of India
State Bank Of Indore
State Bank Of Mysore
State Bank Of Patiala
State Bank Of Saurashtra
State Bank Of Travancore
Syndicate Bank
Uco Bank
Union Bank Of India
United Bank Of India
Vijaya Bank

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Commercial Banking In India

TYPES OF
COMMERCIAL BANKS

Broadly speaking, banks can be classified into commercial banks and central
bank. 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.

COMMERCIAL BANKS

INDUSTRIAL BANK
SAVING BANK
AGRICULTURAL BANK
EXCHANGE BANK
DEPOSIT BANK
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MISCELLANEOUS BANK

Commercial Banking In India

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.
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 nationalization most of the nationalized
banks accept the saving deposits.

AGRICULTURAL BANKS:

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Commercial Banking In India


Agriculture has its own problems and hence there are separate banks
to finance it. These banks are organized 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.

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. 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.

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.

MISCELLANEOUS BANKS:

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Commercial Banking In India

There are certain kinds of banks which have arisen in due course to meet the
specialized 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
labor banks,
where
the
savings
of
the laborers
are
pooled
together.

ADVA
NTAGES & 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

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Commercial Banking In India


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 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.

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Commercial Banking In India

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 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.

DISTINGUISH
BETWEEN COMMERCIAL BANK AND
CENTRAL BANK

TOPIC
Meaning

COMMERCIAL
BANK

CENTRAL BANK

Commercial Banks are


like
other
financial
institutions (e.g. money
lenders,
indigenous

A central bank is a
financial institution and a
financial
intermediary
that accepts deposits and

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Commercial Banking In India


bankers,
cooperative
societies, agricultural and
industrial
credit
institutions) which are in
the business of lending
and borrowing of money
or credit.

Definition

Function

According
to
Prof.
Sayers, "A commercial
bank is an institution
whose debts are widely
accepted in settlement of
other people's debts to
each other."
The main function of a
Commercial Bank is to
accept deposits from
public for the purpose of
lending to industry and
others.

Printing of The Commercial Banks


cannot print currency
Currency
notes and make coins.

Acceptance Of
Deposit
Provision
Loans

Of

Ownership

Total Number

The Commercial Bank


accepts deposits from the
public.
The Commercial Bank
provides loans to the
industry and to the
public.
Commercial Banks can
be owned by private and /
or Government agencies.
There
are
several
Commercial
Banks
currently operating in
India.

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channels those deposits


into lending activities,
either directly or through
capital markets.

Oxford
Dictionary
defines a central bank as
"an establishment for
custody of money, which
it pays out on customer's
order."

The
Central
Bank
regulates money supply
in the country. It also acts
as a banker to the
government and to the
other banks operating in a
country.
The Central Bank of
India (i.e. RBI) has the
power to print currency
notes from Rs.2 and
above.
The Central Bank doesnt
accept any deposit from
the public.
The
Central
Bank
provides
loans
to
scheduled banks and
financial institutions.
Central Bank of India
(RBI) is owned and
controlled
by
Government of India.
However, there is only
one apex Central Bank
(i.e. RBI) in India.

Commercial Banking In India


Commercial Banks do
not
frame
monetary
policy of the country.

Central Banks frames


monetary policy of a
country.

Monitory
Control

Commercial Bank does


not have any control over
Central Bank.

Central Bank monitors


the working of all
commercial banks.

Registration
And
Establishment

In India, Commercial
banks are registered
under
the
Banking
Regulation Act of 1949.

The Central Bank of


India (RBI) is established
under RBI Act of 1934.

Framing
Monetary
Policy

FUNCTIONS OF
COMMERCIAL BANKS
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Commercial Banking In India

INTRODUCTION
PRIMARY FUNCTIONS
SECONDARY FUNCTIONS
CREDIT CREATION
LIMITATIONS OF CREDIT CREATION

INTRODUCTION

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Commercial Banking In India


Commercial bank being the financial institution performs diverse types of functions.
It satisfies the financial needs of the sectors such as agriculture, industry, trade,
communication, etc. That means they play very significant role in a process of
economic social needs. The functions performed by banks are changing according to
change in time and recently they are becoming customer centric and widening their
functions. Generally the functions of commercial banks are divided into two
categories viz. primary functions and the secondary functions. The following chart
simplifies the functions of banks.

COMMERCIAL BANKS

PRIMARY FUNCTIONS

SECONDARY FUNCTIONS

Acceptance of deposits

Agency services

Advancing loans

General utility services

Creation of credit
Overdraft
Clearing of cheques

Cash credit

Term loan
Consumer credit

Financing of foreign trade


Discounting trade bills
Miscellaneous advances
Remittance of funds
Money at calls

PRIMARY FUNCTIONS:-

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Commercial Banking In India

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

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 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

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Commercial Banking In India


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.

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 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.

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Commercial Banking In India


Money at Call:
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 so-called 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, import finance-advances against
import bills, finance to the self-employed, 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.

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.

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Commercial Banking In India


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:
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
Secondary banking functions of the commercial banks include:

Agency Services
General Utility Services

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.

31

Commercial Banking In India

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: 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.

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.
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

32

Commercial Banking In India


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.

CREDIT CREATION

33

Commercial Banking In India


Banks create credit by creating cheque money or deposit money
which on account of its free acceptability circulates like legal tender
money. This increases or decreases money in circulation without
increase or decrease in currency or legal tender money. An
important function performed by the commercial banks is the
creation of credit. The process of banking must be considered in
terms of monetary flows, that is, continuous depositing and
withdrawal of cash from the bank. It is only this activity which has
enabled the bank to manufacture money. Therefore the banks are
not only the purveyors of money but manufacturers of money.

LIMITATIONS OF CREDIT CREATION

34

Commercial Banking In India


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.
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.

35

Commercial Banking In India


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.
11. 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.

CHAPTER 2: FIELD STUDY

36

Commercial Banking In India

SERVICES & POLICIES


OFFERED BY COMMERCIAL BANKS

INTRODUCTION
TYPES OF SERVICES:

37

Commercial Banking In India

PRIMARY SERVICES
SECONDARY SERVICES:
MODERN TECHNOLOGY:

Technology
Mobile Banking
Internet Banking
Electronic Banking
INTRODUCTION

Commercial banks provide a variety of important products and services.


In contrast to investment banks, which deal primarily with the 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.

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

38

Commercial Banking In India


Loans
Credit Cards etc.
A bank cannot survive without performing the following non-banking 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.

They manage mutual funds and minimize investment risks.

They issue gift cheques to the people.

They conduct feasibility study and submit the feasibility report.

They facilitate the share transactions by maintaining demat 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.

PRIMARY SERVICES:MODERN TECHNOLOGICAL SERVICES


Technology

39

Commercial Banking In India


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:

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:

40

Commercial Banking In India

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.

Transfer funds between accounts.

Bill payments.

POLICIES OF COMMERCIAL BANKS IN


INDIA
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

41

Commercial Banking In India


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 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

42

Commercial Banking In India


of the bank accrues by way of interest charged on loans and advances. But, the bank
has to be highly discreet while advancing loans.

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.

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

43

Commercial Banking In India


the 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)
Issue of Guarantees
Issue of Letters of Credit
Deferred Payments Guarantees
C. Others
Lease Finance
Hire Purchase Finance

44

Commercial Banking In India

R
OLE OF RESERVE BANK OF INDIA VIS-VIS COMMERCIAL BANKS

INTRODUCTION

INITIATIVES TAKEN BY THE RBI

RBI PENALIZE 19 COMMERCIAL BANKS

45

Commercial Banking In India

INTRODUCTION
The Reserve Bank of India (RBI) is the central bank of the country. It was established
on April 1, 1935 under the Reserve Bank of India Act, 1934, which provides the
statutory basis for its functioning. When the RBI was established, it took over the
functions of currency issue from the Government of India and the power of credit
control from the then Imperial Bank of India.
As the central bank of the country, the RBI performs a wide range of functions;
particularly, it:

Acts as the currency authority


Controls money supply and credit
Manages foreign exchange
Serves as a banker to the government
Builds up and strengthens the country's financial infrastructure
Acts as the banker of banks
Supervises banks

As regards the commercial banks, the RBI's role mainly relates to the last two points
stated above.

INITIATIVES TAKEN BY THE RBI


The Lead Bank Scheme introduced by the RBI in 1969 is the earliest attempt by the
RBI to foster financial inclusion. Under the scheme, designated banks are made key
instruments for local development and entrusted with the responsibility of identifying
growth centers, assessing deposit potential and credit gaps and evolving a coordinated
approach for credit deployment in each district, in concert with other banks and other
agencies. As at March 2009, there were 26 banks, mostly in the public sector, which
have been assigned lead responsibility in 622 districts of the country. The RBI's recent
measures to promote financial inclusion includes: advising banks to open 'no frills'
accounts, introduction of Business Correspondent (BC)/ Business Facilitator (BF)
model and adoption of Information and Communication Technology (ICT) solutions
for achieving greater outreach.

46

Commercial Banking In India

RBI PENALIZE 19 COMMERCIAL BANKS


Srinagar, May 1: Reserve Bank of India has imposed penalty on 19 commercial
banks. A notification by the Central Bank said in the exercise of the power vested with
it under the provision of section 47(A)1(b) READ with section 46( 4)(i) of the
banking regulation act 1949, rbi has imposed penalties on 19 commercial banks.
Some of the banks on whom penalties charged were ICICI Bank, HDFC Bank, PNB
Paribas, YES Bank, etc. the penalties have been imposed for contravention of
various instructions issued by Reserve Bank in respect of derivatives such as, failure
to carry out due diligence in regards to suitability of products, selling derivatives
products to users not having risk management policies and not verifying the
underlying/adequacy of underlying and eligible limits under past performance route,
it said.
The banks have been imposed penalties of 5 lakhs to rs.15 lakhs. While the ICICI
Banks, HDFC Banks, YES Banks have been imposed the penalties of 15 lakhs,
whereas PNB Paribas Bank has been imposed penalty of 10 lakhs.

47

Commercial Banking In India

COMMERCIAL BANKS AND ITS IMPACT ON


ECONOMIC DEVELOPMENT

Commercial banks are considered not merely as dealers in money but also the leaders
in economic development. They are not only the store houses of the countrys wealth
but also the reservoirs of resources necessary for economic development. They play
an important role in the economic development of a country. A well-developed
banking system is essential for the economic development of a country. The
Industrial Revolution in Europe in the 19th century would not have been possible
without a sound system of commercial banking. In case of developing countries like
India, the commercial banks are considered to be the backbone of the economy.

Commercial banks can contribute to a countrys economic development in the


following ways:

48

Commercial Banking In India

Provision of Finance and Credit:


Commercial banks are a very important source of finance and credit for industry and
trade. Credit is a pillar of development. Credit lubricates all commerce and trade.
Banks become the nerve Centre of all commerce and trade. Banks are instruments for
developing internal as well as external trade.

Monetization of Economy:
An underdeveloped economy is characterized by the existence of a large nonmonetized sector. The existence of this non-monetized sector is a hindrance in the
economic development of the country. The banks, by opening branches in rural and
backward areas can promote the process of monetization (conversion of debt into
money) in the economy.

Innovations:
Innovations are an essential prerequisite for economic development.
These innovations are mostly financed by bank credit in the developed countries. But
in underdeveloped countries, entrepreneurs hesitate to invest in new ventures and
undertake innovations largely due to lack of funds. Facilities of bank loans enable the
entrepreneurs to step up their investment on innovational activities, adopt new
methods of production and increase productive capacity of the economy.

Implementation of Monetary Policy:


Economic development needs an appropriate monetary policy. But a well-developed
banking is a necessary pre-condition for the effective implementation of the monetary
policy. Control and regulation of credit by the monetary authority is not possible
without the active co-operation of the banking system in the country.

49

Commercial Banking In India

Encouragement to Right Type of Industries:


Banks generally provide financial resources to the right type of industries
to secure the necessary material, machines and other inputs. In this way
they influence the nature and volume of industrial production.

Development of Agriculture:
Underdeveloped economies are primarily agricultural economies. Majority of the
population in these economies live in rural areas. Therefore, economic development in
these economies requires the development of agriculture and small scale industries in
rural areas. So far banks in underdeveloped countries have been paying more attention
to trade and commerce and have almost neglected agriculture and industry. Banks
must provide loans to agriculture for development and modernization of agriculture.
In recent years, the State Bank of India and other commercial banks are granting short
term, medium-term and long-term loans to agriculture and small-scale industries.

Regional Development:
Banks can also play an important role in achieving balanced development in different
regions of the country. They transfer surplus capital from the developed regions to the
less developed regions, where it is scarce and most needed. This reallocation of funds
between regions will promote economic development in underdeveloped areas of the
country.

Promote Industrial Development:


Industrial development needs finance. In some countries, commercial
banks encouraged industrial development by granting long-term loans also. Loan or
credit is a pillar to development. In underdeveloped countries like India, commercial
banks are granting short-term and medium-term loans to industries. They are also
underwriting the issue of shares and debentures by industrial concerns. This helps
industrial concerns to secure adequate capital for their establishment, expansion and
modernization.

Promote Commercial Virtues:


The businessmen are more afraid of a banker than a preacher. The businessmen
should have certain business qualities like industry, forethought, honesty and
punctuality. These qualities are called commercial virtues which are essential for

50

Commercial Banking In India


rapid economic progress. The banker is in a better position to promote commercial
virtues. Banks are called public conservators of commercial virtues.

Fulfillment of Socio-economic Objectives:


In recent years, commercial banks, particularly in developing
countries, have been called upon to help achieve certain socio-economic objectives
laid down by the state. For example, nationalized bank in India have framed special
innovative schemes of credit to help small agriculturists, self-employed persons and
retailers through loans and advances at concessional rates of interest. Banking is thus
used to achieve the national policy objectives of reducing inequalities of income and
wealth, removal of poverty and elimination of unemployment in the country.

51

Commercial Banking In India

CHAPTER 3: LITERATURE REVIEW


BOOKS:

The
2007-2012
Commercial Banking in India.

Outlook

The 2007-2012 Outlook


Interest Commercial Banking in India.

for

for

Non-

Author:Philip M. Parker
Publisher: ICON Group International, Inc. (September 25, 2006).
Description: Information taken from these books were related to the
introduction of commercial banks & its various types and services.

Public Sector Commercial Banking in India.


Author:Farhat Husain
Publisher: Deep & Deep Publications; First Edition (1986)
Description: Information taken from these books were related to the
various types of banking in India, and its emergence.

52

Commercial Banking In India

State In Relation To Commercial Banking in the


Developing Economy of India
Author:Amar Chand Gorelal Sharma
Publisher:Sterling Publishers (1968)
Description:Information taken from these books were related to the
growth of commercial banks in economic development.

CHAPTER 4:ANNEXURE
ICICI BANK CASE STUDY

HISTORY:-

53

Commercial Banking In India


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 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.

HCP
Lo
oae o
an
mr m
s
LAesm g
L oe r
ai
oan c i
ns
an a l
t
nsVl e
S
Ls c h u i
cor li et
L ia e o s
nan
ss

C ar L oans

H om e L o a n s

C om m e r c i a l V e h i c l e L oa n s P e r s o n a l L o a n s L oa n s A ga i n s t S e c u r i t i e s

54

Commercial Banking In India

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.
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
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

55

Commercial Banking In India


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.

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

56

Commercial Banking In India


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.
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.

Questions Asked To the Branch


Manager of ICICI Bank

57

Commercial Banking In India

What is the Balance that is required for ICICI Savings Account?


ANS: -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.

58

Commercial Banking In India


What is the Average Monthly Balance (AMB) required to be maintained
in the case of an icici Savings Account? How is the AMB calculated?
ANS: -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.

Is there a charge for non-maintenance of Average Monthly Balance


(AMB)?
ANS: -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.

Do I need to give an advance notice for withdrawal of cash beyond a limit


from a branch?
ANS: -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.

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


Account?
ANS:-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.

Can I access my account when I am out of town / travelling in India?


ANS:-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.

59

Commercial Banking In India


Can I withdraw cash in any other city where I do not have a Current /
Savings Account?
ANS:-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).

What if I need foreign exchange for my current account transactions?


ANS:-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.

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


ANS:-Your International/debit card can be put to good use on various occasions:

While you are on holiday outside India to meet your expenses.

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

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

Q.10 I am having a Saving Bank / Current account with ICICI. I want to register
for Online ICICI now. What do I do?
ANS:-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
What is the present CRR & SLR in ICICI BANK?
ANS:-CRR-4.5% & SLR-23%.

What is impact of IT development on commercial banks?


ANS:-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.

How much % of loan is given against asset?


ANS:-Maximum 85% of asset value is given by ICICI Bank.

Is the prime lending rate same for all types of loan?


ANS:-It depends on the loan taken by the borrower.

How the NPAs are managed?


ANS:-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.

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CHAPTER 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 of facilities
under one roof. My family being a member of ICICI Bank is very much satisfied
by the care they provide. I have visited ICICI Bank as my one of the

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COMMERCIAL BANKS IN INDIA and asked certain questions to the
employees over there.

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CHAPTER 6: RESEARCH METHODOLOGY

The data of my research is collected by following two ways:


1. PRIMARY DATA
2. SECONDARY DATA

PRIMARY DATA:

Interview of banks personnel.

Collection of brochures from banks.

SECONDARY DATA:
Various websites.
www.commercialbank.com
www.indian bank.com
www.rbi.com

CHAPTER 7: BIBLIOGRAPHY
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Commercial Banking In India

&REFERENCES

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Commercial Banking In India

WEBLIOGRAPHY:

www.Scribd.Com
www.Slideshare.Net
www.indian.bank.com
www.commercialbank.com
www.rbi .com

BOOKS& REFERENCES:

banking theory , law and practices (Dr.Premkumar Srivastav)


Banking Regulation Act, 1949.
The Reserve Bank of India Act, 1934.
Annual Report of the Reserve Bank of India for the Year 2011-12.
Theory & practices of banking.
Financial markets & services.

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