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COMMERCIAL BANKING-A DETAILED REVIEW Meaning of bank A bank is an institution which deals with money and credit.

It accepts deposits from the public, makes the fund available to those who need them, and helps in the remittance of money from one place to another. According to Crowther, a bank collects money from those who have it to spare or who are saving it out of their incomes, and lend this money to those who require it Commercial banks: The commercial bank is one which transacts the business of banking which means accepting for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise . These commercial banks perform all kinds of banking business. In capitalist countries, like U.S.A, and U.K, commercial banks are usually in the private sector. In socialist countries like Russia, they are completely nationalized. In france, though it has a capitalized economy, all commercial banks are state owned. In our country banking transactions are done through branch banking Functions of commercial bank In the modern world ,banks perform such a variety of functions that it is not possible to make an all- inclusive list of their functions and services. However , some basic functions performed by the banks are discussed below. 1.Accepting Deposits The first important function of a bank is to accept deposit from those who can save but cannot profitably utilize this saving themselves. People consider it more rational to deposit their savings in a bank because by doing so they, interest, and on the one hand , avoid the danger of theft.

1.1fixed deposit account Money in these accounts is deposited for fixed period of time and cannot be withdrawn before the expiry of that period. The rate interest on this account is higher than that on other type of deposits. The longer the period the higher will be the rate of interest. Fixed deposit are also called time deposit or time liabilities 1.2Current deposit account These accounts are generally maintained by the traders and business men who have to make a number of payments every day. Money from these accounts can be withdrawn in as many times and in as much amount as desired by the depositors. 1.3Saving deposit account The aim of this account is to encourage and mobilize small savings of the public. Certain restrictions are imposed on the depositors regarding the number of withdrawals and the amount to be withdrawn in a given period. Cheque facility is provided to the depositors. Rate of interest paid on these deposits is law as compared to that on fixed deposits. 1.4Recurring deposit account The purpose of this account is to encourage regular savings by the public, particularly by the fixed income group, generally money in these accounts is deposited in monthly installments for a fixed period and is repaid to the depositors along with interest on maturity rate of interest on these deposits is nearly the same as on fixed deposits. 1.5 Home safe account It is another scheme aiming at promoting saving habits among the people. Under this scheme a safe is supplied to the depositor to keep it at home and put his small savings in it.

2.Advancing of loan The second important function of a bank is advancing of loan to the public. After keeping certain cash reserves, the banks lend their deposits to the needy borrower. 2.1Money at call Such loans are very short period loans and can be called back by the banks at a very short notice of say one day to fourteen days. These loans are generally made to other banks or financial institutions. 2.2 cash credit It is a type of loan which is given to the borrower against his current assets such as shares, stocks, bonds etc. Such loans are not based on personal security.

2.3 Overdraft Some times the bank provides overdraft fecilities to its customers through which they are allowed to withdraw more than their deposits. Interest is charged from the customers on the overdrawn amount. 2.4 Discounting of bill of exchange This is another type of lending by modern banks. Through this method a holder of a bill of exchange can get it discounted by the banks. 2.5 Term loan The banks have also started advancing medium term and long term loans. The maturity period for such loan is more than one year.

3.Credit creation A unique function of the bank is to create credit. In fact, credit creation is the natural outcome of the process of advancing loan as adopted by the banks. When a bank advances a loan to its customer, it does not lend cash but open an account in the borrowers name and credits the amount of loan to his account. 4. Promoting cheque system Banks also render a very useful medium of exchange in the form of cheques. Through a cheque, the depositor directs the bankers to make payment to the payee. 5. Agency functions Banks also perform certain agency functions for and on behalf of their customers. a. Remittance of funds- banks help their customers in transferring funds from one place to another through cheques, drafts,etc. b. Collection and payment of credit instruments- Banks collect and pay various credit instruments like cheques, bill of exchange, promissory notes, etc. c. Purchasing and sale of securities- banks under takes purchase and sale of various securities like share, stock, bond, debentures, etc, on behalf of their customers. d. Collection of dividends on shares- banks collect dividends, interest on shares and debentures of their customers. e. Income tax consultancy- banks also employ income tax expert to prepare income tax returns for their customers and help them to get refund of income tax. f. Acting as trustee and executer-banks preserve the wills of their customers and execute them after their death. 6. General Utility Function In addition to agency services, the modern banks perform many general utility services as given below:

1.Locker facility- banks provide locker facility to their customers. The customers can keep their valuables and important documents in these lockers for safe custody. 2. Letter of credit- letter of credit are issued by the banks to their customers certifying their credit worthiness. Letters of credit are very useful in foreign trade. 3.Underwriting securities banks underwrite the securities issued by the government, public or private bodies. 4.Gift chequessome banks issue various denominations(say of

Rs.11,21,31,51,101,etc) to be used on auspicious occasions. 5. Foreign exchange business- banks also deals in the business of foreign currencies. Again they may finance foreign trade by discounting foreign bill of exchange. Nationalization of banks The role of banks has undergone a revolutionary change after nationalization. The focus of banks since nationalization primarily has been on widening and deepening the banking system and affecting a structural a structural transformation in the deployment of commercial bank credit in pursuance of the planned objectives of increasing the financial savings, amelioration of poverty, modernization of agriculture, small and cottage industries. Objectives of nationalization of commercial banks The important objective of nationalization as outlined by the prime minister, Mrs. Indira Gandhi , in the parliament on July 21 1969 are; 1. To remove control of few large industrial houses over banks. 2. To provide adequate credit to the hitherto neglected sectors as, agriculture, small industries, weaker sections, professionals etc. 3. To introduce professional management in banking business.

4. To provide incentives and stimulus to new entrepreneurs. 5. T o provide adequate training and reasonable service conditions for bank employs 6. To eliminate the use of bank- credit for speculative and, un productive purposes. 7 To mobilize savings of people to the largest possible extent 8 To ensure that the operations of the banking system are guided by a large social purpose Reforms of banking services. As back as in July 1983 , the Reserve Bank of India a committee to draw a phased programme for the banking industry keeping in mind its future expansion the committee comprised of eleven members with Dr C. Rangarajan, Dy. Governor of RBI , as its chairman. In the pursuance of the recommendation of the committee, the RBI IN 1984, issued detailed guidelines for mechanization of banking services. However nothing much could be achieved in this direction due to lack of infrastructure facilities and opposition from the bank employees unions. In March 1987 the Indian Bank Association and bank employees unions entered in to an agreement whereby public sector banks were allowed to install 5480 advance ledger posting machines at their branches. As on the same date, banks have also installed 218 minicomputers at their regional offices. Various E-Banking services With E- Banking, clients are to deal with banks and get a host of requests received through their desktop computers. For the client, it means direct and immediate access to his accounts in to the bank, without physically visiting the bank. Electronic banking brings lesser administration cost, more profitability and productivity to the banks. Effectiveness of Electronic Banking 1. Communication technology was in its infancy and inadequate for local or global coverage.

1. Most companies and banks have incompatible systems. 2. Computer manufactures was unable to agree on the development of technology standards which would permit data exchange directly between computer systems. Benefits of E-Banking 1. To the customers 1. ATM facilities balance enquiry, request for services, issuing instructions, etc from anywhere in the world is possible. 2. It provides tremendous psychological benefit all the time. 3. It brings down cost of banking to the customer over a period of time. 4. Cash withdrawal from any branch or ATM. 5. It helps in on-line purchase of goods and services including on-line payments for the same. 2. To the bank 1. It facilitates innovative security, addresses competition and presents the bank as technology driven in the banking sector market. 2. It reduce the customer visits to the branch and their by human intervention. This impact tells upon establishment cost of the bank. 3. Inter branch reconciliation is immediately, thereby reducing chances of fraud and misappropriation. 4. On line banking is an effective medium of promotion of various schemes of the banks, a marketing tool indeed 5. E-Banking site can act as revenue easier through promotion activity by consumer corporate. 6. Integrated customer data paves way for the individualized and customaries services.

Limitations of E-Banking 1. Adoption of technology creates difficulties 2. Failure of customer acceptance 3. Cost of preparedness 4. Restriction on usage of technology 2. Automated Teller Machine (ATM) ATM is a modern technology introduced by the banks to enable the customer to have access to money round the clock and also through out the year. The ATM enables a customer to withdraw and deposit cash and cheque, balance in account, print mini account statement, transfer funds between own accounts, payment of utility bills, recharge prepaid mobile card. 3. Internet banking With the internet banking facility, the customer of the bank is just a click away from the bank. The customer can check their account status, fund transfer, make bill payment, place on line request for new cheque book review term deposits etc. In addition it enables the customers to conduct on-line shopping, mutual fund purchase, on-line trading and payment to services such a insurance, electricity, telephone and mobile services across the country. Banking products and services such as deposits, remittances, credit card etc. as well as important banking informations can be made available with easy access to customers on internet. 4. Mobile Banking In traditional banking, customers have to visit the branch of the bank in person to carry on the basic transactions. E-banking is of great convenience to the customer. With Mobile banking, the concept of anytime, anywhere banking is literally at the finger tips of the customer. 5. Phone Banking The phone banking is another important delivery channel. Using this facility, a customer of the Bank can easily access to his account with the help of communication

through phone. The real phone banking and banking, through AVRS (Activated Voice Responding System).


Electronic Fund Transfer RBI started Electronic Fund Transfer system in 1996. The system facilitated

transfer of funds from one centre to another across banks. This system assumes availability of funds on the day next to the day of transfer. At present, an upper limit of Rs.25000/- has been set for the individual transaction. The facility is available at about 1960 branches of 27 banks at Mumbai and Chennai. 7. Bill payments E-banking opens new facilities of banking by way of providing enlarged, efficient, economic and quality service to the customers. With electronic banking, clients are able to deal with banks and get a lot of requests serviced through telephone. 8. Insurance Products Customers are being provided with additional delivery channels which are more convenient to customers and are cost effective to the banks. Commercial banks in association with insurance companies offer insurance companies office in the same bank. 9. Investment and financial Advisory Service Financial Advisory Services or Personal finance solutions are provided by commercial banks to its customers. As a result of Diversification into many related areas such as merchant banking, mutual funds, venture capital, equipment leasing, housing finance, hire purchase credits etc. 1. Merchant Banking Merchant Banking are financial intermediaries. They transfer capital from those who own it to those who use it. They provide the whole range of inputs of financial services, technical and management knowledge, expert advise on legal and industrial matters needed by the users.

2. Mutual Funds Mutual Funds are financial intermediaries. They obtain their resources by setting units or shares. They enable small investors to obtain high-return-low risk combination from their indirect holding of equities and other assets. 3. Hire Purchase Credit It refers to term loans provided for the purchases of consumer goods and sometimes producer goods. These loans are rapid in installments during the specified period. 4. Venture Capital It is a new type of financial intermediary which has emerged in India in later 1980s. These funds are mutual funds or institution investors. They provided risk capital and management expertise to highly risky and new private business. Venture Capital is a highly risk return business. 5. Factoring Service Factor is a financial institution. It manages the collection of accounts receivables of the business firm. It bears credit risk associated with these accounts. Factoring services implies the advance payment of credit by the banks to the customers. 11. Credits Cards Commercial banks introduced the credit card facility in 1980s. Credit Card is a convenient medium of exchange. It enables its holders to purchase the goods and services from the member establishments without using money.

CUSTOMER SERVICE IN BANKS In the era of technologically backed competition, awareness level, of customers is increasing day by day. Expectations of customers from banks are increasing as they have wider choice of products and service. The concept of generation to generation banking has also undergone changes. Customers loyalty is now conditioned by the quality of products and its delivery mechanism i.e. service. Customer The word customer has been derived from custom meaning, habit. As per the literal meaning, a customer is someone who is in the habit o buying or receiving goods or services from the same business organization. As per Section 131 Negotiable Instruments Act 1881, a bank gets protection when it collects instruments (cheque draft etc.) for and on account of his customer. Customers can be broadly classified into following, three categories. 1. Those who already have account relationship with the bank. 2. Those who do not have account relationship, but make use of the service provided by the bank. 3. Those who have been motivated to deal with bank by advertisements, personal contacts with prospective clients. Customer Service Customer Service is the set of behaviors that a business undertakes during its interaction with its customers. It is the degree of assistance and courtesy granted to these who patronize the organization. It is anticipation and identification of customers needs and expectations and taking action for positive customer satisfaction. It consist codes of ethics, etiquette, behavior courtesy etc. Necessity for Good Service Banking service industry is facing fierce competition. Competition is not only in price of the products but also in the service. Banks are practically coming out daily with

new products to suit various segments of society and to have a hold both in the existing and virgin market for keeping competition at a day. Good customer service does not need publicity. Excellent customer service is one of the few ways to become sustainable competitive. Customer service has direct impact on the working of bank and on its profitability. Peculiarity Service Services are high variable as they depend on the service provider. We can see the service provider but not the service. We can see him attending to the customer we can see the product but not service. Service cannot felt, heard or smelled before they are bought. Data Based Customer Service Requirements of customer service differ from person to person, which is government by age, educational background, profession, vocation and environment. Service requirements of businessmen are from that of pensioners, medical practioners, office goers, house holders, those who have college going children or those who have recently started their married life.