COMMERCIAL

BANKS IN
INDIA
Definition of banking
 “Bank is an institution which collects money
from those who have in spare or who are
saving it out of their income ; and lend this
money out to those who require it.”
 All those institutions which are in the

business of banking are called financial

institutions.
Definition of commercial bank
 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.
Yes
 Commercial Banks are the most important
credit institutions in the country in the
business of lending and borrowing of money
and credit creation.
Classification of banks
 Central bank
 Commercial Banks : short term credit
 Industrial Banks: long term capital needs
 Exchange Banks: Finance export import
 Land Mortgage or land Development Bank:

long term credit for agriculture

 Cooperative banks: small saving as joint

effort of members, low interest rate,

registered under Cooperative Society’s Acts.
Credit Creation
 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.
Credit Creation By Banks
 Definition: It is the process of creation of
credit by commercial banks. More use of DD
and cheques is CC and not cash.
 Cheques and deposit money are as good as

legal tender money on account of their

acceptability by the general public .
Assumptions of credit creation:
 Adjusts assets balance between deposit
liability and cash reserves
 Cash reserve ratio remains same
 There should be sound banking system
 No credit control policy of central bank
 Business is normal, no depression
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