the role of commercial

banks
Functions
Types of services
Business sectors (Retail Banking vs. Corporate Banking)
 What’s a commercial bank?
• A commercial bank is a profit-based financial institution that offers basic
investment products like a savings account, current account etc. to the
individuals and corporates. Along with that, it provides a range of
financial services to the general public such as accepting deposits,
granting loans and advances to the customers, overdraft facilities and
electronic transfer of funds.
 How does it work?
• A Commercial bank plays an important role in fulfilling the short-term
and medium- term financial requirements of the economy. The funds of
commercial banks belong to the general public and are withdrawn at a
short notice; therefore, commercial banks prefers to provide credit for a
short period of time backed by tangible and easily marketable securities.
Commercial banks, while providing loans to businesses, consider various
factors, such as nature and size of business, financial status and
profitability of the business, and its ability to repay loans.
 Classification of commercial banks
Commercial banks are classified into three categories:
• Private bank (Private individuals own more than 51% of the share capital
and is a publicly listed company in a recognized exchange)
• Public bank (The Government holds more than 51% of the share capital of
a publicly listed banking company)
• Foreign bank (Banks set up in foreign countries, and operate their
branches in the home country)
Functions
 Accepting Deposits
• The primary function for which the
commercial banks were established is to
accept deposits from the general public,
who possess surplus funds and are willing
to deposit them so as to earn interest on it.
There are various products offered by the
bank to the customers for the deposit of
their money, which includes savings
account, current account, fixed deposit
and recurring deposit.
 Current account deposits
• Such deposits are payable on demand and are called demand deposits.
These can be withdrawn by the depositors any number of times depending
upon the balance in the account. The bank does not pay any Interest on
these deposits but provides cheque facilities. In recent times there have
been a huge increase in current accounts throughout the world. In
countries such as Sweden almost all citizens have an current account and
more than 90% percent of transactions undertaken by individuals are
made by card.
 Fixed deposits (Time deposits)
• Fixed deposits have a fixed period of maturity and are referred to as time
deposits. These are deposits for a fixed period of time ranging from a few
days to a few years. These are neither payable on demand nor they enjoy
cheque facilities.
• They can be withdrawn only after the maturity of the specified fixed
period. They carry higher rate of interest. They are not treated as a part of
money supply. Recurring deposit in which a regular deposit of an agreed
sum is made is also a variant of fixed deposits.
  Savings account deposits
• These are deposits whose main objective is to save. Savings account is
most suitable for individual households. They combine the features of
both current account and fixed deposits. They are payable on demand and
also withdrawable. But bank gives this facility with some restrictions,
usually a limited number of transactions. Interest paid on savings account
deposits in smaller than that of fixed deposit.
 Advancing Loans
• The second primary function
performed by the commercial
bank is lending money to the
individuals and companies. The
banks make loans to the
customers in the form of term
loans, cash credit, overdraft and
discounting of bills of exchange.
 Cash Credit

• An eligible borrower is first sanctioned a credit limit

and within that limit he is allowed to withdraw a certain
amount on a given security. The withdrawing power
depends upon the borrower’s current assets, the stock
statement of which is submitted by him to the bank as
the basis of security. Interest is charged by the bank on
the drawn or utilised portion of credit (loan).
 Demand Loans

• A loan which can be recalled on demand is called

demand loan. There is no stated maturity. The entire
loan amount is paid in lump sum by crediting it to the
loan account of the borrower. Those like security
brokers whose credit needs fluctuate generally, take
such loans on personal security and financial assets.
 Short-term Loans

Short-term loans are given against some security as

personal loans to finance working capital or as
priority sector advances. The entire amount is
repaid either in one instalment or in a number of
instalments over the period of loan.
 Bank’s Investments
Commercial banks invest their surplus fund in 3 types of securities and
earn interest:
• Government securities
• Other approved securities
• Other securities
Some categorize those investments as loans, and include them in the primary
function of the bank, but others categorize investment as a secondary function.
  Overdraft facility
• An overdraft is an advance given by allowing a customer keeping current
account to overdraw his current account up to an agreed limit. It is a facility to a
depositor for overdrawing the amount than the balance amount in his account.
Depositors of current account make arrangement with the banks that in case a
cheque has been drawn by them which are not covered by the deposit, then the
bank should grant overdraft and honor the cheque. The security for overdraft is
generally financial assets like shares, debentures, life insurance policies of the
account holder etc..
• Customers of overdraft pay interest on the daily balance.
Discounting bills of exchange or bundles

• A bill of exchange represents a promise to pay a fixed amount

of money at a specific point of time in future. It can also be
encashed earlier through discounting process of a commercial
bank. Alternatively, a bill of exchange is a document
acknowledging an amount of money owed in consideration of
goods received. It is a paper asset signed by the debtor and the
creditor for a fixed amount payable on a fixed date.
 Secondary functions
Agency Services
There are some facilities provided by the commercial banks in which they
act as an agent of the customers. Such services are:
• Collection and payment of rent, interest and dividend.
• Collection and payment of cheques and bills.
• Buying and selling securities.
• Payment of insurance premium and subscriptions.
 General Utility Services
Commercial banks provide general utility services to the customers and
charges a fee for the same. It covers services like:
• Safekeeping of valuables, documents etc, in locker or vault.
• ATM card, credit card and debit card facility.
• Issue of demand draft, pay order and traveller’s cheque.
• Internet and mobile banking
• Sale of application forms of competitive exams.
 Other secondary functions

• Transfer of funds: Banks assist in the transfer of funds from one person
to another or from one place to another through its credit instruments.
• Credit Creation: The commercial banks are authorized to create credit,
by granting more loans than the amounts deposited by the customers.
• A commercial bank offers an array of facilities such as internet banking,
mobile banking, ATM facility, credit card facility, NEFT, RTGS and so
forth for which it charges a definite sum as a fee for providing these
facilities.
 Retail Banking vs. Corporate Banking: What's
the Difference?
• Retail banking refers to the division of a bank that deals directly with retail
customers. Also known as consumer banking or personal banking, retail
banking is the visible face of banking to the general public, with bank branches
located in abundance in most cities. Customer deposits garnered by retail
largely enable banks to make loans to their retail and business customers.
• Corporate banking, also known as business banking, refers to the aspect of
banking that deals with corporate customers. They make loans that enable
businesses to grow and hire people, contributing to the expansion of the
economy.
 What Is Retail Banking?
• Retail banking is what most people think of when they consider personal banking.
It offers deposit, access and lending services to individuals among other financial
services.
• Despite the name, retail banking does not depend on physical retail locations. In
fact, many banks have begun re-evaluating how they use their physical storefronts
while other institutions have opened entirely online. The name "retail" refers
instead to their business model. A "retail" business is one which operates on
relatively small volumes, or one which offers goods and services for consumption
rather than for use in another business.
 financial services offered by retail banks
• Deposit accounts - Checking, savings and other forms of accounts where consumers can safely
keep their money and potentially receive a rate of interest
• Secured individual lending - Mortgages, auto loans and other forms of lending to individuals based
on a single, large asset that individual wants to purchase. This is often one of the largest sources of
income for a retail bank
• Unsecured individual lending - Personal loans, lines of credit and credit cards issued to individuals
for their own spending
• Certificates of deposit - Safe forms of relatively low interest investment
• Cash access - Most notably through ATM services and (far less frequently) checks, the bank allows
you to access your cash on deposit without carrying it around
 Future prospects
• While these are the traditional services offered by banks, retail banking in the
modern era has begun expanding aggressively into financial advising. As
transactional services (defined, essentially, as giving, getting or otherwise
moving your money) increasingly move online, banks have begun a broader
range of services that include investment and savings advice, wealth
management, advising toward larger life goals such as retirement, and more.
• Increasingly retail banks hope to expand the footprint of their advising services.
These are services that traditionally high-net-worth individuals accessed. Today
retail banks are trying to bring them to a broader range of consumer.
 The financial products offered by commercial
banks
• Deposit accounts - Checking, savings and other forms of accounts where the institution can keep
its money and potentially receive a rate of interest.
• Secured and unsecured lending - The bank may issue some loans based on collateral, such as to
purchase a building or new vehicles. It may also issue unsecured loans such as a line of credit or
a corporate credit card.
• Cash access - Through ATMs, checking accounts, wire transfers and other services the bank
allows the institution to access its cash without physically withdrawing the money.
Where the products offered by a commercial bank are substantively similar to a retail bank, the
commercial bank will typically offer different terms, the bank may offer different interest rates or
payment schedules to a commercial client than it would to an individual.
 Commercial banks services to business and
institutional clients
• Payment processing services - Through credit/debit card processing, gift cards and app-based
payment services, among others, the bank can help the institution accept payment from its customers.
• Specialized lending services - The bank may have dedicated programs for lending to businesses. In
particular, these services may be built around helping the institution secure short-term cash flow and
long-term capital needs.
• Benefits plans - The bank may offer services to help the institution build benefits plans, such as
retirement, health insurance and disability programs for its employees.
• Cash management - The bank may offer programs to help the business manage its payments and
collections, work with foreign currencies and secure larger sources of capital when a loan will not
work.
 Conclusion
• Both retail and commercial banks are depository banks in that they hold
consumer's money in accounts and use that money to make loans. As a result, most
banking institutions have both a retail and a commercial arm. While the bank may
have different teams that work on each account they are not separate institutions.

• There are some banks which serve a completely retail or completely commercial
audience, but these are rare. In most cases the difference between "retail" and
"commercial" banking only refers to which product you choose.
 Banca Transilvania S.A.
• A banking institution with headquarters in Cluj-Napoca, Romania. The bank was
founded in 1993 in Cluj-Napoca by a local business people group, with a capital of
2 billion RON, of which 79% was Romanian and 21% foreign.
• Currently, BT is on 1st place among banks in Romania in terms of assets with a
market share of over 16%. Its activity is organized into four main business lines:
corporate banking, IMM, retail banking and medical division. Banca Transilvania
has about 1.76 million customers, 550 locations and over 7,000 employees. Since
June 2013, the new CEO of Banca Transilvania is Ömer Tetik
• Banca Transilvania is the first Romanian bank to open a branch in Rome.
 Banca Transilvania S.A.
• The bank is structured into four business categories, namely retail, SME,
corporate and the Medical Division. In order to support and develop each
of the four segments, Banca Transilvania has consolidated a team of
specialists and a complex portfolio of products and services.
• The majority package of shares within Banca Transilvania is owned by the
Bank for Reconstruction and Development with a 14.6% stake.
• The number of employees working for BT is over 6,000 people, the
network being made up of 550 offices.
 Banca Transilvania S.A.
• The BT Financial Group was formed in 2003, its main component being Banca Transilvania, with
which are also included BT Asset Management, BT Direct, BT Leasing, BT Securities, Factoring
company, BT Finop Leasing and Medicredit. BT Financial Group will wear BT logo and the center
of the power will be Banca Transilvania, which has 100% equity shares or majority positions in
subsidiaries.

• BT Asset Management (BT AM) has as activity object the management of group activities. BT
Asset Management was founded in 2005 and manages BT Maxim and BT Classic fundsand the BT
Invest 1 closed-end investment funds, which has parts of Romanian companies with high growth
potential. In 2007, BT Asset Management was the mutual funds market leader with a share of
15.3%,