FIN 232

Commercial Bank Management

Unit-1
Introduction
 Meaning of Bank
• Bank is a financial institution that collects deposits from the savers and
provides loan to those who need money.
• Banks are one of the major financial intermediaries whose primary
function is to transfer monetary resources from the savers to the user.
• A bank is a financial institution licensed to receive deposits and make
loans. Banks may also provide financial services, such as wealth
management, currency exchange, remittance of funds, safe deposit
boxes, etc.
• The prime objective of the bank is to accumulate the scattered idle
deposits from the public and invest it in the productive or profitable
sector to enhance the national economy.
• In most countries, banks are regulated by the national government or
central bank. 
 Definition of Bank
• According to R.S. Sayers – “A bank is an institution whose whole debts are
widely accepted in settlement of other people’s debts.”

• According to C.R. Crowther- “The banker’s business is to take the debts of

other people to offer his own in exchange and thereby create money.”

• According to Kent- “A bank is an organization whose principle operations are

concerned with the accumulation of the temporarily idle money of the general
public for the purpose of advancing to others for expenditure.”

• According to BAFIA, 2073- ““Bank” means a corporate body incorporated to

carry on banking and financial transactions pursuant to Sub-Section (1) of
Section 49 and the term also includes a branch office of a foreign bank located
in Nepal, a branch office opened outside of Nepal by a bank incorporated in
Nepal and an Infrastructure Development Bank to carry on functions pursuant
to subSection (5) of Section 49 and branch office of the same bank.”
 Types of Banks
A) On the basis of Domicile (Markets served): E) On the basis of functions:
1) International banks or Global Banks 1) Central bank
2) Domestic bank 2) Commercial banks
3) Development banks
B) On the basis of Ranges of financial services offered: 4) Investment banks
5) Merchant banks
3) Full-Service Bank
6) Industrial banks
4) Limited-purpose bank 7) Exchange banks
8) Savings banks
C) On the basis of volume of deals:
9) Rural banks
5) Wholesale bank 10) Cooperative banks
6) Consumer bank 11) Building societies

D) On the basis of NRB category (for banks licensed by

NRB):
7) “A-class” Commercial Banks
8) “B-class” Development Banks
9) “C-Class” Finance Companies
10) “D-Class” Microfinance Financial Institutions
11) Infrastructure Development Bank
 Types of Banks…

A) On the basis of Domicile (Markets served):

1) International banks or Global Banks:
• The bank that provides wide range of financial services.
2) Domestic bank:
• The bank that provides its services within one country.
 Types of Banks…
B) On the basis of Ranges of financial services
offered:
1) Full-Service Bank:
• The bank that provides wide range of financial services.
2) Limited-purpose bank:
• The bank that provides its services primarily on one line of business.
 Types of Banks…

C) On the basis of volume of deals:

1) Wholesale bank:
• The bank that focuses its service only on large and medium size
business.
2) Consumer bank:
• The bank that provides its services to individuals and small and
medium size business.
 Types of Banks…
D) On the basis of NRB category (for banks
licensed by NRB):
1) “A-class” Commercial Banks
2) “B-class” Development Banks
3) “C-Class” Finance Companies
4) “D-Class” Microfinance Financial Institutions
5) Infrastructure Development Bank
 Types of Banks…

E) On the basis of functions:

1) Central bank
2) Commercial banks
3) Development banks
4) Investment banks
5) Merchant banks
6) Industrial banks
7) Exchange banks
8) Savings banks
9) Rural banks
10)Cooperative banks
11)Building societies
 Services offered by banks
1) Deposit Collection: 3) Remittance
a) Current Deposit
b) Saving Deposit
4) Foreign Exchange
c) Fixed Deposit 5) Trade Financing
d) Call Deposit
e) Margin Deposit 6) Agency Functions
f) Other Deposit 7) Discounting bills
8) General Utility functions:
2) Advancing Loans:
a) Commercial Loan: a) Safe Deposit Locker
a) Cash credit b) Guarantee services
b) Overdraft
c) Working capital
c) ATM
d) Term Loan d) E-Banking, etc.
e) Hire purchase Loan
b) Consumer (Housing, Auto, Mortgage, etc.) 9) Miscellaneous Services
c) Project Loan
 Bank and its Competitors in the Financial System

 The financial system and Competing Financial-Service Institutions:

• Banks are only one part of a vast financial system of markets and institutions.
 The competitive challenge for banks:
• Banks dominated the financial system of decades past. But this is no longer as true today.
Banking’s financial market share generally has fallen as other financial institutions have moved in.
 Leading Competitors with banks:
• Savings Associations
• Credit Unions
• Money Market Funds
• Mutual Funds (investment companies)
• Hedge funds
• Security brokers and dealers
• Investment banks
• Finance Companies
• Financial Holding Companies:-diversified financial service providers under one umbrella.
• Life and property/casualty insurance companies
• Retirement Funds and Pension Funds
 Bank and its Competitors in the Financial System

 Banking’s principle roles (and the roles performed by many of its

competitors) today include:
• The intermediation role
• The payments role
• The guarantor role
• The risk management role
• The investment banking role
• The savings/investment advisor role
• The safekeeping/certification of value role
• The agency role
• The policy role
 Bank and its Competitors in the Financial System

Services Banks and many of their closest competitors offer the

public:
 Services banks have offered throughout History:
• Carrying out currency exchanges
• Discounting commercial notes and making business loans
• Offering savings deposits
• Safekeeping of valuables and Certification of value
• Supporting government activities with credit
• Offering Checking accounts (Demand deposits)
• Offering Trust services
 Bank and its Competitors in the Financial System
Services Banks and many of their closest competitors offer the
public:

 Services Banks and Many of their financial-service competitors

have offered more recently:
• Granting consumer loans
• Financial advising
• Managing cash (or Cash management services)
• Offering equipment leasing
• Making venture capital loans
• Selling Insurance policies
• Selling Retirement plans
• Dealing in Securities: Offering Security brokerage and Investment Banking services
• Offering Mutual funds and Annuities
• Offering Merchant banking services
• Offering Risk management and Hedging services
 Key Trends affecting banks
1) Service Proliferation
2) Rising competition
3) Government Deregulation
4) An increasingly Interest-Sensitive mix of funds
5) Technological Change and Automation
6) Consolidation and Geographic expansion
7) Convergence
8) Globalization