Commercial Bank

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Introduction of Banking:-

Banking operations started in India as early as 1870 with the establishment of the Bank of Hindustan, considered as the first bank in India.
The second development in the banking sector happened with the incorporation of the Bank of Calcutta, the Bank of Bombay and the Bank of Bombay in accordance with the Presidency Bank's Act, 1876. All these banks joined hands to form the Imperial Bank of India. The reserve Bank of India was engaged in the performance of central banking activities before the establishment of the Reserve Bank of India.

Definition of Commercial Banks:-

An institution which accepts deposits, makes business loans, and offers related services. Commercial banks also allow for a variety of deposit accounts, such as checking, savings, and time deposit. These institutions are run to make a profit and owned by a group of individuals, yet some may be members of the Federal Reserve System. While commercial banks offer services to individuals, they are primarily concerned with receiving deposits and lending to businesses.
This sub sector can broadly be classified into:
1. Public sector
2. Private sector
3. Foreign banks

Public sector is the part of economic and administrative life that deals with the delivery of goods and services by and for the government, whether national, regional or local/municipal.

Private banks are banks that are not incorporated. A non-incorporated bank is owned by either an individual or a general partner(s) with limited partner(s). In any such case, the creditors can look to both the "entirety of the bank's assets" as well as the entirety of the sole-proprietor's/general-partners' assets.

Foreign banks organised under foreign laws and located outside the United States.


STRUCTURE OF COMERCIAL BANKS:-

The commercial banking structure in India consists of:
· Scheduled Commercial Banks in India
· Unscheduled Banks in India

Scheduled Banks in India constitute those banks which have been included in the Second Schedule of Reserve Bank of India(RBI) Act, 1934. RBI in turn includes only those banks in this schedule which satisfy the criteria laid down vide section 42 (6) (a) of the Act.
As on 30th June, 1999, there were 300 scheduled banks in India having a total network of 64,918 branches. The scheduled commercial banks in India comprise of State bank of India and its associates (8), nationalized banks (19), foreign banks (45), private sector banks (32), co-operative banks and regional rural banks.
"Scheduled banks in India" means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934), but does not include a co-operative bank".

"Non-scheduled bank in India" means a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949), which is not a scheduled bank".

Activities of Commercial Banks:-

The modern Commercial Banks in India cater to the financial needs of different sectors. The main functions of the commercial banks comprise of transfer of funds, acceptance of deposits and then offering those deposits as loans for the establishment of industries, purchase of houses, equipments, capital investment purposes etc. The banks are allowed to act as trustees. On account of the knowledge of the financial market of India the financial companies are attracted towards them to act as trustees to take the responsibility of the security for the financial instrument like a debenture. The Indian Government presently hires the commercial banks for various purposes like tax collection and refunds, payment of pensions etc.

Modern Banking Techniques:-

The immense growth of the IT sector is reflected in the banking operation of the Commercial Banks in India. Presently, the IT companies are engaged in the creating software packages to facilitate, accelerate, and organize the banking operations. The Rangarajan Committee and the Reserve Bank of India has played a major role in the popularizing the concept of computer application in banking activities. The computerization process has reached its peak in the present scenario with the use of Total Branch Automation Packages.

Products and Services offered by Commercial Banks in India:-

The Commercial Banks in India offer variety of products and services like Investment Advisory Services, Tax Advisory services, Cash Management services, debit cards, ATM cards, credit cards, personal loans, education loans, housing loans, car loans, Investment Advisory Services, and consumer durable loans.

Functions of Commercial Banks:-

The functions of a commercial banks are divided into two categories:

i) Primary functions, and
ii) Secondary functions including agency functions.

i) Primary functions:
The primary functions of a commercial bank include:

a) accepting deposits; and
b) granting loans and advances;

a) Accepting deposits-The most important activity of a commercial bank is to mobilize deposits from the public. People who have surplus income and savings find it convenient to deposit the amounts with banks. Depending upon the nature of deposits, funds deposited with bank also earn interest. Thus, deposits with the bank grow along with the interest earned. If the rate of interest is higher, public are motivated to deposit more funds with the bank. There is also safety of funds deposited with the bank.

b) Grant of loans and advances-The second important function of a commercial bank is to grant loans and advances. Such loans and advances are given to members of the public and to the business community at a higher rate of interest than allowed by banks on various deposit accounts. The rate of interest charged on loans and advances varies depending upon the purpose, period and the mode of repayment. The difference between the rate of interest allowed on deposits and the rate charged on the Loans is the main source of a bank’s income.

i) Loans-A loan is granted for a specific time period. Generally, commercial banks grant short-term loans. But term loans, that is, loan for more than a year, may also be granted.The borrower may withdraw the entire amount in lumpsum or in instalments. However, interest is charged on the full amount of loan. Loans are generally granted against the security of certain assets. A loan may be repaid either in lumpsum or in instalments.

ii) Advances-An advance is a credit facility provided by the bank to its customers. It differs from loan in the sense that loans may be granted for longer period, but advances are normally granted for a short period of time. Further the purpose of granting advances is to meet the day to day requirements of business. The rate of interest charged on advances varies from bank to bank. Interest is charged only on the amount withdrawn and not on the sanctioned amount.

c) Discounting of Bills-Banks provide short-term finance by discounting bills, that is,making payment of the amount before the due date of the bills after deducting a certain rate of discount. The party gets the funds without waiting for the date of maturity of the bills. In case any bill is dishonoured on the due date, the bank can recover the amount from the customer.

ii) Secondary functions:-Besides the primary functions of accepting deposits and lending money,banks perform a number of other functions which are called secondary functions. These are as follows –
a) Issuing letters of credit, travellers cheques, circular notes etc.
b) Undertaking safe custody of valuables, important documents, and securities by providing safe deposit vaults or lockers;
c) Providing customers with facilities of foreign exchange.
d) Transferring money from one place to another; and from one branch to another branch of the bank.
e) Standing guarantee on behalf of its customers, for making payments for purchase of goods, Machinery, vehicles etc.
f) Collecting and supplying business information;
g) Issuing demand drafts and pay orders; and,
h) Providing reports on the credit worthiness of customers.