Commercial Bm

8/11/2019 Commercial Bm

1/33

COMMERCIAL BANKING MANAGEMENT Page 1

A PROJECT REPORT ON

ROLE OF MONETARY POLICY IN INDIA

SUBMITTED

TO THE UNIVERSITY OF MUMBAI

AS A PARTIAL REQUIREMENT FOR COMPLETING THE POSTGRADUATION OF

M.COM PART I (BANKING AND FINANCE) SEMESTER -I

SUBMITTED BY:

ANJALI

ROLL NO: 03

UNDER THE GUIDANCE OF

DR. AARTI KALYANARAMAN


2/33


SIES COLLEGE OF COMMERCE AND ECONOMICS,

PLOT NO. 71/72, SION MATUNGA ESTATE

T.V. CHIDAMBARAM MARG,

SION (EAST), MUMBAI 400022.

CERTIFICATE

This is to certify that Mr.__________________________________

__________________________________________________________

of M.Com (Banking and Finance) Semester I (academic year

2014-2015) has successfully completed the project on

______________________________________________________under the

Guidance of Dr. __________________________________________.

_________________ ___________________

(Project Guide) (Course Co-ordinator)

___________________ ___________________

(External Examiner) (Principal)

Place: _____________

Date: ___________


3/33


DECLARATION

I, __________________________________________________

Student of M.Com (Banking and Finance) Semester I (academic year

2014-2015) hereby declare that, I have completed the project on ______________________________________________________________.

The information presented in this project is true and original

to the best of my knowledge.

Place: _____________

Date:_____________

___________________

Name:

Roll No.:


4/33


ACKNOWLEDGEMENT

I would like to thank the University of Mumbai, for introducingM.Com (Banking and Finance) course, thereby giving its students aplatform to be abreast with changing business scenario, with thehelp of theory as a base and practical as a solution.

I am indebted to the reviewer of the project Dr. Aartikalyanaraman my project guide who is also our principal, for hersupport and guidance. I would sincerely like to thank her for all herefforts.

Last but not the least; I would like to thank my parents forgiving the best education and for their support and contributionwithout which this project would not have been possible.

______________________

Name :

Roll no:


5/33


EXECUTIVE SUMMARY

Abstract:

Banks play an important role in development of Indian economy. After

liberalization, the banking industry underwent major changes. The economic

reforms totally have changed the banking sector. RBI permitted new banks to be

started in the private sector as per there commendation of Narasimham committee.

The Indian banking industry was dominated by public sector banks. But now thesituations have changed. New generation banks with used of technology and

professional management has gained a reasonable position in the banking industry.

In this paper we look at the type of banks, their role and functioning, Establishment

and Role of Indias Central Bank

- RBI and the recent banking reforms .We perform a comparative data analysis

between GDP and total advances & deposits .We also check whether the Credit

Deposit Ratio has any relationship with the GDP. We then perform a regression

analysis to check whether there is any relationship between GDP and Bank lending

interest rates. We also compare the Flow of credit to Agricultural Sector with the

Growth of Agriculture Sector. We conclude the analysis by an overview and

analysis of the sector deployment of gross bank credit over the last two financial year.


6/33


RESEARCH METHODOLOGY

The research will be based upon the secondary sources of data as the purview of

the research is restricted to application of the BCG concept onto Videocon

Company. The company is not involved in research methodology any way.

In order to achieve the first objective secondary sources of data will be referred

i.e. books, internet, magazines, articles, websites, etc.

To fulfill the last two objectives, the help of hard facts and statistical data will

be taken, for such data collection various market surveys will be helpful. The

data will be analyzed and valuable inputs will be given in form of suggested

strategies.


7/33


INTRODUCTION

What is a bank?

A bank is a financial intermediary that accepts deposits and channels those

deposits into lending activities, either directly by loaning or indirectly

through capital markets. A bank links together customers that have capital deficits

and customers with capital surpluses.

Due to their importance in the financial system and influence on

national economies, banks are highly regulated in most countries. Most nations

have institutionalized a system known as fractional reserve banking, under which

banks hold liquid assets equal to only a portion of their current liabilities. In

addition to other regulations intended to ensure liquidity, banks are generally

subject to minimum capital requirements based on an international set of capital

standards, known as the Basel Accords.

Banking in its modern sense evolved in the 14th century in the rich cities

of Renaissance Italy but in many ways was a continuation of ideas and concepts

of credit and lending that had its roots in the ancient world. In the history of

banking, a number of banking dynasties notably the Medicis, the Fuggers,

the Welsers, the Berenbergs, and the Rothschilds have played a central role over
http://en.wikipedia.org/wiki/Financial_intermediaryhttp://en.wikipedia.org/wiki/Deposit_accounthttp://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Capital_markethttp://en.wikipedia.org/wiki/Financial_systemhttp://en.wikipedia.org/wiki/Economyhttp://en.wikipedia.org/wiki/Bank_regulationhttp://en.wikipedia.org/wiki/Fractional_reserve_bankinghttp://en.wikipedia.org/wiki/Minimum_capital_requirementhttp://en.wikipedia.org/wiki/Basel_Accordshttp://en.wikipedia.org/wiki/Renaissance_Italyhttp://en.wikipedia.org/wiki/Credit_(finance)http://en.wikipedia.org/wiki/Lendinghttp://en.wikipedia.org/wiki/Ancient_worldhttp://en.wikipedia.org/wiki/History_of_bankinghttp://en.wikipedia.org/wiki/History_of_bankinghttp://en.wikipedia.org/wiki/List_of_banking_familieshttp://en.wikipedia.org/wiki/Medicihttp://en.wikipedia.org/wiki/Fuggerhttp://en.wikipedia.org/wiki/Welserhttp://en.wikipedia.org/wiki/Berenberg_familyhttp://en.wikipedia.org/wiki/Rothschild_familyhttp://en.wikipedia.org/wiki/Rothschild_familyhttp://en.wikipedia.org/wiki/Berenberg_familyhttp://en.wikipedia.org/wiki/Welserhttp://en.wikipedia.org/wiki/Fuggerhttp://en.wikipedia.org/wiki/Medicihttp://en.wikipedia.org/wiki/List_of_banking_familieshttp://en.wikipedia.org/wiki/History_of_bankinghttp://en.wikipedia.org/wiki/History_of_bankinghttp://en.wikipedia.org/wiki/Ancient_worldhttp://en.wikipedia.org/wiki/Lendinghttp://en.wikipedia.org/wiki/Credit_(finance)http://en.wikipedia.org/wiki/Renaissance_Italyhttp://en.wikipedia.org/wiki/Basel_Accordshttp://en.wikipedia.org/wiki/Minimum_capital_requirementhttp://en.wikipedia.org/wiki/Fractional_reserve_bankinghttp://en.wikipedia.org/wiki/Bank_regulationhttp://en.wikipedia.org/wiki/Economyhttp://en.wikipedia.org/wiki/Financial_systemhttp://en.wikipedia.org/wiki/Capital_markethttp://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Deposit_accounthttp://en.wikipedia.org/wiki/Financial_intermediary


8/33


many centuries. The oldest existing retail bank is Monte dei Paschi di Siena, while

the oldest existing merchant bank is Berenberg Bank .
http://en.wikipedia.org/wiki/List_of_oldest_banks_in_continuous_operationhttp://en.wikipedia.org/wiki/Retail_bankhttp://en.wikipedia.org/wiki/Monte_dei_Paschi_di_Sienahttp://en.wikipedia.org/wiki/Merchant_bankhttp://en.wikipedia.org/wiki/Berenberg_Bankhttp://en.wikipedia.org/wiki/Berenberg_Bankhttp://en.wikipedia.org/wiki/Berenberg_Bankhttp://en.wikipedia.org/wiki/Merchant_bankhttp://en.wikipedia.org/wiki/Monte_dei_Paschi_di_Sienahttp://en.wikipedia.org/wiki/Retail_bankhttp://en.wikipedia.org/wiki/List_of_oldest_banks_in_continuous_operation


9/33


History of banking

The history of banking begins with the first prototype banks of merchants of the

ancient world, which made loans to farmers and traders who carried goods between

cities. This began around 2000 BC in Assyria and Babylonia. Later, in ancient and

during the Roman Empire, lenders based in temples made loans and added two

important innovations: they accepted deposits and changed money. Archaeology

from this period in ancient China and India also shows evidence of money

lending activity.

Banking, in the modern sense of the word, can be traced to medieval and

early Renaissance Italy, to the rich cities in the north such

as Florence, Venice and Genoa. The Bardi and Peruzzi families dominated banking

in 14th century Florence, establishing branches in many other parts

of Europe. Perhaps the most famous Italian bank was the Medici bank, established

by Giovanni Medici in 1397. The oldest bank still in existence is Monte dei Paschi

di Siena, headquartered in Siena, Italy, which has been operating continuously

since 1472.

The development of banking spread from northern Italy throughout the Holy

Roman Empire, and in the 15th and 16th century to northern Europe. This was

followed by a number of important innovations that took place

in Amsterdam during the Dutch Republic in the 17th century and in London in the
http://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Merchanthttp://en.wikipedia.org/wiki/Assyriahttp://en.wikipedia.org/wiki/Babyloniahttp://en.wikipedia.org/wiki/Roman_Empirehttp://en.wikipedia.org/wiki/Deposit_accounthttp://en.wikipedia.org/wiki/Bureau_de_changehttp://en.wikipedia.org/wiki/History_of_China#Ancient_Chinahttp://en.wikipedia.org/wiki/History_of_Indiahttp://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Renaissancehttp://en.wikipedia.org/wiki/Italyhttp://en.wikipedia.org/wiki/Florencehttp://en.wikipedia.org/wiki/Venicehttp://en.wikipedia.org/wiki/Genoahttp://en.wikipedia.org/wiki/Bardi_familyhttp://en.wikipedia.org/wiki/Peruzzihttp://en.wikipedia.org/wiki/Europehttp://en.wikipedia.org/wiki/Medicihttp://en.wikipedia.org/wiki/List_of_oldest_bankshttp://en.wikipedia.org/wiki/Monte_dei_Paschi_di_Sienahttp://en.wikipedia.org/wiki/Monte_dei_Paschi_di_Sienahttp://en.wikipedia.org/wiki/Sienahttp://en.wikipedia.org/wiki/Italyhttp://en.wikipedia.org/wiki/Holy_Roman_Empirehttp://en.wikipedia.org/wiki/Holy_Roman_Empirehttp://en.wikipedia.org/wiki/Amsterdamhttp://en.wikipedia.org/wiki/Financial_history_of_the_Dutch_Republichttp://en.wikipedia.org/wiki/Financial_history_of_the_Dutch_Republichttp://en.wikipedia.org/wiki/Amsterdamhttp://en.wikipedia.org/wiki/Holy_Roman_Empirehttp://en.wikipedia.org/wiki/Holy_Roman_Empirehttp://en.wikipedia.org/wiki/Italyhttp://en.wikipedia.org/wiki/Sienahttp://en.wikipedia.org/wiki/Monte_dei_Paschi_di_Sienahttp://en.wikipedia.org/wiki/Monte_dei_Paschi_di_Sienahttp://en.wikipedia.org/wiki/List_of_oldest_bankshttp://en.wikipedia.org/wiki/Medicihttp://en.wikipedia.org/wiki/Europehttp://en.wikipedia.org/wiki/Peruzzihttp://en.wikipedia.org/wiki/Bardi_familyhttp://en.wikipedia.org/wiki/Genoahttp://en.wikipedia.org/wiki/Venicehttp://en.wikipedia.org/wiki/Florencehttp://en.wikipedia.org/wiki/Italyhttp://en.wikipedia.org/wiki/Renaissancehttp://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/History_of_Indiahttp://en.wikipedia.org/wiki/History_of_China#Ancient_Chinahttp://en.wikipedia.org/wiki/Bureau_de_changehttp://en.wikipedia.org/wiki/Deposit_accounthttp://en.wikipedia.org/wiki/Roman_Empirehttp://en.wikipedia.org/wiki/Babyloniahttp://en.wikipedia.org/wiki/Assyriahttp://en.wikipedia.org/wiki/Merchanthttp://en.wikipedia.org/wiki/Bank


10/33


18th century. During the 20th century, developments in telecommunications and

computing caused major changes to banks' operations and let banks dramatically

increase in size and geographic spread. The financial crisis of 2007 2008 caused

many bank failures, including some of the world's largest banks, and provoked

much debate about bank regulation.
http://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%932008http://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%932008http://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%932008http://en.wikipedia.org/wiki/Bank_regulationhttp://en.wikipedia.org/wiki/Bank_regulationhttp://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%932008


11/33


12/33


Acting as trustees

Keeping valuables in safe custody

Investment Decisions and analysis

Government business.

Other types of lending and transactions.

In addition to providing a safe custodian of money, banks also loan money to

businesses and consumers. A large portion of a bank's business is lending. How do

banks get the money they loan? The money comes from depositors who intend to

save a portion of their wealth. Banks acting as intermediaries use these deposits

as loans to prospective borrowers. The objective of commercial banks like any

other organization is profit maximisation. This profit generally originates from the

interest differential between borrowers and lenders. In the present day, however,

the banking operation has extended much beyond simple lending exercise. So there

are other different channels of profit ensuing from other investment programmes

as well. However, it should be mentioned in this context that the entire deposit held

by a bank cannot be given as loans as the Central Bank retains a portion of this

money in the form of cash-reserve for unforeseen circumstances. Banks create

money in the economy by making loans. The amount of money that banks can lend

is directly affected by the reserve requirement set by the Federal Reserve. The

reserve requirement is currently 3 percent to 10 percent of a bank's total deposits.


13/33


14/33


Trust Services

Signature Guarantees

and many other investment services.


15/33


Types of banks

There are various types of banks. The necessity for the variety among these banks

is because each bank is specialized in their own field. Each bank has its own

principles and policies. Different rates of interests are also noted among these

banks. All these banks are listed as below:

Savings Banks these banks are suited for employees with a monthly salary. Low

waged people may open an account in the savings bank.

Commercial Banks These banks collects money from people in various sectors

and gives the same as a loan to business men and make profits in interests these

business men pay. Since the loan is large the interest rates are also high.

Industrial Development Bank these banks are committed towards enhancing

the growth of industries by providing loans for a very long period of time. This is

vital for the long term growth of the industries.

Land Developments Bank these banks promote growth in the food sector, by

giving loans to farmer at a relatively lower interest rate. The loan is usually given

on the basis of land. If a farmer has lots of agricultural fields then the more will bethe loan provided.


16/33


Indigenous Banks native banks. They are normal moneylenders; only this time,

handling huge amounts of money. They collect money from the community and

provide loans to business men and industrialists for a short amount of time.

Mortgage Banks these banks are specialized in providing mortgage loans alone.

In order to sell loans they depend solely on the secondary market.

Spare Bank these banks are present in Norway. They promote both savings and

commercial facilities to the both people and organizations in Norway.

Federal or National Banks these banks control the principles and policies of

other banks across the country. These banks are managed and run by the

government. This bank provides benchmarks which other banks should follow.

Co operative banks: co operative banks as the name suggests gets money from the

general community without any bias and provide loans to all sections of people in

the neighborhood. Their motto is not profit alone, but service.

Exchange Banks these banks will be available in more than a single country.

They provide services for the buying and selling of gold and silver; transactions

will be in foreign currencies.

Consumers Bank these are consumer friendly banks; they encourage the

consumer in buying commercial products and provide options for easy repay of the

loan amount.


17/33


Community Development Banks these banks provide services to the

community; where there has been nothing or very little development over the

years.

Credit Unions they act just like a co operative bank except that they provide

services to only one employee union in the community. Low interest rates and easy

installment paybacks are features of this bank

Postal savings bank: these banks are oriented with postal services. People save

money for a defined period of time and are paid with standard interest rates.

Private Banks these banks are not for the general public or community. They

serve entirely for private personnels assets and t ransactions alone.

Offshore Banks they are also private banks except that they have little tax to pay

for their transactions; there is very little regulation for this bank.

Ethical Banks as the name implies ethical banks promote candid transactions;

between various customers of the bank. Policies and rules are transparent in nature.

Internet Bank provides banking facilities only via internet. There will be no

physical contact with the bank. All transactions are permitted only through online.


18/33


Investment Banks these banks are pertinent to large organizations investment

ventures across the industry. They provide advice in the investments and promote

corporate transactions.

Merchant Banks these banks exist for a long time. They promote investing in

organizations that reap huge benefits for a long time rather than brand new

organizations.

Universal Banks these banks have a wide spectrum of financial assistances to

provide. Insurances to stocks, they promote everything across all countries around

the globe.

Islamic Banks these banks are based on the principles of the religion Islam.

There are no interests for loans acquired from this bank. Service charges may

apply.

The above are some of the types of banks around the globe. They may be further

classified according to their role and designation,


19/33


Role of Banks

A proper financial sector is of special importance for the economic growth of

developing and underdeveloped countries. The commercial banking sector which

forms one of the backbones of the financial sector should be well organized and

efficient for the growth dynamics of a growing economy. No underdeveloped

country can progress without first setting up a sound system of commercial

banking. The importance of a sound system of commercial banking for a

developing country may be depicted as follows:

Capital Formation

: The rate of saving is generally low in an underdeveloped economy due to the

existence of deep-rooted poverty among the people. Even the potential savings of

the country cannot be realized due to lack of adequate banking facilities in the

country. To mobilize dormant savings and to make them available to the

entrepreneurs for productive purposes, the development of a sound system

of commercial banking is essential for a developing economy .

Monetization

: An underdeveloped economy is characterized by the existence of a large no

monetized sector, particularly, in the backward and inaccessible areas of the

country . The existence of this non monetized sector is a hindrance in the economic


20/33


21/33


medium and long term loans for their proper establishment. The commercial banks

should, therefore, change their policies in favor of granting medium and long term

accommodation to business and industry.

Cheap Money Policy

: The commercial banks in an underdeveloped economy should follow cheap

money policy to stimulate economic activity or to meet the threat of business

recession. In fact, cheap money policy is the only policy which can help promote

the economic growth of an underdeveloped country. It is heartening to note that

recently the commercial banks have reduced their lending interest rates

considerably.

Need for a Sound Banking System:

A sound system of commercial banking is an essential prerequisite for the

economic development of a backward country


22/33


Banking Sector in India

Central Bank

The Reserve Bank of India is the central Bank that is fully owned by the

Government. Itis governed by a central board (headed by a Governor) appointed by

the Central Government. It issues guidelines for the functioning of all banks

operating within the country.

Public Sector Banks

A. State Bank of India and its associate banks called the State Bank Group

B.21 nationalized banks

C.Regional rural banks mainly sponsored by public sector banks

Private Sector Banks

a. Old generation private banks

b. New generation private banks

c. Foreign banks operating in India

d. Scheduled co-operative banks

e. Non-scheduled banks

Co-operative Sector The co-operative sector is very much useful for rural people. The co-operative

banking sector is divided into the following categories.

a. State co-operative Banks


23/33


24/33


banking sector in the country and the Reserve Bank of India was set up to regulate

the formal banking sector in the country. Ever since they were nationalized in

1969, banks have been playing a major role in the socio-economic life of the

country. They have to act not only as purveyors of credit, but also as harbingers of

social and economic development through a variety of enterprises, many of which

may tiny and yet capable of generating productive energies.


25/33


Role of banks in Indian economy

India is not only the worlds largest independent democracy, but also an

emerging economic giant. Without a sound and effective banking system, no

country can have a healthy economy. For the past three decades, Indias banking

system has several outstanding achievements to its credit. It is no longer confined

to only the metropolitans, but has reached even to the remote corners of the

country. This is one of the reasons of In dias growth process.

Agriculture in India has a significant history and it is demographically the

broadest economic sector and plays a significant role in the overall socio-economic

fabric of India. Finance in agriculture is an important as development of

technologies. A dynamic and growing agricultural sector needs adequate finance

through banks to accelerate overall growth. Most of the credit-related schemes of

the government to uplift the poorer and the under-privileged sections have been

implemented through the banking sector. With the passing of the Reserve Bank of

India Act 1934, there were improvements in agricultural credit. Earlier, the co-

operative banks were the main institutional agencies providing finance to

agriculture. But after nationalization of 14 major commercial banks, it wasmandatory for them to provide finance to agriculture as a priority sector. Thus,

agricultural credit acquired multi-agency dimension.


26/33


The government has allocated `10000 crore to the National Bank for

Agriculture and Rural Development (NABARD) for refinancing Regional Rural

Banks (RRBs) to disburse short term crop loans to small and marginal farmers.

The short-term crop loans scheme offers credit to farmers at 7 per cent interest rate.

Besides, in order to reduce post-harvest losses, farmers are eligible to get post-

harvest loans up to six months at 4 per cent interest rate provided they keep their

produce in warehouses. The rural sector in a country like India can growth only if

cheaper credit is available to the farmers for their short-and medium-term loans. In

addition, the farmers get loans for purchase of electric motors with pump, tractors

and other machinery, digging wells or boring wells, purchase of dairy animals and

for many other allied enterprises.

The Industrial Development Bank of India (IDBI) is the premier institution

in India purveying financial assistance to the industrial sector projects. It provides

direct financial assistance to the industrial concerns in the form of granting loans

and advances, and purchasing or underwriting the issues of stocks, bonds or

debentures. The creation of the Development Assistance Fund is the special of the

IDBI. The Fund is used to provide assistance to those industries which are not able

to obtain funds mainly because of heavy investment involved or low expected rate

of returns. Assistance from the Fund requires the prior approval by the

government. Apart from this, the IDBI even gives guidance to start a business.


27/33


In addition to the above traditional roles, banks also perform certain new age

functions which could not be thought of a couple of decades ago. Today, the

banking sector is one of the biggest service sectors in India. Availability of quality

services is vital for the well-being of the economy. The focus of banks has shifted

from customer acquisition to customer retention. With the stepping in of

information technology in the banking sector, the working strategy of the banking

sector has been revolutionary changes. Various customer-oriented products like

internet banking, ATM services, telebanking and electronic payment have lessened

the workload of customers. The facility of internet banking enables a consumer to

access and operate his bank account without actually visiting the bank premises.

The facility of ATMs and credit/debit cards has revolutionized the choices

available with the customers. Banks also serve as alternative gateways for making

payments on account of income-tax and online payment of various bills like the

telephone, electricity and tax. In the modern-day economy where people have not

time to make these payments by standing in queue, the services provided by banks

are commendable.

To conclude, we can say that the modern economies of the world have

developed primarily by making best use of the credit availability in their

systems. India is on the march; far reaching socio-economic changes are taking

place and Indian banks should come forward to play this role in the process. The


28/33


role of banks has been important, but it is going to be even more important in the

future.


29/33


Role and Importance of Commercial Banks:

The functions of commercial banks explain their importance in the economic

development of a country.Banks help in accelerating the economic growth of a country in the followingways:

1. Accelerating the Rate of Capital F ormation:

Commercial banks encourage the habit of thrift and mobilise the savings of people.These savings are effectively allocated among the ultimate users of funds, i.e.,investors for productive investment. So, savings of people result in capital

formation which forms the basis of economic development.

2. Provision of F inance and Credit:

Commercial banks are a very important source of finance and credit for trade andindustry. The activities of commercial banks are not only confined to domestictrade and commerce, but extend to foreign trade also.

3. Developing Entrepreneur ship:

Banks promote entrepreneurship by underwriting the shares of new and existingcompanies and granting assistance in promoting new ventures or financing

promotional activities. Banks finance sick (loss-making) industries for makingthem viable units.

4. Promoting Balanced Regional Development:

Commercial banks provide credit facilities to rural people by opening branches inthe backward areas. The funds collected in developed regions may be channelised

for investments in the under developed regions of the country. In this way, they bring about more balanced regional development.

5. H elp to Consumers:

Commercial banks advance credit for purchase of durable consumer items likeVehicles, T.V., refrigerator etc., which are out of reach for some consumers due to


30/33


their limited paying capacity. In this way, banks help in creating demand for suchconsumer goods.

2. Structure of Commercial Banks in India:

The commercial banks can be broadly classified under two heads:

1. Scheduled Banks:

Scheduled Banks refer to those banks which have been included in the SecondSchedule of Reserve Bank of India Act, 1934.

In India, scheduled commercial banks are of three types:

(i) Public Sector Banks :

These banks are owned and controlled by the government. The main objective ofthese banks is to provide service to the society, not to make profits. State Bank ofIndia, Bank of India, Punjab National Bank, Canada Bank and Corporation Bankare some examples of public sector banks.

Public sector banks are of two types:

(a) SBI and its subsidiaries;

(b) Other nationalized banks.

(ii) Private Sector Banks:
http://www.yourarticlelibrary.com/wp-content/uploads/2014/03/clip_image00288.jpg


31/33


These banks are owned and controlled by private businessmen. Their mainobjective is to earn profits. ICICI Bank, HDFC Bank, IDBI Bank is some examplesof private sector banks.

(iii) Foreign Banks :

These banks are owned and controlled by foreign promoters. Their number hasgrown rapidly since 1991, when the process of economic liberalization had startedin India. Bank of America, American Express Bank, Standard Chartered Bank areexamples of foreign banks.

2. Non-Scheduled Banks:

Non-Scheduled banks refer to those banks which are not included in the Second

Schedule of Reserve Bank of India Act, 1934.

Cooperative banks

Larger institutions are often called cooperative banks . Some are tightly integratedfederations of credit unions, though those member credit unions may not subscribe


32/33


to all nine of the strict principles of the World Council of Credit Unions(WOCCU).

Like credit unions, cooperative banks are owned by their customers and follow thecooperative principle of one person, one vote. Unlike credit unions, however,cooperative banks are often regulated under both banking and cooperativelegislation. They provide services such as savings and loans to non-members aswell as to members, and some participate in the wholesale markets for bonds,money and even equities .[2] Many cooperative banks are traded on public stockmarkets, with the result that they are partly owned by non-members. Membercontrol is diluted by these outside stakes, so they may be regarded as semi-cooperative.

Cooperative banking systems are also usually more integrated than credit union

systems. Local branches of cooperative banks select their own boards of directorsand manage their own operations, but most strategic decisions require approvalfrom a central office. Credit unions usually retain strategic decision-making at alocal level, though they share back-office functions, such as access to the global

payments system, by federating.

Some cooperative banks are criticized for diluting their cooperative principles.Principles 2-4 of the " Statement on the Co-operative Identity" can be interpreted torequire that members must control both the governance systems and capital of theircooperatives. A cooperative bank that raises capital on public stock markets createsa second class of shareholders who compete with the members for control. In somecircumstances, the members may lose control. This effectively means that the bankceases to be a cooperative. Accepting deposits from non-members may also lead toa dilution of member control.
http://en.wikipedia.org/wiki/World_Council_of_Credit_Unionshttp://en.wikipedia.org/wiki/Rochdale_Principleshttp://en.wikipedia.org/wiki/Cooperative_banking#cite_note-2http://en.wikipedia.org/wiki/Cooperative_banking#cite_note-2http://en.wikipedia.org/wiki/Cooperative_banking#cite_note-2http://en.wikipedia.org/wiki/Stock_marketshttp://en.wikipedia.org/wiki/Stock_marketshttp://en.wikipedia.org/wiki/Statement_on_the_Co-operative_Identityhttp://en.wikipedia.org/wiki/Statement_on_the_Co-operative_Identityhttp://en.wikipedia.org/wiki/Stock_marketshttp://en.wikipedia.org/wiki/Stock_marketshttp://en.wikipedia.org/wiki/Cooperative_banking#cite_note-2http://en.wikipedia.org/wiki/Rochdale_Principleshttp://en.wikipedia.org/wiki/World_Council_of_Credit_Unions


33/33

Commercial Bm

Documents

Transcript of Commercial Bm