Commercial banks or commercial bank in India

Introduction to Banks
Banks have developed around 200 years ago. The natures of banks have changed as
the time has changed. The term bank is related to financial transactions. It is a
financial establishment which uses, money deposited by customers for investment,
pays it out when required, makes loans at interest exchanges currency etc. however to
understand the concept in detail we need to see some of its definitions. Many
economists have tried to give different meanings of the term bank.

Nature of Commercial Banks

Commercial banks are an organisation which normally performs certain financial
transactions. It performs the twin task of accepting deposits from members of public
and make advances to needy and worthy people form the society. When banks accept
deposits its liabilities increase and it becomes a debtor, but when it makes advances its
assets increases and it becomes a creditor. Banking transactions are socially and
legally approved. It is responsible in maintaining the deposits of its account holders
Definitions of Commercial Banks

While defining the term banks it is taken into account that what type of task is
performed by the banks. Some of the famous definitions are given below:

According to Prof. Sayers, "A bank is an institution whose debts are widely accepted
in settlement of other people's debts to each other." In this definition Sayers has
emphasized the transactions from debts which are raised by a financial institution.

According to the Indian Banking Company Act 1949, "A banking company means
any company which transacts the business of banking. Banking means accepting for
the purpose of lending of investment of deposits of money from the public, payable
on demand or other wise and withdraw able by cheque, draft or otherwise."

Over 37,000 Villages Have No Mobile Phones

By IANS, Sunday, 04 September 2011, 20:01 Hrs
New Delhi: Over 37,000 villages in the country have not got mobile phone connectivity till March
2011, according to data from the telecom department.
Minister of State for Communications and IT Milind Deora said in a written reply in the Rajya Sabha
Friday that "37,184 villages in the country are yet to be connected with mobile connectivity as on
March 2011".

The minister also said that till July 31, the state-owned Bharat Sanchar Nigam Ltd (BSNL) has covered
all district headquarters and 33,620 cities with GSM (Global System for Mobile communications) based
cellular services.
About 579,486 villages, over 97 percent of the census 2001 inhabited revenue villages, have been
covered with telephone connectivity through village public telephones.
Shared mobile infrastructure scheme has been launched by universal service obligation fund to
provide subsidy support for setting up and managing 7,353 towers in 500 districts and over 27 states
for provision of mobile services in the specified rural and remote areas.
Villages or cluster of villages having population of 2,000 or more and not having mobile coverage were
taken into consideration for installation of the tower under this scheme, including hilly, tribal and
Maoist-affected areas where there was no existing fixed wireless or mobile coverage.

Nearly 50 - 60 percentage of the Indian population in rural areas are not provided with the basic
banking facilities, or in other words unbanked.
In this era of technology, Mobile banking is considered as one of the prime delivery channel which
attracts (can attract) crores of customers towards it. In such a case, all these 37000 villages will still
be adversely hit.

Functions of Commercial Banks

Commercial bank being the financial institution performs diverse types of functions.
It satisfies the financial needs of the sectors such as agriculture, industry, trade,
communication, etc. That means they play very significant role in a process of
economic social needs. The functions performed by banks are changing according to
change in time and recently they are becoming customer centric and widening their

functions. Generally the functions of commercial banks are divided into two
categories viz. primary functions and the secondary functions. The following chart
simplifies the functions of banks.

Primary Functions of Commercial Banks

Commercial Banks performs various primary functions some of them are given below
1.

Accepting Deposits: Commercial bank accepts various types of deposits from

public especially from its clients. It includes saving account deposits, recurring
account deposits, fixed deposits, etc. These deposits are payable after a certain time
period.

2.

Making Advances: The commercial banks provide loans and advances of

various forms. It includes an over draft facility, cash credit, bill discounting, etc.
They also give demand and demand and term loans to all types of clients against
proper security.

3.

Credit creation: It is most significant function of the commercial banks.

While sanctioning a loan to a customer, a bank does not provide cash to the
borrower Instead it opens a deposit account from where the borrower can withdraw.
In other words while sanctioning a loan a bank automatically creates deposits. This
is known as a credit creation from commercial bank.

Secondary Functions of Commercial Banks

Along with the primary functions each commercial bank has to perform several
secondary functions too. It includes many agency functions or general utility
functions. The secondary functions of commercial banks can be divided into agency
functions and utility functions.
1.

Agency Functions : Various agency functions of commercial banks are

To collect and clear cheque, dividends and interest warrant.

To make payment of rent, insurance premium, etc.
To deal in foreign exchange transactions.
To purchase and sell securities.
To act as trusty, attorney, correspondent and executor.
To accept tax proceeds and tax returns.

1. General Utility Functions : The general utility functions of the commercial

banks include
To provide safety locker facility to customers.
To provide money transfer facility.
To issue traveller's cheque.
To act as referees.
To accept various bills for payment e.g phone bills, gas bills, water
bills, etc.
To provide merchant banking facility.

 To provide various cards such as credit cards, debit cards, Smart cards,
etc.

Main features:

It accepts deposits from the public. These deposits can be withdrawn by

cheque and are repayable on demand.

A commercial bank uses the deposited money for lending and

f o r investment in securities.

It is a commercial institution, whose aim is to earn profit.

It is a unique financial institution that creates demand deposits which serves as

the medium of exchange.

Money created by commercial banks is known as deposit money.

Role of Commercial Banks:

1. A well developed banking system is essential for the economic
development of any country. In a modern economy, banks are not merely
leaders in money and credit but leaders in the process of economic growth.
2. Capital Formation:
Capital formation involves three stages: generation of savings; mobilization of
savings; canalization of savings into productive use. Commercial banks
play a crucial role. They offer incentives to savers mobilize savings through w i d e
n e t w o r k a n d ma k e t h e s a v i n g s a v a i l a b l e t o b u s i n e s s h o u s e s
f o r investment.
March 2007 as many as 50 Commercial Banks are involved in the
programmed, having linked15.95 lakh SHGs, forming more than 54% of the total
SHGs credit-linked in the country. This programmed should be strengthened and
carried further, playing a key role in financial inclusion
Meaning of commercial banks:
A banking company is one which transacts the business of banking which
means the accepting for the purpose of lending all investments, of deposits

of money form the public, repayable on demand or otherwise and withdraw able by
cheque, draft or otherwise. There are two essential functions that a financial
institution must perform to become a bank. These are,
Accepting of the chequable deposit form the public.
Lending.

Objectives:
In this report describe the various functions of commercial banks;
P u b l i c a r e mo t i v a t e d t o d e p o s i t m o r e f u n d s w i t h t h e b a n k . Th e r e i s
a l s o safety of funds deposited with the bank.
Demand deposit
: Also known as current deposit is those deposits which can be withdrawn by the
depositor at any time by means of cheque. No interest is paid on such
d e p o s i t s . R a t h e r, t h e d e p o s i t o r h a s t o p a y s o m e t h i n g t o t h e b a n k f o r
t h e s e r v i c e s r e n d e r e d b y t h e b u s i n e s s me n a n d i n d u s t r i a l i s t s . I t i s
a l s o c a l l e d current account.
Saving deposits
: These are those deposits on the withdrawal of which bank places certain
restrictions. Cheque facility is provided to the depositors. Saving deposits accounts
are generally held by households who have idle or surplus money for short
period.
Fixed deposit:
These are those deposits which can be withdrawn only after the expiry of the
c e r t a i n f i x e d t i m e p e r i o d . Th e s e d e p o s i t s c a r r y h i g h r a t e o f
i n t e r e s t . T h e longer the period, higher will be the rate of interest.
Distinguish between demand deposit and fixed deposit.
Demand deposit:
Demand deposit can be withdrawn by the depositor at
a n y t i m e without notice.
They are chequable i.e., demand deposits are withdraw able through
cheques

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), nationalised 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".
The following are the Scheduled Banks in India (Public Sector):

State Bank of India

State Bank of Bikaner and Jaipur

State Bank of Hyderabad

State Bank of Indore

State Bank of Mysore

State Bank of Saurashtra

State Bank of Travancore

Andhra Bank

Allahabad Bank

Bank of Baroda

Bank of India

Bank of Maharashtra

Canara Bank

Central Bank of India

Corporation Bank

Dena Bank

Indian Overseas Bank

Indian Bank

Oriental Bank of Commerce

Punjab National Bank

Punjab and Sind Bank

Syndicate Bank

Union Bank of India

United Bank of India

UCO Bank

Vijaya Bank

The following are the Scheduled Banks in India (Private Sector):

ING Vysya Bank Ltd

Axis Bank Ltd

Indusind Bank Ltd

ICICI Bank Ltd

South Indian Bank

HDFC Bank Ltd

Centurion Bank Ltd

Bank of Punjab Ltd

IDBI Bank Ltd

Jammu & Kashmir Bank Ltd.

The following are the Scheduled Foreign Banks in India:

American Express Bank Ltd.

ANZ Gridlays Bank Plc.

Bank of America NT & SA

Bank of Tokyo Ltd.

Banquc Nationale de Paris

Barclays Bank Plc

Citi Bank N.C.

Deutsche Bank A.G.

Hongkong and Shanghai Banking Corporation

Standard Chartered Bank.

The Chase Manhattan Bank Ltd.

Dresdner Bank AG.