Commercial bank

Introduction
A commercial bank is a type of financial institution that provides services such as
accepting deposits, making business loans, and offering basic investment
products. Commercial bank can also refer to a bank, or a division of a large bank,
which more specifically deals with deposit and loan services provided to
corporations or large/middle-sized business - as opposed to individual members
of the public/small business - retail banking, or merchant banks.
The word bank is used in the sense of a commercial bank. It is of Germanic
origin though some persons trace its origin to the French word Banqui and the
Italian word Banca. Chambers Twentieth Century Dictionary defines a bank as
an institution of the keeping, lending and exchanging, etc. of money.
Economists have also defined a bank highlighting its various functions.
According to Crowther, The bankers business is to take the debts of other
people to offer his own in exchange, and thereby create money. A similar
definition has been given by Kent who defines a bank as an organisation whose
principal operations are concerned with the accumulation of the temporarily idle
money of the general public for the purpose of advancing to others for
expenditure.
Sayers, on the other hand, gives a still more detailed definition of a bank thus
Ordinary banking business consists of changing cash for bank deposits and
bank deposits for cash; transferring bank deposits from one person or
corporation (one depositor) to another; giving bank deposits in exchange for
bills of exchange, government bonds, the secured or unsecured promises of
businessmen to repay, etc.
Thus a bank is an institution which accepts deposits from the public and in turn
advances loans by creating credit. It is different from other financial institutions
in that they cannot create credit though they may be accepting deposits and
making advances.
This is the oldest function of a bank and the banker used to charge a commission
for keeping the money in its custody when banking was developing as an
institution. Nowadays a bank accepts three kinds of deposits from its customers.
The first is the savings deposits on which the bank pays small interest to the
depositors who are usually small savers. The depositors are allowed to draw
their money by cheques up to a limited amount during a week or year.
Businessmen keep their deposits in current accounts. They can withdraw any
amount standing to their credit in current deposits by cheques without notice.
The bank does not pay interest on such accounts but instead charges a nominal
sum for services rendered to its customers. Current accounts are known as
demand deposits. Deposits are also accepted by a bank in fixed or time deposits.
Savers who do not need money for a stipulated period from 6 months to longer
periods ranging up to 10 years or more are encouraged to keep it in fixed deposit
accounts. The bank pays a higher rate of interest on such deposits.
The rate of interest increases with the length of the time period of the fixed
deposit. But there is always the maximum limit of the interest rate which can be
paid. For instance, the interest rate on fixed deposits over five years is 11 per cent
in India.
One of primary functions of a commercial banks is to advance loans to its
customers. A bank lends a certain percentage of the cash lying in deposits on a
higher interest rate than it pay on such deposits. This is how it earns profits and
carries on its business.
The bank advances loan to businessmen against certain specified securities. The
amount of the loan is credited to the current account of the borrower. In cash of a
new customer a loan account for the sum is opened. The borrower can withdraw
money through cheques according to his requirements buy pays interest on the
full amount.

Aims & Objectives

The main strategic aim and objective for the nearest period is a dynamic
development of the Bank and achievement of a qualitatively new level with the
standards of the Basel Committee on Banking Supervision. The development
strategy of the Bank is based on the components, which together will ensure
strengthen of the financial and economic situation of the Bank and the
preservation of its credibility with its customers.
Main strategic aims of Joint Stock Commercial Bank APABANK (Closed Joint
Stock Company) are:
1. Increase of authorized capital, raising size of own capital.
2. Expansion of activity of the Bank by obtaining a License providing right to
carry out transactions in foreign currencies and further entry into the deposit
insurance system.
3. Constant expansion of customer base with a priority on attracting small and
micro-businesses.
4. Formation of a diversified and sustainable resource base.
5. Commencement and active development of cooperation with financial
institutions and mortgage systems.
6. The increase in capitalization of the Bank.
7. The introduction of international standards of banking operations.
8. The introduction and development of modern methods of marketing and PR.
9. Improvement of risk management system.
10. Improving the quality and diversity of the range of services for individuals,
small and medium-sized businesses, in raising the volume of transactions and
the pursuit of cost reduction of managing business, increasing its level of
technology and control.
Final result should be the creation of modern technologically Bank, which will
possess by an optimal required network of service centers, provide high quality
services to clients and enjoy significant authority in the market.

The initial objective of this report is to obey with the requirement of

the DBBL. But the objectives is not limited with in above, behind this
study is something broader. Objectives of the study are
summarized in the following manner:

To measure the overall performance of DBBL.

To apply the critical knowledge in the practical field.
To make a bridge between the theories and practical procedures of
banking day-to-day operations.
To gain practical knowledge by working in different desks of Local
office branch of DBBL.
To observe the working environment in commercial banks.
To study existing banker-customer relationship.
To know the overall functioning of DBBL.
To have some practical exposures that will be helpful for my future
career.

Methodology
For this analysis, I have chosen one of the Commercial Bank operating in Sri
Lanka for this subjective basis analysis, and named as ABC Bank for that
particular commercial bank. This study mainly focuses on understanding about
the strategic analysis and strategic planning processes in an organization (Only
for study purposes).
According to the above analysis, we can say that the recent situation of the
external environment is very favorable to the ABC Bank as well as in the
banking industry well in the island and all these favorable factors (Economic
stability, stabilized political situation, Technological advancements and the
expansion of customer bases) reflects that competitors too will be attracted to do
commercial operations.
Economic liberalization, in particular the removal of exchange controls, provides
exciting opportunities for banks and financial institutions. The achievements
under review have left Commercial Banks almost ideally placed to profit from
these opportunities, provided ABC Bank make the right decisions and carry
them through effectively. Overall, ABC Commercial Bank is benefited from the
macro economic conditions that prevailed throughout last year. The last year did
not pass without challenges that predominantly stemmed from conducive
external conditions and also affected by adverse global trends, overall reduction
in global growth and capital outflows.
Commercial banks are also called joint stock banks, retail or high street banks. All
four names tell us something about them. Commercial indicates that they are
business organizations which seek to make a profit. Joint stock means that they
have limited liability and are in the private sector.
In most countries, the majority of banks are public limited companies but there is
usually a number of private limited banks also. Retail suggests that they are
selling the public something in this case banking services. High street tells us
that these banks are found in most of the towns and cities. They are the banks we
are most familiar with.
The three main and traditional functions of commercial banks are to accept
deposits, to lend and to enable customers to make payments. The first function
enables customers to keep their money in a safe place. Deposits can be made into
two types of bank accounts. One is a current account, sometimes called a demand
account.
There is easy and immediate access to money in this type of account but usually
interest is not paid on money held in such an account. Customers use current
accounts mainly to receive and make payments. The other type of account is a
deposit or time account.
A period of notice usually has to be given before money can be withdrawn from
this account. Interest is paid on any money held in a deposit account and
customers use deposit accounts as a way of saving. Banks make most of their
profit by charging higher interest from borrowers than that paid on the money
held with the banks.
There are two main ways of borrowing from a bank. One is in the form of an
overdraft. This enables a customer to spend more than what is in her or his
account, up to an agreed limit. Interest is charged on the amount borrowed. This
can be a relatively expensive way of borrowing and is mainly used to cover short
term gaps between expenses and income. The other way of borrowing is by
taking a loan.
This is usually for a particular purpose and for a particular period of time.
Interest is charged on the full amount of the loan but the rate of interest is likely
to be lower than that on an overdraft. A customer may be asked to provide some
form of security, known as collateral, when taking a loan.
This is to ensure that if the loan is not repaid, the asset given as collateral can be
sold and the money recovered. In practice, though, banks try to avoid doing this
by checking very carefully whether the person seeking a loan will be able to
repay it. In the case of a firm, this is likely to involve a scrutiny of the firms
accounts and business plan.
In order to make the report more meaningful and presentable, two sources of
data and information have been used widely.
The Primary Sources are as follows:
Face-to-face conversation with the respective officers and staffs of the Branch.
Informal conversation with the clients.
Practical work exposures from the different desks of the departments of the
Branch covered.
Relevant file study as provided by the officers concerned.
The Secondary Sources of data and information are:
Annual Report of DBBL.
Various books, articles, compilations etc. regarding general banking functions,
foreign exchange operations and credit policies.
Different Procedure Manual, published by DBBL.
Different circular sent by Head Office of DBBL and Bangladesh Bank.
Data Collection procedure:
In order to collect the data a questionnaire which is a combination of both
open ended and close ended has been used. Group discussion and personal
interview also used to collect the data.
Data Processing:
In order to process the data MS Excel has been used to analyze the data and to
prepare the graphical presentation.
LIMITATIONS OF THE RESEARCH
Limitation the time, between someday, was one of the most important factors
to know all activities of the branch and prepare the report.
It was very difficult to collect the information from various personnel for their
job constraint.
Every organization has their own secrecy that is not revealed to others. While
collecting data i.e. interviewing the employees, they did not disclose much
information for the sake of the confidentiality of the organization.
Another limitation of this report is Banks policy of not disclosing some data
and information for obvious reason, which could be very much useful.
Analysis
Commercial Analysis Accounts aggregate your deposit accounts into a single
relationship, with all facets of the accounts working together for your benefit.
Our Analysis portfolio includes five types of accounts designed for businesses
with higher activity levels or with the need to manage cash more effectively.

The foundation of these accounts is simple: Based on balances maintained

across multiple accounts, you receive an earnings credit that can offset a
portion or all service charges that accrue for each statement period.
Commercial Analysis Accounts also enhance your ability to keep track of the
funding activities for various aspects of your business, like payroll, savings,
daily operations and risk management.

Analysis Business Checking

Low monthly maintenance fee

The way to go for many businesses with a moderate to high number of
transactions and a need for varied Business & Treasury services to
manage cash flow and optimize earning
A non-interest bearing account with only a $100 minimum deposit
required to open

Business Checking with Interest

The perfect account for sole proprietors, for-profit companies and

nonprofit organizations that want to earn interest on their funds and
have a moderate to high number of transactions each month
An interest-bearing account with only a $100 minimum deposit
required when opening the account
Interest paid on daily collected funds, compounded daily and credited
monthly

Commercial Money Market Checking

Ideal for any company that has a moderate to high number of monthly
transactions and wants to earn interest on its funds
Low monthly maintenance fee
Unlimited check writing privileges
Money Market interest rates on a daily collected balance of $1,000 or
more
Checking with Interest rates on a daily collected balance below $1,000
 Interest compounded daily on the daily collected balance less the
reserve requirements of the Federal Reserve

Public Insured Money Market Checking

Available only to public institutions and tailored to their special

requirements
Low monthly maintenance fee
Unlimited check writing privileges
Money Market interest rates on a daily collected balance of $1,000 or
more
Checking with Interest rates on a daily collected balance below $1,000
Interest compounded daily on the daily collected balance less the
reserve requirements of the Federal Reserve Bank

Commercial Money Market Savings

No monthly maintenance fee

Requires only $100 to get started
Money Market interest rates on a daily collected balance of $1,000 or
more
Checking with Interest rates on a daily collected balance below $1,000
Make unlimited withdrawals or transfers in person, by mail or at any
ATM1

All Analysis Accounts offer:

Monthly fee offset by account balances; correlation of multiple accounts

Earnings credit rate for maintaining higher balances
Detailed monthly analysis statement to easily monitor account activity
Treasury Services to help cut costs, improve cash flow and simplify
accounting
All services offered with every business checking account:
o Visa Business Debit Card
o Access to account through Business Online Banking (BOB)
Advantage
o Online Bill Pay
o Online statements
Conclusion
Every authority concerned with Co-operative sector will have to play its part
in ensuring that the aspirations of the Urban Co-operative Banking sector are
nurtured in a manner that depositor interest and the public interest at large is
protected. The role of RBI could, thus, be to frame a regulatory and
supervisory regime that is multi-layered to capture the heterogeneity of the
sector and implement policies that would provide adequate elbowroom for
the sector to grow in a non-disruptive manner. The State and Central
Governments could recognize that the UCBs are not just co-operative societies
but they are essentially banking entities whose management structure is that
of a co-operative. They should recognize the systemic impact that inefficient
functioning of the entities in the sector could have. Consequently, it would be
in the interest of the sector if they support, facilitate and empower the RBI to
put in place mechanisms and systems that would enable these UCBs to
perform their banking functions in a manner that is in the overall interest of
the depositor and the public at large.
Preparing this report presented some unique challenges given that we are
evaluating financing prospects for an industry that does not really exist yet, in
markets where support and policy mechanisms are still evolving and for
projects where in many cases, structures and risk allocation is still being
defined. Having said this, the emergence of a number of credible projects
combined with financial support for commercial "demonstration" projects to
prove technology and contractual structures has significantly raised the
awareness in the finance community of CCS as a business opportunity.
It became evident during the research for this report that whilst there is
increasing interest from financial institutions in CCS and awareness of the
potential business opportunity, the widely held perception is still that the
industry is in its infancy with substantial issues around competitiveness and
risk (technology, integration and storage in particular). As with any nascent
industry, the differing approach to the development of projects (poly-gen or
CCS, pre or post combustion, storage or EOR, full chain or component etc)
also makes it complex to view the financing prospects in the round. On the
face of it, a poly-gen project with appropriate support or a project with
significant capital grant funding and on-going operating subsidy should be an
attractive financing proposition but as yet, we have not seen a full commercial
bank financing closed for a CCS project. Closing this first commercial project
financing is absolutely crucial in turning the evident interest of the financial
community in CCS into the substantial amount of committed funding
required to build out the sector. In short, confidence from successful delivery
of the first projects will be crucial to enhance the financing prospects of
subsequent projects.
Suggestion
It is widely held that the indigenous banking system should be reformed and made
an adjunct of the organized banking system rather than replaced totally by
commercial banks. Despite the sharp growth of the latter and emphasis on larger
bank credit to the weaker sections of the community, the banks have not been able to
meet adequately the credit needs of the small borrower, owing mainly to the
relatively high cost of servicing small loans, high risk, and the high demand pressures
for bank credit from the large organized sector of industry and trade.

In the circumstances, the indigenous bankers, with their prompt and flexible credit
and informal methods of operation, have also been able to flourish by making credit
available to the small productive sector not fully catered to by commercial banks.

In the foreseeable future, too, the same conditions are likely to persist, despite the
high cost of indigenous bankers credit. So, the indigenous bankers have still a role to
play. The best course would be to reform the indigenous system and rid it of its
defects. This will require institutionalizing the lending and borrowing operations of
the indigenous bankers. How best to do it?

Two lines of reform are possible. One is the direct link of indigenous bankers with
the RBI; the other is the indirect control of the business of indigenous bankers by the
RBI mediated through commercial banks. In the past (once in 1937 and then 1941)
the RBI had drawn up schemes for the direct linking of indigenous bankers with it.
But the schemes could not be put through because the chief condition of such direct
linking was not acceptable to indigenous bankers.

The indigenous bankers have not been willing to separate their banking and non-
banking businesses, because, in their view, the facilities being offered by the RBI are
not worth the cost involved in the required separation of the two kinds of business.
After independence the major effort of the RBI has been to strengthen and expand
the modem banking system without any attempt to bring into its folds the indigenous
bankers.

Reference
http://www.yourarticlelibrary.com/project-reports/project-report-on-the-
commercial-banks-of-india/85057
https://en.wikipedia.org/wiki/Commercial_bank