Commercial

Commercial Banking
Banking

Kamal K Jindal
Managing Director
Global Management Services
New Delhi
kamaljindal@hotmail.com
 Banking

The term ‘Banking’ as per Section

5(b) of the Banking Regulation Act
1949, states that :

“Banking is the accepting, for the

purpose of lending or investment,
deposits or money from the public,
repayable on demand or otherwise,
and withdrawable by cheque draft,
order or otherwise.
 BANKER
According to section 5(c) of the Banking Regulation Act
of 1949 a ‘Banking Company’, means any company
which transacts the business of banking an any state.

According to Sir John Paget : “No one,

and no body cor-porate or otherwise,
can be a ‘banker’ who does not
(i) Open current accounts
(ii) Pay cheques drawn on himself and collect
cheques for customers.
 Banking Operations (An Overview)

Core banking business: Mobilizing the deposits and utilizing it

for lending to industry.
Flow of Funds

Depositor BANK borrower

Flow of Income

Depositor BANK borrower

For a bank, a loan that it gives out is an ‘Asset' since it earns revenue,
while a deposit is a “Liability' because it has to be repaid at some point in
time.
 EVOLUTION OF INDIAN BANKING
SYSTEM
• Globally banking evolution history common -
Moneylenders accepting deposits and issuing
receipts
• Money lending activity in India prevalent since
Vedic period, i.e., 2000 to 1400 BC [Central
Banking Enquiry Committee (1931)]
• Banking System eminently suited to India’s
requirements existed many centuries before
science of banking became an accomplished fact
in England
[Royal Commission on Indian Currency and
Finance, 1926]
 Creation of
IMPERIAL BANK OF INDIA

• Created by amalgamation of Presidency Banks in

27 January 1921
• Triple role - a commercial bank, a banker's bank
and a banker to the government of India‘
• Ceased to be banker to Govt. - post creation of
RBI in 1934
• Became agent of RBI - for government business
and Clearing at centres where RBI not established
• Continued to maintain currency chests and
small coin depots
 CREATION OF
RESERVE BANK OF INDIA
• Banking crisis of 1913 - weaknesses in banking
system
• Indian Central Banking Enquiry Committee
(1929 -31) - looked into bank failures
• RBI Act, 1934 - to regulate volume and cost of
bank credit in economy through general credit
control, monetary management mandate
• Comprehensive Banking Companies Act, 1949
(renamed as Banking Regulation Act from March
1966 – RBI vested with licensing of banks, branch
expansion, liquidity of assets, management and
methods of working, amalgamation, reconstruction
and liquidation; Urban Co-operative Banks
 EVOLUTION OF STATE BANK OF INDIA
• Development of Rural India - highest priority
(First Five Year Plan)
 All India Rural Credit Survey Committee
recommended creation of a state-partnered
and state-sponsored bank by taking over
Imperial Bank of India
 Sate Bank of India constituted on 1 July
1955
 Destined to Indian banking system into
national development
 Agent of RBI and entrusted with management
of Clearing Houses at many places. Biggest
tenderer at Treasury bill auctions conducted
by RBI
 Nationalisation
1. By the 1960s, the Indian banking industry has become an
important tool to facilitate the development of the Indian economy.

2. the GOI issued an ordinance and nationalised the 14 largest

commercial banks with effect from the midnight of July 19,1969
which got parliament’s assent in Aug 1969.

3.  A second dose of nationalisation of 6 more commercial banks

followed in 1980. The stated reason for the nationalisation was to
give the government more control of credit delivery. With the
second dose of nationalisation, the GOI controlled around 91% of
the banking business of India.

4. In 1993, the government merged New Bank of India with Punjab

National Bank. It was the first merger between nationalized banks.
 Liberalisation
1. In the early 1990s, the Narsimha Rao government embarked on a
policy of liberalisation, licencing a small number of private banks.
These came to be known as New Generation tech-savvy banks.

2. They included Global Trust Bank (the first of such new generation
banks to be set up), which later amalgamated with Oriental Bank
of Commerce, UTI Bank(now re-named as Axis Bank), ICICI
Bank and HDFC Bank. This set the scenario for competition
amongst Banks and led to better services for the customer.

3. Based on Narasimhan & Rangarajan Committee recommendations

Banking Reforms were introduced like market driven interest
rates, full computerisation of Banks etc.

4. Wide spread use of ATMs and Internet Banking has changed the
way banking is done. Branches have become retail centres for
other financial products like credit cards, mutual funds &
insurance.
 Structure Of Indian Banking System
Reserve Bank of India

Schedule Banks Non-Schedule Banks

State Co-op Bank Commercial Banks

SBI & Subsidiaries Public Sector Banks Private Sector Banks Foreign Banks

Regional Rural Banks

MONEY MARKET CREDIT MARKET

FINANCIAL MARKET

FOREX MARKET CAPITAL MARKET

 Banking business 28/05/2010
• DEPOSITS • Rs 45,62,451 Crores

• CREDIT • Rs 32,43,775 Crores

• INVESTMENTS • RS 14,37,373 Crores

• Credit/deposit Ratio • 71.10

• Investment/Deposit ratio • 31.50

 Prudential norms
• Cash reserve ratio
• Statutory liquidity ratio
• KYC norms
• Exposure limit
• Group exposure limit
• Capital adequacy ratio
• NPA norms
• Investment norms
• capital market exposure
DEPOSIT ACCOUNTS

CURRENT

CERTIFICATE SAVINGS

DEPOSITS

FLEXI FIXED

RECURRING
 BANKING FACILITIES

Fund Based Non - Fund Based

Letter of Credit Bank Guarantee Co-acceptance

Overdraft Cash Credit Bill Finance Term Loan

Forfaiting Factoring
FUND BASED FINANCE

CASH CREDIT

BILLS
OVERDRAFT
FINANCE
LOANS
&
ADVANCES

RETAIL
TERM
FINANCE
FINANCE
SECURITY-CHARGE ON ASSETS

• HYPOTHECATION
• PLEDGE
• MORTGAGE
• ASSIGNMENT
• LIEN
• SET OFF
 Bank Finance

 Purpose
 Need based
 Track record
 Risk assessment
 Margin provided
 Tenure of facility
 Security available
 Repayment sources
 6 Cs
• CHARACTER
• CAPTIAL
• CAPACITY
• COLLATERAL
• CONDITION
• COMPLIANCE
Organization Structure Of Banks

Three Tier Structure

HEAD OFFICE

ZONAL OFFICE

REGIONAL OFFICE

BRANCHES
 Functions at Various Levels
• CREDIT
• PLANNING & DEVELOPMENT
• HUMAN RESOURCES
• NPA MANAGEMENT
• ACCOUNTS
• INTERNATIONAL BUSINESS
• TREASURY & INVESTMENTS
 Banking Industry in India

Change
Change in
in the
the financial
financial structure
structure of
of Banks
Banks

Trend
Trend from
from Deposit
Deposit taking
taking to
to financial
financial services
services

Trend
Trend from
from Physical
Physical distribution
distribution to
to Virtual
Virtual Banking
Banking

Trend
Trend from
from fragmentation
fragmentation to
to Consolidation
Consolidation
The Banking Industry : Challenges
Customer Human Skills
Retention

Profitability
Pressures

Increased International
Competition Standards

Risk Corporate
Management Governance
Reinforcing
Technology
24
 Customer Centric
Model for Banks

dot.com Technology
Wholesale Retail Rural
Ventures & Backbone &
Banking Banking Financing
Investments Services

Deposits •Rural Financing

•Corporate •Web Trade •Financial vertical
Finance •Bonds •Housing portal •SMEs •Processing of
•Project Finance •Credit Cards •Other retail
•Agri Financing Global Transactions
•Commercial •Mortgages finance portals •Web Technologies
Banking •Auto loans •Investments
•Investment •Personal - Portals
Banking Loans - Software
•Venture Capital - Networking