Commercial Banking :

Structure and Evolution.

Introduction
1. Banking is a lifeline of an economy.
2. Commercial banks plays a very important role in
our economy.
3. They are the heart of our financial structure.
4. Banks lending, investing and related activities
facilitate the economic processes of production,
distribution and consumption.
 What is Bank?
 It is institution which took deposits from public and lent money.
 Institutions involved needed special supervisory treatment for the
protection both of the public and of the financial system as whole.
 Whole ranges of changes are taking place.
Role of Banks –
1. Indian banking has aided the economic development
during the last 70 years.
2. It plays a positive role in economic development of a
country as repositories of community’s savings and as
purveyors of credit.
3. The activities of commercial banking has grown in multi-
directional ways as well as multidimensional manner.
4. Banks have been playing a catalytic role in area
development, backward area development, extended
assistance to rural development all along helping
agriculture, industry, international trade in a significant
manner.
Commercial Banking and Risk
Management
 The banks are committed to healthy credit culture that recognizes the need to
ensure high assets quality.
 Improvement in the existing measures in the risk management process is
receiving special attention.
 A major step in this direction is the introduction of the revised in-house Credit
Risk Assessment (CRA) system, which captures financial risks as also other
types of risks, such as industry risk in a borrowal account.
 The system has well stabilized, and covers a major part of the banks large
commercial and industrial loan portfolio.
 The banks credit portfolios as well diversified cutting across various industries
with exposures in each category restricted to reasonable levels.
 Exposures to different industries are within limits set on the consideration of
management of different risks and are kept under close monitoring.
 Even as the Reserve Bank of India took several steps to widen the financial
infrastructure by taking initiative to establish several new institutions such as
those for providing long-term finance to industires, an important banking
development in 50’s was the conversion of the Imperial Bank of India into SBI.
Functions of Commercial Banks
 Primary Functions
 Secondary Functions.

 Primary Functions-
1. Receiving of Deposits
a) Time Liabilities
b) Demand Liabilities
c) Lending of Funds
 Time Liabilities
i. Fixed Deposit
ii. Recurring Deposit
iii. Miscellaneous types of Deposit
iv. Cash Certificates.

 Demand Liabilities
i. Saving Bank Account
ii. Current Account

 Lending of Funds
i. Overdraft
ii. Cash Credit
iii. Discounting Bills of Exchange
iv. Loans and Advances
v. Venture Capital
vi. Guarantees
 Secondary Functions.
i. Agency Services
a. Payment of Rent, Insurance Premium etc.
b. Collecting of Cheques
c. Dealing in foreign exchange.
d. Acting as Trustees

i. General Utility Services.

a. Safe Custody Deposits.
b. Safe Deposit Locker Facilities
c. Transfer of Money
d. Issue of Traveller’s cheque, Mail Transfer, etc.
e. Merchant Banking
f. Teller System
g. Automatic Teller Machine
h. Credit Cards
i. Gift Cheques
j. Executor & Trustee.
k. Miscellaneous.
Credit Management
 Introduction
1. Advances play an important part in the gross earnings and
net profits of commercial banks, and promote the
economic development of the country.
2. The basic function of credit, whether provided by
scheduled commercial banks or other sources, is to enable
individuals and business enterprises to purchase goods / or
services ahead of their ability or desired to pay.
3. Demand for credit by business firms arises because of the
time consuming nature of the productive and distributive
processes.
4. Consumers demand credit to acquire goods in advance for
which they pay in future.
Credit Management
 It is concerned mainly with using the banks resources both
productively and profitability to achieve a preferable
economic growth.
 At the same time, it also seeks a fair distribution among the
various segments of the economy so that economic fabric
grows without any hindrances as stipulated in the national
objectives, in general and the banking objectives, in
particular.
 Credit management is concerned with planning, selection,
analysis, budgeting, designing and implementation of
schemes and plans.
Objectives of Credit Management
 Sectoral flow of credit.
 Giving support to agriculture, industry and exports.
 Ensuring productive utilization of funds.
 Maximization of profits.
 Monitoring the end use of funds at the micro level.
 Minimizing risks and ensuring safety.
 Recovery and flow of funds productively.
 Increasing the earnings of the bank.
 Credit planning and control at the macro level.
Importance