Department of Business Administration

Sub: Merchant Banking & Financial Services

Code: 18MBAFM402
Prof. suchithra
 Unit Unit 1 – Merchant Banking &BANKING
Meaning MMER
Merchant banking is a professional service provided by the merchant banks to their customers considering their
financial needs, for adequate consideration in the form of fee. Merchant banks are banks that conduct fundraising,
financial advising and loan services to large corporations.

These banks are experts in international trade, which makes them experts in dealing with large corporations and
industries. Merchant banking provides funds to the multinational businesses and large business entities in the country
which helps to boost the country’s economic strength.
Merchant Banker/Lead Manager

Meaning
A merchant banker means any person who is engaged in the business of issue management either by making
arrangements regarding selling, buying or subscribing to securities or acting as manager/ consultant/ advisors or
rendering corporate advisory services in relation to such issue management.

Issue means an offer for sale/purchase of securities by any body corporate/ other person or group of persons on
its/his/their behalf to, or from the public or from the holders of their securities, through a merchant banker.
• A merchant banker is one who is a critical link between a company raising fund and the investors.
• Merchant banker is one who underwrites corporate securities and advices on issues like corporate mergers.
• The merchant banker may be in the form of a bank, a company, firm or even a proprietary concern.
• Merchant Banker understands the requirements of the business concern and arranges finance with the help of
financial institutions, banks, stock exchanges and money market
 Merchant Banker as a Lead Managers BA
• As per SEBI guidelines, it is mandatory that all public issues should be managed by merchant bankers in the
capacity of lead managers.
• Only in the case of right issues not exceeding Rs. 50 lakh, such an obligation is not necessary.

S. No. Size of the issue Appointment of Lead Managers

Maximum number of
Lead Managers
1. Less than Rs. 50 crore 2

2. Rs. 50 crore to Rs. 100 crore 3

3. Rs. 100 crore to Rs. 200 crore 4

4. Rs. 200 crore to Rs. 400 crore 5

5. Above 400 crore 5 or more as prescribed by

SEBI
 Merchant Banking In India
• Need for merchant banking was felt with rapid growth in number and size of issues made in primary issue.

• Merchant Banking services started by foreign banks, namely National Grindlays in 1967 followed by Citi Bank
in 1970.

• Merchant Banking services was offered along with other traditional banking services.

• SBI was first Indian bank to set up merchant banking division in 1972.

• Later, the ICICI set up its merchant banking division in 1973.

• It was followed by other commercial banks like Canara Bank, Bank of Baroda, Bank Of India, Syndicate Bank,
Central Bank Of India, PNB, UCO Bank etc.
 Merchant Banking Regulations
• According to Securities and Exchange Board of India (Merchant Bankers) Rules, 1992, it is mandatory for a
merchant banker to hold a certificate of registration granted by the Securities and Exchange Board of India.

• If a person/ organization wants to carry or undertake any of the authorized activities, has to get registered under
the regulations. To obtain the certificate of registration, one has to apply in the prescribed form and fulfill two set
of norms (a) operational capabilities and (b)capital adequacy norms
 CClassification Of Merchant Bankeron Of
• Merchant
Category I – to carry on the activity Banker
of issue management i.e., the preparation of prospectus, determining the
financial structure, tie-up of financiers ,financial allotment of securities and so on. To act as adviser, consultant,
manager, underwriter, portfolio manager.

• Category II - to act as adviser, consultant, co- manager, underwriter, and portfolio manager.

• Category III - to act as underwriter, adviser and consultant to an issue.

• Category IV – to act only as adviser or consultant to an issue of capital

 Capital Adequacy Norms
The minimum net worth requirement for acting as merchant banker is given below:
• Category I – Rs. 5 cores

• Category II – Rs, 50 lakhs

• Category III – Rs. 20 lakhs

• Category IV – Nil
 Functions/Services of Merchant BankersFunctions of
1. Corporate Counselling me
2. Project Counselling

3. Loan Syndication

4. Issue Management
a) Public issue through prospectus

b) Marketing

c) Pricing of Issues

d) Post- issue management

e) Underwriting of public issue

f) Managers, consultants or advisors to the issue

 Functions/Services of Merchant BankersFunctions
5. Portfolio Management

6. Advisory service relating to mergers and takeovers

7. Offshore finance

8. Non-resident investment
 Code Of Conduct
• Should make all efforts to protect the interest of investors.
• Should maintain high standards of integrity, dignity and fairness in conduct of business.
• Should fulfill all obligations in a professional and ethical manner.
• Should not discriminate among the clients.
• Should endeavor to ensure that the inquiries, grievances are adequately dealt with in a timely and appropriate
manner.
• Should ensure that prospectus/letter of offer is available to investors at the time of issue.
 Code Of Conduct (cont)
• Should render best possible advice to its clients.

• Any penal action taken by SEBI should be informed to its clients.

• Should inform the Board about legal proceedings initiated against it.
• Should abide by the rules of SEBI, 2003.

• Should ensure that any person it employs should have the capacity to be a merchant banker.
• Should not create false market.
 Obligations And Responsibilities
• Merchant banker not to associate with any business other than that of the securities market.

• Maintenance of book of accounts, records, etc. Every merchant banker shall keep and maintain the following
books of accounts, records and documents namely:
A. a copy of balance sheet at the end of each accounting period
b. A copy of profit and loss account for that period
c. A copy of auditor’s report on the accounts of that period
d. a statement of financial position
 Obligations And Responsibilities(cont)
• Submission of half-yearly results.

• Report on steps taken on auditor’s report.

• Acquisition of shares prohibited.

• Information to the Board.

• Disclosure to the Board

 Obligation Obligation's and Responsibilities
Code of conduct for Merchant Bankers

1. Make all efforts to protect the interest of investors

2. Maintain high standards of integrity, dignity and fairness in the conduct of its business.

3. Fulfil its obligations in a prompt, ethical, and professional manner.

4. Ensure proper care and exercise independent professional judgement

5. Endeavor to ensure that enquiries from investors are adequately dealt with, grievances of investors are redressed in
a timely manner.

6. Ensure that adequate disclosures are made to the investors in a timely manner.
 Obligation's and Responsibilities
7. Ensure that copies of prospectus, offer documents, letter of offer or any other related literature is made available to
the investors at the time of issue or offer

8. Render the best possible advice to the clients having regard to their needs.

9. Not divulge to anybody either orally or in writing, directly or indirectly, any confidential information about its
clients

10. Ensure that any change in registration status/any penal action taken by the SEBI

11. Maintain an appropriate level of knowledge and competence

12. Ensure that good corporate policies and corporate governance are in place.
Responsibilities of Lead Manager

1. Acquisition of shares

2. Disclosures to the SEBI

3. Compliance officer

4. Procedure for Inspection

 Underwriters
Meaning

Underwriters make a commitment to get the issue subscribed either by others or by themselves.

Underwriters are the important intermediary in the new issue/primary market. Who agree to take up securities which
are not fully subscribed. They make a commitment to get the issue subscribed either by others or by themselves.

Underwriting is an agreement, entered by a company with a financial agency, in order to ensure

that the public will subscribe for the entire issue of shares or debentures made by the company. The financial agency
is known as the underwriter and it agrees to buy that part of the company issues which are not subscribed to by the
public in consideration of a specified underwriting commission. The underwriting agreement, among others, must
provide for the period during which the agreement is in force, the amount of underwriting obligations, the period
within which the underwriter has to subscribe to the issue after being intimated by the issuer, the amount of
commission and details of arrangements, if any, made by the underwriter for fulfilling the underwriting obligations.
The underwriting commission may not exceed 5 percent on shares and 2.5 percent in case of debentures.
 Types of Underwriting
1. Firm underwriting: 
Firm underwriting is an underwriting agreement where an underwriter agrees to buy a definite number of shares or
debentures in addition to the shares or debentures he has already promised to  subscribe under the underwriting
agreement. In firm underwriting, the underwriters are liable to take up the agreed number of shares or debentures even
if the issue is over subscribed.

2. Complete underwriting: 
when the whole issue of shares or debentures of a company is underwritten, it is called complete underwriting. In such
a case the whole issue is underwritten either by an individual/institution agreeing to take the entire risk or by a number
of firms or institutions, each agreeing to take the risk to a limited extent.

3. Partial underwriting.
When only a part of the issue of shares or debentures of a company is underwritten, it is known as partial
underwriting. In such a case the part of the issue is underwritten either by an individual/institution or by a number of
firms or institutions each agreeing to take the risk to a limited extent.
4. Syndicate Underwriting: 
When the issue is very big and it is impossible to be underwritten by a single underwriter syndicate underwriting
comes to rescue. In syndicate underwriting, few underwriting firms form a syndicate and jointly undertake to
underwrite the issue. The amount to be underwritten and the ratio is determined in advance among the firms.

5. Joint Underwriting: 
In Joint underwriting, when the issue is too large, the issuer company itself appoint more than one underwriter to
reduce the burden from a single underwriter. Each Underwriter underwrites for a specified amount and in a specified
ratio. It is different from a syndicate underwriting in a way that in Syndicate underwriting the underwriting firm
themselves form a syndicate and represent themselves as single underwriting firm but in Joint underwriting, the issuer
company itself appoint a number of firms to underwrite the issue.

6. Sub-underwriting:  
If an underwriter has promised to underwrite an issue and later on it feels that it is beyond his individual capacity, then
he may appoint a sub-underwriter to safeguard himself. For example, if an underwriter A has underwritten for an
amount of 40 crores, and later on he finds it difficult to underwrite single Handadley he may appoint a sub-underwriter
to underwrite 10 crores. In this case, the sub-underwriter is liable to underwriter only and he has no connection with
the company. the relationship between underwriter and sub-underwriter is same as an agent and sub-agent.
Role of Underwriters

The primary role of the underwriter is to purchase securities from the issuer and resell them to investors.
Underwriters act as intermediaries between issuers and investors, providing for an efficient of capital.
The underwriters take the risk that it will be able to resell the securities at a profit.
Perhaps the most visible and familiar element of the initial public offering process is the underwriter. The underwriter is
the organization that is actually responsible for pricing, selling, and organizing the issue, and it may or may not provide
additional services. With direct public offerings, there is no need for an underwriter.

Selection of a good underwriter is of the utmost importance, but it's important to understand that many underwriters are
equally selective of their clients. Because an underwriter's reputation depends on successful issues, few firms will be willing
to stake their reputation on questionable companies.
 Obligation's and Responsibilities
Code of conduct for Underwriters

1. Make all efforts to protect the interest of investors

2. Maintain high standards of integrity, dignity and fairness in the conduct of its business.

3. Fulfil its obligations in a prompt, ethical, and professional manner.

4. Ensure proper care and exercise independent professional judgement

5. Endeavor to ensure that enquiries from investors are adequately dealt with, grievances of investors are
redressed in a timely manner.

6. Ensure that adequate disclosures are made to the investors in a timely manner.
7. Ensure that copies of prospectus, offer documents, letter of offer or any other related literature is made
available to the investors at the time of issue or offer

8. Render the best possible advice to the clients having regard to their needs.

9. Not divulge to anybody either orally or in writing, directly or indirectly, any confidential information about
its clients

10. Ensure that any change in registration status/any penal action taken by the SEBI

11. Maintain an appropriate level of knowledge and competence

12. Ensure that good corporate policies and corporate governance are in place.
Responsibilities of underwriters

1. Agreement with clients

2. General responsibilities

3. Compliance officer

4. Power to call for information

5. Inspection and Disciplinary proceedings

6. Liability for action in case of default

  
BANKERS TO AN ISSUE
N ISSUE
The bankers to an issue are engaged in activities such as acceptance of applications along with application money
TOandAN
from the investors in respect of issues of capital refund ofISSUE
application money.

Registration
To carry on activity as a banker to issue, a person must obtain a certificate of registration from the SEBI.
The SEBI grants registration on the basis of all the activities relating to banker to an issue in particular with reference
to the following requirements:
a) The applicant has the necessary infrastructure, communication and data processing facilities and manpower to
effectively discharge his activities,

b) The applicant/any of the directors of the applicant is not involved in any litigation connected with the securities
market/has not been convicted of any economic offence

c) The applicant is a scheduled bank and

d) Grant of a certificate is in the interest of the investors.

 FEES
• A banker to an issue can apply for the renewal of his registration three months before the expiry of the certificate.

• Every banker to an issue had to pay to the SEBI an annual fee of Rs.2.5 lakhs for the first two years from the date
of initial registration, and Rs.1 lakh for the third year to keep his registration in force.

• The renewal fee to be paid by him annually for the first two years was Rs.1 lakh and Rs.20,000 for the third year.

• Since 1999, schedule of fee is Rs.5 lakhs as initial registration fee and Rs.2.5 lakhs renewal fee every three years
from the fourth year from the date of initial registrations.

• Non-payment of the prescribed fee may lead to the suspension of the registration certificate.
 General Obligations and Responsibilities
General Obligations and Responsibilities

1. When required a banker to an issue has to furnish to the SEBI the following information:
a) The number of issues for which he was engaged as a banker to an issue;
b) The number of applications/details of applications’ money received;
c) The dates on which applications from investors were forwarded to the issuing company/ registrar to an issue;
d) The dates/ amount of refund to the investors.

2. Books of Account / Record / Documents

A banker to an issue is required to maintain books of account/records/ documents for a minimum period of three
years in respect of, inter alia, the number of application received, the names of the investors, the times within which
the applications received were forwarded to the issuing company/ registrar to the issue, and dates and amounts of
refund money to investors
3. Agreement with Issuing Companies
Every banker to an issue enters into an agreement with the issuing company. The agreement provides for the number
of collection centres at which applications/application money received is forwarded to the registrar, for issuance
and submission of daily statement by the designated controlling branch of the banker, stating the number of
applications and the amount of money received from the investors

4. Disciplinary Action by the RBI

If the RBI takes any disciplinary action against a banker to an issue in relation to issue payment, the latter should
immediately inform the SEBI. If the banker is prohibited from carrying on his activities as result of the disciplinary
action, the SEBI registration is deemed as suspended/ cancelled.
A banker to an issue should:
 
1. Make all efforts to protect the interest of investors.
 
2. Observe high standards of integrity and fairness in the conduct of its business.
 
3. Fulfill its obligations in a prompt, ethical and professional manner.
 
4. At all times exercise due diligence, ensure proper care and exercise independent professional judgment
 
5.  Not any time act in collusion with other intermediates over the issuer in a manner that is detrimental to the investor
 
6. Endeavour to ensure that a) inquiries from investors are adequately dealt with; b) grievances of investors are
redressed in a timely and appropriate manner; c) where a complaint is not remedied promptly, the investor is advised
of any further steps which may be available to the investor under the regulatory system.
8. Be prompt in disbursing dividends, interests or any such accrual income received or collected by him on behalf of
his clients.
 
9.  Not make any exaggerated statement whether oral or written to the client, either about its qualification or capability
to render certain services or its achievements in regard to services rendered to other client.
 
10. Always Endeavour to render the best possible advice to the clients having regard to the clients‘ needs and the
environments and his own professional skill.

11. Not divulge to anybody either orally or in writing, directly or indirectly, any confidential information about its
clients which has come to its knowledge, without taking prior permission of its clients
 
12. Avoid conflict of interest and make adequate disclosure of his interest.
 BrokersBrokers to the issue
to the issue
Brokers are the persons mainly concerned with the procurement of subscription to the issue from the prospective
investors. The appointment of brokers is not compulsory and the companies are free to appoint any number of brokers.
The managers to the issue and the official brokers organize the preliminary distribution of securities and procure direct
subscriptions from as large or as wide a circle of investors as possible.

The stock exchange bye-laws prohibits the members from the acting as managers or brokers to the issue and making
preliminary arrangement in connection with any flotation or new issue, unless the stock exchange of which they are
members gives its approval and the company conforms to the prescribed listing requirements and undertakes to have
its securities listed on a recognized stock exchange.
• Brokers are the persons mainly concerned with the procurement of subscription to the issue from the prospective
investors.
• The appointment of a broker is not compulsory
• The issuing company is free to appoint any number of brokers.
• The manager to the issue and the official broker to the issue organize the preliminary distribution of securities and
procure direct subscription from as large number of investors as possible.
• The broker has to get a letter of consent from the respective
exchange to act as broker to an issue.
• Brokerage must be paid according to the agreement between the broker and the company.
 Conditions for Grant Of Certificate Of
Registration as broker
Conditions for Grant Of Certificate Of Registration as broker

• He holds the membership of any stock exchange

• He shall abide by rules, regulation and bye-laws of stock exchange of which he is a member.

• He shall pay the fees for registration in the manner provided in the regulations

• He shall take adequate steps for redressal of grievances of the investors within one month of the date of receipt of
complaints
 Registrar to the Issue and Share transfer agent

Registrar to the issue perform the function of collecting applications from investors and keep a proper record of
application and money received from investor. They assist the company in determining the basis of allotment and
finalizing the allotment of securities in consultation with the stock exchange. They process allotment letters, refund
orders and other documents related to issue Share transfer agent maintain record of holder of securities of company for
& on behalf of company & handle all matters related to transfer and redemption of securities of the company.
Category of Registrar and Share transfer agent
There are two categories

• Category-I -those who carry on activities of both Registrar and Share transfer agent

• Category-I- those who carry on activities of either Registrar or Share transfer agent
 Both require registration with SEBI for carrying on with their operations. They are granted registration on the
basis of conditions like necessary infrastructure, past experience and capital adequacy. They can also seek
renewal of registration
Capital adequacy

 Capital adequacy in terms of net worth is Rs. 50 lakhs and Rs. 25 lakh for category 1 & 2 of registrars and transfer
agents respectively. While category 1 has to pay a registration fee of Rs. Rs 6 lakhs and Rs 2 lakh for Category-II.
 Obligation's and Responsibilities
1. Maintain high standards of integrity, dignity and fairness in the conduct of its business.

2. Fulfil its obligations in a prompt, ethical, and professional manner.

3. Ensure proper care and exercise independent professional judgement

4. Endeavor to ensure that enquiries from investors are adequately dealt with, grievances of investors are redressed in
a timely manner.

5. Ensure that adequate disclosures are made to the investors in a timely manner.
 Obligation's and Responsibilities
7. Ensure that copies of prospectus, offer documents, letter of offer or any other related literature is made available to
the investors at the time of issue or offer

8. Render the best possible advice to the clients having regard to their needs.

9. Not divulge to anybody either orally or in writing, directly or indirectly, any confidential information about its
clients

10. Ensure that any change in registration status/any penal action taken by the SEBI

11. Maintain an appropriate level of knowledge and competence

12. Ensure that good corporate policies and corporate governance are in place.
 Res
Responsibilities
1. Maintenance of Records

2. Compliance Officer

3. Inspection

4. Action in Default
Debenture Trustee
• A debenture trustee is a trustee for a trust deed needed for securing any issue of debentures by a company or any
private placement of debentures by a listed company.

• To act as a debenture trustee a certificate from SEBI is necessary.

• Only banks , public financial institutions, insurance companies and body corporate fulfilling the capital adequacy
requirement of Rs2 crore can act as trustees
 Duties of debenture trustees
A debenture trustee has various duties to perform

• To ensure there is no breach in terms of the issue of debentures.

• To ensure that all conditions regarding the creation of debentures are met.

• To take the required steps to meet debenture holder obligations in case of a breach.

• To ensure that the debentures are converted or redeemed as per the terms of the offer.

• To convene a meeting between the issuer company and debenture holders.

• To resolve disputes between issuer company and debenture holders.

• To take necessary steps to ensure the interest of debenture holders is protected at all times.
 Portfolio Managers
Portfolio managers are defined as a person who in pursuance of a contract with the clients, advise/direct/ undertake
on behalf of the clients , the management administration of portfolio of securities/funds of clients.
Portfolio management can be
i) Discretionary
ii) Non Discretionary
 Obligation's and Responsibilities
• Contract with the clients
• General responsibilities
• Investment of clients moneys
• Maintenance of books of accounts/records
• Audit of accounts
• Report to be furnished to clients
• Disclosure to the SEBI
• Appointment of compliance officer
• Inspection and disciplinary proceedings
 Prohibition of Fraudulent and Unfair Trade Practices Relating to the Securities Market

Regulation, 2003oof F
Prohibition of Fraudulent and Unfair Trade Practices relates to

1. Prohibition of certain dealings in securities

No person shall directly or indirectly—
(a) buy, sell or otherwise deal in securities in a fraudulent manner;
(b) use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a
recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of
the Act or the rules or the regulations made thereunder; (c) employ any device, scheme or artifice to defraud in
connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized stock
exchange; (d) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon
any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a
recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made
thereunder.
• 2. Prohibition of manipulative, fraudulent and unfair trades practices

(1) Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an unfair trade
practice in securities. (2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it
involves fraud and may include all or any of the following, namely :— (a) indulging in an act which creates false or
misleading appearance of trading in the securities market; (b) dealing in a security not intended to effect transfer of
beneficial ownership but intended to operate only as a device to inflate, depress or Page 4 of 11 cause fluctuations in
the price of such security for wrongful gain or avoidance of loss; (c) advancing or agreeing to advance any money to
any person thereby inducing any other person to offer to buy any security in any issue only with the intention of
securing the minimum subscription to such issue; (d) paying, offering or agreeing to pay or offer, directly or indirectly,
to any person any money or money’s worth for inducing such person for dealing in any security with the object of
inflating, depressing, maintaining or causing fluctuation in the price of such security;
 Prohibition of Insider Trading Regulation 2015
• The object of the regulation is to
• 1. Put in place a framework for prohibition of insider trading in securities and
• 2. Strengthen the related legal framework
The main elements of the scheme of regulation, namely, restriction on communication and trading by insiders,
disclosure of trading by insiders, code of fair disclosure/ conduct and action for violation are discussed in this section.
• Communication or procurement of unpublished price sensitive information.
• (1) No insider shall communicate, provide, or allow access to any unpublished price sensitive information, relating
to a company or securities listed or proposed to be listed, to any person including other insiders except where such
communication is in furtherance of legitimate purposes, performance of duties or discharge of legal obligations.
NOTE: This provision is intended to cast an obligation on all insiders who are essentially persons in possession of
unpublished price sensitive information to handle such information with care and to deal with the information with
them when transacting their business strictly on a need-to-know basis. It is also intended to lead to organisations
developing practices based on need-to-know principles for treatment of information in their possession.
• (2) No person shall procure from or cause the communication by any insider of unpublished price sensitive
information, relating to a company or securities listed or proposed to be listed, except in furtherance of legitimate
purposes, performance of duties or discharge of legal obligations. NOTE: This provision is intended to impose a
prohibition on unlawfully procuring possession of unpublished price sensitive information. Inducement and
procurement of unpublished price sensitive information not in furtherance of one’s legitimate duties and discharge
of obligations would be illegal under this provision.

• Trading when in possession of unpublished price sensitive information.

(1) No insider shall trade in securities that are listed or proposed to be listed on a stock exchange when in possession
of unpublished price sensitive information:
[Explanation –When a person who has traded in securities has been in possession of unpublished price sensitive
information, his trades would be presumed to have been motivated by the knowledge and awareness of such
information in his possession.]
 Commercial Banking Ban

A commercial bank is a business firm, dealing in money and credit. It is a financial institution dealing in money in the
sense that it accepts deposits from the public to keep them in its custody for safety. So also, it deals in credit, i.e., it
creates credit by making advances out of the funds received as deposits to needy people. It thus, functions as a
mobiliser of savings in the economy.
 FUNCTIONSFUNCTIONS OF COMMERCIAL
FUNCTIONS OF COMMERCIAL BANK

According to Banking Regulation Act of 1949, “Banking means the accepting for the purpose of lending or investment
OF COMMERCIAL BANK
of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or
otherwise”.

functions of commercial banks are classified into two main categories—

(A) Primary functions and
(B) Secondary functions.

A. Primary Functions: The primary functions of the commercial banks are as follows:

1. Accepts Deposits

2. Gives Loans and Advances

 Accepts Deposits
1.Accepts Deposits
Commercial banks accept deposits from people, businesses, and other entities in the form of:

Savings deposits – The commercial bank accepts small deposits, from households or persons, in order to encourage
savings in the economy.
Time deposits – The bank accepts deposits for a fixed time and carries a higher rate of interest as compared to savings
deposits.

Current deposits – These accounts do not offer any interest. Further, most current accounts offer overdrafts up to a pre-
specified limit. The bank, therefore, undertakes the obligation of paying all Cheques against deposits subject to the
availability of sufficient funds in the account.  

2.Gives Loans and Advances

Loans are advances that a bank extends to his customers with or without security for a specified time and at an agreed
rate of interest. Further, the bank credits the loan amount in the customers’ account which he withdraws as per his
needs.
 Cash Credit
 Demand Loans
 Short-term Loans
(B) Secondary Functions:
1. Bank as an Agent
• A bank acts as an agent to its customers for various services like:
• Collecting bills, draft, cheques, etc.
• Paying the insurance premium, rent, loan installments, etc.
• Working as a representative of a customer for purchasing or redeeming securities, etc. in the stock exchange.
• preparing income tax returns, claiming tax refunds, etc.

2. General Utility Services

• There are several general utility services that commercial banks offer like:
• Issuing traveler cheques
• Offering locker facilities for keeping valuables in safe custody
• Also, issuing debit cards and credit cards etc.
 STRUCTURE OF INDIAN COMMERCIAL BANKS

The commercial banks can be broadly classified under two heads

Structure of Commercial Banks in India.

1. Scheduled Banks
a. Public Sector Banks
b. Private Sector Banks
c. Foreign Banks

2. Non-Scheduled Banks
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.
Scheduled Banks:
Scheduled Banks refer to those banks which have been included in the Second Schedule of Reserve Bank of India
Act, 1934. In India, scheduled commercial banks are of three types. These are public sector banks, private sector
banks and foreign sector banks.

(i)Public Sector Banks: These banks are owned and controlled by the government. In other words, majority of the
control is hold by the government. The main objective of these banks is to provide service to the society, not to
make profits. State Bank of India, Bank of India, Punjab National Bank, Canada Bank and Corporation Bank are
some examples of public sector banks. SBI and its subsidiaries and other nationalized banks are two types Public
sector banks.

(ii) Private Sector Banks: These banks are owned and controlled by private businessmen. In other words, majority of
the control is hold by the private owners. The main objective of these banks is to earn profits. ICICI Bank, HDFC
Bank are some examples of private sector banks.

(iii) Foreign Banks: These banks are owned and controlled by foreign promoters. When the process of economic
liberalization had started in India, their number has grown Commercial Banks Scheduled Commercial Banks Private
Sector Banks Public Sector Banks SBI and its Subsidiaries Other Nationalized Banks Foreign Sector Banks Non-
scheduled Commercial Banks 79 rapidly. Bank of America, American Express Bank, Standard Chartered Bank are
examples of foreign banks.
 Role of Commercial Banks in the Economic Development of a Country

1. Banks promote capital formation

2. Investment in new enterprises

3. Promotion of trade and industry

4. Development of agriculture

5. Balanced development of different regions

6. Influencing economic activities

7. Implementation of Monetary policy

8. Monetization of the economy

9. Export promotion cells
 Sservices Rendered by Commercial Banks
• Deposit/Investment Accounts:
– Savings
– Fixed (Term) Deposits
– Special Investment Accounts
– Credit Facilities:
– Loans/Mortgages
– Overdrafts
• Trade Financing (Export/Import Trade Financing):
– Letter of Credit
– Bill Discounting
– Invoice Financing
– Bills for Collection
– Bank Guarantee and Confirmations
– Inventory Financing
• Foreign Trade:
– Draft/Money Orders Negotiation
– Electronic Funds Transfers
– Traveler’s Cheques
• Card Services:
– Credit Cards (Local and Foreign)
– Debit Cards
• Automated Teller Machines (ATMs)
• Point of Sales (POS) Terminals
• Telephone Banking
• Payment of Utility Bills
• Internet Banking