DEPARTMENT OF TECHNICAL EDUCATION

ANDHRA PRADESH
Name : P. Samba Murthy,
Designation : Head of Department
Branch :D.C.C.P.
Institute : S.R.R.S. Govt. Polytechnic, Sircilla
Year/Semester : V Semester
Subject : Banking – I
Subject Code : CCP- 504(B)
Topic : Indian Banking Industry – Growth
Duration :50 Minutes
Sub-Topic : Need for Central Bank
Teaching Aids : PPT
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Objectives

On completion of this period, you would be

able to understand
 The Meaning and definition of banks in general.
 The Definition of central bank.
 The Need for central bank.

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 Have you ever visited a bank ?
 You might have visited a bank to
a) Open your Savings account,
b) Deposit your scholarship cheque,
c) Take DD for your exam fee and
d) Draw money from your account.

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 Name the banks which you visited (or) where you
have account?
 Does anyone of you have bank transaction ?
 If yes tell the bank’s name and your transaction
with it.

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Definition-Banking
 “Accepting for purpose of lending or investment, of
deposits of money from public, repayable on
demand or otherwise and withdraw able by
cheque draft, order or otherwise
--Banking regulation act, 1949
 “An institution which carries on banking with profit
goal” is called a bank”

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Nature of bank’s business

Operation Aim No. of Banks

Commercial Profit Many

Eg : Andhra bank
Indian bank public sector
state bank of India

ICICI bank
AXIS bank private sector
HDFC bank

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Nature of bank’s business (contd)
Operations Aim No.of
banks
Central Bank Regulatory goal, One
Control and
supervision over all
banks

Eg: Reserve Bank of India- only one for India.

The main aim of the commercial bank is “profit” and there may be number of
commercial banks. However there is only one Central Bank and its main aim is
to regulate the commercial bank.

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 Classification of banks

Commercial Co-operative Specialized Central bank

banks banks banks of country

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Now, let us discuss about central bank of a
country

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Central bank

 Every country will have a central bank.

 It is leader of money market.
 Profit maximization not the AIM.

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Definition of Central Bank:

 The central bank has been defined

variously laying emphasis on its one
function or other.
 Vera Smith says that ‘the primary
definition of central banking is a banking
system in which a single bank has either a
complete or a residual monopoly in the
note issue.”
 Shaw defines a central bank as ‘a bank
which controls credit’
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Definition of Central Bank:

 A financial institution whose function is to

regulate State fiscal and monetary
activities.
 Responsible for issue of bank notes and
for controlling flow of currency.
 An autonomous or semi-autonomous
organization of a government to administer
certain key monetary functions such as to
issue, manage and preserve value of the
country’s currency.

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Need of Central Bank:

 Apex bank in every country.

 Leader of money market.
 Supervises controls and regulates commercial
banks and other financial institutions.

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Central Bank –need (contd..)
 Responsible for (currency) notes issue.

 Adviser
banker and agent to government
eg: Reserve Bank of India, in India and
Federal Reserve in United States of
America

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Central Bank –need (contd..)
 The central banks are basically different from
the commercial banks.
 The central bank does not engage in
ordinary banking activities like accepting
deposits and giving loans to the public but
conducts its business for the healthy
monetary and economic system.
 The central bank is generally owned by the
government.
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Central Bank –need (contd..)
 It
is an organ of the government and forms
part of the government machinery.
 The central Bank is managed by the
government officials or those who are closely
connected with the government.
 Every country has only one central bank.

 In India Reserve Bank of India is the Central

Bank.

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SUMMARY
 Every country will have its own central bank.
(Eg: RBI in India)
 Central bank aims at control and regulation of all
other banks in the country.
 It is banker to government.
 Responsible for note issue.

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 Quiz

1. Commercial banks mainly aim at

a) Profit maximization
b) Service to public
c) Note issue
d) None of above

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Quiz

1. Federal Reserve is the central bank of

a) Pakistan
b) India
c) USA
d) None the above

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Frequently asked questions

1) Write any two differences between central

bank and Commercial Bank

3) What are the main functions of a

commercial bank ?

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Assignment

1. Define “Central bank” list any four important

activities of a central bank.

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