Commercial Banks


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Commercial Banks

  1. 1. Commercial Banks
  2. 2. Commercial banks are the oldest, biggest and fastest growing financial intermediaries They are important depositories of public saving and most important disburser of finance. Management of Reserve Creation of Credit
  3. 3. The Creation of Money Banks Credit creation depends on the excess reserves. Excess reserves = actual reserves – required reserves. If reserves required ratio is 10%, banks can create a loan of 9000 on 1000 deposits. The total money supply in the economy is 10000.
  4. 4. Process of credit creation Bank position deposits loans reserves -------------------------------------------------------------------------------------------- Original bank 1000 900 100 2nd bank 900 810 90 3d bank 810 729 81 4th Bank 729 656 72.9 5th Bank 656 590.49 65.61 6th Bank 590.49 531.44 59.05 7th Bank 531.44 478.30 53.14 8th Bank 478.30 430.47 47.80 9th Bank 430.47 387.42 43.05 10th Bank 387.42 348.68 38.04 _____________________________________________________ Sum 10,000 9,000 1,000
  5. 5. Origin of commercial bank can be traced back in vedic period( use of hundi) Middle of 19th century Indigenous banking First bank Bank of Hindustan (1770) Later we had Presidency Bank in Calcutta Bombay & Madras 1919 Imperial Bank of India
  6. 6. Growth and Structure of commercial bank Importance of Indian commercial Banks in National Economy Year Deposit/N.I. Deposit / Share in Saving financial asset 1951-56 10 16.6 1960-61 13 14.2 1975-76 24 41.8 1980-81 35.9 45.8 73.8 1990-91 48.1 31.8 65.5 1994-95 52 40.2 64.8 1995-96 44.82 28.2 64.7 2001-02 61.5 37.83 72.2
  7. 7. Indian Banking system RBI Non Scheduled Bank Schedule Banks State Coop. Commercial Central Coop. bank Bank Bank and Primary Credit Banks Societies Indian Foreign Commercial Bank PSU Pvt. Sector Bank Banks SBI & its Other nationalized Regional rural subsidaries bank bank
  8. 8. Apart from usual function, foreign bank are now playing a special role in shaping the attitude ,perceptions and policies of foreign government, corporate, and other clients towards India (c)Structuring and syndicating project finance for crucial sector (d)Advising and introducing overseas companies in joint venture and collaboration with Indian Companies ©Helping to bring the FII and Indian companies (d) Managing and syndicating the euro issue of debt and equity (e) Introducing new technology in data management and information system The Indian Banks include 27 PSU banks ,196 RRB,30 private sector bank and 44 Foreign banks in 2001-02
  9. 9. Liabilities of Banks Demand deposit Current deposit Call deposit Term deposit
  10. 10. Banking Assets Investment: 5.Cash in hand and balance with RBI 6.Asset with banking system 7.Investment in government and other approved securities 8.Bank credit among these assets, and is influence by the RBI policy, quantitatively, bank credit and investment in government securities.
  11. 11. Commercial Bank’s Investment Govt. of India securities Other approved Securities Non approved securities
  12. 12. Factor affecting Composition of Bank Deposit Increase in National Income Expansion of banking facilities in new area & for new class of people Increase in banking habit Increase in relative rate of return Increase in deficit financing Increase in bank credit Inflow of deposit by NRI’s Growth in substitutes
  13. 13. Banking Innovations III) Retail Banking IV) Bank as authorized dealer V) Customer service VI) Lead Bank scheme VII)Service area approach VIII)Action plans IX) Micro finance X) Banking Advisory services XI) Participation Certificate and inter bank deposit XII)Consortium approach XIII)Credit cards XIV)New technology in Banking XV)Local Area Banks XVI)Asset Liability Management XVII)Other diversification in Banking