Orates the types and functions of banks

1. MODERN BANKING (PART-I)
Compiled by
Dr.S.Vigneswaran.,M.A.,Ph.D.,(NET, SET)
Assistant Professor of Economics,
Mannar Thirumalai Naicker College, Madurai-04.

2. TOPICS COVERED
Introduction
 Bank: Definition – Origin and Development of
Modern Banking
 Types of Banks: Commercial Vs Investment Bank –
Universal Banking – Unit Banking – Branch
Banking - Scheduled Vs Non Scheduled Banks –
Public Vs Private Sector Banks –– Retail Banking
and Chain Banking –
 Functions of a Modern Commercial banks.

3. BANK
Meaning:
A bank is a financial institution licensed to receive deposits,
make loans and other financial services.
Definitions:
“Bank is an institution whose debts are widely accepted in
settlement of other people’s debts to each other”
– Sayers
“The banker’s business is then, to take debts of other people, to
offer his own in exchange and thereby to create money”
– Crowther

4. ORIGIN AND DEVELOPMENT OF MODERN
BANKING
 The work “Bank” is derived from the words “bancus” or “banqee,” that
is, a bench.
 The word “bank” is originally derived from the German word “back”
meaning a joint stock fund, which was Italianised into “banco” when the
Germans were masters of a great part of Italy.
 As early as 2000 B.C., the Babylonians had developed a banking
system.
 There is evidence to show that the temples of Babylon were used as
banks.
 in the middle of the 12th century, and banks were established at Venice
and Genoa

5.  The origin of modern banking may be traced to the money
dealers in Florence, who received money on deposit, and
were lenders of money in the 14th century, and the names of
the Bardi, Acciajuoli, Peruzzi, Pitti and Medici soon became
famous throughout Europe, as bankers.

6. MODERN BANKING
 Royal Exchangers:
Exchanged the various foreign coins, tendered to travelers and
merchants entering the kingdom, into British money.
The Goldsmiths:
It is probably true to say that the ground was prepared for modern
banking in England.

7. EVOLUTION OF BANKING IN INDIA
 The Hindustan Bank (1770) was started by the English Agency
house of Alexander & Co, in Calcutta.
 1806 with the establishment of the first Presidency Bank, called the
Bank of Bengal, in Calcutta.
 Bank of Bombay in 1840 and the Bank of Madras in 1843.
 These Presidency Banks enjoyed the monopoly of government
banking and had the right of note-issue from 1823 to1862.
 In 1921 they were amalgamated into the Imperial Bank of India.

8. TYPES OF BANKS
BASIS FOR
COMPARISON
INVESTMENT BANK COMMERCIAL BANK
Meaning A financial institution, that
offers services like underwriting
of securities, brokerage
services and so on.
A bank that provides
services like accepting
deposits, lending money,
payment on standing order
and many more.
Offers Customer specific service Standardized service
Associated with Performance of financial
market.
Nation's economic growth
and demand for credit
Customer base Few hundreds only Millions
Banker to Individuals, government and
corporations.
All citizens
Income Fees, commissions or profit on
trading activities.
Fees and interest income

9. BASIS FOR
COMPARISON
UNIT BANKING BRANCH BANKING
Meaning A single small banking company,
that provides financial services to
the local community.
A bank operates in more than
one place to provide banking
services to customers, through its
branches.
Local economy Affected by the ups and downs of
the local economy.
It is not affected by the ups and
downs of the local economy.
Independence of
operations
More Comparatively less
Supervision Cost Low Comparatively high
Financial
Resources
Limited financial resources Large pool of financial resources
Competition No or little within the bank Exist between the bank branches
Rate of interest Not fixed, as the bank has its own
policies and norms.
Fixed by the head office, and
directed by the central bank.
Decision making Quick Time Consuming

10. BASIS FOR
COMPARISON
SCHEDULED BANKS NON-SCHEDULED BANKS
Meaning A banking corporation whose
minimum paid up capital is Rs. 5
lakhs and does not harm the
interest of the depositors.
Banks which do not comply
with the rules specified by
the Reserve Bank of India.
Second Schedule Listed in the second schedule. Not-listed in the second
schedule.
Cash Reserve Ratio Maintained with RBI. Maintained with themselves.
Borrowing Scheduled banks are allowed to
borrow money from RBI for regular
banking purposes.
Non-Scheduled banks are
not allowed to borrow money
from RBI for regular banking
purposes.
Returns To be submitted periodically. No such provision of
submitting periodic returns.

11. BASIS FOR
COMPARISON
PUBLIC SECTOR BANK PRIVATE SECTOR BANK
Meaning Public Sector Banks are the
banks whose complete or
maximum ownership lies
with the government.
Private Sector Banks refers
to the banks whose majority
of stake is held by the
individuals and corporations.
Share in banking
industry
72.9% 19.7%
Customer Base Large Relatively small
Interest rate on
deposits
High Marginally lower
Promotion Based on seniority Based on merit
Growth
opportunities
Low Comparatively high
Job security Always present Purely based on
performance.

12. List of Public Sector Banks in India 2022
Bank Name Establishment Headquarter
1. Bank of Baroda 1908 Vadodara, Gujarat
2. Bank of India 1906 Mumbai, Maharashtra
3. Bank of Maharashtra 1935 Pune, Maharashtra
4. Canara Bank 1906 Bengaluru, Karnataka
5. Central Bank of India 1911 Mumbai, Maharashtra
6. Indian Bank 1907 Chennai, Tamil Nadu
7. Indian Overseas Bank 1937 Chennai, Tamil Nadu
8. Punjab and Sind Bank 1908 New Delhi, Delhi
9. Punjab National Bank 1894 New Delhi, Delhi
10. State Bank of India 1955 Mumbai, Maharashtra
11. UCO Bank 1943 Kolkata, West Bengal
12. Union Bank of India 1919 Mumbai, Maharashtra
Punjab National Bank (With Merger of Oriental Bank of Commerce and United Bank of India)
Canara Bank (With Merger of Syndicate Bank)
Union Bank of India (With Merger of Andhra Bank and Corporation Bank)
Indian Bank (With Merger of Allahabad Bank)

13. Bank name Establishment Headquarter
1. Axis Bank 1993 Mumbai, Maharashtra
2. Bandhan Bank 2015 Kolkata, West Bengal
3. CSB Bank 1920 Thrissur, Kerala
4. City Union Bank 1904 Thanjavur, Tamil Nadu
5. DCB Bank 1930 Mumbai, Maharashtra
6. Dhanlaxmi Bank 1927 Thrissur, Kerala
7. Federal Bank 1931 Aluva, Kerala
8. HDFC Bank 1994 Mumbai, Maharashtra
9. ICICI Bank 1994 Mumbai, Maharashtra
10. IndusInd Bank 1964 Mumbai, Maharashtra
11. IDFC FIRST Bank 2015 Mumbai, Maharashtra
12. Jammu & Kashmir Bank 1938 Srinagar, Jammu and Kashmir
13. Karnataka Bank 1924 Mangaluru, Karnataka
14. Karur Vysya Bank 1916 Karur, Tamil Nadu
15. Kotak Mahindra Bank 2003 Mumbai, Maharashtra

14. 16. IDBI Bank 1964 Mumbai, Maharashtra
17. Nainital bank 1922 Nainital, Uttarakhand
18. RBL Bank 1943 Mumbai, Maharashtra
19. South Indian Bank 1929 Thrissur, Kerala
20. Tamilnad Mercantile Bank 1921 Thoothukudi, Tamil Nadu
21. YES Bank 2004 Mumbai, Maharashtra

15. UNIVERSAL BANKING
 Banks provide a wide variety of comprehensive financial
services like retail, commercial, and investment services.
 Universal banking is common in some European countries,
including Switzerland.
 Universal banking combines the services of a commercial
bank and an investment bank, providing all services from
within one entity.

16. RETAIL BANKING
 Retail banking means banking where transactions
are held directly with customers and there are no
transactions with other banks or corporations.
 The retail banking is characterized by multiple
products, multiple delivery channels and multiple
customer segments.


17. CHAIN BANKING
 Chain banking system involved when a group of
persons came together to own and control 3 or
more independently chartered banks.
Features:
 A small group of persons own and control a number
of independent banks
 Each bank carries its operations independently
without any external interference by any holding
company.
 Every member of the chain retains its independent
identity.

18. FUNCTIONS OF MODERN COMMERCIAL BANK:
The functions of commercial banks are classified into
two main divisions.
(a) Primary functions
1. Accepts deposit : The bank takes deposits in the form of
saving, current, and fixed deposits.
2. Provides loan and advances : Bank is to offer loans and
advances to the entrepreneurs and business people, and
collect interest.
3. Credit Creation: Credit or loan is not provided with liquid
cash, but granted through bank account. This process allows
the bank to create money.

19. FUNCTIONS OF MODERN COMMERCIAL BANK
(b) Secondary functions
1.Paying and Collecting the Credit
The commercial banks use various instruments like a bill of exchange,
cheques, promissory notes and many more.
2.Purchasing and Selling of the Securities
Banks give a facility for purchasing and selling the securities.
3.Bullion Trading
Banks trade in gold and silver and provides the same facility for their
customers.
4. Money Remittance
Commercial banks remit the funds on behalf of their customers from
one place to another.

20. 5. Information Banks
Commercial banks are primarily an information bureau, that collects
the economic, statistical, and financial data related to the trade,
commerce, and industry.
6. Locker Facilities
Lockers are provided to the customers by banks at a nominal fee.
7. Dealings in Foreign Exchange
Commercial banks are the main dealers of foreign exchange in the
country.

21. Thank You