Commercial Banks Review Example

Commercial banks occupy a dominant place in the money market. They, as a matter of fact, form the largest component in the banking structure of any country. They are the oldest, largest and fastest growing financial institutions in India. They are profit making institutions, dealing in money and credit. Commercial banks play a major role in the growth and development of the country due to the modern organization and functioning, huge funds and wide network all over the country.

Thus, they are like a reservoir into which flow the savings, the idle surplus money of households and from which loans are given on interest to businessmen and others who need them for investment or productive uses. Commercial banks are very important source of institutional credit as they are the major depository of people’s savings. They are very important devices for providing short term credit to trade and commerce. Commercial Banks being repositories of deposits have played significant role in garnering savings of the people particularly after the nationalization.

Thus, they have made praiseworthy efforts in pooling the savings. Rationale of the study The Rationale of the study can be considered as follows:- The study includes essential core topics. It aims at giving a thorough grounding on the subject. The study is comprehensive. It helps to improve the research and investigation ability. It enables to think logically and practically Hypothesis: The hypothesis being put forth for this study about Commercial banking is that awareness of Commercial banks is 100%, but there are still many people who do not know about the Commercial banks and the amenities provided by them.

Commercial banks are coming up with new innovative ideas and schemes for increasing their customer base and fulfilling the needs of the general public. Research Methodology: The research methodology is data collection through:- PRIMARY SOURCES SECONDARY SOURCES Primary Sources: Survey by distributing questionnaire to the people taking sample size of 100, Interviews conducted with bankers; accumulating knowledge and help from friends, professors, etc. Secondary Sources: Gathering data through books, journals, magazines, websites, newspapers, etc. Expected Contribution

Expectations from the study are that it may contribute to the real scenario of commercial banking demand and accordingly the banks can go for new innovative schemes. It will also specify some recommendations and based on that banks can make suitable arrangements in a particular sector. It will also make people aware about Commercial banking. Introduction of banking : Banking, in its crude form, is an age-old phenomenon. It was in existence even in ancient times, too. It is the business of providing financial services to consumers and businesses. They are the single major source of institutional finance in the country.

According to Section 5 (c) of the Banking Regulation Act, 1949 – “Banking company means any company which transacts the business of banking in India”. Section 5 (b) of the act defines banking as accepting for the purpose of lending or investment of deposits of money fro the public repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise. Banking services also serve two primary purposes. First, by supplying customers with the basic mediums-of-exchange (cash, checking accounts, and credit cards), banks play a key role in the way goods and services are purchased.

Without these familiar methods of payment, goods could only be exchanged by barter (trading one good for another), which is extremely time-consuming and inefficient. Second, by accepting money deposits from savers and then lending the money to borrowers, banks encourage the flow of money to productive use and investments. This in turn allows the economy to grow. Without this flow, savings would sit idle in someone’s safe or pocket, money would not be available to borrow, people would not be able to purchase cars or houses, and businesses would not be able to build new factories the economy needs to produce more goods and grow.

Enabling the flow of money from savers to investors is called financial intermediation, and thus, banking is extremely important to a free market economy. Origin and Evolution of Indian Banking Opinions differ as to the origin of the work "Banking". The word "Bank" is said to be of Germanic origin, cognate with the French word "Banque" and the Italian word "Banca", both meaning "bench". It is surmised that the word would have drawn its meaning from the practice of the Jewish money-changers of Lombardy, a district in North Italy, who in the middle ages used to do their business sitting on a bench in the market place.

Again, the etymological origin of the word gains further relevance from the derivation of the word "Bankrupt" from the French word "Banque route" and the Italian word "Banca-rotta" meaning "Broken bench" due probably to the then prevalent practice of breaking the bench of the money-changer, when he failed. Banking is different from money-lending but two terms have in practice been taken to convey the same meaning. Banking has two important functions to perform, one of accepting deposits and other of lending monies and/or investment of funds.

It follows from the above that the rates of interest allowed on deposits and charged on advances must be known and reasonable. The money-lender advances money out of his own private wealth hardly accepts deposits and usually charges high rates of interest. More often, the rates of interest relate to the needs of the borrower. Money-lending was practiced in all countries including India, much earlier than the recent type of Banking came on scene. Significance of Banks

The importance of a bank to modern economy, so as to enable them to develop, can be stated as follows: (i) The banks collect the savings of those people who can save and allocate them to those who need it. These savings would have remained idle due to ignorance of the people and due to the fact that they were in scattered and oddly small quantities. But banks collect them and divide them in the portions as required by the different investors. (ii) Banks preserve the financial resources of the country & it is expected that they allocate them appropriately in the suitable & desirable manner.

(iii) They make available the means for sending funds from one place to another and do this in cheap, safe and convenient manner. (iv) Banks arrange for payments by cheques, order or bearer, crossed and uncrossed, which is the easiest and most convenient. Besides they also care for making such payments as safe as possible. (v) Banks also help their customers, in the task of preserving their precious possessions intact and safe. To advance money, the basis of modern industry and economy and essential for financing the developmental process, is governed by banks.

(vii) It makes the monetary system elastic. Such elasticity is greatly desired in the present economy, where the phase of economy goes on changing and with such changes, demand for money is required. It is quite proper and convenient for the government and R. B. I. to change its currency and credit policy frequently, This is done by RBI, by changing the supply of money with the changing needs of the public. Although traditionally, the main business of banks is acceptance of deposits and lending, the banks have now spread their wings far and wide into many allied and even unrelated activities.

Structure of Banking System At present, the organized banking system in India can be broadly divided into three categories: i) The Central Bank of the country, the Reserve Bank of India ii) The Commercial Banks iii) The Cooperative Banks. The RBI is the apex monetary and banking authority in the country and has the responsibility to control the banking system in India. Commercial banks play a major role in the growth and development of the country. They mobilize savings and make them available to large and small industrial enterprise and traders for working capital requirements.

After 1969, commercial banks are broadly classified into nationalized or public sector banks and private sector banks. The SBI and its associate banks along with another 20 banks are the public sector banks. The private sector banks include Indian scheduled banks which have not been nationalized and branches of foreign banks operating in India. The Regional Rural Banks came into existence since the middle of 1970s with the specific objective of providing credit and deposits facilities to the small and marginal farmers, agricultural labourers and artisans and small entrepreneurs.