Commercial Banks in India

Commercial Banks in India

Commercial banks form a significant part of the country’s Financial Institution System. Commercial Banks are those profit seeking institutions which accept deposits from general public and advance money to individuals like household, entrepreneurs, businessmen etc. with the prime objective of earning profit in the form of interest, commission etc. The operations of all these banks are regulated by the Reserve Bank of India, which is the central bank and supreme financial authority in India. The main source of income of a commercial bank is the difference between these two rates which they charge to borrowers and pay to depositers. Examples of commercial banks – ICICI Bank, State Bank of India, Axis Bank, and HDFC Bank.

Classification of commercial banks

Scheduled banks :- Banks which have been included in the Second Schedule of RBI Act 1934. They are categorized as follows:Public Sector Banks :- are those banks in which majority of stake is held by the government. Eg. SBI, PNB, Syndicate Bank, Union Bank of India etc.Private Sector Banks :- are those banks in which majority of stake is held by private indivisuals. Eg. ICICI Bank, IDBI Bank, HDFC Bank, AXIS Bank etc.Foreign Banks :- are the banks with Head office outside the country in which they are located. Eg. Citi Bank, Standard Chartered Bank, Bank of Tokyo Ltd. etc.

Non scheduled commercial banks :- Banks which are not included in the Second Schedule of RBI Act 1934.

Activities of Commercial Banks

Primary Functions of Commercial Banks:

Deposit Acceptance: Being a short term credit dealer, the commercial banks accept the savings of public in the form of following deposits:

Fixed term depositsCurrent A/c depositsRecurring depositsSving A/c depositsTax saving depositsDeposits for NRIs

Lending Money: a second major function is to give loans and advances and thereby earn interest on it. This function is the main source of income for the bank. Overdraft facility: Permission to a current A/c holder of withdrawal more than to what he has deposited.

Loans & advances: A kind of secured and unsecured loans against some kind of security. Discounting of bill of exchange: in case a person wants money immediately, he/she can present the B/E to the respective commercial bank and can get it discounted.

Cash credit : Facility to withdraw a certain amount of money on a given security.

Secondary Functions of Commercial Banks:

• Agency functions: Bank pays on behalf of its customers as an agent and gets paid fee for agency functions such as:
• Payment of taxes, billsCollection of funds through bills, cheques etc.Transfer of fundsSale-purchaseof shares and debenturesCollection/Payment of dividend or interestActs as trustee & executor of propertiesForex TransactionsGeneral Utility Services: locker facility

• Credit Creation: It is one of the most outstanding function of commercial banks. A bank creates credit on the basis of its primary deposits. It further lends the money which people has depositted with the bank also charge interest on this money, which is much higher than what it actually pays to depositer. Thus bank generates money for itself.

source : mapsofindia.com