Commercial Banking In India

A project Submitted to
University of Mumbai for partial completion of the
degree of
Bachelor in Commerce (Banking and Insurance)
Under the Faculty of Commerce

By
Aachal Mourya
Roll No:- 28

Under the Guidance of

Prof. Dr. Shraddha Shukla
Shailendra Education Society`s Arts, Commerce &
Science College,
Shailendra Nagar, Dahisar (East), Mumbai – 400 068

February 2025
 Declaration by learner

I the undersigned Miss / Mr_____________________________________

______________________________________here by, declare that the work
embodied in this project work titled “__________________________________
________________________________________________________________
_______________________________________________________________”,
forms my own contribution to the research work carried out under the guidance
of ________________________________ is a result of my own research work
and has not been previously submitted to any other University for any other
Degree/ Diploma to this or any other University. Wherever reference has been
made to previous works of others, it has been clearly indicated as such and
included in the bibliography. I, here by further declare that all information of this
document has been obtained and presented in accordance with academic rules
and ethical conduct.

Name and Signature of the learner

Certified by

Name and signature of the Guiding Teacher

Date of submission:
 ACKNOWLEDGEMENT

To list who all have helped me in difficult because they are so numerous & depth is so
enormous.

I would like to acknowledge the following as being idealistic channels & fresh dimensions in
the completion of this project.

I take this opportunity to thank the University of Mumbai for giving me chance to do this
project.

I would like to thank my Principal, Dr. Swati Pitale for providing the necessary facilities
required for completion of this project.

I take this opportunity to thank our Coordinator Prof. Dr. Shraddha Shukla, for her moral
support & guidance.

I would also like to express my sincere gratitude towards my project guide Prof. Dr.
Shraddha Shukla, whose guidance & care made the project successful.

I would like to thank my College Library, for having provided various reference books 7
magazines related to my project.

Lastly, I would like to thank each & every person who directly or indirectly helped me in the
completion of the project especially my Parents & Peers who supported me throughout my
project.
 INDEX

CHAPTER PARTICULARS PAGE

NO.
1 INDIAN BANKING SYSTEM
1.1 MEANING OF BANK 1

1.2 FEATURES OF BANK 1

1.3 TYPES OF BANK 4

2 COMMERCIAL BANK

2.1 INTRODUCTION 9

2.2 CLASSIFICATION OF COMMERCIAL BANKS 11

2.3 ADVANTAGES & DISADVANTAGES OF COMMERCIAL 11

BANKING

2.4 FUNCTIONS OF COMMERCIAL BANKS

14

2.5 CREATION OF CREDIT

25

2.6 SERVICES OFFERED BY COMMERCIAL BANKS

29

2.7 POLICIES OFFERED BY COMMERCIAL BANKS

33

1
3 STATISTICAL DATA

3.1 Movement in assets, credit and deposit growth of the 38

SCBs

3.2 Growth in CASA deposits of the SCBs

39
3.3 Trend in maturity profile of assets and liabilities
40
3.4 Maturity profile of select liabilities / assets of the SCBs
41
3.5 Growth of select items of income and expenditure
42

4 CASE STUDIES

4.1 HISTORY OF ICICI BANK 44

4.2 DIFFRENT TYPES OF LOAN PROVIDED BY ICICI BANK 45

4.3 ARTICLE ON ICICI BANK 46

4.4 QUESTIONARIES 48

4.5 CONCLUSION 53

4.6 BIBIOLIOGRAPHY 54

4.7 REFRENCE 54

2
 CHAPTER 1. INDIAN BANKING SYSTEM

1.1 MEANING OF BANK

A bank is a financial institution and a financial intermediary that accepts deposits

and channels those deposits into lending activities, either directly or through capital

markets. A bank connects customers that have capital deficits to customers with

capital surpluses. The term bank is derived from the French word Bunco which

means a Bench or Money exchange table. In olden days, European money lenders or

money changers used to display (show) coins of different countries in big heaps

(quantity) on benches or tables for the purpose of lending or exchanging.

1.2 CHARACTERISTICS / FEATURES

 Dealing in Money:

Bank is a financial institution which deals with other people's money i.e. money

given by depositors.

 Individual / Firm / Company:

A bank may be a person, firm or a company. A banking company means a company

which is in the business of banking.

1
  Acceptance of Deposit:

A bank accepts money from the people in the form of deposits which are usually

repayable on demand or after the expiry of a fixed period. It gives safety to the

deposits of its customers. It also acts as a custodian of funds of its customers.

 Giving Advances:

A bank lends out money in the form of loans to those who require it for different

purposes.

 Payment and Withdrawal:

A bank provides easy payment and withdrawal facility to its customers in the form

of cheques and drafts; it also brings bank money in circulation. This money is in the

form of cheques, drafts, etc.

 Agency and Utility Services:

A bank provides various banking facilities to its customers. They include general

utility services and agency services.

 Profit and Service Orientation:

A bank is a profit seeking institution having service oriented approach.

2
  Ever increasing Functions:

Banking is an evolutionary concept. There is continuous expansion and

diversification as regards the functions, services and activities of a bank.

 Connecting Link:

A bank acts as a connecting link between borrowers and lenders of money. Banks

collect money from those who have surplus money and give the same to those who

are in need of money.

 Banking Business:

A bank's main activity should be to do business of banking which should not be

subsidiary to any other business.

 Name Identity:

A bank should always add the word "bank" to its name to enable people to know

that it is a bank and that it is dealing in money.

3
 1.3 Type of Bank

Central Bank

Export - Import Commercial

Bank Banks

Development
Saving Banks Banks

Rural Banking Co-operative

Banks

Indigenous Specialized
Bankers Banks

4
1. Central Bank

A central bank functions as the apex controlling institution in the banking and

financial system of the country. It functions as the controller of credit, banker’s bank

and also enjoys the monopoly of issuing currency on behalf of the government. A

central bank is usually control and quite often owned, by the government of a

country. The Reserve Bank of India (RBI) is such a bank within an India.

2. Commercial Banks

It operates for profit. It accepts deposits from the general public and extends loans

to the households, the firms and the government. The essential characteristics of

commercial banking are as follows:

- Acceptance of deposits from public - For the purpose of lending or investment -

Repayable on demand or lending or investment. - Withdrawal by means of an

instrument, whether a cheque or otherwise.

Another distinguish feature of commercial bank is that a large part of their deposits

are demand deposits withdraw able and transferable by cheque.

5
3. Development Banks

It is considered as a hybrid institution which combines in itself the functions of a

finance corporation and a development corporation. They also act as a catalytic

agent in promoting balanced and viable development by assuming promotional role

of discovering project ideas, undertaking feasibility studies and also provide

technical, financial and managerial assistance for the implementation of project. In

India ‘Industrial Development Bank on India’ (IDBI) is the unique example of

development bank. It has been designated as the principal institution of the country

for co-coordinating the working of the institutions engaged in financing, promoting

or development of industry.

4. Co-operative Banks

The main business of co-operative banks is to provide finance to agriculture. They

aim at developing a system of credit. Agriculture finance is a special field. The co-

operative banks play a useful role in providing cheap exit facilities to the farmers.

In India there are three wings of co-operative credit system namely –

(i) Short term,

(ii) Medium-term,

(iii) Long term credit.

(iv) The former has a three tier structure consisting of state

6
5. Specialized Banks

These banks are established and controlled under the special act of parliament.

These banks have got the special status. One of the major bank is ‘National Bank for

Agricultural and Rural development’ (NABARD) established in 1982, as an apex

institution in the field of agricultural and other economic activities in rural areas. In

1990 a special bank named small industries development Bank of India (SIDBI) was

established. It was the subsidiary of Industrial development Bank of India. This bank

was established for providing loan facilities, discounting and rediscounting of bills,

direct assistance and leasing facility.

6. Indigenous Bankers

That unorganized unit which provides productive, unproductive, long term, medium

term and short term loan at the higher interest rate are known as indigenous

bankers. These banks can be found everywhere in cities, towns, mandis and villages.

7. Rural Banking

A set of financial institution engaged in financing of rural sector is termed as ‘Rural

Banking’. the policy of financing of these banks has been designed in such a way so

that these institution can play catalyst role in the process of rural development.

7
8. Saving Banks

These banks perform the useful services of collecting small savings commercial

banks also run “saving bank” to mobilize the savings of men of small means.

Different countries have different types of savings bank viz. Mutual savings bank,

Post office saving, commercial saving banks etc.

9. Export - Import Bank

These banks have been established for the purpose of financing foreign trade. They

concentrate their working on medium and long-term financing. The Export-Import

Bank of India (EXIM Bank) was established on January 1, 1982 as a statutory

corporation wholly owned by the central government.

10. Foreign Exchange Banks

These banks finance mostly to the foreign trade of a country. Their main function is

to discount, accept and collect foreign bulls of exchange. They also buy and self-

foreign currencies and help businessmen to convert their money into any foreign

currency they need. Over a dozen foreign exchange banks branches are working in

India have their head offices in foreign countries.

11. International Banks

The basic list of those International Banks within India which help the banking

sector of India to develop in International market.

8
 CHAPTER 2. COMMERCIAL BANKS

2.1 INTRODUCTION

The Indian Government at the time established three Presidency banks, viz., the

Bank of Bengal (established in 1809), the Bank of Bombay (established in 1840) and

the Bank of Madras (established in 1843).

After independence, the Government of India started taking steps to encourage the

spread of banking in India. In order to serve the economy in general and the rural

sector in particular, the All India Rural Credit Survey Committee recommended the

creation of a state-partnered and state-sponsored bank taking over the Imperial

Bank of India and integrating with it, the former state-owned and state-associate

banks. Accordingly, State Bank of India (SBI) was constituted in 1955.

Commercial banking is the most important part of modern banking set up. These

days, the function of commercial banks are confined not only to advancing loans to

the public and accepting their deposits, their contribution in accelerating the rate of

economic development in under-developed and developing countries like that of

India is very effective. Not only is that, banking highly effective and useful in the

fulfillment of various socio-economic objectives of the Government.

Commercial banking in India occupies an important place in the banking set-up of

the country, these days. Up to, 1969, the operation and functioning of commercial

banks in India was confined only to medium and large sized towns and economically

rich people. Agriculture, small scale and cottage industries and rural areas were

9
generally neglected by these banks. With the nationalization of commercial banks in

1969, now these priority sectors have started getting attention, with the result they

get more credit and more branches of these banks are being opened in rural areas

also.

MEANING OF COMMERCIAL BANKS

Commercial Banks are like other financial institutions (e.g. money lenders,

indigenous bankers, cooperative societies, agricultural and industrial credit

institutions) which are in the business of lending and borrowing of money or credit.

Commercial banks are an organization which normally performs certain financial

transactions. It performs the twin task of accepting deposits from members of public

and make advances to needy and worthy people from the society.

DEFINITIONS OF COMMERCIAL BANKS

According to the Indian Banking Company Act 1949, "A banking company means

any company which transacts the business of banking. Banking means accepting for

the purpose of lending of investment of deposits of money from the public, payable

on demand or other wise and withdraw able by cheque, draft or otherwise."

2.2 CLASSIFICATION OF COMMERCIAL BANKS

1. Scheduled banks : Banks which have been included in the Second Schedule of

RBI Act 1934. They are categorized as follows:

10
  Public Sector Banks : are those banks in which majority of stake are

held by the government. E.g. SBI, PNB, Syndicate Bank, Union Bank of

India etc.

 Private Sector Banks : are those banks in which majority of stake are

held by private individuals. E.g. 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. E.g. Citi Bank, Standard Chartered Bank, Bank of

Tokyo Ltd. etc.

2. Non-scheduled commercial bank s: Banks which are not included in the Second

Schedule of RBI Act 1934.

2.3 ADVANTAGES & DISADVANTAGES OF COMMERCIAL BANKING

ADVANTAGES :

The following are the advantages of commercial banks in India:

INVESTMENT :

For any new business to get off the ground and begin operations there must be

capital available that can be used to purchase necessary equipment and property.

Commercial banks make this capital available to new entrepreneurs through the

great number of loans that they provide. If it wasn't for the role that commercial

banks play, capital for starting a business would only be available to the very rich.

11
MORTGAGES :

The flat price of a home is beyond the purchasing power of most people. Only

through the creation of mortgages by commercial banks is the ability to purchase a

house given to the average person. A mortgage involves a fixed series of annual

payments to a bank over a long period of time in exchange for the bank paying the

full price of the purchase in the short term.

SAVINGS :

Rather than merely keeping your money in a safe place, by placing your money in a

bank account you add to your wealth as the bank pays interest on the amount. This

has a further advantage for society at large: As money saved in the bank isn't merely

dead capital but money that the bank is actively investing in other enterprises, it

helps to grow the wealth of society overall.

PAYMENT :

Commercial banks have devised a number of ways to aid clients in the payment of

their debts. The first paper currency was created by commercial banks as issued

credits on physical wealth, such as gold kept in bank vaults. Commercial bank

customers can use checks as well as debit cards and online bill-paying services to

make payments in a quick, easy way.

DISADVANTAGES :

The Following are the Disadvantages of Commercial Banks in India:

LOAN APPROVALS :

One disadvantage of using a large, commercial bank can easily be seen if you're

trying to get a loan. Unlike a local bank, or a relatively small bank, a larger,

12
commercial bank will have to put a loan through several different departments.

Beyond that, you may have to have dozens of people sign off on a single loan. This

can lead to many more people getting involved in saying yes or no to your loan, and

it may lead to a lot more negotiation than you were hoping to conduct. This is

especially true for a simple, relatively straightforward home or business loan.

RIGID STANDARDS :

Another downside of using commercial banks is that they have very rigid standards

more often than not. All banks have to follow the financial laws put forth by the U.S.

government, but commercial banks may treat their own, additional rules as if

they're set in stone. Again, this is most often seen in the loan process. Commercial

banks, due to their size and the sheer volume of the market that they command, are

often less likely to make concessions to customers. This can lead to a very "my way

or the highway" attitude from a commercial bank.

SECURITY :

One of the biggest concerns that a person has with their bank is whether or not their

money is insured. If you put $10,000 in a savings account, you want to be sure that

money will be available, regardless of what expenses your bank has to deal with.

This is why the U.S. government created FDIC insurance, which insures up to

$100,000 worth of money (though it's more than $200,000 until 2013) per

depositor so that those depositors can have faith in the bank.

13
2.4 FUNCTIONS OF COMMERCIAL BANKS

1. PRIMARY FUNCTIONS

2. SECONDARY FUNCTIONS

PRIMARY FUNCTIONS

Primary banking functions of the commercial banks include:

 Acceptance of deposits

 Advancing loans

 Creation of credit

 Clearing of cheques

 Financing foreign trade

 Remittance of funds

1) ACCEPTANCE OF DEPOSITS :

Accepting deposits is the primary function of a commercial bank mobilizes savings

of the household sector. Banks generally accept three types of deposits viz., (a)

Current Deposits (b) Savings Deposits, and (c) Fixed Deposits.

Current Deposits:

These deposits are also known as demand deposits. These deposits can be

withdrawn at any time. Generally, no interest is allowed on current deposits, and in

case, the customer is required to leave a minimum balance undrawn with the bank.

Cheques are used to withdraw the amount. These deposits are kept by businessmen

14
and industrialists who receive and make large payments through banks. The bank

levies certain incidental charges on the customer for the services rendered by it.

Savings Deposits:

This is meant mainly for professional men and middle class people to help them

deposit their small savings. It can be opened without any introduction. Money can

be deposited at any time but the maximum cannot go beyond a certain limit. There

is a restriction on the amount that can be withdrawn at a particular time or during a

week. If the customer wishes to withdraw more than the specified amount at any

one time, he has to give prior notice. Interest is allowed on the credit balance of this

account. The rate of interest is greater than the rate of interest on the current

deposits and less than that on fixed deposit. This system greatly encourages the

habit of thrift or savings.

Fixed Deposits:

These deposits are also known as time deposits. These deposits cannot be

withdrawn before the expiry of the period for which they are deposited or without

giving a prior notice for withdrawal. If the depositor is in need of money, he has to

borrow on the security of this account and pay a slightly higher rate of interest to

the bank. They are attracted by the payment of interest which is usually higher for

longer period. Fixed deposits are liked by depositors both for their safety and as

well as for their interest. In India, they are accepted between three months and ten

years.

15
2) ADVANCING LOANS:

The second primary function of a commercial bank is to make loans and advances to

all types of persons, particularly to businessmen and entrepreneurs. Loans are made

against personal security, gold and silver, stocks of goods and other assets. The most

common way of lending is by

Overdraft Facilities:

In this case, the depositor in a current account is allowed to draw over and above his

account up to a previously agreed limit. Suppose a businessman has only Rs.

30,000/- in his current account in a bank but requires Rs. 60,000/- to meet his

expenses. He may approach his bank and borrow the additional amount of Rs.

30,000/-. The bank allows the customer to overdraw his account through cheques.

The bank, however, charges interest only on the amount overdrawn from the

account. This type of loan is very popular with the Indian businessmen.

Cash Credit:

Under this account, the bank gives loans to the borrowers against certain security.

But the entire loan is not given at one particular time, instead the amount is credited

into his account in the bank; but under emergency cash will be given. The borrower

is required to pay interest only on the amount of credit availed to him. He will be

allowed to withdraw small sums of money according to his requirements through

cheques, but he cannot exceed the credit limit allowed to him. Besides, the bank can

also give specified loan to a person, for a firm against some collateral security. The

bank can recall such loans at its option.

16
Discounting Bills of Exchange:

This is another type of lending which is very popular with the modern banks. The

holder of a bill can get it discounted by the bank, when he is in need of money. After

deducting its commission, the bank for a bank, they provide a very liquid asset

which can be quickly turned into cash. The commercial banks can rediscount the

discounted bills with the central banks when they are in need of money. These bills

are safe and secured bills. When the bill matures the bank can secure its payment

from the party which had accepted the bill.

Money at Call:

Bank also grant loans for a very short period, generally not exceeding 7 days to the

borrowers, usually dealers or brokers in stock exchange markets against collateral

securities like stock or equity shares, debentures, etc., offered by them. Such

advances are repayable immediately at short notice hence; they are described as

money at call or call money.

Term Loans:

Banks give term loans to traders, industrialists and now to agriculturists also

against some collateral securities. Term loans are so-called because their maturity

period varies between 1 to 10 years. Term loans; as such provide intermediate or

working capital funds to the borrowers. Sometimes, two or more banks may jointly

provide large term loans to the borrower against a common security. Such loans are

called participation loans or consortium finance.

17
 Consumer Credit:

Banks also grant credit to households in a limited amount to buy some durable

consumer goods such as television sets, refrigerators, etc., or to meet some personal

needs like payment of hospital bills etc. Such consumer credit is made in a lump sum

and is repayable in installments in a short time. Under the 20-point programme, the

scope of consumer credit has been extended to cover expenses on marriage, funeral

etc., as well.

Miscellaneous Advances:

Among other forms of bank advances there are packing credits given to exporters

for a short duration, export bills purchased/discounted, import finance-advances

against import bills, finance to the self-employed, credit to the public sector, and

credit to the cooperative sector and above all, credit to the weaker sections of the

community at concessional rates.

3) CREATION OF CREDIT:

A unique function of the bank is to create credit. Banks supply money to traders and

manufacturers. They also create or manufacture money. Bank deposits are regarded

as money. They are as good as cash. The reason is they can be used for the purchase

of goods and services and also in payment of debts. When a bank grants a loan to its

customer, it does not pay cash. It simply credits the account of the borrower. He can

withdraw the amount whenever he wants by a cheque. In this case, bank has created

a deposit without receiving cash. That is, banks are said to have created credit.

18
Sayers says “banks are not merely purveyors of money, but also in an important

sense, manufacturers of money.”

Promote the Use of Cheques:

The commercial banks render an important service by providing to their customers

a cheap medium of exchange like cheques. It is found much more convenient to

settle debts through cheques rather than through the use of cash. The cheque is the

most developed type of credit instrument in the money market.

Financing Internal and Foreign Trade:

The bank finances internal and foreign trade through discounting of exchange bills.

Sometimes, the bank gives short-term loans to traders on the security of commercial

papers. This discounting business greatly facilitates the movement of internal and

external trade.

Remittance of Funds:

Commercial banks, on account of their network of branches throughout the country,

also provide facilities to remit funds from one place to another for their customers

by issuing bank drafts, mail transfers or telegraphic transfers on nominal

commission charges. As compared to the postal money orders or other instruments,

bank drafts have proved to be a much cheaper mode of transferring money and have

helped the business community considerably.

19
4) Promote the Use of Cheques:

The commercial banks render an important service by providing to their customers

a cheap medium of exchange like cheques. It is found much more convenient to

settle debts through cheques rather than through the use of cash. The cheque is the

most developed type of credit instrument in the money market.

5)Financing Internal and Foreign Trade:

The bank finances internal and foreign trade through discounting of exchange bills.

Sometimes, the bank gives short-term loans to traders on the security of commercial

papers. This discounting business greatly facilitates the movement of internal and

external trade.

6)Remittance of Funds:

Commercial banks, on account of their network of branches throughout the country,

also provide facilities to remit funds from one place to another for their customers

by issuing bank drafts, mail transfers or telegraphic transfers on nominal

commission charges. As compared to the postal money orders or other instruments,

bank drafts have proved to be a much cheaper mode of transferring money and have

helped the business community considerably.

20
SECONDARY FUNCTIONS

1) AGENCY SERVICES :

Banks also perform certain agency functions for and on behalf of their customers.

The agency services are of immense value to the people at large. The various agency

services rendered by banks are as follows:

Collection and Payment of Credit Instruments:

Banks collect and pay various credit instruments like cheques, bills of exchange,

promissory notes etc., on behalf of their customers.

Purchase and Sale of Securities:

Banks purchase and sell various securities like shares, stocks, bonds, debentures on

behalf of their customers.

Collection of Dividends on Shares:

Banks collect dividends and interest on shares and debentures of their customers

and credit them to their accounts.

Acts as Correspondent:

Sometimes banks act as representative and correspondents of their customers. They

get passports, traveler’s tickets and even secure air and sea passages for their

customers.

21
Income-tax Consultancy:

Banks may also employ income tax experts to prepare income tax returns for their

customers and to help them to get refund of income tax.

Execution of Standing Orders:

Banks execute the standing instructions of their customers for making various

periodic payments. They pay subscriptions, rents, insurance premium etc., on behalf

of their customers.

Acts as Trustee and Executor:

Banks preserve the ‘Wills’ of their customers and execute them after their death.

2) GENERAL UTILITY SERVICES:

In addition to agency services, the modern banks provide many general utility

services for the community as given.

Locker Facility:

Bank provides locker facility to their customers. The customers can keep their

valuables, such as gold and silver ornaments, important documents; shares and

debentures in these lockers for safe custody.

22
Traveler’s Cheques and Credit Cards:

Banks issue traveler’s cheques to help their customers to travel without the fear of

theft or loss of money. With this facility, the customers need not take the risk of

carrying cash with them during their travels.

Letter of Credit:

Letters of credit are issued by the banks to their customers certifying their credit

worthiness. Letters of credit are very useful in foreign trade.

Collection of Statistics:

Banks collect statistics giving important information relating to trade, commerce,

industries, money and banking. They also publish valuable journals and bulletins

containing articles on economic and financial matters.

Acting Referee:

Banks may act as referees with respect to the financial standing, business reputation

and respectability of customers.

Underwriting Securities:

Banks underwrite the shares and debentures issued by the Government, public or

private companies.

23
Gift Cheques:

Some banks issue cheques of various denominations to be used on auspicious

occasions.

Accepting Bills of Exchange on Behalf of Customers:

Sometimes, banks accept bills of exchange, internal as well as foreign, on behalf of

their customers. It enables customers to import goods.

Merchant Banking:

Some commercial banks have opened merchant banking divisions to provide

merchant banking services.

2.5 CREATION OF CREDIT

A unique function of the bank is to create credit. Banks supply money to traders and

manufacturers. They also create or manufacture money. Bank deposits are regarded

as money. They are as good as cash. The reason is they can be used for the purchase

of goods and services and also in payment of debts. When a bank grants a loan to its

customer, it does not pay cash. It simply credits the account of the borrower. He can

withdraw the amount whenever he wants by a cheque. In this case, bank has created

a deposit without receiving cash. That is, banks are said to have created credit.

Sayers says “banks are not merely purveyors of money, but also in an important

sense, manufacturers of money.”

24
Promote the Use of Cheques :

The commercial banks render an important service by providing to their customers

a cheap medium of exchange like cheques. It is found much more convenient to

settle debts through cheques rather than through the use of cash. The cheque is the

most developed type of credit instrument in the money market.

Financing Internal and Foreign Trade :

The bank finances internal and foreign trade through discounting of exchange bills.

Sometimes, the bank gives short-term loans to traders on the security of commercial

papers. This discounting business greatly facilitates the movement of internal and

external trade.

Remittance of Funds :

Commercial banks, on account of their network of branches throughout the country,

also provide facilities to remit funds from one place to another for their customers

by issuing bank drafts, mail transfers or telegraphic transfers on nominal

commission charges. As compared to the postal money orders or other instruments,

bank drafts have proved to be a much cheaper mode of transferring money and have

helped the business community considerably.

LIMITATIONS OF CREDIT CREATION

Commercial Banks though have the power to create credit, their powers are not

unlimited. Certain points affect the process of credit creation. They are termed as

limitations to credit creation by commercial banks.

25
1. Amount of Deposit

The most important factor which decides credit creation is the amount of deposits

made by the depositors. Higher is the amount of deposits; greater is the supply of

credit and vice versa

2. Cash Reserve Ratio (CRR)

There exists an indirect relationship between Credit Creation and Cash Reserve

Ratio (CRR). Higher is the Cash Reserve Ratio (CRR) more will be the reserves to be

maintained and less credit will be created by banks. The CRR is fixed by the RBI in

India. It ranges between 3% to 15%.

3. Banking Habits of People

If the banking habits of the people are well-developed, then all their transactions

would be through banks, and this will lead to expansion of credit and vice-versa.

4. Supply of Securities

Loans are sanctioned on the basis of the securities provided to the banks. If

securities are available then the credit creation will be more and vice-versa.

5. Willingness of people to borrow

Commercial banks may have enough money to lend. Customers should be willing to

borrow from the banks to facilitate credit creation. If they are willing to borrow,

then the credit created by banks will be less.

6. Monetary Policy of Central Bank

While credit is created by commercial banks, it is controlled by the Central Bank.

Credit control is one important function of the central bank. Central Bank uses

26
various methods of Credit Control from time to time and thus influences the banks

to expand or contract credit.

7. External Drain

External Drain refers to withdrawal of cash from the banking system by the public.

It lowers the reserves of the banks and limits the credit creation.

8. Uniform Policy

If all the commercial banks follow a uniform policy related to CRR, then credit

creation would be smooth. If some banks follow liberal and others follow a

conservative one, then credit creation would be affected.

2.6 SERVICES OFFERED BY COMMERCIAL BANKS

INTRODUCTION

Commercial banks provide a variety of important products and services. In contrast

to investment banks, which deal primarily with the securities markets, commercial

banks accept a variety of deposit types, make various kinds loans and provide other

services including checking and savings accounts, credit cards, ATM networks, safe

deposit boxes, and custodial and trustee services.

TYPES OF SERVICES

1. PRIMARY SERVICES

2. SECONDARY SERVICES

1. PRIMARY SERVICES :

Commercial banks also provide other services to businesses and consumers for

which they earn various fees. These include investment advisory services, corporate

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finance consulting, custodial services for estates and trusts, safekeeping of securities

and other valuable items, and money transfer services.

Some of the different services available from commercial banks to its

customers are :

 Checking/Current account

 Savings accounts

 Internet/Mobile Banking

 ATM Cards

 Check Books

 Deposit Accounts

 Loans

 Credit Cards etc.

A bank cannot survive without performing the following non-banking

activities :

 Banks help their customers to make utility payments with ease.

 They perform merchant banking for their customers.

 They provide factoring services to their clients.

 They manage mutual funds and minimize investment risks.

 They issue gift cheques to the people.

 They conduct feasibility study and submit the feasibility report.

 They facilitate the share transactions by maintaining demat accounts.

 They offer credit and debit cards facility.

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  They also offer leasing services.

 They give hire-purchase services to owners of various goods.

 They are now allowed to offer insurance services.

 They provide funds (capital) for starting new ventures.

2. SECONDARY SERVICES

MODERN TECHNOLOGICAL SERVICES

Technology :

Banks in India have started using technology in a proactive manner. The huge

number of bank customers and their myriad needs are being met in increasingly

sophisticated ways. In a number of areas, the foreign banks and the new private

sector banks have been the first movers in the application of technology, but public

sector banks are also catching up. One major advantage that Indian banks have is

the availability of major IT companies in India who are the world leaders in IT

applications.

Mobile Banking :

Some banks have started offering mobile banking and tele-banking to customers.

The expansion in the use and geographical reach of mobile phones has created new

opportunities for banks to use this mode for banking transactions and also provide

an opportunity to extend banking facilities to the hitherto excluded sections of the

society.

With ICICI Bank Mobile Banking, you can have following access through your mobile

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  Check your account balance

 Transfer funds 24 x 7

 Pay your bills

 Book bus and flight tickets

 Recharge your prepaid mobile or

 DTH connection

Our Mobile Banking services work with almost all types of handsets and help you

access your ICICI Bank account easily and securely.

Internet Banking :

Through its website, a bank may offer its customers online access to account

information and payment and fund transfer facilities. The range of services offered

differs from bank to bank depending mainly on the type and size of the bank.

Internet banking is changing the banking industry and affecting banking

relationships in a major way.

The services provided through internet banking are:

 Money manager

 Fund transfer

 Bills payment

 Quick pay

 Receive funds

 Prepaid mobile recharge

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Electronic Banking :

Electronic banking services provided by commercial banks include :

 The maintenance and expansion of 24-hour ATM networks.

 Wire transfers.

 Banking websites that allow consumers and business to obtain account

information.

 Open new accounts.

 Order checks.

 Transfer funds between accounts.

 Bill payments.

2.7 POLICIES OFFERED BY COMMERCIAL BANKS

INVESTMENT POLICY

The financial position of a commercial bank is reflected in its balance sheet. The

balance sheet is a statement of the assets and liabilities of the bank. The assets of the

bank are distributed in accordance with certain guiding principles. These principles

underline the investment policy of the bank. They are discussed below:

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  Liquidity :

In the context of the balance sheet of a bank the term liquidity has two

interpretations. First, it refers to the ability of the bank to honor the claims of the

depositors. Second, it connotes the ability of the bank to convert its non-cash assets

into cash easily and without loss.

It is a well-known fact that a bank deals in funds belonging to the public. Hence, the

bank should always be on its guard in handling these funds. The bank should always

have enough cash to meet the demands of the depositors. In fact, the success of a

bank depends to a considerable extent upon the degree of confidence it can instill in

the minds of its depositors. If the depositors lose confidence in the integrity of their

bank, the very existence of the bank will be at stake. So, the bank should always be

prepared to meet the claims of the depositors by having enough cash. Among the

various items on the assets side of the balance sheet, cash on hand represents the

most liquid asset. Next comes cash with other banks and the central bank. The order

of liquidity goes on descending.

Liquidity also means the ability of the bank to convert its non-cash assets into cash

easily and without loss. The bank cannot have all its assets in the form of cash

because each is an idle asset which does not fetch any return to the bank. So some of

the assets of the bank, money at call and short notice, bills discounted, etc. could be

made liquid easily and without loss.

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  Profitability :

A commercial bank by definition is a profit hunting institution. The bank has to

earn profit to earn income to pay salaries to the staff, interest to the depositors,

dividend to the shareholders and to meet the day-to-day expenditure. Since cash

is the least profitable asset to the bank, there is no point in keeping all the assets

in the form of cash on hand. The bank has got to earn income. Hence, some of the

items on the assets side are profit yielding assets. They include money at call and

short notice, bills discounted, investments, loans and advances, etc. Loans and

advances, though the least liquid asset, constitute the most profitable asset to

the bank. Much of the income of the bank accrues by way of interest charged on

loans and advances. But, the bank has to be highly discreet while advancing

loans

 Safety or Security :

Apart from liquidity and profitability, the bank should look to the principle of safety

of its funds also for its smooth working. While advancing loans, it is necessary that

the bank should consider the three ‘C’s of credit character, capacity and the

collateral of the borrower. The bank cannot afford to invest its funds recklessly

without considering the principle of safety. The loans and investments made by the

bank should be adequately secured. For this purpose, the bank should always insist

on security of the borrower. Of late, somehow or other the banks have not been

paying adequate importance to safety, particularly in India.

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  Diversity :

The bank should invest its funds in such a way as to secure for itself an adequate

and permanent return. And while investing its funds, the bank should not keep all its

eggs in the same basket. Diversification of investment is necessary to avoid the

dangerous consequences of investing in one or two channels. If the bank invest its

funds in different types of securities or makes loans and advances to different

objectives and enterprises, it shall ensure for itself a regular flow of income.

 Salability of Securities :

Further, the bank should invest its funds in such types of securities as can be easily

marketed at a time of emergency. The bank cannot afford to invest its funds in very

long term securities or those securities which are unsalable. It is necessary for the

bank to invest its funds in government or in first class securities or in debentures of

reputed firms. It should also advance loans against stocks which can be easily sold.

 Stability in the Value of Investments :

The bank should invest its funds in those stocks and securities the prices of which

are more or less stable. The bank cannot afford to invest its funds in securities, the

prices of which are subject to frequent fluctuations.

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  Principles of Tax-Exemption of Investments :

Finally, the investment policy of a bank should be based on the principle of tax
exemption of investments. The bank should invest in those government securities
which are exempted from income and other taxes. This will help the bank to
increase its profits. Of late, there has been a controversy regarding the relative
importance of the various principles influencing the investment policy of a bank
particularly between liquidity and profitability. It is interesting to examine this
controversy
LENDING POLICY
Types of Lending
A. Fund based (Current & Fixed Assets)
 Overdrafts
 Cash Credits
 Bills Finance – Demand or Usance Bills
 Demand Loans
Term Loans
 Other Loans - Car Loans, Consumer Durables, Educational Loans, Housing
Loans, Professionals Personal Loans, Credit Cards and so on…
B. Non-Fund based (Fee based)
 Issue of Guarantees
 Issue of Letters of Credit
 Deferred Payments Guarantees

C. Others
 Lease Finance
 Hire Purchase Finance

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 CHAPTER 3 : STATISTICAL DATA

3.1 Movement in assets, credit and deposit growth of the SCBs

The slowdown in growth in the balance sheets of banks witnessed since 2011-12

continued during 2014-15. The moderation in assets growth of scheduled

commercial banks (SCBs) was mainly attributed to tepid growth in loans and

advances to below 10 per cent (Chart 1). Growth in investments also slowed down

marginally. The decline in credit growth reflected the slowdown in industrial

growth, poor earnings growth reported by the corporate, risk aversion on the part

36
of banks in the background of rising bad loans and governance related issues.

Further, with the availability of alternative sources, corporate also switched part of

their financing needs to other sources such as external commercial borrowings

(ECBs), corporate bonds and commercial papers. On the liabilities side, growth in

deposits and borrowings also declined signify cantly. Bank-group wise, public sector

banks (PSBs) witnessed deceleration in credit growth in 2014-15; private sector

banks (PVBs) and foreign banks (FBs), however, indicated higher credit growth.

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Growth in current account and saving account (CASA) deposits moderated due to
decline in saving deposits which in turn got reflected in deceleration in overall
deposit growth (Chart 2). Bank-group wise, PSBs recorded decline in CASA deposits
while PVBs and FBs recorded higher growth during 2014-15.

3.3 Trend in maturity profile of assets and liabilities

The maturity profile of liabilities of the SCBs witnessed an improvement during

2014-15 as the proportion of short-term liabilities declined and that of long-term
liabilities increased. On the assets side, share of long-term assets declined and the
share of short-term assets increased marginally (Chart 3). This can be seen in the
light of risk aversion on the part of banks in the backdrop of rising share of
nonperforming loans. The proportion of long-term loans and advances declined to
27.3 per cent in 2014-15 from 28.9 per cent in the previous year (Chart 4).

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3.4 Maturity profile of select liabilities / assets of the SCBs

The PSBs, however, had 52 per cent of their investments in more than 5 year
maturity bracket during 2014-15 while investments of the PVBs and FBs in that
tenor, aggregated 30.4 per cent and 5.6 per cent, respectively.

39
3.5 Growth of select items of income and expenditure

Both interest earnings and interest expended recorded a lower growth during 2014-
15 as compared to the previous year. Interest earnings reflected the impact of
slower credit growth. However, decline in interest income was marginally higher
than interest expended. As a result, net interest income grew less than the previous
year despite an improvement in the operating expenses (through reduction in the
growth of wage bill). Also, the pace of increase in provisions and contingencies due
to delinquent loans declined sharply. This led to an increase in net profits at the
aggregate level by 10.1 per cent during 2014-15 as against a decline in net profits
during the previous year.

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 Table 1 : ROA and ROE of SCBs – Bank-group wise

Bank group Return on assets Return on equity

Public sector banks 0.50 0.46 8.47 7.76

1.1 Nationalized banks 0.45 0.37 7.76 6.44
1.2 State Bank 0.63 0.66 10.03 10.56
Private sector banks 1.65 1.68 16.22 15.74
Foreign banks 1.54 1.87 9.03 10.24
All SCBs 0.81 0.81 10.68 10.42

Notes: Return on Assets = Net profit/Average total assets. Return on Equity = Net
profit/Average total equity. * : Nationalized banks include IDBI Bank Ltd. Source:
Annual accounts of banks and RBI staff calculations.

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 CHAPTER 4. CASE STUDY

ICICI BANK CASE STUDY

4.1 HISTORY

ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial

institution, and was its wholly-owned subsidiary. ICICI's shareholding in ICICI Bank

was reduced to 46% through a public offering of shares in India in fiscal 1998, an

equity offering in the form of ADRs listed on the NYSE in fiscal 2000, ICICI Bank's

acquisition of Bank of Madura Limited in an all-stock amalgamation in fiscal 2001,

and secondary market sales by ICICI to institutional investors in fiscal 2001 and

fiscal 2002. ICICI was formed in 1955 at the initiative of the World Bank, the

Government of India and representatives of Indian industry. The principal objective

was to create a development financial institution for providing medium-term and

long-term project financing to Indian businesses. ICICI Bank has formulated a Code

of Business Conduct and Ethics for its directors and employees. ICICI Bank is one of

the Big Four banks of India, along with State Bank of India, Punjab National Bank

and HDFC Bank.

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Loans provided by ICICI Banks :

ICICI Bank offers wide variety of Loans Products to suit your requirements. Coupled

with convenience of networked branches/ ATMs and facility of E-channels like

Internet and Mobile Banking, ICICI Bank brings banking at your doorstep. Select any

of our loan product and provide your details online and our representative will

contact you for getting loans.

4.2 Different types of loans provided by ICICI Bank:

 Home Loans

The No. 1 Home Loans Provider in the country, ICICI Bank Home Loans offers some

unbeatable benefits to its customers - Doorstep Service, Simplified Documentation

and Guidance throughout the Process. It's really easy!

 Personal Loans

If you're looking for a personal loan that's easy to get, your search ends here. ICICI

Bank Personal Loans are easy to get and absolutely hassle free. With minimum

documentation you can now secure a loan for an amount up to Rs. 15 lakhs.

 Car Loans

The most preferred financier for car loans in the country. Network of more than

1000 channel partners in over 200 locations. Tie-ups with all leading automobile

manufacturers to ensure the best deals. Flexible schemes & quick processing. Hassle

free application process on the click of a mouse.

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 Commercial Vehicle Loans

We have extended products like funding of new vehicles, finance on used vehicles,

top up on existing loans, working capital loans & other banking products.

 Loans against Securities

You don’t have to sell your securities. All you have to do is pledge your securities in

favor of ICICI Bank. We will then grant you an overdraft facility up to a value

determined on the basis of the securities pledged by you.

4.3 Article on ICICI Bank

ICICI Bank follow SBI; revise FD rates by up to 0.5 pc

MUMBAI: Private sector banks like ICICI Bank and HDFC Bank on Wednesday

reduced interest rates on fixed deposits by at least 50 basis point. The reduction in

deposit rates comes at a time when the economy is slowing down and credit pick up

is slack. One basis point is equal to one hundredth of a percentage. Last week, State

Bank of India had reduced interest rate on deposits by as much as 100 basis points

across maturities to maintain profitability after lowering lending rates.

ICICI Bank has cut rates across maturities ranging from 91 days to less than five

years. It now offers a maximum 8.75 per cent interest on retail term deposits

compared to 9.25 per cent earlier. In the shorter tenure ranging between seven days

to 45 days, however, the bank has increased rate by 50-75 basis points.

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A reduction in statutory reserve ratio, the amount of funds to be held in government

bonds, by a percentage point is also help the banks lend Rs 15,000 crore more to

corporate or retail customers. Deposits grew 14.1% year on year against RBI's

projection of 16%.

Pratip Chaudari, chairman State Bank of India had said, “As of now, we are surplus

in deposit for SBI," said Chaudhuri. ""The challenge is more on pushing credit.""

Also, the cut in SLR is providing some comfort. This is helping banks in meeting the

credit demand, which is climbing marginally. Recent RBI data shows that credit has

grown 16.7% year on year.

We could see the private players now reduce lending rates to get competitive as

many public sector banks like State Bank of India and Andhra Bank have cut rates

on select retail products,'' said a banking analyst with a domestic brokerage.

ICICI Bank is also doing this to maintain a healthy margin of over 3%,'' he added.

4.4 Questions Asked To the

Branch Manager of ICICI Bank

1. What is the Balance that is required for ICICI Savings Account?

- ICICI Savings account requires an Average Monthly Balance of Rs. 75,000 in a

combination of savings account/ current account and fixed deposits including a

minimum monthly balance of Rs. 25,000 in the savings account / current account or

Smart Money facility with a minimum fixed deposit of Rs. 200,000. However, a "No

Frills" Account can be opened with Zero balance.

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 2. What is the Average Monthly Balance (AMB) required to be maintained

in the case of an ICICI Savings Account? How is the AMB calculated?

- The minimum AMB required to be maintained for ICICI Savings Account is Rs.

75,000. The AMB is calculated by adding the end of day balances for each day in the

month and dividing it by the number of days in that month.

3. Is there a charge for non-maintenance of Average Monthly Balance

(AMB)?

- There is a charge levied for non-maintenance of AMB. The charge is Rs. 250+ per

month. You may please refer to our tariff on www.icici.co.in for further details on

applicable charges.

4. Do I need to give an advance notice for withdrawal of cash beyond a

limit from a branch?

- Prior notice (normally 24 hours) is to be given to the branch from where the cash

withdrawal is to be made for an amount greater than Rs.1, 00,000.

5. How can I earn higher returns on funds in my Current / Savings

Account?

- Currently, as per RBI regulations you earn interest at 4.00% p.a. (paid half yearly)

on your Savings Account balances and NIL interest on your Current Account

balances. However, if you choose, the moment your savings cross the required

balance amount, the excess amount will get transferred to a Fixed Deposit, thereby

46
earning you a higher rate of interest.

6. Can I access my account when I am out of town / travelling in India?

- Yes, you can check both the balances in your account as well as your transaction

history at any of our branches or ATMs. Moreover you can also apply for our

Internet Banking or Phone Banking facility which will give you access to your

account balances and other services anytime, anywhere.

7. Can I withdraw cash in any other city where I do not have a Current /

Savings Account?

- It is possible to withdraw cash using the debit card at any ICICI or non ICICI VISA

ATM in India or overseas (a transaction fee is applicable for withdrawals from non-

ICICI ATMs in India and from any ATM overseas).

8. What if I need foreign exchange for my current account transactions?

- In respect of any other current account transaction please approach the branch

with:

A letter detailing and self-certifying the details of remittance and the beneficiary to

whom it is being made.

Supporting document detailing the nature of the transaction, value and beneficiary

Complete the following forms given to you by the branch:

 Application in Form A2 signed by the remitter

 FEMA declaration

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  Draft or Telegraphic transfer application form

Once the Bank is satisfied with the nature of the transaction the Bank will be able to

effect the remittance as required. While most transactions would be processed by

the bank on the basis of the above, there could be situations that could call for

supplementary information or reference to Reserve Bank. The Branch staff will

guide you on this when they are contacted.

9. Can I use my International credit/debit card to meet my expenses?

Your International/debit card can be put to good use on various occasions:

 While you are on holiday outside India to meet your expenses.

 When you are outside India to purchase an item of import.

 When you are in India, to make a payment in foreign exchange for purchase

of books and other items through Internet.

10. I am having a Saving Bank / Current account with ICICI. I want to

register for Online ICICI now. What do I do?

- By visiting the branch we can request for internet banking password. After 8 days

we can access our account online. It passes through 3 channels:

 Branch

 Phone-banking

 Internet banking

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 11. What is the present CRR & SLR in ICICI BANK?

- CRR-4.5% & SLR-23%.

12. What is impact of IT development on commercial banks?

- As it is in need to adopt supervision technology, it develops the transaction of

banks faster. It is also convenient to customers, staff as well as experts.

13. How much % of loan is given against asset?

- Maximum 85% of asset value is given by ICICI Bank.

14. Is the prime lending rate same for all types of loan?

- It depends on the loan taken by the borrower.

15. How the NPA’s are managed?

- The NPA’s are managed by experts. It’s not branch activity; it’s conducted by

divisional head office. The managed activities of overall bank’s NPAs are under RBI

guidelines.

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4.5 CONCLUSION :

My study concludes that commercial banks form the most important part of

financial intermediaries. It accepts deposits from the general public and extends

loans to the households, firms and the government. Banks form a significant part of

the infrastructure essential for breaking vicious circle of poverty and promoting

economic growth.

A commercial bank is a bank that operates with a profit earning goal i.e. a business

bank while a non-commercial bank is a financial institution that operates with the

aim of alleviating…banking on the development of bank-customer relationship in

the value creation process.

Banks are financial institutions that can make or break economy. Unsupervised and

uncontrolled behavior from banks can spell doom to the economy and for the

customers as well. Banks are the regular banks that provide basic banking facilities

to its customers.

I also conclude that I had done my field study on ICICI Bank as a commercial bank in

India & collected many information related to its services, relations with customers

and many more aspects.

ICICI Bank provides a great customer service. They treat well to their customers,

be it a new or the older ones. They provide all types of facilities under one roof. My

family being a member of ICICI Bank is very much satisfied by the care they provide.

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4.6 WEBLIOGRAPHY :

 www.Scribd.Com

 www.Slideshare.Net

 www.indian.bank.com

 www.commercialbank.com

 www.rbi .com

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 4.7 BOOKS& REFERENCES :
 International Banking & Insurance
 Innovation in Banking &Insurance

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