Banking.pptx

7/28/2019 Banking.pptx

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BANKINGDr. Vivek Sharma


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Definition

Section 5 (1) (b) of the Banking Regulation Act,1949

defines banking as the accepting, for the purpose of

lending or investment, of deposits of money from the

public, repayable on demand or otherwise and

withdrawable by cheque, draft order or otherwise.Section 5(1)(c) defines banking company as any

company which transacts the business of banking in

India. However, the acceptance of deposits by companies

for the purpose of financing their own business is notregarded as banking within the meaning of Act.


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Essential Characteristics

The essential characteristics of the banking business as

defined in section 5(b) of the Banking Regulation Act,

1949 are:

Acceptance of deposits from the public;

For the purpose of lending or investment;

Repayable on demand or otherwise; and

Withdrawable by means of any instrument whether a

cheque or otherwise.


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Core Functions

Important functions of commercial banks

Acceptance of deposits; and

Lending of funds.

For centuries, banks have borrowed and lentmoney to business, trade, and people, charging

interest on loans and paying interest on

deposits.


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Deposits

Banks are important financial intermediaries betweensaves

and borrowers. Banks mobilize savings by accepting

deposits.

Deposits may be categorized into (i) Demand deposits ;and

(ii) Time deposits.

Demand deposits are deposits which can be withdrawn

without notice and they can be repaid on demand.

Current accounts and savings accounts are classified

as demand deposits.

Time deposits are deposits which are repayable after a

fixed date or after period of notice. Fixed deposits,


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Credit creation

Banks are creators of credit. The creation of credit is an

important function of a bank and this function

distinguishes banks from the non-banking institutions.

Banks create deposits in the process of their lending

operations. When the bank mobilizes savings, it lends theamount the remains after providing for the reserves. The

amount lent is either deposited in the same bank or in

some other banks.


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Example

For instance, a bank receives Rs. 1,000 in the form of

deposits. The bank after keeping aside, say, 10 per cent

in the form of reserves, lends the remaining amount, that

is Rs. 900. The amount lent is either deposited in the

same bank or in some other bank. The bank again, afterkeeping aside reserves of 10 per cent, lends the

remaining amount, that is, Rs. 810. The process

continues and repeats in all banks simultaneously leading

to creation of credit. Credit creation leads to an increasein the total amount of money for circulation.


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Lending of Money

Commercial banks mobilize savings from the surplus-

spending sector and lend these funds to the deficit

spending sectors. They facilitate not only flow of funds but

flow of goods and services from producers to consumers

through this function of lending. Commercial banksfacilitate the financial activities of not only the private

sector but also of the government. Funds are lent in the

form of cash credit, overdraft, and loan system. Banks

discount bills of exchange, give venture capital, andguarantees.


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Ancillary Functions

Besides the primary functions of mobilizing

deposits and lending funds, banks provide

a range of ancillary services, includingtransfer of funds, collection, foreign

exchange, safe deposit locker, gift

cheques,and merchant banking.


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SCHEDULED COMMERCIAL BANKS

Scheduled Commercial Bank are thoseincluded in the Second (2nd)Scheduleof the Reserve Bank of India Act,1934, in terms of ownership andfunction, commercial banks can beclassified into four categories: public

sector banks, private sector banks,foreign banks in India, and regionalrural banks.


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Public Sector Banks

Public sector banks are banks in which the

government has a major holding.

Classification(i) State Bank of India and its associates ; and

(ii) Nationalised banks.


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Scheduled Banking Structure In India

I) SCHEDULED COMMERCIAL BANKS

Scheduled Commercial Banks are those included in the Second

Schedule of the Reserve Bank of India Act, 1934. In terms of ownership

and function, commercial banks can be classified into four categories:

i) Public Sector BanksNationalised Banks

State Bank of India & Its Associates

ii) Private Sector Banks,

Old Private Sector Banks

New private Sector Banksiii) Foreign Banks in India, and

iv) Regional Rural Banks

II) SCHEDULED COOPERATIVE BANKS

i) Scheduled Urban Cooperative Banks

ii) Scheduled State Cooperative Banks


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THANK YOU

Documents

Banking.pptx