A milestone in the history of banking in India is the nationalization of the 14 major commercial banks in 1969. This process was undertaken with the main objective of involving the banking sector in a big way in the nation building and economic development. To help to achieve this commendable objective, two committees were set up viz., National Credit Council Study Group with D.R. Gadgil as the Chairman and the Committee of Bankers under the chairmanship of Nariman. These committees independently went into their terms of reference and recommended an ‘area approach’ for involving the banks in economic development. This paved the way for giving a concrete shape to the Lead Bank Scheme. As nationalization of banks took place to extend and expand the banking services to all the non-banked areas especially the rural areas, the RBI decided to implement its Lead Bank Scheme through the nationalized banks. But this did not discourage the private sector banks from playing their role in economic development.…
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Different Modes of Granting Loans by Commercial Banks
The basic function of a commercial bank is to make loans and advances out of the money which is received from the public by way of deposits.The loans are particularly granted to businessmen and members of the public against personal security, gold and silver and other movable and immovable assets. Such loans and advances are given to members of the public and to the business community at a higher rate of interest than allowed by banks on various deposit accounts. The rate of interest charged on loans and advances varies depending upon the purpose, period and the mode of repayment.The difference between the rates of interest allowed on deposits and the rate charged on the loans is the main source of a commercial banks income. A loan is granted for a specific time period. Generally, commercial banks grant short-term loans. But term loans, that is, loan for more than a year, may also be granted.The borrower may withdraw the entire amount in lump sum or in installments.…
Read More »Different Modes of Acceptance of Deposits by Commercial Banks
The most important activity of a commercial bank is to mobilize deposits from the public. People who have surplus income and savings find it convenient to deposit the amounts with banks. Depending upon the nature of deposits, funds deposited with bank also earn interest. Thus, deposits with the bank grow along with the interest earned. If the rate of interest is higher, public are motivated to deposit more funds with the bank. There is also safety of funds deposited with the bank. The following types of deposits are usually received by banks:
- Current Deposit: Also called ‘demand deposit’, current deposit can be withdrawn by the depositor at any time by cheques. Businessmen generally open current accounts with banks. Current accounts do not carry any interest as the amount deposited in these accounts is repayable on demand without any restriction. The Reserve bank of India prohibits payment of interest on current accounts or on deposits up to 14 Days or less except where prior sanction has been obtained.
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Functions of Commercial Banks
The major functions performed by the commercial banks are:
1. Accepting Deposits
This is one of the primary functions of commercial banks. The commercial banks accept different types of deposits, the deposits may be broadly classified as demand deposits and time deposits. The former refer to the deposits which are repayable by the banks on demand by the depositors, while the time deposits are accepted by the banks for a fixed period of time before the expiry of which they don’t return the deposit. The demand deposits include the current account deposits and savings bank account deposits. These two types of deposits earn very low rate of interest as they can be withdrawn any time. In the case of savings deposit, the depositor is not allowed to withdraw more than a fixed number of times or amount over a period of time. The time or term deposits include the fixed deposit and recurring deposits. In the former a sum is deposited for a fixed period of time determined at the time of deposit and is never allowed to be withdrawn before the expiry of period of deposit.…
Read More »Customer Service Strategies in Banking Sector
Today, banking sector is seen as a catalyst in economic growth of a country and, lot is expected from the banking fraternity. The recognition of banking, as a tool for all inclusive growth by economists, financial planners, reformist etc has made it an important sector in the Government’s planning of economic growth. The banking sector in India is there fore witnessing tremendous changes because of political, social and economic changes that are taking place domestically and internationally.
The concept of banking, which was earlier restricted to accepting of deposits from public for the purpose of, has also undergone sea change. Today the banking sector is seen as a vehicle for all inclusive economic growth, social responsibility and equiv-distribution of national resources.
Today banks are wooing existing customers, prospective customers by offering new facilities, products, and services in order to retain/increase their base in market. The way the banking has changed, so has the customer changed. The customer of today is not what he was yesterday.…
Read More »Role of RBI (Reserve Bank of India) in Payment Systems
The Reserve Bank of India participates in the payment systems as a user of the system, as the service provider for various components of the systems and is also the regulator of the systems in many instances.
As a user, the RBI submits instruments for clearing in the cheque-based clearing operations. RBI also participates as a user in the Electronic Clearing Service (ECS)and EFT systems for making its own internal payments to its employees, vendor payments etc. Similarly, RBI transactions in Repo / Reverse Repo under LAF, Open Market Operations etc., would also be settled through the respective components of payment systems.
As a provider of payment system services, the RBI has taken many initiatives as can be seen under the evolution of payment systems in the country in the development and operationalisation of the systems. Under this, the clearing houses and ECS systems are managed by the Reserve Bank of India at 16 and 15 centres respectively and EFT systems are completely managed by RBI at the 15 centres.…
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