Bank Management

Definition of Development Banks

Development banks are those financial institutions engaged in the promotion and development of industry, agriculture and other key sectors.

In the words of A.G. Kheradjou “A development bank is like a living organism that reacts to the social-economic environment and its success depends on reacting most aptly to that environment”. Kheradjou assigns an important task to the development banks. He feels that these banks should react to the socio-economic needs. They should satisfy the developmental needs of the economy and their success is linked to the satisfactory growth of the economy.

In the views of William Diamond “A development bank has the opportunity to promote enterprises i.e.  … Read the rest

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Narasimham Committee on Banking Sector Reforms (1998)

In spite of the optimistic views about the growth of banking industry in terms of branch expansion, deposit mobilization etc, several distortions such as increasing NPAs and obsolete technology crept into the system, mainly due to the global changes occurring in the world economy. In this context, the finance ministry of Government of India appointed Mr. M. Narasimham as chairman of one more committee, this time it was called as the committee on banking sector reforms. The committee was asked to “review the progress of banking sector reforms to the date and chart a programme on financial sector reforms necessary to strengthen India’s financial system and make it internationally competitive”.… Read the rest

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Recommendations of Narasimham Committee Report (1991)

The Narasimham committee (1991) assumed that the financial resources of the commercial banks from the general public and were by the banks in trust and that the bank funds were to be deployed for maximum benefit of the depositors. This assumption automatically implied that even the government had no business to endanger the solvency, health and efficiency of the nationalized banks under the pretext of using banks funds for social banking, poverty eradication, etc. Accordingly, the Narasimham committee aimed at achieving three major changes in the banking sector in India;

  • Ensuring a degree of operational flexibility.
  • Internal autonomy for the banks in their decision making process.
… Read the rest
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Different Products and Services Offered by Banks

Broad Classification of Products Offered by Banks

The different products in a bank can be broadly classified into:

  • Retail Banking.
  • Trade Finance.
  • Treasury Operations.

Retail Banking and Trade finance operations are conducted at the branch level while the wholesale banking operations, which cover treasury operations, are at the head office or a designated branch.

Retail Banking:

  • Deposits
  • Loans, Cash Credit and Overdraft
  • Negotiating for Loans and advances
  • Remittances
  • Book-Keeping (maintaining all accounting records)
  • Receiving all kinds of bonds valuable for safe keeping

Trade Finance:

  • Issuing and confirming of letter of credit.
  • Drawing, accepting, discounting, buying, selling, collecting of bills of exchange, promissory notes, drafts, bill of lading and other securities.
… Read the rest
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Challenges for Indian Banking System under Basel II

A feature, somewhat unique to the Indian financial system is the diversity of its composition. We have the dominance of Government ownership coupled with significant private shareholding in the public sector banks and we also have cooperative banks, Regional Rural Banks and Foreign bank branches. By and large the regulatory standards for all these banks are uniform.

Costly Database Creation and Maintenance Process: The most obvious impact of BASEL II is the need for improved risk management and measurement. It aims to give impetus to the use of internal rating system by the international banks. More and more banks may have to use internal model developed in house and their impact is uncertain.… Read the rest

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Three Pillars of the Basel II Accord

While Basel I framework was confined to the prescription of only minimum capital requirements for banks, the Basel II framework expands this approach not only to capture certain additional risks in the minimum capital ratio but also includes two additional areas, viz. Supervisory Review Process and Market Discipline through increased disclosure requirements for banks.

The main  purpose of Basel II framework  is to create an international standard that banking regulators can use when creating regulations about how much capital banks need to put aside to guard against the types of financial and operational risks banks face while maintaining sufficient consistency so that this does not become a source of competitive inequality amongst internationally active banks.  … Read the rest

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