Financial Institutional services concept The Banking Institutions

      Commercial banks are a part of organized money market. They  are classified into scheduled and non-scheduled banks. Commercial banks were first nationalized in 1969.
 Commercial banks and their Development in India:-
            Commercial banks are part of an organized money market in India. Commercial banks mobilize savings in under and rural areas and make them available to large and small industrial and trading units mainly for working capital requirement.
            The organized banking system can be broadly categorized into 3 types.
      Central Bank of country/RBI.
      Commercial Banks.
      Co-operative banks\non-commercial banks.

The reserve bank of India is the supreme monetary and banking authority in the country. One has responsibility to control banking system in the country it keeps the cash reserves of all scheduled banks and hence known as the reserve banks.
Under the RBI act 1934 banks were again classified into scheduled banks and non-scheduled banks.
All commercial banks in India and foreign, regional rural banks, state co-operative banks or scheduled banks. Non scheduled banks are those which has not been included in the second schedule of RBI act 1934. At present there are three non scheduled banks in the country. Scheduled banks divided into co-operative banks and commercial banks. And commercial banks are based on profits, where as co-operative banks are based on co-operative principle.
Process of banking in India:-
          The Indian banking system had gone to a series of crises and consequent bank failures and its growth was quite slow during the first of half of the 20th century. The RBI and all banks nationalized on JULY 1969.
Nationalization of banks:-
          The nationalization of 14 major banks with deposit of rupees 50 crores or more in JULY 1969 was a historic and momentous event in the history of India. In 1980’s again the Govt. Took over other 6 commercial banks all together there are 20 nationalized banks those are additional to the state bank of India and its associates banks commonly called called SBI group which were taken over in 1955.

Some of the changes in commercial banks:-
Branch expansion :-
          Branch expansion received and impetus after nationalization of the commercial banks. The total number of bank offices increased from 8260 in June 1969 to 61059 in June 1993. In 2004 the number branches expended in 67280 since nationalization out of 52799 offices opened over 34500 offices have been setup in the unbanked and rural and semi urban areas.
Deposit mobilization:-
          Banks create public from deposits and savings and by rendering quality services and speed up, increase mobilize deposits at that time 1950-51 banks deposit are 820 crores credits are 580 crores. And 1990-91 generally are 116300 crores. And 2004-05 the bank deposits are 1719950 crores and credits are 1092090 cores.
Credit trends:-
          Credit trends also reveal that India’s banking structure is falling in line with the national policies of fast economic development. The credit worthiness has been redefined. Credit policy is being evolved to suit the growth of priority sectors that include agriculture, small producers, national transporters back word areas and the weaker section of the community. The credit guarantee scheme has been introduced to overcome the difficulties in the way of rapid increase in loans to small borrowers.
Lead bank scheme:-
          In order to extend credit facilities to the back ward areas and neglected sector, the scheme, each commercial bank assigned the lead role for specified districts. Lead banks carry out economic survey of the assigned districts with a view to identifying growth centers for the purpose of branch expansion and intensive development of credit to the priority sector.
Other developments:-
          Among the other important schemes in which commercial banks are participating, mention can be made of district industrial centre’s, farmer’s services, village adoption scheme, Export credit scheme etc.....
Functions of commercial banks:-       
          Commercial is the most important source of institutional credit in the market. We can divide functions of commercial into 2 groups
      Banking functions (primary).
      Non-banking functions (secondary).
Banking functions:-
(a)Acceptance of deposits:-
Bank accepts deposits from public. Deposits are the 3 types.
1.demand deposit.
2.Fixed deposit.
3.Recurring deposit.
1)Demand deposit:- Demand deposits can be in the from of current account or saving account. Those deposits are with draw able any time by the depositors by means of check.
2)Fixed deposit:-Fixed deposits are those deposits, which are with draw able only after a specified period.
          Fixed deposit earn a higher interest. From current deposits there is no interest or nominal interest. For saving deposit interest varies with time period and ranges from 6 to 9% interest.
3)Recurring deposits:-  In recurring deposits individuals deposits a fixed sum every month for a fixed period of a time.
(b)Advancing loans:- generally banks discourage loans for consumer purpose. Usually banks grant short term of medium term loans to meet the requirements of working capital.
          Loans generated by the bank can be secured or un secured loans. There are various ways in which bank generate loans to its customers. Those are as follows.
    Over draft.
    Direct loans.
    Cash credit.
Banks do not give loan in the form of cash. They make the customer open an account and transfer loan amount in the customers account.
(c)Credit creation:-
          It is remarked by Sayers that “Bankers are not merely purveyors of money but also manufacture of money”
(d)use of cheque system:-
          In modern commercial world the use of cheque for economic transaction is very useful.
Non banking functions:-
          There are 2 types
a.              Agency service :-
I.        The banks make the periodic payments of subscripted rent, insurance etc.. as per the standing order from customer.
II.      It also collects bills, cheques, demand drafts etc.. on behalf of its customers.
III.   It acts as a trustee for property of its customers.
IV.    It can helps in clearing and forwarding goods of its customer, issues, receipts etc.. on behalf of its customers.
b.  General utility services:-
I.        Safe deposit vault:-
                        Under this schemes lockers are provided by bank to its customers at a nominal.
II.      Sage custody:-
                        Shares, bills and other valuable documents are kept in safe custody. Banks return them when demanded by its customers.
III.   It provides traveler’s cheque and letters of credit to customer.
IV.    Customers maintain foreign exchange department and deal in foreign exchange.
V.      The bank under writes issue of shares and debentures of industrial concerns.
Objectives of commercial banks:-
I.        To remove the ownership and control of a few industrialists over the commercial banks and eliminate the use of bank funds by the directors.
II.      To prevent concentration of economic power in the hands of a few industrialists and business man who controlled the banks.
III.   To present the use of bank fund for anti social and speculative activities.
IV.    To mobilize savings and channels them for productive purpose in accordance with plans and priority.
V.      To help in the most effective development of national resources.
Public sector banks:-
            Public sector banks dominate commercial banking in India. The Govt of India entered commercial banking when it took over the imperial bank of India in 1955 and converted it into the SBI of India on 1st July 1955. Now the SBI has seven subsidiary banks. These banks are collectively known as SBI group.
            In July 1060, the GOI took an important step of nationalizing 14 banks. In April 1st 1980 6 more banks were nationalized increasing the number of nationalized banks 20.
            In October 1975 another category was added to the public sector banks in the form of regional rural banks. These banks have been set up with the objective of providing credit and other facilities for agriculture and other productive activities in rural area these banks are public productive activities in rural area these banks are public sector banks as 50% of their capital is provided by the central Govt, 15 % by the state government and the central Govt, 15% by the state Govt and the remaining balance 35% by sponsoring public sector commercial bank.

Public sector banks are further classified into ;
I.      State bank of India
II.   Nationalized banks.
III. Regional rural banks.
State bank of India:-
            The public sector commercial banking in India started with setting up of state bank of India in 1955 these banks taken together are known as SBI group. Thus the group consists of ...
 State bank of India.
state bank of Hyderabad
state bank of Patiala.
state bank of Travancore.
state bank of Bikaner & Jaipur.
state bank of Mysore.
state bank of saurashtra.
state bank of Indore.
            The state bank of India was the first one to make a public issue in 1993-94. At present bank has authorized capital of 1000 crores and the issued subscribed and paid up capital of the bank is more then 474 crores.
Nationalized banks:-
            Another important step towards public sector banking was taken by july 1069 when 14 banks with a deposit base of 50 crores or more were nationalized again in 1980 6 more banks were nationalized and total no.of banks nationalized 20 these banks were...
Bank of boroda.
punjab national bank.
canara bank.
central bank of India.
Indian bank
Indian overseas bank
syndicate bank
Uco bank.
Allahabad bank.
united bank of India.
oriental bank of commerce.
corporation bank.
Private sector banks:-
            In the post independence period, it was noticed that the private sector banks controlled by industrial houses or business were ignoring the rural areas and agriculture sector. This led to the setting up of the state bank of India in 1955.
            However, private sector banks continued to operate in the banking sector some of the leading private sector banks which have been operating during the period are –
      The vysya bank ltd
      The federal bank ltd
      The jammu & Kashmir bank ltd
      The south Indian bank ltd
      The united western bank ltd
      The karur vysya bank ltd
      Karnataka bank ltd
      Bank of Madura ltd
      The catholic Syrian bank ltd
      Tamilnad mercandile bank ltd
      The laxmivilas bank ltd
      The sangli bank ltd
      The dhana lakshmi bank ltd
      The nedungadi bank ltd
      Lord Krishna bank ltd
      Bharat overseas bank ltd
      New phase in private sector banking
The economic reforms initiated in th 1991 the process of reforming the banking industry was initiated in 1991 with the setting up of the Narasimham committee which focused on ways to –
     Vijaya bank
     Dena bank
     Bank of maharastra
     Andhra bank
     Punjab sind bank
     New bank of India
Regional Rural Banks:-
       Regional rural banks were setup on the recommendations of a working group headed by M.narasimhan in 1975. The objective was to provide credit and other facilities to small and marginal farmers, agricultural labors and artisans, the need was left as commercial banks and co-operative banks were not able to serve those segments adequately these banks are regional banks with rural orientation. There are scheduled banks which are governed by regional rural banks act 1976.
Distinction form commercial banks:-
1.       The area of a RRB is limited to only a region, comprising of some districts of a state.
2.       These banks grant loans only to the rural agriculture sector and small artisans.
3.       The lending rates would be some what lower than commercial banks.
4.       These are intended to eliminate money lenders.
5.       These banks are to supplement the effort of the vo-operative banks.
6.       Commercial banks sponsor RRB’s
            At present RRB’s working in all states except in chilli.
Improve the structure, organization, functions and procedures of financial sector at large.
            As a result of the new policy on private sector banks the following private sector banks started their operations.
    Indus ind bank ltd
    The UTI bank ltd
    HDFC bank ltd
    The ICICI bank ltd
    Global trust bank ltd
    Centurian bank ltd
    The times bank ltd
    The development co-operative bank ltd.
    The bank of Punjab ltd.
      As compared to old private sector banks the new private sector banks are showing much better performance. With in a short period that they have been in operations, the results have been excellent.
Non performing asset:-[NPA’s]
       A non-performing asset basically means an asset which has ceased to generate income for the bank. A non performing asset is an advance were-

I.        Interest or installment of principal remain overdue for a period of more than 180 days in respect of a term loan.
II.      The bill remains overdue for a period of more than 180 days incase of the bills purchased and discounted.
III.   The account remains ‘out of order’ for a period of more than180 days in respect of an overdraft/cash
IV.    Interest or installment of principal remain overdue for two harvest seasons but for a period of not exceeding two half years in the case of an advance granted for agricultural purpose.
V.      Any amount to be received for a period of more than 180 days in respect of other accounts.
VI.    In order to move closer to international best practice and to ensure greater transparency the duration for treating an asset an asset as NPA is proposed to be reduced from 180 days to 90 days with effect from march 31st , 2004.
Co-operative banks:-
       Co-operative banks are an important constituent of Indian financial system. Co-operative banks are a part of the vast and powerful super structure of co-operative institutions which are engaged in the tasks of production, processing, marketing, distribution, servicing and banking in India.
       In rural areas as far as agriculture and related activities were concerned the supply of credit , particularly institutional credit and un organized money market agencies such as money lenders were providing credit often at high rates of interest but co-operative banks providing reasonable rates of interest.

       Today co-operative banks continue to be a part of a set of institutions which are engaged in financing, rural and agricultural development this setup comprises the RBI, NABARD, commercial banks, regional rural banks and co-operative banks.
Structure of co-operative banks
State co-operative        state land development       Urban co-operative
      banks                                          banks                        banks
central co-operative        central land development     
  bank                                             banks
Interest rates:-
       Interest is the amount which is paid by a borrower for using funds belonging to someone else. It is a transaction between surplus and deficit units. The surplus units lend money because they earn an attractive amount for parting with in interest involves a rate at which funds are borrows this rate is need based and dependent on market position of demand and supply of funds. Therefore an interest rate is to be paid to take a loan.

“according to Alfred.Marshall – Interest in th price paid for abstinence of money”
Different kinds of interest rates:-
Ceiling rates of Interest:-
       It is also the maximum rate of interest fixed by any authority. In India the ceiling rate is usually fixed by the GOI and RBI. It depends on the face value of the financial instrument. It is fixed according to the face value of an instrument.
Coupon rate of interest:- 
       It is the rate of interest paid on the face value of a brand or debenture. A person who purchases a long term bond from company expects an interest in th form of coupon.
Important aspect of interest:-
Time aspect of interest maturity date:-
       Interest may be determined from the point of view of time or maturity date. It is paid on a long term basis, or a medium term or a short period of time.
Long term interest:-
       Long term interest rates comprise of a period usually above 5 years or above 10 years
Medium term interest:-
       Medium term interest rate may vary from period of one year to 5 years.
Shor term interest:-
       Short term interest rate vary per day, per week, per mont, per year and the maximum number of years for which it may ber consigned can be said to be three years.
Definition and function of capital market:-
       Capital market refers to market that deals in developmental finance through the instruments of shares, debentures and long term loans the new issue market and financial corporations are the main institutions of capital market.
       “ capital market is concerned with the investment of funds in long term securities”
The capital market is concerned with long term finance
“capital market is concerned with long term finance “ capital market refers to the facilities and institutional arrangements for the borrowing and lending of long-term funds”
Functions of the capital market:-
Mobilize savings:-
       The capital market in India mobilize savings of the members of public and industrial concern. Such savings are then utilized for the economic development of the country.
Leading of funds:-
       The capital market facilitates to lend funds to various industrial concerns. The industrial concern can borrow long term funds from various financial institutions.
Direct collection of funds:-
       The primary market it possible to collect funds from the market. Interested individuals or corporate bodies subscribe for the issue of shares and debentures.
Easy liquidity:-
       The secondary market facilitates for the investors to sell off their securities in the form of shares and debentures and convert their liquid cash.
Acts as a link:-
       The capital market acts as link between those who save and who are interested in investing these save and who are interested in investing these savings.
Profitable use of funds:-
       Capital markets make it possible to make productive and profitable use of funds. This is because the funds, which are lying
Idle with the owners, are utilized by industrial enterprises in a profitable manner, thus bringing rewards to the investors, users and the society.
Indian capital market before independence:-
       The Indian capital markets in India was not properly developed before independence.
a.       The growth of the securities market was very much hampered since most of the English enterprises in India looked to the London market rather than to the Indian capital market.
b.       The total number of companies was small and the number of securities traded on stock exchange was still smaller.
c.        Individual investors were very few and limited in the urban and rural areas. Besides the government placed many restrictions on the institutional savers such as banks and insurance companies and naturally they had to prefer government securities and only to a smaller extent debentures.
d.       There were no specialized intermediaries and agencies to mobilize the savings of  the public and channeling them to investment. Such institutions were start only after independence.
Indian capital market today:-
       The Indian capital market in last 2 decades has witnessed significant development.
       The Indian capital market today has 7500 listed companies and over 23 stock exchanges. In size it is second to USA in terms of availability of industrial securities.
            All these years the Indian capital market was insulted from international influence. However due to new economic policy Indian capital market has opened its doors to foreign capital and foreign investment.