INDIAN FINANCIAL PPT OF BILASPUR UNIVERSITY BILASPUR CG

2. COMMERCIAL BANKS
 MEANING
 FUNCTIONS
 MANAGEMENT AND INVESTMENT POLICIES
 RECENT TRENDS IN INDIAN COMMERCIAL BANKS
NON BANKING FINANCIAL INSTITUTIONS
 CONCEPT
 MEANING
 ROLE IN ECONOMIC DEVELOPMENT

3. Meaning : Commercial banks are
that financial units which accepts
deposits from people and also
advances loans for consumption
and investment purpose.
Now a days there are many other
functions also performed by the
commercial banks

4.  Accepting deposits : Commercial banks
accepts deposits of people under saving
account, current account and fixed deposit
account. These deposits are further
classified as demand deposits and fixed
deposits. For demand deposits no interest is
provided by the banks to the depositor but
under fixed deposit system bank provides
interest to the depositor. According to the
period longer the period higher will be the
rate of interest.

5.  Providing loans : Commercial banks advance
loans to the people to fulfill their needs of
money. Loans may be granted in the form of
cash credit, ordinary loans, overdrafts,
discounting of bills etc.
 Credit creation- it refers to the creation of
demand deposits with the commercial banks on
the basis of their cash reserves. Often the
deposits are created many times more than the
cash reserves.

6.  Transfer of funds - commercial banks are also able to
transfer funds of a customers to other customers
account through the cheques, drafts credit card, cash
order etc.
 Overdraft facilities- commercial banks allow a customer
to draw cheques for a sum which is greater than the
balance lying in his account. This is known as overdraft
facilities. This facility is given only in current accounts
deposits.
 Discounting bills of exchange- A bill of exchange is a
document acknowledging an amount of money owned in
consideration for goods received. A commercial bank
discounts such bill of exchange by detecting some
commission

7.  Purchase and sale of shares and
securities on behalf of customers
 Collection of dividends and interest on
shares debentures on behalf of
customers
 Provision of income tax consultancy and
acceptance of income tax payments of
customers etc.
 Transfer of funds.
 Collection of funds.

8.  Issuing traveler's cheque and
gift cheque.
 underwriting activities.
 purchase and sale of foreign
exchange.
 safe custody of valuable goods
in lockers.

9.  INTRODUCTION -The banker while making
advances/investments has to observe certain
important principles.They are known as
principles of good lending.The bankers have
to follow these principles when appraising
the proposal for advancing loans.

10. A bank is a dealer in other people's money. So,
it cannot indulge in reckless risk. It should
ensure the safety of funds while taking decision
regarding landings and investments. One of the
important risks involved in lending money is the
credit risk i.e., the possibility of borrowers not
repaying the money on due dates.

11. The commercial banks have to follow the guidelines issued by
RBI for investments.The following are the motives of investment
policy of RBI.
1. Safety and security:Safety and security of the funds which
are deposited by the customers of the bank is very important
in banks.The money which is deposited by the customers
in banks should be safe and they should get back whenever
they require.The banks should see that the money which
is deposited in commercial banks should not be misused by
the banks through its unscrupulous management or
mismanagement and lead to loss and consequently lead to
bankruptcy. Hence the RBI will guide the commercial banks
through its monetary policies.

12. 2. Liquidity of funds in banks : Commercial
banks have to maintain liquidity of funds
deposited by the depositors of the banks.The
banks should see that the money deposited is
allowed by the banks to withdraw whenever
the customers require during working hours
of the bank.This will ensure more confidence
among the customers of the bank.

13. 3. Profitability of the bank:The soundness of
any bank is measured by its profitability.The
customers will come forward to deposit their
funds with banks on the basis of the
profitability of the banks. Hence the banks
have to earn profit.

14. The liquidity is determined by the top management
of the bank on the basis of the nature of the business
conditions in a country.This is also guided by the
central bank of that country to ensure liquidity in a
economy.The extent of liquidity is ensured on the
basis of the following factors :
1.The size of liquidity reserves.
2. Banking habits of the people.
3. Well organized money market.

15.  Call money market
 Money at short notice.
 Collateralized borrowing and lending
obligation:introduced in 2003 by CCIL, its
secured and wide based-1day to 364 days.
 Liquidity Adjustment Facility: Introduced in
2000, comprises repo and reserve repo- 1day
to 14 days.
 Other money market and capital market
instruments.

16.  Diversification
 Safety of investment
 Shiftability
 Return on the portfolio.
 Productivity
 Stability
 Solvency
 Debtor evolution
 Growth
 Sharing credit information

17.  The Indian banking industry is not lagging
behind, it has started providing services
electronically over the internet. These services
rendered over electronic media include:
 Electronic Payment Services – E Cheques
 Real Time Gross Settlement (RTGS)
 Electronic Funds Transfer (EFT)
 Electronic Clearing Service (ECS)
 Automatic Teller Machine (ATM)
 Point Of Sale Terminal
 Tele Banking
 Electronic Data Interchange (EDI)

19.  RBI is the service provider of EFT.
Various
Modes Of EFT
NEFT
RTGS
IMPS

20.  Introduced in India since March 2004
 The RTGS system is maintained and operated by the
RBI

21.  Used to make bulk payments/receipts of a
similar nature
Electronic
Services in
Banking
Electronic Fund
Transfer (EFT)
Electronic
Clearing Service
(ECS)
ECS - Credit
ECS - Debit

22.  Withdraw money 24 hours a day 7 days a week
 ATMs can be used for payment of utility bills, funds
transfer between accounts, deposit of cheques and cash
into accounts, balance enquiry etc.

26.  I t is a business entity, either incorporated
under companies act, 1956 or not, which
devotes its resources to provide financial
services to the society.
 It is a financial institution, that doesn’t have
a full banking license, & it is not supervised
by regulatory authority. But it facilitates,
bank related financial services, such as
investment, contractual saving & market
brokering.

27. But obviously NBFC’s are directly regulated
and controlled by RBI.
According to sec. 45 I (f) of R.B.I ACT, NBFC is
defined as follows:
1. A financial institutions, which is a company.
2. A non banking institutions, which is a
company and which has its principal business
of receiving deposits , under any scheme or
arrangement.
3. Such non-banking institutions with a previous
approval of central govt. and by notification in
official gazette is being operated.

28. The activities of financial institutions are various
which may be specialized on the basis of their
activity.
A. Regulatory
B. Intermediaries.
C. Non-intermediaries
D. Others.
The banking and non banking institutions come
under the same group of financial
intermediaries.

30.  Economic development is defined as the
persistent increase in real per capita
income of a country. There is a
considerable debate over the question
that whether the financial institutions help
foster economic growth or rapid growth
results in the development of financial
sector. Nonetheless, NBFIs aid economic
development in following ways :-

31.  The proponents of NBFIs advocate their benefit
relating to mobilization of resources. NBFIs
convert leakages (savings) into injections
(investment).This mobilization of resource
eliminate if not, lessens the intra-regional
income and asset distribution inequalities. If
NBFIs are not present in the financial system
the useful application of savings into investment
might remain a dream. One striking aspect of
NBFIs is that they are usually development-
oriented and not merely profit-maximizing

32.  Commercial banks are reluctant to sanction
long-term credit to commerce and industry. This
is primarily due to maturity-mismatch i.e. they
are holding short-term repayable deposits which
are not comparable to long-term credit. This is
where NBFIs come into action. The large scale
manicuring sector and mega infrastructure
projects are largely dependent on the availability
of credit from NBFIs which fosters economic
development. Unlike commercial banks, they
finance corporations through equity.

33.  Employment generation is one of the
prime objectives of any macroeconomic
policy. To achieve full employment in the
economy; governments earmark huge
amounts to be disbursed through NBFIs to
private sector. This influx of funds from
public sector to private sector via NBFIs
spawns business activities thus
minimizing unemployment rate.

34.  NBFIs form a significant part of financial
markets. They underwrite public issues of
corporations. They provide much needed
capital to new start-ups through venture
capital. They are the source of liquidity in
these markets. The effective functioning of
financial markets largely depends on
NBFIs

35.  Not all NBFIs are development-oriented
but among them which enjoy this
distinctive feature are recipients of the
bulk amount of grants and aids from
country governments and donor
agencies. Khushhali Bank of Pakistan, for
example receives grants from Asian
Development Bank (ADB) in this regard.

36.  Some NBFIs are dedicated to a
particular sector. Provision of funds to
the sectors like housing, agriculture,
industry and SMEs are carried out
through these. They act as a conduit of
transferring public capital to private
sector.
 In a nutshell, NBFIs are inevitable for
sustainable economic development.