Commercial Banking : Structure and Evolution.

Introduction Banking is a lifeline of an economy. Commercial banks plays a very important role in our economy. They are the heart of our financial structure. Banks lending, investing and related activities facilitate the economic processes of production, distribution and consumption.

What is Bank? It is institution which took deposits from public and lent money. Institutions involved needed special supervisory treatment for the protection both of the public and of the financial system as whole. Whole ranges of changes are taking place. Role of Banks – Indian banking has aided the economic development during the last 70 years. It plays a positive role in economic development of a country as repositories of community’s savings and as purveyors of credit. The activities of commercial banking has grown in multi- directional ways as well as multidimensional manner. Banks have been playing a catalytic role in area development, backward area development, extended assistance to rural development all along helping agriculture, industry, international trade in a significant manner.

Commercial Banking and Risk Management The banks are committed to healthy credit culture that recognizes the need to ensure high assets quality. Improvement in the existing measures in the risk management process is receiving special attention. A major step in this direction is the introduction of the revised in-house Credit Risk Assessment (CRA) system, which captures financial risks as also other types of risks, such as industry risk in a borrowal account. The system has well stabilized, and covers a major part of the banks large commercial and industrial loan portfolio. The banks credit portfolios as well diversified cutting across various industries with exposures in each category restricted to reasonable levels. Exposures to different industries are within limits set on the consideration of management of different risks and are kept under close monitoring. Even as the Reserve Bank of India took several steps to widen the financial infrastructure by taking initiative to establish several new institutions such as those for providing long-term finance to industires, an important banking development in 50’s was the conversion of the Imperial Bank of India into SBI.

Functions of Commercial Banks Primary Functions Secondary Functions. Primary Functions- Receiving of Deposits Time Liabilities Demand Liabilities Lending of Funds

Time Liabilities Fixed Deposit Recurring Deposit Miscellaneous types of Deposit Cash Certificates. Demand Liabilities Saving Bank Account Current Account Lending of Funds Overdraft Cash Credit Discounting Bills of Exchange Loans and Advances Venture Capital Guarantees

Secondary Functions. Agency Services Payment of Rent, Insurance Premium etc. Collecting of Cheques Dealing in foreign exchange. Acting as Trustees General Utility Services. Safe Custody Deposits. Safe Deposit Locker Facilities Transfer of Money Issue of Traveller’s cheque, Mail Transfer, etc. Merchant Banking Teller System Automatic Teller Machine Credit Cards Gift Cheques Executor & Trustee. Miscellaneous.

Credit Management Introduction Advances play an important part in the gross earnings and net profits of commercial banks, and promote the economic development of the country. The basic function of credit, whether provided by scheduled commercial banks or other sources, is to enable individuals and business enterprises to purchase goods / or services ahead of their ability or desired to pay. Demand for credit by business firms arises because of the time consuming nature of the productive and distributive processes. Consumers demand credit to acquire goods in advance for which they pay in future.

Credit Management It is concerned mainly with using the banks resources both productively and profitability to achieve a preferable economic growth. At the same time, it also seeks a fair distribution among the various segments of the economy so that economic fabric grows without any hindrances as stipulated in the national objectives, in general and the banking objectives, in particular. Credit management is concerned with planning, selection, analysis, budgeting, designing and implementation of schemes and plans.

Objectives of Credit Management Sectoral flow of credit. Giving support to agriculture, industry and exports. Ensuring productive utilization of funds. Maximization of profits. Monitoring the end use of funds at the micro level. Minimizing risks and ensuring safety. Recovery and flow of funds productively. Increasing the earnings of the bank. Credit planning and control at the macro level.

Importance