01-05-2013, 04:53 PM
COMMERCIAL BANKING
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INTRODUCTION
Banking occupies one of the most important positions in the modern economic world.
It is necessary for trade and industry. Hence it is one of the great agencies of commerce.
Although banking in one form or another has been in existence from very early times,
modern banking is of recent origin. It is one of the results of the Industrial Revolution and
the child of economic necessity. Its presence is very helpful to the economic activity and
industrial progress of a country.
Meaning
A commercial bank is a profit-seeking business firm, dealing in money and credit. It is a
financial institution dealing in money in the sense that it accepts deposits of money from the
public to keep them in its custody for safety. So also, it deals in credit, i.e., it creates credit by
making advances out of the funds received as deposits to needy people. It thus, functions as a
mobiliser of saving in the economy. A bank is, therefore like a reservoir into which flow the
savings, the idle surplus money of households and from which loans are given on interest to
businessmen and others who need them for investment or productive uses.
Definition of a Bank
The term ‘Bank’ has been defined in different ways by different economists. A few definitions
are:
According to Walter Leaf “A bank is a person or corporation which holds itself out to
receive from the public, deposits payable on demand by cheque.” Horace White has defined
a bank, “as a manufacture of credit and a machine for facilitating exchange.”
According to Prof. Kinley, “A bank is an establishment which makes to individuals such
advances of money as may be required and safely made, and to which individuals entrust
money when not required by them for use.”
TYPES OF BANKS
Broadly speaking, banks can be classified into commercial banks and central bank.
Commercial banks are those which provide banking services for profit. The central bank has
the function of controlling commercial banks and various other economic activities. There
are many types of commercial banks such as deposit banks, industrial banks, savings banks,
agricultural banks, exchange banks, and miscellaneous banks.
Fulfillment of Socio-Economic Objectives
In recent years, commercial banks, particularly in developing countries, have been called
upon to help achieve certain socio-economic objectives laid down by the state. For example,
the nationalized banks in India have framed special innovative schemes of credit to help
small agriculturists, village and cottage industries, retailers, artisans, the self employed
persons through loans and advances at concessional rates of interest. Under the Differential
Interest Scheme (D.I.S.) the nationalized banks in India advance loans to persons belonging
to scheduled tribes, tailors, rickshaw-walas, shoe-makers at the concessional rate of 4 per cent
per annum. This does not cover even the cost of the funds made available to these priority
sectors. Banking is, thus, being used to subserve the national policy objectives of reducing
inequalities of income and wealth, removal of poverty and elimination of unemployment in
the country.