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Operations of Commercial Banks

06-NOV-2015 15:45

    Commercial banks form a prominent part of the country’s Financial Institution System. Commercial Banks are those profit making institutions which accept deposits from general public and gives money (loan) to individuals like household, entrepreneurs, businessmen etc. The prime objective of these banks is to earn profit in the form of interest, commission etc. The operations of all these commercial banks are regulated by the Reserve Bank of India, which is the central bank and supreme financial authority in India.

    The main source of income of a commercial bank is the difference between these two rates which they charge to borrowers and pay to depositors. Some commercial banks in India are – ICICI Bank, State Bank of India, Axis Bank, and HDFC Bank, Punjab national bank, Central bank of India.

    At present, there are 27 Public Sector Banks in India including SBI (plus its 5 associates) and 19 nationalized banks. Further, there are two banks which have been categorized by RBI as “Other Public Sector Banks”. IDBI and Bhartiya Mahila Bank come under this category.

    Classification of commercial banks

    1. Scheduled Banks:- Banks which have been included in the Second Schedule of RBI Act 1934. They are categorized as follows:
    2. Public Sector Banks:- These are those banks in which majority of stake is held by the government. Eg. SBI, PNB, Syndicate Bank, Union Bank of India etc.
    3. Private Sector Banks:- These are those banks in which majority of stake is held by private individuals. ie. ICICI Bank, IDBI Bank, HDFC Bank, AXIS Bank etc.
    4. Foreign Banks:- These are the banks with Head office outside the country in which they are located. Eg. Citi Bank, Standard Chartered Bank, Bank of Tokyo Ltd. etc.
    5. Non scheduled commercial Banks:- Those banks which are not added in the Second Schedule of RBI Act 1934.

    Functions of Commercial Banks

    Primary Functions of Commercial Banks:

    Deposit Acceptance:

     Being a short term credit dealer, the commercial banks accept the savings of public in the form of following deposits:

    1. Fixed Term deposits
    2. Current A/c deposits
    3. Recurring deposits
    4. Saving A/c deposits
    5. Tax saving deposits
    6. Deposits for NRIs

    Lending Money:  A second major function is to give loans and advances and thereby earn interest on it. This function is the main source of income of the banks.

    Overdraft facility: its permission to a current A/c holder of withdrawal more than to what he has deposited in his/her account.

    Loans & Advances: A kind of secured and unsecured loans against some kind of security. Discounting of bill of exchange: in case a person wants money immediately, he/she can present the B/E to the respective commercial bank and can get it discounted.

    Cash Credit:

    It is a facility to withdraw a certain amount of money on a given security.

    Secondary Functions of Commercial Banks:

    Agency functions: Bank pays on the behalf of its customers as an agent and gets  fee for agency functions such as:

    1. Payment of taxes, bills
    2. Collection of funds through bills, Cheques etc.
    3. Transfer of funds
    4. Sale-purchase of shares and debentures
    5. Collection/Payment of dividend or interest
    6. Acts as trustee & executor of properties
    7. Foreign exchange Transactions
    8. General Utility Services: locker facility

    Credit Creation: It is one of the most important functions of commercial banks. A bank creates credit on the basis of its primary deposits. It further lends the money to common borrowers/ corporate/investors .This landed money is deposited by those people to have excess money and want to earn a fix return on their money. Commercial banks charges more rate of interests from customers (borrowers) as compared to given to the depositors of the money.

    List of Commercial Banks in India

    SBI & Associates:

    1. State Bank of Bikaner & Jaipur
    2. State Bank of Hyderabad
    3. State Bank of Mysore
    4. State Bank of Patiala
    5. State Bank of Travancore

    Nationalized Banks:

    1. Allahabad Bank
    2. Andhra Bank
    3. Bank of Baroda
    4. Bank of India
    5. Bank of Maharashtra
    6. Canara Bank
    7. Central Bank of India
    8. Corporation Bank
    9. Dena Bank
    10. Indian Bank
    11. Indian Overseas Bank
    12. Oriental Bank of Commerce
    13. Punjab & Sind Bank
    14. Punjab National Bank
    15. Syndicate Bank
    16. UCO Bank
    17. Union Bank of India
    18. United Bank of India
    19. Vijaya Bank

    Foreign Banks:

    1. ABN Amro Bank
    2. Abu Dhabi Commercial Bank
    3. American Express Banking Corporation
    4. AB Bank
    5. Bank International Indonesia
    6. Bank of America
    7. Bank of Bahrain & Kuwait
    8. Bank of Ceylon
    9. Barclays Bank
    10. BNP Paribas
    11. Chinatrust Commercial Bank
    12. Citibank
    13. DBS Bank
    14. Deutsche Bank
    15. Hongkong & Shanghai Banking Corporation
    16. JP Morgan Chase Bank
    17. Standard Chartered Bank
    18. UBS AG

    Other Public Sector Banks:

    1. IDBI Bank
    2. Bhartiya Mahila Bank

    Here it can be conclude that network of commercial banks will play a prominent role in the economic development coming years, especially after the introduction of plan of financial inclusion in the whole country.

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