UNIT 3
COMMERCIAL BANKS
YOGINI KULKARNI
TYPES OF COMMERCIAL BANKS
• Public Sector Banks
• Private Sector Banks
• Foreign Banks
FUNCTIONS OF COMMERCIAL BANKS
• Primary functions
Accepts deposit
Provides loan and advances
Credit cash
• Secondary functions
Discounting bills of exchange
Overdraft facility
Purchasing and selling of the securities
Locker facilities
Paying and gathering the credit
SOURCES OF BANKS INCOME,
• Savings Account
• Loan Interest
• Credit Card Charges
• Auction of Assists
• Trading financial instruments in to financial market
• Charges for financial advise and services
• Interbank lending
• Interchange fee
• ATM
• Locker facility
• FD accounts
• Insurance
• Penalty Charges
• Mobile banking
CREDIT CREATION IN BANKS
• Two Pivotal Aspects of Credit Creation
• Liquidity
• The banks are bound to pay cash to their depositors when they
exercise their right to demand cash against their depositors.
• Profitability
• The banks always look for profit. They are profit-driven enterprises.
This is the reason why a bank must grant loans in such a manner that
will help to earn higher interest than what it pays on its deposits.
• The bank’s credit process is based on the assumption that at any
time only a few customers will genuinely need cash. Also, on the
other hand, the banks assume that all their customers will not turn up
demanding cash against their deposits at one point in time
CONSUMER & COMMERCIAL CREDIT
ANALYSIS
• Credit analysis is a process undertaken by lenders
to understand the creditworthiness of a prospective
borrower, meaning how capable (and how likely) they are
of repaying principal and interest obligations.
• Commercial Credit Analysts analyze credit data and financial
statements of individuals or firms to determine the degree of
risk involved in extending credit or lending money. Prepare
reports with credit information for use in decision making.
ASSET & LIABILITY MANAGEMENT,
• Asset/liability management is the process of managing the
use of assets and cash flows to reduce the firm’s risk of
loss from not paying a liability on time. Well-managed assets
and liabilities increase business profits. The asset/liability
management process is typically applied to bank loan
portfolios and pension plans. It also involves the economic
value of equity
CONSOLIDATION MEANING
• To consolidate (consolidation) is to combine assets, liabilities,
and other financial items of two or more entities into one. In
the context of financial accounting, the
term consolidate often refers to the consolidation of financial
statements wherein all subsidiaries report under the umbrella
of a parent company. Consolidation also refers to the union of
smaller companies into larger companies through mergers
and acquisitions (M&A).
PROJECT LINE EXPANSION
• Product line extension is a marketing strategy that uses an
existing brand to introduce a new item into the same product
line. The new item may differ slightly from what a company
already offers. Here are a few ways the product may differ:
• Flavor
• Color
• Form
• Ingredients
• Packaging size
UNIT BANKING VS BRANCH BANKING
Point of Branch Banking
Unit Banking
Differences
Operational
Less Operational freedom. More Operational freedom.
freedom
Loans and Loans and advances are based on Loans and advances can be
advances merit, irrespective of status. influenced by authority and
power.
Financial resources Delay in Decision-making as they Time is saved as Decision-
have to depend on the head office. making is in the same branch.
Funds Funds are transferred from one Funds are allocated in one
branch to another. branch, and no support from
other branches.
Cost of supervision High Less
Mismanagement It exists as improper use of power, Proper checks are taken up. No
and authority exist misuse of Mismanagement
Locality, Resources, Shared by the bank with its branches Used for the development of the
Funds, Profits bank
Deposits and Deposits and assets are diversified, Deposits and assets are not
COMMERCIAL BANKS AND ECONOMIC
DEVELOPMENT
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