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COMMERCIAL BANK

EXECUTIVE SUMMARY
Co-operative movement is quite well established in India. The first legislation on co-operation was passed in 1904. In 1914 the Maclagan committee envisaged a three-tier structure for Commercial Banking viz. Primary Agricultural Credit Societies (PACs) at the grass root level, Central Commercial Banks at the district level and State Commercial Banks at state level or Apex Level. The first urban Commercial Bank in India was formed nearly 100 years back in Baroda. Co-operative Institutions are engaged in all kinds of activities namely production, processing, marketing, distribution, servicing, and banking in India and have vast and powerful superstructure. Commercial Banks are important cogs in this structure. In the beginning of 20th century, availability of credit in India, more particularly in rural areas, was almost absent. Agricultural and related activities were starved of organized, institutional credit. The rural folk had to depend entirely on the moneylenders, who lent often at usurious rates of interest. The Commercial Banks arrived in India in the beginning of 20th Century as an official effort to create a new type of institution based on the principles of co-operative organization and management, suitable for problems peculiar to Indian conditions. These banks were conceived as substitutes for moneylenders, to provide timely and adequate short-term and long-term institutional credit at reasonable rates of interest.

COMMERCIAL BANK

In the formative stage Commercial Banks were Urban Co-operative Societies run on community basis and their lending activities were restricted to meeting the credit requirements of their members. Mehta Bhansali Committee first spelled out the concept of Urban Commercial Bank in 1939. Provisions of Section 5 (CCV) of Banking Regulation Act, 1949 (as applicable to Cooperative Societies) defined an Urban Commercial Bank as a Primary Commercial Bank other than a Primary Co-operative Society was made applicable in 1966. With gradual growth and also given Philip with the economic boom, urban banking sector received tremendous boost and started diversifying its credit portfolio. Besides giving traditional lending activity meeting the credit requirements of their customers they started catering to various sorts of customers viz. self-employed, small businessmen / industries, house finance, consumer finance, personal finance etc.

COMMERCIAL BANK

INTRODUCTION

A commercial bank (or business bank) is a type of financial institution and intermediary. It is a bank that provides transactional, savings, and money market accounts and that accepts time deposits. After the implementation of the GlassSteagall Act, the U.S. Congress required that banks engage only in banking activities, whereas investment banks were limited to capital market activities. As the two no longer have to be under separate ownership under U.S. law, some use the term "commercial bank" to refer to a bank or a division of a bank primarily dealing with deposits and loans from corporations or large businesses. In some other jurisdictions, the strict separation of investment and commercial banking never applied. Commercial banking may also be seen as distinct from retail banking, which involves the provision of financial services direct to consumers. Many banks offer both commercial and retail banking services

The Commercial Bank has a history of almost 100 years. The Commercial Banks are an important constituent of the Indian Financial System, judging by the role assigned to them, the expectations they are supposed to fulfill, their number, and the number of offices they operate. The co-operative movement originated in the West, but the importance that such banks have assumed in India is rarely paralleled anywhere else in the world. Their role in rural financing continues to be important even today, and their business in the urban

COMMERCIAL BANK

areas also has increased phenomenally in recent years mainly due to the sharp increase in the number of primary Commercial Banks. While the Commercial Banks in rural areas mainly finance agricultural based activities including farming, cattle, milk, hatchery, personal finance etc. along with some small scale industries and self-employment driven activities, the Commercial Banks in urban areas mainly finance various categories of people for self-employment, industries, small scale units, home finance, consumer finance, personal finance, etc. Some of the Commercial Banks are quite futuristic and therefore have developed sufficient core competencies to challenge state and private sector banks. According to NAFCUB the total deposits & lending of Commercial Banks is much more than Old Private Sector Banks & also the New Private Sector Banks. This exponential growth of Commercial Banks is attributed mainly to their much better local reach, personal interaction with customers, and their ability to catch the nerve of the local clientele. Though registered under the Co-operative Societies Act of the Respective States, the Reserve Bank of India also regulates the banking related activities of the Commercial Banks. They are governed by the Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965.

COMMERCIAL BANK

DEFINITION: A Commercial Bank is a modern phenomenon, which was first witnessed in Germany. A Commercial Bank has been defined by Devine as

A mutual Society formed, composed and governed by working people themselves for encouraging regular savings and granting small loans on easy terms of interest and repayment.

COMMERCIAL BANK

ORIGIN & GROWTH OF COMMERCIAL BANKS


Commercial Banks are a part of the vast and powerful superstructure of co-operative institutions, which are engaged in the tasks of production, processing, marketing, and distribution, servicing, and banking in India. The beginning of Commercial Banking in this country dates back to about 1904 when official efforts were initiated to create a new type of institution based on the principles of co-operative organization and management, which were considered to be suitable for solving the problems peculiar to Indian conditions. IN rural areas, as far as agricultural and related activities were concerned, the supply of credit, particularly institutional credit, was woefully inadequate, and unorganized money market agencies, such as moneylenders, were providing credit often at exploitatively high rates of interest. The Commercial Banks were conceived in order to substitute such agencies, provide adequate short-term and long-term institutional credit at reasonable rates of interest, and to bring about integration of the unorganized and organized segments of the Indian money market. When the national economic planning began in India, Commercial Banks were made an integral part of the institutional framework of community development and extension services, which was assigned the important role of delivering the fruits of economic planning at the grassroots levels. In other words, they became a part of the arrangements for decentralized plan formulation and implementation for the purpose of rural development in general, and agricultural development in particular. Today Commercial Banks continue to be part o9f a set of institutions, which are engaged in financing rural and agricultural development.

COMMERCIAL BANK

This set-up comprises the RBI, NABARD, commercial banks, regional rural banks, and Commercial Banks. The relative importance of Commercial Banks in financing agricultural and rural development has undergone some changes over the years. Till 1969, they increasingly substituted the informal sector lenders. After the nationalization of banks and the creation of RRBs and NABARD, however, their relative share has somewhat declined. All the institutional sources contributed about 4 per cent of the total rural credit till 1954. This contribution increased to 62 per cent by 1990. The share of Commercial Banks in this institutional lending has declined from 80 per cent in 1969 to about 42 per cent at present. The percentage of rural population covered by the agricultural credit co-operative was 7.8 in 1951, 36 in 1961, and about 65 per cent at present

COMMERCIAL BANK

OBJECTIVES OF THE COMMERCIAL BANKS:


The main objectives of Commercial Banks in India are: 1. 2. To encourage thrift, self-help and co-operation among members. To accept deposits of money from the public, repayable on demand or otherwise and withdraw able by cheque, draft, order, or otherwise for the purpose of lending or investment. 3. 4. 5. To borrow or raise money. To lend or to advance money either upon or without security to members and others as permitted by the Registrar. To draw, make, accept, discount, buy sell, collect and deal in bills of exchange, promissory notes, coupons, drafts bills of lading, railway receipts, warrants, other certificates, scripts and other instruments and securities whether transferable or negotiable or not. 6. 7. 8. To grant and to issue letters of credit, travelers cheques and circular notes. To buy and to sell foreign exchange including foreign bank notes. To acquire, to hold, to issue on commission, to underwrite and deal in stocks, funds, shares, debenture, debenture stock, bonds, obligations, securities and investment of all kinds. 9. To receive all kinds of bonds, valuables on deposit or for safe custody or otherwise. 10. To carry on and to transact every kind of guarantee and indemnity business on behalf of constituents.

COMMERCIAL BANK

11.

To effect, to insure, to guarantee, to underwrite, to participate in managing & carrying out any issue, public or private or State Municipal or other loans or of shares, stocks, debentures, debenture-stock of any company, co-operative society, corporation & to lend money for the purpose of any such issue.

12. 13.

To acquire, to construct to maintain and to alter any building or works necessary or convenient for the purpose of the Bank. To manage to sell and to realize any property which may come into the possession of the Bank in satisfaction or part-satisfaction of any of its claims?

14.

To open branches or pay offices, with the permission of the Registering Authority and the Reserve Bank of India within the area of operation of the Bank so as to provide banking services to the public.

15. 16. 17.

To acquire, to manage or to undertake the whole or part of business of any other co-operative society. To act as agro-industrial and housing finance society of members within the area of operation of the Bank. To establish, to support, or to aid in establishment and support of associations, institutions, funds, trusts and conveniences calculated to benefit members, employees / ex-employees of the Bank or the dependents or conations of such persons and to grant pensions.

18. 19.

To prepare and to finance schemes for amelioration of the financial conditions of members. To provide financial and technical assistance to self-employed persons for setting up their own business.

COMMERCIAL BANK

FEATURES OF COMMERCIAL BANKS


Commercial Banks are organized and managed on the principal of cooperation, self-help, and mutual help. They function with the rule of "one member, one vote". Function on "no profit, no loss" basis. Commercial Banks, as a principle, do not pursue the goal of profit maximization. Commercial Bank performs all the main banking functions of deposit mobilization, supply of credit and provision of remittance facilities. The State Commercial Banks (SCBs), Central Commercial Banks (CCBs) and Urban Commercial Banks (UCBs) can normally extend housing loans upto Rs 1 lakh to an individual. The scheduled UCBs, however, can lend upto Rs 3 lakh for housing purposes. The UCBs can provide advances against shares and debentures also. Commercial Bank do banking business mainly in the agriculture and rural sector. However, UCBs, SCBs, and CCBs operate in semi urban, urban, and metropolitan areas also. The Commercial Banks demonstrate a shift from rural to urban, while the commercial banks, from urban to rural. Commercial Banks are perhaps the first government sponsored, supported, and subsidized financial agency in India. They get financial and other help from the Reserve Bank of India NABARD, Central government and State governments. They constitute the "most favored" banking sector with risk of nationalization For commercial banks, the Reserve Bank of India is lender of last resort, but for Commercial Banks it is the lender of first resort, which provides

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financial resources in the form of contribution to the initial capital (through state government), working capital, refinance. Commercial Banks belong to the money market as well as to the capital market. Commercial Banks are financial intermediaries only partially. The sources of their funds (resources) are Central and state government, a. The Reserve Bank of India and NABARD, b. Other co-operative institutions, c. Ownership funds and, d. Deposits or debenture issues. It is interesting to note that intra-sectoral flows of funds are much greater in Commercial Banking than in commercial banking. Inter-bank deposits, borrowings, & credit from a significant part of assets & liabilities of Commercial Banks. This means that intra-sectoral competition is absent & intra-sectoral integration is high for Commercial Bank. Some Commercial Banks are scheduled banks, while others are nonscheduled banks. For instance, SCBs and some UCBs are scheduled banks but other Commercial Banks are non-scheduled banks. At present, 28 SCBs and 11 UCBs with Demand and Time Liabilities over Rs 50 crore each included in the Second Schedule of the Reserve Bank of India Act. Commercial Banks are subject to CRR and liquidity requirements as other scheduled and non-scheduled banks are. However, their requirements are less than commercial banks. Since 1966 the lending and deposit rate of commercial banks have been directly regulated by the Reserve Bank of India.

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SPECIAL FEATURES OF COMMERCIAL BANKING


The credit supply machinery of Commercial Banks is of an organizational nature. Co-operative credit institutions have their independent existence at various levels. However their working is interlinked and it is for the maximum social benefit. There is a long chain of co-operative credit supply from the state level to farmers at the bottom level of villages. Primary co-operative credit societies at the village level, District Central Commercial Banks at the district level and the State Commercial Banks at the state level are mutually linked and provide credits of short term and medium term. For supplying long term agricultural credit land development banks exist. The objective of Commercial Banks is to cater to the credit needs of local cultivators. They do not have objective of profit making. Commercial Banks have the main purpose of development of agriculture and its allied occupations. These banks provide credits to their members at the minimum cost. For day-to-day working and for supervising it there are board members in these banks and this board is formed by and from the members of these Commercial Banks. The management of Commercial Banks changes according to a change in organizational structure. Board of directors consisting of 7 to 10 members administer the working of Commercial Banks. 2 or 3 directors are appointed by the state.

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COMMERCIAL BANKING IN INDIA


Credit co-operative is the oldest of all the types of cooperatives in India. The co-operative credit institutions in the country may be broadly classified into Urban credit cooperatives and Rural credit cooperatives. There are about 2090 urban credit cooperatives and these societies together constitute for about 10 percent of the aggregate banking business and therefore regarded as an important segment of the banking system. The urban credit cooperatives are also popularly known as Urban Cooperative Banks. The rural credit cooperatives may be further divided into short-term credit cooperatives and long-term credit cooperatives. With regard to short-term credit cooperatives, at the grass-root level there are around 92,000 Primary Agricultural Credit Societies (PACS) dealing directly with the individual borrowers. At the central level (district level) District Central Cooperative Banks (DCCB) function as a link between primary societies and State Cooperative Apex Banks (SCB). It may be mentioned that DCCB and SCB are the federal cooperatives and thus the objective is to serve the member cooperatives. As against three-tier structure of short-term credit cooperatives, the long-term cooperative credit structure has two tiers in many states with Primary Cooperative Agriculture and Rural Development Banks. However, some states in the country have unitary structure with state level cooperative operating with through their own branches. Interestingly, under the Banking Regulation Act 1949, only State Cooperative Apex Banks, District Central Cooperative Banks and select Urban Credit Cooperatives are qualified to be called as banks in the cooperative sector. In other words, only these banks are licensed to conduct full-fledged banking business.

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STRUCTURE OF COMMERCIAL BANKS


The co-operative mechanism in India is of organizational nature. Though the existence of co-operative institutions is independent on different layers their working is same and it aims at maximum social benefit. There is a chain of co-operative credit right from the state level to the gross root of the rural level:

At the rural level there are Agricultural Credit Societies; At the district level there are District Central Commercial Banks and At the state level there are State Commercial Banks which are affiliated to each other and do the function of credit supply. In addition on this Land Development Banks provide long-term credit for

permanent improvements in the agriculture to farmers. Thus this is the nature of co-operative institutions providing credit. The urban co-operative credit institutions/ banks fulfill the needs of the majority of citizens who have small incomes, provide credit to different businessmen, small entrepreneurs, merchants, employees and consumers.

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CO-OPERATIVE CREDIT INSTITUTION


Before a rise of Commercial Banks, the Commercial Banks were doing the function of credit provision to urban sector. These banks used to follow such a policy by which they could get maximum profit and also could accept maximum security while providing credits. These banks did not have any purpose of national development except profit maximization in their function of credit supply. They never took any risk in their credit supply. Hence the poor rural sector was deprived of the credit facilities of commercial banks. Commercial banks concentrated their attention only on urban sector and development was confined only to the urban sector. This lopsided development could not attain proper balance in economic development. The agricultural sector which was the main occupation of 70% of population did not have credit supply from banks and so people in the rural sector had heavy burden of loans taken from moneylenders. The indebtedness of farmers continued from generation to generation. The rural people suffered a lot due to natural calamities like draught, floods, and infectious diseases. The result of this was extreme poverty of rural masses. At last Frederick Nicholson provoked the idea of setting up of co-operative societies on the pattern of Kaifeng societies of Germany. This idea led to immense growth of cooperative societies at present. The co-operative credit created its own independent honorable place in Indian economy. On this support and inspiration of RBI, the co-operative institutions had valuable contribution towards the total change of the rural society. The co-operative machinery is marching on by the ambition of establishing socialistic pattern of society.

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The co-operative credit machinery is created mainly for development of agricultural occupation in India. The co-operative credit was given priority with the purpose of making farmers free of the clutches of moneylenders and reducing the burden of loans that continued from generation to generation. The co-operative credit gave agriculture the first priority. Today, the Commercial Banks are doing the work of realizing the socialistic structure of the society. There is no importance to profit in the field of co-operation. This field gives more importance to all-sided development and economic upliftment of the rural sector.

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CHARACTERISTICS OF A COMMERCIAL BANK


There is three-tier structure of Commercial Banking in India. The state Commercial Bank is the Apex Bank at the state level providing credit and expanding credit. The District Central Commercial Bank provides and expands credit at the district level and the Primary Agricultural Co-operative Credit Bank provides and expands credit to farmers at the rural level. All these banks are linked to each other. 1. The State Commercial Bank does the function of credit expansion through the District Central Bank does the function of credit expansion through the District Central Commercial Banks in the state. 2. 3. state-level. 4. The District Central Commercial Banks are the members of State Commercial Banks. SCBs provide all types of credit to District Central Commercial Banks & which is then disbursed to Primary Co-operative Agricultural Credit Societies. 5. societies. 6. District central Commercial Bank also provides credits to Co-operative spinning mills, co-operative sugar factories, Cooperative fertilizer factories, co-operative marketing societies etc. The District central Commercial Bank is a link between the State Commercial Bank and primary credit Co-operative The State Commercial Bank functions as link between the RBI and District Credit Commercial Banks. The State Commercial Bank is the apex bank at the

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RURAL AND AGRICULTURE DEVELOPMENT BANK

RURAL DEVELOPMENT BANK

The Land Development Bank has been renamed as the State Co-operative Agriculture and Rural Development Bank. The bank provides credits for the following purposes: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. To provide finance for horticulture i.e. grapes, mangoes, lemon, cashew nuts, etc. To provide finance for cultivation of tress like Rubber, Subabhul etc. To provide finance for digging of wells, tube wells, tanks and also for their repairs. To provide finance for building of farmhouses, places for cattle. To provide finance for self-employment to families under the Integrated Rural Development Scheme. To provide credits for renovation of lands, cultivation of waste lands, fencing of lands. To provide credits to poultry farm. To grant advances for purchasing of machinery for crushing of sugar canes and production of raw sugar. To provide credits to purchase cows, bullock carts, sheep. To provide finance for protection of land from floods & prevention of soil erosion. 11. To provide credits for errection of Gobar-gas plants.

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12. 13. 14. 15.

To supply credits for setting up oil engines, electric motors, pumping sets, and for tractors and other machinery. The provision of credits is made for repayment of old loans to farmers. The provision of credit is made for agricultural production projects as per the notification in the State gazette from time to time. Provision of finance is made for consolidation of holdings of lands or for purchasing lands.

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AGRICULTURAL DEVELOPMENT BANKS


Agricultural Development Bank (ADB), formerly known as Land Mortgage/Development Bank, was constituted to serve the purpose of providing long-term credit to farmers. The PACS are supposed to give credit for seasonal production requirements only. They were not expected to provide LT credit. Hence ADBs were establishment to advance LT credit which is also called investment credit. The first ADB which was started in 1863 was liquidated in 1883. In the first ADB was established in 1920 in Punjab. But it was in post-independent period. ADB was started functioning in right perspective. There exists a twotier federal structure, consisting of an apex central ADB and several PADB in many of the states in the country. There are both nominal and regular members. The source of finance for PADBs are: (a) Share capital (b) Deposits (c) Loans from CADB (d) Admission and other fees (e) Grants and subsidies from government (f) Borrowings from other agencies. Debentures constitute the main source of funds for central ADBs. Though the original objectives of ADBs were to issue loans for redemption of debts and development of land on security of land, at present LT credit is available for all purposes leading to the development of agriculture and allied activities such as land improvement, minor irrigation, purchase of machinery, purchase of land, construction of farm houses, well etc. and redemption of old

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debt. These loans are available for 10 to 20 years. Still land is offered as security for loans valuation of land prevails as the crux of loan procedure.

There has been a lot of thinking to integrate short/medium and long-term credit structures. The Banking Commission, the Madhav Das Committee on Land Development Banks, the meeting of Agricultural Credit Board (1974); etc. suggested integration of short and long-term credit structures at all levels. But recent thinking, especially after the report of CRAFICARD is to maintain separate structures is argued. Besides the integration PACs and PADBs, federal structure of ADBs was also a bone of contention in co-operative circles. But the All India Rural Credit Survey Committee and Review Committee had cleared such doubts by recommending two-tier federal structure Urban Commercial Banks. A. Primary Agricultural Credit Societies (PACSs): The primary agricultural credit societies are working at the grass-root level. The area of operation is supposed to be restricted to the compact area preferably village or group of tiny villages where every person is familiar with the other person of the locality. The main function of the society is granting loans to the needy persons, mobilizing rural saving and effective supervision of the end use of the co-operative credit structure is erected on this basis. Further, the primary society has a direct contact with agriculturists by giving loans and performing recovery functions. Unfortunately, the primary societies generally have failed in their basic task of effective mobilization of deposits in rural area. The reasons are many:

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for instance, the commercial banks are offering attractive interest, no risk for any amount of deposits kept with them. In case of primary societies, they may often be not in a position to repay deposits when they societies, they may often be not in a position to repay deposits when they mature. B. District Central Commercial Bank:District Central Commercial Bank is the bank at the second level under Co-operative structure of banking. By integrating credit societies' working at the village level, a Co-operative institution is formed. The primary Cooperative credit societies are given membership of this institution. This is called the District Central Commercial Bank. This bank is the federation of primary co-operative credit societies. This type of bank was set up in 1906 in U.P. as the primary Co-operative credit society. Then in 1910, this type of bank was set at district level at Ajmer district. Today in very district there is district Central Commercial Bank. The head quarter of bank is at District place. There are branches of this bank where there are no primary Co-operative credit societies.

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STRUCTURES OF DISTRICT CENTRAL COMMERCIAL BANK


In the earlier period there were three types of District Central Commercial Banks: 1. District Central Commercial Banks only of members. 2. District Central Commercial Banks consisting of both types of members i.e. primary Commercial Banks consisting of both types of members i.e. primary co-operative credit societies and ordinary members. Today, the third type of these banks exists. The board of management consists of the representatives of primary Co-operative credit societies as well as of ordinary members. This is essential because the expert and eminent persons coming as representatives of ordinary members create public confidence in the working of the district central Commercial Banks. However, considering the principle of co-operation, representation should also be given to primary Co-operative societies.

Objectives of District Central Commercial Banks


A. B. To serve as a link between primary Co-operative credit societies and the State Commercial Bank. To finance primary Co-operative agriculture credit societies and to see that they work efficiently.

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C. D. E.

To collect maximum deposits and introduce various schemes of savings. To keep deposits of primary Co-operative credit societies safely. To make availability of banking services to the rural sector.

Organization and Management of District Central Commercial Bank


The elected members of the Primary Co-operative Credit Societies and ordinary shareholders do the management of the District Central Commercial Bank. This board consists of 12 to 15 members. This board is in power for five years. It can work until it gets confidence of members. The board decides the general policy of a bank A. District Central Commercial Banks are bound to distribute credit only to those co-operative societies which are in their Jurisdiction The functional area of the District Central Commercial Bank is restricted to only revenue district and the creation of this bank is with the purpose of providing credit to the primary co-operative societies, which came under its control. Naturally co-operative credit societies, which remain out of its control, cannot be provided credit from this bank. Thus this bank provides credit of short term and medium term to various co-operative credit societies under its jurisdiction and in turn these societies provide credit to agriculture and agrobased industries. This bank gets very less rate of interest on such credit supply and hence it affects its profit.
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For increasing profit, District Central Commercial Banks should provide credits of productive type and almost all credits should be secured credits. The bank also should take care that these societies are functioning efficiently. Then only the financial strength of this bank would increase which would lea to increase in profit. B. District Central Commercial Bank does not function as "The Balancing Centre" District Central Commercial Banks provide credit to primary Co-operative credit societies in their districts and help the farmers indirectly. It is practically true that these banks do not have functioning to the expectation. The flow of credit of these banks is only to those primary co-operative credit societies which are financially sound and this flow of credit is more than expectation. Primary Co-operative credit societies which are financially weak and which require financial help are ignored by the district central Commercial Banks. This is the reality. It should change. Then only the district central Commercial Bank would be "the balancing centre" of primary co-operative credit societies in its district and this would encourage development of backward sectors of the district. C. Functional procedure of credit supply of District Central Commercial Banks: The District Central Commercial Banks provide credits in following ways: 1. They provide short-term credit to primary Co-operative societies for agricultural production and purchase and sale of crops. The credit term is of one year.
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2. They supply credit to agricultural production for the period of 3 to 5 years. 3. Other Co-operative societies are provided cash credit in any of the following ways: a. The credit limit of clean cash credit depends on cash amount the goods in transport or visible goods. b. The cash credit is given as the pledge, which is 30% of the value of goods. c. d. The 20% to 30% cash credit is given on security of goods. Short-term loans of certain amounts are provided to Weavers' Cooperative Societies. Industrial and Urban Co-operative Societies for the research needs by these banks. The Co-operative Societies are provided with the credits of medium term, which are repayable within 3 years. To personal credits on the security of valuable things have been restricted now.

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STATE COMMERCIAL BANKS (APEX)


Background and structure State Commercial Banks have the great importance under the three-tier pattern of co-operative finance. Those banks at the state level are the link between the NABARD (Former RBI) and the District Central Commercial Banks. The area of functions of every state Commercial Bank is limited to the respective state. These banks do the important function of providing finance to the district central Commercial Banks and also control the working of these banks. Objectives of State Commercial Banks 1. 2. 3. 4. 5. To work as the Apex bank at the state level. To guide and supervise Co-operative agricultural societies and to develop the mutual relationship among them. To play the role of media of communication between other Co-operative societies and the district central Commercial Banks. The whole responsibility of banking business in Co-operative sector lies on the state Commercial Banks. It also shoulders responsibility of the clearing house and financial institution.
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6.

To make maximum extension to the rural section.

FUNCTIONS OF THE STATE COMMERCIAL BANK


The State Commercial Bank is the apex bank under the Co-operative structure of banking. The functions of the bank are as follows: 1. 2. To provide short term, medium term and long term credit to all Cooperative institutions in the state. According to the recommendations of the Rural Survey Credit Committee for co-coordinating purchase and sales co-operative societies with cooperative credit, the financial help was provided by this bank. The cooperative finance should be related to purchase and sales co-operative societies and hence with this purpose this bank made a link of its branches in Neera and Baramati to the shops providing useful things to farmers who are members of co-operative societies in 1961. 3. 4. This bank provides financial help to productive co-operative societies for purchasing machinery and also for circulating capital. In addition to financial assistance to agro-based industries and rural cottage industries provided this bank, the bank also provides technical advice and guidance through co-operative industrial board since 1961 to these industries.

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5. 6. 7. 8.

The Crop Loan Scheme was introduced with the co-operation of this bank in the State of Maharashtra in 1950. The bank implements various schemes for economic development of economically weaker sections of society, small farmers, merchants etc. The bank also provides financial help to various co-operative institutions by purchasing their shares. The bank also works as representative of Commercial Banks in the state.

ORGANIZATION AND MANAGEMENT


The management of the State Commercial Banks is done by the Board of Directors. It is the elected body of representatives of central Commercial Banks and other individual shareholders. The meeting of the board is invited once in a year, which is general meeting. All shareholders are present in this meeting. In this meeting the annual report of working, the balance sheet of profits and losses is presented. The discussion is also held for investment of surplus money of a bank. The management board for the next year is also elected in this annual meeting. The day-to-day working is looked after by the management board. On this executive body, there are members appointed by the state government, representatives of the District Central Banks, representatives of other shareholders, representatives of the central industrial Commercial Bank. The structure of state Commercial Banks may differ from state to state. The manager in charge looks after the day-to-day administration of this bank. The future of the bank depends on how the manager works efficiently. So it is recommended by the Banking Inquiry Committee in 1931 and All India

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Rural Credit Survey Committee in 1969 that State Commercial Banks should take proper care for appointing the general manager of administration. The general manager is an experienced and expert in banking business. He should have organizational skill and must be honest. He should guide properly to the Board of Directors. He should have firm faith in the philosophy of cooperation. He should dedicate to the development of Commercial Banking fully.

EVALUATIONS OF STATE COMMERCIAL BANKS


In spite of development of State Commercial Banks in India, some deficiencies are found in their working and management. The following criticism is made on working of these banks: 1. The State Commercial Banks are under the control of the RBI, State Government and the Co-operative department. So they take a lengthy procedure for sanctioning of loans. Borrowers have to wait for a very long period for obtaining loans. 2. 3. The amount of overdue of loans of these banks is increasing day-by-day and for solution of this problem they have not taken any effective steps. They have not done investments in a proper way. The proportion of longterm credit is more than the other loans disbursed by these banks. So they are always in need of finance. Consequently borrowers do not avail loans in time from these banks. 4. 5. These banks have not achieved success in collecting deposits as they expect. The system of sanctioning of loans of these banks is not proper. These methods are time-consuming, costly and inadequate. There is violation of
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rules while sanctioning loans. The result of this is increased in overdue of loans. 6. There is frequent potential interference in day-to-day working of these banks. So all the vices of polities enter into the working of these banks. Partial attitude, corruption, bribe, red tapism are the striking things in the administration of these banks.

URBAN COMMERCIAL BANKS


Background of Urban Commercial Bank The first Urban Commercial Bank was set up in 1904 at Kanjivaram in the province of Madras according to the Co-operative Act of 1904. Then in 1915 the Maclean Committee gave more emphasis on expansion of Urban Commercial Banks in the urban areas. It was felt that Urban Co-operative Credit Societies were essential to relieve the middle class and small incomegroup out of the clutches of moneylenders. This led to setting up of Urban Cooperative Credit Societies in various parts of urban sector in India. Day-by-day the credit needs of urban people went on increasing and the credit supply of urban co-operative credit societies were inadequate. Hence Mehta Bhansali Committee, Date Committee, Karve Committee, Joglekar Committee, etc. committees made various recommendations for structuring, management, and expansion of Urban Commercial Banks and hence the development of Urban Commercial Banks are encouraged.

Objects of Urban Commercial Bank:

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1. 2. 3. 4. 5.

To promote habit of economy and savings among the members of urban sector. To provide credit at the reasonable rate of interest to members. To accept deposits and raise capital through share capital. For meeting the credit needs of business to provide credits to small merchants, small industrialists, and craftsmen. To provide credits at the reasonable interest rate to the employed people for education of their children, medical reasons, religious and social reasons.

6. 7. 8.

To provide credit on the security of valuable goods, immobile property. To make discounting of bills of exchange to accept cheques, to do all banking functions. To collect statistical information of industries in various sectors, to conduct research and in that connection to provide guidance about credit, to provide credit on occasions of their needs.

Area of Functioning
The area of functioning of Urban Commercial Banks is limited to towns or cities. This is mentioned in the bylaws of these banks. Accordingly these banks have area of functioning in a particular part of the city or the whole city or the whole district. Some banks have large area of functioning whereas some have very small area of functioning. It is based on the number of the banks in that area.

Members of the Urban Commercial Banks

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COMMERCIAL BANK

1.
2.

Under this type, any person competent to contract can become a member. For this he has to pay the amount of minimum one share and the entry-fee. The nominal membership can be obtained by paying entry-fee and prescribed annual contribution. This member has to pay the annual contribution for every co-operative year before 31st of March of that year or according to provision made in bylaws. The nominal member has no right to attend or participate in the working of the meeting of a bank. In order to make it convenient to remain surety for the borrower members, the nominal membership is given.

Raising of Capital
Urban Commercial Banks raise capital in following ways: 1. 2. 3. 4. By issuing shares: The value of one share is different from Rs. 100 according to bylaws. By accepting deposits of different terms from members and non-members. By accepting donations, entry-fees etc. By borrowing from District Central Commercial Bank and the State Commercial Bank.

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COMMERCIAL BANK

MANAGEMENT OF URBAN COMMERCIAL BANK


The management of the Urban Commercial Bank is done by the elected Board of Directors. The Board consists of 9 to 13 member-directors. The term of office of the directors is of three years. In some banks every year 1/3 directors retire according to the bye-laws and rules of election, and the vacant seats are fulfilled by election again. In some banks elections are held after every 3 years and it is held by the secret-ballot system. Every year the Chairman and Vice Chairman are elected from among the board of directors. For efficient working, various committees and sub-committees are set up. Nine directors of the board of directors are elected from among the members i.e. shareholders. One representative is elected from among the weaker section. One representative is elected from among the backward class in order to have representation to it. One representative from the reserved section and one representative from among the employees. Thus total 13 representatives are taken on the board of directors. Credit Provision of the Urban Commercial Bank

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COMMERCIAL BANK

The Urban Commercial Banks grant credits to small industrialists, merchants and traders, economically weaker section of population. They provide following types of credits to needy members. 1. 2. 3. 4. 5. 6. 7. 8. They provide short-term credit on the security of gold-silver to members by considering the market prices of gold and silver. The credits are offered on the security of mercantile goods. These credits are hypothecated or security-credits. Cash credit is offered to professional artisans for storage of goods. Medium term credits are provided to business of craftsmen for purchase of essential mechanical equipments. Business like milk, poultry, vegetable and fruit selling are provided credits. Consumption loans are provided to economically weaker section for marriage, education of children etc. Some banks grant credits for integrated rural development, for selfemployment to families. Credits at concessional rate of interest to small industrialists are offered under the Section 17 (2) B or (4) C of the Act of RBI. For this purpose these banks can have refinancing from RBI through the State Commercial Bank. These banks can provide credits to production and sale transactions of cottage and small-scale industries on the guarantee of the state government and besides if two worthy sureties are given according to the Section 17 (2) B of the Act of RBI. Policies of RBI for Registration Of UCB Licensing And Branches On the basis of the guidelines / recommendations of the high power committee (1999) the RBI has revised the licensing policy of new urban

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COMMERCIAL BANK

Commercial Banks vide circular dated 30th August 2000. The revised policy includes (A) Revision of licensing policy based on strong start up capital and corporate governance, Revision of Entry Point Norms (EPN). Four categories of EPN based on the population criterion have been decided.

BANKING REGULATION ACT, 1965


Provisions Of Banking Regulation Act, 1965 Applicable To Commercial Banks: The Section 56 of the Banking Regulation Act, 1949 was applied to Commercial Banks by making amendment in this act in 1965. It came into force on 1st March 1966.

A. Meaning of a Commercial Bank and a credit society


Under this act the Commercial Bank means the state Commercial Bank, central Commercial Bank, and a primary Commercial Bank. A co-operative credit society means a co-operative society having the objective of providing finance to its members. This society includes Land Mortgage Bank. In relation to a co-operative society, members of any committee or board are included for managing the business of the society. A primary agricultural society is different in this sense than the other societies. A primary agricultural society provides credit only to agriculture.
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COMMERCIAL BANK

B. Capital and Reserve


No Commercial Bank can start its banking business having paid-up capital less than one lakh rupees. Every Commercial Bank, which is not the state Commercial Bank, will be regarded for the time being as a scheduled bank. This bank will have to maintain cash money in the form of a reserve or in the form of balance in the current account of the R.B.I. or the cash money in the form of balance in the current account of the respective state Commercial Bank. If it is a primary bank, it will have to maintain at least 3% of the total demand and time deposits on every last Friday of every fortnight. This bank will balance to submit the return to the RBI of her total amount of demand and time deposits. As per the amended Section 19 of this act, not only Commercial Bank can hold shares in any other Commercial Bank except within limits of condition prescribed by the RBI. Similarly as per the Section 20, a Commercial Bank is prohibited to grant in secured loans or loans on the security of her shares to her directors or business in which directors have vested interests.

C. Banking Business
No Commercial Bank in India can start banking business without the permission of the RBI. As per amended Section 23 of this act, no any Commercial Bank can purchase new place or can change the place except the change of place in the same city or town. However this rule is not applicable to the central Commercial Bank for opening temporary branch for an exhibition or conference for the period of the month. Except the primary Commercial Bank, no other Commercial Bank can start business without the permission of the RBI

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COMMERCIAL BANK

under Section 23 of this act. Such a bank has to send the application to the RBI through NABARD. For the purpose of the Banking Regulation Act of 1949, the balance maintained by the central Commercial Bank with the state Commercial Bank or the balance maintained by the primary Commercial Bank with the central Commercial Bank should be presumed that this balance is maintained in India. The subsection 3 of the Section 27 of this act provides that except the primary Commercial Bank, any other Commercial Bank will have to submit the return to the RBI and the copy of the return to the NABARD. Powers in connection with these banks are operated by the RBI and also the NABARD. The 29th section of this Act, applicable to Commercial Banks provides that every year the Commercial Bank will prepare the balance sheet of profits and losses at the ending year of the 30th June and the same will be according to the form prescribed in the schedule 3. For submitting the returns other banks take 3 months whereas the Commercial Banks take 6 months. Similarly, other Commercial Banks except primary Commercial Banks have to submit the returns to the NABARD. If it is felt necessary, the RBI may send the copy of her report for inspection or scrutiny to the Registrar of state Commercial Bank or co-operative societies.

Powers of the RBI


The section in respect of amalgamation of banks is not applicable to Commercial Banks. However, the section will be applicable to Commercial Banks or societies in the following cases.
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COMMERCIAL BANK

1.

The RBI may appoint one or more officers to watch the working of the meeting of the board constituted by the directors of the Commercial Bank. The hearing of the Commercial Banks will be before the officer/s and officer/s may give instructions or consult advice for restructuring or expansion of co-operative institutions.

2.

The RBI may appoint one or more officers to observe the way of business of the Commercial Bank and the officer/s will prepare the report. In addition to this, certain provisions for penalties have also been made for failures on the part of Commercial Banks in this act.

COMMERCIAL BANKS: AN RBI PERSPECTIVE


RBI has decided not to allow urban Commercial Banks (UCBs) with less than Rs. 50 crore net worth to spread their operations outside their state of jurisdiction. The main risk exposure of UCBs was not credit risk but interest rate risk. As interest rates paid by these banks, particularly on deposits, were out of sync with the rest of the banking sector. The sheer number of weak UCBs, which is well over 200, is a cause for concern for the RBI. Rehabilitation of these banks may involve strategies such as the registrars directing co-operative courts for speedy recovery process and execution of decrees, unviable branches being either relocated or closed down, exploring avenues for getting additional capital and merger with a well-managed bank. RBI is in favor of ending dual control for UCBs. Therefore, demarcation of banking-related functions and those that warrant only state governments' action were required. According to Mr. Captor the issue of dual control could be resolved in three ways:

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COMMERCIAL BANK

The first approach is by bringing the subject of co-operation under the concurrent list so as to enable the Union government to legislate in matters pertaining to Commercial Banking. But such a move will involve constitutional amendments. The second approach would be for the states to enact progressive legislations thereby making the registrars confine their functions only to registration and acceptance of bylaws. This will lead to the dual command over UCBs ending automatically. The last approach would be to demarcate the regulatory roles of state governments and RBI in the state acts, as suggested by the Madhava Rao committee. Mr. Capoor favours the third approach.

RBI Policies:The Reserve Bank of India appointed a High Power Committee in May 1999 under the Chairmanship of Shri K. Madhava Rao, Ex-Chief Secretary, Government of Andhra Pradesh to review the performance of Urban Cooperative Banks (UCBs) and to suggest necessary measures to strengthen this sector. With reference to the terms given to the Committee, the Committee identified five broad objectives: 1. 2. 3. 4. To preserve the cooperative character of UCBs To protect the depositors' interest To reduce the systemic risks to the financial system, To put in place strong regulatory norms at the entry level so as to sustain the operational efficiency of UCBs in a competitive environment and evolve measures to strengthen the existing UCB structure particularly in the context of ever increasing number of weak banks and

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COMMERCIAL BANK

5.

To align urban banking sector with the other segments of banking sector in the context of application of prudential norms into and removing the irritants of dual control regime

Reserve Bank of India has extended the off-site surveillance system (OSS) to all non-scheduled urban Commercial Banks (UCBs) having deposit size of Rs 100 crore and above.

RULES APPLICABLE TO COMMERCIAL BANKS ACCORDING TO THE ACT, OF 1965


Under the Banking Regulations Act, 1949, the central government is empowered to set rules with the help of the RBI. Those rules are published in the gazette of 3rd December 1966.

1.Submission of Returns
Under the rule 3 the Head Office of the Commercial Bank has to submit the return to the Head Office of the RBI in the prescribed form. This Head Office is in that state where there is the Head Office of the Commercial Bank. The RBI can direct the office of any Commercial Bank to submit the return to the specified office of the RBI. The returns are required to be prepared on such a base of figures when the working of the office goes on or if the day is holiday, previous day to that day is considered.

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COMMERCIAL BANK

2.List of officers

Under the rule 4, the Commercial Bank has to submit the statement in writing in which returns are included and there are specimen signatures of the officers who have authority to sign on behalf of the Commercial Bank and also there is a list of the names of officers and their designations. There are also the names and addresses of the directors of Commercial Banks or the names and addresses of the members of management committee of the state Commercial Bank in this statement. These lists are sent to the state Commercial Bank in this statement. These lists are sent to the Head Office of the RBI as well as the NABARD. In case of any change in the lists, the same is to be intimated to the RBI and NABARD. The rule 5 provides that the returns (related to Cash Reserve) which are to be submitted under the Section 18 of the Banking Regulation Act of 1949 and the returns to be submitted (related to deficits of the assets every month) under the Section 24 (3) shall be in the Form-1 and the returns (related to directors and companies in which directors have vested interests) coming under the Section 20 shall be in the Form- 2. These specimen forms are attached to these rules.

3. License o-operative societies


Under the Section 22 of this act a co- e to coperative bank or a co-operative society willing to have a license has to apply to the Head Office of the RBI as per the specified below. a. b. In the Form- 3-A as the Primary Commercial Bank. In the Form- 3-B as the Central Commercial Bank.
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COMMERCIAL BANK

c.

In the Form- 3-C as the State Commercial Bank.

The Form- 4 was prescribed for the other types or the existing types of banking sector 1965.

4. New Place for Business


The Commercial Bank has to apply for the permission in the Form-4 for opening a new branch or for a change in place. The application is to be made to the Head Office of the RBI. The central Commercial Banks or the state Commercial Banks have to apply to the Head Office of the NABARD, which is in the state where the Head Office of the state Commercial Bank exists and the copy of this is to be sent to the RBI.

5. Publication of Accounts
As per the Section 29 of the Banking Regulation Act, the report of the statement of the balance sheet of profits and losses together with the auditors report is required to be published within nine months from the end of the period for which the report is concerned and this publicity is to be made in the newspaper in circulation of the place where there is the Head Office of the Commercial Bank.

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COMMERCIAL BANK

SARASWAT COMMERCIAL BANK


MISCELLANEOUS SERVICES 1. Real Time Gross Settlement (RTGS) Bank offer RTGS facility to its customers. RTGS stands for the Real Time Gross settlement where transfer of money takes place on a real time and on a gross settlement basis. This is the fastest possible money transfer through the Banking channel. Settlement in real time is not subjected to any waiting period The transactions are settled as soon as they are processed. Gross settlement means the transaction is settled on one to one basis without bunching any one transaction. RTGS services can be utilized for only large transactions above one lakh. Charges for RTGS: RTGS - Outward : 0.15% of the transaction amount per message plus Rs. 25, subject to minimum of Rs. 100 and maximum of Rs. 20000/- plus Service Tax. RTGS - Inward: Rs. 25/- per message, irrespective of the amount plus applicable service Tax
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COMMERCIAL BANK

2. Utility Bill Payment Saraswat Bank offers utility Bill Payment through its "Easy Pay Scheme" i.e. telephone, electricity, property tax, mobile telephone, payment of Reliance, BEST,MSEB,MTNL,BMC,Tata Indicom,TMC, NMMC, HUTCH, BPL etc under our Easy Pay Scheme . The service is available to all our depositors . The service can be availed with minimum paperwork at all our 127 branches. 3. National Electronic Fund Transfer (NEFT) NEFT is an electronic payment system to transfer funds from one part of country to other part of country . NEFT transactions are settled in 6 batches. It is a nation wide fund transfer system for small transactions below 1 lakh in which 18500 branches of 53 Banks are participating.

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COMMERCIAL BANK

INVESTMENT & INSURANCE SERVICES (I) Insurance


It is their earnest endeavour to offer suite of new and competitive financial products and services. They have for this purpose tied up with various insurance companies. The details of tie-up and products offered are given below: [A] LIFE INURANCE For Life Insurance products, they have entered into a tie-up with M/s. HDFC Standard Life Insurance Company Limited. We offer following products: 1) Endowment Plan: This being a popular savings plan is useful for meeting all long/ short-term financial needs and also covers the risk of the applicant's life. Tax benefit under Sec 80 C are also available. 2) Childrens Double benefit plan:
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COMMERCIAL BANK

It is the most popular plan which helps customers save and secure your child's future to meet expenses for education, marriage etc. It is also known as double benefit plan as on death of life insured the beneficiary (child) gets the sum assured on death of applicant as well as on maturity of the policy. Tax benefit under Sec 80 C is also available.

3) Term Assurance plan: It is purely life risk cover plan. On death of the life insured the nominee gets the policy amount. Tax benefit under Sec 80 C is available. 4) Regular Personal Pension Plan: It is plan, which provides annuity at the retirement age. This plan is a with profit pension plan suitable for everyone to help provide regular financial security to the family. Plan takes care of retirement age, return on investment, inflation etc. Tax benefit under Sec 80 C available. [B] NON-LIFE INURANCE: For Non-Life Insurance they have a tie-up with M/s. Bajaj Allianz General Insurance Co Ltd. Under the arrangement they offer following insurance products: 1) Health guard:

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COMMERCIAL BANK

This plan provides for reimbursement of Hospitalisation expenses incurred for illness/ diseases or injury sustained. The key features are lowest premium, takes care of pre and post hospitalisation expenses, ambulance charges, family discount, cashless facility with network of 600 hospitals across India. Tax benefit under Sec 80 D is available. 2) Travel Companion: It is an Overseas Travel Insurance that covers reimbursement of medical expenses at abroad, along with loss of passport during overseas travel. 3) Personal Accident Insurance: It covers risk of death on accident. 4) Vehicle Insurance: It insures your vehicle incase of damage or loss to the vehicle. MUTUAL FUNDS SERVICE They have tie up with following Mutual Funds for selling their mutual fund products. Forms of schemes as and when launched would be available from any of the branch offices of our Bank. [i] ING Vysya Mutual Fund [ii] Kotak Mutual Fund [iii] SBI Mutual Fund [iv] UTI [v] ICICI Infrastructure Bonds [vi] HDFC BANK

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COMMERCIAL BANK

DEMAT SERVICES (PAN compulsory for all Demat accounts)


Modernization in the trading and settlement system has been witnessed in the capital market through automated trading mechanism of Demat. The advent of Electronic trading and settlement has brought in transparency in trading and has eliminated risks associated with Bad Delivery and handling huge load of paperwork. The country has made a remarkable growth in the capital market by switching over to electronic trading Saraswat Bank is registered as depository Participant with NSDL since 22nd February 1999. It has achieved a remarkable success in servicing our valued customers and we have repeated our success in the Banking Industry to the progress made in the Depository operations. Since its inception there has been a consistent and a steady growth in the number of clients registered with us. We have a network of 127 branches spread across 5 states viz. Maharashtra, Madhya Pradesh, Gujarat, Karnataka and Goa.

NRI SERVICES
The Saraswat Commercial Bank is the only Urban Commercial Bank having a permanent license from RBI to deal in foreign exchange. This division plays an active role in the Forex operations through its B-category branches. The Bank continues its relationship with more than 125 correspondents spread over 45 countries covering nine currencies. Our International Banking Division monitors the flow of export credit and has taken a number of initiatives to provide a fillip to this sector.

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COMMERCIAL BANK

You can go through the details of various activities performed by our International Banking Division (IBD) in sections one could click on to.

ANYWHERE BANKING SERVICE


Open an account in one branch and operate it from any of our branches across India .The facility also offers you the convenience of anywhere clearing and quick collection of outstation cheques. Anywhere Banking is a highly secure and convenient system for online real time inter branch transaction across the Bank Facilities presently offered: Cash Remittance :

Your business associates and partners can remit money to your account through any of our branches instantly. The facility is extended to Saving, Current , Loan and overdraft account.

Cash Withdrawal:

You can withdraw cash up to any limit from your account from any of our branches. Third Party payments are not permitted from any of the branches.

Fund Transfer:

You can transfer funds from one account to another. You can conveniently use this facility to reach funds to your family members in urgency for paying examination fees etc.

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COMMERCIAL BANK

Balance/ Passbook Enquiry:


Know the balance in your account from any of your branches. Check details of transactions and get your passbook printed from any of our branches.

CONCULSION
A Commercial Bank plays an important role in economy development of the country. In ruler areas they have touched the lives of agriculture & small artisanas. In urban they help small-scale sector in big manners. However over the years they become weak. With a view to grow in competition world, they have to re-orient, the focus the adopt technology to serve the client with tailor made new product coupled with professional management. The need of the hour is re-0rgansiation, consolidation &professional approach .At the same time free form the political interference as well as dual control. Focus on enhancing co-operative economical development. It is high time to bring benefits technology revolution to co-operative sector to enhance their efficiency & bring effective cost saving. In connection with this we can eco the voice of ROYAL COMMISSION ON AGRICULTURE 1928 IF CO-OPERATION IS FAILED, THERE WILL BE FAIL THE HOPE & SCOPE OF INDIA

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COMMERCIAL BANK

As per my view Commercial Banks are really for the people, of the people & buy the people. The co-operative have been recognized has best institution for for cheapest, inexploitative, sound &dynamic credit to small borrowers particularly to priority sector.

BIBLOGRAPHI
BOOK NAME
BANKING REFORM IN INDIA (PROF. D.SURYACHANDRA RAO)

WEB SITES

WWW.GOOGLE.COM WWW.SARASWATBANK.COM

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