Commercial Banking in India

COMMERCIAL BANKING IN INDIA
1.INTRODUCTION
1.1 COMMERCIAL BANKING IN INDIA
Introduction
In the earlier societies functions of a bank were done by the corresponding institutions dealing with
loans and advances. Britishers brought into India the modern concept of banking by the start of Bank
of England in 1694. In 1708, the bank of England was given the monopoly for the issue of currency
notes by an Act. In nineteenth century various banks started operations, which primarily were
receiving money on deposits, lending money, transferring money from one place to another and bill
discounting.
Commercial banks form a significant part of the countrys Financial Institution System. Commercial
Banks are those profit seeking institutions which accept deposits from general public and advance
money to individuals like household, entrepreneurs, businessmen etc. with the prime objective of
earning profit in the form of interest, commission etc. The operations of all these 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 depositers.
In modern economy commercial Banks Play an important role in the financial sector. A Bank is an
institution dealing in money and credit. Credit money is the major component of money supply in a
modern economy. Commercial banks are the creators of credit. The strength of economy of any
country basically depends on a sound and solvent banking system.
A Commercial bank is a profit seeking business firms dealing in money or rather claims to money. It
safeguards the savings of the public and give loans and advances. Examples of commercial banks
ICICI Bank, State Bank of India, Axis Bank, and HDFC Bank.
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1.2 HISTORY OF BANK IN INDIA:

Banking in India has a very old origin. It started in the Vedic period where literature shows the giving
of loans to others on interest. The interest rates ranged from two to five percent per month. The
payment of debt was made pious obligation on the heir of the dead person.
Modern banking in India began with the rise of power of the British. To raise the resources for the
attaining the power the East India Company on 2 nd June 1806 promoted the Bank of Calcutta. In the
mean while two other banks Bank of Bombay and Bank of Madras were started on 15 th April 1840 and
1st July, 1843 respectively. In 1862 the right to issue the notes was taken away from the presidency
banks. The government also withdrew the nominee directors from these banks. The bank of Bombay
collapsed in 1867 and was put under the voluntary liquidation in 1868 and was finally wound up in
1872. The bank was however able to meet the liability of public in full. A new bank called new Bank
of Bombay was started in 1867.
On 27th January 1921 all the three presidency banks were merged together to form the Imperial Bank
by passing the Imperial Bank of India Act, 1920. The bank did not have the right to issue the notes but
had the permission to manage the clearing house and hold Government balances. In 1934, Reserve
Bank of India came into being which was made the Central Bank and had power to issue the notes and
was also the banker to the Government. The Imperial Bank was given right to act as the agent of the
Reserve Bank of India and represent the bank where it had no braches.
In 1955 by passing the State Bank of India 1955, the Imperial Bank was taken over and assets were
vested in a new bank, the State Bank of India.
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Bank Nationalization:
After the independence the major historical event in banking sector was the nationalization of 14
major banks on 19th July 1969. The nationalization was deemed as a major step in achieving the
socialistic pattern of society. In 1980 six more banks were nationalized taking the total nationalized
banks to twenty.
Present scenario of the banks in India:

Banks are extremely useful and indispensable in the modern community. The banks create the
purchasing power in the form of bank notes, cheques bills, drafts etc, transfers funds bring borrows
and lenders together, encourage the habit of saving among people.
The banks have played substantial role in the growth of Indian economy. From the meager start in
1860 the banks have come to long way. At present in India there are 20 nationalized banks, State bank
of India and its seven Associate banks, 21 old private sector banks and 8 new private sector banks.
Besides them there are more than 30 foreign banks either operating themselves or having their
branches in India. The statistical table hereunder shows the financial position of the banks as on
31.03.2005.
Future is bright:
The Information Technology (IT) is becoming an important component of the banking sector. The
customers have become more demanding and they need value added services from the banks. The
foreign banks have raised the expectations of the customers causing the bank to invest strongly on IT.
The Indian banks have started to meet the expectations of the people by opening both onsite and
offsite ATMs. Banks have also started telebanking, anytime/anywhere banking, mobile banking and
Internet banking to give the facilities to the customers. Banks have also following the RBI sponsored
technology programmes like mail messaging, Electronic fund transfers (EFT), Structured Financial
Messaging System (SFMS), (Real Time Gross Settlement (RTGS), Centralized Fund Management
System (CFMS) and Negotiated Dealing System / Public Debt Office (NDS/PDO).
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Banks have been given more teeth to tackle the Non performing assets by passing the Securitisation
and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. Under this
Act, the banks can take over the assets of the defaulters either by themselves or with the help of Court.
The power is in addition to the power to recover through the Debt Recovery Tribunal. The Asset
Reconstruction Companies have been formed which also take over the distress assets from the banks.
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1.3 TYPES OF BANKS:

1. Nationalized Banks:
The Government of India with effect from 19 July 1969 nationalized 14 major Indian Banks, each with
an aggregate deposit of Rs-50 crores or more with a view to to serve better the needs of development
of the economy, in conformity with National Priorities and Objectives.
The following were considered to be the compelling reasons for the Bank Nationalisation:
1. Concentration of wealth and economic power in industrialists and businessmen;
2. Branch expansion was confined only to urban areas with rural areas being neglected;
3. Sectors like agriculture, small scale industries and the other deserving sectors were outside the
purview of lending operations of the bank;
4. Various malpractices indulged in by banks under private ownership and management to favor
big businessmen and industrialists and
5. To give a re-orientation in attitude and outlook of the bankers so as to make them conscious of
social objectives and to make them embrace social banking.
The ordinance through which the Banks were nationalized was struck down by Supreme Court as
unconstitutional and invalid, on grounds of hostile discrimination and illusory compensation. So
the Government addressed these lacunae and Banking Companies {Acquisition and Transfer of
Undertakings} Act, 1970 was introduced.
The fourteen banks covered under this Act of Nationalisation were
1. Central Bank of India Ltd.
2. Bank of India Ltd.
3. Punjab National Bank Ltd.
4. Bank of Baroda Ltd.
5. United Commercial Bank Ltd.
6. Canara Bank Ltd.
7. United Bank of India Ltd.
8. Dena Bank Ltd.
9. Syndicate Bank Ltd.
10. Union Bank of India Ltd.
11. Allahabad Bank Ltd.
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12. Indian Bank Ltd.

13. Bank of Maharashtra Ltd.
14. Indian Overseas Bank Ltd.
Eleven years after nationalization of 14 commercial banks the Government on April 15, 1980 took
over six schedule Commercial Banks each with demand and time liabilities exceeding Rs-200 crores
through an ordinance issued by the President. These banks were
1. Andhra Bank Ltd.
2. Corporation Bank Ltd.
3. New Bank of India Ltd.
4. Oriental Bank of Commerce Ltd.
5. Punjab and Sind Bank Ltd.
6. Vijaya Bank Ltd.
Of these twenty banks nationalized in two installments, New Bank of India got merged with Punjab
National Bank in September 1993. Thus as of today, there are 19 nationalized banks operating in our
country.
Thus, as on date there are totally 19 nationalized banks existing as on date. Nationalized banks
have been permitted to offer their equity shares to the public to the extent of 49% of their capital.
Accordingly, the following nationalized banks offered shares to the public 1. Corporation Bank
2. Bank of India
3. Bank of Baroda
4. Oriental Bank of Commerce
5. Dena Bank
Apart from the above, the following banks coming under the State Bank of India Group, have also
offered shares to the public
1. State Bank of India
2. State Bank of India
3. State Bank of Travancore
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4. State Bank of Bikaner and Raipur

As of September97, nationalized banks contribute 55% of the aggregate deposits of the Banking
System. The contribution of the nationalized banks in the domain of credit of the entire Banking
System is to the extent of 48.5%.
Similarly, as of September97, State Bank of India and its associates, contribute to 25% of the
aggregate deposits of the Banking System and 28.4% of the aggregate credit of the banking system.
Parameter:
Nationalized banks
No of banks( as march97)
No of branches
SBI and its Associates
19
31,398
12,995
Amount of deposits (as march96)
2,37,512 crores
1,13,163 crores
Amount of advances
1,28,644 crores
83,419 crores
2. Private Sector Bank:

By private sector banks we mean those banks where equity is held by private shareholders that is
to say there is no government holding of the equity shares.
This category of banks also occupies a significant position in the Banking Scenario. There are
already 25 private sector banks operating in our country for quite some time. These banks are listed as
under-
1. The Vysya Bank Ltd.

2. The Federal Bank Ltd.
3. The Jammu & Kashmir Bank Ltd.
4. Bank of Rajasthan Ltd.
5. Karnataka Bank Ltd.
6. The South Indian Bank Ltd.
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7. The United Western Bank Ltd.

8. Bank of Madura Ltd.
9. The Catholic Syrian Bank Ltd.
10. The Karur Vysya Bank Ltd.
11. Tamilnad Mercantile Bank Ltd.
12. The Lakshmi Vilas Bank Ltd.
13. The Sangli Bank Ltd.
14. The Dhanalakshmi Bank Ltd.
15. Development Credit Bank Ltd.
16. Bharat Overseas Bank Ltd.
17. City Union Bank Ltd.
18. The Benares State Bank Ltd
19. Bareily Corporation Bank Ltd.
20. Nainital Bank Ltd.
21. The Ratnakar Bank Ltd.
22. SBI Comm.& Int. Bank Ltd.
There has been a growing presence of private sector banks, more so, after the introduction of financial
sector reforms from 1991. Six new private banks listed as under were issued licenses in 1994-95 and
commenced operations during the same year.
1. UTI Bank Ltd.
2. IndusInd Bank Ltd.
3. ICICI Banking Corporation Ltd.
4. Global Trust Bank Ltd.
5. Centurion Bank Ltd.
6. HDFC Bank Ltd.
Again, during 1995-96, the following three banks were issued the licenses and commenced their
operations:
1. Times Bank Ltd.
2. Bank of Punjab Ltd.
3. IDBI Bank Ltd.
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Thus, apart from the twenty-five old private sector banks (already listed above), we have got nine new
private sector banks.
During the period Times Bank ltd. was merged with HDFC bank. However The Nedungadi Bank Ltd.
was merged with one of the nationalise bank i.e. Andra Bank Ltd.
The size of the private sector banks in our country as on date is furnished hereunder. (As at June97)
Number of Private Sector Banks in operation
35
Number of Bank branches of Private Sector Banks
4,473
Amount of Deposits ( as at march96)
31,692 crores
Amount of Advances ( as at march96)
21,588 crores
Private sector banks have been rapidly increasing their presence in the recent times and offering a
variety of newer services to the customers and posing a stiff competition to the group of public sector
banks.
3. Foreign Banks:
The other important segment of commercial banking system is that of foreign banks. Foreign
Banks, being banks registered and headquartered in Overseas Centres, have opened branches in our
country on a continual basis. Even in the initial decades of the century, we had the presence of foreign
banks in our country albeit in a smaller way.
Here again, the presence of foreign banks has rapidly improved after 199, after the advent of the
financial sector reforms.
The statistics relating to foreign banks operating in our country is given below
Number of Foreign Banks operating in our country
41
(as at June97)
Number of Foreign Bank Branches operating in our country
Number of representative offices operating in our country
179
28
Amount of Deposits ( march96)
30,523 crores
Amount of Advances ( march96)
22,746 crores
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The increasing presence of foreign banks in our country has accentuated the competition in the
Banking Industry bringing in the process newer products as well as resulting in improved customer
service. They are employing and enhancing the impact of technology for the growth of business
volumes along with sophisticated service delivery mechanism to the clientele.
As per the present policy measures in force, all the foreign banks together cannot have more than
15% of the total business of the banking industry as a whole.
1.4 TYPES OF DEPOSIT

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1. TIME DEPOSITS
Time deposits may also be termed as Term Deposits as the deposits are made by the customers for a
specific period. Time deposits consist of Fixed Deposits and Recurring Deposits. Term deposits are not
normally withdrawn before the fixed term. Demand deposits, as the name indicated, are those deposits,
which can be withdrawn by the customers at any time without giving notice to the bank. Current
account and Saving bank account fall under this category of demand deposits.
2.FIXED DEPOSITS
Fixed deposits are made by the customers for a specified period, ranging from 15 days to 5 years or
more, the rate of interest ranges from % to 11%. The longer the period of deposit, higher is the rate
of interest. The depositor is assured of the safety of the funds, apart from higher returns. The depositor,
as per the terms, agrees not withdraw the amount earlier. In acknowledgement of the fixed deposit, the
customer is given a receipt called fixed deposit receipt popularly known as FDR in the business
circle. The rules governing fixed deposits are printed on the reverse side of the FDR.
At the end of the term, the customer may either withdraw the amount along with interest or
renew the deposit for a further period at this convenience. Since the customer would withdraw the
funds at the end of the period.
3.RECURRING DEPOSIT ACCOUNT
This is a type of account, which is a combination of the characters of saving bank account and fixed
deposit accounts. In this account, the depositors can pay a fixed sum of money every month for
various periods, say 12 to 120 months. This account is normally opened by salaried persons or
individuals who get regular income. Deposits may be paid in easy installments. The commercial banks
have introduced the Recurring Deposit Scheme to enable the small depositors to save for a
predetermined period. In one way it may be viewed as compulsory savings to enable them to build up
sizeable amount. The bankers allow compound rate of interest. In case the depositor needs the money
even before the stipulated period he can get back the money. In such cases, the banker may pay a
lesser rate of interest than it was agreed upon.
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DEMAND DEPOSITS
(a) Saving Bank Account: As the name indicates, the purpose of opening a savings bank account is to save money to meet the
future contingencies. A person is allowed to open a savings bank account provided he is properly
introduced. The customer is expected to maintain a minimum balance of rs-20/- in his account.
Nowadays, any savings bank account holder who agrees to maintain a minimum balance of Rs-500/in his account may make use of the cheque facilities. The interest is allowed at the rate of 5% on the
minimum balance as in the case of any date as stipulated and the last day of each calendar month. The
rate allowed on savings bank account is 5% p.a. there are some restrictions relating to the number and
amount of withdrawals. The number of withdrawals are generally restricted 100 per year and the total
amount of withdrawals at any time should not exceed Rs-10000 or 10% of the balance whichever is
higher. But if he wants to withdrawal large sum, he should give prior notice to the banker.
Saving Bank Accounts are usually opened in the name of individuals. No saving bank account is
opened for a trading company or a business concern whether such a concern is a proprietory concern,
partnership firm, a company or association.
Nowadays, a banker facilitates the collection of cheques drawn in the name of the customer
through the savings bank account. However, he does not collect third party cheques. A third party
cheque is one, which is drawn in the name of a person other than the customer.
(b) Current Account: A businessman for the purpose of his business normally opens a current account. He should always
maintain such minimum balance in the account. A banker should be doubly cautious to get an
introduction letter from the customer at the time of opening such account. He should also see that such
introductory letters are verified, due to the following reasons: (1) The RBI has given a direction that the prospective customers should produce Introductory letter at
the time of opening the account;
(2) The banker should ascertain the bonafides of the customer;
(3) Since third party cheques are collected through the account, there is a chance for fraud by
unscrupulous elements;
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(4) Since overdraft and cash credit facilities are available, the banker should not be exploited by an
unscrupulous customer.
In a current account the banker is obliged to honour the cheques drawn on him if there is sufficient
balance to his credit. One of the peculiar features of the current account is that the banker does not
allow any interest on the deposits whatever the balance is. However, if the customer overdraws the
account he may have to pay interest to the banker. Overdraft may be granted for a temporary period of
one month or more depending upon the requirements of a customer. Cash credit facility is also
available in the current account.
1.5 GENERAL UTILITY SERVICES

A number of incidental functions are carried on by the commercial banks to help his customers.
(1) Safe Custody of valuables:
One of the important services which a bank renders to his customers is that of keeping valuables of
customers is that of keeping valuables of customers in safe custody including jewellery, share
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certificates, insurance policy, title deeds, gold ornaments, will etc. while banker accepts anything for
safe custody he accepts them under duly sealed box, and banker passes receipt for such deposits. The
safe deposit receipt has to be returned duly discharged when the banker redelivers the boxed/pocket.
The relationship between banker and customer is that of a bailor and bailee. The contract entered into
is a contract of Bailment. In present day banking, bankers are offering locker facility, which is
superior, and hence becoming popular. However, at centres where locker facility is still not available
the articles in safe custody is a service of great value to customers.
(2) Safe Deposit Locker Facilities:
Many banks offer safe deposit locker facility. Under the arrangement, a customer hires a locker
cabinet, which is kept by the bank for the purpose. Lockers are generally kept in strong room, which is
a water proof/ fireproof place. There are different sizes of lockers like small, medium, large and extra
large, etc. The locker rent is recovered for a year in advance and depends on the size of the locker.
A locker hirer has to sign an agreement on Rs-10/- stamp paper with the bank. Thereafter, a locker is
allotted to him. The locker has two keys. The master key is kept by the bank whereas the other key is
given to the customer. There is no duplicate key available for the customer. In case, it is lost, the locker
has to be broken open at the cost of the customer.
The locker is a most essential facility in cities and urban places and even in villages for safe keeping of
valuables. The locker system is superior to safe custody system because customer can keep anything
the customer chooses to keep, he need not inform banker about the contents. It can be operated on
locker, no need to seal, pack the contents etc. the charges are very nominal. Small locker with SBI
costs Rs-100/- per annum.
(3) Transfer of Money:

Money may be transferred from one place to other through the bank in the following ways. The
customer may purchase a bank draft drawn in favor of the payee. The procedure for purchasing a draft
from the bank is a simple one. A form for obtaining a draft should be filled in by entering the required
particulars. The amount payable to the payee along with the commission should be paid into the bank
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account. The banker will issue a bank draft in the name of the payee. A bank draft is nothing but a
cheque issued by one banker ordering the other branch of his bank to pay the specified sum of money
to the payee mentioned therein. The customer can send this by registered post to the payee who can
collect the draft through his account or collect cash if it is not crossed in the respective branch.
(4) Mail Transfer:

The customer can transfer funds from one place to another through mail transfer or telegraphic
transfer. Mail transfer is a method by which the customer requests his banker to transfer a portion of
the balance in his account to the payees account, kept in a different place in the same bank for a
nominal commission. After receiving the customers instruction the banker arranges to send an advice
to the concerned bank manager, through mail, asking him to credit the account of the payee with
certain amount as instructed by his customer.
(5) Rupee Travellers cheque:
Various banks have introduced the system of issuance of Rupee Traveller Cheque to serve customer as
also to get float fund. It helps in minimizing the risk of carrying cash by people while travelling.
American Express Company was the first to issue travellers cheques. The RTCs are issued in the
denominations of Rs-100/-, Rs-200/-, Rs-500/- and Rs-1000/-.
The Rupee Traveller Cheques are popular instruments as these are accepted at banks, hotels, airports,
petrol pumps, and departmental stores without identification by simply putting the signature on the
travellers cheque. Rupee Travellers Cheques issued by one bank can be encashed with other bank
when such arrangement is made.
(6) Acting as Referees:

When a seller intends to sell his goods to an unknown buyer, he may do so only after knowing the
financial standing of the buyer. In this case, the buyer would request his bank to reveal his financial
standing when an enquiry is made by the seller. The bank may respond to such an enquiry only with
the customers consent.
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(7) Merchant Banking:

Some commercial banks have also started Merchant Banking Division in order to assist new industries
to obtain various types of information and plan out their promotional activities. The banks assist the
promoters to obtain technical data relating to feasibility, market demand and other relevant
information. Banks also underwrite shares and debentures of companiesMerchant bankers act as
trustees on behalf of debenture holders when company issue secured debentures.The merchant bankers
manages the portfolio on behalf of their corporate, non-corporate clients, sales and purchases of
securities and provide market intelligence advisory services to them they provide on lease all types of
industrial and non-industrial equipements.
(8) Teller system:
The reputation of the bank depends on its ability to satisfy the customers at the counter. Acceptance of
cash and payment of cheques are the two important services at the counter. The customer feels irritated
if he is made to wait for a long time either at the time of deposit or withdrawal of cash. Some banks
have even put up a notice at the bank assuring their customers that the cheques could be encashed
within a specified time. However, it is often felt that the waiting time at the counter is longer and
should be reduced. In order to minimize the waiting time of the customers, the Teller System has been
introduced. Under this system, the teller examines the cheques presented to him and pays the cheques
to the holders on identification. In case of doubt, he may refer to the records. Some banks allot codes
on cheque forms based on the creditworthiness of the account-holders. In case of doubt about the
balance in the customers account, the teller may direct the presenter to the accounts counter where the
cheque will be dealt with.
The teller combines himself the twin functions of passing the cheque and paying the cash. Many banks
have fixed a ceiling on the amount of the cheque paid by the bank.
(9)Automatic Teller Machine:

Automatic Teller Machine is an important introduction for better customer service from the year 1990.
With the opening up of trade business and Indian economy many facilities which were being enjoyed
by the users in Western countries have been provided first by the foreign banks like Citi Bank,
Grindlays Bank and now by many private and public sector banks in India.
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In order to provide better customer services and sometimes vesting energy and ordeal in waiting in
long queues for depositing money in bank account and making withdrawal from his bank account,
Teller System was introduced, whereby a special Receipt-Payment counter was opened and a Teller
was authorised to accept cash up to Rs-5000/- and make payment up to Rs-2000/- to the personal
account holder. To meet ever-increasing demand of efficient and finest services some of the foreign
banks have introduced ATM instead of manning Teller Counters as their banking transactions have
been computerized by them. Thus ATM is Mechanised Teller System for making payment and deposits
of cash. It has replaced manual operations.
A customer has been given a plastic-metal card, which contain chip-a magnetic strip, which is required
to be inserted in a Teller Machine, which decode the code number. Customer has been given a specific
code number for his identity. For operation he uses his designated code number by pressing keys on
the machine upon which he can be permitted to
(a) Withdraw cash up to the specific limit- say Rs-2000/-, Rs-5000/- in multiples of
Rs-10/- or
Rs-50/- or Rs-100/- in round sum amount.

(b) Deposit cash in his account in round sum amount.
(c) Deposit cheques in his account.
The machine is loaded by adequate quantity of cash in various denominations in multiples say Rs-10/-.
Customers can withdraw cash after the identification process by pressing button and cash comes out.
As the teller computer machine is linked with a computer, the operation of withdrawal or deposit is
automatically get posted in his account and transaction slips comes out from the Teller Machine which
is a record for customer towards the transaction made by him. Computer slip furnishes the details of
opening balance, type of transaction made and the balance in the account. Thus all functions of
counting of cash, effecting payment to the customer, receiving of cash from the customer, debit or
credit posting and accounting work, issue of transaction slip in token of withdrawal/deposit of cash
and more so advising the balance in the account is done by the machine.
(10) Various types of Cards:
Following types of cards are available in India:
Credit Card:
The credit card is an instrument, which enables the cardholder to obtain goods or services from shops
and establishments where arrangements have been made by issuing bank to reimburse them. The
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goods and services are bought by the cardholders from shops and establishments upon presentation of
card instead of cash or cheque for settlement of their bills up of specified amount fixed the cardissuing bank. Such bills are sent for settlement by the shops and establishments to the card-issuing
bank, monthly or periodically for obtaining reimbursement. Card issuing bank upon receipt of such
bills from shops and establishments for reimbursement settle it by debiting the customers account.
Thus cardholder gets credit for 30 to 45 days free of cost.
Cash Card:
Certain banks issue Cash Cards in addition to Credit Card which enable holder of card to draw certain
amount of cash from the branch office, of the card issuing bank or now from ATM installed by the
bank at various places.
Smart Card:
This type of cards are also known as Chip Card. With the increasing computerized network, banks
extend the Chip Card facilities to the select customers. The Smart Card is a microcomputer chip giving
its intelligence and a memory capacity much more than usual magnetic cards. Smart card has much
computing power of Personal Computers. It has storage capacity of all types of personal data of the
cardholder. Smart Card can be used with a Personal Identification Number (PIN). The Smart Card can
be programmed to do any task within its processing power and memory capacity. It is a Data Carrier
Identity Card and also meant for using for monetary transactions like payment of hotel bills, electricity
bills.
Co-Branded Cards:
This type of credit cards are those which banks promotes jointly with another financial agencies, like
Master Card, BOB Card, Diners Card, Taj Card, Bank of India BOI Card. These types of Cards are
used with other non-financial institutions, which enables the cardholder to claim discount in price for
the use of card.
Debit Card:
Debit Card is also known as a Payment Card used to obtain cash, goods and services automatically
debiting the payments to the cardholders bank account immediately.
Charge Card:
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Charge Card is a type of card in which card holder is required to settle the outstanding in full at the
end of a short period within 25-30 days to the extent of certain amount say Rs-5000/- to Rs-10000/- at
one time.
(11) Collection and payment of pension:

The bank offer services for collecting and payment of pension from the paying authority or other
banks, which are authorised to effect payment of the pension. Similarly, as per the amounts, banks are
paying the pension by crediting the amount on every month in the beneficiaries account. For the above
purpose the beneficiaries are required to authorize the bank to collect the pension regularly and credit
the payment in his account.
The banker while accepting the pension on every month ensure regularly the living condition of
the pensioner. He should be called every month or at least a valid certificate of life should be obtained.
(12) Mutual Funds:

The concept of mutual funds is to pool the resources of a group of persons for purposed of
investment in securities to achieve growth and higher yield. In order to achieve the above, they employ
funds managers who judiciously employ the funds in stocks and securities. In India, the Unit Trust of
India introduced the first mutual fund. Thereafter, there was no other mutual fund till the late eighties.
The SBI started the second mutual fund, closely followed by Canara Bank, PNB and LIC. These
mutual funds float in the market. Growth oriented schemes, which are either open-ended or closeended, and the rate of return is fixed or floating. The mutual funds growth has, in fact, affected the
growth of banks deposits in view of the higher rates of returns offered by the mutual funds. Although
at present, the mutual funds are in the public sector, the Government is considering the question of
permitting the private sector to float mutual funds
1.7 OBJECTIVE OF STUDY
Before beginning any research work, it is important to finalize the objectives because it helps in
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deciding the required data and its characteristics. The objectives of any research work should be
specified clearly, because it saves us from any problem arising later and also saves our money and
time. The main objectives of the present study are as follows:(1) To study the present position of selected Commercial Banks,
(2) To emphasis the growth profile of selected commercial banks,
(3) To study the over view of banking sector in India,
(4) To discuss the various schemes of deposits in selected bank,
(5) To study the various schemes of finances provided by selected banks,
(6) To emphasis the appraisal of schemes of loans and advances of selected banks,
(7) To analysis the various schemes of selected banks,
(8) To examine the various trends of selected banks and its analysis,
(9) To identify the various problems faced by the selected banks, and
(10) To suggest a few parameters for the possible improvement in selected banks.
1.7 SCOPE OF THE STUDY
The selected banks related to the present research study are important banks of banking sector.
For the deep study of area of the present research study, it includes Brief Profile of Commercial
Banks, Various Deposit and Loan Schemes of Commercial Banks, Various Services Provided by
Commercial Banks and Analysis of Various Schemes and Services in Commercial Banks
II.CONCEPTUAL FRAMEWORK
2.1MEANING
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A commercial bank is a type of financial institution that provides services such as accepting
deposits, making business loans, and offering basic investment products.
"Commercial bank" can also refer to a bank, or a division of a large bank, which more
specifically deals with deposit and loan services provided to corporations or large/middle-sized
business - as opposed to individual members of the public/small business - retail banking,
or merchant banks.
2.2 ORIGIN OF COMMERCIAL BANK
The name bank derives from the Italian word banco "desk/bench", used during
the Renaissance era by Florentine bankers, who used to carry out their transactions on a desk
covered by a green tablecloth.[1] However, traces of banking activity can be found even in
ancient times.
In the United States the term "commercial bank" was often used to distinguish it from
an investment bank due to differences in bank regulation. After the Great Depression, through
the GlassSteagall Act, the U.S. Congress required that commercial banks only engage in
banking activities, whereas investment banks were limited to capital market activities. This
separation was mostly repealed in 1999 by the GrammLeachBliley Act but was restored by
the Volcker Rule, implemented in January 2014 as part of the Dodd-Frank Act of 2010.
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2.3 FUNCTIONS OF COMMERCIAL BANKS

Modern commercial banks perform a variety of functions. They keep the wheels of commerce, trade
and industry always revolving. Major functions of a commercial bank are: - Primary or Banking
functions and Secondary or Non-Banking functions.
FUNCTIONS OF COMMERCIAL BANKS

1. Primary
2. Secondary
3. Subsidiary Activities
4. Deposits Loans & Advances
5. Agency Services
6. Utility Services
1. Primary / Banking Functions :Commercial banks have two important banking functions. One is accepting deposits and other is
advancing loans.
1)
Deposits :-
One of the main function of a bank is to accept deposits from the public. Deposits are accepted by the
banks in various forms.
a)
Current Account Deposits :-
Current Accounts are usually opened by businessmen who have a number of regular transactions with
the bank, both deposits and withdrawals. There is no restriction on number and amount of deposits.
There is also no restriction on withdrawals. No interest is paid on current deposits. Banks may even
charge interest for providing this facility. These accounts are also known as demand deposits as
amount can be withdrawn on demand.
b)
Saving Account Deposits :-
Saving Accounts are opened by salaried and other less income people. There is no restriction on
number and amount of deposits. withdrawals are subject to certain restrictions. It earns Interest but less
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than fixed deposits. It encourages saving habit among salary earners and others. Saving deposits are an
important source of funds for banks.
c)
Fixed Account Deposits:-
Deposits in fixed account are time deposits. Money under this account is deposited for a certain fixed
period of time varying from 15 days to several years. A high rate of interest is paid. If money is
withdrawn before expiry date, the depositor receives lower rate of interest. Deposits can be renewed
for further period. Many banks sanction loans against security of fixed deposits.
d)
Recurring Account Deposits :-
In Recurring deposit, a specified amount is regularly deposited by account holder, at an internal of

usually a month. This is to form the habit of small savings among the people. At the end of maturity
period, the account holder gets a substantial amount. Interest on this type of deposit is almost equal to
fixed deposits.
Thus by creating variety of deposits, banks motivate people in a variety of ways and encourage
savings in the economy.
2)Loans And Advances :Banks not only mobilize money but also lend to its credit worthy customers for maximizing profits.
Loans and Advances are granted To:-
Business And Trade:Commercial banks grant short-term loans to business and trade activities in following forms:I) Overdraft:-
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Commercial banks grant overdraft facility to current account holders Under this system a borrower
is allowed to draw more than what is deposited in his account. The borrower is granted to a fixed
additional amount against collateral security. Interest is charged for actual amount drawn.
ii) Cash Credit :Cash credit is given by the bank to any businessman to meet regular working capital needs, against
the security of goods or personal security. Interest is charged on actual amount drawn by the customer.
iii)Discounting Of Bills :When the holder of the bill is not in a position to wait till the maturity of the bill and requires cash
urgently, he sells the bill of exchange to bank. Bank advance credit by discounting bills of exchange,
government securities or any other approved financial instruments. The bank purchases the
instruments at a discount.
iv)Money At Call :Banks also grant loans for a very short period, generally not exceeding 7 days. Such advances are
repayable immediately at a short notice hence they are called as Money at Call or Call money. These
loans are given to dealers or brokers in stock market against Collateral Securities.
v)Direct Loans :Loans are given to customers against the security of moveable properties. Their maturity varies
from 1 to 10 years. Interest has to be paid on entire loan amount sanctioned. Loans are of many types
like :- personal loans, term loans, call loans, participative loans, collateral loans etc.
b) Loans to Agriculture :Banks grant short-term credit to agriculture at a lower rate of interest. Loans are granted for
irrigation, purchase of equipments, inputs, cattle etc.
c) Loans To Industries :-
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Banks grant secured loans to small and medium scale industries to meet their working capital needs.
The time period may be from one to five years. It may be in the form of Overdraft, cash credit or direct
loan.
d) Loans To Foreign Trade :Loans are granted to export and import in the form of direct loans, discounting of bills, guarantee for
deferred payments etc. Here the rate of interest is low.
e) Consumer Credit / Personal loans :Banks also grant credit to household in a limited amount to buy some durable consumer goods like
television sets, refrigerators, washing machine etc. Such consumer credit is repayable in installments.
Under 20-point programme, the scope of consumer credit has been extended to cover expenses on
marriage, funeral etc., as well.
f) Miscellaneous Advances :Banks also gives advances like packing credits to exporters, export bill purchased or discounted,
import finance, finance to self-employed, credit to weaker sections of society at concessional rates etc.
II. Secondary / Non-banking Functions :Banks gives various forms of services to public. Such services are termed as non- banking or
secondary functions :-
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1. Agency Services:Banks perform certain functions on behalf of their customers. While performing these services, banks
act as agents to their customers, hence these are called as agency services. Important agency functions
are :-
a) Collection :Commercial banks collect cheques, drafts, bills, promissory notes, dividends, subscriptions,
rents and any other receipts which are to be received by the customer. For these services banks charge
a nominal amount.
b) Payment :Banks also makes payments on behalf of their customers like paying insurance premium, rent,
taxes, electricity and telephone bills etc for such services commission is charged.
c) Income Tax Consultant :Commercial banks acts as income-tax consultants. They prepare and finalise the income tax
returns of their clients.
d) Sale And Purchase Of Financial Assets :As per the customers instruction banks undertake sale and purchase of securities, shares
and any other financial assets. Nominal charges are charged by a bank.
e) Trustee, Executor And Attorney :As a trustee, banks becomes the custodian and manager of customer funds. Bank also acts
as executor of deceased customers will. As an Attorney the banks sign the documents on behalf of
customer.
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f)E- Banking :Through Electronic Banking, a customer can operate his bank account through internet. He
can make payments of various bills. He can even transfer money from one place to another.
2.
Utility Services :Modern Commercial banks also performs certain general utility services for the community, such
as :a) Letter Of Credit :Banks also deal in foreign trade. They issue letter of credit and provide guarantee to foreign
traders for the soundness of their customers.
b) Transfer Of Funds :Banks arrange transfer of funds cheaply and safely from one place to another. Transfer can be
in the form of Demand draft, Mail transfer Travellers cheques etc.
c) Guarantor :Banks offer a guarantee of payment on behalf of importer to facilitate imports with deferred
payments.
d) Underwriting :This facility is provided to Joint Stock Companies and to government to enable them to raise
funds. Banks guarantee the purchase of certain proportion of shares, if not sold in the market.
e) Locker Facility :Safe Lockers are provided to the customers. So that they can deposit their valuables like
Jewellary, Securities, Shares and other documents.
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f) Referee :Banks may act as referee with respect to financial standing, business reputation and
respectability of customers.
g) Credit Cards :Credit card facility have been introduced by commercial banks. It enables the holder to
minimize the use of hard cash. Credit card is a convenient medium of exchange which enables its
holder to buy goods and services from member establishment without using money
III.Subsidiary Activities :Many commercial banks also undertakes subsidiary activities such as :1)
Housing Finance :-
Housing finance is provided against the security of immoveable property of land and buildings. Many
banks such as SBI, Bank of India etc. have set up housing finance subsidiaries.
2)
Mutual Funds :-
A Mutual fund is a financial intermediary that pools the savings of investors for collective investment
in diversified portfolio securities Many banks like SBI, Indian Bank etc. have set up mutual fund
subsidiaries.
3)
Merchant Banking :A variety of services are offered by merchant banking like :-
Management, Marketing and Underwriting of new issues, project promotion, corporate advisory
services, investment advisory services etc.
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4)
Venture Capital Fund :-
Venture capital fund provides start-up share capital to new ventures of little known, unregistered, risky,
young and small private business, especially in technology oriented and knowledge intensive business.
Many commercial banks like SBI, Canara Bank etc. have set up venture Capital Fund Subsidiaries.
5)
Factoring :-
Factoring is a continuing arrangement between a financial intermediary (factor) and a business

concern (client) whereby the factor purchases the clients accounts receivable. Banks like SBI and
Canara Bank have established subsidiaries to provide factoring services.
Thus various services are provided by commercial Banks.
CLASSIFICATION OF COMMERCIAL BANK

1. Scheduled banks :- Banks which have been included in the Second Schedule of RBI Act
1934. They are categorized as follows:
o Public Sector Banks :- are those banks in which majority of stake is held by the
government. Eg. SBI, PNB, Syndicate Bank, Union Bank of India etc.
o Private Sector Banks :- are those banks in which majority of stake is held by private
individuals. Eg. ICICI Bank, IDBI Bank, HDFC Bank, AXIS Bank etc.
o Foreign Banks :- 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.
2. Non scheduled commercial banks :Banks which are not included in the Second Schedule of RBI Act 1934.
2.4 INNOVATION INTRODUCTION IN COMMERCIAL BANK

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Indian banking system has well developed over the last five decades. Indian banking system is
considered one of the best systems in emerging economies. After nationalization of major Indian
scheduled commercial banks in July 1969, Indian banks were assigned higher responsibility in the
planned development particularly the alleviation of poverty through the extension of credit support and
geographical expansion of bank branches network. At the time of nationalization of banks in 1969,
total number of banks branches were about 8000. These branches were mostly located in urban and
metropolitan areas. The number of branches in rural areas was negligible. Therefore, this first priority
assigned to banks in post nationalization was to expand banking activities in rural areas to meet the
growing requirements of agricultural sector and allied activities. As a result of new thrust in banking
system, today the number of bank branches have crossed the number of 60,000 branches. Further, at
the time of nationalization of banks, the share of bank credit to agricultural sector and other weaker
section of the society was only 2% of total bank advances. As a result, the thrust of bank lending was
given on lending to priority sector and weaker sections of society. Initially banks were advised to
achieve the target of 331/3% of total bank advances. In 1985, the ratio of lending to priority sector was
raised to 40%. Today banks are required to lend at least 40% of their advances to priority sector.
Further, banks were assigned to achieve sub-targets under the priority sector to ensure that the directed
flow of credit goes to particular sectors like agriculture, small scale industries, lending under
differential interest rates, housing, exports, etc. As a result of this strategy, there was an accelerated
flow of credit to thrust areas. For achieving the target set by the RBI, banks were required to adopt
innovative banking practices. Initially banks adopted following innovative measures to ensure flow of
credit to thrust areas:
(1) Credit camps:
Banks organized credit camps in different areas to identify potential borrowers and disburse the
credit expeditiously. This system was good to disburse the credit to weaker sections and thrust areas.
However, credit camps affected the quality of lending. As a result, credit was given to many
undeserving borrowers. Hence, this system resulted in poor recovery and banks were affected by
overdues and non-performing assets. Now, the system of Credit Camps has been discontinued.
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(2) Schematic Lending:

Banks were advised to adopt schematic lending for priority sectors. Banks, accordingly, prepared
schemes for lending to various thrust areas through formulation of viable schemes.
(3) Lead scheme:
The RBI started a lead scheme under which districts were assigned to different banks. Lead Banks
were advised to prepare credit plan for the district after making assessment of the developmental
potentialities of the district. Under the Lead Bank Scheme, the lead bank has responsibility for
coordination among all banks and financial institutions in the district.
(4) Service Areas Approach:
In order to assign the responsibility of ensuring flow of credit in a particular area, a new method
called Service Area Approach was introduced. Under the SAA, a particular branch of a commercial
bank is assigned certain areas viz. 15-16 villages and the particular branch was required to coordinate
with other banks in the area.
(5) Differential Interest Rate Scheme:
Banks required to extend credit to very poor people who are below the poverty line at concessional
interest rate of 4%. In order to ensure that banks make adequate lending under DIR scheme, a target of
1% bank advances has been fixed.
(6) Directed Lending:
In order to provide credit to certain sectors of high priority, the RBI has adopted a system of
directed lending. Under this scheme, banks have to achieve certain minimum targets. Directed credit is
provided for sectors covered under priority sectors like agriculture, small scale industries, housing,
exports etc. at present banks have been advised to lend at least 40% to priority sectors and 12% to
exports. The RBI regularly monitors the flow of credit to the directed sector and takes appropriate
measures in case of any default in meeting these targets.
(7) Mobilisation of deposits:
For mobilisation of deposits at competitive interest rates, banks are paying interest on short-term
deposits up to a period of 15 days. Further, banks have been offering interest rate on deposits on the
basis of size of deposits. Thus, the banks can offer higher interest rates of large sized deposits. In order
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to help customers in deposit mobilisation, some banks are even mobilising deposit on telephone from
houses. Customers are, therefore, not required to visit bank offices. Even within term deposits, banks
are offering flexibility to customers. As a result, in case of withdrawal of a part of term deposits,
customers do not have to loose entire interest on deposits.
Banks are also mobilising deposits through issue of certificates of deposit. The certificates of deposits
are a negotiable instrument and investors can transfer to others. Similarly, banks are issuing stock
invest to investors who want to invest in equities. In case of stock invest, the depositors or investors
continue to get interest on the amount till the allotment of shares by the company.
Many banks have set up subsidiaries to undertake merchant banking, leasing and hire purchase
business. Some banks are setting up subsidiaries to take up securities broking business. Some banks
have issued credit cards, which brings good income to banks on utilization of such card by customers.
Lending: Like deposit mobilisation, banks have developed many innovative methods for lendings.
Now days, security is not a prime consideration for lending. Banks lend money directly and indirectly.
For example, for housing purposes, banks lend directly to customers. Similarly, banks subscribe to
bonds floated by Housing Finance Companies, which are utilized for lending to houses. Similarly
banks can lend directly to farmers for electrification of wells or to State Electricity Boards or Rural
Electrification Corporation for lending funds for electrification.
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2.5 LENDING OF FUNDS

A shrewd banker should be able to employ his funds profitably. He should lend the deposit to
others, keeping in mind the principles of lending viz. Safety, liquidity and profitability
Methods of lending: (a) Overdraft:Overdraft is an arrangement whereby the banker under prior arrangement and request allows a
customer to overdraw his current account. Generally, this system is resorted to in case of temporary
accommodation needed by individual customer or personal segment customer. The facility is
repayable on demand and is determined by the arrangement arrived at between banker and customer.
Overdraft may be clean or secured depending on the banks relationship with the customer. It is
perhaps quickest and easiest method of granting an advance. Generally this systems not favoured for
other advances.
Overdraft are granted against Govt. securities, shares, debentures, banks own term deposit receipts,
life insurance policies, etc. While clean overdraft does not require any documents.
(b) Cash Credit: This is most popular system of financing loans for the purposes of meeting working capital needs. This
is a short-term finance, which is repayable on demand. The customer withdraws funds when he needs
the funds and deposits cash left with him or sales realisation in his cash credit account. The cash credit
facility is continuing one where loan gets repaid with every production cycle viz. From cash to raw
material to finish goods, finish goods to bills and bills to cash. Since cash credits are repayable on
demand there is no fixed installment towards repayment. In effect, therefore, cash credit accounts
continue for longer period. However, these accounts are reviewed every year by the bank and
decision on continuation of or otherwise of the cash credit is taken. In case any of the stipulation of
loan is not followed or if there is any breach of agreement bank can call up the advance and call upon
the party to repay entire loan at short notice.
Under the cash credit system level of advance or maximum limit up to which a unit can draw is
determined based on level of activity of the borrowing unit. The limit so fixed is available to borrower
subject to availability of adequate security to cover the loan after complying with the margin
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requirements. The customer is required to regulate his drawings in accordance with the terms and
conditions of sanction and the banker on his part satisfies that everything is alright by calling
periodical statements from the borrower and by monitoring the loan account and movement of funds.
(c) Discounting Of Bill of Exchange: This is one of the familiar methods of granting short-term loans to businessmen. In the case of a credit
sale, the buyer or his bank may accept the bill. The holder may discount the bill before the due date.
The banker will present the bill to the acceptor on the due date and collect the amount. In case the
acceptor fails to pay, the banker will debit the customers account.
For e.g. in a particular transaction company A supplies goods to company B. Company B accepts
the goods, also accepts the bill of company A and agrees to pay after specified credit period.
However, A requires money immediately. He approaches a banker who pays him up front against that
accepted bill. Banker does not pay him full amount but adjusts its interest payment for the value and
period and pays A. This is called, as banker discounts the bill. This is a fund-based facility as banker
actually pays up front. Supplier has to get prior limit set for such bill discounting facility. Discounting
may be done either by suppliers banker or purchasers banker. It is diagrammatically represented as
follow:
(d) Loans and Advances: The banker may grant advances to the customer on the basis of certain securities as cover for advances
made by them. There are different types of advances provided by bank such as, trust receipt, term
lending, export finance etc.
Packing credit is an advance, which is made by the banks at the pre-shipment stage for financing
an exporter customer. Under this scheme, the banker sanctions facility to the exporter to purchase raw
materials for processing and for packing it, thus making the goods ready for export. This type of
facility is granted generally against an irrevocable letter of credit opened by the foreign buyers in favor
of the Indian supplier or against firm contracts of the foreign buyer. The packing credit advance is
generally allowed for a period of 90 days within which period the exporter is expected to manufacture
and ship the goods.
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Term lending means giving an advance, which is not repayable on demand but is repayable over a
period of time. Term loans are basically meant for financing part of the capital costs of the projects, the
fixed assets which are acquired out of share holding or Directors contribution. Term loans available
from various financial institutions help the promoter to carry on its manufacturing activities, earning
profits and out of such profits so generated repay the liability under the term loans. Fixed assets are
offered as security by way of different types of mortgage for granting such advances.
Various other kinds of collateral securities are offered to a bank by its customers as cover for
loans and advances, which are explained below: a. Hypothecation: - under this mode of security, the banks provide credit to borrowers
against the security of movable property, usually inventory of goods. The goods
hypothecated, however, continue to be in the possession of the owner of these goods. The
rights of the lending bank depend upon the terms of the contract between the borrower and
the lender. Although the bank does not have physical possession of the goods, it has the
legal right to sell the goods to realize the outstanding loan. Hypothecation facility is
normally not available to new borrowers.
b. Pledge: - pledge, as a mode of security, is different from hypothecation in that in the
former, the goods which are offered as security are transferred to the physical possession of
the lender. An essential prerequisite of pledge, therefore, is that the goods are in the custody
of the bank. The borrower who offers the security is called a pawnor (pledgor), while the
bank is called the pawnee (pledge). The lodging of the goods by the pledgor to the pledge
is a kind of bailment. Therefore, pledge creates some liabilities for the bank. It must take
reasonable care of goods pledged with it. The term reasonable care means care, which a
prudent person would take to protect his property. He would be responsible for any loss or
damage if he uses the pledged goods for his own purposes. In case of non-payment of the
loans, the bank enjoys the right of sell the goods.
c. Lien: - the term Lien refers to the right of a party to retain goods belonging to another
party until a debt due to him is paid. Lien can be of two types: Particular Lien and General
Lien. Particular Lien is a right to retain goods until a claim pertaining to these goods is
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fully paid. On the other hand, General Lien can be applied till all dues of the claimant are
paid. Banks usually enjoys General Lien.
d. Mortgage: - it is the transfer of a legal/equitable interest in specific immovable property
for securing the payment of debt. The person who parts with the interest in the property is
called mortgagor and the bank in whose favor the transfer takes place is the mortgagee.
The instrument of transfer is called the mortgage deed. Mortgage is, thus, conveyance of
interest in the mortgaged property. The mortgage interest in the property is terminated as
soon as the debt is paid.
e. Letter of Credit:
f. This can be explained with the help of example. If supplier X is supplying goods to Buyer
Y, buyer Y would wish to get credit from X. X does not have his regular supply to Y and
hence perhaps does not have enough comfort to extend credit to Y. In such case banker of Y
may come forward to guarantee payments to X on behalf of Y. Since the payments are
guaranteed by a bank, X would not hesitate to extend credit to Y.
( f ) Export Finance: Export of goods and services are considered most important segment of
economic activities. The performance and success of export trade, therefore, depend to a large extent
on the availability of finance and cost of credit. In India, exports have been given top priority in
allocation of credit. Commercial banks are the major source of finance for exports. Banks provide
various types of credit facilities to ensure that they can meet all the requirements of exporters.
Commercial Banks provide following types of credit to exporters:
(1) Pre-shipment Credit or Packing Credit:
The pre-shipment credit is provided before the shipment of goods for exports. Before shipment of
goods, exporters need finance for purchasing raw material etc. in domestic markets or even in
international markets for manufacturing of goods for exports. Usually, pre-shipment credit is given
credit against firm export orders. In some cases, where there is continuous flow of orders for exports
or exporters have to procure materials in advance or during particular season etc. banks provide
packing credit even without firm export order depending upon the performance of the exporters in the
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past. Usually pre-shipment finance is provided for 180 days or six months at concessional interest rate.
In some type of exports where the manufacturing of goods takes more than six months, banks provide
pre-shipment credit is liquidated through the sanction of post-shipment credit.
Post-shipment Credit:
At the time of shipment of credit, pre-shipment credit is liquidated and exporters are provided credit
against export bills in the form of post-shipment credit. Post-shipment credit is usually given against
the bills accepted by the importers or export bills. In case of Usance Bills, concessional credit is
provided up to 90 days and higher interest rate is charged for the period beyond six months.
(3) Credit against Duty Drawback:
Government provides incentives to exporters in the form of exemption of export goods from
various taxes and duties imposed on goods. In many cases, exporters have to pay taxes and duties
initially on goods manufactured for exports and thereafter; they have to claim refunds from
government. As refund of taxes take sometime, exporters need some financial support. Therefore,
banks provide credit against such duty drawbacks.
(4) Export Credit in Foreign Currency:
Usually exporters are provided credit in domestic currency i.e. Indian rupee. When exporters
receive export proceeds in foreign currency, they sell the foreign currency to banks and liquidate their
export credit. Now, exporters have been given option that they can get export credit in Indian rupee or
in Foreign Currency. In case of export credit in foreign currency, bank charge interest rates related to
LIBOR i.e. London Inter-Bank Overnight Rates. Exporters, who prefer to have export credit in foreign
currency, they have to repay their outstanding export credit in foreign currency. Under this facility
exporters get export credit at international interest rates. However, exporters would not get the
advantage of any depreciation of rupee in exchange market.
(5) Interest Rates on Export Credit:
As mentioned earlier export credit is provided at concessional interest rates. However, the benefit
of concessional interest rate is given only for a limited period. If the exporters delay in the remittances
of export proceeds, banks charge higher interest rate and even penal interest rate.
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2.6 CREDIT CREATION BY COMMERCIAL BANKS:Creation of credit is an important function of a commercial bank. Prof. Sayers said Banks are not
merely purveyors of money but, also in an important sense manufacturers of money. In a modern
economy Banks deposits form a major proportion of total money supply.
A banks demand deposits arise mainly from :- Cash deposits by customers and Bank Loans and
Investments.
1.
Cash Deposits By Customers :These are termed as primary deposits as they arise from the actual deposits of cash in a bank
made by its customers. In receiving such deposits, the bank plays a passive role. The creation of
primary deposits, however is nothing but transforming the currency money in to deposit money.
2.
Bank Loans And Investments :These are termed as derivative or active deposits. The derivative deposits are lent in the form
of loans or advances, discounting of bills or used for purchasing securities or other assets.
Deposit account in the name of the customer or seller, credits him with the amount of loan
granted or value of security purchased, subject to withdrawal by cheque, as required. Hence loans
advanced or purchases of securities creates deposits.
Thus every loan creates a deposit. They increase the quantity of bank money. The size of
derivative demand deposits is determined by the banks lending and investment activities. There will be
a constant inflow and outflow of cash with the banks. For the sake of liquidity and safety some
proportion of total deposit must be maintained in cash, for e.g. :- 10% to 20% to meet the demand for
cash at the counter. This is known as Cash Reserve Ratio.
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Primary deposits serve as a basis for creating derivative deposits, that is credit creation, and
for increasing money supply. Commercial banks are profit seeking institutions and when they find that
large volume of cash received lies Idle, they use these resources for advancing loans or for making
investment in securities, shares etc. there by earning high rate of interest. The creation of credit also
depends on excess cash reserves or cash reserve ratio. The derivative deposits are used as working
capital.
When the borrower withdraws money from his loan account by cheque it is deposited by
the payee in some other bank. Those banks again create deposit on the basis of fresh deposits received
after keeping required reserves. Ultimately, the total volume of credit or derivative deposits or bank
money created by all banks would be a multiple of the original amount of new cash reserves in the
system. Thus multiple expansion of credit takes place.
LIMITATIONS OF CREDIT CREATION :Commercial banks do not have unlimited powers of deposit or credit creation, because their
activities in this direction are subject to a number of restrictions, such as :1)
Amount Of Cash :The larger the amount of cash with banking system, the greater will be the excess funds, and
that larger will be the credit creation power of the bank. The banks power of creating money or credit
is thus limited by cash it can get in its hands on, primarily through primary deposits.
2)
Cash Reserve Ratio :Higher the cash reserve ratio, smaller the volume of credit creation and vice versa. If CRR falls
to a certain minimum, then power of the banks to create credit is limited.

3)
External Drain:External drain refers to the withdrawal of cash from the banking system by public. Every rupee
in cash that is withdrawn from the banking system, lowers the reserves of the banks and thus checks
further deposit expansion.
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4)
Willingness To Borrow:Credit creation will be larger during a period of business prosperity and smaller during a
depression. Bankers cannot create credit at will. The amount of credit is conditioned by the needs and
will of the borrowers.
5)
Supply Of Collateral Securities:The availability of good securities places one more limitation on the power of banks to create
money. If approved securities are not available, the bank cannot create credit without inviting trouble.
The bank does not create money out of thin air, it transmutes other forms of wealth in to money.
6)
Banking Habits And Banking System:In the absence of banking habits and banking system, credit creation will be impossible. The
banking habit will become popular only if there is a sound, developed banking system.
7)
Monetary Policy Of Control Bank:The Central bank has the power to influence the volume of money in the country and from time
to time, use various methods of credit control and thus its influences the banks to expand or contract
credit.
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2.7 ROLE, STRUCTURE & IMPORTANT OF COMMERCIAL BANKS

1. Role and Importance of Commercial Banks:
The functions of commercial banks explain their importance in the economic development of a
country.
Banks help in accelerating the economic growth of a country in the following ways:
1. Accelerating the Rate of Capital Formation:
Commercial banks encourage the habit of thrift and mobilize the savings of people. These savings are
effectively allocated among the ultimate users of funds, i.e., investors for productive investment. So,
savings of people result in capital formation which forms the basis of economic development.
2. Provision of Finance and Credit:
Commercial banks are a very important source of finance and credit for trade and industry. The
activities of commercial banks are not only confined to domestic trade and commerce, but extend to
foreign trade also.
3. Developing Entrepreneurship:
Banks promote entrepreneurship by underwriting the shares of new and existing companies and
granting assistance in promoting new ventures or financing promotional activities. Banks finance sick
(loss-making) industries for making them viable units.
4. Promoting Balanced Regional Development:

Commercial banks provide credit facilities to rural people by opening branches in the backward areas.
The funds collected in developed regions may be channelized for investments in the under developed
regions of the country. In this way, they bring about more balanced regional development.
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5. Help to Consumers:
Commercial banks advance credit for purchase of durable consumer items like Vehicles, T.V.,
refrigerator etc., which are out of reach for some consumers due to their limited paying capacity. In
this way, banks help in creating demand for such consumer goods
2. Structure of Commercial Banks in India:
The commercial banks can be broadly classified under two heads:
1. Scheduled Banks:
Scheduled Banks refer to those banks which have been included in the Second Schedule of Reserve
Bank of India Act, 1934.
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In India, scheduled commercial banks are of three types:

(I) Public Sector Banks:
These banks are owned and controlled by the government. The main objective of these banks is to
provide service to the society, not to make profits. State Bank of India, Bank of India, Punjab National
Bank, Canada Bank and Corporation Bank are some examples of public sector banks.
Public sector banks are of two types:
(a) SBI and its subsidiaries;
(b) Other nationalized banks.
(ii) Private Sector Banks:
These banks are owned and controlled by private businessmen. Their main objective is to earn profits.
ICICI Bank, HDFC Bank, IDBI Bank is some examples of private sector banks.
(iii) Foreign Banks:
These banks are owned and controlled by foreign promoters. Their number has grown rapidly since
1991, when the process of economic liberalization had started in India. Bank of America, American
Express Bank, Standard Chartered Bank are examples of foreign banks.
2. Non-Scheduled Banks:
Non-Scheduled banks refer to those banks which are not included in the Second Schedule of Reserve
Bank of India Act, 1934
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2.8BALANCE SHEET OF COMMERCIAL BANKS :Banks are the most important financial intermediary in an economy. Banks performance can be
analyzed by its balance sheet and profit and loss account. Bank publish balance sheet in their annual
accounts. The balance sheet of a commercial Bank is a statement of its liabilities and Assets at a
particular time. Liabilities show the sources of funds through which bank raises funds for its business.
Assets represents uses of funds to generate income for bank.
Thus, the balance sheet indicates the manner in which bank has raised funds and invested them in
various types of assets.
BALANCE SHEET OF A COMMERCIAL BANK
LIABILITIES
ASSETS
1) Share Capital (paid up)
1) Cash Balances
a) With Central Bank
b) With other Banks
2) Reserves and surplus
2) Money at call and short notice.
3) Deposits :a) Time deposits.
3) Bills discounted, including treasury bills.
b) Demand Deposits
c) Saving Deposits
4) Borrowings
4) Investments
5) Other Liabilities
5) Loans and Advances

6) Other Assets.
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B. LIABILITIES OF A COMMERCIAL BANK (LIABILITIES PORTFOLIO) :The liabilities of a commercial bank shows how the bank raises funds for its business.
1)
Share Capital (Paid-up) :It is the contribution made by the shareholders of the bank. This indicates the banks liabilities
to its shareholders.
2)
Reserves and Surplus:It is the amount accumulated over the years out of undistributed profits to meet contingencies.
Reserves and surplus are liabilities of the bank, as they belong to its shareholders.
3)
Deposits:Deposits from the public constitute the biggest proportion of banks working funds. The deposits
accepted by bank in current, fixed and savings account are liabilities of bank to t5heir customers. They
are categorized as demand, time and saving deposits. These funds are liabilities of bank to their
customers, which have to be returned to them. But at the same time, these funds are also assets to bank
since the banker can make use of them to get certain interest yielding assets.
4)
Borrowings:When a bank borrows from other banks liability is created. It consist of borrowing / refinance
obtained from RBI, commercial banks and other financial institutions. It also includes overseas
borrowings.
5)
Other Liabilities:In course of its business, miscellaneous liabilities are incurred by bank. They include bills
payable like drafts, travelers cheques, pay slips etc. It also includes income tax provision.
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C. ASSETS OF A COMMERCIAL BANK (ASSETS PORTFOLIO):The assets portfolio shows how the bank uses the funds entrusted to it:1)
Cash Balances:A bank holds cash to meet the day-today withdrawals of deposits by its customer. This is
known as cash reserve. Bank hold cash balances with itself, with other banks and with RBI. In India,
Commercial Banks are obliged to keep a certain proportion of total deposits in the form of cash
reserve requirement with RBI. Cash has perfect liquidity, but yields no profit.
2)
MONEY AT CALL AND SHORT NOTICE :It refers to short term loans made in money market. Such loans are borrowed by speculators in
stock exchange market. Their maturity vary between one day to 15 days. These loans are repayable on
demand and at the option of either lender or borrower. Thus, these forms of assets are highly liquid and
are interest earning too, though at a comparatively low rate.
3)
Bills Discounted :Banks funds are invested in commercial bills which are short-dated, usually three months.
Banks also invest in treasury bills. These assets are self-liquidating in nature.
4)
Investments :Investment in various kinds of securities is a major part of assets of a bank. Mainly
commercial banks invest in government securities, shares etc. Securities and bonds are known as
banks secondary reserves because they are shiftable and Interest yielding. Usually banks prefer
medium and short term securities. This secondary reserve fails to convert securities in to cash at the
same time.
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5)
Loans and Advances:The most important asset item in the Balance sheet of a bank is loans advances. The
profitability of a bank depends upon the extent to which it grants loans advances to customers. The
various types of loans advances provided by banks are :- Cash Credit, Overdraft, Loans, Installments,
purchase and discounting of Bills. Banks mostly grant short term working capital loans only so that
they can have fair liquidity with high profitability.
6)
Other Assets:It includes fixed assets, furniture and fixtures etc. It will also include the net position of inter-
office account.
From above assets and liabilities, banks will have to balance their revenues against expenses in
such a way to generate income to sustain profitability from business.
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2.9 FACTORS AFFECTING LIQUIDITY OF BANKS :The amount of liquid assets held by bank, depends upon the following factors :1)
Statutory Requirements :-
Every commercial bank has to keep a minimum cash balance by law. The extent of reserves held by
bank depends upon the statutory requirements like CRR and SLR. These limits are fixed by central
bank. Commercial banks also have to maintain liquid assets in the form of gold and approved
securities.
2)
Nature of Money Market :It will be easy for banks to buy and sell securities if the money markets fully developed. In such
case need for cash will be less.

3)
Banking Habits :-
Banking habits of customers have a direct bearing on banks cash balance and liquidity position. In
developed countries for making payments cheques are used hence, the use of cash is less. On other
hand, in developing countries banking habits are not fully developed, so banks have to maintain large
cash reserves.
4)
Structure of Banks :-
Under unit banking, every bank is an independent unit and they have to keep a high degree of
liquidity. Under branch banking, the cash reserves can be centralized in head office and branches can
have smaller liquid reserves.
5)
Business Conditions :-
In Industrialized countries, business in brisk and speculative activities are undertaken so, the demand
for money is large. In agricultural countries, during off season, demand is less so, the banks can
manage with small cash balances.
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6)
Monetary Transactions :-
During busy season such as festival times, harvest season, beginning of month etc. banks will have to
keep large percentage of cash. Thus, the size of liquid reserves also depend on the number and
magnitude of monetary transactions.
7)
Number and Size of Deposits :-
When the number and size of deposits rise, banks have to keep more liquidity and
vice versa.
8)
Nature of Deposits :-
The nature of deposits also determines the liquidity requirements of a bank. Deposits are various types
such as time deposits, demand deposits etc. Larger the demand and short term deposits, larger will be
liquidity.
9)
Clearing House Facility :-
When clearing house facilities are available, then large transactions can be made through book
adjustments. This will reduce cash requirements of commercial banks.
10) Liquidity Policy of Other Banks :A Bank which decides to hold large cash balances will have more customers due to goodwill. Hence
other bank will also try to improve their liquidity position to attract customers. Thus, the liquidity
position of one bank depends on the liquidity policy of other banks.
On the whole, we can say by looking in to past experience, each bank has to take its own decision on
liquidity requirement.
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2.10 FACTORS AFFECTING PROFITABILITY OF BANKS :1)
Cost of Funds :-
Share capital, reserves, deposits, borrowing and other liabilities are the sources of funds for bank. The
cost of funds refers to interest expenses.
2)
Yield on Funds :-
Banks fund are used for different sources like CRR, SLR requirement, loans and Advances etc. Many
of these give rise to yields mainly in terms of interest income. This depends on the portfolio
management of banks.
3)
Spread :-
The difference between interest income and interest expenses in defined as spread. High interest
spreads shows the level of efficiency and a relatively less competitive market.
4)
Non-Interest Income :-
Non-Interest income is income derived from non-financial asset and services and includes commission
and brokerage on remittance facilities, guarantees underwriting, contracts etc, locker rentals and other
service charges.
5)
Amount of Working Capital :-
Profitability is directly related to the amount of working funds deployed by banks. Working funds are
funds deployed by a bank in its business.
6)
Non performing Assets :-
Profitability also depends on NPAs. Larger the NPAs lower will be the profitability and vice versa.
7)
Competition :-
When the level of Competition increases, there is fall in margins and hence it results in lower
profitability.
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8)
Operating cost :-
If operating cost are higher, profitability of banks will be lower and vice versa. Operating cost includes
:- Salaries, bonus, gratuity, expenses on stationery, printing, rent, depreciation etc.
9)
Risk Cost :-
Risk cost is the cost which is likely to be incurred on annual loss on assets. For e.g.:- provisions for
bad and doubtful debts is included under this head. Thus risk cost also affects the profitability of
banks.
10) Burden :The total non-interest expenses representing the transaction cost will generally be more than
miscellaneous income. The difference between the two is known as Burden. Higher the burden, lesser
will be the profitability of banks.
Thus from above we can say that the objectives of liquidity and profitability have to be reconciled. A
successful banker will adopt a prudent investment policy keeping the requirements of liquidity and
profitability.
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3.PROFILE OF BANK
3.1 HISTORY OF BANK

CANARA BANK
Late Sri Ammembal Subbarao Pai Our Beloved Founder Founded as 'Canara Bank Hindu Permanent
Fund' in 1906, by late Shri Ammembal Subba Rao Pai, a philanthropist, this small seed blossomed into
a limited company as 'Canara Bank Ltd.' in 1910 and became Canara Bank in 1969 after
nationalization.
"A good bank is not only the financial heart of the community, but also one with an obligation of
helping in every possible manner to improve the economic conditions of the common people"
- A. Subba Rao Pai.
Founding Principles
1. To remove Superstition and ignorance.
2. To spread education among all to subserve
the first principle.
3. To inculcate the habit of thrift and savings.
4. To transform the financial institution not only as the financial heart of the community but the social
heart as well.
5. To assist the needy.
6. To work with sense of service and dedication.
7. To develop a concern for fellow human being and sensitivity to the surroundings with a view to
make changes/remove
hardships and sufferings.
Sound founding principles, enlightened leadership, unique work culture and remarkable adaptability to
changing banking environment have enabled Canara Bank to be a frontline banking institution of
global standards.
Significant Milestones
Year
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1st July 1906

Canara Hindu Permanent Fund Ltd. formally registered with a capital of 2000 shares of 50/each with
4 employees.
1910
Canara Hindu Permanent Fund renamed as Canara Bank Limited
1969
14 major banks in the country, including Canara Bank, nationalized on July 19
1976
1000th branch inaugurated
1983
Overseas branch at London inaugurated Cancard (the Banks credit card) launched
1985
Takeover of Lakshmi Commercial Bank Limited Commissioning of Indo Hong Kong International
Finance Limited (now a full fledged branch)
1987
Canbank Mutual Fund & Canfin Homes launched
1989
Canbank Venture Capital Fund started
1990
Canbank Factors Limited, the factoring subsidiary launched
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1993
Became the first Bank to articulate and adopt the directive principles of Good Banking.
1996
Became the first Bank to be conferred with ISO 9002 certification for one of its branches in
Bangalore
2001-02
Home Awards & Achievements PMJDY & FINANCIAL INCLUSION Press Release Announcements
Careers
2001-02
Opened a 'Mahila Banking Branch', first of its kind at Bangalore, for catering exclusively to the
financial requirements of women clientele.
2002-03
Maiden IPO of the Bank
2003-04
Launched Internet Banking Services
2004-05
100% Branch computerization
2005-06
Entered 100th Year in Banking Service. Launched Core Banking Solution in select branches. Number
One Position in Aggregate Business among Nationalized Banks.
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2006-07
Retained Number One Position in Aggregate Business among Nationalized Banks. Signed MoUs for
Commissioning Two JVs in
Insurance and Asset Management with international majors viz.,HSBC(Asia Pacific) Holding and
Robeco Groep N.V respectively.
2007-08
Launching of New Brand Identity. Incorporation of Insurance and Asset Management JVs. Launching
of 'Online Trading portal. Launching of a Call Centre. Switchover to Basel II New Capital Adequacy
Framework.
2008-09
The Bank crossed the coveted 3 lakh crore in aggregate business. The Banks 3rd foreign branch at
Shanghai commissioned.
2009-10
The Banks aggregate business crossed 4 lakh crore mark. Net profit of the Bank crossed 3000 crore.
The Banks branch network crossed the 3000 mark.
2010-11
The Banks aggregate business crossed 5 lakh crore mark. Net profit of the Bank crossed 4000 crore.
100% coverage under Core Banking Solution. The Banks 4th foreign branch at Leicester and a
Representative office at Sharjah, UAE, opened. The Bank raised 1993 crore under QIP. Govt. holding
reduced to 67.72% post QIP.
2011-12
Total number of branches reached 3600. The Banks 5th foreign branch at Manama, Bahrain opened.
2012-13
Highest Dividend of 130% paid for the year
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2013-14
1027 branches and 2786 ATMs opened during the year. Global business crossed the 7 lakh crore
milestone. Switchover to Basel III New Capital Adequacy Framework.
2014-15
Global Business of the Bank crossed 8 lakh crore.
2015-16
The Bank's 8th foreign branch at DIFC (Dubai) opened.
Vision & Mission

Vision
To emerge as a Preferred Bank by pursuing global benchmarks in profitability, operational efficiency,
asset quality, risk management
and expanding the global reach.
Mission
To provide quality banking services with good customer care, create value for all stakeholders and
continue as a responsive
corporate social citizen.
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Board of Directors
1 .Shri. T.N. MANOHARAN (Chairman)
2 .Shri. RAKESH SHARMA (Managing Director & Chief Executive Officer)
3 .Shri. HARIDEESH KUMAR B (Executive Director)
4. Shri. DINA BANDHU MOHAPATRA (Executive Director)
5. Smt. P.V. BHARATHI (Executive Director)
6.. Shri. SUCHINDRA MISRA (Joint Secretary)
Department of Financial Services, (Ministry of Finance) ,
7 .Smt. Uma Shankar (Chief General Manager,Director representing Reserve Bank of India)
8 .Shri G. V. Manimaran(Officer Employee Director)
9 . .Shri SUNIL HUKUMCHAND KOCHETA (Part Time Non Official Director Under Chartered
Accountant category)
10 .Shri. MOCHERLA SAIRAM BHASKAR(Part Time Non Official Director)
11 .Shri. KRISHNAMURTHY H (Shareholder Director)
12 .Shri. MAHADEV NAGENDRA RAO (Shareholder Director)
13 .Shri. VENKATACHALAM RAMAKRISHNA IYER (Shareholder Director)
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A Brief Profile of the Bank

COMPANY PROFILE
Founded in 1906, Canara Bank is one of the premier banks in India, with a net work of
2578 branches across the country. The bank was the first two launch networked ATMs in India
and obtain and ISO certification. Canara bank has also achieved the distinction of being the
countrys highest net profit earner among nationalized banks for the year march 2007.
The bank has already carved a niche in providing IT-based services such as networked
ATMs, anywhere banking,Telebanking, Remote access Terminals, Internet and Mobile banking,
Debit cards, etc. Canara bank a vision to help improve the economic condition of the common
people of India by inculcating the habit of savings in rural areas.
As part of its vision of using technology to provide affordable banking services to the
vast rural population of India, Canara bank has extend the performance and cost benefits of
enterprises Linux to its customers. With a modernized branch infrastructure, Canara bank hopes
to serve customers in a timely and efficient manner, reinforcing its image of being a customer
savvy bank
Genesis
Founded as 'Canara Bank Hindu Permanent Fund' in 1906, by late, Mr. Ammembal Subba Rao
Pai, a philanthropist, this small seed blossomed into a limited company as 'Canara Bank Ltd.' in
1910 and became Canara Bank in 1969 after nationalization.
''A good bank is not only the financial heart of the community, but also one with an.
obligation of helping in every possible manner to improve the economic conditions of the
common people"
Canara Bank Founding Principles
1. To remove Superstition and ignorance.
2. To spread education among all to sub -serve the first principle.
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3. To inculcate the habit of thrift and savings.

4. To transform the financial institution not only as the financial heart of the community but
the social heart as well.
5. To assist the needy.
6. To work with sense of service and dedication.
7. To develop a concern for fellow human being and sensitivity to the surroundings with a
view to make changes/remove hardships and sufferings.
Sound founding principles, enlightened leadership, unique work culture and remarkable
adaptability to changing banking environment have enabled Canara Bank to be a frontline
banking institution of global standards.
As Canara bank founded in 1906, Canara Bank is one of the premier banks in India, with a
network of 2578 branches across the country. The bank was the first to launch networked ATMs
in India and obtain an ISO Certification. Canara Bank has also achieved the distinction of being
the country's highest net profit earner among nationalized banks for the year March 2007.
The bank has already carved a niche in providing IT -based services such as Networked
ATMs, Anywhere Banking, Tele-banking, Remote Access Tensional, Internet & Mobile Banking,
Debit Cards, etc. Canara Bank has a vision to help improve the economic condition of the
common people of India by inculcating the habit of savings in rural areas.
Challenges
Canara 'Bank achieved 100% computerization very early in the course of its operational
history. It deployed a number of bank automation tools such as a customized Total Branch
Automation (TBA) package called Integrated Branch Banking Software (18BS), which was
developed by its subsidiary, Can Bank Computer Services Ltd. (CCSL). IBBS was deployed on
Novell NetWare at close to 1400 medium sized branches across the country.
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Canara Bank follows a detailed tendering process for new hardware purchases, in which
contracts are awarded on the basis of bids. After nearly a decade of deploying IBBS, the bank
had purchased different types of hardware from multiple vendors. As a result, standardization on
Novell NetWare became difficult, and supporting the legacy IBBS application became a
challenging task.
Moreover, IBBS was developed using Micro focus COBOL and designed to run in a 16 bit DOS environment. With poor support for the TCP/IP protocol stack, the NetWare servers
running IBBS could not be integrated into the corporate network easily.
Essentially, the NetWare servers functioned as branch file servers, without any data
connectivity. Regular maintenance of different versions of IBBS across 1400 branches was a
painstaking effort in the absence of network support. Patching, troubleshooting and version
upgrades had to be conducted onsite. Branches in rural and remote areas were particularly
difficult to access and required support personnel to travel frequently. Also, the availability of
certified hardware on NetWare was limited, which made adding new machines difficult.
As Canara Bank's customer base expanded, its banking services began to scale, creating
an immediate need for Internet Banking, Anywhere Banking (banking from any Can Bank
branch across the country) and an expanded ATM network. Novell NetWare's closed legacy
environment did not allow room to accommodate these new technologies. Canara Bank had to
purchase additional machines running Microsoft Windows to interface with these new
technologies, which was extremely inefficient from a hardware utilization standpoint. New
hardware and Microsoft Windows licenses strained budgets and made new technology projects
difficult to scale and sustain.
When additional branches were added to the bank's network, procuring new servers that
were certified to run on NetWare was difficult, as IHVs had ceased to provide support for older
versions of the ads. Micro Focus had also ceased support for the COBOL version on which the
IBBS package had been developed. A combination of all these factors made migration attractive.
Migrating the 1400 odd legacy NetWare servers posed another challenge: Canara Bank
wanted to switch platforms but not hardware. Deploying the latest as available, without going
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into a hardware refresh cycle that would cost millions of rupees was a challenging task. The bank
had amassed about a dozen different types of machines after a decade of deploying IBBS. This
heterogeneous
mix
of
hardware
that
spanned
across
more
than1,000
server
10,000destopsmadethe project very complex. Canara Bank began to look for a platform that
could deliver the latest innovation along with complete hardware freedom.
Future plan
Moving from the legacy NetWare platform to Red Hat Enterprise Linux has opened up
significant opportunities for Canara Bank. With networking support now available, Canara Bank
is planning to deploy Red Hat Network Satellite to send updates for both IBBS as well as the
operating system to all distributed machines across the country. Enterprise Linux has also made
Remote Management and health monitoring of remote servers possible.
With the tremendous benefits provided by Enterprise Linux, Canara Bank plans to move
its Anywhere Banking and Internet Banking Ii steners to the Enterprise Linux platform.
Enterprise Linux has provided Canara Bank with the freedom and choice to develop a scalable
growth plan, which was not possible under NetWare's closed legacy environment.
The power of Linux is not restricted by hardware limitations, as it can run on different
kinds of architectures. Canara Bank has managed to save crores of rupees in new hardware
acquisition costs, by using a lightweight customized Linux distribution on its existing hardware
The Bank Today
Canara Bank is one of the premier banks in the country, accredited with umpteen
distinctions. The present stature of the Bank is due to its strong fundamentals and quality
customer orientations. Profit making since inception, the Bank today epitomizes a perfect blend
of commercial and social banking.
For the year March 2007, the Bank clocked the highest net profit ( RS.1110 crore) among
nationalized banks, with significant improvement in capital adequacy ratio (13.50%) and asset
quality (net NPA ratio of 0.94%).
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The Bank has already carved a niche in providing IT -based services. With 100%
computerization of the branches, the bank provides a wide array of services, such as, Networked
ATMs, Anywhere Banking, Telebanking, Remote Access Terminal also Internet & Mobile
Banking, Debit Card etc. The Bank was the first among banks to launch networked ATMs and
obtain ISO Certification.
Commercial consideration has, no way, diluted the Bank's role in national priorities.
Canara Bank is in fact the first bank to be conferred FICCl award for contribution to rural
development.
CANARA BANK SERVICES
Anywhere Banking:
Anywhere Banking is a technology-based, customer-friendly service designed to provide
greater convenience to our customers. With Anywhere Banking facility, once customer has an
account with any of the select branches, Customer can operate it from any other designated
branch across 85 cities.
FACILITIES:
Individuals I joint account holders (operated severally) maintaining Current I 58 I OD Accounts:
I. Withdrawal of cash
2. Remittance of cash
3. Transfer of funds
4. Balance enquiry
5. Issue of mini statement
6. Depositing local cheques for collection
7. Purchase of Demand draft
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Firms Companies I Other Bodies maintaining Current I OD I OCC Accounts:

1. Transfer of funds between accounts; from one Anywhere Banking branch to another
anywhere banking branch.
2. Depositing of local checks for collection and crediting to the respective account
at any
Anywhere Banking branch.

ELIGIBILITY:
Account holders should have maintained a minimum average balance of Rs.5,OOO / - in SB
account and Rs.10,000/ - In Current account in the last six months
FEATURES:
1. Cash withdrawal up to Rs.50, OOO/ - per occasion
2. Transactions permitted on production of identity card issued exclusively for
ANYWHERE BANKING FACILITY
3. Facilities of both intra-city and inter-city transactions.
4. HOME CLEARING - on line debit of checks drawn on our own A WB branches within the
city / clearing zone.
Tele services
Access information about your account right from your home, office or from anywhere
over telephone, a round the clock teller answering the enquiries from anywhere presenting voice
information at any time
You can make the following enquiries/requests over telephone:

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Balance in the account including clear balance. Last five transactions in the account.
Request for check book. Request for pass sheet.
Change in pass word. Fax on demand.
Note: The facility is password protected to ensure secrecy. Ask your Branch Manager for
details and enroll today itself the service 'is absolutely lice of cost
Personal Banking:
Deposits
Savings Bank Account
Current Account
Term Deposits
- Fixed Deposits
- Kamadhenu Deposits
- Recurring Deposits
- Can flexi Deposits
Loans & Advances
Retail Loan Products
- Home Improvement Loan
Can cash
- Can mobile
- Can budget
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- Teachers Loan
Card Services
Insurance
NRI
- NRE (Non Resident External Rupee Account)
- NRO (Non Resident Ordinary Account)
- FCNR (Foreign Currency Non Resident Accounts -Banks) - RFC Deposits
Loans & Advances
- Housing Loan
- Home Improvement
- Can carry (Consumer Durables)
- Can cash (Shares)
- Can mobile(vehicle)
General Facilities
-Safe Custody Services
-Safe Deposits Locker
-Nomination facility
Other Services/Facilities
-N R I Branches
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-N R I Services
-Remittance Facility
-Facilities for Returning Indians
Rural Financing
-Agriculture & Rural Credit
-Kisan Credit
-Loans for setting up Agri Clinic
-Minor Irrigation Loans
-Farm Machinery Loans
-Farm Development Loans
-Vehicle Loan for Agriculturists
-Loans for Plantation Crops
Social Banking
- Rural Development Schemes
- Women Development
- Social Banking
- Community Concerns - RUDSETIs
International Banking Services
Canara Bank entered for arena in 1953 with the opening of its first Foreign
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Exchange Department in Mumbai

Today Canara Bank the 4th largest Bank in India catering to the cross border trade &
remittances and financing of foreign trade.
SUBSIDIARIES
1. CANARA ROBECO ASSET MANAGEMENT COMPANY LIMITED
2. CANBANK FINANCIAL SERVICES LIMITED
3. CANARA BANK SECURITIES LIMITED
4. CANBANK COMPUTER SERVICES LIMITED
5. CAN FIN HOMES LIMITED
6. CANBANK FACTORS LIMITED
7. CANBANK VENTURE CAPITAL FUND LIMITED
8. CANARA HSBC ORIENTAL BANK OF COMMERCE LIFE INSURANCE COMPANY

LIMITED
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CASE STUDY ON ICICI BANK

Question: Explain the initiatives taken by ICICI bank to promote CRM?
Answer: The important steps which were taken by ICICI bank to promote CRM are as following.
1. MOBILE ATMs Facility:
ATMs are kept in vans and parked at high traffic areas at specified timing to facilitate standard
services.
For example:
In Mumbai
TIMING
LOCATION
11 a.m. to 12.00 noon
Opp. J.W.Marriot hotel, Juhu
2. Bulk deposit facility through ATMs :
ICICI bank issues a special card deposit only card to facilitate deposition of large amount at one
time though ATMs unlike conventional ATMs which allows deposition of only 30 notes at one
time.
3. Cash pick up service:
It also facilitates cash pick up service for business customers under business banking segment.
4. ATMs for visually challenged:
ICICI bank has launched special voice- guided systems, which guide a visually challenged person
to avail ATM services without any help. Headphone can be connected to ATM jack who gives
voice command to the customer to transact business.
5. DEMAT A/c Facility:
ICICI bank gives an option of opening D-MAT A/c and trading A/c simultaneously with saving
A/c through which customer can do share trading online.
6. Other services through ATMs:
Prepaid mobile recharge
Buying and renewing internet packs.
Making donations for Shri Mata vaishnodevi shrine and Tirupati, nathdwara temple.
Mutual funds transaction &
Bills payments.
7. Credit card facility through mobile:
Airtel, ICICI Bank, and VISA launched a new service mChq, which is a credit card using a
mobile phone.
8. Social events:
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It organises the domestic invitational amateur golf event for high net-worth individual customers.
9. Mobile banking benefits:
It enables customers to avail following facilities by just sending an SMS.
Locating ATM.
Locating Branch
Locating drop box
Alert facilities like salary credit etc.
Queries on banking & Demat A/c.
Question: Discuss the benefits of the initiatives taken by ICICI bank to promote CRM?
Answer: Due to the initiatives taken by ICICI bank to promote CRM it got following benefits.
1. Identification of customer usage patternICICI banks CRM data warehouse enables users to find out customers various transactions
and regarding the customers channel usage.
2. Development of new productsCRM data warehouse enables analysis and behavioural explorer, which help in customer
profiling using adhoc queries. Which facilitates new product development according to
customer needs and desire.
3. Central database managementCRM data warehouse helps in analysing its customer database which includes information
from eight separate operation systems like retail banking, bonds, credit cards etc.
Question: What should be the core elements of CRM that ICICI bank in your opinion should follow,
besides what they are already following to make themselves a distinct bank from their competitors?
Answer: Many have confused CRM as a technology initiative, and assigned the CRM implementation
project to their information system or information technology group. Technology is needed in order to
implement CRM particularly the customization part but technology is not the driver of CRM, or the
solution to successful CRM implementation.
Other core elements of CRM which ICICI should follow are as following.
Deliver on customers value definition: Customers change as they move through differing life stages; so
they have to be alert for the changes and be prepared to modify the service and value proposition as
customer change.
Prioritising changes: Because there might be many gaps, therefore many changes that an organisation
will need to make, prioritization was critical.
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Question: Outsourcing CRM is one activity that most organizations follow. Is it a viable option? Give
your views keeping in mind the cost involved in implementing CRM and enhancing business also.
Answer: Every business is distinct from another, and its nature of operation matters a lot when it comes
to decide strategies, it should adopt. Outsourcing CRM is a strategy which is currently adopted by many
companies due to high capital investment and technicality required in operating it on their own.
Outsourcing CRM has its own advantages and drawbacks which are as following.
BENEFITS:
1. It reduces capital investment in implementing CRM.
2. Company can concentrate on its core competency area rather than involving in CRM
implementation.
3. It prevents from doing major changes in operation process.
4. Highly efficient service can be availed because service providing companies already have a
good setup and they have good experience of managing CRM.
5. It reduces operating cost of CRM because service providing companies distribute their
operating cost by providing services to other firms simultaneously.
DRAWBACKS:
1. It prevents from establishing own CRM operating system
2. Customized information may not be available due to outsourcing of CRM.
3. For a large firm which have high number of customers, outsourcing can become an
impediment. Because in such case it is more beneficial to do one time long term investment
in implementing CRM rather than outsourcing.
In summary, the choice is no longer between an outsourced and an in-house solution, there are many
hybrid models offering viable alternatives. It is essential to carefully evaluate each option in terms of the
proposed benefits, all the costs (including overheads, redeployment or redundancy of existing staff and so
on) and the risks firm will incur, whether in changing its customers management model or in maintaining
the status quo.
Conclusion
Banking Sector in India is likely to undergo a major change. This change will be in the form of
mergers and acquisitions and takeovers. The CANNARA BANK may merge all its associate banks
with itself to make a one bank. The banks based in South India may look for a bank in North India to
have presence in North. Similarly banks in North may look for banks in South to increase its area of
operations. Consolidation will be the key to the banking sector in future.
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BIBLIOGRAPHY
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Commercial Banking in India

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