Many firms offer the same financial products and services.

The commercial bank must

compete with savings and loans, credit unions, finance companies, money market mutual
funds, insurance companies, and investment banks for business. The banking industry is
currently experiencing a period of profound economic, regulatory and technological change.
The bank needs to meet these challenges in order to provide tomorrow’s solutions to its
customers. The new law's full impact will be unclear for some time, as regulatory agencies
move forward with the rulemaking and implementation process. So it is essential to remain
careful to peruse environmental changes to up with challenges in managing banks.

Bank regulation constantly changes in the banking environment. Two trends are evident:-

1. Regulators have removed most restrictions on what interests rate, banks can charge
on loans and pay on customer deposits
2. Regulators still limit the range of products and services banks can offer, but the list of
new products and services is expanding rapidly. Through bank subsidiaries, a big
bank could eventually offer new insurance, credit card, and real estate products. It
could also underwrite securities, offer discount brokerage services, operate a travel
agency, and form a mergers and acquisitions group.

How Changes in Bank Environment Influence the Terms and Conditions of

Loan and Deposit

The success of banking business is vastly dependent on efficient management of deposit and
credit. An efficient deposit manager can decrease cost and increase profit by proper Deposit
mix. Again an efficient loan manager can fulfil the demand for a large number of borrowers
by his experiences with even when funds are not adequate. Bankers or people involved in
banking business have to take right steps in right time after proper observation, realization,
and explanation of the business environment to sense the reasons for success or failure of a
bank. It should be remembered that as environment influences the activities of a bank, the
bank also can influence environment partially by its activities. Some of the Changes in Bank
Environment Influence the Terms and Conditions of Loan and Deposit are as follows.

There are numerous factors that influence the loan policy of a bank. There are also certain
factors that are considered in loan analysis of an applicant that affect credit deployment of a
bank. The factors affecting bank loan have been categorized as general factors and loan

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analysis factors. These are the factors that influence and determine the loan policy of a bank.
These include:

i. Capital Position: The capital position of a bank is an important factor influencing

its credit policy. The capital of a bank serves as a cushion against losses which
may arise in future. A bank with a strong capital base can afford to take more risk
in lending than banks with a lower capital base.
ii. Earnings Requirement: Earnings are essential for the successful operations of a
bank. Banks, usually, consider earnings as an important factor in determining its
credit policy.
iii. Variability of Deposits: Fluctuations in deposits influence the loan policy of a
bank. Banks experiencing wide fluctuations in deposits or declining deposits will
follow a conservative lending policy and cannot take risk of making term loans.
iv. State of Economy: The economic conditions of an area being served also have a
significant bearing on banks‟ credit policy.
v. Monetary Policy: The lending policy of a bank has a relationship with the
monetary policies framed by the central bank. The monetary policy determines the
lending capacity of banks by bringing variations in cash reserve ratio (CRR) and
statutory liquidity ratio (SLR) requirements.
vi. Ability and Experience of Loan Officers: Loan officers of a bank play a pivotal
role in the implementation of loan policies.
vii. Competitive Position: The competitive position of a bank may also influence its
loan policy.
viii. Credit Needs of the Area Served: The lending policy of a bank shall take note of
the area being served by it. A bank is supposed to meet the loan demands of all the
local borrowers, and if it fails to do so then there will be little justification for its
existence in that area.

Most savings accounts are liquid accounts that protect the value of principal kept with the
bank. Consumers value savings accounts for their safety and flexibility. Banks offer them as a
means of enticing depositors to provide extra cash so bankers can make loans. When banks
want extra deposits, they can raise the interest rate offered on savings accounts to attract extra
cash. If they want to decrease bank debits, they can lower interest rates. It is important that
banks do not offer more interest for savings accounts that can be charged on loans or earned
on other investments. The interest rates on savings accounts are endogenously dependent on

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the rates offered on other savings destinations such as bonds and money market accounts.
Each saver tries to find the best balance of security and return based on his preferences. Bank
environment influence the bank deposits are:

Increase in national income

Expansion of banking facility
Increase of banking habit• Increase in the relative rate of return on deposit
Increase in deficit financing
Increase in bank credit
Inflow of deposits from NRIs

The bank industry reform law has far-reaching implications for how financial services firms
are supervised and regulated. Numerous regulatory changes, including the creation of a
Consumer Financial Protection Bureau and other new regulatory bodies, expanded regulatory
powers for existing agencies, and stricter regulation of derivatives and other financial
instruments will impact the way financial services firms do business. Additional measures
such as limits on bank trading activities and mechanisms to identify and address systemic risk
will further change how the industry operates.

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