Professional Documents
Culture Documents
Definition of banking
Bank is an institution which collects money from those who have in spare or who are saving it out of their income ; and lend this money out to those who require it. All those institutions which are in the business of banking are called financial institutions.
Definition
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Commercial Banks are like other financial institutions ( e.g.: money lenders, indigenous bankers, cooperative societies, agricultural and industrial credit institutions) which are in the business of lending and borrowing of money or credit.
Yes
Commercial Banks are the most important credit institutions in the country in the business of lending and borrowing of money and credit creation.
Advancing Loans
This is the most important means of earnings for the banks Giving loans to businessmen But it keeps a fine balance between deposits and loans Banks profitability depends on this as well.
Agency Services
Collection of bills, cheques Collection of dividends, interest, premium Purchase and sale of shares and debentures Payment of insurance premiums Acts as trustee when nominated
General services
Travellers cheques, bank draft Safe vaults for valuables Supplying trade information Economic surveys Projects report preparation
Classification of banks
Central bank Commercial Banks : short term credit Industrial Banks: long term capital needs Exchange Banks: Finance export import Land Mortgage or land Development Bank: long term credit for agriculture Cooperative banks: small saving as joint effort of members, low interest rate, registered under Cooperative Societys Acts.
Credit Creation
Banks create credit by creating cheque money or deposit money which on account of its free acceptability, circulates like legal tender money. This increases or decreases money in circulation without increase or decrease in currency or legal tender money.
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supply or collateral security: larger and better is availability of security against loan, greater is extent of C.C. Banking habit of people: if people use more of cash and less of cheque then CC is not possible. Monetary policy of central bank: central bank can influence CC by credit control tools
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Nationalized banks were forced to follow directions and guidelines issued by government. At that time there were more than 645 banks having more than 4800 branches. They were serving only urban areas, big industrial houses at the cost of rural areas and small industries.
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Indira Gandhi was the then P.M. 6 more banks were nationalized in 1980. National credit council was implementing body. In 1993 two banks were nationalized and no. of nationalized banks is 19.
Objectives Of Nationalization
to reduce concentration of economic powers with only a few industrial magnets and to prevent monopolies. Mobilize resources even from backward and rural areas To prevent lopsided regional development To prevent corruption and misuse of firms: the trustees were only benefiting from huge resources and it was at the cost of general development in the country.
Objectives Of Nationalization
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To provide aid to the poor, small artisans and small scale industries. Small scale industries contributed 40% of industrial output but received only 4% of bank funds. To fulfil credit needs of farmers: hardly 2.2% of funds were available for agriculture.
Objectives Of Nationalization
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To finance governments development projects; specially five year plans To prevent giving loans to those firms were not existing in the priority list To prevent loan/advances to black marketers and hoarders.