Banking

Banking

Banking  Commercial

banking is a business organization which deals in money.  Maintenance of liquidity and profitability  Credit creation.

Functions of Commercial bank 1.Acceptance of deposits. 2.Advancing loans 3.Investment of funds 4.Purchase and sales of foreign exchange 5.Other functions  Issue of travelers cheque  Safe custody of valuable goods.

Role of commercial banks in India  Capital

formulation.  Monetiazation  Finance for the priority sectors  Provision of the medium and long term loans  Cheap money policy.

Classification of Banks 1.Indigenous banking. 2.Foreign exchange banks 3.Agricultural banks 4.Industrial banks 5.Central banks 6.Scheduled banks.

Sources of banking funds 1.Share capital 2.Deposits. 3.Interest on Loans 4.Credit creation 5.Reserve funds.

Investment policy of banks  Principle

of safety  Principle of liquidity  Principle of productive investment  Principle of Diversity

Banks Investments 1.Profitable investments 2.Non- profitable investments  Cash reserves _____  Dead stocks

Cash reserves  Legal

obligations  Banking habits of the people.  Local business condition  Nature of the account  Size of the deposits  Structure of the money market.

Dead stocks  Building,

furniture, stationary etc.  It cannot be sold easily  Bank invests sizable amount on these type of investment to maintain its prestige and reputation in the market.

Credit creation

Credit creation Continued

Central banking A monetary institution whose main function id to control, regulate and stabilize the banking and monetary system of the country in the national interest.  Need : 1.Control of credit. 2.Issue of paper currency 3.economic help to commercial banks 4.Implementation of the monetary policy. 

Comparison of central bank &Commercial Banks         

Both acts in money Both creates credit Extend short term credits. BUT Central authority Non profit motive No competition Monopoly of note issue Bankers to the Govt. Bankers bank.

Functions 1.Monopoly of note issue  Uniformity in the monetary system.  Greater confidence of the public.  Elasticity in the monetary system  Control of credit  Profit for the govt. (Synorage)  Stability in the internal and external value of money.

Functions…. 2.Acts as banker to the government 3.bankers Bank 4.Lender of last resort 5.Bank of clearance 6.Custodian of nations gold and foreign exchange 7.Publishes economic statistics & other useful information. 8.Controller of credit.

Objectives of credit control 1. 2. 3. 4. 5. 6.

Stability in the internal price level Control of the business cycle Stability in the exchange rate Stabilization of money market Promotion of the economic growth Preparation of war

Methods of credit control 1.Qualitative  Moral pressure 2. Quantitative  Bank rate  OMO  Variable reserve ratio  Selective credit control