FY BCOM SEM 1 (As per syllabus of 2017-18)

1. Elements of Banking and Insurance-
Introduction
|F.Y. B.com (SEM-1)

2. WHAT IS BANK?
• It is derived from the “Italian” word “Banco” which
means “bench” over which transaction took place in
ancient time.
• It is the market place for the exchange of “money” &
“bills”.
• Bank is a chain between the people who save money
and people who use these savings.

3. Definition of ‘Bank’
• As per Sec.5 (b) of the Banking Regulations Act
1949 “Bank” means accepting, for the purpose of
lending or investment, of deposits of money from
the public repayable on demand or otherwise and
withdrawal by cheque, draft, order or otherwise.

4. Banker is one who
 Accept deposits
 Use it for lending or investing purpose
 Collects deposits from Public
 Payable on demand or otherwise
 Withdrawal of deposits by cheque, draft etc.

5. Who is a ‘Customer’?
• Maintains any type of A/c in bank.
• Submission of a/c opening form fulfilling KYC
requirements.
• Customer of specific branch only.
• There should be some kind of continuity.
• Financial Transactions.

6. A deposit should be
• Deposits of money, not of goods or financial assets.
• Deposits from public at large, not only from the share
holders of bank.
• Deposits repayable on demand and withdrawal by
cheque.
• Deposits for lending not for bank’s own purpose.
Hence to follow the status of bank, an institution
has to perform both functions simultaneously i.e.
accepting deposits and lending to general public.

8. Bankers have three Ancestors
• Goldsmith
• Money Lenders
• Merchants

9. Roleof BankinginEconomicDevelopment
1. Mobilization of savings
2. Creation of Credit and increase in production
3. Promotion to export business
4. Social Banking
5. Reasonable price stability
6. Promotion of entrepreneurship
7. Development of Money Market and Capital Market
8. Increasing the facility of training and education

10. Rates related with bank
Banking Terms
Deposit Rate PLR Rate
Banking Terms
CRR Rate SLR Rate Bank Rate
Banking Terms
Repo Rate Reverse Repo Rate

11. Current Statistics
S.No Rates As on July
2017
1 Repo Rate 6.25 %
2 Reverse Repo Rate 6.00 %
3 Cash Reserve Ratio 4.00 %
4 Statutory Liquidity
Ratio
20.00 %
5 Bank Rate 6.50 %
6 Deposit Rate Saving 4.00%, Fixed
Deposit 6.25- 6.90 %
7 Prime Lending Rate 9.10-9.60 %

12. Structure of IndianBanking
A. Reserve Bank of India
B. State Bank of India and its seven associate Banks
C. Commercial Banks
1. Scheduled and Non-scheduled Banks
2. Public and Private Sector Banks
3. Indian Banks and Foreign Banks
D. Regional Rural Banks
E. Co-operative Banks
F. Development Banks
1. Industrial Development Banks
2. Agricultural Development Banks
G. Import Export Bank of India (EXIM)
H. National Housing Bank

14. RESERVE BANKOF INDIA
• The Reserve Bank of India was established on April 1, 1935 in
accordance with the provisions of the Reserve Bank of India Act,
1934.
• The Central Office of the Reserve Bank was initially established in
Calcutta but was permanently moved to Mumbai in 1937. The
Central Office is where the Governor sits and where policies are
formulated. The present Governor of RBI is “Dr. Urjit R. Patel”.
• The Reserve Bank of India was originally established as a
shareholders’ bank with a share capital of Rs.5 crores, divided into
5 lakhs fully paid-up shares of Rs.100 each.
• When the bank was nationalized in 1949, the entire share capital
was acquired by the Central Government by compensating the
shareholders.
• The Reserve Bank's affairs are governed by a central board of
directors. The board is appointed by the Government of India in
keeping with the Reserve Bank of India Act.
• The Reserve Bank of India influences the management
of commercial banks through its various policies, directions and
regulations. Its role in bank management is quite unique.

15. Objectives of RESERVE BANK OF INDIA
The Preamble to the Reserve Bank of India Act, 1934 spells out
the objectives of the Reserve Bank as:
To regulate the issue of Bank notes and the keeping of reserves with a view
to securing monetary stability in India and generally to operate the currency
and credit system of the country to its advantage.
Besides it has other objectives, which can be listed out as below
1. Maintaining price stability while keeping in mind the objective of growth.
2. Maintain public confidence in the system, protect depositors' interest and
provide cost-effective banking services to the public.
3. To facilitate external trade and payment and promote orderly development
and maintenance of foreign exchange market in India.
4. To give the public adequate quantity of supplies of currency notes and
coins and in good quality.

16. Function of RESERVE BANK OF INDIA
1. Banker to the Government
2. Banker to banks: maintains banking accounts of all scheduled banks.
3. Agent and advisor to Government and Banks
4. Credit controller
5. Promoting Agricultural and Industrial Development
6. Formulates, implements and monitors the monetary policy.
7. Regulator and supervisor of the financial system
8. Manager of Foreign Exchange
9. Issues and exchanges or destroys currency and coins not fit for circulation.
10. Performs a wide range of promotional functions to support national
objectives.

17. STATE BANK OF INDIA ANDITS SEVENASSOCIATE
BANKS
• It is a government-owned corporation with its headquarters in Mumbai,
Maharashtra.
• SBI was established on 1st July 1955. (State bank of India Act, 1955) by taking
over the assets and liabilities of Imperial Bank of India, (through amalgamation
of three presidency banks of Madras, Bombay and Bengal) which was
established in 1921.
• In 1959, seven banks were taken over as subsidiaries to SBI known as Associate
banks.
• On 1st April, 2017, State Bank of India, which is India's largest Bank merged
with five of its Associate Banks (State Bank of Bikaner & Jaipur, State Bank of
Hyderabad, State Bank of Mysore, State Bank of Patiala and State Bank of
Travancore) and Bharatiya Mahila Bank with itself. This is the first ever large
scale consolidation in the Indian Banking Industry.
• SBI is the biggest Commercial bank in Public sector banks.
• Total number of branches of SBI and its associate banks are more than 24000
which is more than 20% of all branches of commercial banks in India.

18. COMMERCIALBANKS
Scheduled and Non-scheduled Banks:
• The scheduled commercial banks are those
banks which are included in the second
schedule of RBI Act 1934 and which carry
out the normal business of banking such as
accepting deposits, giving out loans and
other banking services.
• RBI in turn includes only those banks in this
Schedule which satisfy the criteria laid down
vide section 42(6)(a) of the said Act.

19. Schedule Banks
Important Indicators Mar-16 Mar-06
1All Scheduled Commercial Banks 149 218
of which, Regional Rural Banks 56 133
2No. of Reporting Offices
i) Rural 49,902 30,572
ii) Semi-urban 35,704 15,274
iii) Urban 24,794 11,864
iv) Metropolitan 22,187 10,971
TOTAL 132,587 68681
3All Scheduled Commercial Banks-Annual Growth Rates(Per Cent)
(i) Aggregate Deposits 8.6 19.4
(ii) Gross Bank Credit 9.3 31.1

20. Responsibilities of Schedule Banks to RBI
• Each scheduled bank has to open an account
with RBI and has to maintain cash reserve.
• Each scheduled bank should regularly send
the weekly financial statement.
• RBI inspects regularly the schedule banks.
• Each scheduled bank has to carry out all the
instruction given from time to time.

21. Advantages earned by Schedule Banks from RBI
• RBI gives the facilities of making transactions of money.
• Schedule bank gets necessary guidance from RBI.
• Schedule bank gets advances through bill discounted by RBI.
• RBI provides the facility of clearing and emergency advances.
• Scheduled bank depositors are safe up to a prescribed limit
under the insurance scheme.
• Scheduled banks can accept the deposits from the charitable
trust and local societies.
• Scheduled banks are more reliable as compared to non-
scheduled bank amongst the depositors.

22. NON-Schedule Banks
• Non-scheduled Banks are those which are not included in
the second schedule of Reserve Bank of India Act 1934 and
have paid up capital of less than 25 lakhs.
• It is subject to statutory cash reserve requirement which is
to be kept by bank itself and not with the RBI.
• Non-scheduled banks are not entitled to get any kind of
loans, Advances of remittance facility from Reserve Bank
of India.
• Example of Non-scheduled banks in India are Akhand
Anand Co-operative Bank Limited, Alavi Co-Operative
Bank Limited, Amarnath Co-Operative Bank Limited,
Amod Nagrik Sahakari Bank Limited.

23. Nationalized Banks in India
There are 19 nationalized banks in India as follows:
1. Allahabad Bank
2. Andhra Bank
3. Bank of Baroda
4. Bank of India
5. Bank of Maharashtra
6. Canara Bank
7. Central Bank of India
8. Corporation Bank
9. Dena Bank
10. Indian Bank
11. Indian Overseas Bank
12. Oriental Bank of Commerce
13. Punjab & Sind Bank
14. Punjab National Bank
15. Syndicate Bank
16. UCO Bank
17. Union Bank of India
18. United Bank of India
19. Vijaya Bank

24. Public Sector Banks
– These banks are government undertaking banks.
– Public banks came into existence with the
Nationalization of banks in India in 1st July 1955.
– On 19th July 1969 14 banks were Nationalized.
– On 15th April 1980 six more banks were
Nationalized.
– Regional Rural banks are also sponsored by
Nationalized banks.
– At present there are 19 nationalized banks.
– Total number of public sector bank is 1.
– After nationalization in 1969 and 1980, no banks
were allowed to be established as private bank but
as per the recommendation of Narsimha Committe
the requirement of Private banks were felt.

25. Private Sector Banks
– In 1993, government allowed establishment of Private banks
provided they confirm to minimum start-up capital and other
requirements.
– Foreign investment up to 74% of paid up capital is also
permitted now.
– As the result of foreign participation there has been a
remarkable improvement in corporate governance, risk
management and administrative efficiency of these banks.
– They have introduced innovative products and have provided
superior services.
– Due to declining profits of the public banks affected by
private banks, Banking companies (Acquisition and Transfer
of Undertakings) Amendment Act 1994 was passed to allow
public banks to increase capital by selling shares to public
and NRIs up to 49%.

26. IndianBanks and ForeignBanks
– The Indian banks are those which have been incorporated in Indian
and so have their head offices in India.
– Foreign banks are those which have been incorporated in foreign
countries and have their head offices outside India.
– The bulk of Indian banking business is in the lands of the Indian
commercial banks, both public sector and private sector banks.
– On 31st march 2011, there were 39 foreign banks from 19 countries
operating in India with 280 branches. (the standard chartered bank
with highest branches-81)
– Foreign banks can operate in any one of the three channels;
branches, wholly owned subsidiary and subsidiary with aggregate
foreign investment up to a maximum 74% in a private bank.
– Foreign banks compete mainly with the Indian Private banks, not
with the public sector banks, though their growth rate is not as high
as that of the Indian Private banks.
– As against 228 branches of foreign banks in India, Indian banks
have only 112 branches overseas.

27. Unit & Branch Banking
• Unit banking refers to a bank that is a single.
• Unit bank is independent and does not have
any connecting banks branches in other areas.
• Branch banking refers to a bank that is
connected to one or more other banks in an
area or outside of it; to its customers, this bank
provides all the usual financial services but is
backed and ultimately controlled by a larger
financial institution.

28. Advantages of Unit Banking
• Local Development: Unit banking is localized banking. The unit bank has
the specialised knowledge of the local problems and serves the
requirements of the local people in a better manner than branch banking.
The funds of the locality are utilised for the local development and are not
transferred to other areas.
• Reduces Regional Imbalance: Under unit banking system, there is no
transfer of resources from rural and backward areas to the big industrial
commercial centres.
• Easy Management: The management and supervision of a unit bank is
much easier and more effective than that under branch banking system.
There are less chances of fraud and irregularities in the financial
management of the unit banks.
• No Inefficient Branches: Under unit banking system, weak and
inefficient branches are automatically eliminated.
• No diseconomies of Large Scale Operations: Unit banking is free from
the diseconomies and problems of large-scale operations which are
generally experienced by the branch banks.

29. Disadvantages of Unit Banking
• Inability to Face Crisis: Limited resources of the unit banks also restrict their
ability to face financial crisis.
• No Banking Development in Backward Areas: Unit banks, because of their limits
resources, cannot afford to open uneconomic banking business is smaller towns and
rural area. As such, these area remain unbanked.
• Lack of Specialization: Unit banks, because of their small size, are not able to
introduce, and get advantages of, division of labor and specialization. Such banks
cannot afford to employ highly trained and specialized staff.
• Disparity in Interest Rates
• Since easy and cheap movement of does not exist under the unit banking system,
interest rates vary considerably at different places.
• Local Pressures: Since unit banks are highly localised in their business, local
pressures and interferences generally disrupt their normal functioning.
• Undesirable Competition: Unit banks are independently run by different
managements. This results in undesirable competition among different unit banks.

30. Advantages of Branch Banking
• Economies of Large Scale Operations: Highly trained and experienced staff is appointed
which increases the efficiency of management, division of labor, funds are made available
liberally and at cheaper rates, large financial resources and wider geographical coverage
increases public confidence in the banking system
• Lesser risk and greater capacity to meet risks
• Economy in Cash Reserves: Under the branch banking system, a particular branch can
operate without keeping large amounts of idle reserves. In time of the need, resources can be
transferred from one branch to another.
• Cheap Remittance Facilities: Since bank branches are spread over the whole country, it is
easier and cheaper to transfer funds from one place to another. Inter-branch indebtedness is
more easily adjusted than inter-bank indebtedness.
• Uniform Interest Rates: Under branch banking system, mobility of capital increases, which
in turn, brings about equality in interest rates.
• Proper Use of Capital: There is proper use of capital under the branch banking system. If a
branch has excess reserves, but no opportunities for investment, it can transfer the resources
to other branches which can make most profitable use of these resources.
• Banking Facilities in Backward Areas: Under the branch banking system, the banking
facilities are not restricted to big cities. They can be extended to small towns and rural as well
as underdeveloped areas,. Thus, this system helps in the development of backward regions of
the country.

31. Disadvantages of Branch Banking
• Problem of Management: Under the branch banking system a number of
difficulties as regards management, supervision and control arise.
• Lack of Initiative: Branch managers generally lack initiative on all-
important matters; they cannot take independent decisions and have to wait
for. The clearance signal from the head office.
• Regional Imbalances: Under branch banking system, the financial
resources collected in the smaller and backward regions are transferred to
the bigger industrial centres. This encourages regional imbalances in the
country.
• Adverse Linkage Effect: Under branch banking system, the losses and
weaknesses of some branches also have their effect on other branches of
the bank.

32. Branch Banking Unit Banking
A bank that is connected to one or more
other banks in an area or outside of it.
Provides all the usual financial services
but is backed and ultimately controlled by
a larger financial institution.
Single, usually small bank that provides
financial services to its local community.
Does not have other bank branches
elsewhere.
Operational Freedom less Operational freedom more
Loans and advances are based on merit,
irrespective of the status
Loans and advances can be influenced by
authority and power
Larger financial resources in each branch Larger financial resources in one branch
Delay in Decision-making as they have to
depend on the head office
Time is saved as Decision-making is in the
same branch
Cost of supervision is more Cost of supervision is less
Division of labour is possible and hence
specialisation possible
Specialisation not possible due to lack of
trained staff and knowledge
Specialised knowledge of the local
borrowers is not possible.
Specialised knowledge of the local
borrowers is possible and hence less
chances of bad debts.

33. Functions of Modern Commercial Banks
Functionsof ModernCommercialBanks
TraditionalFunctions
Mainand Primary
Functions
Accepting
Deposits
Giving Loans
Discounting Bills
SubsidiaryFunction
Agency Services
General Services
Non-TraditionalFunctions
Safe Deposit Volt
Foreign Exchange
Transaction
Giving Credit Notes
Mobile Banking Services
Issuing Credit Cards

34. To receive deposits from the public
– Commercial banks do not just protects the savings of the
people but also provides a cheap and convenient method of
transferring funds from one place to another through the use
of cheques, bank drafts, etc. it performs an important function
of mobilizing the scattered savings of the people by accepting
these savings as deposits.
– These deposits can be; Demand deposits – can be withdrawn
by the depositor at any time, and depositors receive little or
no interest on it; Fixed deposits – also known as time
deposits, can be withdrawn after the expiry of certain time
period only, depositors receives fairly higher amount of
interest on such deposits; Saving deposits – to encourage
people to save and to cultivate a habit of thrift, can be
withdrawn any time and depositors get 4 to 6% of interest
from banks on such deposits.

35. To make Loans and Advances
– Commercial banks grants advances to traders, businessmen
and industrialists.
– As all the amount of deposits received by the bank will be
withdrawn at any point of time but only a part of it needed
to be kept in hand. Therefore, the remaining deposits are
being used by the bank so as to earn profits and mobilize the
savings in the economy.
– Loans and advances could be granted through;
– Loans against tangible securities (gold, stock and shares,
immovable properties, etc.)
– Facilities of discounting bills of exchange and other
commercial papers.
– Facility of overdraft to current account holders.

36. To provide Agency services
– Paying cheques, bills, dividends, subscription
and insurance premium.
– Sell and purchase of shares and securities for
their customers through the stock broker.
– They provide safety vaults to the customers to
keep theirs valuables safe.
– Acting as trustees or executors of wills or an
administrator of family trusts.
– They supply information and advice to their
customer as regards investment.

37. Non-Traditional Functions
– Acts as an custodian of valuables of customers in
lockers.
– Now a days providing the facilities of Debit card,
credit card and other modern services.