[Banking Notes, AHSEC, Class 12, Chapter wise Notes, Commercial Banking In India, Revised Syllabus]
AHSEC CLASS 12 NOTES FOR 2022 - 23 EXAM
SUBJECT: BANKING
Unit – 1: Commercial Banking In India
Short Answer type Questions and Answers (1/2 Marks)
1. Name the first modern bank of India
and the world.
Ans: First modern bank of India: Bank
of Hindustan – 1770.
First bank of the world: Banca Monte deiPaschi di Siena –
1397.
2. Mention the names of the Presidency
Banks? 2018
Ans: (i) The Bank of Calcutta Founded in 1806 but renamed as The
Bank of Bengal in 1809. (ii) The Bank of Bombay (1840) and (iii) The Bank of
Madras (1843).
3. In which year the Imperial Bank of
India Act was passed? When Imperial Bank comes into existence? 2014
Ans: The Imperial Bank of India Act was passed in 1920. It comes
into existence on 27th January 1921.
4. How was the Imperial Bank of India
formed?
Ans: According to the provision of Imperial Bank of India Act
1920, the Imperial Bank was established by amalgamating the three presidency
bank i.e. Bank of Bengal (1809), Bank of Bombay (1840), and Bank of Madras
(1843). It came into existence on 27th January 1921.
5. What was the previous name of SBI? 2015
Ans: The previous name of SBI was Imperial Bank of India.
6. In which year the Imperial Bank of
India was nationalized? 2013
Ans: On July 1, 1955 and it is renamed as State Bank of India. SBI is now the biggest commercial bank of India.
7. How
many Associate Banks/Subsidiaries of SBI are there? 2018
Ans: There are at present 6 Associated Banks of SBI which are as
follows:
a) State Bank
of Bikaner and Jaipur.
b) State Bank
of Hyderabad.
c) State Bank
of Indore.
d) State Bank
of Mysore.
e) State Bank
of Patiala.
f) State Bank
of Travancore.
The State Bank of Bikaner and the State Bank of Jaipur merged into
one in 1963 and in July 2008 state bank of Saurashtra was merged with the State
Bank of India.
8. What do you mean by Nationalization
of Banks?
Ans: Nationalisation of Banks refers to transfer of ownership and
management of banks from private individuals and shareholders to the public
authorities.
9. In which year fourteen Indian
Commercial Banks were nationalized? 15. How many commercial banks are
nationalized at present? 2012,
2016
Ans: On 19th July, 1969 14 commercial banks were
nationalized. In 1980, 6 more banks are nationalized. In Sept 1993, the New
Bank was merged with the Punjab National Bank. So, at present there are 19
nationalised banks.
10. How many public sector banks in
India? 2012
Ans: 27, the examples of public sectors banks are as follows: The
Bank of India, The Bank of Baroda, United Bank of India, and The Union Bank of
India.
11. How many private sectors bank in
India? Give two example of Private Sector Bank in India. 2013
Ans: According to RBI website, there are 21 private sector banks.
Examples are AXIS Bank Limited, Yes Bank Limited, South India Bank Limited, and
ICICI Bank Limited.
12. What are Foreign Banks?
Ans: The banks which are incorporated outside under the law of
home country but have a place of business in other country are called foreign
banks. At present there are 45 foreign banks in our country.
13. Mention two foreign banks leading
in India?
Ans: These are: Bank of Tokyo, Standard Chartered Bank, and City Bank.
14. In which schedule of RBI Act, the
scheduled Banks is listed?
Ans: In the Second Schedule of the RBI Act, 1934.
15. What do you mean by scheduled
banks? 2012, 2016,
2019
Ans: Scheduled banks refer to those banking institutions whose
names are included in the Second Schedule of the Reserve Bank of India Act,
1934. Moreover, the banking company may included in scheduled list only after
must fulfill the some conditions.
16. What do you mean by Non-Scheduled
banks?
Ans: Non-Scheduled banks refer to those banking institutions,
whose names do not appear in the Second Schedule of the RBI Act, 1934.
Non-Scheduled banks were engaged in lending money discounting and collecting
bills and in providing various agency services.
17. In which year the Lead Bank Scheme
introduce? 2012,
2017
Ans: The Lead Bank Scheme was introduced in December, 1969.
18. What is Co-operative Bank?
Ans: Co-operative banks are those banks which are established in
co-operative sector. These banks have developed in India since 1919. Usually
they consists of co-operative credit societies and central and State
co-operative banks.
19. What is a Bank/commercial
bank? Mention its features.
Ans: In simple words, we can say that Bank is a financial institution that undertakes the banking activity i.e.it accepts deposits and then lends the same to earn certain profit.
The features of a Bank are:
a) A Bank is
a profit seeking commercial enterprises.
b) It deals
in money, i.e., it accepts deposits from the public and advances loans to the
needy borrowers.
c) It deals
with credit. It creates credit for the purposes of lending money.
d) The
deposits made with the bank are repayable on demand and can be withdrawn by the
depositor by means of any instruments whether a cheque or otherwise.
Long answer type questions (3/5/8 Marks each)
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Also Read:
1. HS 12 Banking Chapter wise Notes
2. AHSEC Class 12 Banking Question Papers From 2012 Till Date
3. AHSEC Class 12 Banking Solved Question Papers From 2012 Till Date
4. Banking Chapter wise MCQs
5. Class 12 Banking Important Questions and Question Bank
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Q. 1. Write short note on foundation
and management of Imperial banks in India. 2013,
2018
Ans: According to the provision of the Imperial Bank of India Act,
1920, the Imperial Bank was established by the amalgamation of the three
presidency bank i.e. the Bank of Bengal (1809), Bank of Bombay (1840), the Bank
of Madras (1843). It came into existence on January 27th, 1921. Most
of the capital of this bank was external and its management was also in the
hands of British. After independence, the imperial bank was nationalised in the
year 1955 and is renamed as State Bank of India with a view to provide credit
facilities in rural areas.
Under the Imperial Bank of India Act, 1920,
the banks were managed by a Central Board of Directors. There were three local
boards at the three presidency towns. The local boards had fairly wide powers
to manage the local business. They were under the control of the Central Board.
The Imperial Bank performed both Central and
commercial banking business. The major central banking functions discharged by
the bank before the establishment of the RBI were as follows:
a) It acted
as the sole ‘banker to the Government and as the custodian of public funds and
Government cash balances.
b) It acted
as a banker’s bank.
c) It acted
as an exchange bank and performed foreign trade.
In addition to these central banking
functions the Imperial Bank performed ordinary commercial banking business such
as:
a) Accepting
deposits.
b) Making
loans and advances etc.
c) Remitting
funds from one place to another.
d) Providing
safe custody of valuables etc.
Q. 2. Write a short note on SBI
including its objectives, functions and role. 2012,
2014, 2015, 2016, 2017, 2019
Ans: The State Bank of India was established under the State Bank
of India Act, 1955, by nationalizing the Imperial bank of India with the object
of extending banking facilities in rural areas. It came into existence on 1st
July 1955. Though Imperial Bank was important banking institution in 16th
April 1955, SBI bill was passed on 8th May 1955 by the Government of
India. SBI was organized depending on the recommendation of All India Rural
Credit Survey Committee (AIRCSC) which was appointed by RBI in 1951.
SBI is managed by Central Board of directors.
In this Board, there is one chairman, one vice-chairman two managing directors
and sixteen directors (Total 20 members). The head quarter of SBI is located at
Mumbai and its local offices at Kolkata, Mumbai, Chennai, New Delhi, Lucknow,
Ahmadabad, Hyderabad, Bhubaneswar, Bangalore, Guwahati etc. It performed all
the functions performed by commercial banks. Besides it, SBI performed as an
agent of RBI where there is no branch of RBI
The objectives of establishment of SBI are as
follows:
a) To extend
banking facilities on a large scale, particularly in the rural urban and
semi-urban areas.
b) To promote
agricultural finance and remove the defects in the system of agricultural
finance.
c) To helps
the RBI in implementing its credit policies.
d) To help
the Government to pursue its broad economic policies.
e) To held
the RBI in regulating other commercial banks
f) To act as
an clearing agent of banks
Functions
of State Bank of India:
As an
agent of RBI, the SBI performs certain Central Banking functions such as:
1. Bankers to
Government : As an agent of the RBI, SBI acts as banker to the Central and
State Government as a bankers as a adviser as a agent into their capacities :
a) As a
bankers.
b) As an
agent.
c) As an
advisor.
As a Government banker the SBI
performs the following functions:
a) It
maintains and operates deposit account of the central and state governments.
b) It
receives and collects payment on behalf of the Central and state governments.
c) It makes
payments on behalf of the central and state governments.
d) It
provides short term advances to government for which are called ways and means
advances etc.
As a
Government agent the SBI perform the followings functions:
1) Collect
tax and other payments on behalf of the government.
2) Raise loan
from the public and thus manages public debts.
3) Transfer
funds and provide remittances facilities to the government etc.
2. Banker’s Bank: As an agent of the RBI, SBI acts as a banker to all the other banks.
a) Custodian
of cash reserve of the bank: As an agent of the RBI, SBI acts as the custodian
of cash reserve of the banks.
b) Clearing
agent: In India the central clearing functions is managed by the RBI or the SBI
is authorized to manage clearing house functions every day. Each commercial
bank receives a number of cheques for collection from other banks on account of
their customers.
Other
functions of the SBI as General Banks act
A) Primary functions:
a) Acceptance
of deposits: It is the most important function of a bank. Under this function, bank
accepts deposits from individuals and organizations and finances the temporary
needs of firms.
b) Making
loans and advances: The second important function of banks is advancing loan.
The commercial bank earns interest by lending money.
c) Investments
of Funds: Besides loans and advances, banks also invest a part of its funds in
securities to earn extra income.
d) Credit
Creations: The Bank creates credit by opening an account in the name of the
borrower while making advances. The borrower is allowed to withdraw money by
cheque whenever he needs.
B) Secondary functions of a bank: This
function is divided into two parts
1) Agency
functions: These functions are performed by the banker for its own customer.
For these bank changes certain commission from its customers. These functions
are:
a) Remittance
of Funds: Banks help their customers in transferring funds from one place to
another through cheques, drafts etc.
b) Collection
and payment of Credit Instruments: Banks collects and pays various credit
instruments like cheques, bill of exchange, promissory notes etc.
c) Purchasing
and Sale of securities: Banks undertake purchase and sale of various securities
like shares, stocks, bonds, debentures etc. on behalf of their customers.
d) Income Tax
Consultancy: Sometimes bankers also employ income tax experts not only to
prepare income tax returns for their customer but to help them to get refund of
income tax in appropriate cases.
e) Dealings
in Gold/Silver: The buying and selling of gold and silver.
2) General Utility functions: These are
certain utility functions performed by the modern commercial bank which are:
1. Locker
facility: Banks provides locker facility to their customers where they can
their valuables.
2. Traveler’s
cheques: Bank issue travelers cheques to help their customers to travel without
the fear of theft or loss of money.
3. Gift
cheque: Some banks issue gift cheques of various denominations to be used on
auspicious occasions.
4. Letter of
Credit: Letter of credit is issued by the banks to their customers certifying
their credit worthiness. Letter of credit is very useful in foreign trade.
5. Foreign
Exchange Business: Banks also deal in the business of foreign currencies.
Q.3. Write short note on Lead Bank Scheme.Mention
its objectives, functions and benefits. 2013,
2015, 2020
Ans: The lead bank scheme provides a new strategy of banking and
area development in the branch expansion programme of banks in the
post-nationalisation phase of banking growth in the country. Under the lead
banking Scheme a particular bank was made responsible for a particular district
to develop banking and credit in that district. This scheme was framed for
surveying and developing the banking potential of all the districts in the country.
This scheme was introduced by the RBI on 12 dec, 1969. The concept of a lead
bank was formulated in order to involve commercial banks in rural development.
Objectives and Functions of Lead
banking scheme
a) To
ascertain the scope of development of banking in the allotted district.
b) To
ascertain unbanked areas within district for mobilization of savings.
c) To
ascertain the credit needs of business and industrial units in the allotted
district and extend credit facilities to them.
d) To provide
financial assistance to other institutions in the allotted district.
e) To make
provisions for training of small farmers so as to ensure proper utilization of
funds.
f) To make
provisions for storage, repairing and services of agricultural equipments.
g) Co-ordination
of the activities of commercial banks, co-operative banks and other financial
institutions in the allotted district.
Benefits/Effects of Lead bank
a) Branch
expansion: There was found more effectiveness in branch expansion, supervision
and guidance after introducing the Lead Bank Scheme.
b) Co-operation:
There was found more co-operation among commercial bank, Co-operative bank,
other financial institution and government authorities after introducing the
Lead Bank Scheme.
c) Identification:
Identification of unbanked area within district was possible through Lead Bank
Scheme.
d) Credit
facilities: Extending credit facilities in allotted district.
e) Facilities
to farmers: Provisions for training of small farmers so as to ensure proper
utilization of funds and to make provisions for storage, repairing and services
of agricultural equipments.
Q. 4. Explain briefly unit banking and
branch banking. 2012, 2016, 2018, 2020
Ans: The different forms of banking system are as follows:
a) Unit
Banking (2013): It is a system of banking where an independent bank
undertakes banking function in a particular area. The operation of a unit bank
is limited to a particular area and hence this system is also known as
“localized banking. A unit bank has just one office with no branches. This
banking system was originated and developed in the USA.
Advantages
of Unit Banking (2012): Unit banking system has the following
advantages:
1.
Easy Management: The
management and control of unit banks is much easier and effective due to the
small size and operations of the banks.
There are fewer chances of fraud and irregularities in the financial
management of the unit banks.
2.
Localised Banking: 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. Since
the bank officers of a unit bank are fully acquainted with the local needs,
they cannot neglect the requirements of local development.
3. Quick Decision: A great
advantage of unit banking is that there is no delay of any kind in taking
decisions on important problems concerning the unit bank.
4.
No Monopolistic Tendencies: Unit banks are generally of small
size. Thus, there is no possibility of generating monopolistic tendencies under
unit banking system.
5.
Promotes Regional Balance: Under unit banking system, there is
no transfer of resources from rural and backward areas to the big industrial
commercial centres. This tends to reduce regional in balance.
6.
Initiative in Banking Business: Unit banks have full knowledge of and
greater involvement in the local problems. They are in a position to take
initiative to tackle these problems through financial help.
Disadvantages
of Unit Banking: The following are the disadvantages of unit
banking system:
1.
Limited Scope: The scope of unit banking is limited. They do
not get the benefits of large scale operations.
2.
No. Distribution of Risks: Under unit banking, the bank
operations are highly localised. Therefore, there is little possibility of
distribution and diversification of risks in various areas and industries.
3.
Inability to Face Crisis: Limited resources of the unit banks
also restrict their ability to face financial crisis. These banks are not in a
position to stand a sudden rush of withdrawals.
4.
Operates only in urban areas and big towns: Unit
banks, because of their limits resources, cannot afford to open uneconomic banking
business is smaller towns and rural area. As such, these areas remain unbanked.
5.
Difference in Interest Rates: Since easy and cheap movement of does
not exist under the unit banking system, interest rates vary considerably at
different places.
6.
Local Pressures: Since unit banks are highly localised in
their business, local pressures and interferences generally disrupt their
normal functioning.
b) Branch Banking: Branch
Bank is a type of banking system under which the banking operations are carried
with the help of branch network and the branches are controlled by the Head
Office of the bank through their zonal or regional offices. Each branch of a
bank will be managed by a responsible person called branch manager who will be
assisted by the officers, clerks and sub-staff. In England and India, this type
of branch banking system is in practice. In India, State Bank of India (SBI) is
the biggest public sector bank with a very wide network of 16000 branches.
Merits of Branch Banking 2016
1. Benefits
of large Scale Production: Due to large scale production, the cost per unit of
operation is very low in case of this system.
2. Distribution
of Risks: There is a distribution of risks because the losses incurred by one
branch are made up by the profits earned by other branches.
3. Effective
Central Bank control: Due to presence of few big banks in the banking system,
the RBI can effectively and easily regulate the activities of banks.
4. Public
Confidence: Branch banking system gains greater public confidence because of
its large scale operations and huge financial resources.
5. Easy
transfer of funds: Since the branches of bank under branch banking are spread
all over the country, it is easier and cheaper, for it to transfer funds from
one place to another.
Demerit of branch banking
1. Problems
of Management: The effective management and control of bank under branch
banking system is difficult due to large network of branches.
2. Delay in
Decision Making: Decision making is delayed because the branch manager has to
consult with the head office before taking decision.
3. Ignorance
of local heads: Branches follows the policies framed by the head office. The
head office and the branch may not be aware of the local conditions.
4. Monopolistic
tendencies: Branch banking encourages monopolistic tendencies. A few big banks
can dominate and control the whole banking system.
5. Regional
imbalances: Under branch banking system the financial resources collected in
smaller and backward regions are transferred to the bigger industrial centre.
This encourages regional imbalances in the country.
Q.5. Write the difference between Bank and
Unit Banking. 2014
Ans: Difference between Branch Banking and Unit Banking
|
Basic |
Branch Banking |
Unit Banking |
|
1.Operational freedom |
Less operational freedom because branches
are controlled by Head Office. |
More operational freedom because of its
single unit. |
|
2. Decision Making |
Delay is decision making because branches are
dependent on Head Office. |
Decision making is quick because External
consultation is not required. |
|
3. Rate of Interest |
Rate of Interest is uniform. |
Rate of interest depending on demand and
supply of fund. |
|
4. Cost of Supervision |
Cost of Supervision is very high. |
Cost of Supervision is less as compared to
branch banking. |
|
5. Funds |
Funds are transferred from one branch to
another. |
Funds are localized in one unit. |
|
6. Monopoly |
Branch Banking encourages monopolistic
tendencies in the banking system. |
There is no possibility of monopoly because
of its small size. |
|
7. Concentration of power |
There is concentration of power in the hands
of few people. |
There is no concentration of power in the
hands of few people. |
|
8. Loans and advances |
Loans and advances are based on merit
irrespective of status. |
Loans and advances can be influenced by
status. |
Q. 6. Define Public and Private sector
banks. Also distinguish between them. 2020
Ans: Public Sector Banks: Public Sector banks are those banks in
which the Government has at least 51% shares. Public sector banks are owned and
controlled by the Government either directly or indirectly through the RBI.
These banks are also known as “National Banks”. Public sector banks are
classified into three categories (27 Banks):
a)
State Bank group: It consists of the SBI and
its 6 associate banks.
b)
Nationalized Banks: It present there are 19
nationalized banks such as UBI, PNB(founded in 1894 in Pakistan),
and BOI etc.
c)
Regional Rural Banks (RRBs): These banks are
established with the object of proceeding credit and other facilities in rural
areas.
Private Sector Banks: Private Sector
banks are those which are owned by private individuals or business
corporations. Private sector banks may be classified into two categories:
a) Indian
Banks: these banks are incorporated under the Indian companies Act. At present
there are 21 Indian Private Bank. E.g. ICICI Bank Ltd, HDFC Bank Ltd, Federal
Bank Ltd, Yes Bank Ltd.
b) Foreign
Banks: These banks are originated outside India but have a place of business in
India. At present there are 45 Foreign Banks. E.g. City Bank, Standard
Chartered Bank, HSBC Bank, Bank of Tokyo.
Difference
between Public Sector Banks and Private Sector Banks
|
Basic |
Public
Sector |
Private
Sector |
|
1.Ownership |
Public Sector banks are owned by the Govt.
either directly or through the RBI. |
Private Sector banks are owned by private
individuals or business corporations. |
|
2. Setup |
These banks are setup under the special act
of Parliament. |
These banks are setup under the Companies
Act. |
|
3. Aim |
These banks aim at saving the Society. |
These banks are driven by profit
motive. |
|
4. Foreign Bank |
Public Sector banks does not include foreign
bank. |
Private Sector banks may be Indian Banks as
well as foreign banks. |
|
5. Area of operation |
These banks operated in rural, Semi-urban
and Urban areas. |
Private Sector banks mainly operated in
Semi-urban and Urban areas. |
|
6. Capital |
In public sector banks more that 50% of
capital or full capital is supplied by the Government. |
But, in private sector banks, all total
capital is supplied by the shareholders of the bank. |
Q.7. Write a short note on Scheduled
Bank?
Ans: Scheduled bank refer to those banking institutions whose
names are include in the Second schedule of the RBI Act, 1934. Under Sec. 42
(b) (a) are called scheduled bank. On the following conditions these banks are
included in Second Schedule and these banks must have to fulfill these
conditions:
a) The bank
should have Rs. 5 lakhs as paid up capital and reserve fund.
b) It should
be a corporation but must not be a partnership firm or a single owner firm.
c) The bank
must have to submit its weekly return to the RBI.
d) Direct
control is made providing the following advantages on the scheduled banks and
RBI: - (i) Giving direct loans, (ii) Providing transfer facilities, (iii)
Clearing house facility.
Q.8. Write a brief note on primary and
secondary functions of banks/public sector banks. 2013
Ans: Functions of Bank: Modern banks not only deal in money and
credit creation, other useful functions management of foreign trade, finance
etc. The meaning of modern banks is used in narrow sense of the term as
commercial banks. The various functions of banks are given below:
A) Primary
functions:
a) Acceptance
of deposits: It is the most important function of a bank. Under this function, bank
accepts deposits from individuals and organizations and finances the temporary
needs of firms.
b) Making
loans and advances: The second important function of banks is advancing loan.
The commercial bank earns interest by lending money.
c) Investments
of Funds: Besides loans and advances, banks also invest a part of its funds in
securities to earn extra income.
d) Credit
Creations: The Bank creates credit by opening an account in the name of the
borrower while making advances. The borrower is allowed to withdraw money by
cheque whenever he needs.
B)
Secondary functions of a bank: This function is divided into two parts:
1) Agency functions (2013, 2015, and 2017): These
functions are performed by the banker for its own customer. For these bank
changes certain commission from its customers. These functions are:
a) Remittance
of Funds: Banks help their customers in transferring funds from one place to
another through cheques, drafts etc.
b) Collection
and payment of Credit Instruments: Banks collects and pays various credit
instruments like cheques, bill of exchange, promissory notes etc.
c) Purchasing
and Sale of securities: Banks undertake purchase and sale of various securities
like shares, stocks, bonds, debentures etc. on behalf of their customers.
d) Income Tax
Consultancy: Sometimes bankers also employ income tax experts not only to
prepare income tax returns for their customer but to help them to get refund of
income tax in appropriate cases.
e) Acting as
Trustee and Executor: Banks preserve the wills of their customers and execute
them after their death.
f) Acting as
Representatives and Correspondent: Sometimes the banks act as representatives
and correspondents of their customers. They get passports, travelers tickets
secure passages for their customers and receive letters on their behalf.
3) General Utility functions: These are
certain utility functions performed by the modern commercial bank which are: (2012, 2014, 2016, 2019)
6. Locker
facility: Banks provides locker facility to their customers where they can
their valuables.
7. Traveler’s
cheques: Bank issue travelers cheques to help their customers to travel without
the fear of theft or loss of money.
8. Gift
cheque: Some banks issue gift cheques of various denominations to be used on
auspicious occasions.
9. Letter of
Credit: Letter of credit is issued by the banks to their customers certifying
their credit worthiness. Letter of credit is very useful in foreign trade.
10. Foreign
Exchange Business: Banks also deal in the business of foreign currencies.
Q.9. What
is Nationalisation? What are its objectives and achievements? 2015
Ans: Nationalization: Nationalization of Banks
refers to transfer of ownership and management of banks from private
individuals and shareholders to the public authorities. In 1969, 14 banks were
nationalized. Again in 1980, 6 more banks were nationalized. In 1993, New bank
is merged will Punjab National Bank. So, there are 19 nationalized banks in our
country at present.
Objectives
of Nationalization: 2013,
2017, 2020
a)
Preventing concentration of economic powers in
the hands of few.
b)
Provide banking facilities in rural areas.
c)
Mobilization of savings of rural areas.
d)
Help to the agriculture industry.
e)
Balanced regional development of the country
f)
Provide adequate financial assistance to the
public and private sector industry whether big or small.
g)
Greater stability and control in banking
sector by reserve bank of India.
Achievements
of nationalization: 2019
a) Expansion
of Bank branches: There has been a rapid increase of bank branches after
nationalization. Till the end of March, 2014 number of bank branches increases
to 97,010.
b) Growth of
deposit: After nationalization the deposit occupied by banks was increased due
to various branches in Rural, Semi-urban and urban areas.
c) Advances
to priority sectors: Priority sector includes Agriculture, small business,
small scale industry etc. There has been greater emphasis on those sectors now.
d) Correction
of regional imbalances: After nationalization, steps have been taken to improve
banking services in less developed states.
e) Advance to
Agriculture: The nationalized banks have given particular importance in
providing credit to agriculturists.
f) Investment
in Govt. Securities: The nationalized bank has become a major source of finance
for the Govt. These banks are required to invest a part of their funds in Govt.
securities.
g) Developmental
role of banks: Nationalized banks focuses on not only making profit, but also
works for the welfare and prosperity of the society.
Q.10. Give
some arguments in favour or against nationalisation of banks.
Ans: Arguments in favour of nationalisation
1) It would remove the concentration of economic
power in the hands of a few industrialists.
2) It would help in stabilizing the price levels
by eliminating artificial scarcity of essential goods.
3) Eliminates wasteful competition and raises the
efficiency of the working of banks
4) Enables the Reserve Bank to implement its
monetary policy more effectively.
5) It would replace the profit motive with
service motive.
Arguments against nationalisation (Criticism)
1)
Nationalisation is
done for Political purpose rather than for Productive purpose.
2)
Nationalisation leads
to the Beginning of state capitalism not socialism in India.
3) Nationalisation
of banks will degenerate to the level of agricultural co-operatives, which are
known for their inefficiency and corrupt practices.
4) Inefficiency,
indecision, corruption, and lack of responsibility are the evils with which
the government undertakings are suffering. A government bank may not care to
attach importance to the customer service.
5) In spite
of the assurances given and provisions made in the Act, businessmen still fear
about the maintenance of the secrecy of the customer's accounts.
Q.11. Write a brief note on growth and
evolution of banking/public sector banking in India.2015, 2017, 2018
Ans: The
word Bank has been originated from many words. There is no single word or
answer to this origin of the word ‘Bank’. According to some economists, the
word ‘Bank’ has been originated from the German word ‘Banck’ which means heap
or mound or joint stock fund. From this, the Italian word ‘Ban co’ has been
derived. It means heap of money. But according to this group, the word bank is
derived from the Greek word ‘Banque’ which mean a ‘bench’. It refers to a place
where money-lenders and money changers used to sit and display their coins and
transact business. Thus the origin of the word ‘Bank’ can be traced as follows.
Bank
→ Banco → Banque → Bank
Banking
industry in India has a long history. It has travelled a long path to assume
its present form. The banking industry in Indian started with small money
lenders and has now large joint stock world class banks in its fold. The growth
of banks in India is discussed below over two eras: A) Pre-Independence Period
and B) Post-Independence Period
A) Pre-Independence Period: Banking
in its crude from is as old as authentic history. All throughout the period of
India history, indigenous bankers and money lenders are recorded to have
existed and carried on the business of banking and money lending on a large
scale. From the early Vedic period right through the Moghul period as well as
that of the East India Company’s rule until the middle of the 19th
Century, indigenous bankers were the hub of the Indian Financial System
providing credit not only to the trade but also to the Government.
Agency
House: The indigenous bankers lost their importance to a certain extent with
the advent of the English traders in India. The starting of modern banking in
India can be traced to the beginning of the East India Company’s trade relation
with our country. The bank of Hindustan was the earliest bank started under
European direction in India. The banking business of Agency House could not
continue for long. Most of these Houses failed because of their complete
disregard towards the principle of banking business. The Bank of Hindustan
could not withstand the failure of its parent from and was closed down in 1832.
Presidency
Banks(2012, 2017): The banking
business of Agency House which survived and continued to carry on trade and
banking together was progressively taken over by the Presidency Banks. The
three Presidency Banks viz.:
a)
The Bank of Bengal (1809);
b)
The Bank of Mumbai (1840); and
c)
The Bank of Chennai (1843)
were
established under the Charter of the East India Company. These Banks acted as
banker to the East India Company at Kolkata, Mumbai and Chennai and performed
Central Banking functions for their respective areas.
Principle
of Limited Liability: A land-mark development took place in the year 1860. It
was in this year the principle of “limited liability” was first applied to the
joint stock banks. The introduction of the principle of limited liability
promoted the growth of banks in India. By 1895, there were 15 joint stock banks
with limited liability in India.
The
Swadeshi Movement: Swadeshi movement prompted Indians to start many new
institutions. The number of joint stock banks increased remarkably during
1906-1913. The peoples Bank of India Limited, the Bank of India Limited, the
Central Bank of India Limited, Indian Bank Limited and the Bank of Baroda
Limited were setup during that period.
Imperial
Bank of India: The three Presidency Banks were amalgamated into the Imperial
Bank of India which was brought into existence on 27th January,
1921, by the Imperial Bank of India Act, 1920. The liability of shareholders of
the Imperial Bank was limited like that of shareholders of other banks registered
under the Company Act.
Post Independence: The
government took major steps in the Indian Banking Sector Reforms after
independence. In 1955, it nationalized the Imperial Bank of India (the State
Bank of India Act) with extensive banking facilities on a large scale,
especially in rural and semi-urban areas as the first phase of nationalization.
It formed the State Bank of India (SBI) to as the principal agent of RBI and to
handle banking transactions of the Union and the State Governments of the Country.
In 1969, seven subsidiary banks of the State
Bank of India were nationalized as a major process of nationalization due to
the effort of then Prime Minister Mrs. Indira Gandhi, Later in 1969, 14 Major
Private Commercial Banks in the country were nationalized. Again in 1980, 6
more banks were nationalized. In 1993, New bank is merged will Punjab National
Bank. So, there are 19 nationalized banks in our country at present.
PHASE III: The third phase of development of
Indian banking introduced many more products and facilities in the banking
sector in its reform measures. In 1991, under the chairmanship of M. Narsimham,
a committee was set up under his name, which worked for the liberalization of
banking practices.
Q.12. Write a brief note on Group banking and Chain banking.
Ans: Group Bank: Group Bank is a system of banking
under which there will be holding company controlling the subsidiary companies
which carry out banking business. In some cases, both the holding and
subsidiary companies may carry out banking business. An example in India is SBI
which has many subsidiary banks such as State Bank of Mysore, State Bank of
Indore, State Bank of Hyderabad, State Bank of Bikaner and Jaipur, State Bank
of Patiala and State Bank of Travancore. These subsidiaries carry out banking
and other operations such as leasing, merchant banking and so on.
Merits of Group Banking: Following
are the advantages of Group Banking:
a) Efficient
Management: The holding company stimulates efficiency of the group banks. The
group banks are efficiently managed being under the overall control of Holding
Company.
b) Adequate
Liquidity: there is high degree of liquidity of the concerned group being the
whole group of banks is controlled and managed by one parent company. The
member banks have to maintain the requisite degree of liquidity.
c) Economical:
It is an economical system of banking, because many expenses such as
advertisement and publicity are done collectively be the group as whole under
the direct control of the holding company.
d) Specialization:
In Group banking, different subsidiary companies tend to specialize in
different aspects of banking. This promotes the overall efficiency of the group
system.
Disadvantage of Group Banking: Main
demerits of Group Banking are as under:
a) Right
Control: There is rigid control in Group Banking due to lack of flexibility
which often leads to corruption.
b) Less
Mobility of Funds: Funds are less mobile in Group Banking than Branch banking
system.
c) Few
Branches: Group Banking has relatively very few branches as compared to Branch
Banking system.
2) Chain Bank: Chain
Bank is a system under which different banks come under a common control
through common shareholders or by the inter-locking of directors. An example in
India is KarurVysya Bank and Lakshmi Vilas Bank having their head offices
located in the same place, viz., Karur and sharing common directors by which
they may have common management policy.
Merits of Chain Banking:
Following are the advantages of Chain Banking system:
a) This
system of banking is found most suitable to meet the local needs of credit and
finance;
b) The system
facilitates appropriate use of the limited resources.
c) The chain
banking system exhibits efficient system of management;
d) This
system is not prone to risk-taking;
e) It is the
cheap system of banking and not too much expensive.
Demerits of Chain Banking: Chain
Banking system has certain demerits:
a) Profitability
remains limited due to limited risk-taking.
b) The chain
banks generally do not conduct the programmes of social welfare and
development;
c) This
system of banking promotes the tendency of bossism in management.
Q.13. Write short notes on various types of
banks. 2018
Ans: There are various types of banks which
operate in our country to meet the financial requirements of different
categories of people engaged in agriculture, business, profession etc. The
banking institution may be divided into following types:
A) Based on the Structure or Organizational
Setup: Banks can be of five types based on the structure or
organizational setup, viz., unit bank, branch bank, group bank, chain bank and
correspondent bank.
1) Unit Bank: Refer
above
2) Branch Bank: Refer
above
3) Group Bank: Refer
above.
4) Chain Bank: Refer
above
5) Correspondent Bank:
Correspondent Bank is a bank which link two banks of different stature or size.
Many Indian banks act as correspondent banks for many foreign banks.
6) Pure Banking: Under pure
Banking, the commercial banks give only short-term loans to industry, trade and
commerce. They specialize in short term finance only. This type of banking is
popular in U.K.
7)
Mixed Banking: Mixed banking is that system of
banking under which the commercial banks perform the dual function of commercial
banking and investment banking, i.e., it combines deposit and lending activity
with investment banking. Commercial banks usually offer both short-term as well
as medium term loans. The German banking system is the best example of mixed
Banking.
8)
Regional banking: In order to provide adequate and timely credits to
small borrowers in rural and semi-urban areas, Central Government set up
Regional Banks, known as Regional Rural Banks all over India jointly with State
Governments and some Commercial Banks. As they are permitted to operate in
particular region, it may help develop the regional economy.
B) Based on the Ownership: Banks can
be of four types based on the ownership. They are public sector banks, private
sector banks, foreign banks and cooperative banks.
1) Public Sector Banks: Refer
above
2) Private Sector Banks: Refer
above
3) Foreign Banks: Foreign
Banks are those banks which belong to foreign countries and have their
incorporated head office in foreign countries and branch offices in other
countries. The share capital of the foreign banks will be fully contributed by
the foreign investors. Some examples of foreign banks in Indian include ABM
Amro bank, Standard Chartered Bank, JP Morgan Chase Bank and so on.
4) Cooperative Banks: Cooperative
Banks are those banks which are run by following cooperative principles of
service motive. Their main motive is not profit making but to help the weaker
sections of the society. Some examples of cooperative banks in India include
Central Cooperative Banks, State Cooperative Banks.
C) Based on the Functions: Banks can
be of various types based on the functions they perform. They include savings
banks, commercial banks, industrial banks, agricultural development banks, land
mortgage/development banks, cooperative banks, exchange banks, indigenous
banks, consumer banks, central banks.
a)
Central
Bank: Central Bank is known as guardian bank which bank working in the
country. Now a days, in every country there is one central bank and is
controlled by the govt. The central Bank manages and controls the whole
monetary system and also prepares monetary policy and other policies of the
govt.
b)
Commercial
Bank: The commercial bank generally extent short terms loans to the
business man and traders. They collect deposits from the public and advance
loans to the businessman and producer commercial banks are normally owned by
share holders. In India most of the joint stock banks are commercial banks.
c)
Co-operative
Bank: Co-operatives banks are those banks which established in
co-operative sectors. Co-operative banks offer short term and medium term loans
to the agricultural sector. Farmers get various kinds of loan for purchasing
various agriculture inputs from co-operative banks.
d)
Foreign
exchange Banks: These are special types of banks which specialize in financing
foreign trade. Their main is to make international payments through the
purchase and sale of exchange bills.
e)
Industrial
banks: Industrial banks are those banks which advance long term loans to
industries. For the development of industries various types of industrial banks
are established. In India, various institution like Industrial and finance
co-operation of India (IFCI), Industrial development bank of India, can be
termed as Industrial Banks.
f)
Savings
Banks: Savings banks are those banks which offer opportunities for
saving to the small savers and also try to develop saving habits among the
people.
g)
Development
Banks: Development banks are specialized financial institutions which
provide medium and long term finance to private entrepreneurs and help in
economic development of the country.
h)
Agricultural/Land
Development Banks: Agricultural/Land Development Banks are those
banks which are known as Land Mortgage or Agricultural Banks as they provide
finance to agricultural sector. They provide long term loan for agriculture for
the purposes of purchase of new land, purchase of heavy agricultural machinery
such as tractor, repayment of old debt, conservation of soil and reclamation of
loans.
i)
Investment
Banks: Investment Banks are those banks which are specialized in provide
medium and long term financial assistance to business and industry. They are
also known as Industrial Banks as they are mainly concerned with industrial
finance.
j)
Export - Import Bank:These
banks have been established for the purpose of financing foreign trade. They
concentrate their workingon medium and long-term financing. The Export-Import
Bank of India (EXIM Bank) was established onJanuary 1, 1982 as a statutory
corporation wholly owned by the central government.
k) Indigenous
Bankers:That unorganised unit which provides productive, unproductive,
long term, medium term and short termloan at the higher interest rate are known
as indigenous bankers. These banks can be found everywhere incities, towns,
mandis and villages.
l)
Rural Banking:A set of
financial institution engaged in financing of rural sector is termed as ‘Rural
Banking’. The policies offinancing of these banks have been designed in such a
way so that these institution can play catalyst role inthe process of rural
development.
Q.14. Write a brief note on social
control over banks. 2017
Ans: Social Control over banks: Primary
functions of banks are to accept deposit from public and lend it business for
its productive use. The banks are the custodian of savings of the public. They
mobilises the savings from all sections of the society and channelise them to
industries and other by way of granting loans and advances. Previously it was
observed that banks are directing their advances to medium and large scale
industries and small scale industries and other priority sectors such as
agricultural sector is neglected. The main reason behind this problem is that
the directors of the banks were mostly industrialists and interested in
sanctioning loans to those industries in which they are connected. To overcome
these deficiencies found in the working of the banks, the Banking Laws
(Amendment) Act was passed in December 1968 and came into force on 1-2-1969. It
is known as the scheme of ‘social control’ over the banks.
The main purpose of social control was to make
the commercial banks active participation in the social welfare of the masses.
The major steps in social control legislation
1. The establishment of the national credit
council to formulate new credit policy
2. Appointment of non - industrialist bankers
having special knowledge of the working of banking company as chairman of all
banks as whole time employee for a term not exceeding five years.
3. Appointment of not less than 51% of
professional directors.
4. Prohibition to grant loans or advances or
guarantees to directors or a firm in which he is interested and
5. Establishment of a training institute at
highest level to improve the technical expertise of bank executives.
The purpose of social control was to achieve
the social welfare objective of the government.
Q.15. Write a brief
note on the role of banks in the economic development of a country.
Ans: Role of banks/SBI/Commercial
banks in the economic development of a country
Banks play an important role in the economic
growth of a country. In the modern set up, banks are not to be considered
dealers in money but as the leaders of development. The importance of bank for
a country’s economy can be explained in following ways:
1. Promote Saving: Banks by playing attractive
interest rate on deposits try to promote thrift and savings in an economy. The
investment of these savings in productive channel results in capital formation.
2. Channelisation of savings to optimum use:
The scattered small savings in the country can be put to optimum use by
commercial banks. Banks utilize this amount by giving loans to industrial
houses and the government. By providing funds to the entrepreneurs, bank help
in increasing productivity of capital.
3. Remittance of money from one place to
another: Banks help in remitting money from one place to another. The cheque,
bank draft, letter of credit, bills, Hundies enable traders to transfer large
sums of money from one place to another.
4. Credit creation: By their ability to create
credit, the banks have placed at the disposal of the nation a large amount of
money. The bank can increase the supply of money through credit creation.
5. Increase in Employment: With the growth of
banking activity, employment opportunity in the country has increased to a
considerable extent.
6. Capital formation: The banks help in
capital formation in the country. A high rate of saving and investment promote
capital formation.
7. Protection of depositor’s property: Money
deposited in the bank and other precious items are now absolutely safe. For
keeping valuables, banks are providing locker facilities. Now people are free
from any type of risks.
Q.16. What is
E-Banking? Mention its merits and demerits. 2019
Ans: E-Banking or
Internet banking: Online
banking also known as internet banking, e-banking,
or virtual banking, is an electronic payment system that enables
customers of a bank or other financial institution to
conduct a range of financial transactions through the financial
institution's website. Internet banking is a term used to describe the process
whereby a client executes banking transactions via electronic means. This type
of banking uses the internet as the chief medium of delivery by which banking
activities are executed. The activities clients are able to carry out are can
be classified to as transactional and non transactional.
Advantages
of E-banking or Internet banking
1) Convenience:
Banks that offer internet banking are open for business transactions anywhere a
client might be as long as there is internet connection.
2) Low cost
banking service: E-banking helps in reducing the operational costs of banking
services. Better quality services can be ensured at low cost.
3) Higher
interest rate: Lower operating cost results in higher interest rates on savings
and lower rates on mortgages and loans offers from the banks.
4) Transfer
services: Online banking allows automatic funding of accounts from long
established bank accounts via electronic funds transfers.
5) Ease of
transaction: The speed of transaction is faster relative to use of ATM’s or
customary banking.
6) Discounts:
The credit cards and debit cards enables the Customers to obtain discounts from
retail outlets.
Disadvantages
of E-banking Internet banking
1) High start-up cost: E-banking requires high
initial start-up cost. It includes internet installation cost, cost of advanced
hardware and software, modem, computers and cost of maintenance of all
computers.
2) Security Concerns: One of the biggest
disadvantages of doing e-banking is the question of security. People worry that
their bank accounts can be hacked and accessed without their knowledge.
3) Training and Maintenance: E-banking requires
24 hours supportive environment, support of qualified staff. Shortage of
trained and qualified staff is a major obstacle in e-banking activities.
4) Transaction problems: Face to face meeting is
better in handling complex transactions and problems. Banks may call for
meetings and seek expert advice to solve issues.
5) Lack of personal contact between customer and
banker.
Q.17. Write a brief note on recent trends in
Indian Banking System. 2020
Ans: a) Core banking is normally defined as
the business conducted by a banking institution with its retail and small
business customers. Many banks treat the retail customers as their core banking
customers and have a separate line of business to manage small business. Larger
business is handled by the corporate banking division of the institution. Core
banking basically is depositing and lending of money.
b)
Factoring: Factoring is a service of financial nature involving the conversion
of credit bills into cash. Accounts receivables, bills recoverable and other
credit dues resulting from credit sales appear, in the books of accounts as
book credits. Here the risk of credit, risk of credit worthiness of the debtor
and as number of incidental and consequential risks are involved. These risks
are taken by the factor which purchase these credit receivables without
recourse and collects them when due. These balance-sheet items are replaced by
cash received from the factoring agent. Factoring is also called “Invoice
Agent” or purchase and discount of all “receivables”.
C) Internet /E-Banking: Online banking also known
as internet banking, e-banking, or virtual banking, is
an electronic payment system that enables customers of
a bank or other financial institution to conduct a range
of financial transactions through the financial institution's
website. Internet banking is a term used to describe the process whereby a
client executes banking transactions via electronic means. This type of banking
uses the internet as the chief medium of delivery by which banking activities
are executed. The activities clients are able to carry out are can be
classified to as transactional and non transactional.
Modern Services Provided by Bank
through Internet Banking
1. Centralized
Banking Solution (CBS) = CBS, an inter-branch networking and data-sharing
platform helps the customers to operate their account from any city in India
having CBS networked branches, changing the status of customer from ‘Customer
of the Branch’ to ‘Customer of the Bank’.
2. Online Tax
Payment = Banks provide the facility of online payment of service tax, excise
duty, DGFT, Custom duty and all charges under MCA 21 through internet banking.
3. Corporate
Internet Banking = Online funds transfer, trade finance management, fund
management, global access with unmatched benefits through banks’ corporate
internet banking.
4. Online
Shopping = This service facilitates the customers to book hotels, buy gifts,
send flowers, buy books and lot of activities by making payments online.
5. Retail
Internet Banking = Internet Banking assists the customers to have an online access
to bank account anytime and anywhere.
6. Foreign
Exchange = Banks have several branches authorized for handling foreign exchange
business and these branches.
7. E-Money
India = Internet banking helps the customer in sending money to their loved
ones in India through PNB’s e-Money India service.
8. Online
Railway Reservation = Say goodbye to long queues. Banks offer the customers
online booking and information through IRCTC payment gateway. Just click and
travel comfortably.
9. Depository
Service = Banks Depository service provides the facility of having shares and
securities in Demat form and executes transactions of sales and purchase hassle
free electronically to the customers through internet banking.
10. Electronic
Clearing Service and Electronic Funds Transfer (EFT) = Internet banking assists
the customers in electronic clearing service for quick movement of funds in a
paperless mode and EFT to ensure an expeditious transfer of funds by using
electronic media.
11. Online Bill
Payment = No more queues to pay customers’ bills. Now the customers can pay
their telephone, mobile, electricity, insurance and several other bills 24
hours, 365 days, from the desktop of customer.
12. Online Air
Ticket Booking = Banks provide facility of online airline ticket booking of
domestic as well as international airlines to their customers through internet
banking.
13. Online
Trading = Banks provide online trading facilities to customers having account
with bank and trading account with approved brokers.
14. Customer
Care Facility = Banks present 24 hours customer care facility for all customers
quarries and problems.
15. Online
Insta Remit-RTGS Service = Instant remittance by customer himself now made possible,
from one bank to another bank at different centre’s on the same day with the
help of Online Real Time Gross Settlement (RTGS)/National Electronic Fund
Transfer (NEFT) at modest charges.