Introduction: Bank plays an important role in the economic development of the country.

The entire commercial and industrial activities are well knitted with the banks. One cannot imagine the cessation of the banking activities even for a day. There may be an economic crisis in the country if the banks stop functioning for some days. In the early days, the banking business was confined to receiving of deposits and lending of money. But the modern bankers undertake wide variety of functions to assist their customers. In countries like United Kingdom, banking development preceded industrial development and in United States of America, the Banking development followed the industrial development. But in many other countries including India, the development has almost been simultaneous. The peculiarity of Indian Banking is that the banks were started, funded and managed by industrialists to enable them get adequate finance for their businesses or industries, we can see a direct relationship between banks and the business houses. The Tata group was associated with Central Bank of India; House of Birla with United Commercial Bank. It is often said that a banker is one who deals with other peoples money. The term Banking has been understood differently by different people at different times. Even mills and industrial concerns, which accepted public deposits, were classified as banks between 1932-1943. According to Sir John Pagget, no person or body, corporate otherwise, can be a banker who does not take deposit accounts; take current accounts; issue and pay cheques; and collect cheques, crossed and uncrossed, for his customers. But a statutory definition was introduced through the Banking Regulation Act, 1949. Accordingly, a bank is a company which accepts deposits of money from the public, for the purpose of lending or investment, repayable on demand or otherwise. This definition excludes mere money lending from the banking business. Similarly, mills and industrial concerns, which accept deposits, are also excluded from the classification of the term Banks. Commercial banks play an important role in directing the affairs of the economy in various ways. As a matter of fact the operations of commercial banks record the economic pulse of the country. The size and composition of their transactions mirror the economic happenings in a country. Long back the well-known 19th century economist

David Ricardo had stated that a bank was a dealer or transactor in money. Banks are thus financial intermediaries collecting deposits and lending loans. But now they are not only the purveyors of money but also the creators or manufacturers of money in a financial system. It is the bank who set the tempo of aggregate economic activity in any economy.

1. Nationalised Banks: The Government of India with effect from 19 July 1969 nationalised 14 major Indian Banks, each with an aggregate deposit of Rs-50 crores or more with a view to to serve better the needs of development of the economy, in conformity with National Priorities and Objectives. The following were considered to be the compelling reasons for the Bank Nationalisation: 1. Concentration of wealth and economic power in industrialists and businessmen; 2. Branch expansion was confined only to urban areas with rural areas being neglected; 3. Sectors like agriculture, small scale industries and the other deserving sectors were outside the purview of lending operations of the bank; 4. Various malpractices indulged in by banks under private ownership and management to favour big businessmen and industrialists and 5. To give a re-orientation in attitude and outlook of the bankers so as to make them conscious of social objectives and to make them embrace social banking. The ordinance through which the Banks were nationlised was struck down by Supreme Court as unconstitutional and invalid, on grounds of hostile discrimination and illusory compensation. So the Government addressed these lacunae and Banking Companies {Acquisition and Transfer of Undertakings} Act, 1970 was introduced. The fourteen banks covered under this Act of Nationalisation were 1. Central Bank of India Ltd. 2. Bank of India Ltd. 3. Punjab National Bank Ltd.

4. Bank of Baroda Ltd. 5. United Commercial Bank Ltd. 6. Canara Bank Ltd. 7. United Bank of India Ltd. 8. Dena Bank Ltd. 9. Syndicate Bank Ltd. 10. Union Bank of India Ltd. 11. Allahabad Bank Ltd. 12. Indian Bank Ltd. 13. Bank of Maharashtra Ltd. 14. Indian Overseas Bank Ltd. Eleven years after nationalisation of 14 commercial banks the Government on April 15, 1980 took over six schedule Commercial Banks each with demand and time liabilities exceeding Rs-200 crores through an ordinance issued by the President. These banks were 1. Andhra Bank Ltd. 2. Corporation Bank Ltd. 3. New Bank of India Ltd. 4. Oriental Bank of Commerce Ltd. 5. Punjab and Sind Bank Ltd. 6. Vijaya Bank Ltd. Of these twenty banks nationalised in two installments, New Bank of India got merged with Punjab National Bank in September 1993. Thus as of today, there are 19 nationalised banks operating in our country. Thus, as on date there are totally 19 nationalised banks existing as on date. Nationalised banks have been permitted to offer their equity shares to the public to the extent of 49% of their capital. Accordingly, the following nationlised banks offered shares to the public 1. Corporation Bank 2. Bank of India 3. Bank of Baroda

4. Oriental Bank of Commerce 5. Dena Bank Apart from the above, the following banks coming under the State Bank of India Group, have also offered shares to the public 1. State Bank of India 2. State Bank of India 3. State Bank of Travancore 4. State Bank of Bikaner and Jaipur As of September97, nationalised banks contributes 55% of the aggregate deposits of the Banking System. The contribution of the nationalised banks in the domain of credit of the entire Banking System is to the extent of 48.5%. Similarly, as of September97, State Bank of India and its associates, contribute to 25% of the aggregate deposits of the Banking System and 28.4% of the aggregate credit of the banking system. Parameter: No of banks( as march97) No of branches Amount of deposits (as march96) Amount of advances 2. Private Sector Bank: By private sector banks we mean those banks where equity is held by private shareholders that is to say there is no government holding of the equity shares. This category of banks also occupies a significant position in the Banking Scenario. There are already 25 private sector banks operating in our country for quite some time. These banks are listed as under1. The Vysya Bank Ltd. 2. The Federal Bank Ltd. 3. The Jammu & Kashmir Bank Ltd. 4. Bank of Rajasthan Ltd. 5. Karnataka Bank Ltd. 6. The South Indian Bank Ltd. 4 Nationalised banks 19 31,398 2,37,512 crores 1,28,644 crores SBI and its Associates 8 12,995 1,13,163 crores 83,419 crores

7. The United Western Bank Ltd. 8. Bank of Madura Ltd. 9. The Catholic Syrian Bank Ltd. 10. The Karur Vysya Bank Ltd. 11. Tamilnad Mercantile Bank Ltd. 12. The Lakshmi Vilas Bank Ltd. 13. The Sangli Bank Ltd. 14. The Dhanalakshmi Bank Ltd. 15. Development Credit Bank Ltd. 16. Bharat Overseas Bank Ltd. 17. City Union Bank Ltd. 18. The Benares State Bank Ltd. 19. The Nedungadi Bank Ltd. 20. Lord Krishna Bank Ltd. 21. Bareily Corporation Bank Ltd. 22. Nainital Bank Ltd. 23. The Ratnakar Bank Ltd. 24. The Ganesh Bank of Kurundwad Ltd. 25. SBI Comm.& Int. Bank Ltd. There has been a growing presence of private sector banks, more so, after the introduction of financial sector reforms from 1991. Six new private banks listed as under were issued licenses in 1994-95 and commenced operations during the same year. 1. UTI Bank Ltd. 2. IndusInd Bank Ltd. 3. ICICI Banking Corporation Ltd. 4. Global Trust Bank Ltd. 5. Centurion Bank Ltd. 6. HDFC Bank Ltd. Again, during 1995-96, the following three banks were issued the licenses and commenced their operations: 1. Times Bank Ltd.

2. Bank of Punjab Ltd. 3. IDBI Bank Ltd. Thus, apart from the twenty-five old private sector banks (already listed above), we have got nine new private sector banks. During the period Times Bank ltd. was merged with HDFC bank. However The Nedungadi Bank Ltd. was merged with one of the nationalise bank i.e. Andra Bank Ltd. The size of the private sector banks in our country as on date is furnished hereunder. (As at June97) Number of Private Sector Banks in operation Number of Bank branches of Private Sector Banks Amount of Deposits ( as at march96) Amount of Advances ( as at march96) 35 4,473 31,692 crores 21,588 crores

Private sector banks have been rapidly increasing their presence in the recent times and offering a variety of newer services to the customers and posing a stiff competition to the group of public sector banks.

3. Foreign Banks: The other important segment of commercial banking system is that of foreign banks. Foreign Banks, being banks registered and headquartered in Overseas Centres, have opened branches in our country on a continual basis. Even in the initial decades of the century, we had the presence of foreign banks in our country albeit in a smaller way. Here again, the presence of foreign banks has rapidly improved after 199, after the advent of the financial sector reforms. The statistics relating to foreign banks operating in our country is given below Number of Foreign Banks operating in our country (as at June97) Number of Foreign Bank Branches operating in our country Number of representative offices operating in our country 41 179 28

Amount of Deposits ( march96) Amount of Advances ( march96)

30,523 crores 22,746 crores

The increasing presence of foreign banks in our country has accentuated the competition in the Banking Industry bringing in the process newer products as well as resulting in improved customer service. They are employing and enhancing the impact of technology for the growth of business volumes along with sophisticated service delivery mechanism to the clientele. As per the present policy measures in force, all the foreign banks together cannot have more than 15% of the total business of the banking industry as a whole.

TIME DEPOSITS Time deposits may also be termed as Term Deposits as the deposits are made by the customers for a specific period. Time deposits consists of Fixed Deposits and Recurring Deposits. Term deposits are not normally withdrawn before the fixed term. Demand deposits, as the name indicated, are those deposits, which can be withdrawn by the customers at any time without giving notice to the bank. Current account and Saving bank account fall under this category of demand deposits. FIXED DEPOSITS Fixed deposits are made by the customers for a specified period, ranging from 15 days to 5 years or more, the rate of interest ranges from % to 11%. The longer the period of deposit, higher is the rate of interest. The depositor is assured of the safety of the funds, apart from higher returns. The depositor, as per the terms, agrees not withdraw the amount earlier. In acknowledgement of the fixed deposit, the customer is given a

receipt called fixed deposit receipt popularly known as FDR in the business circle. The rules governing fixed deposits are printed on the reverse side of the FDR. At the end of the term, the customer may either withdraw the amount along with interest or renew the deposit for a further period at this convenience. Since the customer would withdraw the funds at the end of the period, the banker can lend the money confidently without keeping any reserve to meet the withdrawals. In case the customer needs money prior to the due date, although he may not be able to withdraw from the Fixed Deposit, he can obtain a loan from the bank on the strength of the Fixed Deposit Receipt. The banker charges an interest for this loan.

RECURRING DEPOSIT ACCOUNT This is a type of account, which is a combination of the characters of saving bank account and fixed deposit accounts. In this account, the depositors can pay a fixed sum of money every month for various periods, say 12 to 120 months. This account is normally opened by salaried persons or individuals who get regular income. Deposits may be paid in easy installments. The commercial banks have introduced the Recurring Deposit Scheme to enable the small depositors to save for a predetermined period. In one way it may be viewed as compulsory savings to enable them to build up sizeable amount. The bankers allow compound rate of interest. In case the depositor needs the money even before the stipulated period he can get back the money. In such cases, the banker may pay a lesser rate of interest than it was agreed upon. MISCELLANEOUS TYPE OF DEPOSITS In order to meet the multifarious needs of the customers, banks are adopting various methods of mobilizing the savings of the customers. They have introduced new saving schemes to enable the customers to deposit money in the bank according to their convenience. The banks have even opened extension counters at the schools and colleges to help the community at large. (1) Pigmy/Janata Deposits: -

This is a type of small saving, which encourages thrift by facilitating daily savings. The banks authorized agents collect the amount at the depositors door and give receipts. In case the customer needs money before the stipulated period he may receive the total amount deposited by him. The customer can also obtain advance against the deposit at a reasonable rate of interest. After completion of the stipulated time, the balance in the account may be transferred to a Pigmy Fixed Deposit Account to enable the depositor to get the benefit of a higher rate of interest. (2) Insurance Linked Deposits: The commercial banks, in cooperation with the Life Insurance Corporation of India, came forward with a few schemes to promote the savings habit among the people. Any person in the age group of 18-49 is eligible to open this account. An account holder from a rural area should maintain a minimum interest bearing balance of Rs-500/- and in other areas Rs-1000/-. The commercial banks undertake to pay the premium at 1.25% of the deposit. However, interest at the prevailing rate would be credited. The customer is entitled to get the whole amount. In case of death, the legal heirs can get the following benefits, provided that the deposits have been made for a continuous period of 2 years. (1) In case the deceased account holder is less than 21, an amount equal to twice the average of the minimum monthly balances which formed the basis for calculation of the premium in the account during the half-yearly period immediately preceding the death will be paid, subject to a maximum of Rs-10000/-. (2) In case of the deceased account holder is more than 41 years, half the amount as stated in the earlier case alone would be paid subject to a maximum of Rs-500/-. (3) In case the deceased is above 47 years, insurance benefit is not payable. (3) People Saving Plan: Under this scheme a customer is to deposit Rs-500/- per month for a period of 12 months. After having deposited for 3 months, he may withdraw 1/10 of the balance once in a month. The bank allows interest applicable at fixed rate of interest. This scheme enables a common man to save and invest in bank deposit.

(4) Daily Saving Schemes: This is a type of small savings facilitating daily savings on which interest is paid at prescribed rates. (5) Minors Savings: Under this scheme young children of 12 years and above are allowed to open this account in their own name and operate this account. The bank inculcates in them the habit of savings, in addition the children feel important as they are also the account holders in commercial bank. They are pleased to operate the account by themselves.

(6) Annuity /Retiring Scheme: The customer should continue to deposit a certain sum every month for a predetermined period. At the end of such period, they will be paid a lump sum or a regular monthly income. Normally salaried people may opt for this scheme as they are guaranteed of the monthly payments after retirement. (7) Farmers Deposit Scheme:In the case of agriculturists, they are able to deposit in the bank only after the harvest of their crops. In order to facilitate them to get regular returns this type of deposit account was introduced. Under this scheme one has to deposit a lump sum of money once or twice in a year, subject to a minimum amount of Rs-500/-. After a certain period they are allowed to withdraw 1/12 of the amount deposited along with the interest every month. (8) Monthly Income Plan: This scheme is suitable for pensioners. When they get their gratuity, they can deposit this lump sum in the bank for a specified number of years. While their deposit is repayable on maturity, interest is paid to them every month at the prescribed rates. (9) Cash Certificate Scheme: -

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Many banks issue cash certificates to the depositors. This is a long-term deposit. The principal and interest together will be paid at the maturity period. In case of need for money, the depositor can obtain a loan on the basis of the Fixed Deposit or he may encash it with appropriate discount.

(10) Housing Deposit Scheme: This is an arrangement by which the depositor has to pay a regular monthly installment for a specified number of years, at the end of this period the banker pays back not only principal but also an amount of loan as agreed upon. This loan is repayable in easy installments. (11) Amudha Surabi Deposit Scheme: This is a type of savings scheme for children. A box resembling a cow is given to the children, who will save their pocket money in the box, the banker will open this when the box is taken to the bank periodically for depositing the cash. After counting, the amount would be credited; the guardian is allowed to withdraw the amount on behalf of the minor child.

DEMAND DEPOSITS (a) Saving Bank Account: As the name indicates, the purpose of opening a savings bank account is to save money to meet the future contingencies. A person is allowed to open a savings bank account provided he is properly introduced. The customer is expected to maintain a minimum balance of rs-20/- in his account. Nowadays, any savings bank account holder who agrees to maintain a minimum balance of Rs-500/- in his account may make use of the cheque facilities. The interest is allowed at the rate of 5% on the minimum balance as in the case of any date as stipulated and the last day of each calendar month. The rate allowed on savings bank account is 5% p.a. there are some restrictions relating to the

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number and amount of withdrawals. The number of withdrawals are generally restricted 100 per year and the total amount of withdrawals at any time should not exceed Rs-10000 or 10% of the balance whichever is higher. But if he wants to withdrawal large sum, he should give prior notice to the banker. Saving Bank Accounts are usually opened in the name of individuals. No saving bank account is opened for a trading company or a business concern whether such a concern is a proprietory concern, partnership firm, a company or association. Nowadays, a banker facilitates the collection of cheques drawn in the name of the customer through the savings bank account. However, he does not collect third party cheques. A third party cheque is one, which is drawn in the name of a person other than the customer.

Saving Account for NRIs: For that we should understand who is NRI (Non-Resident Indian) As per the Foreign Exchange Regulation Act of Reserve Bank of India, NRI means an individual being a citizen of India or a person of Indian resident outside India. (a) Person is deemed to be of Indian origin if person had at any time held Indian passport. (b) He or either of his parents or any of his grand parents was a citizen of India. (c) A spouse of a person other than of a National of Pakistan or Bangladesh shall also deemed to be a person of Indian origin. In other words, the Indian person those who stay abroad for employment or for business or any other purpose for indefinite period of stay outside India and Indian citizens who are working abroad on assignment with foreign ship/international agencies or assignment with foreign Government/Government agencies shall deemed to be a NRI. Normally no person other than Indian is allowed to open Bank Account with Banks in India, without specific permission from RBI. However, NRIS are permitted to open their Saving Account with banks in India as well as abroad. NRIs are allowed to open Savings Account as under:

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NRO Account (Ordinary Non Resident Account): NRO account can be opened by NRIs jointly with the resident Indians who are close relations. The resident Indian can operate NRO account freely. The NRO account can be Current Account also a Term Deposit Account or Saving Bank Account. NRO account can be opened by an Indian national or person of Indian origin while leaving for a foreign country with the intention of becoming a non-resident. His bank account in India will be designated as NRO account. NRO account can be opened by NRIs during their visit to India without prior permission reference to RBI in their name with initial deposit for opening such account is received by either from remittance abroad or out of the foreign exchange brought by NRIs during their visit or by transfer of funds from existing NRE account. In some cases bank may allow opening of NRO Account from local funds provided bank is satisfied that funds are eligible for credit to the account. NRE Account (Non-Resident External Rupee Account) Banks who are authorized to deal in foreign exchange are permitted to freely open NRE Account with remittance received from abroad in the approved manner from the country of residence. NRE Account can be opened jointly with Indian national subject to prior approval of RBI. NRE Account can also be opened with travellers cheques or foreign currency notes bought by him during his visit to India. NRE Account can be opened with two or more Non-Residents of his country. NRE Account cannot be opened with Indian persons/relatives. With specific terms and conditions. NRE Accounts can be opened in the form of Saving Bank Account, Current Account or Term Deposit Account. Transfer of funds from one NRE Account to another NRE Account, to Indian Account or NRO Account is permitted. However no transfer of funds from ordinary Indian Account or NRO Account to NRE Account is permitted. FCNR Account (Foreign Currency Non Resident Account) FCNR Account is in the form of Fixed Deposit denominated in four designated currencies US Dollars, UK Sterling, Japanese Yen or Deutsche Marks (DM). These accounts can be opened with specially designated branch of the banks in India. The

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minimum period of a deposit is six months and maximum is three years. FCNR Account is required to be opened with funds remitted from abroad or transfer of funds from his NRE Account. NRIs of bilateral countries are not permitted to open FCNR Account. The remittance received from abroad in currency other than four designated countries mentioned above will require to be converted in any of the above-mentioned four designated currencies. (b) Current Account: A businessman for the purpose of his business normally opens a current account. He should always maintain such minimum balance in the account. A banker should be doubly cautious to get an introduction letter from the customer at the time of opening such account. He should also see that such introductory letters are verified, due to the following reasons: (1) The RBI has given a direction that the prospective customers should produce Introductory letter at the time of opening the account; (2) The banker should ascertain the bonafides of the customer; (3) Since third party cheques are collected through the account, there is a chance for fraud by unscrupulous elements; (4) Since overdraft and cash credit facilities are available, the banker should not be exploited by an unscrupulous customer. In a current account the banker is obliged to honour the cheques drawn on him if there is sufficient balance to his credit. One of the peculiar features of the current account is that the banker does not allow any interest on the deposits whatever the balance is. However, if the customer overdraws the account he may have to pay interest to the banker. Overdraft may be granted for a temporary period of one moth or more depending upon the requirements of a customer. Cash credit facility is also available in the current account. Bankers allow certain special facilities such as free collection of outstation cheques, issue of demand drafts and mail transfers without any extra charges.

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LENDING OF FUNDS A shrewd banker should be able to employ his funds profitably. He should lend the deposit to others, keeping in mind the principles of lending viz. Safety, liquidity and profitability Methods of lending: (a) Overdraft:Overdraft is an arrangement whereby the banker under prior arrangement and request allows a customer to overdraw his current account. Generally, this system is resorted to in case of temporary accommodation needed by individual customer or personal segment customer. The facility is repayable on demand and is determined by the arrangement arrived at between banker and customer. Overdraft may be clean or secured depending on the banks relationship with the customer. It is perhaps quickest and easiest method of granting an advance. Generally this systems not favoured for other advances. Overdraft are granted against Govt. securities, shares, debentures, banks own term deposit receipts, life insurance policies, etc. While clean overdraft does not require any documents. (b) Cash Credit: This is most popular system of financing loans for the purposes of meeting working capital needs. This is a short-term finance, which is repayable on demand. The customer withdraws funds when he needs the funds and deposits cash left with him or sales realisation in his cash credit account. The cash credit facility is continuing one where loan gets repaid with every production cycle viz. From cash to raw material to finish goods, finish goods to bills and bills to cash. Since cash credits are repayable on

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demand there is no fixed installment towards repayment. In effect, therefore, cash credit accounts continue for longer period. However, these accounts are reviewed every year by the bank and decision on continuation of or otherwise of the cash credit is taken. In case any of the stipulation of loan is not followed or if there is any breach of agreement bank can call up the advance and call upon the party to repay entire loan at short notice. Under the cash credit system level of advance or maximum limit up to which a unit can draw is determined based on level of activity of the borrowing unit. The limit so fixed is available to borrower subject to availability of adequate security to cover the loan after complying with the margin requirements. The customer is required to regulate his drawings in accordance with the terms and conditions of sanction and the banker on his part satisfies that everything is alright by calling periodical statements from the borrower and by monitoring the loan account and movement of funds. (c) Discounting Of Bill of Exchange: This is one of the familiar methods of granting short-term loans to businessmen. In the case of a credit sale, the buyer or his bank may accept the bill. The holder may discount the bill before the due date. The banker will present the bill to the acceptor on the due date and collect the amount. In case the acceptor fails to pay, the banker will debit the customers account. For e.g. in a particular transaction company A supplies goods to company B. Company B accepts the goods, also accepts the bill of company A and agrees to pay after specified credit period. However, A requires money immediately. He approaches a banker who pays him up front against that accepted bill. Banker does not pay him full amount but adjusts its interest payment for the value and period and pays A. This is called, as banker discounts the bill. This is a fund-based facility as banker actually pays up front. Supplier has to get prior limit set for such bill discounting facility. Discounting may be done either by suppliers banker or purchasers banker. It is diagrammatically represented as follow:

Goods supplied

accepts bills

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Pays Up front Bs BANKER Bankers earns interest pays after credit period

(d) Loans and Advances: The banker may grant advances to the customer on the basis of certain securities as cover for advances made by them. There are different types of advances provided by bank such as, trust receipt, term lending, export finance etc. Packing credit is an advance, which is made by the banks at the pre-shipment stage for financing an exporter customer. Under this scheme, the banker sanctions facility to the exporter to purchase raw materials for processing and for packing it, thus making the goods ready for export. This type of facility is granted generally against an irrevocable letter of credit opened by the foreign buyers in favour of the Indian supplier or against firm contracts of the foreign buyer. The packing credit advance is generally allowed for a period of 90 days within which period the exporter is expected to manufacture and ship the goods. Trust Receipt: when the goods are received under an import licence it is often found that the importer either does not have funds or he has to deliver those goods immediately to the consumer and would pay to the bank after receiving money from the consumer. The bank releases the goods against execution of a trust receipt by the party in favour of the bank. It is a sort of clean advance and the borrower gives an undertaking to the effect that he is holding the goods released under Trust Receipt in trust for the bank and will be dealing in them on behalf of the bank. The duration of trust receipt would be thirty to sixty days and in some cases, ninety days. During the said period, the party deals with the goods, receives the money and immediately on receipt of the money, pays the same into the trust receipt account. Such a facility is granted only to valued and honest clients, as it is a clean advance.

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Term lending means giving an advance, which is not repayable on demand but is repayable over a period of time. Term loans are basically meant for financing part of the capital costs of the projects, the fixed assets which are acquired out of share holding or Directors contribution. Term loans available from various financial institutions help the promoter to carry on its manufacturing activities, earning profits and out of such profits so generated repay the liability under the term loans. Fixed assets are offered as security by way of different types of mortgage for granting such advances. Against such type of advances banker requires security cover. Which are explained below. Advances against Banks own Fixed Deposit Receipt: This is perhaps a scheme, which has been gaining a lot of popularity in recent times. Schemes like Your Own Money, Unfixed Deposit, Cash Key and other brand names adopted by the banks are a few examples where the facility of an advance is made available against the Fixed Deposit Receipt on the opening of the deposit account. Even otherwise, banks freely advance to their customers a loan against their own Fixed Deposit Receipts. This was so because it helped the bank to retain its own deposits and at the same time, provide a measure of liquidity to tide over the immediate needs of their customers. Since the fixed deposit is issued by the same bank, it forms a good security as the issuing bank can earmark a lien against it. As per RBIs directives, the amount of advance cannot exceed 75% of the face value pays the accrued interest, banks charge interest at 2% more than the rate of interest applicable to the fixed deposit. In case of borrowings by a company, the rate of interest chargeable would be the rate applicable to their other borrowal account from the bank. Life Insurance Policies: Life insurance policies are generally accepted by banks as security for advances granted to individual borrowers if the policies are in their personal names. Among the policies, endowment policies are very popular. Generally, banks do not grant advances against whole life policies or against a policy taken under the Married Womens Property Act, as such a policy creates a trust in favour of the married woman and it cannot be

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validly assigned to the bank. Another advantage of granting loans against insurance policies is that so long as the policy is in force by the regular payment of premia, the banks position becomes secure as the security appreciates in value and its surrender value goes up. Surrender Value is the amount which becomes payable by the insurance company to the insured in the event of the foreclosure of the policy. Thus, the banks have very little to worry about the repayment of advance. However, the capacity of the borrower to repay the loan in monthly installment is the main consideration before the bank. Government Securities: All securities issued by the Central and State Government fall under this category. They are administered under the Public Debt Act, 1944 by the RBI, Treasuries and SubTreasuries, SBI and other nationalised banks. The different types of securities that we come across are: Government Promissory Notes: They undertake to pay a certain sum of money to or to the order of a specified person, on a specified date with interest stipulated on the bond. In some cases, interest may be stipulated, payable after a stated period if the bond is not cumulative. These notes are transferable by endorsement made in the cages printed on the reverse. Since they are non-negotiable instruments, the person taking them will take with him all the defects of the transferor. But the title would become clean once the GP Note is renewed. GP Notes can also be renewed and fresh ones can be obtained from the Public debt Office of the RBI if they are torn, mutilated or destroyed or the cages have been exhausted. Stock Certificates: The Public Debt Office (PDO) issues a certificate to the holder of a certain number of stock entitling him to be the owner thereof. The terms of issue, date of maturity, rate of interest, etc. are indicated on the certificate. The ownership of the sock certificate vests in the person by virtue of his name being registered in the PDO. Thus, a transfer requires registration with the PDO. Since the transfer is done on the stock itself, no stamp duty is payable thereon. Stocks are an ideal security for advances by banks since they are safe and the custody of the stocks remains with the banks.

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Bearer Bonds: In this type of securities, the bearer of the bond is entitled to payment on maturity. The date of repayment is indicated on the bond itself and interest coupons are attached to it for facilitating payment of interest. The coupons are to be sent to the PDO for claiming interest. These bonds are not very popular with the public. Advances against Stock Exchange Securities: These represent shares and debentures issued by companies registered under the Companies Act, 1956. These are actively traded on the stock exchanges and their values can be ascertained by referring to the prices quoted in the newspapers on a daily basis. Advance against share by banks has been one of the traditional avenues of employment of funds. Banks grant such advances to persons of good standing and integrity. Various other kinds of collateral securities are offered to a bank by its customers as cover for loans and advances, which are explained below: Hypothecation: - under this mode of security, the banks provide credit to borrowers against the security of movable property, usually inventory of goods. The goods hypothecated, however, continue to be in the possession of the owner of these goods. The rights of the lending bank depend upon the terms of the contract between the borrower and the lender. Although the bank does not have physical possession of the goods, it has the legal right to sell the goods to realise the outstanding loan. Hypothecation facility is normally not available to new borrowers. Pledge: - pledge, as a mode of security, is different from hypothecation in that in the former, the goods which are offered as security are transferred to the physical possession of the lender. An essential prerequisite of pledge, therefore, is that the goods are in the custody of the bank. The borrower who offers the security is called a pawnor (pledgor), while the bank is called the pawnee (pledge). The lodging of the goods by the pledgor to the pledge is a kind of bailment. Therefore, pledge creates some liabilities for the bank. It must take reasonable care of goods pledged with it. The term reasonable care means care, which a prudent person would take to protect his property. He would be

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responsible for any loss or damage if he uses the pledged goods for his own purposes. In case of non-payment of the loans, the bank enjoys the right of sell the goods. Lien: - the term Lien refers to the right of a party to retain goods belonging to another party until a debt due to him is paid. Lien can be of two types: Particular Lien and General Lien. Particular Lien is a right to retain goods until a claim pertaining to these goods is fully paid. On the other hand, General Lien can be applied till all dues of the claimant are paid. Banks usually enjoys General Lien. Mortgage: - it is the transfer of a legal/equitable interest in specific immovable property for securing the payment of debt. The person who parts with the interest in the property is called mortgagor and the bank in whose favour the transfer takes place is the mortgagee. The instrument of transfer is called the mortgage deed. Mortgage is, thus, conveyance of interest in the mortgaged property. The mortgage interest in the property is terminated as soon as the debt is paid. (e) Letter of Credit: This can be explained with the help of example. If supplier X is supplying goods to Buyer Y, buyer Y would wish to get credit from X. X does not have his regular supply to Y and hence perhaps does not have enough comfort to extend credit to Y. In such case banker of Y may come forward to guarantee payments to X on behalf of Y. Since the payments are guaranteed by a bank, X would not hesitate to extend credit to Y. The diagrammatic representation of above would make the concept clear.

Goods Supplied

Letter of Credit Payment guaranteed on behalf of Y

Banker

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( f ) Export Finance: Export of goods and services are considered most important segment of economic activities. The performance and success of export trade, therefore, depend to a large extent on the availability of finance and cost of credit. In India, exports have been given top priority in allocation of credit. Commercial banks are the major source of finance for exports. Banks provide various types of credit facilities to ensure that they can meet all the requirements of exporters. Commercial Banks provide following types of credit to exporters: (1) Pre-shipment Credit or Packing Credit: The pre-shipment credit is provided before the shipment of goods for exports. Before shipment of goods, exporters need finance for purchasing raw material etc. in domestic markets or even in international markets for manufacturing of goods for exports. Usually, pre-shipment credit is given credit against firm export orders. In some cases, where there is continuous flow of orders for exports or exporters have to procure materials in advance or during particular season etc. banks provide packing credit even without firm export order depending upon the performance of the exporters in the past. Usually pre-shipment finance is provided for 180 days or six months at concessional interest rate. In some type of exports where the manufacturing of goods takes more than six months, banks provide pre-shipment credit is liquidated through the sanction of postshipment credit. (2) Post-shipment Credit: At the time of shipment of credit, pre-shipment credit is liquidated and exporters are provided credit against export bills in the form of post-shipment credit. Post-shipment credit is usually given against the bills accepted by the importers or export bills. In case of Usance Bills, concessional credit is provided up to 90 days and higher interest rate is charged for the period beyond six months. (3) Credit against Duty Drawback: Government provides incentives to exporters in the form of exemption of export goods from various taxes and duties imposed on goods. In many cases, exporters have to pay taxes and duties initially on goods manufactured for exports and thereafter; they have

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to claim refunds from government. As refund of taxes take sometime, exporters need some financial support. Therefore, banks provide credit against such duty drawbacks. (4) Export Credit in Foreign Currency: Usually exporters are provided credit in domestic currency i.e. Indian rupee. When exporters receive export proceeds in foreign currency, they sell the foreign currency to banks and liquidate their export credit. Now, exporters have been given option that they can get export credit in Indian rupee or in Foreign Currency. In case of export credit in foreign currency, bank charge interest rates related to LIBOR i.e. London Inter-Bank Overnight Rates. Exporters, who prefer to have export credit in foreign currency, they have to repay their outstanding export credit in foreign currency. Under this facility exporters get export credit at international interest rates. However, exporters would not get the advantage of any depreciation of rupee in exchange market. (5) Interest Rates on Export Credit: As mentioned earlier export credit is provided at concessional interest rates. However, the benefit of concessional interest rate is given only for a limited period. If the exporters delay in the remittances of export proceeds, banks charge higher interest rate and even penal interest rate.

AGENCY SERVICES In order to facilitate the customers, the banks accept standing instructions from their customers either to make payments on their behalf or collect money or effect transfer of money. The relationship between the banker and customer, in this case, is that of principal and agent. The customer directs the banker as to what he should do. The banker acts according to his direction. In case of any loss, the customer alone will bear this as his directions are carries out by the banker. The banker will charge the customer for doing such services. Some of the agency functions are as follows: (a) The banker pays rent, insurance premium, subscription etc. on behalf of the customer as per his prior instructions on the appropriate dates. The payment will be made from the customers account.

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(b) In the same way the bank undertakes to collect such income on behalf of the customer. (c) The banker also collects cheques/bills etc. on behalf of the customer. (d) In India, we do not have banks exclusively dealing in foreign exchange. The commercial banks, in addition to their normal functions, undertake the business in foreign exchange. They buy and sell foreign exchange currencies as per the regulations. They also discount the foreign exchange bills. (e) The financial stability of the bank and complete confidence of the customers, dealing with it has made the bank a natural and trusted friend for undertaking executorship and trusteeship. In addition to this, an increasing reluctance of customers to trust individuals, combined with insufficient knowledge of law on their part has led commercial banks to act as trustees/executors to their customers. As a trustee, the banker takes care of the management trust and administers the trust funds effectively. The functions undertaken under the executor/trustee services are as follows: To handle the investments/estates during the life time of the owner; and distribute them according to the terms of the will after his death; To manage the property during the owners life time and after his death on behalf of his dependants through their life time or till such property is distributed/ applied according to the instructions of the deceased; To manage movables and also act as a guardian of a minors property; Guide customers in filing estate duty returns and appear before Estate Duty Authorities when called upon to do so; Administration of public trusts; Acting as trustees for debentureholders.

GENERAL UTILITY SERVICES A number of incidental functions are carried on by the commercial banks to help his customers. (1) Safe Custody of valuables: One of the important services which a bank renders to his customers is that of keeping valuables of customers is that of keeping valuables of customers in safe custody including jewellery, share certificates, insurance policy, title deeds, gold ornaments, will

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etc. while banker accepts anything for safe custody he accepts them under duly sealed box, and banker passes receipt for such deposits. The safe deposit receipt has to be returned duly discharged when the banker redelivers the boxed/pocket. The relationship between banker and customer is that of a bailor and bailee. The contract entered into is a contract of Bailment. In present day banking, bankers are offering locker facility, which is superior, and hence becoming popular. However, at centres where locker facility is still not available the articles in safe custody is a service of great value to customers. Under this facility, bankers responsibility is higher, because if there is any damage to property bailed he would be responsible. This facility is used by bankers themselves to deposit their branch duplicate keys in some other bank/branch. In the event of any loss of keys or other problem, the duplicate keys can be withdrawn to ensure smooth functioning of the branch. The articles in safe custody facility is utilised by the people for depositing their will, their last wish as to how to deal with their property. Except in States of MP and UP in all other states probate or letters of administration will be necessary to deliver the articles. (2) Safe Deposit Locker Facilities: Many banks offer safe deposit locker facility. Under the arrangement, a customer hires a locker cabinet, which is kept by the bank for the purpose. Lockers are generally kept in strong room, which is a water proof/ fireproof place. There are different sizes of lockers like small, medium, large and extra large, etc. The locker rent is recovered for a year in advance and depends on the size of the locker. A locker hirer has to sign an agreement on Rs-10/- stamp paper with the bank. Thereafter, a locker is allotted to him. The locker has two keys. The master key is kept by the bank whereas the other key is given to the customer. There is no duplicate key available for the customer. In case, it is lost, the locker has to be broken open at the cost of the customer. The locker is a most essential facility in cities and urban places and even in villages for safe keeping of valuables. The locker system is superior to safe custody system because customer can keep anything the customer chooses to keep, he need not

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inform banker about the contents. It can be operated on locker, no need to seal, pack the contents etc. the charges are very nominal. Small locker with SBI costs Rs-100/- per annum. A locker can be opened jointly and access to the locker can be had by either of the joint account holder. If there is defaults in payment of locker, persistently, say more than 3 years, then bank can give notice to locker hirer and if he does not respond, with due notice break open the locker in presence of witnesses. The banker is at liberty to recover its locker rent from the proceeds of contents. The relationship of the banker and customer in the safe deposit locker is that of licensor and licensee. While surrendering the locker, the original locker holder has to come personally to surrender the key. At the time of allowing access to the locker, the hirer has to sign access register his signature is verified and thereafter access to locker is allowed. (3) Transfer of Money: Money may be transferred from one place to other through the bank in the following ways. The customer may purchase a bank draft drawn in favour of the payee. The procedure for purchasing a draft from the bank is a simple one. A form for obtaining a draft should be filled in by entering the required particulars. The amount payable to the payee along with the commission should be paid into the bank account. The banker will issue a bank draft in the name of the payee. A bank draft is nothing but a cheque issued by one banker ordering the other branch of his bank to pay the specified sum of money to the payee mentioned therein. The customer can send this by registered post to the payee who can collect the draft through his account or collect cash if it is not crossed in the respective branch. (4) Mail Transfer and Telegraphic Transfer: The customer can transfer funds from one place to another through mail transfer or telegraphic transfer. Mail transfer is a method by which the customer requests his

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banker to transfer a portion of the balance in his account to the payees account, kept in a different place in the same bank for a nominal commission. After receiving the customers instruction the banker arranges to send an advice to the concerned bank manager, through mail, asking him to credit the account of the payee with certain amount as instructed by his customer. In the case of telegraphic transfer, the banker in one place advises the other bank manager by a telegram to credit the account of a specified customer on the other end with the necessary funds. Hence, the transfer is made and such telegraphic transfer enables the payee to make use of such funds within a short time. (5) Rupee Travellers cheque: Various banks have introduced the system of issuance of Rupee Traveller Cheque to serve customer as also to get float fund. It helps in minimizing the risk of carrying cash by people while travelling. American Express Company was the first to issue travellers cheques. The RTCs are issued in the denominations of Rs-100/-, Rs-200/-, Rs-500/- and Rs-1000/-. The validity period of RTCs with different denomination causes inconvenience to the prospective purchaser and may result in diversion of business usually buffer stock is maintained by the branches. The facility of immediate supply of RTCs in required denomination results in projecting the image of the bank. In view of low float funds, expenses on account of handling cost, overheads, cost of stationery and printing, etc. nominal service charges are levied on the sale of RTCs. The Rupee Traveller Cheques are popular instruments as these are accepted at banks, hotels, airports, petrol pumps, and departmental stores without identification by simply putting the signature on the travellers cheque. Rupee Travellers Cheques issued by one bank can be encashed with other bank when such arrangement is made. (6) Acting as Referees: When a seller intends to sell his goods to an unknown buyer, he may do so only after knowing the financial standing of the buyer. In this case, the buyer would request his bank to reveal his financial standing when an enquiry is made by the seller. The bank may respond to such an enquiry only with the customers consent.

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(7) Merchant Banking: Some commercial banks have also started Merchant Banking Division in order to assist new industries to obtain various types of information and plan out their promotional activities. The banks assist the promoters to obtain technical data relating to feasibility, market demand and other relevant information. Banks also underwrite shares and debentures of companies During the recent past, the needs of the individuals for services of bankinginvestment has grown. In order to meet needs of the individuals and corporate sector in the year 1949, section 19 of Banking Company Act was enacted and now a banking company is permitted to establish a subsidiary company for the purpose of undertaking of such other business which the RBI may consider to be conducive to the spread of banking in India or to be otherwise useful or necessary in public interest. With the growing needs of the individuals and corporate bodies, banks have thought of establishing their subsidiaries and diversify their activities. SBI and Canara Bank were pioneer in establishing Merchant Banking first in the bank as a special department. At the end of June 1996, 11 subsidiaries were set up by the banks in the field of equipment leasing, hire purchase cum merchant banking business and 8 subsidiaries in Housing Finance. The main activities of the Merchant Banking: The merchant banking subsidiaries assist the entrepreneurs in formulating their project and offer services like selection of appropriate technology, project report preparation, market surveying, advise on financing pattern, assistance in obtaining various Government Approval. Merchant bankers act as trustees on behalf of debenture holders when company issue secured debentures. The merchant bankers manages the portfolio on behalf of their corporate, noncorporate clients, sales and purchases of securities and provide market intelligence advisory services to them they provide on lease all types of industrial and non-industrial equipements. (8) Teller system:

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The reputation of the bank depends on its ability to satisfy the customers at the counter. Acceptance of cash and payment of cheques are the two important services at the counter. The customer feels irritated if he is made to wait for a long time either at the time of deposit or withdrawal of cash. Some banks have even put up a notice at the bank assuring their customers that the cheques could be encashed within a specified time. However, it is often felt that the waiting time at the counter is longer and should be reduced. In order to minimize the waiting time of the customers, the Teller System has been introduced. Under this system, the teller examines the cheques presented to him and pays the cheques to the holders on identification. In case of doubt, he may refer to the records. Some banks allot codes on cheque forms based on the creditworthiness of the account-holders. In case of doubt about the balance in the customers account, the teller may direct the presenter to the accounts counter where the cheque will be dealt with. The teller combines himself the twin functions of passing the cheque and paying the cash. Many banks have fixed a ceiling on the amount of the cheque paid by the bank. (9) Automatic Teller Machine: Automatic Teller Machine is an important introduction for better customer service from the year 1990. With the opening up of trade business and Indian economy many facilities which were being enjoyed by the users in Western countries have been provided first by the foreign banks like Citi Bank, Grindlays Bank and now by many private and public sector banks in India. In order to provide better customer services and sometimes vesting energy and ordeal in waiting in long queues for depositing money in bank account and making withdrawal from his bank account, Teller System was introduced, whereby a special Receipt-Payment counter was opened and a Teller was authorised to accept cash up to Rs-5000/- and make payment up to Rs-2000/- to the personal account holder. To meet ever-increasing demand of efficient and finest services some of the foreign banks have introduced ATM instead of manning Teller Counters as their banking transactions have been computerized by them. Thus ATM is Mechanised Teller System for making payment and deposits of cash. It has replaced manual operations.

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A customer has been given a plastic-metal card, which contain chip-a magnetic strip, which is required to be inserted in a Teller Machine, which decode the code number. Customer has been given a specific code number for his identity. For operation he uses his designated code number by pressing keys on the machine upon which he can be permitted to (a) Withdraw cash up to the specific limit- say Rs-2000/-, Rs-5000/- in multiples of Rs-10/- or Rs-50/- or Rs-100/- in round sum amount. (b) Deposit cash in his account in round sum amount. (c) Deposit cheques in his account. The machine is loaded by adequate quantity of cash in various denominations in multiples say Rs-10/-. Customers can withdraw cash after the identification process by pressing button and cash comes out. As the teller computer machine is linked with a computer, the operation of withdrawal or deposit is automatically get posted in his account and transaction slips comes out from the Teller Machine which is a record for customer towards the transaction made by him. Computer slip furnishes the details of opening balance, type of transaction made and the balance in the account. Thus all functions of counting of cash, effecting payment to the customer, receiving of cash from the customer, debit or credit posting and accounting work, issue of transaction slip in token of withdrawal/deposit of cash and more so advising the balance in the account is done by the machine. (10) Various types of Cards: Following types of cards are available in India: Credit Card: The credit card is an instrument, which enables the cardholder to obtain goods or services from shops and establishments where arrangements have been made by issuing bank to reimburse them. The goods and services are bought by the cardholders from shops and establishments upon presentation of card instead of cash or cheque for settlement of their bills up of specified amount fixed the card-issuing bank. Such bills are sent for settlement by the shops and establishments to the card-issuing bank, monthly or periodically for obtaining reimbursement. Card issuing bank upon receipt of such bills

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from shops and establishments for reimbursement settle it by debiting the customers account. Thus cardholder gets credit for 30 to 45 days free of cost. Cash Card: Certain banks issue Cash Cards in addition to Credit Card which enable holder of card to draw certain amount of cash from the branch office, of the card issuing bank or now from ATM installed by the bank at various places. Smart Card: This type of cards are also known as Chip Card. With the increasing computerized network, banks extend the Chip Card facilities to the select customers. The Smart Card is a microcomputer chip giving its intelligence and a memory capacity much more than usual magnetic cards. Smart card has much computing power of Personal Computers. It has storage capacity of all types of personal data of the cardholder. Smart Card can be used with a Personal Identification Number (PIN). The Smart Card can be programmed to do any task within its processing power and memory capacity. It is a Data Carrier Identity Card and also meant for using for monetary transactions like payment of hotel bills, electricity bills. Co-Branded Cards: This type of credit cards are those which banks promotes jointly with another financial agencies, like Master Card, BOB Card, Diners Card, Taj Card, Bank of India BOI Card. These types of Cards are used with other non-financial institutions, which enables the cardholder to claim discount in price for the use of card. Debit Card: Debit Card is also known as a Payment Card used to obtain cash, goods and services automatically debiting the payments to the cardholders bank account immediately. Charge Card: Charge Card is a type of card in which card holder is required to settle the outstanding in full at the end of a short period within 25-30 days to the extent of certain amount say Rs-5000/- to Rs-10000/- at one time.

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(11) Gift Cheques: The gift cheques are issued by the commercial banks in different denomination like Rs-11/-, Rs-21/-, Rs-51/-, Rs-101/-, Rs-201/-, Rs-501/-, etc. to facilitate their customers to make presents to their relatives and friends on important occasions like marriage, birthdays, religious and other festival days, etc. No interest on these deposits is payable these are encashable on demand. The eligibility for prizes has been withdrawn with effect from 1.1.77 in the light of Ground Rules and Code of Ethics for deposit mobilization prescribed by the Indian Banks Association. Gift cheque is payable to order. The cheque is payable to the payee or endorsee or to their bankers who should certify that the amount has been placed to their credit. Gift cheques will be encashable at the branch of issue but can be negotiated at par at all the branches of the bank. The payment being made in cash upon establishment of the beneficiaries identity. Gift cheques can be freely issued for presentation to infants and minors and such cheques can be paid by crediting the accounts of natural or legal guardians. Thus this scheme may not be very remunerative for the banks, but it is a service to customers and helps in building image. (12) Collection and payment of pension: The bank offer services for collecting and payment of pension from the paying authority or other banks, which are authorised to effect payment of the pension. Similarly, as per the amounts, banks are paying the pension by crediting the amount on every month in the beneficiaries account. For the above purpose the beneficiaries are required to authorise the bank to collect the pension regularly and credit the payment in his account. The banker while accepting the pension on every month ensure regularly the living condition of the pensioner. He should be called every month or at least a valid certificate of life should be obtained. (13) Mutual Funds: The concept of mutual funds is to pool the resources of a group of persons for purposed of investment in securities to achieve growth and higher yield. In order to achieve the above, they employ funds managers who judiciously employ the funds in stocks and securities. In India, the Unit Trust of India introduced the first mutual fund.

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Thereafter, there was no other mutual fund till the late eighties. The SBI started the second mutual fund, closely followed by Canara Bank, PNB and LIC. These mutual funds float in the market. Growth oriented schemes, which are either open-ended or close-ended, and the rate of return is fixed or floating. The mutual funds growth has, in fact, affected the growth of banks deposits in view of the higher rates of returns offered by the mutual funds. Although at present, the mutual funds are in the public sector, the Government is considering the question of permitting the private sector to float mutual funds.

Innovations Introduced by the Commercial Banks in their Banking Operations: Indian banking system has well developed over the last five decades. Indian banking system is considered one of the best systems in emerging economies. After nationalisation of major Indian scheduled commercial banks in July 1969, Indian banks were assigned higher responsibility in the planned development particularly the alleviation of poverty through the extension of credit support and geographical expansion of bank branches network. At the time of nationalisation of banks in 1969, total number of banks branches were about 8000. These branches were mostly located in urban and metropolitan areas. The number of branches in rural areas was negligible. Therefore, this first priority assigned to banks in post nationalisation was to expand banking activities in rural areas to meet the growing requirements of agricultural sector and allied activities. As a result of new thrust in banking system, today the number of bank branches have crossed the number of 60,000 branches. Further, at the time of nationalisation of banks, the share of bank credit to agricultural sector and other weaker section of the society was only 2% of total bank advances. As a result, the thrust of bank lending was given on lending to priority sector and weaker sections of society. Initially banks were advised to achieve the target of 331/3% of total bank advances. In 1985, the ratio of lending to priority sector was raised to 40%. Today banks are required to lend at least 40% of their advances to priority sector. Further, banks were assigned to achieve sub-targets under the priority sector to ensure that the directed flow of credit goes to particular sectors like agriculture, small

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scale industries, lending under differential interest rates, housing, exports, etc. As a result of this strategy, there was an accelerated flow of credit to thrust areas. For achieving the target set by the RBI, banks were required to adopt innovative banking practices. Initially banks adopted following innovative measures to ensure flow of credit to thrust areas: (1) Credit camps: Banks organized credit camps in different areas to identify potential borrowers and disburse the credit expeditiously. This system was good to disburse the credit to weaker sections and thrust areas. However, credit camps affected the quality of lending. As a result, credit was given to many undeserving borrowers. Hence, this system resulted in poor recovery and banks were affected by overdues and non-performing assets. Now, the system of Credit Camps has been discontinued. (2) Schematic Lending: Banks were advised to adopt schematic lending for priority sectors. Banks, accordingly, prepared schemes for lending to various thrust areas through formulation of viable schemes. (3) Lead scheme: The RBI started a lead scheme under which districts were assigned to different banks. Lead Banks were advised to prepare credit plan for the district after making assessment of the developmental potentialities of the district. Under the Lead Bank Scheme, the lead bank has responsibility for coordination among all banks and financial institutions in the district. (4) Service Areas Approach: In order to assign the responsibility of ensuring flow of credit in a particular area, a new method called Service Area Approach was introduced. Under the SAA, a particular branch of a commercial bank is assigned certain areas viz. 15-16 villages and the particular branch was required to coordinate with other banks in the area. (5) Differential Interest Rate Scheme: Banks required to extend credit to very poor people who are below the poverty line at concessional interest rate of 4%. In order to ensure that banks make adequate lending under DIR scheme, a target of 1% bank advances has been fixed. (6) Directed Lending:

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In order to provide credit to certain sectors of high priority, the RBI has adopted a system of directed lending. Under this scheme, banks have to achieve certain minimum targets. Directed credit is provided for sectors covered under priority sectors like agriculture, small scale industries, housing, exports etc. at present banks have been advised to lend at least 40% to priority sectors and 12% to exports. The RBI regularly monitors the flow of credit to the directed sector and takes appropriate measures in case of any default in meeting these targets. Apart from these, banks have been adopting innovative methods for mobilization of funds and lendings to become competitive in the globalised banking. Some of the innovative systems are: Mobilisation of deposits: For mobilisation of deposits at competitive interest rates, banks are paying interest on short-term deposits up to a period of 15 days. Further, banks have been offering interest rate on deposits on the basis of size of deposits. Thus, the banks can offer higher interest rates of large sized deposits. In order to help customers in deposit mobilisation, some banks are even mobilising deposit on telephone from houses. Customers are, therefore, not required to visit bank offices. Even within term deposits, banks are offering flexibility to customers. As a result, in case of withdrawal of a part of term deposits, customers do not have to loose entire interest on deposits. Banks are also mobilising deposits through issue of certificates of deposit. The certificates of deposits are a negotiable instrument and investors can transfer to others. Similarly, banks are issuing stock invest to investors who want to invest in equities. In case of stock invest, the depositors or investors continue to get interest on the amount till the allotment of shares by the company. Many banks have set up subsidiaries to undertake merchant banking, leasing and hire purchase business. Some banks are setting up subsidiaries to take up securities broking business. Some banks have issued credit cards, which brings good income to banks on utilization of such card by customers. Lending: Like deposit mobilisation, banks have developed many innovative methods for lendings. Now days, security is not a prime consideration for lending. Banks lend money directly and indirectly. For example, for housing purposes, banks lend

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directly to customers. Similarly, banks subscribe to bonds floated by Housing Finance Companies, which are utilized for lending to houses. Similarly banks can lend directly to farmers for electrification of wells or to State Electricity Boards or Rural Electrification Corporation for lending funds for electrification. At last we will focused on different services provided by one of public sector commercial bank which is State Bank of India: SBI Vishwa Yatra Foreign Travel Card : The card can be issued to any bonafide citizen of India who plans to visit abroad except Nepal and Bhutan. The Corporate can purchase the card for their employees whom they plan to send abroad for official. The Card can be purchased by the Parents/Sponsors of the students going abroad for higher studies, in the students name and can be subsequently reloaded up to the statutory ceiling prescribed from time to time. SBI Vishwa Yatra Foreign Travel Card carries lost card liability upto a maximum of Rs.2 lakhs. This protects the cardholder against misuse of the card, pre and post 48 hours from the time of receipt of the report regarding the loss/theft at SBI/VISA helpline. In other words, any loss arising out of misuse of the card, which might have taken place within the past 48 hours or within the subsequent 48 hours, from the time of reporting of loss of the card, is insured. This insurance cover has been arranged with The New India Assurance Company Limited (NIACL), the insurer. All claims will be payable by the insurer directly, subject to their rules and regulations and the terms and conditions contained in the master policy issued to State Bank of India (SBI). SBI shall have no liability in respect thereof. Further, SBI will not be a party to any dispute between the cardholder and the insurer. However, cardholders are expected to adopt all possible precautions to avoid the chance of misuse. SBI may, at any time (at its sole discretion) suspend, amend or cancel the benefit of such insurance cover and there will be no binding obligation on SBI to continue this benefit. Travelers going abroad on leisure trip may find the card as most convenient as it saves their precious time in locating authorized moneychangers and also from exchange risk.

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The SBI Vishwa Yatra Card is a magnetic strip Pre-paid Card, which offers you a convenient and secure way to carry cash. This prepaid dollar Card offers you the freedom to shop anywhere in the world and provides access to the currency of your destination at competitive market rates. Cash withdrawals can be made anytime with a pre-set Personal Identification Number (PIN) at 850,000 Visa ATMs worldwide and usage of the Card for purchases can be done at over 13 million Visa Electron merchant establishments worldwide. An individual don't need to have an account with SBI to purchase the SBI Vishwa Yatra Card. Simply walk into any of our authorized SBI Branches in India and purchase a SBI Vishwa Yatra Card over the counter. The minimum purchase value of the SBI Vishwa Yatra Card is US$ 500 whereas, The maximum value that can be carried on a Card at any given time is US$10,000. Locker: For the safety of customers valuables SBI offer their customers safe deposit vault or locker facilities at a large number of their branches. There is a nominal annual charge, which depends on the size of the locker and the centre in which the branch is located. Telebanking: This is a secure, fast & convenient way to obtain a range of services by using a telephone without visiting the branch e.g. information on account, conduct of selected transactions, report loss of ATM card, order a cheque book, draft etc. What are the services available under "Telebanking"? Online balance inquiry. Details of transactions 1. Last five transactions 2. Transactions from a recent date Request for service 1. Cheque book request 2. Funds transfer request 3. Drafts request 37

Request for statement of account 1. From the date of last statement 2. From a specific date Change on PIN...etc. The facility is protected with two level passwords in addition to the Customer's

account number, which is his login ID. The Customer should be careful to maintain secrecy of his password & PIN number. All individual customers in Personal segment except those whose accounts are operated through joint signature and whose accounts are not running satisfactorily, can avail the facility. Even the minors who are allowed to open and operate account can seek to avail the facility. The Customer is required to apply for the facility in the application form prescribed for the purpose. After scrutiny, the Branch will register the name & allot the PIN & Transaction password, which the Customer will change on his first log in for a number of his choice. Presently the facility is available in select fully computerized branches. The service is provided 'free of charge'. What happens if one forgets his 'PIN' / Transaction password? The customer has to re-apply by a simple letter. The Branch Manager after due scrutiny will allot a new PIN & Transaction password. The facility is available for all Customers having Savings/Current accounts in their individual capacity at the branches offering the facility What happens if ChequeBook delivered through 'Telebanking'? Can it fall in wrong hands? If the Bank gets the instruction to mail the chequebook, it will be couriered only at the address registered with the Bank. Any misuse of the system can be averted if the Customer ensures that the address and any change therein are correctly recorded with the Bank. The customer may choose to collect the chequebook personally or through his authorized representative. How does the Customer benefit by availing the 'Telebanking' facility? The customer can access information to his account and do a few transactions without visiting the branch even when he is out of station, that too; around the clock. Thus, the

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facility carries with itself the advantages of convenience, economy and efficient time management. www.onlinesbi.com is the Internet banking service of the State Bank of India. India's Premier Commercial Bank. Smart products for the smart customer. If a person is customer of SBI Bank and if that Branch is e-enabled then he can become an e-customer. All he need is Internet connectivity -Anywhere. And of course he will also need to sign-up for Registration. Just download the application form and submit it to SBI branch* after completing it. He will shortly receive his User-Id and Password. As soon as he receives them then he has to log on to the www.onlinesbi.com and charge his username and password. That's all. Simple, fast and convenient anytime-anywhere always open. Person can now check his account balances, view his account, request for cheque book, drafts, Bankers cheques, stop cheque payment and issue standing instructions. He can also transfer funds to his other accounts at the Branch, request for third party transfers, invest and renew Term Deposits. * Whether your Branch is e-enabled can be seen on the Branch locator on www.onlinesbi.com All this at no cost - It's free! And most important all transactions are secure. General Information: The www.onlinesbi.com registration form(s) should be addressed and sent directly to the Branches where the applicant(s) maintain his/her/their account(s). Separate registration is required in case the accounts are maintained at different branches. Separate registration is allowed for single and joint accounts at the option of the user. Normally the account holders can access his accounts through the www.onlinesbi.com only after he/she acknowledges to the respective Branch(es) the receipt of the User-Id and Password sent to him/her. Each account holder in a joint account with Either or Survivor type mode of operation may register himself/ herself as a USER of the www.onlinesbi.com facility. All other accounts not listed in the registration form will be available on the www.onlinesbi.com for the purpose of enquiry only. The customers may approach Branch for enabling transaction rights on such accounts any time.

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Banks Terms: All requests received from the USERS are logged and transmitted to the Users Branch for their fulfillment. The requests become effective from the time these are recorded/ registered at the respective branch. While registering the request, the USER is informed about the time normally taken by the Bank for fulfillment such requests. The www.onlinesbi.com service is a VeriSign certified secure site. It assures that during the session user is dealing with web-site of SBI. The two-way communication is secured with 128-bit SSL encryption technology, which ensures the confidentiality of the data during transmission. The access-control methods designed on the site afford a high level of security to the transactions conducted on www.onlinesbi.com.

Home loan: No hidden clauses or costs or unnecessary documentation. SBI loans have the longest tenors and their repayment terms are amongst the most flexible. They offer a totally transparent process. They even give an in-principle approval prior to identifying a house/flat, relieving customers of the tension of anticipating the approved amount! Last, but not the least, they have specialized Housing loan branches to serve customers needs better A special Short Term Housing Loan Scheme for loans of repayment period upto 5 years has been launched by SBI. This scheme carries still lower rates of interest. The SBI Advantage: Excellent service and lower costs. A quick survey of similar schemes available elsewhere and find out that SBI housing loans offer Low Equated Monthly Installments (EMI) Low interest rates, currently between 8% p.a. and 9.5% p.a. on daily reducing balances A nominal processing fee of 0.25% will be charged.(Compare this with the 1.5% 2% charged by others) No hidden costs or administrative costs

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Complete transparency - When say at SBI rate of interest is 8% p.a. you pay only 8%. When others say 7.5%, you may be paying even 9% p.a., as interest may be levied even on the amounts you have already repaid. This is because SBI apply interest on a daily reducing balance while housing finance companies/ other banks mostly apply interest on annual reducing balance. On an annual reducing balance, the interest for the full year is decided on the balance outstanding at the beginning of the year and thus Customer continue to pay interest even on the amounts he repay monthly during the year.

The Scheme Purpose Person can take a loan for: * Purchase or construction of a new house/ flat. * Purchase an existing (old) house/ flat. * Extend, repair, renovate or alter a house/ flat. * Purchase a plot of land meant for construction of a dwelling unit. Eligibility Anyone who is over 21 years of age and has a steady source of income is eligible. Loan amount The actual loan amount is determined on the basis of repayment capacity taking into account income, age, assets and liabilities. As a rule of thumb - Upto 60 times the net monthly income will be sanctioned depending upon customers age. Usually, spouse's income and the expected rental would also be taken into account.

Car Loan: Low interest rates, easy repayment options, total transparency, no processing charges, finance to include vehicle registration charges, insurance and one time road tax More than 4000 Branches that offer Car Loans. A person can apply for an SBI Car Loan to purchase: A new car, jeep or Multi Utility Vehicles (MUVs) (any make or model)

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An old car / jeep / MUV (not more than 4 years old). (any make or model)

The SBI Advantage: Excellent service and lower costs. A quick survey of similar schemes available elsewhere and find out that SBI Car Loans for new and old vehicles offer: Lowest interest rates Longer repayment period of upto 84 months. No processing charges. No hidden costs or administrative charges. Free Personal Accident Insurance No advance EMIs. (Some Banks/companies ask to pay one or more EMIs at the time of disbursement of loan, thereby effectively reducing loan amount.) Complete transparency: SBI levy interest on daily reducing balance method. When customer pay one installment, the interest is automatically calculated on the reduced balance thereafter. When one pay interest on an annual reducing balance, as charged by many other companies/banks, the interest amount for the coming year is determined on the amount outstanding at the beginning of the year. Customer continues to pay interest even on the amounts he repays during the year. The Scheme Purpose Eligibility To avail an SBI Car Loan, person should be A Permanent employee of State/Central Government, Public Sector Undertaking, Private company or a reputed establishment or A Professionals or self-employed individual who is an income tax assessee or A Person engaged in agriculture and allied activities.

Loan Amount There is no upper limit for the amount of a car loan. It is limited only by your repaying capacity. A maximum loan amount of 2 times the net annual income can be sanctioned. If married, spouse's income could also be considered provided the spouse guarantees the loan The loan amount includes finance for one-time road tax, registration and insurance!

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Educational loan Education is the most powerful weapon, which you can use to change the world." ~ Nelson Mandela 4000 branches of bank, spread across the country, (including Personal Banking Branches) are geared to offer extremely flexible Education Loan Scheme, which allows long term loans for all kinds of courses (including part-time and correspondence), offered by recognized schools, colleges and institutions, the world over! The SBI advantage: The lowest interest rates - currently between 10.5% p.a. and 11.5% p.a. - Simple Interest, during the moratorium period No processing charges Long repayment periods of 5-7 years, commencing a year after the course period or six months after obtaining a job, whichever happens earlier No hidden costs or administrative charges No prepayment penalties

The Scheme These loans are specifically offered for the pursuit of academics in recognized schools, colleges and various other educational institutions, both in India and abroad. one may avail of this loan facility to meet: Fees payable to college/school/hostel Examination/Library/Laboratory fees Purchase of Books/Equipment/Instruments/Uniforms Caution Deposit/Building Fund/Refundable Deposit Travel Expenses/Passage money for studies abroad Purchase of computers considered necessary for completion of course

Purpose one can take a loan for pursuing studies in recognized schools/colleges/ institutions to 43

meet: * Tuition and other fees * Maintenance costs, books & equipements, etc. * Cost of passage (for studies abroad) * Caution fund/building fund/refundable deposit Eligibility Any student who is an Indian national and Has secured admission to a professional or a technical course through an Entrance Test or any other Selection process or Has secured admission to a foreign University or Institution is eligible for this scheme. Loan Amount The loan amounts financed are need-based and subject to the concerned parents and/ or students repaying capacity and the following ceilings: Education in India : A Maximum of Rs.7.50 lacs Education Abroad : A Maximum of Rs.15.0 lacs

Documents Required The mark sheets of your last qualifying examinations for school and graduate studies in India The proof of admission scholarship, freeship, studentship etc. The Schedule of expenses for the specified course The copies of letter confirming scholarships, etc. The copies of foreign exchange permits, if applicable 2 passport size photographs The borrower's Bank account statement for the last six months Income tax assessment order, not more than 2 years old A brief statement of assets and liabilities, of the borrower Proof of Income (i.e. Salary slips/ Forms 16 etc)

Margin

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For loans up to Rs.4.0 lacs : No Margin For loans above Rs.4.0 lacs: The Margins are as under: In the case of Education in India, the margin is 5% In the case of Education Abroad, the margin is 15%

Repayment of loan SBI offers a Repayment Holiday for the duration of the course period PLUS one year or six months after getting a job - whichever is earlier. The loan then needs to be repaid in 5-7 years after the commencement of repayment.

Credit khazana: The "SBI Credit Khazana" Scheme offers Housing Loan customers, concessions in interest rates and margins when they subsequently avail of any of the following loans: Car Loan, Education Loan, Personal Loan, Tractor Loan. Eligibility Housing Loan customers who have serviced the loan regularly for at least one year and where Equitable Mortgage has been created Concession in Interest There will be a concession of 0.25% in interest when any of the above mentioned loans are availed. Concession in Margin There will be a concession of 10% in case of Car Loan and 5% in case of Tractor Loan. Security The security required to be taken under the individual schemes would be taken and additionally, the Equitable Mortgage taken for the Housing Loan would be extended to cover the new loan(s). Insurance Free accident insurance cover (to cover death only) is available in case of Car Loan.

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Other terms & Conditions: Other terms & conditions like Amount of Loan, Repayment, Documentation will be the same as those laid down for the individual schemes.

Sainik plus scheme They give their lives so that others might live " For all those who are ready to lay down their lives for their motherland, SBI is proud to offer Sainik Plus with special discounts on processing fees, interest rates and margin amounts on various finance schemes. This is available for all Non Commissioned Officers (NCOs) and Jawans of Indian Army. The SBI advantage: Concessions in margin amounts, interest rates and processing charges! Lowest interest rates. Further, we charge interest on a daily reducing balance! Lowest processing charges; only 1% of loan amount - compare with 1-3% of others. No hidden costs or administrative charges. No prepayment penalties. Reduce your interest burden and optimally utilize your surplus funds by prepaying the loan. Flexible repayment period.

Eligibility This scheme is open for all NCOs and Jawans of the Indian Army. Documents Required To avail of loans under the Sainik Plus scheme - you will need to submit the following : 1. Certificate from the CO confirming your salary and identity. 2. Photocopy of your identity card along with the loan documents. 3. Undertaking from the CO to remit your salary every month with SBI. 4. In case your unit is subject to frequent movement/transfer, a third person guarantee either from a person in the same unit or one of their relatives residing at that place. 46

Teacher plus scheme The mediocre teacher tells. The good teacher explains. The superior teacher demonstrates. The great teacher inspires." ~ William Arthur Ward The SBI advantage: Concessions in margin amounts, interest rates and processing charges! Lowest interest rates. Further, we charge interest on a daily reducing balance! Lowest processing charges; only 1% of loan amount - compare with 1-3% of others. No hidden costs or administrative charges.. No prepayment penalties. Reduce your interest burden and optimally utilize your surplus funds by prepaying the loan. Flexible repayment period.

The Scheme SBI recognizes the special position sanctioned for teachers in our society and is proud to introduce Teacher Plus - a special scheme for teachers placed under State and Central Governments as also under the deemed universities. Through Teacher Plus, you can avail of concessions in the rates of interest, processing charges and margin amounts in the following schemes: Personal Loan Car Loan Housing Loan

Eligibility This scheme is open for all teachers placed under State and Central Governments as also under the deemed universities.

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