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Banking Operations

MBA FM 1025
• Banking and financial institutions in India: Commercial Banks,
Cooperative Banks, Regional Rural Banks, Agriculture and Rural
Development Banks, Development Banks ,NBFCs, Foreign Banks,
Retail Banking, MUDRA Bank and Payment Banks; their constitution,
Functions and Working .
• Deposit Accounts: Opening Operations and Closure of a] Fixed
Deposit Account b] Recurring Account c] Savings Account d] Current
Account e] Deposit Schemes for NRIs. Other Deposit Schemes,
Mandate and Power of Attorney – Nomination Facility – Insurance of
Bank Deposits
• Funding & Recovery: Sector Specific funding, short term and long
term loans, MSME funding, Mortgage, Pledge & Hypothecation,
Recovery of loans, Non- Performing Assets, Effect of NPA on bank’s
profitability.
• Interest Rates: Differentiation in lending and borrowing rates, Interest
as an important source of revenue of banks, various interest rates in
funding schemes of banks, SLR, CRR, REPO and REVERSE REPO Rate
• Bank Balance Sheet: Management of assets and liabilities in banks –
Profitability and Productivity in banks – Management of large sized
branches and rural branches. Internal control and Performance
budgeting system – Management Information system Income
Recognition and asset classification norms .Career opportunities in
Banking sector .
Reference Books:
1. Bimal Jaiswal, Banking Operations Management, Vikas Publishing
House, 2015.
2. M N Gopinath, Banking Principles and Operations, Snowwhite; 6th
Edition edition, 2016.
3. Sarkhel, Indian Financial System and Financial Market Operations,
McGraw Hill Education, First edition, 2017.
4. Siddhartha Saha, Indian Financial Systems and Markets, McGraw Hill
Education, 2017.
5. Accounting and Finance for Bankers – Indian Institute of Banking &
Finance – Mac Milan Publications
Learning Objectives
• What is bank?
• Working of bank
• Functions of bank
Bank
• A bank is a financial institution
licensed to receive deposits and make
loans.
• A bank is an institution where people
or businesses can keep their money.
• The Banking Companies Act of India
defines Bank as “A Bank is a financial
institution which accepts money from
the public for the purpose of lending
or investment repayable on demand
or otherwise withdrawable by
cheques, drafts or order or
otherwise.” ... It accepts deposits,
lends money and also creates money.
Banking
• Definition: Banking is an
industry that handles cash,
credit and other financial
transactions.
Working of bank & functions of bank
Functions of Banks
• The functions of commercial banks are of two types.
• (A) Primary functions
• (B) Secondary functions.
The primary functions of a bank include:
a) Accepting deposits
b) Granting loans and advances.
a) Accepting deposits
• The most important activity of a bank is to mobilise deposits from the
public.
• People who have surplus income and savings find it convenient to
deposit the amounts with banks.
• Depending upon the nature of deposits, funds deposited with bank
also earn interest.
• Thus, deposits with the bank grow along with the interest earned.
• If the rate of interest is higher, public are motivated to deposit more
funds with the bank.
• There is also safety of funds deposited with the bank.
b) Grant of loans and advances
• The second important function of a bank is to grant loans and
advances.
• Such loans and advances are given to members of the public and to
the business community at a higher rate of interest than allowed by
banks on various deposit accounts.
• The rate of interest charged on loans and advances varies according
to the purpose and period of loan and also the mode of repayment.
Types of Advances Banks grant short-term financial assistance by way
of cash credit, overdraft
Let us learn about these.
• Cash credit is a type of short term loan provided to companies to
fulfill their working capital requirement.
• The customer can withdraw this amount as and when he requires.
• Interest is charged on the amount actually withdrawn.
• Cash Credit is granted as per terms and conditions agreed with the
customers.
b) Overdraft Overdraft is also a credit facility granted by bank.
• Overdraft is a facility given by the bank to companies, to withdraw
money "more" than the balance available in their respective accounts
• It is a temporary arrangement.
• Overdraft facility with a specified limit may be allowed either on the
security of assets, or on personal security, or both..
Secondary functions
ii) Secondary functions In addition to the primary functions of
accepting deposits and lending money, banks perform a number of
other functions, which are called secondary functions.
• These are as follows
Secondary functions
• Undertaking safe custody of
valuables, important document
and securities by providing safe
deposit vaults or lockers.
Secondary functions
• Providing customers with
facilities of foreign exchange
dealings
Secondary functions
• Transferring money from one
account to another; and from
one branch to another branch of
the bank through cheque, pay
order, demand draft
Secondary functions

• Providing consumer finance for individuals by way of loans on easy


terms for purchase of consumer durables like televisions,
refrigerators, etc.
• Educational loans to students at reasonable rate of interest for higher
studies, especially for professional courses

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