Measures to Solve Problems of NPA:- The Narasimham Committee recommended a number of steps toreduce NPA. In the 1990's the Government of India (GOI) introduced a number of reforms to deals with the problems of NPA. Major steps taken to solve the problems of Non-Performing Assets in India :1. Debt Recovery Tribunals (DRTs):-Narasimham Committee Report I (1991) recommended the setting up of Special Tribunals to reduce the time required for settling cases. Accepting the recommendations, Debt Recovery Tribunals (DRTs) were established. There are 22 DRTs and 5 Debt Recovery Appellate Tribunals. This is insufficient to solve the problem all over the country (India). 2. Securitisation Act 2002 :- Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 is popularly known as Securitisation Act. This act enables the banks to issue notices to defaulters who have to pay the debts within 60 days. Once the notice is issued the borrower cannot sell or dispose the assets without the consent of the lender. The Securitisation Act further empowers the banks to take over the possession of the assets and management of the company. The lenders can recover the dues by selling the assets or changing the management of the firm. The Act also enables the establishment of Asset Reconstruction Companies for acquiring NPA. According to the provisions of the Act, Asset Reconstruction Company of India Ltd. with eight shareholders and an initial capital of Rs. 10 crores has been set up. The eight shareholders are HDFC, HDFC Bank, IDBI, IDBI Bank, SBI, ICICI, Federal Bank and South Indian Bank. 3. Lok Adalats :-Lok Adalats have been found suitable for the recovery of small loans. According to RBI guidelines issued in 2001. They cover NPA up to Rs. 5 lakhs, both suit filed and non-suit filed are covered. Lok Adalats avoid the legal process. The Public Sector Banks had recovered Rs. 40 Crores by September 2001. 4. Compromise :-Settlement Compromise Settlement Scheme provides a simple mechanism for recovery of NPA. Compromise Settlement Scheme is applied to advances below Rs. 10 Crores. It covers suit filed cases and cases pending with courts and DRTs (Debt Recovery Tribunals). Cases of Willful default and fraud were excluded. 5. Credit Information Bureau:-A good information system is required to prevent loans from turning into a NPA. If a borrower is a defaulter to one bank, this information should be available to all banks so that they may avoid lending to him. A Credit Information Bureau can help by maintaining a data bank which can be assessed by all lending institutions

What is a Bank ?Finance is the life blood of trade, commerce and industry. Now-a-days, banking sector actsas the backbone of modern business. Development of any country mainly depends upon the banking system .The term bank is derived from the French word Banco which means a Bench or Money exchange table. In olden days, European money lenders or money changers used to display (show) coins of different countries in big heaps (quantity) on benches or tables for the purpose of lending or exchanging. Characteristics / Features of a Bank 1. Dealing in Money:-Bank is a financial institution which deals with other people's money i.e. money given by depositors. 2. Individual / Firm / Company:-A bank may be a person, firm or a company. A banking company means a company which is in the business of banking.

3. Acceptance of Deposit:-A bank accepts money from the people in the form of deposits which are usually repayable on demand or after the expiry of a fixed period. It gives safety to the deposits of its customers. It also acts as a custodian of funds of its customers. 4. Giving Advances:-A bank lends out money in the form of loans to those who require it for different purposes. 5. Payment and Withdrawal:-A bank provides easy payment and withdrawal facility to its customers in the form of cheques and drafts, It also brings bank money in circulation. This money is in the form of cheques, drafts, etc. 6. Agency and Utility Services:-A bank provides various banking facilities to its customers. They include general utility services and agency services. 7. Profit and Service Orientation:-A bank is a profit seeking institution having service oriented approach. 8. Ever increasing Functions:-Banking is an evolutionary concept. There is continuous expansion and diversification as regards the functions, services and activities of a bank. 9. Connecting Link:-A bank acts as a connecting link between borrowers and lenders of money. Banks collect money from those who have surplus money and give the same to those who are in need of money. 10. Banking Business:-A bank's main activity should be to do business of banking which should not be subsidiary to any other business. 11. Name Identity:-A bank should always add the word "bank" to its name to enable people to know that it is a bank and that it is dealing in money. Balance Sheet of Commercial Bank - Liabilities and Assets:-Commercial bank's balance sheet has two main sides i.e. the liabilities and the assets. From the study of the balance sheet of a bank we come to know about a system which a bank has followed for raising funds and allocation of these funds in different asset categories. Bank can have others money with it. It can be in terms of shareholders share capita, or depositors deposits. This money is the bank's liabilities. On the other hand bank's own sources of income leads to generation of assets for bank. Balance Sheet of a Commercial Bank Liabilities a. Share Capital b. Reserve Funds c. Deposits i. Fixed Deposits ii. Saving Deposits iii.Current Deposits iv. Other Deposits Assets a. i. Cash in Hand ii. Cash with the Central Bank (RBI) iii. Cash with the other banks b. Money at short c. Bills and securities discounted d. Investment of bank e. Loans and Advances given

d. Borrowings e. Other liabilities

f. Other Assets

Bank's Liabilities:-Bank's liabilities constitute five major items. The share capital, the contribution whichshareholders have contributed for starting the bank. Reserve funds are the money, which the bank has accumulated over the years from its undistributed profits. Deposits are the money owned by customers and therefore it is a liability of a bank. There can be various kinds of deposits and recurring deposits. Apart from these items a bank can borrow from central and other commercial banks. These borrowings are also treated as bank's liabilities.

Bank's Assets:-Bank's assets comprises cash, money at short notice, bills and securities discounted, bank'sinvestments, loans sanctioned by the bank, etc. Bank's cash in hand, cash with other banks and cash with central bank (RBI) are its assets. When a bank makes money available at short notice to other banks and financial institutions for a very short period of 1-14 days it is also treated as bank's asset. Apart from these items bank always make money available to people on the form of loans and advances. They are also become bank's assets.

Commercial Banks - Definitions, Primary Secondary Functions:Nature of Commercial Banks:-Commercial banks are an organisation which normally performs certainfinancial transactions. It performs the twin task of accepting deposits from members of public and make advances to needy and worthy people form the society. When banks accept deposits its liabilities increase and it becomes a debtor, but when it makes advances its assets increases and it becomes a creditor. Banking transactions are socially and legally approved. It is responsible in maintaining the deposits of its account holders.

Definitions of Commercial Banks:-While defining the term banks it is taken into account that whattype of task is performed by the banks. Some of the famous definitions are given below: According to Prof. Sayers, "A bank is an institution whose debts are widely accepted in settlement of other people's debts to each other." In this definition Sayers has emphasized the transactions from debts which are raised by a financial institution. According to the Indian Banking Company Act 1949, "A banking company means any company which transacts the business of banking . Banking means accepting for the purpose of lending of investment of deposits of money from the public, payable on demand or other wise and withdraw able by cheque, draft or otherwise."

Functions of Commercial Banks:-Commercial bank being the financial institution performs diversetypes of functions. It satisfies the financial needs of the sectors such as agriculture, industry, trade, communication, etc. That means they play very significant role in a process of economic social needs. The functions performed by banks are changing according to change in time and recently they are becoming customer centric and widening their functions. Generally the functions of commercial banks are divided into two categories viz. primary functions and the secondary functions. The following chart simplifies the functions of banks.

Pr rimary Fun nctions of Commercia Banks:-C C al Commercial B Banks perfor various primary fun rms nctions some eof th are given below hem 1. 1 Acceptin Deposits : Commercia bank accep various t ng al pts types of depo osits from pu ublic especia from its ally s clients. It includes sa t aving accoun deposits, r nt recurring acc count deposi fixed dep its, posits, etc. T These deposits are payable after a certa time perio ain od. 2. 2 Making A Advances : The commer T rcial banks p provide loans and advanc of variou forms. It i s ces us includes an over draf facility, ca credit, bill discountin etc. They also give d ft ash ng, y demand and d demand and term loans to all types of clients against prop security. s per . 3. 3 Credit cr reation : It is most signifi ficant functio of the com on mmercial ban While s nks. sanctioning a loan to a customer a bank doe not provid cash to the borrower I r, es de Instead it opens a deposi account fro where it om the borro ower can wit thdraw. In ot ther words w while sanctio oning a loan a bank autom matically cre eates deposits. This is know as a cred creation fr wn dit from commercial bank.

Seconda Functio of Com ary ons mmercial Ba anks:-Along with the pr g rimary functi ions each co ommercialbank has to perform several seco ondary functi ions too. It in ncludes man agency fu ny unctions or g general utility fun nctions. The secondary f e functions of commercial banks can b divided in agency fu f l be nto functions and d utility fun nctions. Agency F Functions : Various agen function of commer V ncy ns rcial banks a are To T collect and clear chequ dividend and interest warrant. d ue, ds To T make paym of rent insurance p ment t, premium, etc c. To T deal in for reign exchan transacti nge ions. To T purchase and sell secu a urities. To T act as trus attorney, correspond and exec sty, , dent cutor. To T accept tax proceeds an tax return x nd ns. B. B General U Utility Funct tions : The g general utilit functions of the comm ty mercial banks include o T provide sa To afety locker facility to cu ustomers. o T provide money transfe facility. To m er o T issue trave To eller's chequ ue.o o o o o o

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To act as referees. To accept various bills for payment e.g phone bills, gas bills, water bills, etc. To provide merchant banking facility. To provide various cards such as credit cards, debit cards, Smart cards, etc.

Distinguish Between Commercial Bank and Co-operative Bank 1. Registration :-In India, the Commercial Banks are required to be registered under Banking Regulation Act, 1949.In India, the Co-operative Banks are required to be registered under the Co-operative Societies Act, of the concerned state. 2.Main Objective :-The main objective of a Commercial Bank is to accept deposits from public for the purpose of lending to industry and commerce.The main objective of a Cooperative Bank is to accept deposits from the members and the public for the purpose of providing loans to farmers and small businessmen with a motto of service. 3. Availability of Funds:-Massive funds are available at the disposal of Commercial Banks.Limited funds are available at the disposal of Co-operative Banks. 4. Area of Operation :-Commercial banks operate over a larger area. Some commercial banks even have branches in foreign countries.The area of operations of Co-operative Banks is limited and mostly confined to State. They do not operate at national level nor international level. 5. Nationalisation :-At present 20 Commercial Banks have been nationalised in India.In India Co-operative Banks are not nationalised. 6. Merchant Banking Services:-Commercial Banks provide merchant banking services such as advising the companies regarding the public issue of shares.Co-operative Banks do not provide merchant banking services. 7. Mutual Funds:-Commercial Banks in India such as Canara Bank, Bank of India, State Bank of India, do operate mutual funds.At present co-operative banks in India do not operate mutual funds. 8. Basis of operation:-Commercial banks operates on the commercial principles. They operate to earn a profit.The basis of operations is on co-operative lines, i.e. service to its members and the society. 9. Rate of Interest:-The Commercial Banks provide a lesser rate of interest as compared to co-operative banks.The Co-operative Banks provide a little higher rate of interest on deposits as compared to commercial banks. Limitations of Credit Creation by Commercial Banks:-Commercial Banks though have the power tocreate credit, their powers are not unlimited. Certain points affect the process of credit creation. They are termed as limitations to credit creation by commercial banks. The limitations of credit creation by commercial banks are as follows :-

1.Amount of Deposit:-The most important factor which decides credit creation is the amount of deposits made by the depositors. Higher is the amount of deposits, greater is the supply of credit and vice versa. 2. Cash Reserve Ratio (CRR):-There exists an indirect relationship between Credit Creation and Cash Reserve Ratio (CRR). Higher is the Cash Reserve Ratio (CRR) more will be the reserves to be maintained and less credit will be created by banks. The CRR is fixed by the RBI in India. It ranges between 3% to 15%. 3. Banking Habits of People:-If the banking habits of the people are well-developed, then all their transactions would be through banks, and this will lead to expansion of credit and vice-versa. 4. Supply of Securities:-Loans are sanctioned on the basis of the securities provided to the banks. If securities are available then the credit creation will be more and vice-versa. 5. Willingness of people to borrow:-Commercial banks may have enough money to lend. Customers should be willing to borrow from the banks to facilitate credit creation. If they are willing to borrow, then the credit created by banks will be less. 6. Monetary Policy of Central Bank:-While credit is created by commercial banks, it is controlled by the Central Bank. Credit control is one important function of the central bank. Central Bank uses various methods of Credit Control from time to time and thus influences the banks to expand or contract credit. 7. External Drain:-External Drain refers to withdrawal of cash from the banking system by the public. It lowers the reserves of the banks and limits the credit creation. 8. Uniform Policy:-If all the commercial banks follow a uniform policy related to CRR, then credit creation would be smooth. If some banks follow liberal and others follow a conservative one, then credit creation would be affected.

Different Types of Banks - What are Various Kinds of Banks ? Type 1. Saving Banks:-Saving banks are established to create saving habit among the people.These banks are helpful for salaried people and low income groups. The deposits collected from customers are invested in bonds, securities, etc. At present most of the commercial banks carry the functions of savings banks. Postal department also performs the functions of saving bank.

Type 2. Commercial Banks:- Commercial banks are established with an objective to helpbusinessmen. These banks collect money from general public and give short-term loans to businessmen by way of cash credits, overdrafts, etc. Commercial banks provide various services like collecting cheques, bill of exchange, remittance money from one place to another place.In India, commercial banks are established under Companies Act, 1956. In 1969, 14 commercial banks were nationalised by Government of India. The policies regarding deposits, loans, rate of interest, etc. of these banks are controlled by the Central Bank.

Type 3. Industrial Banks / Development Banks:- Industrial / Development banks collectcash by issuing shares & debentures and providing long-term loans to industries. The main objective of these banks is to provide long-term loans for expansion and modernisation of industries.In India such banks are established on a large scale after independence. They are Industrial Finance Corporation of India (IFCI), Industrial Credit and Investment Corporation of India (ICICI) and Industrial Development Bank of India (IDBI).

Type 4. Land Mortgage / Land Development Banks :-Land Mortgage or LandDevelopment banks are also known as Agricultural Banks because these are formed to finance agricultural sector. They also help in land development.In India, Government has come forward to assist these banks. The Government has guaranteed the debentures issued by such banks. There is a great risk involved in the financing of agriculture and generally commercial banks do not take much interest in financing agricultural sector.

Type 5. Indigenous Banks:-Indigenous banks means Money Lenders and Sahukars. They collectdeposits from general public and grant loans to the needy persons out of their own funds as well as from deposits. These indigenous banks are popular in villages and small towns. They perform combined functions of trading and banking activities. Certain well-known indian communities like Marwaries and Multani even today run specialised indigenous banks.

Type 6. Central / Federal / National Bank:-Every country of the world has a central bank. InIndia, Reserve Bank of India, in U.S.A, Federal Reserve and in U.K, Bank of England. These central banks are the bankers of the other banks. They provide specialised functions i.e. issue of paper currency, working as bankers of government, supervising and controlling foreign exchange. A central bank is a non-profit making institution. It does not deal with the public but it deals with other banks. The principal responsibility of Central Bank is thorough control on currency of a country.

Type 7. Co-operative Banks:-In India, Co-operative banks are registered under the Co-operativeSocieties Act, 1912. They generally give credit facilities to small farmers, salaried employees, smallscale industries, etc. Co-operative Banks are available in rural as well as in urban areas. The functions of these banks are just similar to commercial banks.

Type 8. Exchange Banks:-Hong Kong Bank, Bank of Tokyo, Bank of America are the examplesof Foreign Banks working in India. These banks are mainly concerned with financing foreign trade. Following are the various functions of Exchange Banks :- Remitting money from one country to another country. Discounting of foreign bills, Buying and Selling Gold and Silver, and Helping Import and Export Trade.

Type 9. Consumers Banks:-Consumers bank is a new addition to the existing type of banks. Suchbanks are usually found only in advanced countries like U.S.A. and Germany. The main objective of this bank is to give loans to consumers for purchase of the durables like Motor car, television set, washing machine, furniture, etc. The consumers have to repay the loans in easy installments.

How to Open Bank Account ? 7 Steps To Open Bank Account 1. Decide the Type of Bank Account you want to Open:-There are several types of bankaccounts such as Saving Account, Recurring Account, Fixed Deposit Account and Current Account. So a decision regarding the type of account to be opened must be taken. 2. Approach any Bank of choice & meet its Bank Officer:-Once the type of account is decided, the person should approach a convenient bank. He has to meet the bank officer regarding the opening of the account. The bank officer will provide a proposal form (Account Opening Form) to open bank account. 3. Fill up Bank Account Opening Form - Proposal Form:-The proposal form must be duly filled in all respects. Necessary details regarding name, address, occupation and other details must be filled in wherever required. Two or three specimen signatures are required on the specimen signature card. If the account is opened in joint names, then the form must be signed jointly. Now a days the banks ask the applicant to submit copies of his latest photograph for the purpose of his identification. 4. Give References for Opening your Bank Account:-The bank normally required references or introduction of the prospective account holder by any of the existing account holders for that type of account. The introducer introduces by signing his specimen signature in the column meant for the purpose The reference or introduction is required to safeguard the interest of the bank. 5. Submit Bank Account Opening Form and Documents:-The duly filled in proposal form must be submitted to the bank along with necessary documents. For e.g. in case of a joint stock company, the application form must accompany with the Board's resolution to open the account. Also certified copies of articles and memorandum of association must be produced. 6. Officer will verify your Bank Account Opening Form:-The bank officer verifies the proposal form. He checks whether the form is complete in all respects or not. The accompanying documents are verified. If the officer is satisfied, then he clears the proposal form.

7. Deposit initial amount in newly opened Bank Account:-After getting the proposal formcleared, the necessary amount is deposited in the bank. After depositing the initial money, the bank provides a pass book, a cheque book and pay in slip book in the case of savings account. In the case of fixed deposits, a fixed deposit receipt is issued. In the case of current account, a cheque book and a pay in slip book is issued. For recurring account, the pass book and a pay in slip book is issued.

What are the Advantages of Opening Bank Account ? 1. Bank account facilitates a safe custody of money :-The bank is the custodian of cash. Asand when the account holders needs the money can withdraw the same depending upon the type of account. 2. Bank account helps in making payments:-The bank account holder can make payment to third parties through the savings and current account. The payment may be regarding electricity bills, insurance premium, etc. The bank also makes direct payment on the standing instructions of the customer. 3. Bank account helps in collection of money:-The bank can directly collect money of the customer in respect of dividend, salary pension or from debtors. The collected money is then deposited in customer's bank account. 4. Bank account holders get advances and loans:-The current account holder can obtain an overdraft facility from his bank. The recurring and fixed deposit account holders can get a loan upto 75% of the amount to their credit. The savings account holders can also obtain loans to purchase computers and such other equipments. 5. Bank account helps in smooth transactions:-The bank account make it possible for the businessmen to conduct their business operations smoothly not only in the domestic trade but also in the foreign markets. 6. Bank account holders get a safe deposit locker:-The bank provides safe deposit locker facility to its account holders to keep their valuables like gold jewellery, share certificates, property documents, etc

Saving Account of Bank - Meaning Features Advantages Saving Account of Bank Meaning:-Commercial banks, co-operative banks and postal departmentsaccept deposits by way of opening saving bank account. The saving bank account is generally opened by salaried persons or by the persons who have a fixed regular income.Saving accounts are opened to encourage the people to save and collect their savings. In India, saving account can be opened by depositing Rs.100 (US $2.19) to Rs.500 (US $11). The saving account holder is allowed to withdraw money from the account two times or three times in a week. The interest which is given on saving accounts is sometime attractive, but often nominal. At present, the rate of interest is 3.50% p.a in India. The interest rates varies as per amount of money deposited and its maturity range. It is also subject to current trend of banking policies in a country.

Features of Saving Account:-The main characteristics or features of saving account are:- The mainobjective of saving account is to promote savings. There is no restriction on the number and amount of deposits. Withdrawals are allowed subject to certain restrictions. The money can be withdrawn either by cheque or withdrawal slip. The rate of interest payable is very nominal on saving accounts. At present it is

about 3.50% p.a in India. Saving account is of continuing nature. There is no maximum period. A minimum amount has to be kept on saving account.No loan facility is provided against saving account. Advantages of Saving Account:-The benefits or advantages of saving account are:- Saving account encourages savings habit among salary earners and others who have fixed income. It enables the depositor to earn income by way of interest. It helps the depositor to make payment by way of cheques. The bank offers number of services to the saving account holders.

Fixed Deposit Account of Bank - Meaning, Features, Advantages Meaning of Fixed Deposit Account Bank:-The account which is opened for a particular fixed period(time) by depositing particular amount (money) is known as Fixed (Term) Deposit Account. The term 'fixed deposit' means that the deposit is fixed and is repayable only after a specific period is over.fixed deposit account of bank Under fixed deposit account, money is deposited for a fixed period say six months, one year, five years or even ten years. The money deposited in this account can not be withdrawn before the expiry of period. The rate of interest paid for fixed deposit vary (changes) according to amount, period and from bank to bank. Features of Fixed Deposit Account :-The main features of fixed deposit account are as follows:-The main purpose of fixed deposit account is to enable the individuals to earn a higher rate of interest on their surplus funds (extra money).The amount can be deposited only once. For further such deposits, separate accounts need to be opened. The period of fixed deposits range between 15 days to 10 years. A high interest rate is paid on fixed deposits. The rate of interest may vary as per amount, period and from bank to bank. Withdrawals are not allowed. However, in case of emergency, banks allow to close the fixed account prior to maturity date. In such cases, the bank deducts 1% (deduction percentage many vary) from the interest payable as on that date. The depositor is given a fixed deposit receipt, which depositor has to produce at the time of maturity. The deposit can be renewed for a further period. Advantages of Fixed Deposit Account:-The advantages of fixed deposit account are as follows:- Fixed deposit encourages savings habit for a longer period of time. Fixed deposit account enables the depositor to earn a high interest rate. The depositor can get loan facility from the bank. On maturity the amount can be used to make purchases of assets. The bank can get the funds for a longer period of time. The bank can lend such funds for short term loans to businessmen. Fixed deposits indirectly boost economic development of the country. The bank can also invest such funds in profitable areas.

What is Current Bank Account ? Its Features and AdvantagesMeaning of Current Bank Account:-Current bank account is opened by businessmen who have a number of regular transactions with the bank, both deposits and withdrawals. It is also known as Demand Deposit. o Current account can be opened in co-operative bank and commercial bank. In current account, amount can be deposited and withdrawn at any time without giving any notice. It is also suitable for making payments to creditors by using cheques. Cheques received from customers can be deposited in this account for collection. o In India, current account can be opened by depositing Rs.500 (US $ 11) to Rs.1,000 (US $ 22). The customers are allowed to withdraw the amount with cheques and they generally do not get any interest. In India Cooperative bank may allow interest upto 1%. o Current account holder get one important advantage of overdraft facility. Features of Current Bank Account:-The main features of current account are as follows:o The main objective of current bank account is to enable the businessmen to conduct their business transactions smoothly.

o There is no restriction on the number and amount of deposits. There is also no restriction on the withdrawals. o Generally bank does not pay any interest on current account. Nowadays, some banks do pay interest on current accounts. o Current account is of continuing nature and as such there is no fixed period. Advantage of Current Bank Account:-The advantages of current account are as follows:Current account enables businessmen to conduct his business transactions smoothly. The businessmen can withdraw any amount at any time from their current accounts. There are also no restrictions on withdrawals. The businessmen can make direct payment to their creditors with the help of cheques. The bank collects money on behalf of its customers and credits the same to their accounts. Current account enables the account holder to obtain overdraft facility. The creditors of the account holder can get credit-worthiness information of the account holder through inter bank connection. Current account facilitates the industrial progress of the country. Without the help of this account, businessmen would have difficulties in running their business.

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What is a Cheque ? Definition - Kinds and Types of ChequesWhat is a Cheque ? Meaning:-Cheque is an important negotiable instrument which can be transferred by mere hand delivery. Cheque is used to make safe and convenient payment. It is less risky and the danger of loss is minimised. Cheque and types of cheques:-Definition of a Cheque:- "Cheque is an instrument in writing containing an unconditional order, addressed to a banker, sign by the person who has deposited money with the banker, requiring him to pay on demand a certain sum of money only to or to the order of certain person or to the bearer of instrument." Different Kinds / Types of Cheques

1. Bearer Cheque:-When the words "or bearer" appearing on the face of the cheque are not cancelled, thecheque is called a bearer cheque. The bearer cheque is payable to the person specified therein or to any other else who presents it to the bank for payment. However, such cheques are risky, this is because if such cheques are lost, the finder of the cheque can collect payment from the bank.

2. Order Cheque:-When the word "bearer" appearing on the face of a cheque is cancelled and when in itsplace the word "or order" is written on the face of the cheque, the cheque is called an order cheque. Such a cheque is payable to the person specified therein as the payee, or to any one else to whom it is endorsed (transferred).

3. Uncrossed / Open Cheque:-When a cheque is not crossed, it is known as an "Open Cheque" or an"Uncrossed Cheque". The payment of such a cheque can be obtained at the counter of the bank. An open cheque may be a bearer cheque or an order one.

4. Crossed Cheque:-Crossing of cheque means drawing two parallel lines on the face of the cheque with orwithout additional words like "& CO." or "Account Payee" or "Not Negotiable". A crossed cheque cannot be encashed at the cash counter of a bank but it can only be credited to the payee's account.

5. Anti-Dated Cheque:-If a cheque bears a date earlier than the date on which it is presented to the bank, itis called as "anti-dated cheque". Such a cheque is valid upto six months from the date of the cheque.

6. Post-Dated Cheque:-If a cheque bears a date which is yet to come (future date) then it is known as postdated cheque. A post dated cheque cannot be honoured earlier than the date on the cheque.

7. Stale Cheque:-If a cheque is presented for payment after six months from the date of the cheque it iscalled stale cheque. A stale cheque is not honoured by the bank.

Recurring Deposit Account In Bank - Meaning and Features What is Recurring Deposit Account ? Meaning :-Recurring deposit account is generally opened for apurpose to be served at a future date. Generally opened to finance pre-planned future purposes like, wedding expenses of daughter, purchase of costly items like land, luxury car, refrigerator or air conditioner, etc. Recurring deposit account is opened by those who want to save regularly for a certain period of time and earn a higher interest rate.In recurring deposit account certain fixed amount is accepted every month for a specified period and the total amount is repaid with interest at the end of the particular fixed period.

Features of Recurring Deposit Account. The main features of recurring deposit account are as follows:- The main objective ofrecurring deposit account is to develop regular savings habit among the public. In India, minimum amount that can be deposited is Rs.10 at regular intervals. The period of deposit is minimum six months and maximum ten years.The rate of interest is higher. No withdrawals are allowed. However, the bank may allow to close the account before the maturity period. The bank provides the loan facility. The loan can be given upto 75% of the amount standing to the credit of the account holder. Advantage of Recurring Deposit Account :-The advantages of recurring deposit account are as follows:- Recurring deposit encourages regular savings habit among the people. Recurring deposit account holder can get a loan facility. The bank can utilise such funds for lending to businessmen. The bank may also invest such funds in profitable areas.

What are Features of Cheques ? Characteristics of Checks 1. Cheque is an instrument in writing:-A cheque must be in writing. It can be written in ink pen, ballpoint pen, typed or even printed. Oral orders are not considered as cheques.

2. Cheque contains an unconditional order:-Every cheque contains an unconditional order issued bythe customer to his bank. It does not contains a request for payment. A cheque containing conditional orders is dishonoured by the bank.

3. Cheque is drawn by a customer on his bank:-A cheque is always drawn on a specific bankmentioned therein. Cheque drawn by stranger are of no meaning. Cheque book facility is made available only to account holder who are supposed to maintain certain minimum balance in the account.

4. Cheque must be signed by customer:-A cheque must be signed by customer (Account holder) .Unsigned cheques or signed by persons other than customers are not regarded as cheque.

5. Cheque must be payable on demand:-A cheque when presented for payment must be paid ondemand. If cheque is made payable after the expiry of certain period of time then it will not be a cheque.

6. Cheque must mention exact amount to be paid:-Cheque must be for money only. The amount tobe paid by the banker must be certain. It must be written in words and figures.

7. Payee must be certain to whom payment is made:-The payee of the cheque should be certainwhom the payment of a cheque is to be made i.e. either real person or artificial person like joint stock company. The name of the payee must be written on the cheque or it can be made payable to bearer.

8. Cheque must be duly dated by customer of bank:-A cheque must be duly dated by the customerof bank. The cheque must indicate clearly the date, month and the year. A cheque is valid for a period of six months from the date of issue.

9. Cheque has 3 parties : Drawer, Drawee & Payee:Drawer : A drawer is a person, who draws a cheque. Drawee : A drawee is a bank on whom a cheque is drawn. Payee : A payee is a person in whose favour a cheque is drawn.

Crossing of Cheque - Different Types of Check Crossing What is Crossing of Cheque ?:-A cheque is a negotiable instrument. During the process of circulation, acheque may be lost, stolen or the signature of payee may be done by some other person for endorsing it. Under these circumstances the cheque may go into wrong hands.

Crossing of Cheque:-Crossing is a popular device for protecting the drawer and payee of a cheque. Bothbearer and order cheques can be crossed. Crossing prevents fraud and wrong payments. Crossing of a cheque means "Drawing Two Parallel Lines" across the face of the cheque. Thus, crossing is necessary in order to have safety. Crossed cheques must de presented through the bank only because they are not paid at the counter.

Different Types of Crossing :1. General Crossing :-Generally, cheques are crossed when There are two transverse parallel lines, markedacross its face or The cheque bears an abbreviation "& Co. "between the two parallel lines or The cheque bears the words "Not Negotiable" between the two parallel lines or The cheque bears the words "A/c. Payee" between the two parallel lines.A crossed cheque can be made bearer cheque by cancelling the crossing and writing that the crossing is cancelled and affixing the full signature of drawer.

2. Special or Restrictive Crossing :-When a particular bank's name is written in between the two parallellines the cheque is said to be specially crossed.In addition to the word bank, the words "A/c. Payee Only", "Not Negotiable" may also be written. The payment of such cheque is not made unless the bank named in crossing is presenting the cheque. The effect of special crossing is that the bank makes payment only to the banker whose name is written in the crossing. Specially crossed cheques are more safe than a generally crossed cheques.

Automated Teller Machine ATM - Advantages of ATM What is ATM ? Automated Teller Machine:-ATMs are electronic machines, which are operated by acustomer himself to deposit or to withdraw cash from bank. For using an ATM, a customer has to obtain an ATM card from his bank. The ATM card is a plastic card, which is magnetically coded. It can be easily read by the machine.

Automated Teller Machine ATM:-To operate an ATM card, the customer has to inset the card in themachine. He has to enter the pass word (number). If the authentication or pass word (number) is correct, the ATM permits a customer to make entries for withdrawal or for deposit. On completion of the transaction, the customer's card is ejected from the ATM.

Advantages of Automated Teller Machines (ATMs) :1. ATM provides 24 hours service:-ATMs provide service round the clock. The customer canwithdraw cash upto a certain a limit during any time of the day or night. 2. ATM gives convenience to bank's customers:-ATMs provide convenience to the customers. Now-a-days, ATMs are located at convenient places, such as at the air ports, railway stations, etc. and not necessarily at the Bank's premises. It is to be noted that ATMs are installed off-site. (away from bank premises) as well as on site (installed within bank's premises). ATMs provide mobility in banking services for withdrawal. 3. ATM reduces the workload of bank's staff.:-ATMs reduce the work pressure on bank's staff and avoids queues in bank premises. 4. ATM provide service without any error:-ATMs provide service without error. The customer can obtain exact amount. There is no human error as far as ATMs are concerned. 5. ATM is very beneficial for travelers:-ATMs are of great help to travellers. They need not carry large amount of cash with them. They can withdraw cash from any city or state, across the country and even from outside the country with the help of ATM. square 6. ATM may give customers new currency notes:-The customer also gets brand new currency notes from ATMs. In other words, customers do not get soiled notes from ATMs. 7. ATM provides privacy in banking transactions:-Most of all, ATMs provide privacy in banking transactions of the customer.

E-Banking - Online Banking - Advantages of the Ebanking What is E-Banking ? Online Banking :-E-banking refers to electronic banking. It is like ebusiness in banking industry. E-banking is also called as "Virtual Banking" or "Online Banking".Ebanking is a result of the growing expectations of bank's customers.E-banking involves information technology based banking. Under this I.T system, the banking services are delivered by way of a

Computer-Controlled System. This system does involve direct interface with the customers. The customers do not have to visit the bank's premises. Popular services covered under E-Banking:o o o o o o o o o Automated Teller Machines, Credit Cards, Debit Cards, Smart Cards, Electronic Funds Transfer (EFT) System, Cheques Truncation Payment System, Mobile Banking, Internet Banking, Telephone Banking, etc.

Advantages of E-Banking o The operating cost per unit services is lower for the banks. o It offers convenience to customers as they are not required to go to the bank's premises. o There is very low incidence of errors. o The customer can obtain funds at any time from ATM machines. o The credit cards and debit cards enables the Customers to obtain discounts from retail outlets. o The customer can easily transfer the funds from one place to another place electronically.

What is Mutual Fund Investment? Meaning Definition Working SIP What is Mutual Fund Investment?:-The concept of mutual fund investment is briefly discussed in thisarticle.The contents covered or points explained in the following article of mutual fund investment are listed and linked appropriately as follows: o o o o o o o o o Meaning of mutual. Meaning of fund. Systematic Investment Plan SIP. Definition of mutual fund. Meaning of mutual fund. Diagram of mutual fund. How a mutual fund works? Articles on mutual fund. Conclusion on mutual fund.

First let's study, understand and revise the independent meaning of three important words, viz., Mutual, Fund and SIP.

1. Meaning of mutual:-Mutual means to have a reciprocal relationship. This relationship is between two or more individuals and/or entities on some agreed grounds, i.e. terms and conditions of actions (agreement) that are expected to be either followed, executed, adhered or delivered by parties involved in it. Any such actions must be taken in accordance with terms and conditions as specified or mentioned or stipulated in that agreement. 2. Meaning of fund:-Fund refers to either a sum of money or similar other valuables that are easily available for use (funding) as and when required. 3. Systematic Investment Plan SIP:-SIP is an abbreviation of Systematic Investment Plan.SIP is a financial strategy in which a fixed amount of installment (money) is invested periodically (regularly) in a scheme that is pre-defined. Systematic Investment plan (SIP) is a vehicle which pools the contribution made by the investors to an earmarked scheme. Earmarked scheme is designed to meet a specified goal or purpose. 4. Definition of mutual fund:-A simple definition of a mutual fund can be stated as follows: "Mutual Fund is a collective fund that belongs to and made available by those interested investors who opt for (choose) a Systematic Investment Plan (SIP)." 5. Meaning of mutual fund:-With respect to the above stated definition of a mutual fund, we see to it that MF is a collective (accumulated) fund of those investors who are looking for Systematic Investment Plan (SIP). Once such a fund is accumulated, it is then channelized and invested in stocks, bonds, shares, short-term money market instruments and other securities. This fund is supervised and managed under the guidance of a qualified and experienced finance professional. The profits generated from such a fund (MF) are later distributed among its investors. These earned profits (returns) on mutual funds are finally distributed among its investors based on their individual contribution made in the earmarked scheme. 6. Diagram of mutual fund:-Please click on the following diagram of mutual fund to get a zoomed preview of the stages (steps) involved in its working.

7. How a mutual fund works?:-Now let's understand the flow, functioning or working of a mutual fund by taking reference of a cyclic diagram given above. In short, let's figure out, how a mutual fund works?While referring points given below try synchronizing your reading with the above-mentioned diagram of mutual fund. A Mutual Fund (MF) acts as a link that allows interested investors to pool (gather) their money to buy the units of mutual funds. The funds are contributed by the investors through opting a pre-defined Systematic Investment Plan (SIP).This fund is then supervised, managed and led by a fund manager who is appointed by a mutual fund organization. The fund manager uses his expertise to channel and invest these collective funds in different financial securities of the market. Financial securities include; stocks, bonds, shares, short-term money market instruments and other securities. Now let's assume that investments made in these securities have generated profits. These generated profits also called as returns and made from financial securities are afterwards passed back to the investors. These profits or returns are distributed to the investors only after charging (deducting) the managerial and administrative expenses. After receiving profits, investors may decide to continue their investment in mutual fund. This is known as reinvestment. The main objective of reinvestment is to generate further income from the units of the MF. 8. Articles on mutual fund:-Read following related articles on mutual fund investment: Advantages of mutual funds. Disadvantages of mutual funds. 9. Conclusion on mutual fund:-Thus, after discussing above crucial points we can conclude that mutual fund can be considered as one of the best available investment options as compared to other alternatives. Finally, one must also note that mutual funds are cost efficient, less risky and easy to invest.

Principles of Good Lending Every Banker Follows Loans:There are few general principles of good lending which every banker follows when appraising an advance proposal. These general principles of good lending are explained in this article. Principles of lending Safety:-Safety first" is the most important principle of good lending. When a banker lends, he mustfeel certain that the advance is safe; that is, the money will definitely come back. If, for example, the borrower invests the money in an unproductive or speculative venture, or if the borrower himself is dishonest, the advance would be in jeopardy. Similarly, if the borrower suffers losses in his business due to his incompetence, the recovery of the money may become difficult. The banker ensures that the

money advanced by him goes to the right type of borrower and is utilized in such a way that it will not only be safe at the time of lending but will remain so throughout, and after serving a useful purpose in the trade or industry where it is employed, is repaid with interest.

Liquidity:-It is not enough that the money will come back; it is also necessary that it must come backon demand or in accordance with agreed terms of repayment. The borrower must be in a position to repay within a reasonable time after a demand for repayment is made. This can be possible only if the money is employed by the borrower for short-term requirements and not locked up in acquiring fixed assets, or in schemes which take a long time to pay their way. The source of repayment must also be definite. The reason why bankers attach as much importance to 'liquidity' as to safety' of their funds, is that a bulk of their deposits is repayable on demand or at short notice. If the banker lends a large portion of his funds to borrowers from whom repayment would be coming in but slowly, the ability of the banker to meet the demands made on him would be seriously affected in spite of the safety of the advances. For example, an advance of Rs.50 lakhs (approx. $111,354.60 USD) on the security of a legal mortgage of a bungalow of the market value of Rs. 100 lakhs (approx. $222,716.82 USD), will be very safe. If, however, the recovery of the mortgage money has to be made through a court process, it may take a few years to do so. The loan is safe but not liquid. Purpose:-The purpose should be productive so that the money not only remain safe but also provides a definite source of repayment. The purpose should also be short termed so that it ensures liquidity. Banks discourage advances for hoarding stocks or for speculative activities. There are obvious risks involved therein apart from the anti-social nature of such transactions. The banker must closely scrutinize the purpose for which the money is required, and ensure, as far as he can, that the money borrowed for a particular purpose is applied by the borrower accordingly. Purpose has assumed a special significance in the present day concept of banking. Profitability:-Equally important is the principle of 'profitability' in bank advance like other commercial institutions, banks must make profits. Firstly, they have to pay interest on the deposits received by them. They have to incur expenses on establishment, rent, stationery, etc. They have to make provision for depreciation of their fixed assets and also for any possible bad or doubtful debts. After meeting all these items of expenditure which enter the running cost of banks, a reasonable profit must be made; otherwise, it will not be possible to carry anything to the reserve or pay dividend to the shareholders. It is after considering all these factors that a bank decides upon its lending rate. It is sometimes possible that a particular transaction may not appear profitable in itself, but there may be some ancillary business available, such as deposits from the borrower's other concerns or his foreign exchange business, which may be highly remunerative. In this way, the transaction may on the whole be profitable for the bank. It should, however, be noted that lending rates are affected by the Bank Rate, inter-bank competition and the Federal / Central Bank's directives (e.g Directives of Reserve Bank of India, RBI), if any. The rates may also differ depending on the borrower's credit, nature of security, mode of charge, and form and type of advance, whether it is a cash credit, loan preshipment finance or a consumer loan, etc. Security:-It has been the practice of banks not to lend as far as possible except against security. Security is considered as an insurance or a cushion to fall back upon in case of an emergency. The banker carefully scrutinizes all the different aspects of an advance before granting it. At the same time, he provides for an unexpected change in circumstances which may affect the safety and liquidity of the

advance. It is only to provide against such contingencies that he takes security so that he may realize it and reimburse himself if the well-calculated and almost certain source of repayment unexpectedly fails. It is incorrect to consider an advance proposal from the point of view of security alone. An advance is granted by a good banker on its own merits, that is to say with due regard to its safety, likely purpose etc., and after looking into the character, capacity and capital of the borrower and not only because the security is good. Apart from the fact that taking of security reserves as a safety valve for an unexpected emergency it also renders very difficult, if not impossible, for the borrower to raise a secured advance from another source against the very security. Spread:-Another important principle of good lending is the diversification of advances. An element of risk is always present in every advance, however secure it might appear to be. In fact, the entire banking business is one of taking calculated risks and a successful hanker is an expert in assessing such risks. He is keen on spreading the risks involved in lending, over a large number of borrowers, over a large number of industries and areas, and over different types of securities. For example, if he has advanced too large a proportion of his funds against only one type of security, he will run a big risk if that class of security steeply depreciates. If the bank has numerous branches spread over the country, it gets a wide assortment of securities against the advances. Slump does not normally affect all industries and business centres simultaneously. National Interest, Suitability, etc.:-Even when an advance satisfies all the aforesaid principles, it may still not be suitable. The advance may run counter to national interest. The Federal / Central Bank (e.g Reserve Bank of India, RBI) may have issued a directive prohibiting banks to allow the particular type of advance. The law and order situation at the place where the borrower carries on his business may not be satisfactory. There may be other reasons of a like nature for which it may not be suitable for the bank to grant the advance.In the changing concept of banking, factors such as purpose of the advance, viability of the proposal and national interest are assuming a greater importance than security, especially in advances to agriculture, small industries, small borrowers, and export-oriented industries. Ideal Advance:-L.C. Mather describes an ideal advance as "one which is granted to a reliable customer for an approved purpose in which the customer has adequate experience, safe in the knowledge that the money will be used to advantage and repayment will be made within a reasonable period from trading receipts or known maturities due on or about given dates."

Different Forms of Advances by Commercial Banks - Loan TypesAdvances by commercial banks are made in different forms such as demand loan, term loan, cash credit, overdraft etc. These forms of advances are explained below.

Demand Loan:-In a demand loan account, the entire amount is paid to the debtor at one time, eitherin cash or by transfer to his savings bank or current account. No subsequent debit is ordinarily allowed except by way of interest, incidental charges, insurance premiums, expenses incurred for the protection of the security etc. Repayment is provided for by instalment without allowing the demand character of the loan to be affected in any way. There is usually a stipulation that in the event of any instalment, remaining unpaid, the entire amount of the loan will become due. Interest is charged on the debit balance, usually with monthly rests unless there is an arrangement to the contrary. No cheque book is issued. The security may be personal or in the form of shares, Govt. paper, fixed deposit receipt, life insurance policies, goods, etc.

Term Loan:-When a loan is granted for a fixed period exceeding three years and is repayableaccording to the schedule of repayment, it is known as a term loan. The period of term loan may extend up to 10 years and in some cases up to 20 years. A term loan is generally granted for fixed capital requirements, e.g. investment in plant and equipment, land and building etc. These may be required for setting up new projects or expansion or modernization of the plant and equipment. Advances granted for purchasing land / building / flat (Apartment house) are term loans. Overdraft:-An overdraft is a fluctuating account wherein the balance sometimes may be in credit and at other times in debit. Overdraft facilities are allowed in current accounts only. Opening of an overdraft account requires that a current account will have to be formally opened, and the usual account opening form completed. Whereas in a current account cheques are honoured if the balance is in credit, the overdraft arrangement enables a customer to draw over and above his own balance up to the extent of the limit stipulated. For example, if there is a credit balance of Rs.40,000/- (approx. $890 USD) in a customer's current account and an overdraft limit of Rs. 50,000/- (approx. $1,113 USD) is sanctioned to the party, he can draw cheques up to Rs. 90,000/- (approx. $2,003 USD). There is no restriction, unlike in the case of loans, on drawing more than once. In fact, as many drawings and repayments are permitted as the customer would desire, provided the total amount overdrawn, i.e. the debit balance at any time does not exceed the agreed limit. This is a satisfactory arrangement from the customer's point of view. He need not hesitate to pay into the account any moneys for fear that an amount once paid in cannot be drawn out or borrowed again, unlike in a loan account. As in the case of a demand loan account, the security in an overdraft account may be either personal or tangible. The tangible security may be in the form of shares, government paper, life insurance policies, fixed deposit receipts etc. i.e. paper securities. A cheque book is issued in an overdraft account. Cash Credit:-A cash credit is essentially a drawing account against credit granted by the bank and is operated in the same way as a current account in which an overdraft limit has been sanctioned. The principal advantages of a cash credit account to a borrower are that, unlike the party borrowing on a fixed loan basis, he may operate the account within the stipulated limit as and when required and can save interest by reducing the debit balance whenever he is in a position to do so. The borrower can also provide alternative securities from time to time in conformity with the terms of the advance and according to his own requirements. Cash credits are normally granted against the security of goods e.g. raw materials, stock in process, finished goods. It is also granted against the security of book-debts. If there is good turnover both in the account and in the goods, and there are no adverse factors, a cash credit limit is allowed to continue for years together. Of course a periodical review would be necessary. Bills Purchased:-Bills, clean or documentary, are sometimes purchased from approved customers in whose favour regular limits are sanctioned. In the case of documentary bills, the drafts are accompanied by documents of title to goods such as railway receipts or bills of lading (BOL). Before granting a limit, the creditworthiness of the drawer is to be ascertained. Sometimes the financial standing of the drawees of the bills are verified, particularly when the bills are drawn from time to time on the same drawees and/or the amounts are large. Although the term "Bills Purchased" seems to imply that the bank becomes the purchaser / owner of such bills, it will be observed that in almost all cases, the bank holds the bills (even if they are indorsed in its favour) only as security for the advance. In addition to any rights the banker may have against the parties liable on the hills, he can also fully exercise a pledgee's right over the goods covered by the documents. Bills Discounted:- Usance bills, maturing within 90 days or so after date or sight, are discounted by banks for approved parties. In case a bill, say for Rs. 10,000/- (approx. $223 USD) due 90 days hence, is

discounted today at 20% per annum, the borrower is paid Rs. 9,500/- (approx. $211 USD), its present worth. However the full amount is collected from the drawee on maturity. The difference between the present worth and the amount of the bill represents earning of the banker for the period for which the bill is to run. In banking terminology this item of income is called "discount".

Duties and Responsibilities of Computer Operator in BankOpening / modifying / closing accounts on the system including scanning of signatures duly authorised by competent official. Add / modify / delete records in masters and parameter files jointly with higher authority. Issue / delete cheque books on the system. Accept and post Stop Payment instructions. Accept, modify and delete standing instructions as per customers' instructions. To key in particulars of the vouchers / documents correctly and authenticate the same in token thereof. To compare particulars of the keyed in data with the visual display unit and/or from the printout and ensure that the data is entered correctly into the computer and effect such corrections as may be necessary according to the operational procedures of the system. To maintain / authenticate register/s as notified by the bank from time to time for documenting physical security, access control, breakdowns, corrections etc., on a day to day basis to ensure safety and security of computerised operations and normal functioning of the system. To generate various reports / statements and take backup of data as specified. To perform all the day end / month end quarter end / half year-end activities as provided by the system including calculation of interest, balancing of books. Post all vouchers / cheques. Attend to queries, generate statements and print / write passbooks, deposit receipts, POs, DDs, etc. Generate and print interest and service charges application reports. Print registers / supplementaries / scrolls / vouchers and balances with totals and balance them. Exercise the powers of teller whenever necessary. Perform the duties of paying and receiving cashier. Such other work as ledger keeper and/or counter clerks of various departments have been performing or are required to perform as per bank's usuallexisting practices. Any other duties from time to time depending on the requirements of the management.

Nationalisation of Banks in India - Introduction Objectives DemeritsAfter independence the Government of India (GOI) adopted planned economic development for the country (India). Accordingly, five year plans came into existence since 1951. This economic planning basically aimed at social ownership of the means of production. However, commercial banks were in the private sector those days. In 1950-51 there were 430 commercial banks. The Government of India had some social objectives of planning. These commercial banks failed helping the government in attaining these objectives. Thus, the government decided to nationalize 14 major commercial banks on 19th July, 1969. All commercial banks with a deposit base over Rs.50 crores were nationalized. It was considered that banks were controlled by business houses and thus failed in catering to the credit needs of poor sections such as cottage industry, village industry, farmers, craft men, etc. The second dose of nationalisation came in April 1980 when banks were nationalized. Nationalisation of Banks in India

Objectives Behind Nationalisation of Banks in India:-The nationalisation of commercialbanks took place with an aim to achieve following major objectives.

Social Welfare :- It was the need of the hour to direct the funds for the needy and required sectors ofthe indian economy. Sector such as agriculture, small and village industries were in need of funds for their expansion and further economic development. Controlling Private Monopolies :- Prior to nationalisation many banks were controlled by private business houses and corporate families. It was necessary to check these monopolies in order to ensure a smooth supply of credit to socially desirable sections. Expansion of Banking :- In a large country like India the numbers of banks existing those days were certainly inadequate. It was necessary to spread banking across the country. It could be done through expanding banking network (by opening new bank branches) in the un-banked areas. Reducing Regional Imbalance :- In a country like India where we have a urban-rural divide; it was necessary for banks to go in the rural areas where the banking facilities were not available. In order to reduce this regional imbalance nationalisation was justified: Priority Sector Lending :- In India, the agriculture sector and its allied activities were the largest contributor to the national income. Thus these were labeled as the priority sectors. But unfortunately they were deprived of their due share in the credit. Nationalisation was urgently needed for catering funds to them. Developing Banking Habits :- In India more than 70% population used to stay in rural areas. It was necessary to develop the banking habit among such a large population.

Demerits, Limitations - Bank Nationalisation in India :- Though the nationalisation ofcommercial banks was undertaken with tall objectives, in many senses it failed in attaining them. In fact it converted many of the banking institutions in the loss making entities. The reasons were obvious lethargic working, lack of accountability, lack of profit motive, political interference, etc. Under this backdrop it is necessary to have a critical look to the whole process of nationalisation in the period after bank nationalisation.

The major limitations of the bank nationalisation in India are:-

Inadequate banking facilities :- Even though banks have spread across the country; still manyparts of the country are unbanked. Especially in the backward states such as the Uttar Pradesh, Madhya Pradesh, Chhattisgarh and north-eastern states of India. Limited resources mobilized and allocated :- The resources mobilized after the nationalisation is not sufficient if we consider the needs of the Indian economy. Some times the deposits mobilized are enough but the resource allocation is not as per the expansions. Lowered efficiency and profits :- After nationalisation banks went in the government sector. Many times political forces pressurized them. Banking was not done on a professional and ethical grounds. It resulted into lower efficiency and poor profitability of banks. Increased expenditure :- Due to huge expansion in a branch network, large staff administrative expenditure, trade union struggle, etc. banks expenditure increased to a dangerous levels.

Political and Administrative Inference :- Many public sector banks badly suffered due to thepolitical interference. It was seen in arranging loan meals. It ultimately resulted in huge nonperforming assets (NPA) of these banks and inefficiency.

These are several limitations faced by the banks nationalisation in India.:-Apart from this there are certain other limitations as well, such as weak infrastructure, poor competitiveness, etc.But after Economic Reform of 1991, the Indian banking industry has entered into the new horizons of competitiveness, efficiency and productivity. It has made Indian banks more vibrant and professional organizations, removing the bad days of bank nationalisation.

Narasimham Committee Report 1991 1998 Recommendations Narasimham Committee Report Problems Identified By The Narasimham Committee Directed Investment Programme :- The committee objected to the system of maintaining highliquid assets by commercial banks in the form of cash, gold and unencumbered government securities. It is also known as the statutory liquidity Ratio (SLR). In those days, in India, the SLR was as high as 38.5 percent. According to the M. Narasimham's Committee it was one of the reasons for the poor profitability of banks. Similarly, the Cash Reserve Ratio- (CRR) was as high as 15 percent. Taken together, banks needed to maintain 53.5 percent of their resources idle with the RBI. Directed Credit Programme : Since nationalization the government has encouraged the lending to agriculture and small-scale industries at a confessional rate of interest. It is known as the directed credit programme. The committee opined that these sectors have matured and thus do not need such financial support. This directed credit programme was successful from the government's point of view but it affected commercial banks in a bad manner. Basically it deteriorated the quality of loan, resulted in a shift from the security oriented loan to purpose oriented. Banks were given a huge target of priority sector lending, etc. ultimately leading to profit erosion of banks. Interest Rate Structure : The committee found that the interest rate structure and rate of interest in India are highly regulated and controlled by the government. They also found that government used bank funds at a cheap rate under the SLR. At the same time the government advocated the philosophy of subsidized lending to certain sectors. The committee felt that there was no need for interest subsidy. It made banks handicapped in terms of building main strength and expanding credit supply. Additional Suggestions : Committee also suggested that the determination of interest rate should be on grounds of market forces. It further suggested minimizing the slabs of interest. Along with these major problem areas M. Narasimham's Committee also found various inconsistencies regarding the banking system in India. In order to remove them and make it more vibrant and efficient, it has given the following recommendations.

Narasimham Committee Report I 1991:-The Narsimham Committee was set up in order tostudy the problems of the Indian financial system and to suggest some recommendations for improvement in the efficiency and productivity of the financial institution. The committee has given the following major recommendations:-

Reduction in the SLR and CRR : The committee recommended the reduction of the higherproportion of the Statutory Liquidity Ratio 'SLR' and the Cash Reserve Ratio 'CRR'. Both of these ratios were very high at that time. The SLR then was 38.5% and CRR was 15%. This high amount of SLR and CRR meant locking the bank resources for government uses. It was hindrance in the productivity of the bank thus the committee recommended their gradual reduction. SLR was recommended to reduce from 38.5% to 25% and CRR from 15% to 3 to 5%. Phasing out Directed Credit Programme : In India, since nationalization, directed credit programmes were adopted by the government. The committee recommended phasing out of this programme. This programme compelled banks to earmark then financial resources for the needy and poor sectors at confessional rates of interest. It was reducing the profitability of banks and thus the committee recommended the stopping of this programme. Interest Rate Determination : The committee felt that the interest rates in India are regulated and controlled by the authorities. The determination of the interest rate should be on the grounds of market forces such as the demand for and the supply of fund. Hence the committee recommended eliminating government controls on interest rate and phasing out the concessional interest rates for the priority sector. Structural Reorganizations of the Banking sector : The committee recommended that the actual numbers of public sector banks need to be reduced. Three to four big banks including SBI should be developed as international banks. Eight to Ten Banks having nationwide presence should concentrate on the national and universal banking services. Local banks should concentrate on region specific banking. Regarding the RRBs (Regional Rural Banks), it recommended that they should focus on agriculture and rural financing. They recommended that the government should assure that henceforth there won't be any nationalization and private and foreign banks should be allowed liberal entry in India. Establishment of the ARF Tribunal : The proportion of bad debts and Non-performing asset (NPA) of the public sector Banks and Development Financial Institute was very alarming in those days. The committee recommended the establishment of an Asset Reconstruction Fund (ARF). This fund will take over the proportion of the bad and doubtful debts from the banks and financial institutes. It would help banks to get rid of bad debts. Removal of Dual control : Those days banks were under the dual control of the Reserve Bank of India (RBI) and the Banking Division of the Ministry of Finance (Government of India). The committee recommended the stepping of this system. It considered and recommended that the RBI should be the only main agency to regulate banking in India. Banking Autonomy : The committee recommended that the public sector banks should be free and autonomous. In order to pursue competitiveness and efficiency, banks must enjoy autonomy so that they can reform the work culture and banking technology upgradation will thus be easy. Some of these recommendations were later accepted by the Government of India and became banking reforms.

Narasimham Committee Report II 1998:- In 1998 the government appointed yet another committeeunder the chairmanship of Mr. Narsimham. It is better known as the Banking Sector Committee. It was told to review the banking reform progress and design a programme for further strengthening the financial system of India. The committee focused on various areas such as capital adequacy, bank mergers, bank legislation, etc. It submitted its report to the Government in April 1998 with the following recommendations. Strengthening Banks in India : The committee considered the stronger banking system in the context of the Current Account Convertibility 'CAC'. It thought that Indian banks must be capable of handling problems regarding domestic liquidity and exchange rate management in the light of CAC. Thus, it recommended the merger of strong banks which will have 'multiplier effect' on the industry. Narrow Banking : Those days many public sector banks were facing a problem of the Non-performing assets (NPAs). Some of them had NPAs were as high as 20 percent of their assets. Thus for successful rehabilitation of these banks it recommended 'Narrow Banking Concept' where weak banks will be allowed to place their funds only in short term and risk free assets. Capital Adequacy Ratio : In order to improve the inherent strength of the Indian banking system the committee recommended that the Government should raise the prescribed capital adequacy norms. This will further improve their absorption capacity also. Currently the capital adequacy ration for Indian banks is at 9 percent. Bank ownership : As it had earlier mentioned the freedom for banks in its working and bank autonomy, it felt that the government control over the banks in the form of management and ownership and bank autonomy does not go hand in hand and thus it recommended a review of functions of boards and enabled them to adopt professional corporate strategy. Review of banking laws : The committee considered that there was an urgent need for reviewing and amending main laws governing Indian Banking Industry like RBI Act, Banking Regulation Act, State Bank of India Act, Bank Nationalisation Act, etc. This upgradation will bring them in line with the present needs of the banking sector in India. Apart from these major recommendations, the committee has also recommended faster computerization, technology upgradation, training of staff, depoliticizing of banks, professionalism in banking, reviewing bank recruitment, etc.

Evaluation of Narsimham Committee Reports:-The Committee was first set up in 1991 under thechairmanship of Mr. M. Narasimham who was 13th governor of RBI. Only a few of its recommendations became banking reforms of India and others were not at all considered. Because of this a second committee was again set up in 1998. As far as recommendations regarding bank restructuring, management freedom, strengthening the regulation are concerned, the RBI has to play a major role. If the major recommendations of this committee are accepted, it will prove to be fruitful in making Indian banks more profitable and efficient.

Economic Reforms of the Banking Sector In India BriefIndian banking sector has undergone major changes and reforms during economic reforms. Though it was a part of overall economic reforms, it has changed the very functioning of Indian banks. This reform have not only influenced the productivity and efficiency of many of the Indian Banks, but has left everlasting footprints on the working of the banking sector in India. Reduced CRR and SLR : The Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) are gradually reduced during the economic reforms period in India. By Law in India the CRR remains between 3-15% of the Net Demand and Time Liabilities. It is reduced from the earlier high level of 15% plus incremental CRR of 10% to current 4% level. Similarly, the SLR Is also reduced from early 38.5% to current minimum of 25% level. This has left more loanable funds with commercial banks, solving the liquidity problem. Deregulation of Interest Rate : During the economics reforms period, interest rates of commercial banks were deregulated. Banks now enjoy freedom of fixing the lower and upper limit of interest on deposits. Interest rate slabs are reduced from Rs.20 Lakhs to just Rs. 2 Lakhs. Interest rates on the bank loans above Rs.2 lakhs are full decontrolled. These measures have resulted in more freedom to commercial banks in interest rate regime. Fixing prudential Norms : In order to induce professionalism in its operations, the RBI fixed prudential norms for commercial banks. It includes recognition of income sources. Classification of assets, provisions for bad debts, maintaining international standards in accounting practices, etc. It helped banks in reducing and restructuring Non-performing assets (NPAs). Introduction of CRAR : Capital to Risk Weighted Asset Ratio (CRAR) was introduced in 1992. It resulted in an improvement in the capital position of commercial banks, all most all the banks in India has reached the Capital Adequacy Ratio (CAR) above the statutory level of 9%. Operational Autonomy : During the reforms period commercial banks enjoyed the operational freedom. If a bank satisfies the CAR then it gets freedom in opening new branches, upgrading the extension counters, closing down existing branches and they get liberal lending norms. Banking Diversification : The Indian banking sector was well diversified, during the economic reforms period. Many of the banks have stared new services and new products. Some of them have established subsidiaries in merchant banking, mutual funds, insurance, venture capital, etc which has led to diversified sources of income of them. New Generation Banks : During the reforms period many new generation banks have successfully emerged on the financial horizon. Banks such as ICICI Bank, HDFC Bank, UTI Bank have given a big challenge to the public sector banks leading to a greater degree of competition. Improved Profitability and Efficiency : During the reform period, the productivity and efficiency of many commercial banks has improved. It has happened due to the reduced Non-performing loans, increased use of technology, more computerization and some other relevant measures adopted by the government. These are some of the import reforms regarding the banking sector in India. With these reforms, Indian banks especially the public sector banks have proved that they are no longer inefficient compared with their foreign counterparts as far as productivity is concerned.

Functions of Reserve Bank of India RBI - RBI Credit Policy Functions of RBI ( The India's Central Bank ) List :-As a central bank, the Reserve Bank hassignificant powers and duties to perform. For smooth and speedy progress of the Indian Financial System, it has to perform some important tasks. Among others it includes maintaining monetary and financial stability, to develop and maintain stable payment system, to promote and develop financial infrastructure and to regulate or control the financial institutions. For simplification, the functions of the Reserve Bank are classified into the traditional functions, the development functions and supervisory functions. Traditional Functions of RBI:-Traditional functions are those functions which every central bank of each nation performs all over the world. Basically these functions are in line with the objectives with which the bank is set up. It includes fundamental functions of the Central Bank. They comprise the following tasks. Issue of Currency Notes : The RBI has the sole right or authority or monopoly of issuing currency notes except one rupee note and coins of smaller denomination. These currency notes are legal tender issued by the RBI. Currently it is in denominations of Rs. 2, 5, 10, 20, 50, 100, 500, and 1,000. The RBI has powers not only to issue and withdraw but even to exchange these currency notes for other denominations. It issues these notes against the security of gold bullion, foreign securities, rupee coins, exchange bills and promissory notes and government of India bonds. Banker to other Banks : The RBI being an apex monitory institution has obligatory powers to guide, help and direct other commercial banks in the country. The RBI can control the volumes of banks reserves and allow other banks to create credit in that proportion. Every commercial bank has to maintain a part of their reserves with its parent's viz. the RBI. Similarly in need or in urgency these banks approach the RBI for fund. Thus it is called as the lender of the last resort. Banker to the Government : The RBI being the apex monitory body has to work as an agent of the central and state governments. It performs various banking function such as to accept deposits, taxes and make payments on behalf of the government. It works as a representative of the government even at the international level. It maintains government accounts, provides financial advice to the government. It manages government public debts and maintains foreign exchange reserves on behalf of the government. It provides overdraft facility to the government when it faces financial crunch. Exchange Rate Management : It is an essential function of the RBI. In order to maintain stability in the external value of rupee, it has to prepare domestic policies in that direction. Also it needs to prepare and implement the foreign exchange rate policy which will help in attaining the exchange rate stability. In order to maintain the exchange rate stability it has to bring demand and supply of the foreign currency (U.S Dollar) close to each other. Credit Control Function : Commercial bank in the country creates credit according to the demand in the economy. But if this credit creation is unchecked or unregulated then it leads the economy into inflationary cycles. On the other credit creation is below the required limit then it harms the growth of the economy. As a central bank of the nation the RBI has to look for growth with price stability. Thus it regulates the credit creation capacity of commercial banks by using various credit control tools.

Supervisory Function : The RBI has been endowed with vast powers for supervising the banking systemin the country. It has powers to issue license for setting up new banks, to open new braches, to decide minimum

reserves, to inspect functioning of commercial banks in India and abroad, and to guide and direct the commercial banks in India. It can have periodical inspections an audit of the commercial banks in India.

Developmental / Promotional Functions of RBI :-Along with the routine traditional functions,central banks especially in the developing country like India have to perform numerous functions. These functions are country specific functions and can change according to the requirements of that country. The RBI has been performing as a promoter of the financial system since its inception. Some of the major development functions of the RBI are maintained below. Development of the Financial System : The financial system comprises the financial institutions, financial markets and financial instruments. The sound and efficient financial system is a precondition of the rapid economic development of the nation. The RBI has encouraged establishment of main banking and non-banking institutions to cater to the credit requirements of diverse sectors of the economy. Development of Agriculture : In an agrarian economy like ours, the RBI has to provide special attention for the credit need of agriculture and allied activities. It has successfully rendered service in this direction by increasing the flow of credit to this sector. It has earlier the Agriculture Refinance and Development Corporation (ARDC) to look after the credit, National Bank for Agriculture and Rural Development (NABARD) and Regional Rural Banks (RRBs). Provision of Industrial Finance : Rapid industrial growth is the key to faster economic development. In this regard, the adequate and timely availability of credit to small, medium and large industry is very significant. In this regard the RBI has always been instrumental in setting up special financial institutions such as ICICI Ltd. IDBI, SIDBI and EXIM BANK etc. Provisions of Training : The RBI has always tried to provide essential training to the staff of the banking industry. The RBI has set up the bankers' training colleges at several places. National Institute of Bank Management i.e NIBM, Bankers Staff College i.e BSC and College of Agriculture Banking i.e CAB are few to mention. Collection of Data : Being the apex monetary authority of the country, the RBI collects process and disseminates statistical data on several topics. It includes interest rate, inflation, savings and investments etc. This data proves to be quite useful for researchers and policy makers. Publication of the Reports : The Reserve Bank has its separate publication division. This division collects and publishes data on several sectors of the economy. The reports and bulletins are regularly published by the RBI. It includes RBI weekly reports, RBI Annual Report, Report on Trend and Progress of Commercial Banks India., etc. This information is made available to the public also at cheaper rates. Promotion of Banking Habits : As an apex organization, the RBI always tries to promote the banking habits in the country. It institutionalizes savings and takes measures for an expansion of the banking network. It has set up many institutions such as the Deposit Insurance Corporation-1962, UTI-1964, IDBI-1964, NABARD-1982, NHB-1988, etc. These organizations develop and promote banking habits among the people. During economic reforms it has taken many initiatives for encouraging and promoting banking in India. Promotion of Export through Refinance : The RBI always tries to encourage the facilities for providing finance for foreign trade especially exports from India. The Export-Import Bank of India (EXIM Bank India) and the Export Credit Guarantee Corporation of India (ECGC) are supported by refinancing their lending for export purpose.

Supervisory Functions of RBI :-The reserve bank also performs many supervisory functions. Ithas authority to regulate and administer the entire banking and financial system. Some of its supervisory functions are given below. Granting license to banks : The RBI grants license to banks for carrying its business. License is also given for opening extension counters, new branches, even to close down existing branches. Bank Inspection : The RBI grants license to banks working as per the directives and in a prudent manner without undue risk. In addition to this it can ask for periodical information from banks on various components of assets and liabilities. Control over NBFIs : The Non-Bank Financial Institutions are not influenced by the working of a monitory policy. However RBI has a right to issue directives to the NBFIs from time to time regarding their functioning. Through periodic inspection, it can control the NBFIs. Implementation of the Deposit Insurance Scheme : The RBI has set up the Deposit Insurance Guarantee Corporation in order to protect the deposits of small depositors. All bank deposits below Rs. One lakh are insured with this corporation. The RBI work to implement the Deposit Insurance Scheme in case of a bank failure.

Reserve Bank of India's Credit Policy:-The Reserve Bank of India has a credit policy which aims atpursuing higher growth with price stability. Higher economic growth means to produce more quantity of goods and services in different sectors of an economy; Price stability however does not mean no change in the general price level but to control the inflation. The credit policy aims at increasing finance for the agriculture and industrial activities. When credit policy is implemented, the role of other commercial banks is very important. Commercial banks flow of credit to different sectors of the economy depends on the actual cost of credit and arability of funds in the economy.