INTRODUCTION
A developing country like India must have a strong capital base for all round development of the economy. According to the Harald Domar's "Theory of Economic Development", investments should increase in order to increase the productivity and income so as to have full employment in the economy.
To have more investment savings must be generated from the general public on a large scale. Here comes the importance of banking institutions. These banking institutions accept the deposits in the form of savings and these savings are made available to the entrepreneurs in the form of loans, for the productive purpose. Proper banking facilities are sinequanon of progress in trade, industry and agriculture. Banks constitute an important segment of the financial structure of any country. The act as a backbone of countries economic progress. The economic history of many countries reveals that economic development and growth of financial infrastructure go hand in hand. There is interaction between the two banks play a positive role in economic development of a country as repositories of community's savings and purveyors of credit.
In the modern customer oriented concept "the customer is the king and pivot on which the organisation revolve their services. He is the corner stone of the edifice. He is the reason of their success and growth". Hence, it is necessary to build up confidence and goodwill of the people and build up a strategy of reaching the various communities, so is the case with the banking institutions, where customer is a must both for the individual development of the system and the nation as a whole. If is here comes the necessity to study the evolution of banking industry.
"It is unrealistic to believe today that banks are mere financial institutions. Working for profits and servicing a social purpose incidentally. Banks today are social organisations rendering financial services to the sub serve the social economic objectives of the society, viz., services to the customers".
INTRODUCTION OF BANK:
Banking, in one form or another, was in existence even in ancient times. The writings of Manu (the maker of Old Hindu Law) and Kautilya (the minister of Chandragupta Mourya) and the teachings of Christ contained references to banking. Excavations revealed the existence of banking activities in Babylonia much before Christ.
However, modern banking (i.e., joint stock banking) is of recent origin. It came into existence only after the industrial revolution. After the industrial revolution, with the increase in the size of industrial and business units, joint stock company form of business organization came into existence. This form of organization encouraged people with small means to become shareholders of big industrial and business enterprises. Still, there were certain sections of the public who were not prepared to invest their money on the shares of joint stock companies. But they were willing to part with their surplus money, if they were assured of the repayment of their money with some interest thereon. So, naturally, there arose the need for the formation of financial institutions that could collect the surplus funds of the people on term acceptable to them and make them available to the needy for productive purposes. Accordingly, a large number of such financial institutions called joint stock banks were set up after the industrial revolution. So joint stock banks or modern banks are of recent development.
HISTORY OF BANKING:
Authorities on banking are divided in their opinions regarding the origin of the term bank. According to some the English word bank is derived from the Italian word “banco”. The Latin word “bancus” and the French word “banque”. Which means a bench. They are of the opinion that the medieval European bankers (i.e., money changers and money lenders) transacted their banking activities, viz., money changing (i.e., exchanging one currency for another) and money lending by displaying on the benches in the market places. As such, the word bank should be associated with the Italian word banco. But according to others, the term bank is derived from the German word bank, which means a joint stock fund or a common fund (i.e., a heap of money) raised from a large number of members of the public, they contend that the early public for the purpose of financing the needy. As banks deal in common fund or heaps of money raised from the public, the term bank should be traced to the German word “bank”.
HISTORY OF BANKING IN INDIA
Banking was in existence in India from very early times. The writings of Manu and Kautilya contained references to banking. But modern banking (i.e.. banking on western lines) started in India only from the beginning of the I9th century. The first joint stock bank to be set up in India was the Bank of Hindustan. It was established in Culcutta. It was under European management. But it failed. The other joint stock banks to be established at that time were the Bank of Bengal (established in 1806), the Bank of Bombay (established in 1840) and the Bank of Madras (established in 1843). These banks were started with the financial participation of the Government. So, they were called the Presidency Banks. Besides their normal commercial banking functions, they were also given the right of note issue in their respective regions. They continued till 1921, when they were amalgamated and converted into the imperial Bank of India.
The first purely Indian joint stock bank to be established in the country was the Oudh Commercial Bank, It was set up in 1889. It was followed by the Punjab National Bank in 1894 and the people’s Bank in 1901. The Swadeshi Movement of 1905 gave great stimulus to the starting of several Indian banks.
The Indian commercial banking system had to pass through a series of financial crisis, and so. Its growth was very slow during the first half of the 20th century. Further, many banks failed during this period as a result of the financial crisis. For instance, between 1913 and 1922, as many was 108 banks failed, between 1922 and 1936. About 373 banks failed, and in 1945 also, many banks failed. It is only after independence, the Indian banking system has made rapid progress. Today, the Indian commercial banking system is one of the well commercial banking systems in the world. At present in India 300 banks are there and they are spread across the country in 65.430 branches, that is per 15000 people a bank is there in India.
DEFINITION OF A BANK:
On account of the multifarious activities of a modern bank, it becomes very difficult to give a precise definition of the word “‘Bank”. The Oxford Dictionary defines a bank as “an establishment for the custody of money, which it pays out on a customer’s order” This however, is not a very satisfactory definition, since it ignores the most important function of a bank. That of creating money or creating credit.
Most commonly, then banks have been defined as dealers in debts, this definition. 0f course more aptly describes banking activities. Sayers more clearly states “we can define bank as an institution whose debts (bank deposits) are widely accepted in settlement of other people’s debts to each other.
A banking company in India has been defined in the banking company Act 1949 as one which transacts the business of banking which means the accepting. For the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise and withdrawable by cheque draft, order or otherwise.
DEFINITION OF CUSTOMER
Ordinarily the term “customer of a bank” means a person who has an account with the bank. But there is no statuary definition of the term ‘customer of a bank’s so for the meaning of customer of a bank, we have to depend upon the views of authorities on banking law and the judgments of court of law.
“To constitute a customer there must be some recognizable course or habit of dealing in the nature of regular banking business”.
According to this view to make a person a customer of a bank, two conditions must be satisfied. They are;
There must be some recognizable course or habit of dealing between the person and the banker the transaction or dealing between them must be in the nature of regular banking business.
DEPOSITS
Common Practices Followed by Bank Branches
Display business hours.
Render courteous services.
Attend to all customers present in the banking hall at the close of business
hours.
Provide separate ‘Enquiry’ or May I Help You ‘counter at large branches
Offer nomination facility to all deposit accounts (i.e. account opened in individual
capacity) and all safe deposit locker hirers (i.e. individual hirers)
Display interest rates for various deposit schemes from time to time.
Notify change in interest rates on advances.
Provide details of various deposit schemes and services of the Bank.
Issue Demand drafts, Pay Orders, etc.,
Display Time-norms for various banking transactions.
Pay interest for delayed credit of outstation cheques, as advised by Reserve Bank
of India (RBI) from time to time.
Accord immediate credit in respect of outstation and local cheques upto a
specified limit subject to certain conditions, as advised by Reserve Bank of India
from time to time.
Provide complaints / suggestion box in the branch premises.
Display address of Regional / Zonal and Central offices as well as Nodal officer
dealing with customer grievances / Complaints.
Fair Banking Practices Customers are requested to:
Ensure safe custody of cheque book and Pass book.
Preferably use reverse carbon while writing a cheque.
Issue crossed / account payee cheques as far as possible.
Check the details of the cheque viz: date. amount in words and figures, crossing
etc., before issuing it. As far as possible, issue cheques after rounding off the
amount to nearest rupee.
Not to issue cheque without adequate balance: maintain minimum balance as
specified by the Bank.
Send cheques and other financial instruments by Registered Post or by courier.
Bring Passbook while withdrawing cash from savings bank account through
withdrawal slip. Get Passbook updated from lime to time.
Use nomination facility.
Note down account numbers and locker numbers separately.
Inform change of address, telephone number, etc., to the Branch.
Inform loss of demand draft, fixed deposit receipt. Cheque leave(s)/ book, key of
locker, etc., immediately to the Branch.
Avail standing instructions facility to repeat transactions.
Provide feedback on Vijaya Bank services.
Pay interest, installments, locker rent and other dues on time.
Avail services such as Automatic Teller machine and Electronic Funds Transfer if
offered by the branch.
Bring any deficiency in services to the notice of the branch.
Not to sign blank cheques, so also do not record your specimen signature either
on pass book or on cheque book.
Not to introduce any person who is not personally known to you for the purpose
of opening account.
Common Areas of Customer Banker Relationship:
Saving Bank Account.
Current Account.
Term Deposit Account.
Standing Instructions.
Safe Deposit Lockers.
Pension Payments.
Remittance Services.
Cash Order.
Collection Services.
Collection of Government Dues.
Interest on Deposits.
Service Charges.
Time Norms for various Banking Transaction.
Redressal of Complaints.
Saving Bank Account:
These accounts are designed to help the individuals (personal customers) to include habit of saving money and to meet their future requirements of money. The amounts can be deposited / withdrawn from these accounts by way of cheques / withdrawal slips. It helps the customers to keep minimum cash at home besides earning interest.
Saving Bank accounts are very popular. These accounts can be opened by eligible person(s) and certain organization / agencies.
The account holder is required to maintain certain minimum balance in the account, as specified by the bank from time to time, separately for computerized and non-computerized branches and also depending on, whether account holder wants to avail the cheque book facility or not, non-compliance of this would attract service charges.
Current Account:
Current Accounts can be opened by individuals partnership firms, private and public limited companies, Hindu Undivided Families / specified, associations, societies, trusts etc., Minimum balance as stipulated from time to time will be required to be maintained. No interest is paid on credit balance kept in current account, service charges are levied for:
Ledger folio used.
Cheque books issued.
Non-maintenance of minimum balance.
Return of cheques etc.,
For opening special types of current accounts like for Executors, Administrator, Trustees, Liquidators etc., the Branch Manager may be contacted who will help in opening these types of accounts. As per Reserve Bank of India directive, the applicant (i.e., account opener) should declare in the account opening from or separately that he is not enjoying any credit facility with any bank and if he does enjoy any facility / facilities he should declare full particulars thereof indicating the name of the bank and name of the branch where from he has availed these facilities.
Term Deposit Account:
Bank has tailored various deposit schemes to suit the needs and expectations of investing people in every walk of life. Branch staff shall welcome the customer to seek more details and shall also be glad to assist in the area of investment in various deposit schemes vis-à-vis their requirement. Individuals, partnership firms, private and public limited companies, Hindu Undivided Families / specialized associations etc., can open term deposit accounts.
Generally loans / overdrafts against deposits are allowed expect on Certificates of Deposit (CD) such loans are sanctioned by charging interest at rates directed by Reserve Bank of India from time to time or as prescribed by the Bank.
Deposits are renewed by the Bank on due dates on request, as a measure of good customer service, the bank may intimate the depositor in advance regarding date of maturity, interest on bank deposits is exempt from income tax upto a limit specified by income tax authorities from time to time.
Standing Instructions:
Standing instructions can be given to the bank for transfer / remittance of funds from one account to other account(s) maintained in the same branch, any other branch of the bank or any other bank or any other third party.
Safe Deposit Account:
The facility of safe deposit lockers is an ancillary service offered by the bank. The banks branches offering this facility will indicate / display this information.
The major aspects governing the services are;
A locker may be hired by an individual minors, firms, limited companies, specified associations and societies etc.
Nomination facility is available to individual hirer of safe deposit locker.
Loss of key should be immediately informed to the branch.
Locker’s are available in different sizes.
Locker’s are rented out for a minimum period of one year. Rent is payable in advance. In case of overdue rent, the bank will charge penalty as decided from time to time.
With standing instruction, the rent may be paid from the deposit account of the hirer.
The bank will hire locker only to properly introduced persons.
Pension payments (applicable to public sector banks only):
Pensioners of central and State governments can open a separate pension account in any of our branches.
Pensioners are requested to produce the life certificate once in a year (i.e., in the month of November) to enable the branches to pay pension without interruption.
Remittance Service:
Customers may remit funds from one centre to another centre by Demand Draft or Telegraphic Transfer (TT), etc., by paying specified charges as per the Bank’s rules. The customers can utilize the facility of Electronic Funds Transfer (EFT) system operated through Reserve Bank of India, for transferring funds to and from Culcutta, Chennai, Delhi and Mumbai upto Rs.5.00 Lakhs.
Issue of Duplicate Demand Draft without of Non-payment Advice:
As directed by the Reserve Bank of India, the banks will issue duplicate demand draft upto Rs.5,000/- on the basis of adequate indemnity and without obtaining non-payment advice from the drawee branch.
Time frame for Issue of Duplicate Draft:
As directed by the Reserve Bank of India, the banks will issue duplicate demand draft to the customer within a fortnight from the receipt of request. For delay in issuing duplicate draft beyond the above stipulated period, the banks will pay interest at the rate applicable for fixed deposit of corresponding maturity in order to compensate the customer for such delay.
Cash order (i.e., Pay order, Bankers Cheque)
Cash order is issued for making payment locally. Issue / payment of cash order for Rs.50,000/- and above is to be made only through the bank account. Validity period of cash order is 6 months. The issuing brands on written request of the purchaser can revalidate this.
Collection Service:
Immediate credit of local as well as outstation cheques upto Rs.15,500 (as per Reserve Bank of India guidelines from time to time) is provided to the individuals (Personal Customers) who are maintaining satisfactory accounts. However, the customers will have to bear usual service charges as well as the postal charges. In the event of cheques being returned unpaid, the customer will have to pay interest for the period for which funds utilized. All cheques (local and outstation) deposited by the customers are cleared by the bank as follows.
High Value Clearing:
This facility is available for the clients of selected branches at designated centres. Cheques of high value (of not less than Rs.1.00 Lakh per instrument) are cleared on the same day.
Local Clearing:
Cheques are cleared normally on the third working day, depending on the centre subject to depositing of the cheques / instruments in time.
National Clearing:
Cheques drawn on metropolitan centres listed in national clearing are cleared in 8 days. All cheques drawn on other centres are cleared in 14 days. The bank will credit the proceeds of an outstation cheque within the following time norms. State capital other than North Eastern states and Sikkim – 10 working days – other centres 14 working days.
Interest on Deposits:
The bank pays interest on deposits as per various deposit schemes. Interest rates are revised from time to time and made known to public. Revised interest rates are applicable only to the renewals and fresh deposits while existing deposit continues to get interest at the contracted rate.
Collection of Government Dues:
The Bank handles collection of various taxes on behalf of Government of India through selected designated branches.
Service Charges:
The bank provides various services to customers for which service charges are levied. The charges are reviewed / revised from time to time.
Redressal of complaints:
To enable the customers to voice their grievances or offer suggestions for improvement in customer service, “Customer Day” is observed at all the offices of the bank across the organization covering branches, regional / zonal offices and head office, on 15th of every month (next day, if 15th is a holiday or half day). During specified hours on this day any customer can meet senior / top executives of the bank including Chairman and Managing Director without prior appointment.
FUNCTIONS OF COMMERCIAL BANK:
In the contemporary world, banking is assuming wider functions and greater responsibilities in the economic areas hence, it is not possible to make on exhaustive catalogue of its functions and services. The fundamental functions usually performed by banks are;
Acceptance of Deposits from Public:
The primary function of commercial banks is to accept deposits from the public. Banks maintain demand deposits accounts for their customers and convert deposit money into cash and vice versa, at the discretion of the latter. Demand deposits are technically accepted in current accounts. Which are withdrawable at any time by the depositor by means of cheques.
Deposits are made in fixed deposit accounts which are withdrawable only after a specific period. Thus, fixed deposits are time liabilities of the banks. Deposits are also received in saving bank accounts subject to certain restrictions on the amount receivable and withdrawable.
Making Loans and Advances:
Another major function of commercial bank is to extend loans and advances out of the money which comes to them by way of deposits to businessmen and entrepreneurs against approved securities such as gold or silver bullion, government securities, easily saleable stocks and shares and marketable goods.
Bank advances to customers may he made in the following ways
Overdrafts
Discounting bills.
Money at call and short notice loans, and
Various forms of direct loan to traders and producers
Use of Cheque System:
Commercial banks also render importance services by providing an expensive medium of exchange such as cheques. In modern business organization, the use of cheques to settle debts is found to be much more convenient than the use of cash. In fact, the cheque is also known as the most developed credit instrument.
In addition to these, commercial banks perform a multitude of other non banking functions which may be classified as
Agency services, and
General services
Agency Services:
Bankers perform certain functions for and on behalf of their customers such as;
To collect or make payments for bills, cheques. Promissory notes, interest, dividends. rents, subscriptions, insurance premia. etc. For these services some charges are usually levied by banks.
To remit funds on behalf of the clients by draft or mail or telegraphic transfers,
To act as executors, trustee and attorney for customers will.
Sometimes bankers also employ income tax experts not only to prepare income tax returns for their customers but to help them to get refund of income tax in appropriate case.
GENERAL UTILITY SERVICES:
Modern commercial banks usually perform certain general utility services for society. Such as;
Bank drafts and travelers cheques are issued in order to provide facilities for transfer of funds from one part of the country to another.
Bank may deal in foreign exchange or finance foreign trade by accepting or colleting foreign bills of exchange.
Banks may act as referees with respect to the financial standing at business reputation, and respectability of customers.
Shares floated by Government. Public bodies and corporations may he underwritten by banks;
Certain banks arrange for safe deposit vaults. So that customers may entrust their securities and valuables to them for safe custody
Banks also compile statistics and business information relating to trades commerce, and industry. Some banks may publish valuable journals or bulletins containing research on financial economic and commercial matters.
TYPE OF BANKING
Commercial Banks or Deposit Banks
Industrial Banks or Investment Banks
Agricultural Banks
Exchange Banks
Savings Banks
Central Banks
Commercial Banks or Deposit Banks:
Commercial banks are banks which accept deposit from the public and lend them mainly to commerce for short periods. As they finance mainly commerce, They are called commercial banks. They are also called deposits banks, as they accept deposits from the public and lend them for short periods. The system of accepting deposits from the public and lending them for short periods is called deposit banking and bank engaged in such banking are called deposit banks.
Industrial Banks or Investment Banks:
Industrial banks are banks which provide block or fixed capital (i.e.. long-term finance) to industries as they finance industries. They are called industrial banks. They are also called investment banks as the invest their funds in subscribing to the shares and debenture of industrial concerns with the object of providing long-term finance to industries.
Agricultural Banks:
Agricultural banks are banks which provide finance to agriculture. As they provide finance to agriculture, they are called agricultural banks. Agricultural banks are found in many countries, such as India, England, Germany, France, the U.S.A. etc. in most of the countries, agricultural banks are organized on co-operative basis. In India also, agricultural banks are organized on co-operative basis. The organized banks in India on the co-operative basis, are of two types.
Agricultural co-operative banks
Land mortgage or land development banks.
Agricultural co-operative banks provide short term finance to the agriculturists for the purchase of fertilizers. Pesticides and seeds and too the payment of wages land development banks provide long-term finance to the farmers for the purchase of agricultural machinery. Installation of pump, sets, construction of minor irrigation works making improvement on lands, repayment of old debts etc.
Exchange Banks:
Exchange banks are banks winch finance mainly the foreign exchange business (i.e., the export and import trade) of a country. As they finance mainly the foreign exchange business of country. They are called exchange banks.
Special exchange banks are found only in some countries. In many countries the commercial banks, themselves perform exchange business done by foreign exchange banks (i.e., foreign banks conducting the foreign exchange business of India. Through their branches in India). A small portion of India’s foreign exchange business is done by Indian Commercial banks.
Savings Banks:
Savings banks are special banks which specialize in the mobilization of the small savings of the middle and low incomes groups. As they are concerned with the mobilisation of the small savings of the people. They are called savings banks.
Special savings banks are not found in many countries. They are found only in a few countries like the U.S.A. Canada, etc. in most of the countries savings bank business is done by commercial banks and post offices in India. There are no special savings banks. The savings bank business is performed by commercial banks and post office.
Central Banks:
Today, every country in the world has a central bank. A central bank is the highest banking and monetary institution of a country. In other words it is the leader of all other banking and monetary, institutions found in a country. As it occupies central position in the banking structure of a country, it is called the central bank.
The central bank operates under state control, and works for the promotion of the monetary and economic stability of the country. Unlike other banks it does not work for profits.
Services provided by Commercial Banks in India:
Deposit Schemes:
Current account
Saving account
Fixed or term deposit
The curing deposit schemes
Daily savings schemes
Minor savings schemes
The investment schemes
Monthly interest income deposit scheme
Capital purpose deposit scheme
Insurance-linked deposit scheme
Cash certificate
Credit Scheme:
Term loans
Cash credit
Over drafts
Bills discounting
Battery of credit
Financial guarantee
Composite loans
Personal loans
Consumption loans
Ancillary / subsidiary services:
Safe custody of depends / securities
Safe deposit Lockers
Purchase and sale of securities
Carrying out standing instruction for deposits
Payment for insurance premium
Payment for subscription
Payment for certain taxes
Payment for gift remittances etc.
The maintenance of funds-banks drafts mail transfer telegraphic transfers both
inland and foreign.
Collection of interest on securities / debenture and dividend on shares and
collection of pension bills.
Executor and trustee services
Executor and trustee under a will
Trustee under a trust deed security mortgage debenture.
Trustee under deed of settlement
Trustee for life insurance policies under married women’s property act of 1874.
Personal tax assistance preparing income tax, sale tax and wealth tax returns.
Credit transfer
Credit cards
Travelers cheques
Gift cheque
Sale of units of the unit trust national savings certificates
Providing performance guarantees.
Counseling and consultancy services like rural banking services travel linked
scheme housing linked services, technology counseling services export related
services training related service etc.
Specialized Banking services:
Merchant banking
Project counseling
Public issue management
Refund management
Portfolio management
Service to NRIs
Leasing
Mutual funds
Housing finance
Venture capital business
Loan linked deposit schemes
Automatic teller machine (ATM)
Electronic funds transfer (EFT).
A developing country like India must have a strong capital base for all round development of the economy. According to the Harald Domar's "Theory of Economic Development", investments should increase in order to increase the productivity and income so as to have full employment in the economy.
To have more investment savings must be generated from the general public on a large scale. Here comes the importance of banking institutions. These banking institutions accept the deposits in the form of savings and these savings are made available to the entrepreneurs in the form of loans, for the productive purpose. Proper banking facilities are sinequanon of progress in trade, industry and agriculture. Banks constitute an important segment of the financial structure of any country. The act as a backbone of countries economic progress. The economic history of many countries reveals that economic development and growth of financial infrastructure go hand in hand. There is interaction between the two banks play a positive role in economic development of a country as repositories of community's savings and purveyors of credit.
In the modern customer oriented concept "the customer is the king and pivot on which the organisation revolve their services. He is the corner stone of the edifice. He is the reason of their success and growth". Hence, it is necessary to build up confidence and goodwill of the people and build up a strategy of reaching the various communities, so is the case with the banking institutions, where customer is a must both for the individual development of the system and the nation as a whole. If is here comes the necessity to study the evolution of banking industry.
"It is unrealistic to believe today that banks are mere financial institutions. Working for profits and servicing a social purpose incidentally. Banks today are social organisations rendering financial services to the sub serve the social economic objectives of the society, viz., services to the customers".
INTRODUCTION OF BANK:
Banking, in one form or another, was in existence even in ancient times. The writings of Manu (the maker of Old Hindu Law) and Kautilya (the minister of Chandragupta Mourya) and the teachings of Christ contained references to banking. Excavations revealed the existence of banking activities in Babylonia much before Christ.
However, modern banking (i.e., joint stock banking) is of recent origin. It came into existence only after the industrial revolution. After the industrial revolution, with the increase in the size of industrial and business units, joint stock company form of business organization came into existence. This form of organization encouraged people with small means to become shareholders of big industrial and business enterprises. Still, there were certain sections of the public who were not prepared to invest their money on the shares of joint stock companies. But they were willing to part with their surplus money, if they were assured of the repayment of their money with some interest thereon. So, naturally, there arose the need for the formation of financial institutions that could collect the surplus funds of the people on term acceptable to them and make them available to the needy for productive purposes. Accordingly, a large number of such financial institutions called joint stock banks were set up after the industrial revolution. So joint stock banks or modern banks are of recent development.
HISTORY OF BANKING:
Authorities on banking are divided in their opinions regarding the origin of the term bank. According to some the English word bank is derived from the Italian word “banco”. The Latin word “bancus” and the French word “banque”. Which means a bench. They are of the opinion that the medieval European bankers (i.e., money changers and money lenders) transacted their banking activities, viz., money changing (i.e., exchanging one currency for another) and money lending by displaying on the benches in the market places. As such, the word bank should be associated with the Italian word banco. But according to others, the term bank is derived from the German word bank, which means a joint stock fund or a common fund (i.e., a heap of money) raised from a large number of members of the public, they contend that the early public for the purpose of financing the needy. As banks deal in common fund or heaps of money raised from the public, the term bank should be traced to the German word “bank”.
HISTORY OF BANKING IN INDIA
Banking was in existence in India from very early times. The writings of Manu and Kautilya contained references to banking. But modern banking (i.e.. banking on western lines) started in India only from the beginning of the I9th century. The first joint stock bank to be set up in India was the Bank of Hindustan. It was established in Culcutta. It was under European management. But it failed. The other joint stock banks to be established at that time were the Bank of Bengal (established in 1806), the Bank of Bombay (established in 1840) and the Bank of Madras (established in 1843). These banks were started with the financial participation of the Government. So, they were called the Presidency Banks. Besides their normal commercial banking functions, they were also given the right of note issue in their respective regions. They continued till 1921, when they were amalgamated and converted into the imperial Bank of India.
The first purely Indian joint stock bank to be established in the country was the Oudh Commercial Bank, It was set up in 1889. It was followed by the Punjab National Bank in 1894 and the people’s Bank in 1901. The Swadeshi Movement of 1905 gave great stimulus to the starting of several Indian banks.
The Indian commercial banking system had to pass through a series of financial crisis, and so. Its growth was very slow during the first half of the 20th century. Further, many banks failed during this period as a result of the financial crisis. For instance, between 1913 and 1922, as many was 108 banks failed, between 1922 and 1936. About 373 banks failed, and in 1945 also, many banks failed. It is only after independence, the Indian banking system has made rapid progress. Today, the Indian commercial banking system is one of the well commercial banking systems in the world. At present in India 300 banks are there and they are spread across the country in 65.430 branches, that is per 15000 people a bank is there in India.
DEFINITION OF A BANK:
On account of the multifarious activities of a modern bank, it becomes very difficult to give a precise definition of the word “‘Bank”. The Oxford Dictionary defines a bank as “an establishment for the custody of money, which it pays out on a customer’s order” This however, is not a very satisfactory definition, since it ignores the most important function of a bank. That of creating money or creating credit.
Most commonly, then banks have been defined as dealers in debts, this definition. 0f course more aptly describes banking activities. Sayers more clearly states “we can define bank as an institution whose debts (bank deposits) are widely accepted in settlement of other people’s debts to each other.
A banking company in India has been defined in the banking company Act 1949 as one which transacts the business of banking which means the accepting. For the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise and withdrawable by cheque draft, order or otherwise.
DEFINITION OF CUSTOMER
Ordinarily the term “customer of a bank” means a person who has an account with the bank. But there is no statuary definition of the term ‘customer of a bank’s so for the meaning of customer of a bank, we have to depend upon the views of authorities on banking law and the judgments of court of law.
“To constitute a customer there must be some recognizable course or habit of dealing in the nature of regular banking business”.
According to this view to make a person a customer of a bank, two conditions must be satisfied. They are;
There must be some recognizable course or habit of dealing between the person and the banker the transaction or dealing between them must be in the nature of regular banking business.
DEPOSITS
Common Practices Followed by Bank Branches
Display business hours.
Render courteous services.
Attend to all customers present in the banking hall at the close of business
hours.
Provide separate ‘Enquiry’ or May I Help You ‘counter at large branches
Offer nomination facility to all deposit accounts (i.e. account opened in individual
capacity) and all safe deposit locker hirers (i.e. individual hirers)
Display interest rates for various deposit schemes from time to time.
Notify change in interest rates on advances.
Provide details of various deposit schemes and services of the Bank.
Issue Demand drafts, Pay Orders, etc.,
Display Time-norms for various banking transactions.
Pay interest for delayed credit of outstation cheques, as advised by Reserve Bank
of India (RBI) from time to time.
Accord immediate credit in respect of outstation and local cheques upto a
specified limit subject to certain conditions, as advised by Reserve Bank of India
from time to time.
Provide complaints / suggestion box in the branch premises.
Display address of Regional / Zonal and Central offices as well as Nodal officer
dealing with customer grievances / Complaints.
Fair Banking Practices Customers are requested to:
Ensure safe custody of cheque book and Pass book.
Preferably use reverse carbon while writing a cheque.
Issue crossed / account payee cheques as far as possible.
Check the details of the cheque viz: date. amount in words and figures, crossing
etc., before issuing it. As far as possible, issue cheques after rounding off the
amount to nearest rupee.
Not to issue cheque without adequate balance: maintain minimum balance as
specified by the Bank.
Send cheques and other financial instruments by Registered Post or by courier.
Bring Passbook while withdrawing cash from savings bank account through
withdrawal slip. Get Passbook updated from lime to time.
Use nomination facility.
Note down account numbers and locker numbers separately.
Inform change of address, telephone number, etc., to the Branch.
Inform loss of demand draft, fixed deposit receipt. Cheque leave(s)/ book, key of
locker, etc., immediately to the Branch.
Avail standing instructions facility to repeat transactions.
Provide feedback on Vijaya Bank services.
Pay interest, installments, locker rent and other dues on time.
Avail services such as Automatic Teller machine and Electronic Funds Transfer if
offered by the branch.
Bring any deficiency in services to the notice of the branch.
Not to sign blank cheques, so also do not record your specimen signature either
on pass book or on cheque book.
Not to introduce any person who is not personally known to you for the purpose
of opening account.
Common Areas of Customer Banker Relationship:
Saving Bank Account.
Current Account.
Term Deposit Account.
Standing Instructions.
Safe Deposit Lockers.
Pension Payments.
Remittance Services.
Cash Order.
Collection Services.
Collection of Government Dues.
Interest on Deposits.
Service Charges.
Time Norms for various Banking Transaction.
Redressal of Complaints.
Saving Bank Account:
These accounts are designed to help the individuals (personal customers) to include habit of saving money and to meet their future requirements of money. The amounts can be deposited / withdrawn from these accounts by way of cheques / withdrawal slips. It helps the customers to keep minimum cash at home besides earning interest.
Saving Bank accounts are very popular. These accounts can be opened by eligible person(s) and certain organization / agencies.
The account holder is required to maintain certain minimum balance in the account, as specified by the bank from time to time, separately for computerized and non-computerized branches and also depending on, whether account holder wants to avail the cheque book facility or not, non-compliance of this would attract service charges.
Current Account:
Current Accounts can be opened by individuals partnership firms, private and public limited companies, Hindu Undivided Families / specified, associations, societies, trusts etc., Minimum balance as stipulated from time to time will be required to be maintained. No interest is paid on credit balance kept in current account, service charges are levied for:
Ledger folio used.
Cheque books issued.
Non-maintenance of minimum balance.
Return of cheques etc.,
For opening special types of current accounts like for Executors, Administrator, Trustees, Liquidators etc., the Branch Manager may be contacted who will help in opening these types of accounts. As per Reserve Bank of India directive, the applicant (i.e., account opener) should declare in the account opening from or separately that he is not enjoying any credit facility with any bank and if he does enjoy any facility / facilities he should declare full particulars thereof indicating the name of the bank and name of the branch where from he has availed these facilities.
Term Deposit Account:
Bank has tailored various deposit schemes to suit the needs and expectations of investing people in every walk of life. Branch staff shall welcome the customer to seek more details and shall also be glad to assist in the area of investment in various deposit schemes vis-à-vis their requirement. Individuals, partnership firms, private and public limited companies, Hindu Undivided Families / specialized associations etc., can open term deposit accounts.
Generally loans / overdrafts against deposits are allowed expect on Certificates of Deposit (CD) such loans are sanctioned by charging interest at rates directed by Reserve Bank of India from time to time or as prescribed by the Bank.
Deposits are renewed by the Bank on due dates on request, as a measure of good customer service, the bank may intimate the depositor in advance regarding date of maturity, interest on bank deposits is exempt from income tax upto a limit specified by income tax authorities from time to time.
Standing Instructions:
Standing instructions can be given to the bank for transfer / remittance of funds from one account to other account(s) maintained in the same branch, any other branch of the bank or any other bank or any other third party.
Safe Deposit Account:
The facility of safe deposit lockers is an ancillary service offered by the bank. The banks branches offering this facility will indicate / display this information.
The major aspects governing the services are;
A locker may be hired by an individual minors, firms, limited companies, specified associations and societies etc.
Nomination facility is available to individual hirer of safe deposit locker.
Loss of key should be immediately informed to the branch.
Locker’s are available in different sizes.
Locker’s are rented out for a minimum period of one year. Rent is payable in advance. In case of overdue rent, the bank will charge penalty as decided from time to time.
With standing instruction, the rent may be paid from the deposit account of the hirer.
The bank will hire locker only to properly introduced persons.
Pension payments (applicable to public sector banks only):
Pensioners of central and State governments can open a separate pension account in any of our branches.
Pensioners are requested to produce the life certificate once in a year (i.e., in the month of November) to enable the branches to pay pension without interruption.
Remittance Service:
Customers may remit funds from one centre to another centre by Demand Draft or Telegraphic Transfer (TT), etc., by paying specified charges as per the Bank’s rules. The customers can utilize the facility of Electronic Funds Transfer (EFT) system operated through Reserve Bank of India, for transferring funds to and from Culcutta, Chennai, Delhi and Mumbai upto Rs.5.00 Lakhs.
Issue of Duplicate Demand Draft without of Non-payment Advice:
As directed by the Reserve Bank of India, the banks will issue duplicate demand draft upto Rs.5,000/- on the basis of adequate indemnity and without obtaining non-payment advice from the drawee branch.
Time frame for Issue of Duplicate Draft:
As directed by the Reserve Bank of India, the banks will issue duplicate demand draft to the customer within a fortnight from the receipt of request. For delay in issuing duplicate draft beyond the above stipulated period, the banks will pay interest at the rate applicable for fixed deposit of corresponding maturity in order to compensate the customer for such delay.
Cash order (i.e., Pay order, Bankers Cheque)
Cash order is issued for making payment locally. Issue / payment of cash order for Rs.50,000/- and above is to be made only through the bank account. Validity period of cash order is 6 months. The issuing brands on written request of the purchaser can revalidate this.
Collection Service:
Immediate credit of local as well as outstation cheques upto Rs.15,500 (as per Reserve Bank of India guidelines from time to time) is provided to the individuals (Personal Customers) who are maintaining satisfactory accounts. However, the customers will have to bear usual service charges as well as the postal charges. In the event of cheques being returned unpaid, the customer will have to pay interest for the period for which funds utilized. All cheques (local and outstation) deposited by the customers are cleared by the bank as follows.
High Value Clearing:
This facility is available for the clients of selected branches at designated centres. Cheques of high value (of not less than Rs.1.00 Lakh per instrument) are cleared on the same day.
Local Clearing:
Cheques are cleared normally on the third working day, depending on the centre subject to depositing of the cheques / instruments in time.
National Clearing:
Cheques drawn on metropolitan centres listed in national clearing are cleared in 8 days. All cheques drawn on other centres are cleared in 14 days. The bank will credit the proceeds of an outstation cheque within the following time norms. State capital other than North Eastern states and Sikkim – 10 working days – other centres 14 working days.
Interest on Deposits:
The bank pays interest on deposits as per various deposit schemes. Interest rates are revised from time to time and made known to public. Revised interest rates are applicable only to the renewals and fresh deposits while existing deposit continues to get interest at the contracted rate.
Collection of Government Dues:
The Bank handles collection of various taxes on behalf of Government of India through selected designated branches.
Service Charges:
The bank provides various services to customers for which service charges are levied. The charges are reviewed / revised from time to time.
Redressal of complaints:
To enable the customers to voice their grievances or offer suggestions for improvement in customer service, “Customer Day” is observed at all the offices of the bank across the organization covering branches, regional / zonal offices and head office, on 15th of every month (next day, if 15th is a holiday or half day). During specified hours on this day any customer can meet senior / top executives of the bank including Chairman and Managing Director without prior appointment.
FUNCTIONS OF COMMERCIAL BANK:
In the contemporary world, banking is assuming wider functions and greater responsibilities in the economic areas hence, it is not possible to make on exhaustive catalogue of its functions and services. The fundamental functions usually performed by banks are;
Acceptance of Deposits from Public:
The primary function of commercial banks is to accept deposits from the public. Banks maintain demand deposits accounts for their customers and convert deposit money into cash and vice versa, at the discretion of the latter. Demand deposits are technically accepted in current accounts. Which are withdrawable at any time by the depositor by means of cheques.
Deposits are made in fixed deposit accounts which are withdrawable only after a specific period. Thus, fixed deposits are time liabilities of the banks. Deposits are also received in saving bank accounts subject to certain restrictions on the amount receivable and withdrawable.
Making Loans and Advances:
Another major function of commercial bank is to extend loans and advances out of the money which comes to them by way of deposits to businessmen and entrepreneurs against approved securities such as gold or silver bullion, government securities, easily saleable stocks and shares and marketable goods.
Bank advances to customers may he made in the following ways
Overdrafts
Discounting bills.
Money at call and short notice loans, and
Various forms of direct loan to traders and producers
Use of Cheque System:
Commercial banks also render importance services by providing an expensive medium of exchange such as cheques. In modern business organization, the use of cheques to settle debts is found to be much more convenient than the use of cash. In fact, the cheque is also known as the most developed credit instrument.
In addition to these, commercial banks perform a multitude of other non banking functions which may be classified as
Agency services, and
General services
Agency Services:
Bankers perform certain functions for and on behalf of their customers such as;
To collect or make payments for bills, cheques. Promissory notes, interest, dividends. rents, subscriptions, insurance premia. etc. For these services some charges are usually levied by banks.
To remit funds on behalf of the clients by draft or mail or telegraphic transfers,
To act as executors, trustee and attorney for customers will.
Sometimes bankers also employ income tax experts not only to prepare income tax returns for their customers but to help them to get refund of income tax in appropriate case.
GENERAL UTILITY SERVICES:
Modern commercial banks usually perform certain general utility services for society. Such as;
Bank drafts and travelers cheques are issued in order to provide facilities for transfer of funds from one part of the country to another.
Bank may deal in foreign exchange or finance foreign trade by accepting or colleting foreign bills of exchange.
Banks may act as referees with respect to the financial standing at business reputation, and respectability of customers.
Shares floated by Government. Public bodies and corporations may he underwritten by banks;
Certain banks arrange for safe deposit vaults. So that customers may entrust their securities and valuables to them for safe custody
Banks also compile statistics and business information relating to trades commerce, and industry. Some banks may publish valuable journals or bulletins containing research on financial economic and commercial matters.
TYPE OF BANKING
Commercial Banks or Deposit Banks
Industrial Banks or Investment Banks
Agricultural Banks
Exchange Banks
Savings Banks
Central Banks
Commercial Banks or Deposit Banks:
Commercial banks are banks which accept deposit from the public and lend them mainly to commerce for short periods. As they finance mainly commerce, They are called commercial banks. They are also called deposits banks, as they accept deposits from the public and lend them for short periods. The system of accepting deposits from the public and lending them for short periods is called deposit banking and bank engaged in such banking are called deposit banks.
Industrial Banks or Investment Banks:
Industrial banks are banks which provide block or fixed capital (i.e.. long-term finance) to industries as they finance industries. They are called industrial banks. They are also called investment banks as the invest their funds in subscribing to the shares and debenture of industrial concerns with the object of providing long-term finance to industries.
Agricultural Banks:
Agricultural banks are banks which provide finance to agriculture. As they provide finance to agriculture, they are called agricultural banks. Agricultural banks are found in many countries, such as India, England, Germany, France, the U.S.A. etc. in most of the countries, agricultural banks are organized on co-operative basis. In India also, agricultural banks are organized on co-operative basis. The organized banks in India on the co-operative basis, are of two types.
Agricultural co-operative banks
Land mortgage or land development banks.
Agricultural co-operative banks provide short term finance to the agriculturists for the purchase of fertilizers. Pesticides and seeds and too the payment of wages land development banks provide long-term finance to the farmers for the purchase of agricultural machinery. Installation of pump, sets, construction of minor irrigation works making improvement on lands, repayment of old debts etc.
Exchange Banks:
Exchange banks are banks winch finance mainly the foreign exchange business (i.e., the export and import trade) of a country. As they finance mainly the foreign exchange business of country. They are called exchange banks.
Special exchange banks are found only in some countries. In many countries the commercial banks, themselves perform exchange business done by foreign exchange banks (i.e., foreign banks conducting the foreign exchange business of India. Through their branches in India). A small portion of India’s foreign exchange business is done by Indian Commercial banks.
Savings Banks:
Savings banks are special banks which specialize in the mobilization of the small savings of the middle and low incomes groups. As they are concerned with the mobilisation of the small savings of the people. They are called savings banks.
Special savings banks are not found in many countries. They are found only in a few countries like the U.S.A. Canada, etc. in most of the countries savings bank business is done by commercial banks and post offices in India. There are no special savings banks. The savings bank business is performed by commercial banks and post office.
Central Banks:
Today, every country in the world has a central bank. A central bank is the highest banking and monetary institution of a country. In other words it is the leader of all other banking and monetary, institutions found in a country. As it occupies central position in the banking structure of a country, it is called the central bank.
The central bank operates under state control, and works for the promotion of the monetary and economic stability of the country. Unlike other banks it does not work for profits.
Services provided by Commercial Banks in India:
Deposit Schemes:
Current account
Saving account
Fixed or term deposit
The curing deposit schemes
Daily savings schemes
Minor savings schemes
The investment schemes
Monthly interest income deposit scheme
Capital purpose deposit scheme
Insurance-linked deposit scheme
Cash certificate
Credit Scheme:
Term loans
Cash credit
Over drafts
Bills discounting
Battery of credit
Financial guarantee
Composite loans
Personal loans
Consumption loans
Ancillary / subsidiary services:
Safe custody of depends / securities
Safe deposit Lockers
Purchase and sale of securities
Carrying out standing instruction for deposits
Payment for insurance premium
Payment for subscription
Payment for certain taxes
Payment for gift remittances etc.
The maintenance of funds-banks drafts mail transfer telegraphic transfers both
inland and foreign.
Collection of interest on securities / debenture and dividend on shares and
collection of pension bills.
Executor and trustee services
Executor and trustee under a will
Trustee under a trust deed security mortgage debenture.
Trustee under deed of settlement
Trustee for life insurance policies under married women’s property act of 1874.
Personal tax assistance preparing income tax, sale tax and wealth tax returns.
Credit transfer
Credit cards
Travelers cheques
Gift cheque
Sale of units of the unit trust national savings certificates
Providing performance guarantees.
Counseling and consultancy services like rural banking services travel linked
scheme housing linked services, technology counseling services export related
services training related service etc.
Specialized Banking services:
Merchant banking
Project counseling
Public issue management
Refund management
Portfolio management
Service to NRIs
Leasing
Mutual funds
Housing finance
Venture capital business
Loan linked deposit schemes
Automatic teller machine (ATM)
Electronic funds transfer (EFT).
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