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

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

1. Nationalised Banks: The Government of India with effect from 19 July 1969 nationalised 14 major Indian Banks, each with an aggregate deposit of Rs-50 crores or more with a view to “to serve better the needs of development of the economy, in conformity with National Priorities and Objectives. The following were considered to be the compelling reasons for the Bank Nationalisation: 1. Concentration of wealth and economic power in industrialists and businessmen; 2. Branch expansion was confined only to urban areas with rural areas being neglected; 3. Sectors like agriculture, small scale industries and the other deserving sectors were outside the purview of lending operations of the bank; 4. Various malpractices indulged in by banks under private ownership and management to favour big businessmen and industrialists and 5. To give a re-orientation in attitude and outlook of the bankers so as to make them conscious of social objectives and to make them embrace social banking.

The ordinance through which the Banks were nationlised was struck down by Supreme Court as unconstitutional and invalid, on grounds of “hostile discrimination” and “illusory compensation”. So the Government addressed these lacunae and Banking Companies {Acquisition and Transfer of Undertakings} Act, 1970 was introduced. The fourteen banks covered under this Act of Nationalisation were 1. Central Ltd. 2. Bank of India Ltd. 3. Ltd.

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

3 4. Oriental Bank of Commerce 5. Dena Bank Apart from the above, the following banks coming under the Group, have also offered shares to the public – 1. State Bank of India 2. State Bank of India 3. 4. State Bank of Bikaner and Jaipur As of September’97, nationalised banks contributes 55% of the aggregate deposits of the Banking System. The contribution of the nationalised banks in the domain of credit of the entire Banking System is to the extent of 48.5%. Similarly, as of September’97, State Bank of India and its associates, contribute to 25% of the aggregate deposits of the Banking System and 28.4% of the aggregate credit of the banking system.

Parameter: Nationalised banks SBI and its Associates No of banks( as march’97) 19 8 No of branches 31,398 12,995 Amount of deposits (as march’96) 2,37,512 crores 1,13,163 crores Amount of advances 1,28,644 crores 83,419 crores

2. Private Sector Bank: By private sector banks we mean those banks where equity is held by private shareholders that is to say there is no government holding of the equity shares. This category of banks also occupies a significant position in the Banking Scenario. There are already 25 private sector banks operating in our country for quite some time. These banks are listed as under- 1. The Vysya Bank Ltd. 2. The Ltd. 3. The Jammu & Kashmir Bank Ltd. 4. Ltd. 5. Ltd. 6. The Ltd.

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

5 2. Bank of Punjab Ltd. 3. IDBI Bank Ltd. Thus, apart from the twenty-five old private sector banks (already listed above), we have got nine new private sector banks. During the period Times Bank ltd. was merged with HDFC bank. However The Nedungadi Bank Ltd. was merged with one of the nationalise bank i.e. Andra Bank Ltd.

The size of the private sector banks in our country as on date is furnished hereunder. (As at June’97) Number of Private Sector Banks in operation 35 Number of Bank branches of Private Sector Banks 4,473 Amount of Deposits ( as at march’96) 31,692 crores Amount of Advances ( as at march’96) 21,588 crores

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

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

Number of Foreign Banks operating in our country 41 (as at June’97) Number of Foreign Bank Branches operating in our country 179 Number of representative offices operating in our country 28

6 Amount of Deposits ( march’96) 30,523 crores Amount of Advances ( march’96) 22,746 crores

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

TIME DEPOSITS Time deposits may also be termed as “Term Deposits” as the deposits are made by the customers for a specific period. Time deposits consists of Fixed Deposits and Recurring Deposits. Term deposits are not normally withdrawn before the fixed term. Demand deposits, as the name indicated, are those deposits, which can be withdrawn by the customers at any time without giving notice to the bank. Current account and Saving bank account fall under this category of demand deposits.

FIXED DEPOSITS Fixed deposits are made by the customers for a specified period, ranging from 15 days to 5 years or more, the rate of interest ranges from ½% to 11%. The longer the period of deposit, higher is the rate of interest. The depositor is assured of the safety of the funds, apart from higher returns. The depositor, as per the terms, agrees not withdraw the amount earlier. In acknowledgement of the fixed deposit, the customer is given a

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

RECURRING DEPOSIT ACCOUNT This is a type of account, which is a combination of the characters of saving bank account and fixed deposit accounts. In this account, the depositors can pay a fixed sum of money every month for various periods, say 12 to 120 months. This account is normally opened by salaried persons or individuals who get regular income. Deposits may be paid in easy installments. The commercial banks have introduced the Recurring Deposit Scheme to enable the small depositors to save for a predetermined period. In one way it may be viewed as compulsory savings to enable them to build up sizeable amount. The bankers allow compound rate of interest. In case the depositor needs the money even before the stipulated period he can get back the money. In such cases, the banker may pay a lesser rate of interest than it was agreed upon.

MISCELLANEOUS TYPE OF DEPOSITS In order to meet the multifarious needs of the customers, banks are adopting various methods of mobilizing the savings of the customers. They have introduced new saving schemes to enable the customers to deposit money in the bank according to their convenience. The banks have even opened extension counters at the schools and colleges to help the community at large.

(1) Pigmy/Janata Deposits: -

8 This is a type of small saving, which encourages thrift by facilitating daily savings. The bank’s authorized agents collect the amount at the depositor’s door and give receipts. In case the customer needs money before the stipulated period he may receive the total amount deposited by him. The customer can also obtain advance against the deposit at a reasonable rate of interest. After completion of the stipulated time, the balance in the account may be transferred to a Pigmy Fixed Deposit Account to enable the depositor to get the benefit of a higher rate of interest.

(2) Insurance Linked Deposits: - The commercial banks, in cooperation with the Life Insurance Corporation of India, came forward with a few schemes to promote the savings habit among the people. Any person in the age group of 18-49 is eligible to open this account. An account holder from a rural area should maintain a minimum interest bearing balance of Rs-500/- and in other areas Rs-1000/-. The commercial banks undertake to pay the premium at 1.25% of the deposit. However, interest at the prevailing rate would be credited. The customer is entitled to get the whole amount. In case of death, the legal heirs can get the following benefits, provided that the deposits have been made for a continuous period of 2 years. (1) In case the deceased account holder is less than 21, an amount equal to twice the average of the minimum monthly balances which formed the basis for calculation of the premium in the account during the half-yearly period immediately preceding the death will be paid, subject to a maximum of Rs-10000/-. (2) In case of the deceased account holder is more than 41 years, half the amount as stated in the earlier case alone would be paid subject to a maximum of Rs-500/-. (3) In case the deceased is above 47 years, insurance benefit is not payable.

(3) People Saving Plan: - Under this scheme a customer is to deposit Rs-500/- per month for a period of 12 months. After having deposited for 3 months, he may withdraw 1/10 of the balance once in a month. The bank allows interest applicable at fixed rate of interest. This scheme enables a common man to save and invest in bank deposit.

9 (4) Daily Saving Schemes: - This is a type of small savings facilitating daily savings on which interest is paid at prescribed rates.

(5) Minor’s Savings: - Under this scheme young children of 12 years and above are allowed to open this account in their own name and operate this account. The bank inculcates in them the habit of savings, in addition the children feel important as they are also the account holders in commercial bank. They are pleased to operate the account by themselves.

(6) Annuity /Retiring Scheme: - The customer should continue to deposit a certain sum every month for a predetermined period. At the end of such period, they will be paid a lump sum or a regular monthly income. Normally salaried people may opt for this scheme as they are guaranteed of the monthly payments after retirement.

(7) Farmer’s Deposit Scheme:- In the case of agriculturists, they are able to deposit in the bank only after the harvest of their crops. In order to facilitate them to get regular returns this type of deposit account was introduced. Under this scheme one has to deposit a lump sum of money once or twice in a year, subject to a minimum amount of Rs-500/-. After a certain period they are allowed to withdraw 1/12 of the amount deposited along with the interest every month.

(8) Monthly Income Plan: - This scheme is suitable for pensioners. When they get their gratuity, they can deposit this lump sum in the bank for a specified number of years. While their deposit is repayable on maturity, interest is paid to them every month at the prescribed rates.

(9) Cash Certificate Scheme: -

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