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: EVOLUTION, 1 TYPES & FUNCTIONS

BANK: DEFINITION

The word is derived from Latin word ‘bancus’, French word ‘banque’, Italian word ‘banca’, meaning "table"; German word ‘banc’, meaning bench or counter.

Benches were used as makeshift desks or exchange counters during the Renaissance by Jewish bankers, who used to make their transactions atop desks covered by green tablecloths.

The Indian Banking Regulations Act, 1949 defines the term Banking as the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise.

According to the Indian Banking Regulations Act, 1949 a Banking Company means any company which transacts the business of banking. Thus, a company which is engaged in the manufacture of goods or carries on any trade and which accepts deposits of money from the public merely for the purpose of financing its business as such manufacturer or trader shall not be deemed to transact the business of banking.

The activities specified in the Act as banking activities are lending, borrowing, accepting and discounting of bills, dealing in foreign currency, deposit lockers, transfer of money etc.

The Act prohibits a bank from buying and selling goods and also from holding immovable property.

EVOLUTION OF BANKING

There was no such word as ‘banking’ before 1640, although the practice of safe-keeping and savings flourished in the temple of Babylon as early as 2000 B.C. The first bank called the ‘Bank of Venice’ was established in Venice, Italy in 1157 to finance the monarch in his wars. But modern banking began with the English goldsmiths only after 1640.

It was the ‘merchant banker’ who first evolved the system of banking by trading in commodities than money. Their trading activities required the remittances of money from one place to another by issuing ‘hundis’.

The next stage in the growth of banking was the goldsmith. Due to the nature of his work a goldsmith had to take special precautions against theft of gold and jewellery. Thus merchants started leaving their bullion, money and ornaments in his care. As this practice spread, the goldsmith started charging some fees for taking care of the money and bullion and issued receipts as an evidence of receipt of the valuables.

Since gold and silver coins had no marks of the owner, the goldsmith started lending them. As the goldsmith was prepared to give the holder of the receipt and equal amount of money on demand, the goldsmith receipt became like cheques as a medium of exchange and a means of payment.

The next stage in the growth of banking is the moneylender. The goldsmith found that on an average the withdrawals of coins were much less than the deposits with him. So he started advancing the coins on loan by charging interest. As a safeguard, he kept some money in the reserve. Thus the goldsmith-money- lender became a banker who started performing the two functions of modern banking that of accepting deposits and advancing loans.

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HISTORY OF

Chanakya, in his Arthashastra written in about 300 B.C., mentioned about the existence of powerful guilds of merchant bankers who received deposits, and advanced loans and issued hundis (letters of transfer). The Jain scriptures mention the names of two bankers who built the famous Dilwara Temples of Mount Abu during 1197 and 1247 A.D.

During pre-independence period banking was mainly carried out by indigenous bankers and money lenders. Indigenous bankers are individuals or firms dealing in hundies and sometimes accept deposits. The merchant bankers in India were known as ‘Seths’.

The First Bank

The first bank in India was the ‘Bank of Hindustan’ started in 1770 by Alexander & Co., an English agency house in Calcutta under European Management which failed in 1782 with the closure of the agency house. It was liquidated during the period 1829-1832.

The Presidency Banks

The first bank in the modern sense was established in the as the in 1806. It was renamed Bank of Bengal in 1809. This was one of the three banks funded by a presidency government (British Govt), the other two were the in 1840 and the in 1843. These banks were given the right to issue notes in their respective region.

Bank of Calcutta

1806

Bank of Bengal 1920 1809 Acted As Central

J.M. State Bank of Bombay Imperial Bank Keynes 1840 of India 1921 1955

Bank of India Bank of Madras 1843

Imperial Bank of India

The three presidency banks were merged in 1921 to form the “” on the advice of J. M. Keynes, It acted as of India (or) Quasi-central bank till the establishment of RBI in 1935.

The

After India's independence, Imperial Bank of India became the State Bank of India in 1955. In 1960, the State Bank of India was given control of eight state-associated banks (State Bank of India (SBI), State Bank of Bikaner and Jaipur (SBBJ), (SBH), (SBN), (SBM), (SBP), State Bank of (SBS) and (SBT)) under the State Bank of India (Subsidiary Banks) Act, 1959. These are now called its associate banks.

Banks: Evolution, Types and Functions 3

The First Joint Stock Bank –

Allahabad Bank (est. 1865) is the oldest Joint Stock Bank in India. A joint stock bank is a bank which is a public company with shares owned by investors rather than a government.

The First with Indian Capital –

Lala Lajpat Rai founded Punjab National Bank on 19th May 1894, Lahore, Pakistan. PNB has the distinction of being the first Indian bank to have been started solely with Indian capital that has survived to the present.

The First Indian Bank - (1881 – 1958)

The first entirely Indian bank, Oudh Commercial Bank, was established in 1881 in Faizabad, but failed in 1958.

General Bank of India (1786 – 1791)

General Bank of India was another Indian bank that was formed in 1786. It was however unsuccessful and finally dissolved in 1791

Alliance Bank of Shimla (1874 – 1923)

The Alliance Bank of Shimla was a British-run though India-registered bank that commenced operations in Shimla 1874 under the management of Mr. James Walker. It was established to take over the business of the , established in 1866, with operations in Simla and Umballa. Its board put the United Bank of India in voluntary liquidation on Saturday 21 March, and Alliance Bank commenced operations on Monday, 23 March. The Alliance Bank failed on 27 April 1923 due to speculation by its management. At the time that it failed it had 36 branches, including ones in Lahore, Lucknow, Peshawar, Rawalpindi, and Rangoon.

The

The Central Bank of India was established on 21 December 1911 by Sir Sorabji Pochkhanawala with Sir Pherozeshah Mehta as Chairman, and claims to have been the first commercial Indian bank completely owned and managed by Indians.

The Bank of India: First Bank in India to have Overseas Branch

Founded in 1906, the Bank of India is a commercial bank with headquarters at Bandra Kurla complex, .

It is the first Bank in India to have opened an overseas branch: (1946), Paris (1974).

The : Among the Indian banks it has the most number of branches abroad

Bank of Baroda (BoB) is an Indian state-owned International banking and company headquartered in Vadodara (earlier known as Baroda) in , India. The bank was founded by the Maharaja of Baroda, Maharaja Sayajirao Gaekwad III on 20 July 1908 in the Princely State of Baroda, in Gujarat.

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Union Bank of India

Union Bank of India (Union Bank) was registered on 11 November 1919 as a limited company in Mumbai and was inaugurated by Mahatma Gandhi.

DIFFERENT TYPES OF BANKS IN INDIA

NATIONALIZED BANK

Indian Banking System witnessed a major revolution in the year 1969 when 14 major commercial banks in the private sector were nationalized on 19th July, 1969. Most of these banks having deposits of above Rs. 50 crores were promoted in the past by the industrialists. These banks were

First round (19 July, 1969)-

1. Allahabad bank 2. Bank of Baroda 3. Bank of India

Banks: Evolution, Types and Functions 5

4. 5. Central bank of India 6. 7. 8. Indian bank 9. 10. Punjab national bank 11. 12. UCO bank 13. Union bank 14. United bank of India

In 1980, another six more commercial banks with deposits of above Rs. 200 crores were nationalized: Banks which were nationalised on 15th April, 1980- (6 Banks)

1. Punjab and Sind bank 2. 3. Oriental bank of India 4. Corporate bank 5. 6. - (Later it was merged with PNB)

Thus, in total 20 banks were nationalised. Out of these New Bank of India was merged with PNB in 1993. Now strictly speaking 19 nationalized banks are in existence.

The nationalization of banks resulted in rapid branch expansion and the number of commercial bank branches have increased many folds in Metro, Urban, Semi – Urban and Rural Areas. The branch network assisted banks to mobilize deposits and lot of economic activities have been started on account of priority sector lending.

SCHEDULE BANK

“Banks which have been included in the second scheduled of the RBI Act, 1934”. The banks included in this category should fulfill two conditions;

1. The paid up capital and collected fund of the bank should not be less than Rs. 5 lac.

2. Any activity of the bank will not adversely affect the interests of the depositors.

Examples of Scheduled Banks are: Scheduled Commercial Banks in India are categorised in 5 different groups according to their ownership / nature of operation.

These bank groups are:

(i) State Bank of India

(ii) Nationalised Banks,

(iii) Regional Rural Banks,

(iv) Foreign Banks

(v) Other Indian Scheduled Commercial Banks (in the private sector).

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Every Scheduled Banks enjoys following facilities;

1. Scheduled Banks are eligible for obtaining debts/loans on bank rate from the RBI.

2. Scheduled Banks automatically acquires the membership of the clearing house.

3. Scheduled Banks get the facility of the rediscount of first class exchange bills from RBI. This facility is provided by the RBI only if the Scheduled Banks deposit average daily cash with the RBI which is decided by the RBI itself and presents the recurring statements under the provision of RBI Act, 1934 and Banking Regulation Act, 1949.

NON SCHEDULE BANK

The banks which are not included in the list of the scheduled banks are called the Non- Scheduled Banks. At present there are only 3 such banks in the country.

Non- Scheduled Banks have to follow CRR conditions. These banks can have CRR fund with themselves as no compulsion has been made by the RBI to deposit it in the RBI.

Non- Scheduled Banks are also not eligible for having loans from the RBI for day to day activities but under the emergency conditions RBI can grant loan to them.

Comparison between Schedule and Non-Schedule Banks

BASIS FOR SCHEDULED BANKS NON-SCHEDULED BANKS COMPARISON Meaning Scheduled banks are a banking Non-scheduled banks are the banks corporation whose minimum paid which do not comply with the rules up capital is Rs. 25 lakhs and does specified by the , not harm the interest of the or say the banks which do not come depositors. under the category of scheduled banks. Second Schedule Listed in the second schedule. Not-listed in the second schedule. Cash Reserve Ratio Maintained with RBI. Maintained with themselves. Borrowing Scheduled banks are allowed to Non-Scheduled banks are not allowed borrow money from RBI for to borrow money from RBI for regular regular banking purposes. banking purposes. Returns To be submitted periodically. No such provision of submitting periodic returns. Members of clearing It can become a member of It cannot become member of clearing house clearing house. house.

SBI got birth in the British Era. Its first parents were three presidency banks viz. Bank of Calcutta (later Bank of Bengal), Bank of Bombay and the Bank of Madras. In 1921, these three presidency banks were merged in one entity called “Imperial Bank of India”. The Imperial Bank of India was nationalized in 1955 and was renamed a State Bank of India. Thus, although SBI comes under the definition of nationalized banks; yet while classifying the commercial banks in India, RBI puts State Bank of India and its five associates under a separate category (SBI & Associates). Thus, Public Sector Scheduled

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Commercial Banks are of three categories in India viz. SBI & its five associates; 19 Nationalized Banks and two other Public Sector Banks viz. Bhartiya Mahila Bank and IDBI Bank.

People often get confused about whether SBI is a nationalized bank or not.

SBI is NOT a Nationalized bank. It is a Public Sector Bank. Actually, SBI draws power from State Bank of India Act,1955. Nationalized banks are the banks which were nationalized in two phases – in 1969 and 1980. These banks were established under Banking Companies (Acquisition and Transfer of Undertakings) Acts, 1970 and 1980. So, these banks are governed by their respective statutes. In 1969, 14 Commercial banks were nationalized and in 1980, 6 more banks were nationalized. But, later in 1993, PNB and New India bank got merged taking the figure of nationalized banks to 19.

PUBLIC SECTORS BANK

Public Sector Banks in India – Public Sector Banks (PSBs) are the banks where a majority percentage (more than 50%) stake is held by a government. The shares of these banks are listed on stock exchanges. In India, there are about 27 Public Sector Banks in India including 19 Nationalized Banks (14+6 – 1 New Bank of India merged with PNB in 1993 + SBI which is not a nationalized bank + Five Subsidiaries of SBI + IDBI + – established under Parliament of India Acts).

State Bank of India and its 5 Associate Banks, together called State Bank Group (The names of the 5 Associate Banks are: State Bank of Travancore (SBT), State Bank of Patiala (SBP), State Bank of Hyderabad (SBH), State Bank of Mysore (SBM) and State Bank of Bikaner and Jaipur (SBBJ). The Union Cabinet approved the merger of the five subsidiaries; and Bharatiya Mahila Bank Ltd with SBI on June 15, 2016, and the merger is in progress. List of Public Sector Bank

S. No. Name of Bank Year of Establishment 1 Allahabad Bank 1865 2 Punjab National Bank 1894 3 Bank of India 1906 4 Canara Bank 1906 5 1906 6 Indian Bank 1907 7 Bank of Baroda 1908 8 Punjab and Sind Bank 1908 9 Central Bank of India 1911 10 Union Bank of India 1919 11 Andhra Bank 1923 12 Syndicate Bank 1925 13 Vijya Bank 1931 14 Bank of Maharashtra 1935 15 Indian Overseas Bank 1937 16 Dena Bank 1938 17 Oriental Bank of Commerce 1943 18 Uco Bank 1943 19 United Bank of India 1950 20 State Bank of India 1955 21 IDBI Bank 1964

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PRIVATE SECTORS BANK

The major stakeholders in the private sector banks are individuals and corporate. When banks were nationalized under two tranches (in 1969 and in 1980), all banks were not included. Those non nationalized banks which continue operations even today are classified as Old Generation Private Sector Banks Like The Jammu & Kashmir Bank Ltd, The , The Laxmi Vilas Bank etc. In July 1993 on account of banking sector reforms the Reserve Bank of India allowed many new banks to start banking operations. Some of the leading banks which were given licenses are: UTI bank (presently called ) ICICI Bank, HDFC Bank, , etc., These banks are recognized as New Generation Private Sector Banks. Ten banks were licensed on the basis of guidelines issued in January 1993. The guidelines were revised in January 2001 based on the experience gained from the functioning of these banks, and fresh applications were invited. Of the 10 licences issued in 1993, four banks merged with other lenders over a period of time. merged with HDFC Bank, while Global Trust Bank was amalgamated with the state-owned Oriental Bank of Commerce. Centurion Bank took over Bank of Punjab to become , which merged with HDFC Bank in 2008. On account of these new generation private sector banks, a new competitive environment was created in the Indian Banking System. These banks were having competitive advantages over their counterparts (of the existing old private banks, public sector banks) in their IT support system, innovative products, and pricing of their products. 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.

List of Private Sector Bank

S. No. Name of Bank Year of Establishment 1 1904 2 1916 3 Catholic Syrian Bank 1920 4 Tamilnad Mercantile Bank Limited 1921 5 1922 6 1924 7 1926 8 1927 9 1929 10 DCB Bank 1930 11 Federal Bank 1931-49 12 RBL Bank 1943 13 Axis Bank 1993 14 HDFC Bank 1994 15 ICICI Bank 1994 16 Induslnd Bank 1994 17 Kotak Mahindra Bank 2003 18 Yes Bank 2004 19 U.P Agro Corporation Bank 2013 20 2014 21 IDFC Bank 2015

SBI (After Merger with Associate banks) has become the largest Public Sector Bank of India; ICICI is The Largest Private Sector Bank in India.

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REGIONAL RURAL BANK

In 1975, a new set of banks called the Regional Rural Banks, were setup based on the recommendations of a working group headed by Shri Narasimham, to serve the rural population in addition to the banking services offered by the co-operative banks and commercial banks in rural areas. Inception of regional rural banks (RRBs) can be seen as a unique experiment as well as experience in improving the efficacy of rural credit delivery mechanism in India. With joint shareholding by Central Government, the concerned State Government and the sponsoring bank, an effort was made to integrate commercial banking within the broad policy thrust towards social banking keeping in view the local peculiarities. RRBs were expected to play a vital role in mobilizing the savings of the small and marginal farmers, artisans, agricultural labourers and small entrepreneurs and inculcate banking habit among the rural people. These institutions were also expected to plug the gap created in extending the credit to rural areas by largely urban-oriented commercial banks and the rural cooperatives, which have close contact with rural areas but fall short in terms of funds.

List of Regional Rural Banks in India: Total 56

Andhra Pradesh

• Andhra Pragathi Garment Bank • Chaitanya Godavari Grameena Bank • Saptagiri Grameena Bank

Assam

• • Langpi Dehangi Rural Bank

Arunachal Pradesh

• Arunachal Pradesh Rural Bank

Bihar

• Uttar • Madhya Bihar Gramin Bank • Bihar Gramin Bank

Chhattisgarh

• Chhattisgarh Rajya Gramin Bank

Gujarat

• Dena Gujarat Gramin Bank • Baroda Gujarat Gramin Bank • Saurashtra Gramin Bank

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Haryana

• Sarva Haryana Gramin Bank

Himachal Pradesh

• Himachal Pradesh Gramin Bank

Jharkhand

• Jharkhand Gramin Bank • Vananchal Gramin Bank

Jammu & Kashmir

• Jammu And Kashmir Grameen Bank • Ellaquai Dehati Bank

Karnataka

• Kaveri Grameena Bank • Karnataka Vikas Grameena Bank • Pragathi Krishna Gramin Bank

Kerala

•

Madhya Pradesh

• Narmada Jhabua Gramin Bank • Central Madhya Pradesh Gramin Bank •

Maharashtra

• Maharashtra Gramin Bank • Vidarbha Kokan Gramin Bank

Manipur

• Manipur Rural Bank

Meghalaya

• Meghalaya Rural Bank

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Mizoram

•

Nagaland

• Nagaland Rural Bank

Odisha

• Odisha Gramya Bank • Utkal Grameen Bank

Punjab

• Punjab Gramin Bank • Malwa Gramin Bank • Sutlej Gramin Bank

Puducherry

• Puduvai Bharathiar Grama Bank

Rajasthan

• Baroda Rajasthan Kshetriya Gramin Bank • Marudhara Rajasthan Gramin Bank

Tamil Nadu

• •

Telangana

• Andhra Pradesh Grameena Vikas Bank • Telangana Grameena Bank

Tripur

•

Uttar Pradesh

• Sarva UP Gramin Bank • Prathama Bank • Allahabad UP Gramin Bank • Baroda UP Gramin Bank • Gramin Bank Of Aryavrat • Kashi Gomti Samyukt Gramin Bank • Purvanchal Bank

Uttarakhand

•

West Bengal

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• Bangiya Gramin Vikash Bank • Paschim Banga Gramin Bank • Uttarbanga Kshetriya Gramin Bank

Payments Banks

• Airtel Limited • Fino Payments Bank Limited • • Aditya Birla Idea Payments bank • NSDL Payments Bank • Payments Bank

ROLE / IMPORTANCE OF BANKING SYSTEM

Banking plays an important role in the financial life of a business, and the importance of banks can be seen from the fact that they are considered as to be the life-blood of modern economy. Although no wealth is created by Bank, but their essential activities facilitates the process of production, exchange and distribution of wealth. In this way they become the effective partners in the process of economic development and growth.

1. Deposit Mobilisation

Financial institutions provide the system through which savers deposit their money and borrowers can access those resources. The process by which deposits are transformed by the banking sector into real productive capital is at the core of financial intermediation. Banks ensure the efficient transformation of mobilised deposit funds into productive capital.

2. Granting Credit

The bank advances loans to the business community and other members of the public. The rate charged is higher than what it pays on deposits. The difference in the interest rates (lending rate and the deposit rate) is its profit.

3. Creation of Credit

Banks create credit for the purpose of providing more funds for development projects. Credit creation leads to increased production, employment, sales and prices and thereby they cause faster economic development.

4. Channelise Funds into Productive Investment

Banks invest the savings mobilized by them for productive purposes. Capital formation is not the only function of commercial banks. Pooled savings should be distributed to various sectors of the economy with a view to increase the productivity of the nation. Then only it can be said to have performed an important role in the economic development of the nation.

5. Provision of Finance to the Government

Government is acting as the promoter of industries in underdeveloped countries for which finance is needed for it. Banks provide long-term credit to Government by investing their funds in Government securities and short-term finance by purchasing Treasury Bills.

6. Protecting the Funds of Depositors

In general terms, deposit protection is a bank deposit guarantee scheme which ensures that depositors are reimbursed part or all of their deposits in the event of a bank failure. A deposit protection scheme can also be defined as an institutional arrangement designed to protect banking deposits in the event of a bank failure.

Banks: Evolution, Types and Functions 13

7. Provision of Remittance Facilities

A remittance is the funds an expatriate sends to his or her country of origin via wire, mail, or online transfer. These peer-to-peer transfers of funds across borders are economically significant for many of the countries that receive them. Remittances are also seen as a method to get those living in less developed nations to open bank accounts. This, in turn, helps promote economic development.

8. Provision of Medium of Exchange

Commercial banks transform the loan to be repaid after a certain period into cash, which can be immediately used for business activities. Manufacturers and wholesale traders cannot increase their sales without selling goods on credit basis. But credit sales may lead to locking up of capital. As a result, production may also be reduced. As banks are lending money by discounting bills of exchange, business concerns are able to carryout the economic activities without any interruption.

9. Discharge of Social Responsibility

The social responsibility in Banking Sector is aimed towards addressing the financial inclusion, providing financial services to the unbanked or untapped areas of the economy, the socio- economic development by focusing on the activities like, poverty eradication, health and medical care, rural area development, self- employment training and financial literacy trainings, infrastructure development, education, and environmental Protection etc.

10. Innovative Services

The banks with innovative services like internet banking and mobile banking have revolutionized the way people used to operate their bank accounts. It has provided ease and convenience in making banking transactions.

TYPES OF BANKS

On the basis of functions performed, the banks may be categorized as follows:

1. Commercial Banks or Deposit Banks

Banks accept deposits from public and lend them mainly for commercial purposes for comparatively shorter periods are called Commercial Banks. They provide services to the general public, organisations and to the corporate community. They are oldest banking institution in the organised sector. Commercial banks make their profits by taking small, short-term, relatively liquid deposits and transforming these into larger, longer maturity loans. This process of asset transformation generates net income for the commercial bank. Many commercial banks do investment banking business although the latter is not considered the main business area. The commercial banking system consists of scheduled banks (registered in the second schedule of RBI) and non-scheduled banks. Features of Commercial banks are; • They accepts deposits on various accounts. • Lend funds to organisations, trade, commerce, industry, small business, agriculture etc by way of loans, overdrafts and cash credits. • They are the manufacturers of money. • The perform many subsidiary services to the customer. • They perform many innovative services to the customers.

2. Industrial Banks or Investment Banks

These banks perform the function of advancing loans to industrial undertakings. Industries require capital for a long period for buying machinery and equipment. Industrial banks have a large capital of their own. They also receive deposits for longer periods. They are thus in a position to advance long-term loans to the industries for investing in capital assets. They are seen in countries like US, Canada, Japan, Finland, and

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Germany. In India industrial banks are not found. Instead, special industrial finance corporations like IFC and SFC have been set up to cater to the needs of industries. Features of Industrial Banks are: • Participate in management. • Advise industries in making right investment • Advise govt. on matters relating to industries

3. Agricultural or Co-operative Banks

Agricultural banks are banks which provide finance to agriculture and allied sectors. It is found in almost all the countries. They are organised generally on co-operative basis. In India, Cooperative banks are registered under the Co-operative Societies Act, 1912. They generally give credit facilities to small farmers, salaried employees, small-scale industries, etc. Co-operative Banks are available in rural as well as in urban areas.

Agricultural banks are of two types;

Agricultural co-operative banks: They provide short term finance to farmers for purchasing fertilizers, pesticides and seeds and for the payment of wages.

Land Development Banks: They provide long term finance for making permanent improvement on land. They assist to purchase machinery, equipments, installation of pump sets, construction of irrigation works etc.

4. Exchange Banks

Exchange banks finances foreign exchange business (export, import business) of a country. Special exchange banks are found only in some countries. The main functions of exchange banks are remitting money from one country to another country, discounting of foreign bills, buying and selling gold and silver, helping import and export trade etc.

5. Savings Banks

These banks (perform the useful service of collecting small savings. Commercial banks too run Savings Departments to mobilise the savings of men of small means. The idea is to encourage thrift and discourage hoarding. Post Office Saving Banks in India are doing this useful work.

Features of savings banks are;  Mobilise small and scattered savings  Promote habit of thrift & savings  Keep only small portion in hand and invest major part in govt. securities  They do not lend to general public.

6. Central / National Banks

It is the highest banking & monetary institution in a country. It is the leader of all other banks. Since it is occupying a central position, it’s known as Central Bank. It is operating under state’s control and is not a profit motive organisation. Reserve Bank of India (India), Bank of Canada (Canada), Federal Reserve System (USA) etc. are the examples of Central Banks. The main functions of a Central Bank are;  Monopoly of currency issue  Acts as banker to the govt.  Serves as bankers’ bank  Act as controller of credit  Custodian of nation’s gold and foreign exchange reserve.

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7. Community Development Banks

A community development bank is a financial institution created for the purpose of promoting economic development in regions that generally have low to moderate incomes. These banks offer checking and savings accounts as well as loans, mortgages, credit cards and other retail banking services to those who fall within lower income brackets.

8. Offshore Banks

An offshore bank is a bank regulated under international banking license (often called offshore license), which usually prohibits the bank from establishing any business activities in the jurisdiction of establishment. Due to less regulations and transparency, accounts with offshore banks were often used to hide undeclared income.

9. Ethical Banks

An ethical bank, also known as a social, alternative, civic, or sustainable bank, is a bank concerned with the social and environmental impacts of its investments and loans. The ethical banking movement includes: ethical investment, impact investment, socially responsible investment, corporate social responsibility, and is also related to such movements as the fair trade movement, ethical consumerism, and social enterprise.

10. Community Banks

A community bank is a depository institution that is typically locally owned and operated. Community banks tend to focus on the needs of the businesses and families where the bank holds branches and offices. Lending decisions are made by people who understand the local needs of families, businesses and farmers. Employees often reside within the communities they serve.

COMMERCIAL BANKS

A commercial bank is a financial institution that is authorized by law to receive money from businesses and individuals and lend money to them. Commercial banks are open to the public and serve individuals, institutions, and businesses.

They are the intermediaries between lenders and borrowers. They are not merely purveyors of money, but also manufacturers of money. Commercial Banks render variety of services to the depositors and general public. They are the oldest banking institution and hold lien share in the total banking operation. Commercial Banks are governed by the Indian Banking Regulations Act, 1949.

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Principles of Commercial Banking

Commercial banks follow certain principles which are very important for banks to remain in the competition in modem days. These are:

1. Principle of Liquidity

The principle of liquidity is very important for the commercial bank. Liquidity refers to the ability of an asset to convert into cash without loss within the short time. Paying the deposited money on demand of customers is called liquidity in sense of banking.

2. Principle of Solvency or Principle of Safety

To stay in these competitive market commercial banks must have sufficient capital. If the funds are not sufficient the bank cannot run his business. The main source of fund of the commercial bank is the deposited money by the depositors’ through the different type of account. Depositors keep cash in the bank, especially for safety. So commercial bank must ensure the safety of deposited fund.

3. Principle of Profitability

The main objective of the commercial bank is to earn a profit. For earning profit commercial bank have to make the investment by providing short term loan, before providing loan commercial bank have to compensate a certain amount of money as liquidity.

4. Principle of Loan and Investment

The main source of profit of bank is granting loans to any individual or organization. Investment is the profitable and sound source of income. Commercial banks invest in business and investment sector.

5. Principle of Savings

Commercial banks collect fund by creating savings facilities. Commercial banks try to collect savings from society surplus. The commercial bank makes the investment from this savings to generate profit. So, more savings, more investment, and more profit.

6. Principle of Services / Principle of Social welfare

Commercial bank ensures best services to their customers. The success of a bank depends on the services provided by the bank. Customer chooses those banks that provide improved services.

7. Principle of Secrecy

Customers want to keep secret about their valuable assets and money. So banks must have to keep secret about their customer’s account. If a commercial bank does not maintain secrecy the customer will be dissatisfied.

8. Principle of Efficiency

The commercial bank should operate their business efficiently, so that they can succeed at the objective. In this competitive market, there is no alternative way without efficiency in management. So commercial bank must train their employees to increase the efficiency in management.

9. Principle of Location

Commercial banks must have to locate their branches in the commercial area where many customers are available. The location must be safe for the customers and easy communication system must exist.

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Function of Commercial Bank

Primary / Principal Secondary Function Function

Accepting Deposit

Fixed / Saving Current Recurring Term Deposits Deposits Deposits Deposits

Advancing Loans

Cash Call Loans / Discounting Money at Overdraft Credits Bills of Call and Exchange Short Notice

Credit Creation

Investment of Funds

PRIMARY FUNCTIONS OF COMMERCIAL BANKS

1. Accepting Deposits

Accepting deposits is the main function of a commercial bank. It attracts deposits for the purpose of making loans and investments. People deposit their money in banks for the sake of safety and for earning interest. A commercial bank receives deposits from individuals, firms and other institutions. Banks offer different types of deposit accounts to suit the needs of various depositors. Public deposits constitute the main resources of a bank.

Banks receive the following types of deposits:

i. Fixed Deposits / Tem Deposits A lump sum is deposited for a fixed time period. These deposits are repayable on the expiry of the stated period. Generally, the time period varies from three months to five years. The rate of interest on these deposits is higher than that payable on other deposits. The actual rate depends on the period for which the deposit is made.

ii. Savings Deposits This account is opened for the purpose of depositing small savings. In these deposits money can be withdrawn for a specified number of times in a week. But deposits can be made any number of times. Rate of interest allowed on such deposits is higher than that on current deposits but lower than that

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allowed on fixed deposits. The depositor has to open an account with the bank and is given a pass book. The main objective of savings deposits is to promote the habit of savings among people.

iii. Current Deposits Such deposits are made by business firms in current accounts. Money can be deposited and withdrawn as often as the depositor wants. Generally, no interest is allowed on these deposits. A small fee, known as 'bank charge' or 'incidental charge' is often charged for maintaining current deposits. Overdraft facility is available on current accounts.

iv. Recurring Deposits In these deposits, the deposit holder is required to make a deposit of fixed amount every month for a specified period. The amount goes on accumulating along with interest. At the end of the prescribed period, the depositor can withdraw the deposit or renew the same for another term. No cheque facilities are allowed in fixed deposits and recurring deposits.

2. Advancing Loans

A bank lends a certain percentage of cash lying in deposits on higher interest rate than it pays to the depositors. This is how it earns profits and carries on its business.

The bank advances loan in the following manner:

i. Cash Credit : This type of loan is granted to businessmen against certain specified securities. To a new customer, a loan account has to be opened from where the money is withdrawn by cheque but he pays interest on the full amount.

ii. Call Loans / Money at Call and Short Notice: They are very short-term loans and are mostly given to bill brokers for 15 days. They are advanced against first class securities. This can be recalled at a very short- notice.

iii. Overdraft: Overdraft is the facility extended by the banker to draw a sum greater than the balance lying in his current account. The businessman is charged interest only on that amount by which his current account is actually withdrawn and not by the full amount of the overdraft sanctioned.

iv. Discounting Bills of Exchange: If a creditor wants money immediately and has a bill of exchange, the bank gives his money by discounting the bill of exchange. The banker deposits the amount of the bill in the current account of bill-holder after deducting the rate of interest for the period of the loan which is normally not more than 90 days. When the bill matures the bank gets payment from the banker.

3. Credit Creation

Credit creation is one of the most important functions of the commercial banks. In order to earn profit the bank accept deposits and advance loans by keeping a small cash in reserve to meet the day to day needs of the customers. When a bank gives loan, it opens an account in the name of the loan taker and does not pay him in cash but allows him to draw the money according to his requirements. By granting a loan, the bank creates credit or deposit.

4. Investment of Funds

The banks invest their surplus funds in three types of securities—Government securities, other approved securities and other securities. Government securities include both, central and state govern­ments, such as treasury bills, national savings certificate etc. Other securities include securities of state associated bodies like electricity boards, housing boards, debentures of Land Development Banks units of UTI, shares of Regional Rural banks etc.

Banks: Evolution, Types and Functions 19

SUBSIDIARY FUNCTIONS OF COMMERCIAL BANKS

1. Agency Services

 Collect cheques, drafts, BoE, interest and dividend on securities rents etc. on behalf of customers and credit the proceeds to the customer’s a/c.  Pay LIC premium, rent, newspaper bills, telephone bills etc.  Buying and selling of securities  Advise on right type of investment  Act as trustees (undertake management of money and property), executors (carry out the wishes of deceased customers according to will) & attorneys (collect interest & dividend and issue valid receipt) of their customers.  Serve as correspondents and representatives of their customers. In this capacity, banks prepare I-Tax returns of their customers, correspond with IT authorities and pay IT of their customers.

2. Utility Services

 Locker facility to keep valuables.  Issue travellers’ cheques which enable tourists to get fund in all places they visit without  Carrying actual cash with them.  Issue Letter of Credits for importers. It is a letter issued by importer’s banker in favour of exporter informing him that issuing banker undertakes to accept the bills drawn in respect of exports made to the importer specified therein.  Act as referees and supply information about the financial standing of their customers on enquiries made by other businessmen.  Collect information about other businessmen through the fellow bankers and supply information to their customers.  Collection of statistics, giving important information about industry, trade and commerce, money and banking. They also publish journals and bulletins containing research articles on economic and financial matters.  Underwriting securities issued by government, public or private bodies.  Deals in foreign currencies.

3. New Line of Activities of Commercial Banks

i. In order to promote capital market and to encourage issue of shares both in the primary market and secondary market, the banker acts as an underwriter for certain companies. This enables the companies to sell their shares and raise adequate capital for their business. Banks underwrite the issue of shares and debentures of joint stock companies. For this service, banks receive commission from the companies. ii. Rendering of merchant banking services i.e. services in international finance, business loans for companies and underwriting. iii. Factoring services: Factoring is a transaction in which a business sells its invoices, or receivables, to a third-party financial company known as a “factor.” The factor then collects payment on those invoices from the business's customers. iv. Lease financing: Lease financing is one of the important sources of medium- and long-term financing where the owner of an asset gives another person, the right to use that asset against periodical payments. The owner of the asset is known as lessor and the user is called lessee. v. Housing finance vi. Issue of ATM cards, credit and debit cards vii. Consultancy services: banks hire financial, legal and market experts who provide advice to customers in regarding investment, industry, trade, income, tax etc. viii. Setting up of mutual funds ix. Internet and Mobile Banking services.

20 Banking & Financial Institutions x. Private Banking i.e. Personalized financial and banking services that are traditionally offered to a bank’s rich, high net worth individuals (HNWIs).

CLASSIFICATION OF COMMERCIAL BANKING

1. On the Basis of Lending Practices

i. Pure Banking

Under pure Banking, the commercial banks give only short-term loans to industry, trade and commerce. They specialize in short term finance only. This type of banking is popular in U.K.

ii. Investment Banking

Under investment banking the commercial banks provide medium and long term funds to industries and commerce.

iii. Mixed Banking

Mixed banking is that system of banking under which the commercial ban s perform the dual function of commercial banking and investment banking, i.e., it combines deposit and lending activity with investment banking. Commercial banks usually offer both short-term as well as medium term loans. The German banking system is the best example of mixed Banking.

2. On the Basis of Organisation

i. Unit Banking

Unit banking, which originated in US, is a limited way of banking where banks operate only from a single branch (or a few branches in the same area) taking care of local community. The size of banks is small as compared to branch banking.

ii. Branch Banking

Branch banking is the most common type of banking and still an integral part of Indian banking system as most Indians still believe in cash transactions and prefer to visit banks in person for routine banking operations.

iii. Correspondent Banking

Correspondent banking system is developed to remove the difficulties in unit banking system. It is the system under which unit banks are linked with bigger banks. The big correspondent banks are linked with still bigger banks in the financial centers. The smaller banks deposit their cash reserve with bigger banks. The bigger banks with whom such deposits are so made are called correspondent banks. Therefore, correspondent banks are intermediaries through which all unit banks are linked with bigger banks in financial centers. Through correspondent banking, a bank can carry-out business transactions in another place where it does not have a branch.

3. On the Basis of Product

i. Retail Banking

Retail banking means banking where transactions are held directly with customers and there are no transactions with other banks or corporations.

ii. Wholesale Banking

Wholesale banking involves banking services for high net-worth clients like corporate, commercial banks, mid-size companies etc.

Banks: Evolution, Types and Functions 21

4. On the Basis of Activities Undertaken

i. Universal Banking

Universal banking is a system of banking under which big banks undertake a variety of banking services like commercial banking, investment banking, mutual funds, merchant banking, insurance etc. ICICI Bank Ltd. is the first universal bank established in our country

ii. Narrow Banking

The Narrow Banking is very much an antonym to the Universal Banking. Narrow Banking means Narrow in the sense of engagement of funds and not in activity. So, simply, Narrow Banking involves mobilizing the large part of the deposits in Risk Free assets such as Government Securities.

5. On the Basis of Ownership

i. Group Banking

Group Banking is a system of banking under which there will be holding company controlling the subsidiary companies which carry out banking business. In some cases, both the holding and subsidiary companies may carry out banking business. An example in India is SBI which has many subsidiary banks such as State Bank of Mysore, State Bank of Indore, State Bank of Hyderabad, State Bank of Bikaner and Jaipur, State Bank of Patiala and State Bank of Travancore. These subsidiaries carry out banking and other operations such as leasing, merchant banking and so on.

ii. Chain Banking

Chain Bank is a system under which different banks come under a common control through common shareholders or by the inter-locking of directors. An example in India is Karur Vysya Bank and Lakshmi Vilas Bank having their head offices located in the same place, viz., Karur and sharing common directors by which they may have common management policy.

6. Merchant Banking

Merchant Banking is a combination of Banking and consultancy services. It provides consultancy to its clients for financial, marketing, managerial and legal matters. Consultancy means to provide advice, guidance and service for a fee. It helps a businessman to start a business. It helps to raise (collect) finance. It helps to expand and modernize the business. It helps in restructuring of a business. It helps to revive sick business units. It also engaged in the business of Issue Management and helping companies to register, buy and sell shares at the stock exchange.

7. Relationship Banking

Relationship banking is a strategy used by banks to strengthen loyalty of customers and provide a single point of service for a range of products and services. Their aim is to creating, maintaining and enhancing strong relationship with customers. Under this a bank's customer service representative attempts to meet a customer's needs with a complete package of facilities. The package may include most or all of services such as cash management, credit cards, deposits, loans, money market investments, etc., that may be summarized on a single bank statement.

8. Indigenous Banking

Indigenous bankers are private firms or individuals who operate as banks and as such both receive deposits and give loans. Like banks, they are also financial intermediaries. They should be distinguished as professional moneylenders whose primary business is not banking but money lending. They also deals in hundis

9. Development Banking

Development bank is essentially a multi-purpose financial institution with a broad development outlook. A development bank may, thus, be defined as a financial institution concerned with providing all types of financial assistance (medium as well as long term) to business units, in the form of loans, underwriting,

22 Banking & Financial Institutions

investment and guarantee operations, and promotional activities — economic development in general, and industrial development, in particular. It is widening the entrepreneurial base and assists in a rapid rate of industrial growth in country. These include Industrial Finance Corporation of India (IFCI) established in 1948, Export-Import Bank of India (EXIM Bank) established in 1982, National Bank for Agriculture & Rural Development (NABARD) established in 1982, and Small Industries Development Bank of India (SIDBI) established on 2nd April 1990.

TYPES OF BANK INCOME

There are two broad sources of bank income or revenues. One is Interest Income or Fund Based Income and second is, Non - Interest Income or Non- fund Based Income.

INTEREST INCOME / FUND BASED INCOME

Banks sometimes keep their cash in short term deposit investment such as certificates of deposits with maturities up to twelve month, saving account and money market funds. The cash placed in these accounts earn interest for the business, which is recorded on the income statement as interest income. For others such as an insurance company and financial institutions that generates profit by investing the money it holds for policyholders into interest paying bonds, it is a crucial part of the business

MEANING

1.“Interest income is generated over the life of loans that have been securitized in structures requiring financing treatment (as opposed to sale treatment) for accounting purposes; loans held for investment; loans held for sale; and loans held for securitization

2. “Interest income is generated from what is known as ‘the spread ‘. The spread is the difference between the interests a bank earns on loans extended to customers. Corporate etc and the interest paid to depositors for the use of their money. It is also earned from any securities that the banks own such as treasury bills or bonds.”

COMPONENTS OF INTEREST/FUND BASED INCOME

Main components of Interest/ Fund Based Income are as under.

INCOME FROM LENDING OF MONEY: Generally lending of money refers with disposing of the money or property with the expectation that the same thing will be returned. In other word lending of money is the transfer of securities to a borrower (usually so the borrower can pay back a short term liability), in return for a fee. The borrower agrees to replace them in due course with identical securities and the lender risks/returns of the securities in the meantime.

INCOME FROM INVESTMENT (SLR)

Every bank is required to maintain at the close of business every day, a minimum proportion of their net demand and time liabilities as liquid assets in the form of cash gold and un-encumbered approved securities. The ratio of liquid assets to demand and time liabilities is known as Statutory Liquidity Ratio (SLR). An increase in SLR also restricts the bank’s leverage position to pump more money into the economy.

NON-INTEREST INCOME/NON-FUND BASED INCOME

In the face of declining net interest margins, depository institutions have entered new product areas over the past two decades, moving from traditional lending to Areas that generate Non-fund Based Income. The

Banks: Evolution, Types and Functions 23

change is of importance for financial stability. The more unstable is a bank’s earning stream, the more risky the institution is. The conventional wisdom in the banking industry is that earnings from fee-based products are more stable than loan-based earnings and those fee-based activities reduce bank risk via diversifications.

MEANING

1.“Non-Fund Based Income is earned by providing a variety of services, such as trading of securities, assisting companies to issue new equity financing, securities commissions and wealth management, sale of land, building, profit and loss on revaluation of assets etc.”

2.“Bank and creditor income derived primarily from fees. Examples of non-interest income include deposit and transaction fees, insufficient funds (NSF) fees, annual fees, monthly account service charges; inactivity fees, check and deposit slip fees, etc. Institutions charge fees that provide non-interest income as a way of generating revenue and ensuring liquidity in the event of increased default rates

COMPONENTS OF NON-INTEREST/NON-FUND BASED INCOME

Main components of Non-Interest/Non-Fund Based Income are as under.

IN COME ON REMITTANCE OF BUSINESS

Apart from accepting deposits and lending money, Banks also carry out, on behalf of their customers the act of transfer of money -both domestic and foreign. - From one place to another. This activity is known as "remittance business”. Banks issue Demand Drafts, Banker's Cheques, and Money Orders etc. for transferring the money. Banks also have the facility of quick transfer of money also know as Telegraphic Transfer.

For Example, In Remittance business, Bank 'A' at a place 'a' accepts money from customer 'C' and makes arrangement for payment of the same amount of money to either the customer 'C' or his "order" i.e. a person or entity, designated by 'C' as the recipient, through either a Branch of Bank 'A' or any other entity at place 'b'. In return for having rendered this service, the Banks charge a pre-decided sum known as exchange or commission or service charge. This sum can differ from bank to bank. This also differs depending upon the mode of transfer and the time available for affecting the transfer of money. Faster the mode of transfer, higher the charges.

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MCQ

1. A bank account in which a depositor can deposit his funds any number of times he likes and can also withdraw the same any number of times he wishes is called (a) Fixed deposit account (b) Saving account (c) Current account (d) Recurring account 2. “Scheduled bank” means a bank (a) Incorporated under the Companies Act, 1956 or 2013 (b) Authorized to the Banking business, (c) Governed by the Banking Regulation Act, 1949 (d) Included in the Second schedule to the Reserve Bank of India Act 1934 3. When was the first commercial bank in India, ‘Bank of Hindustan’ set up in Calcutta? (a) 1690 (b) 1770 (c) 1806 (d) 1890 4. To be categorized as a schedule Bank the minimum capital & reserve required is (a) Rs. 10 lacs (b) Rs. 5 lacs (c) Rs. 20 lacs (d) Rs. 7 lacs 5. Which of the following bank is the first universal bank established in the country: (a) SBI (b) PNB (c) ICICI Bank Limited (d) None of these 6. Retail Banking means (a) Credit facilities extended to retail traders (b) Providing personal banking services directly to the consumers (c) Allowing overdrafts on current account (d) Creating, maintaining and enhancing strong relationship with customers. 7. Banks with deposits above —————were nationalized on 19th July,1969. (a) Rs. 500 crores (b) Rs. 200 crores (c) Rs.100 crores (d) Rs. 50 crores

UGC NET JRF - Commerce Previous Year Questions

1. The are governed by (a) Reserve Bank of India Act, 1934 (b) Indian Company Act, 1956 (c) Indian Banking Regulation Act, 1949 (d) Securities and Exchange Board of India Act.1992 [2010 June] 2. Which of the following is not the fund based business of commercial banks? (a) D.P. Operations (b) Loans (c) Deposits (d) Discounting of Bills [2010 Dec] 2. Find out the odd one out of the following: (a) State bank of India (b) Reserve Bank of India (c) Union Bank of India (d) Central Bank of India [2011 Dec] 3.The most important reason for an investor to prefer a Bank deposit is: (a) The credit worthiness’ of the Bank (b) The bank does not invest in the securities

Banks: Evolution, Types and Functions 25

(c) The Bank offers a guarantee (d) All of the above [2011 Dec] 4. Imperial Bank was established on January 27, 1921 on the advise of: (a) J. M. Keynes (b) Lord Illingworth (c) King George V (d) Winston Churchill [2012 June II] 5. In India, the commercial Banks are given license of operation by: (a) The Government of India (b) The Ministry of Finance (c) Reserve Bank of India (d) Banking Companies Regulation Act, 1949 [2012 June II] 6. Which among the following is not true with regard to merchant banker? (i) It can accept deposits (ii) It can advance loans (iii) It can do other banking activities (iv) It can be manager to a public issue (a) (i), (ii) and (iii) (b) (ii), (iii) and (iv) (c) (i), (iii) and (iv) (d) (ii) and (iv) [2012 June II] 7. The commercial banks do not perform one function out of the following: (a) Mobilisation of savings (b) Giving Loans and Advances (c) Issuing Currency Notes (d) Financing Priority Sectors [2012 June III] 8. Match the following items of List-I and List-II in terms of functions of commercial banks: List-I List-II (a) Letter of reference (1) Advancing loans (b) Sale of gold coins (2) Receiving deposits (c) Recurring Account (3) Non-Banking Function (d) Overdrafts (4) Agency function Codes: (a) (a)-(1), (b)-(2), (c)-(3), (d)-(4) (b) (a)-(4), (b)-(3), (c)-(2), (d)-(1) (c) (a)-(4), (b)-(2), (c)-(3), (d)-(1) (d)(a)-(1), (b)-(3), (c)-(2), (d)-(4) [2013 Dec II] 9. Which of the following are included under representation functions of a bank? (i) Payment of cheques and bills (ii) Providing remittance facilities (iii) Underwriting of securities (iv) Advancing clean credit (v) Allowing overdrafts on current account (vi) Purchase and sale of securities Codes : (a) (i), (ii), (iii) and (iv) (b) (iii), (iv), (v) and (vi) (c) (i), (ii), (iii) and (vi) (d) (ii), (iii), (iv), and (vi) [2013 Dec II] 10. Interest earned by a depositor against a deposit with a commercial bank for custodial service: (a) It is fund based income (b) Is a fee based income (c) Is a combination to fund and fee based gain (d) Is a commitment based gain [2015 June III] 11. Match the items of List-I with List-II in terms of the function of a bank. List-I List-II (a) Underwriting (i) Primary functions (b) Transfer of funds (ii) Granting Advances (c) Overdraft (iii) Utility Functions (d) Recurring Deposits (iv) Agency Functions Codes: (a) (a)-(i), (b)-(ii), (c)-(iv), (d)-(iii) (b) (a)-(iv), (b)-(iii), (c)-(ii), (d)-(i)

26 Banking & Financial Institutions

(c) (a)-(iii), (b)-(iv), (c)-(ii), (d)-(i) (d) (a)-(ii), (b)-(iv), (c)-(iii), (d)-(i) [2015 Dec II] 12. Assertion (A): Taking of deposits and granting of loan single out banks. Reasoning (R): Banks acts as intermediaries when they mobilize savings from surplus units to shortage units in order to finance productive activities. Codes: (a) Assertion (A) is correct and Reasoning (R) is the correct explanation of (A) (b) Both Assertion (A) and Reasoning (R) are correct but (R) is not the correct explanation of (A) (c) Assertion (A) is correct but Reasoning (R) is incorrect. (d) Reasoning (R) is correct but Assertion (A) is incorrect [2015 Dec II] 13.Select the major principles which banks strive in incorporate in their working from the following: (a) Profitability (d) Labour welfare (b) Social welfare (e) Safety (c) HRD (f) Liquidity Codes: (a) (a), (b), (d), (e) (b) (a), (c), (d), (f) (c) (c), (d), (e), (f) (d) (a), (b), (c), (d) [2015 Dec III] 14. SBI has applied to open branches in Pakistan in recent agreement between India and Pakistan at (1) Islamabad and Karachi (2) Lahore and Karachi (3) Rawalpindi and Sindh (4) Lahore and Islamabad [2016 July II] 15. Identify the correct combination of statements with regard to banking in India. (a) For many years the presidency banks had acted as quasi-central banks. (b) The Bank of Hindustan was liquidated during 1829-32. (c) General Bank of India was an unsuccessful bank and was dissolved in 1791. (d) Bank of Calcutta was renamed as Bank of Bengal in 1921. Codes: (a) (a), (b) and (c) (b) (b), (c) and (d) (c) (a), (b) and (d) (d) (a), (b), (c) and (d) [2016 July III] 16. Match the items of List – I with those of List – II List – I List – II (a) Locally operated financial institutions that empower employees to i. Community make local decisions to serve their customers and partners. Development Bank (b) Regulated banks that provide financial services and credit to under- ii. Offshore Bank served markets or population. (c) Banks that priorities the transparency of all operations iii. Community Bank (d) Bank located in jurisdictions with low taxation and regulations iv. Ethical Bank Codes: a b c d (a) i iv ii iii (b) iii ii iv i (c) iii i iv ii (d) iv iii ii i [2016 Sept III]

Banks: Evolution, Types and Functions 27

17. Match the items of Column-I with the items of Column-II and suggest the correct code. Column - I Column - II a. Relationship Banking i. Dealing in hundis and acceptance of deposits. b. Merchant Banking ii. Widening the entrepreneurial base and assist in a rapid rate of industrial growth. c. Indigenous Banking iii. Engaged in the business of Issue Management. d. Development Banking iv. Creating, maintaining and enhancing strong relationship with customers. Codes: a b c d (a) iv ii i iii (b) ii iv iii i (c) iv iii i ii (d) ii i iv iii [2017 Jan II]