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Commercial

An institution which accepts deposits, makes business loans, and offers related services. Commercial also allow for a variety of deposit accounts, such as checking, savings, and time deposit. These institutions are run to make a profit and owned by a group of individuals, yet some may be members of the Federal Reserve System. While commercial banks offer services to individuals, they are primarily concerned with receiving deposits and lending to businesses. Nature of Commercial Banks

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

Indian Banking Industry originated in the first decade of 18th century with The General coming into existence in 1786. This was followed by Bank of Hindustan. Both these banks are now defunct. The oldest bank in existence in India is the being established as "The Bank of Bengal" in Calcutta in June 1806. A couple of decades later, foreign banks like Credit Lyonnais started their Calcutta operations in the 1850s. At that point of time, Calcutta was the most active trading port, mainly due to the trade of the British Empire, and due to which banking activity took roots there and prospered. The first fully Indian owned bank was the , which was established in 1865.

By the 1900s, the market expanded with the establishment of banks such as , in 1895 in Lahore and Bank of India, in 1906, in Mumbai - both of which were founded under private ownership. The formally took on the responsibility of regulating the Indian banking sector from 1935. After India's independence in 1947, the Reserve Bank was nationalized and given broader powers.

Nationalisation By the 1960s, the Indian banking industry has become an important tool to facilitate the development of the Indian economy. At the same time, it has emerged as a large employer, and a debate has ensued about the possibility to nationalize the banking industry. Indira Gandhi, the-then Prime Minister of India expressed the intention of the GOI in the annual conference of the All India Congress Meeting in a paper entitled "Stray thoughts on Bank Nationalisation." The paper was received with positive enthusiasm. Thereafter, her move was swift and sudden, and the GOI issued an ordinance and nationalised the 14 largest commercial banks with effect from the midnight of July 19, 1969. Jayaprakash Narayan, a national leader of India, described the step as a "masterstroke of political sagacity." Within two weeks of the issue of the ordinance, the Parliament passed the Banking Companies (Acquition and Transfer of Undertaking) Bill, and it received the presidential approval on 9th August, 1969.

A second dose of nationalisation of 6 more commercial banks followed in 1980. The stated reason for the nationalisation was to give the government more control of credit delivery. With the second dose of nationalisation, the GOI controlled around 91% of the banking business of India. After this, until the 1990s, the nationalised banks grew at a pace of around 4%, closer to the average growth rate of the Indian economy.

Liberalisation In the early 1990s the then Narasimha Rao government embarked on a policy of liberalisation and gave licences to a small number of private banks, which came to be known as New Generation tech-savvy banks, which included banks such as UTI Bank(now re-named as ) (the first of such new generation banks to be set up), ICICI Bank and HDFC Bank. This move, along with the rapid growth in the economy of India, kickstarted the banking sector in India, which has seen rapid growth with strong contribution from all the three sectors of banks, namely, government banks, private banks and foreign banks.

The next stage for the Indian banking has been setup with the proposed relaxation in the norms for Foreign Direct Investment, where all Foreign Investors in banks may be given voting rights which could exceed the present cap of 10%,at present it has gone up to 49% with some restrictions.

The new policy shook the Banking sector in India completely. Bankers, till this time, were used to the 4-6-4 method (Borrow at 4%;Lend at 6%;Go home at 4) of functioning. The new wave ushered in a modern outlook and tech-savvy methods of working for traditional banks.All this led to the retail boom in India. People not just demanded more from their banks but also received more.

Current Situation Currently (2007), banking in India is generally fairly mature in terms of supply, product range and reach-even though reach in rural India still remains a challenge for the private sector and foreign banks. In terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets relative to other banks in comparable economies in its region. The Reserve Bank of India is an autonomous body, with minimal pressure from the government. The stated policy of the Bank on the Indian Rupee is to manage volatility but without any fixed exchange rate-and this has mostly been true.

With the growth in the Indian economy expected to be strong for quite some time-especially in its services sector-the demand for banking services, especially retail banking, mortgages and investment services are expected to be strong. One may also expect M&As, takeovers, and asset sales.

In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake in (a private sector bank) to 10%. This is the first time an investor has been allowed to hold more than 5% in a private sector bank since the RBI announced norms in 2005 that any stake exceeding 5% in the private sector banks would need to be vetted by them.

Currently, India has 88 scheduled commercial banks (SCBs) - 28 public sector banks (that is with the Government of India holding a stake), 29 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 31 foreign banks. They have a combined network of over 53,000 branches and 17,000 ATMs. According to a report by ICRA Limited, a rating agency, the public sector banks hold over 75 percent of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively.

Activities of Commercial Banks

The modern Commercial Banks in India cater to the financial needs of different sectors. The main functions of the commercial banks comprise: • transfer of funds • acceptance of deposits • offering those deposits as loans for the establishment of industries • Purchase of houses, equipments, capital investment purposes etc. • The banks are allowed to act as trustees. On account of the knowledge of the financial market of India the financial companies are attracted towards them to act as trustees to take the responsibility of the security for the financial instrument like a debenture. • The Indian Government presently hires the commercial banks for various purposes like tax collection and refunds, payment of pensions etc.

List of Commercial Banks in India

SBI & Associates: • State Bank of India • State Bank of Bikaner & Jaipur • • • • • Nationalised Banks: • Allahabad Bank • • • Bank of India • • • of India • • • IDBI Bank Ltd. • • • Oriental Bank of Commerce • Punjab & Sind Bank • Punjab National Bank • • UCO Bank • • •

Foreign Banks: • ABN Amro Bank • Abu Dhabi Commercial Bank • American Express Banking Corporation • Antwerp Diamond Bank • AB Bank • Bank International Indonesia • • Bank of Bahrain & Kuwait • • Bank of Nova Scotia • Bank of Tokyo Mitsubishi UFJ • Bank • BNP Paribas • Calyon Bank • Chinatrust Commercial Bank • Citibank • DBS Bank • • Hongkong & Shanghai Banking Corporation • JP Morgan Chase Bank • JSC VTB Bank • Krung Thai Bank • Mashreq Bank • Mizuho Corporate Bank • Oman International Bank • Shinhan Bank • Societe Generale • Sonali Bank • Bank • State Bank of Mauritius • UBS AG Other Scheduled Commercial Banks: • Axis Bank • • Catholic Syrian Bank • • Development Credit Bank • Dhanalakshmi Bank • • HDFC Bank • ICICI Bank • IndusInd Bank • ING Vysya Bank • Jammu & Kashmir Bank • • • Kotak Mahindra Bank • • • Ratnakar Bank • SBI Commercial & International Bank • • Tamilnad Mercantile Bank • India’s GDP has been growing at a rapid clip over the past decade and is set to grow at even a faster pace in the coming decade.Financial services penetration of the Indian economy is quite low compared to even other developing economies.With majority of the Indian population mired in poverty,access to banks and financial companies is quite hard as people lack knowledge and education.India’s banks have grown at a rapid pace over the past 2 decades after the financial liberalization.However this growth has still lacked in meeting the massive demand in the need of financial intermediation.This has led to the growth on non-banking financing companies (NBFCs) and microfinance companies.With the opening of the insurance sector,financial companies in India are set to enter a new growth phase.Major banks in India are either state owned or previous government owned institutions which have been fully privatized like ICICI and HDFC Bank.Both the state owned banks and the private banks have managed to grow without throwing the whole system in a crisis like what has happened in the recent past in Europe and USA and in China in the 1990s.Here is a list of the 10 Major Banks in India 1) State Bank of India (SBI) - SBI is India’s Largest Bank which is majority owned by the Government.The Company has a number of Subsidiaries and has been a market outperformer in recent times.Revenues of $22 Billion.The SBI has 7 subsidiaries of which 2 have been merged and 5 are remaining . • State Bank Bikaner Jaipur • State Bank of Hyderabad • State Bank of Mysore • State Bank of Patiala • State Bank of Travancore 2) ICICI Bank – This is the largest Indian Private Bank with operations in all Financial Services Sectors.The Company has faced a bad time during the Lehman downturn but has recovered well.Revs of $12.5 Billion.ICICI Bank is also strong in almost all sectors of the financial industry and has one of the strongest management teams in the country.Like HDFC Bank majority of the shareholding is held by foreign investors.The company which overextended itself in the 2007-2008 boom has now reduced the size of its risky segments and is again back on the growth trajectory. 3) HDFC Bank – HDFC Bank like Axis Bank has shown remarkable growth in the last few years.The Bank which was founded by India’s largest housing finance company HDFC has assets of around $22 billion.One of the best rated banks in terms of service quality and growth. 4) Punjab National Bank – Punjab National Bank (PNB , is the second largest PSU bank with about 5000 branches across 764 cities.The Bank like BOB and SBI has shown good growth while at the same time managed to control bad debt. 5) Axis Bank - Axis Bank has been the best performing private bank alongwith HDFC Bank showing excellent growth in topline and bottomline.The Bank has been expanding into insurance and investment banking (acquired Enam).Axis Bank was formerly UTI Bank that begun operations in 1994.The Bank was promoted jointly by UTI,LIC and other state owned general insurers.One of the best Indian bank stock picks. 6) Bank of Baroda – Bank of Baroda(BoB) is the third largest bank in India and is government owned like SBI and PNB. BOB as it is popularly known has shown excellent growth over the last few years and has managed to control its Non-Performing Asset (NPA).The Bank has good management and manages to earn nice interest spreads. 7) Bank of India -Bank of India (BoI)is Indias 4th largest bank, with 3374 branches, including 27 branches outside India. It was the first bank in India promoted by Indian interests to serve all the communities of India.The stock of the company has not performed as well as it peers post the Lehman crisis.It has seen its market cap decrease relative to its larger PSU Bank peers IDBI Bank - Industrial Development Bank of India Limited(IDBI) is a leading public sector banks . RBI categorised IDBI as an “other public sector bank”. The commercial banking arm, IDBI BANK, was merged into IDBI.This PSU Bank has supposed have great potential and could be the next ICICI in the making. 9) Kotak Mahindra Bank - This is the first NBFC to convert into a bank.The bank has its origins as an investment bank and is still very strong in the capital markets.The Bank and its sister concerns are present in most of the financial segments of the market like Private Equity,Wealth Management,Broking,Investment Banking etc. 10) Yes Bank – Yes Bankwas founded by Ashok Kapur and Rana Kapoor.This bank though still small compared to its larger peers,has come into the top 10 due to its path breaking performance over the last few years in terms of growth.It has managed to set new standards and has broken out from the league of smaller private banks. Total Income Wise Listing Num ber Total Net No. of Bank Name no of atms of Income(R Profit Employees Bran s Mn) (Rs Mn) ches

State Bank of India 9143 198774 431836 44067 25000

ICICI Bank Limited 557 25479 187676 25401 2209

Punjab National Bank 4066 58047 108153 14393 700

Canara Bank 2532 46893 100890 13432 815

Bank of Baroda 268738737 82917 8270 634

Bank of India 256341808 82131 7014 500

Industrial Development Bank of India Limited 173 4548 66612 5609 1140

Union Bank of India 209525421 64888 6752