A Study on loans and advances of BCCI

INTRODUCTION TO BANKING
Finance is the life blood of trade, commerce and industries. Now-a-days, banking sectors acts
as the backbone as the modern business. Development of any country mainly depends upon
the banking system. The term bank derived from the French word ‘ban co’ which means a
bench or money exchange table.

History of banking

The first banks were the merchants of the ancient world that made loans to formers and
traders that carried goods between cites. The first records of such activity dates back to
around 2000BC in Assyria and Babylonia .later, in ancient Greece and during the Roman
Empire, lenders who were based in temples made loans but added to important innovations:
accepting deposits and changing money. During this period there is similar evidence of the
independent development of lending of money in ancient china and separately in ancient
India.

Banking, in the modern sense of the word, can be traced to medieval and early renaissance
Italy, to the rich cities in the north such as Florence, Venice and Genoa. The Bardi and
Peruzzi families dominated banking in 14thcentury Florence, establishing branches in many
other parts of Europe. Perhaps the most famous Italian bank was the Medici bank, established
by Giovanni Medici in 1397.

The development of banking spread through Europe and a number of important innovations
took place in Amsterdam during the Dutch republic in the 16 th century and in London in
17thcentury. During the 20thcentury, developments in telecommunications and computing
resulting in major changes to the way banks operated and allowed them to dramatically
increase in size and geographic spread. The late -2000sfinancial crisis saw significant number
of banks failures, including some of the world’s largest banks, and much debate about bank
regulations.

BANKING IN INDIA: (Industrial background)

Banking in India originated in the last decades of the 18 th century. The first banks were the
general bank of India which started in 1786, and the bank of Hindustan both of which are
now defunct. The oldest bank in existence in India is the state bank of India, which originated
in the bank of Calcutta in June 1806, which almost immediately became the bank of Bengal.

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This was one of three presidency banks, the other two being the bank of Bombay and the
bank of madras, all three of which were established under charters from the British east India
Company. For many years the presidency banks acted as quasi-central banks, as did their
successors. The three banks merged in1921 to form the imperial bank of India, which upon
India’s independence became the state bank of India.

Currently, India has 96 scheduled commercial banks(SCBs)-27 public sectors banks (that is
with the government of India holding a stake),31 private banks (theses do not have
government stake; they may be publicly listed and traded on stock exchanges)and 38 foreign
banks. They have a combined network of over 53,000 branches and 17000 ATMs. According
to a report by ICRA limited, a rating agency, the public sector banks hold over 75 percent of
total asset of the banking industry with the private and foreign banks holding 18.2% and
6.5% respectively.

Meaning:

A bank is a financial institution that provides banking and other financial services to their
customers. A bank is generally understood as an institution which provides fundamental
banking services such as accepting deposits and providing loans.

Definition of banking:

Oxford dictionary defines a bank as “an establishment for custody of money, which it pays
out on customers order”.

Objectives /Characteristics/ features of a bank:

Following are the characteristics of a bank:

1. Dealing in money: Bank is a financial institution which deals with other people’s
money i.e. money given by depositors.
2. Individual/ Firm/Company: A bank may be a person, firm or a company. A
Banking company means a company which is in the business.
3. Acceptance of deposits: A bank accepts money from the people in the form of
deposits which are usually repayable on demand or after the expiry of a fixed period.
It gives safety to the deposits of its customer .it also acts as a custodian of funds of its
customers.

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4. Giving advances: A bank lends out money in the form of loan to those who require it
for different purpose.
5. Payment and withdrawals: a bank provides easy payment and withdrawals facility
to its customer in the form of cheque and drafts it also brings bank money in
circulation. This money is in the form of cheques ,drafts , etc
6. Agency and utility services: A bank provides various banking facilities to its
customers. They include general utility services and agency
7. Profit and services orientation: a bank is a profit seeking institution having services
oriented approach.
8. Ever increasing functions: Banking is an evolutionary concept .there is continuous
expansion and diversification as regards the functions ,services and activities of a
bank
9. Connecting link : A bank acts as connecting link between borrowers and lenders of
money .Banks collects money from those who have surplus money and give the same
to the who are in need of money
10. Banking business: A banks main activity should be to do business of banking which
should not be subsidiary to any other business.
11. Name identify: A bank should always add the word “bank” to its name to enable
people to know that it is bank and that it is dealing in money

FUNCTION OF BANKING:

Functions of bank

Primary function Secondary function

Accepting Granting Agency Utility

deposits services services services

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PRIMARY FUNCTION OF BANKS:

The primary functions of a bank are also known as banking functions. They are the main
functions of a bank.

These primary functions of are explained below.

1. Accepting deposits:-the bank collects deposits from the public. These deposits can be
different types, such as:-

 Savings deposits:-this type of deposits encourages savings habit among the public
.the rate of interest is low. At present it is about 5%p.a. withdrawals of deposits are
allowed subject to certain restrictions .this account is suitable to salary and wage
earners .this account can be opened in single name or joints names.
 Fixed deposits:-Lump sum amount is deposited at one time for a specific period.
Higher rate of interest is paid, which varies with the period of deposits. Withdrawals
are not allowed before the expiry of the period. Those who have surplus fund go for
fixed deposit.
 Current deposits:-This type of account is operated by businessman .withdrawals are
freely allowed. No interested paid. In fact, there are services charges. The account
holder can get the benefit of overdraft facility.
 Recurring deposits:-This type of account is by salaried persons and petty traders.A
certain sum of money is periodically deposited into the bank.Withdrawals are
permitted only after the expiry of certain period .a higher rate of interest is paid.
 Lending of funds: - money received by commercial banks in the form of deposits is
not kept idle as it is lent at an interest to business establishments .commercial bank
provides loans and advances on the personal security on the security of some tangible
assets.
 Creation of credit:-credit creation is one of the very important function of the
commercial bank, banks are basically manufacturing of money. Creation of credit
means expansion of bank deposits by giving loans and advances.
 Remittance fund: this is a primary function of commercial bank wherein they help
their customers in transferring funds from one place to another by issuing bank drafts,
mail transfer etc.

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2. Granting of loans and advance: 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
different in the interest rates (lending rate and the deposits rate)

The types of bank loans and advances are:

 Overdraft: These Types advances are to current account holder. No separate account
is maintained. All entries are made in the current account. A certain amount is
sanctioned as overdrafts which can be withdrawn within a certain period of time say
three months or so. Interest is charged on actual amount withdrawn. An overdraft
facility is granted against a collateral security. It is sanctioned to businessman and
firms.
 Cash credit: The client is allowed cash credit up to a specific limit fixed in
advances.it can be given to current account holder as well to other who do not have an
account with bank. Separate cash credit account is maintained. Interest is charged on
the amount withdrawn in excess of limit. The cash credit is given against the security
of tangible assets and guarantees. The Advances is given for a longer period and a
larger amount of loan is sanctioned than that of overdraft.
 Loans: It is normally for short term say a period of year or medium term say a period
of five years. Now-a-day, banks do lend money for long term. Repayment of the
money can be in the form of installments spread over a period of time or in a lump
sum amount. Interest is charged on the actual amount sanctioned, whether withdrawn
or not. The rate of interest may be slightly lower than what is charged on overdrafts
and cash credits. Loans are normally secured against tangible assets of the company.
 Discounting of bill of exchange: The bank can advance money by discounting or by
purchasing bills of exchange domestics and foreign bills. The bank pays the bill
amount to the drawer or the beneficiary of the bill by deducting usual discount
charges. On maturity, the bill is present to the drawer or acceptor of the bill and the
amount is collected.

SECONDARY FUNCTIONS OF BANKS:-The bank performs a number of

secondary functions also called as Non-banking functions. These important secondary
functions of bank are explained below:

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1. Agency functions: The bank acts as agents of its customers. The bank performs a
number of agency functions which includes:
 Transfer of fund: The bank transfer funds from one branch to another or
from one place to another.
 Collection of cheques: The bank collects the money of the cheques through
clearing section of its customers. The bank also collects money of the bills of
exchange.
 Periodic payments: on standing instructions of the clients, the bank makes
periodic payments in respect of electricity bill, rent, etc.
 Portfolio Management: The banks also undertake to purchase and sell the
shares and debentures on behalf of the clients and accordingly debits or credits
the accounts. This facility is called portfolio management.
 Periodic collections: The bank collects salary, pension, dividend and such
other periodic collections on behalf of the client.
 Other agency functions: The acts as trustees, executors, advisers and
administrators on behalf of its clients. They act as representatives of clients to
deal with other bank and institutions.

2. General utility functions:-The also performs general utility functions, such as:-
 Traveller cheque: These cheques are usually useful for those who travel
frequently.
 Merchant banking: The merchant banking includes variety of services,
which are provided by non banking agencies and professionals.
 Safe custody of valuable: the bank provides a locker facility for the safe
custody of valuable documents, gold ornaments and other valuables.
 Teller system: Under this, the teller is authorised to receive cash and make
payments up to limited amount without reference to the ledger balance or the
specimen signatures.
 Gift cheques: Banks also sell gift cheques against payments in cash or by
debit to accounts. The gift cheques are usually issued in fixed denominations.
These cheques are usually given as gift and these can be drawn even by non
account holders.

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 Credit cards: Credit cards are basically issued to current and savings
accounts holder, free of change. The holders of credit cards are able to
purchase goods and services up to a certain amount without making immediate
payment.
 Tax consultancy: Banks provided consultancy services to enable the tax
payers to pay tax on time.
 Underwriting of securities: commercial banks take the job of underwriting a
portion of the issues of public undertaking. They also underwrite shares and
debentures of joint stock companies.
 Housing finance: directly advances loan to the parties or advance housing
loans indirectly to state housing boards or urban development corporation.
 Factoring: It is an arrangement between banking institution and the business
concern.
 Leasing finance: Leasing is a method of financing equipment and machinery.
And its use by paying a predetermined amount called “rental” over a period of
time.
 Letter of credit: it refers to letter issued by the importers bank in favour of
the exporter authorising him to supply goods and draw bills up to a certain
amount.
 Foreign exchange activities: Banks perform the following activities with
respect of foreign trade. 1) Important packing facilities, 2) Issue of solvency
certificates, 3) Dissemination of trade information etc.
 Consultancy functions: Banks undertake a number of consultancy services
like helping small scale industries in providing information about availability
of assistances like marketing, technical, and financial etc.
 Social welfare programmes: It undertakes social welfare programmes, such
as adult literacy programmers, public welfare campaigns, etc.
 Other utility services: It acts as a referee to financial standing of customers.
It collects credit worthiness information about clients of its customers. It
provides market information to its customers, etc. It provides travellers
cheques facility.

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IMPORTANTANCE OF BANKING SYSTEM IN INDIA:

CLASSIFICATION OF BANKS:

Followings of the types of banks:

1. Savings banks: Savings banks are established to create saving habit among the
people. These banks are helpful for salaried people and low income groups. The
deposits collected from customers are invested in bonds, securities, etc. At present
most of the commercial banks carry the function of savings banks. Postal department
also performs the function of savings bank.
2. Commercial banks: Commercial banks are established with an objective to help
businessmen. These banks collect money from general public and give short term
loans to businessmen by way of cash credits, overdrafts, etc. Commercial banks
provide various services like collecting cheques, bill of exchange, and remittances
money from one place to another place.
In India, commercial banks are established under companies act, 1956. In 1969, 14
commercial banks were nationalized by government of India. The policies regarding
deposits, loans, rate of interest, etc. Of these banks are controlled by the central bank.
3. Industrial banks /development banks:Industrial banks/development banks collect
cash by issuing shares & debentures and providing long term loans to industries. The
main objective of these banks is to provide long term loans for expansion and
modernization of industries.
In India such banks are established on a large scale after independence.
They are industrial finance corporation of India IFCI, industrial credit and Investment
Corporation of India ICICI and industrial development bank of India IDBI.
4. Land Mortgage /land development banks: Land mortgage or land development
banks are also known as agriculture banks because these are formed to finance
agricultural sector. They also help in land development. In India, government has
come forward to assistant these banks.
5. Indigenous banks: Indigenous banks mean money and Sahukars. They collect
deposits from general public and grant loans to the needy persons out of their own
funds as well as from deposits. These indigenous banks are popular in villages and
small towns.

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6. Central /Federal/National banks: Every country of the world has a central bank. In
India, reserve bank of India, in U.S.A, Federal Reserve and in U.K. bank of England.
These central bank are the bankers of the other banks. They provide specialized
functions i.e. issue of paper currency, working as bankers of government, supervising
and controlling foreign exchange. A central bank is a non profit making institution. It
does not deal with the public but it deals with other banks.
7. Co-operative banks:In India, cooperatives banks are registered under the cooperative
societies act, 1912. They generally give credit facilities to small farmers, salaried
employees, small scale industries, etc. Cooperative banks are available in rural as well
as in urban areas. The functions of these banks are just similar to commercial banks.
8. Exchange banks: Hong Kong bank, bank of Tokyo, bank of America are the
examples of foreign banks working in India. These banks are mainly concerned with
financing foreign trade.

Following are the various functions of exchange banks:-

 Remitting money from the country to another country.

 Discounting of foreign bills.
 Buying &selling gold &silver.
 Helping import &export trade.
9. Consumers bank: Consumers bank is a new addition to the existing type of bank.
Such banks are usually found only in advanced countries like U.S.A. and Germany.
The main objective of the bank is to give loans to consumers for purchase of the
durables like motor car, television set, washing machine, furniture, etc. The
consumers have to repay the loans
in the easy installment.

BANKING SCENARIO IN INIDA

The Indian banking system consists of 20 public sector banks, 22 private sector banks, 44
foreign banks, 44 regional rural banks, 1,542 urban cooperative banks and 94,384 rural
cooperative banks, in addition to cooperative credit institutions. As on March 31, 2019, the
total number of ATMs in India increased to 2,21,703 and is further expected to increase to
407,000 by 2021. As of 2017, 80 per cent of the adult population has bank accounts. As on

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March 31, 2019 the number of debit and credit cards issued were 925 million and 47 million,
respectively.

Central bank Nationalized Co- operative & associates Private banks

banks(public
sector)
Reserve bank of India Allahabad bank The co-operative bank Axis bank(formerly
(Central bank) and Andhra bank District co-operative bank UTI bank)
supreme monetary Bank of Baroda HDIL HDFC bank
authority Bank European association of co- Kotak Mahindra
of Maharashtra operative bank bank
Canara bank OP financial group Yes bank
Central bank of Credit Agricole Indus land bank
India DZ bank ING vysya bank
Corporation bank Central Co-operative bank Bank of Punjab
Dena bank National co-operative bank Bank of Rajasthan
IDBI bank Cosmos bank City union bank
Indian bank Punjab and Maharashtra co- Dhanalakshmi bank
India overseas operative bank Development credit
bank Co-operative party bank
Oriental bank of Federal bank
commerce ICICI bank
Punjab national Jammu Kashmir
bank bank
Syndicate bank Karnataka bank
Union bank of Karur vysya bank
India South Indian bank
UCO bank
United bank of
India
Vijay bank
FUTURE BANKING PROPECTS IN INDIA:

The future forecast discuses the future prospects of different arms of banking industry
including rural banking ,financial cards ,mobile banking, role of technology in rural

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banking ,pension funds, and the future course of action and strategies for pension fund
industry to be taken at macro level.

Information has been sourced from books, newspaper, trade journals, and white papers,
industry portals, government agencies, trade associations, monitoring industry news and
developments, and through access to more than 3000 paid databases.

The analysis methods include ratio analysis, historical trend analysis and linear regression
analysis using software tools judgemental foresting, cause and effects analysis.

The Indian banking system, with its extensive branch network spread across the length and
breadth of the country, has both depth and reach today .it is the spine of our entire financial
system and the institutional framework within which financial markets operate. An economy
that is growing at a steady clips of9% needs a vibrant and dynamic banking system to keep
pace with it.

COOPERATIVE BANKING:

INTRODUCTION OF COOPERATIVE BANK:

The cooperative bank in India started functioning almost 100 years ago. the cooperatives
bank is an important constituent of the Indian financial system ,judging by the role assigned
to cooperative, the expectations the cooperative is supposed to fulfill ,their number of
officers the cooperate bank operate. Through the cooperative movement had originated in the
west, yet the importance such banks have assumed in India is rarely paralleled anywhere else
in the world .the cooperative bank play an important role even today in rural financing. Their
businesses in the urban areas also have increased phenomenally in recent years due to the
sharp increase in the number of primary cooperative bank. The cooperative banks are
registered under the cooperative societies Act. They are registered by RBI. They are
governed by the banking regulation act, 1949 and banking laws (co-operative societies)
act,1965, they finance the rural area under or: farming; cattle; milk; hatchery; personal
finance. They finance the urban areas under: self employment; industries; small scale units;
home finance; consumer finance; personal finance.

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The co-operative movement was started in India in 1904 with the object of providing finance
to agriculture for productive purposes at low rate of interest, and there by relieving them from
the clutches of the money lender. A large number of agricultural credit societies which could
not mobilize funds by their own efforts.

MEANING:

People who come together to jointly serve their common interest often a co-operative society
under the co-operative societies act. When a co-operative society engages itself in banking
business, it is called a co-operative bank.

According to Henry Warf “co-operative is an agency which is in a position to deal with small
man on his own terms accepting the security, he has without drawing on the protecting of the
rich.

The co-operative banking sector consist of State co-operative banks (SEBs), district central
co-operative banks (DCCBs), and primary urban co-operative banks (UCBs). RBI issued the
first set of comprehensive guidelines for these banks in 1984. They finance individuals, co-
operative group, housing societies, housing boards and others who undertake housing
projects for EWS, LIGs, and MIGS.

AIMS OF CO-OPERATIVE BANK:

 To promote savings among members and thereby increase the supply of funds.
 To tap outside sources for the supply of funds.
 To reduce the cost of management through the honorary service.

FEATURES OF CO-OPERATIVE BANK:

 Co-operative banks are based on the principles of mutual help.

 It is an association of persons, and not of capital.
 Service and not profit is the main motto of co-operative banks.
 The rate of interest is charged by co-operative banks is generally low.
 The co-operative banks basically rural oriented.

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PRINCIPLES OF CO-OPERATIVE BANKING:

The important principles of co-operative banking are:

 Principle of co-operative and mutual help.

 Principle of thrift and savings.
 Principle of service and not profit.
 Principle of personalization of credit.
 Principle of ‘one man one vote’ in management.

THREE LEVELS OF CO-OPERATIVE BANKS ARE:

1. PRIMARY CREDIT SOCIETIES: These are formed at the village or town level with
borrower and non-borrower members residing in one locality.

2. CENTRAL CO-OPERATIVE BANKS: These banks operate at the district level having
some of the primary credit societies belonging to the same district as their member.

3. STATE CO-OPERATIVE BANKS: These are the apex (highest level) co-operative
banks in the respective states of the country. The money reaches the individual borrowers
from the state co-operative banks to the central co-operative banks and the primary credit
societies.

TYPES OF CO-OPERATIVE BANK:

Cooperative bank

Agriculture Nonagriculture

cooperativebank cooperativebank

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1. AGRICULTURE CO-OPERATIVE BANKS: Agriculture banks are these co-operative

societies that are formed to provide cheap credit to the agriculturalists in rural areas. The
agricultural credit societies may be classified into: short term; long term; medium term.

In India the short term and middle term agricultural credit societies are rural bank at the
bottom level, the central state co-operative banks in the middle level and the state co-
operative banks at top level. The agricultural credit institution in India includes primary land,
mortgage banks or land development banks at the Taluk or district level and central land
mortgage banks or land development banks at the state level.

2.NON-AGRICULTURAL CO-OPERATIVE BANKS: The bank refers to credit societies

formed in towns and cities to provide short term credit to artisans, craft man, small traders,
middle income groups, such as office employees. Non-agricultural credits societies are
mainly of two types are:

1) Urban Banks:

Urban banks are credit societies formed in towns and cities to provide short term credit to
artisans, craft man small traders.

2) Salary Earner societies:

Salary earner societies are credit societies formed in towns and cities to provide short term
credit to the employees of government officers, semi government officers and industrial and
commercial establishment.

MERITS OF CO-OPERATIVE BANKING:

The main benefits of co-operative banking are:

 The expansion of co-operative banking in rural areas as forced village money lender
to lower their rate of interest and lessen their mall practices.
 Co-operative banking is widely accepted as the only means of eradication poverty and
raising the standard of living of rural masses.
 With expansion of co-operative banking in rural areas. The hold village lender over
rural masses has been considerable loosened.

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DRAWBACKS OF CO-OPERATIVE BANKING:

 The co-operative banking structure is weak. A top heavy structure of co-operative

banking is built on very flimsy foundation.
 The size of co-operative banks, particularly the size of agricultural primary credit
societies is very small.
 On account of limited funds as their disposal, co-operative banks are not Be grant
adequate to their members.
 Co-operative banks i.e., primary credit societies in rural areas suffer from stiff
competition from money lenders. This has also contributed to the unsuccessful
working of many village credit co-operative societies.

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