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Commercial Banking in India
Chapter: 1
Answer Questions
Q.1. In which year the Imperial Bank was established ?
Ans :- In 1921.
Q.2. How many commercial banks are nationalised at present ?
Ans :- 27.
Q.3. In which year Fourteen Indian commercial banks were nationalised ?
Ans :- In 1969, 19th July.
Q.4. In which year six Indian commercial banks were nationalised ?
Ans :- In 1980.
Q.5. In 1980 how many commercial banks were nationalised ?
Ans :- 6 (six) commercial bank.
Q6. In which year the Lead Bank Scheme was introduced ?
Ans :- 1969.
Q.7. In which year the State Bank of India was established ?
Ans :- 1955.
Q.8. Name the three Presidency Banks.
Ans :- (a) Bank of Bengal.
(b) Bank of Bombay.
(c) Bank of Madras.
Q.9. What was the previous name of State Bank of India ?
Ans :- Imperial Bank of India.
Q.10. When Imperial Bank of India Act was passed ?
Ans :- In 1920.
B. Short Answer Questions : Type-I
Q.11. Define Bank.
Ans :- A Bank is a financial Institution who deals in money and credit. A Bank is a Institution who accept deposit from the public and gives loans and advances to the needy person.
According to Banking Regulation Act 1949 “Banking means Accepting deposit for the purpose of lending investment of deposit money from the public and repayable by cheque, draft, order or otherwise.
Q.12. Name the first Bank in the world and its year of establishment.
Ans :- The name of first bank in the world is Banco di san giorgio. The establishment year of first bank in the world is 1406.
Q.13. Which was the first bank established in India ? When was it established ?
Ans :- The first bank established in India is the BANK OF HINDUSTAN.The year of established of first bank in India is 1770.
Q.14. What is a Private sector Bank ?
Ans :- Private sector banks are established by individual and group of individual. In private sector banks the profits are distributed among the shareholder itself. All liabilities and others are shared by shareholder and the individual and group of individual. In private sector bank they have no responsibility from the Govt. and Reserve Bank of India. Private sector banks have no need to take permission and licence from RBI.
Q.15. What is a public sector bank ?
Ans :- Public sector banks include those banks which are allowed by the Central Government either directly or through Reserve Bank of India. They have been set up as statutory corporation by special Act passed by Parliament. They are also termed as National bank. They can be classified into two groups.
1) State Bank group.
2) Nationalised Banks group.
The State Bank group comprised of State Bank of India and its seven associated Banks. Nationalised banks group comprised 14 commercial bank nationalised in 1969 and six commercial banks which were nationalised in 1980.
Q.16. What is Branch Banking ?
Ans :- Under branch banking system a big bank as a central bank or single bank or an institution and under single ownership operates through a network of branches spread all over the country. To start with branch banking developed in England. Later on it also became popular in other countries like Canada, Australia, India etc. In England most of the banking business is in the hands of five big banks which are popularly known as ‘Five Big’. Those are.
(a) The Midland.
(b) The Lloyds.
(c) The Barclays.
(d) The Westminster.
(e) The National Provincial.
In terms of branches, the State Bank of India has emerged as one of the biggest Bank.
Q.17. What is Unit Banking ?
Ans :- Under unit banking system of individuals bank operate through a single office.The size and area of operation of unit bank are much smaller as a compared to those bank under branch banking system. According to Shapiro, Solomon and Whilt “An independent unit bank is a corporation that operate one office and that is not related to other banks through either ownership or controls. Unit banking system originated and grew in the U.S.A. Different unit banks in the U.S.A. are linked with each other and with other financial centres in the country through correspondent banks. The main reason for the development of unit banking system in America is the fear of emergencies of monopoly in banking business.
Q.18. What is Chain Banking ?
Ans :- Chain Banking is another form of group banking. If refers to the system in which two or more banks are brought under common control by device other than the holding company. The common management may be by a single person or a group of person through stock ownership or otherwise. This type of Banking system develop in the United State of America towards the middle of the 19th Century and remain popular till the great Depression of 1929. The advantages and disadvantages of chain Banking system are more or less similar to those of group banking system.
Q.19. What is Group Banking ?
Ans :- Group banking refers to the system of banking which two or more banks are directly controlled by a corporation, an association or a business trust. The holding company may or may not be a banking company. Although each bank maintain its separate entity, but its business is managed by the holding company. The type of banking was popular in the U.S. between 1925-29.
Group banking system combines some of the advantages of branch as well as unit banking system.
Q.20. What is Scheduled Commercial Bank ?
Ans :- Scheduled Commercial Banks are those banks whose names are included in the second scheduled of Reserve Bank of India Act Under Section 42
(b) of Reserve Bank of India Act 1930 a banking Institution can claim for its name being included in the scheduled if.
(a) It satisfies the Reserve Bank that its affairs are not being conducted in a manner detrimental to the interest of its depositors.
(b) Its paid up Capital and reserve have an aggregate value of not less than 5 lakhs. Scheduled commercial bank are entitled to avail certain facilities from the Reserve Bank. They get Refinancing Loan, Remittance facilities, at concessional rate between different branches through Reserve Bank. They are also required to maintain certain minimum statutory reserve with the Reserve Bank.
Q.21. Name two private sector banks in India.
Ans :- The name of two private sector Banks are :
(1) Industrial Credit and Investment Corporation of India. (ICICI).
(2) Housing Development Finance Corporation (H.D.F.C.).
Q.22. Give three examples of public sector banks.
Ans :- Three public sector banks are :
(1) State Bank of India.
(2) United Bank of India.
(3) Bank of Baroda etc.
Q.23. Name any two central banking functions performed by the State Bank of India.
Ans :- The two central banking functions performed by State Bank of India are :
(1) Where there is no branches of Reserve Bank of India, the State Bank of India look after the commercial bank and the financial institution.
(2) State Bank of India control the Foreign Exchange.
(3) State Bank of India as a Commercial Bank control the credit (Credit creation).
C. Short Answer Questions : Type-II
Q.24. Write a short notes on Imperial Bank of India.
Ans :- There was a strong demand during the early years of 20th century to form a central bank in the country by amalgamating the Presidency Banks. In 1921 the Imperial Bank was established by amalgamating the Presidency bank the Bank of Bombay, Bank of Bengal and Bank of Madras. The Imperial Bank was empowered to manage the clearing house and the government fund.
The function of issuing currency notes remained with the Government. The Imperial Bank of India Act. was passed in 1920. The Imperial Bank of India was came into existence in 1921. In 1955 the Imperial Bank was nationalised and the new name came as State Bank of India.
Q.25. Write a short note on presidency Bank.
Ans :- The Real Growth of Modern Commercial Bank began in the country when the Government was awakened to the need for banks in 1806. With the establishment of the first presidency Bank called the Bank of Bombay in 1809. After that two more banks namely Bank of Calcutta in 1840 and Bank of Madras 1843 were established. To each of the Banks the Government had subscribe Rs. 3 lakhs to their share capital. However a major part of their share capital was contributed by the European share holders. These presidency Banks however enjoyed the monopoly of government banking. They were also given the right of note issue in 1823 which were however withdrawn in 1862.
These three presidency Banks continued till 1920. The three presidency Banks were amalgamated in 1921under Imperial Bank of India Act 1920 and new name came as Imperial Bank of India.
Q.26. State the difference of scheduled and non-scheduled banks.
Ans :- In India commercial banks are divided into two categories. These are :
(a) Scheduled Bank.
(b) Non-scheduled Bank.
Scheduled banks are included in the second schedule of Reserve Bank of India. The banks which fulfil the following condition are include in the scheduled.
(i) The bank should have the paid up capital and reserve fund of Rs. 5 lakhs.
(ii) It must not be a partnership or a single owner firm but should be a corporation.
(iii) The bank should have to submit weekly return to the Reserve Bank of India.
Non-scheduled banks are those banks which names are not Included in the second schedule of Reserve Bank of India and which do not fulfil the above mention condition and are known as Non-scheduled bank. The Reserve Bank has no credit control on such bank.
Q.27. Write a short note on Public Sector Banks.
Ans :- Public sector banks include banks which are owned by the Central Government either directly or through the Reserve Bank of India. They have been set up as statutory corporation by Special Act passed by the Parliament. They are also termed as national banks. They can be classified into two categories.
(i) State Bank group.
(ii) Nationalised Bank group.
State Bank group comprises of State Bank of India and its seven associated banks . They State Bank of India was established under the State Bank of India Act 1955 by nationalised the Imperial Bank.
Nationalised Banks were established under the following two categories :
(a) The Banking Companies Act 1970 was passed for the transfer of undertakings of 14 banking companies each with a deposit of Rs. 50 crores or more to 14 new bodies corporate.
(b) The banking companies Act 1980 provided for the transfer of the undertaking of six more banks whose demand and time deposit liability exceeded Rs. 200 crores as on March 14, 1980, for six “New Banks”.
Q.28. Explain the meaning of Lead Bank Scheme.
Ans :- The lead Bank Scheme provides a new strategy of banking and area development in the branch expansion programme of banks in the post nationalisation phase of banking growth in the country.
The idea of lead bank scheme was initial by the Gadgil Study Group of the National Credit Council in October 1969. Realising the deficiency of banking facilities in the rural sector, the Gadgil Study Group recommended the adoption at an area approach to evolve plans and programme for the development of an adequate banking on credit structure in the rural area.
The idea was further endorse by the F.K.F. Nariman committee in its report submitted in November 1969. The committee recommended that each public sector bank should act as a lead bank by concentrating on certain district to fulfil its social obligation.
Following the recommendation of these two committees the Reserve Bank of India introduced Lead Bank Scheme in 398 district all over the country and allotted to public sector banks and a few private sector banks. They were suppose to play the role of leaders in the banking development.
Q.29. What are the functions of the State Bank of India ?
Ans :- The functions or the business transactions of the State Bank of India are stipulated under the State Bank of India Act 1955. Some of its major functions may be mentioned under :
(a) SBI perform its function as the Agent of Reserve Bank of India.
(b) SBI advance and lend money and open Cash credit against the security of stock, funds etc.
(c) SBI deals with Bill of Exchange.
(d) State Bank of India perform its functions as an Agent of Co-operative Bank and Government.
(e) SBI act as Liquidator and consolidator of the banking system.
(f) SBI deals with Foreign Exchange.
(g) SBI Receive Deposit from public and keeping accounts with cash.
Q.30. State three major achievements of the nationalised banks in India.
Ans :- The three major achievements of the nationalised banks in India are –
(a) Branch Expansion :- There has been a spectacular expansion of banks branches after nationalisation of major commercial banks in 1969. The number of branches of all scheduled commercial banks which increase from 4151 to 8262. Simultaneously the offices also increase within the country very speedily.
(b) Coverage of Rural Areas :- The main goal of the branch expansion policy in the post nationalisation period has been on increasing the banking facilities in the rural Areas. There has been a significant increase in the rural branches of banks since 1969. The number of branches in rural areas having population upto 10,000 has increase from 1832 in June 1969 to 32,459 in 2002.
(c) Credit Expansion :- The expansion of bank credit has also been more spectacular in the post bank nationalisation period over the period of 18 years before nationalisation, total advance of scheduled banks increase from Rs. 547 crore in 1951 to Rs. 3599 crore in 1969.
Q.31. What are the advantages of branch banking system ?
Ans :- Following are the advantages of branch banking system :
(a) Large scale operation.
(b) Geographical spreading of Risks.
(c) Facilities regarding Transfer of funds.
(d) Economy in cash Reserve.
(e) Equality in interest Rates.
(f) Proper use of Capital.
(g) Increase in banking facilities.
(h) Greater public confidence.
Q.32. State the differences between group banking and chain banking.
Ans :- Group banking refers to the system of banking in which two or more banks are directly controlled by a corporation, an association or a business trust. The holding company may or may not be banking company. Although each banks maintain its separate entity, but its business is managed by the holding company.
Chain banking is another form of group banking. It refers to the system in which two or more banks are brought under common Control by a device other than the holding Company. The common management may be by a single person or a group of person through stock ownership or otherwise. This type of banking system develop in U.S.A. towards the middle of 19th Century and remain popular till the great depression of 1929. The advantages and disadvantages of group banking and chain banking system are more or less similar to those of group banking system.
Q.33. State the differences between public sector and private sector banks.
Ans :- Private sector banks played a strategic role in the growth of joint-stock banks in India during the 1st half of 20th Century. There was a mushroom growth of the private sector commercial banks up to 1951 there was no single public sector banks in India as a commercial bank.
To improve the image of commercial banking system and to win the confidence of the public in January 2001 RBI issued new rules for licensing of new banks in the private sector.
The public sector banks include those banks which are owned by the Central Government either directly or through Reserve Bank of India. They have been set up as statutory Corporation by special Act passed by the Parliament. They are also termed as national banks. The public sector banks may be classified into the groups :
(a) State Bank Groups.
(b) Nationalised Bank Groups.
Public sector banks are controlled and managed by Reserver Bank of India, public sector bank has prior permission and licence from Reserve Bank of India. Public Sector banks also kept Reserve as Cash Reserve Ratio at R.B.I.
D. Long answer questions : Type-I
Q.34. Discuss the objectives of nationalisation of commercial Banks.
Ans :- The basic objectives of nationalisation of banks can be discuss as under.
(i) The elimination of concentration of economic power in the hands of a few.
(ii) Diversification of flow of bank credit towards priority sector much as agriculture, industry and export, weaker sections and backward areas.
(iii) Fostering of new classes of entrepreneurs so as to create sustain and accelerate economic growth.
(iv) Professionalisation of Bank Management.
(v) Providing adequate training as well as reasonable terms of service to bank staff.
(vi) Extending banking facilities to rural and unbanked area.
(vii) Mobilisation of savings among the people.
(viii) Bank staff should be proper trainer as well as reasonable terms of service.
(ix) Use of Bank credit for speculative and other unproductive purposes.
(x) The operation of banking system should be influence by a large social purpose.
Q.35. Mention clearly five differences between branch banking and unit banking.
Ans :- The five differences between Branch Banking and unit banking are as follows :
(i) In Branch banking system there are mandy branches all over the world.
But in unit banking there are no adequate branches.
(ii) People has many faith and advantages in Branch Banking. But in unit banking very low number of people has faith.
(iii) There are more capital in branch banking system whereas in unit banking capital is low.
(iv) In branch banking one branch can help the other branch. But in unit banking this type of facilities is not available.
(v) In branch banking system they can give more loans and advances but in unit banking system there is the restriction on loans and advances.
Q.36. Explain briefly about the growth of commercial banks in India during the post Independence period.
Ans :- After independence the emergency of planning in the country has provided direction and purpose to the commercial banks. A number of progress have taken place in the structure and functioning of India Banking system.
The commercial banking in India in recent years particularly after independence has been showed radical progress both Quantitatively and qualitative. The banking business has grown geographically over the length and breadth of the Country. The deposits and credit of banks have multiplied. The banks have also taken the new responsibility of serving the national plans and priorities for economic development. Various progress and achievements of banks in the post nationalisation period are as below.
(i) Lead Bank scheme was introduces.
(ii) There has been a spectacular expansion of bank branches after the nationalisation.
(iii) The main trust of branch expansion policy in the post nationalisation period has been on increasing the banking facilities in the rural area.
(iv) The expansion of bank credit has also been more spectacular in the post bank nationalisation period.
(v) Since nationalisation of banks there has been a significant increase in the deposit of commercial banks.
Q.37. Name the associate banks of the State Bank of India.
Ans :- The associated or subsidiaries banks of State Bank of India are :
(i) State Bank of Bikaner and Jaipur.
(ii) State Bank of Hyderabad.
(iii) State Bank of Indore.
(iv) State Bank of Mysore.
(v) State Bank of Patiala.
(vi) State Bank of Saurashtra.
(vii) State Bank of Trivandrum.
Q.38. Briefly explain the agency service rendered by commercial banks.
Ans :- A commercial bank performs certain Agency function for its customer. For this service the bank charges certain commission from its client. The various agency services rendered by the bank are as follows.
(i) Transfer of Funds :- The bank help its customer in transferring funds from one place to another.
(ii) Collecting customers Funds :- The bank collects the funds of its customer from other bank and credit them to their accounts.
(iii) Purchase and sale of shares :- The bank buys and sells stock and share of private company as well as government securities on behalf of its customer.
(iv) Payment of premium :- The bank pays premium to the insurance company on behalf of its customer.
(v) Income tax consultant :- The bank may also give advice to its customer on income tax matter. It may even prepare the income tax return of its customer on payment of its fees.
Q.39. Briefly explain the general utility services of commercial banks.
Ans :- The various general utility services rendered by commercial banks are as follows :
(i) It keeps in safe custody valuable documents and securities.
(ii) It provides safe deposit vaults.
(iii) It helps and guides in investment.
(iv) It renders free services for credit transfer.
(v) It supplies important statistical information.
(vi) It helps the customer and also others in preparing the return for income tax, sale tax, wealth tax etc.
E. Long answer questions : Type-II
40. Discuss the Evolution and Growth of commercial banking in India.
Ans :- The origin of commercial banking can be traceable in the early times of human history. In the ancient. Rome and Greece, the practice of storing precious metals and coins at safe place and clearing out money for public and private purpose on interest was prevalent. In England banking had its origin with the London Goldsmiths who in the 17th century began to accept deposit from merchant and others for safe keeping of money and other valuables. According to Crowth modern Banking has three ancestors.
(a) The Merchant.
(b) The Goldsmith.
(c) The Money Lender.
Business activities require remittances of money from one place to another and this is one of the important functions of a bank. Because of possibilities of theft of metallic money during transportation, the traders with high and wide spread reputation or credit, began to issue documents which were taken as title of money. This give rise to the institution of “Hindi” or the letter of transfer whereby the banker direct another banker to pay the bearer of Hundi the specific amount of money and debts this amount again the drawer of Hund.
The Goldsmith ancestry of the modern banks purely on English affairs. Since goldsmith dealt with precious metals they necessarily provided secure safe to protect them.
In a period when money consisted of gold and silver people largely because of the danger of theft, started leaving their precious bullion and coins in the custody of Goldsmiths. The next stage of development of banking came when the receipts for the deposit with the goldsmiths began to be used as a means of payment.
The next stage in the development of banking arises when the goldsmith becomes a money lender. This development was based on the goldsmiths discovery that is was not necessary to hold hundred percent of the coins deposited with them. The goldsmiths soon realised that an average daily withdrawals exceeded deposits.
Shortly the evolution of banking is related to the practice of safe keeping of gold and other valuables by the people with merchant/Goldsmith and Money Lender.
The modern commercial banking began in the country when the government was came to the need of banks in 1809 with the establishment of first presidency bank called the bank of Bengali in Calcutta. Then followed the establishment of two other presidency bank Bank of Bombay and Bank of Madras in 1840 and 1843 respectively. To each of these banks the government had subscribed Rs. 3 lakhs to their share Capital. The major part of the share are contributed by the European shareholder. These three Presidency Bank continued till 1920. In 1921 they were amalgamated into Imperial Bank of India.
There was a strong demand during the early years of 20th century to form of Central Bank in the Country by amalgamating the presidency bank. Consequently in 1921 the Imperial Bank was established by amalgamation of Presidency Bank of Bombay, Calcutta and Madras. The Imperial Bank was nationalised in 1955 and new name came as State Bank of India.
In the first quarter of 20th Century it was earnestly demanded to established central bank for India by amalgamation of Presidency bank. The Imperial bank functioned as a clearing house and the sole banker to the government. The Imperial bank was nationalised in 1955 and new name given as State Bank of India.
Besides it in 1935 Reserve Bank of India was established under RBI Act 1934.
Q.41. Discuss the functions of Commercial Bank.
Ans :- The functions of Commercial Bank are as follows :
1. Receiving Deposit :- The first important function of commercial banks is to receive the deposit from those who can save. To attract saving from all sorts of individual the banks maintain the following types of accounts.
(a) Fixed Deposit A/c :- In this account money is deposited for fixed period of time.
(b) Current Deposit A/c :- In this account money is received everyday. Normally a minimum rate of interest is paid in this account.
(c) Saving Deposit A/c :- The aim of this account is to encourage and mobilise small savings of the public.
2. Lending Money :- The second important functions of Commercial banks is to lend their deposits to the needy borrowers. Before advancing loans to the borrower the bank satisfies itself fully about their credit worthiness. The various types of loans and advances are money at call, cash credit, overdraft, discounting of Bill of Exchange, term loans etc. The bank must follow certain principal while lending money. These are safety, liquidity, profitability, purpose, of work and diversification of risk etc.
Besides the above a commercial bank perform certain agency functions for its customer. For these services the bank charge certain commission from its client. The various functions are :
(a) Transfer of Funds :- The bank helps its customers in transferring funds from one place to another. The instrument used for this purpose is known as Bank draft.
(b) Collecting Customers funds :- The bank collect the funds of its customer from other banks and credit them to their accounts.
(c) Purchases and sells of shares :- The bank buys and sells stock and share of private companies as well as government securities on behalf of its customer.
(d) Collecting Dividends :- The bank collect dividend as well as interest on the share and debenture of its customer and credit them to their accounts.
(e) Payment of premium :- The bank pays premium to the insurance companies on behalf of its customers.
(f) Trustee and Executor :- The bank also act as the Trustee and the Executor.
(g) Income tax consultant :- The bank may also give advice to customers on Income Tax matter. It may even prepare the income returns of its customers on payment of its fees.
(h) Act as Correspondent :- The bank may also act as a correspondent, agent representative of its customer. The bank may obtain passport, travellers tickets and even secure air and sea passages of its customer.
Q.42. Discuss the advantages and disadvantages of Branch Banking System.
Ans :- Following are the advantages and disadvantages of Branch Banking System.
● Advantages :
1. Large scale operation :- A big bank possessing huge financial resources and having a number of branches, can enjoy certain advantages of large scale operation. Its huge financial resources enable it to recruit skill, qualified and Experience personnel to carry on its banking activities.
2. Geographical spreading of Risk :- The spreading of risk geographically is another important advantages of the branch banking system. Since there is diversification of risk in branch banking system there is no danger of failure to the bank concern.
3. Facilities Regarding Transfer of Funds :- Since the branches of the bank, under branch banking system are spread all over the country it is very easy and cheap for it to transfer from one place to another of Funds.
4. Economy in cash Reserve :- Branch banking result is an economy of cash reserves. A huge bank account with a number of branches in different parts of the country, can afford to manage with a lower cash reserve ratio.
5. Equity in Interest Rates :- Branch Banking has the additional advantages of bringing about equality in interest rates.
6. Proper use of Capital :- The branch banking can make a proper use of its financial resources. If a branch bank happened to have plenty of deposit but no opportunity for investment.
● Disadvantages :
Following are the disadvantages of Branch Banking System.
(a) Lack of initiative :- The branches of bank under this system suffer from a complete lack of initiative on important banking problems conforming them.
(b) Possibility of Monopoly :- Under branch banking there is always possibilities of the emergence of the monopoly in banking. The reason is that the activities of all the branches are controlled by the head office.
(c) Unnecessary competition :- The great disadvantages of branch banking is that there arises under it. Unhealthy type of competition among different banks.
(d) Expensiveness :- This system is much more expensive than the unit banking system.
(e) Difficulties in Foreign Country :- Under this system a bank opening branches in foreign countries has to face a number of difficulties and problems. The reason is Banking low Trade condition, momentary and credit policies.
Q.43. Explain the advantages and disadvantages of unit Banking System.
Ans :- Following are the main advantages of unit banking :
(a) Convenience of management and control :- Since the size of the bank under unit banking system is small its management, supervision and control are very easy.
(b) Discontinuance of Inefficient Branches :- As pointed out above weak and non-profitable branches continue to be fed by strong and profitable branches. Under the system of branch banking. But this is not possible under unit banking.
(c) No delay in Banking Business :- A great advantage of unit banking is that there is no delay of any kind in taking decision on important problems concerning the unit bank. The reason is that the bank in question has not to wait for directives from the head office. The local officers of the unit Bank are competent of take decisions themselves on various problems conforming the bank.
(d) Initiative in Business :- Since the bank officers under the unit banking system are fully engaged with local problems, they can show initiative in taking important decisions on the various issues.
Disadvantages of Unit Banking :
Following are the disadvantages of unit Banking :-
(a) No Geographical Distribution of Risks :- In this banking system the geographical distribution of the business risk is not possible because the bank is located at one place only.
(b) Inequality of Interest Rates :- Since there is not arrangement for the cheap remittance of funds under unit banking system there often arises inequality in the rates of interest in different part of the country.
(c) Absence of Efficiency in Banking Business :- Since the size of the unit bank is small it can not afford to adopt the latest and the most up-to-date methods of banking.
(d) Little Development :- The unit banks are not in a position to open uneconomic branches in the country because their financial resources are already limited and they can not afford to open branches.
(e) Inability to face crisis :- The financial resources of a unit bank are rather limited. Hence it finds itself unable to face economic crisis.
(f) Encouragement :- To remove the defects and drawbacks of unit banking the American banks have resorted to what is known as chain banking system. Under this system an individual or a group of individual can own a number of banks at the same time.
Q.44. Explain the advantages and disadvantages of Group Banking System.
Ans :- Following are the advantages of Group Banking :-
(a) Each member bank retains its separate entity and maintain its board of directors.
(b) There is great liquidity and mobility of resources.
(c) There is economy of advertisement expenses. There is also a common purchasing agency which leads to economy in purchases.
(d) Service of expert can be made available to the member banks to manage their business efficiency.
(e) Common standardised accounting system improves the working of the member banks.
(f) Large scale banking operation allow superior credits facilities.
● Disadvantages of Group Banking
(a) The control of member banks under the group banking system is less direct and more flexible that of branch banking.
(b) The failure of bank has its adverse effects an other member banks.
(c) Efficiency of Member banks is adversely effected by the management of the holding company which used the banks as vehicles of manipulation and speculation.
(d) The common purchasing agencies often indulge in corrupt practises.
Q.45. What is Lead Bank Scheme ? State the affect of this scheme.
Ans :- In order to ensure on accelerated rural development in the country soon after nationalisation of Banks, the RBI constituted a committee under the chairmanship of Mr. FKF Nariman in 1969. This committee recommended a scheme to involve the commercial bank, cooperative Institution, government and semi-government agencies in the area for the process of economic development. In December 1969 this scheme was introduced by the RBI. This scheme came to be known as Lead Bank Scheme. Under this scheme the country was divided into 336 districts and they were distributed among major scheduled banks.
The lead bank has carry out surveys in virtually all of the 336 districts of the country by June 1974. As at the end of June 1978 bank had prepared district credit plans in respect of 380 district of which 363 plans had been launched. The guidelines for the preparation of the fourth round of district credit plan as approved by the high power committee on Lead Bank scheme in March 1987 were issued.
The lead bank scheme which is intend to reduce regional disparities and also foster development of backward areas covered 458 districts at the end of June 1990. During the period in June 1, 1996 to June 30, 1997 the lead bank responsible in respect of 5 new district formed as a result of recognition of some of the district in the state of Bihar, Assam, Rajasthan was allowed to public sector banks and the total number of districts covered the scheme at the end of June 1997 was 463.
Q.46. Discuss the functions of Lead Banks.
Ans :- The main objectives of Lead Bank scheme is to improve the tempo of economic growth by providing gainful employment to the people particularly the small borrowers by reducing regional, economic as also special and functional disparities and by correcting sectoral imbalances in the economy. Keeping this objectives in view the Lead Banks were expected to prepare the district credit closely working with the government, Govt. agencies, block office etc. simultaneously taking into account five year plan programmes and other development programmes.
The following are the major functions of Lead Bank :
(a) To survey the resources and potential for banking development by identifying unbanked centres in the allotted districts.
(b) To set up branches in a phased manner.
(c) To identify and study local problems.
(d) To find out the number of industrial and commercial units and other establishment which do not have banking accounts.
(e) To evolve and Integrated credit plan by examining the shortage of marketing facilities for agricultural produce and industrial output.
(f) To recruit and trained banking staff for counselling the small borrowers and farmers in the priority sector and follow up and inspection of the end use of bank credit.
(g) To provided assistance in lending agencies.
(h) To keep contacts and liaison regularly with government and semi government agencies.
Q.47. Write a brief note on the State Bank of India.
Ans :- At the first time the European British Agency houses with the share of Government establish three Presidency Bank in three Presidency towns namely Bombay, Calcutta and Madras. The name of the Bank was Bank of Bombay (1809) Bank of Calcutta (1840) and Bank at Madras (1843).
The three Presidency Bank were amalgamated in 1921 as a new name Imperial Bank of India under Imperial Bank of India Act 1920.
In 1955 the Imperial Bank was nationalised and new name came as State Bank of India. In start the State Bank of India was established in 1955.
Subsequently with the passing of the State Bank of India Act 1959 the State Bank of India took over as its associated/subsidiaries the following Seven (7) banks.
1. State Bank of Bikaner & Jaipur.
2. State Bank of India Hyderabad.
3. State Bank of Indore.
4. State Bank of Mysore.
5. State Bank of Patiala
6. State Bank of Saurashtra and
7. State Bank of Trivandrum.
As a commercial Bank the functions of State Bank of India are stipulated under the State Bank of India Act 1955.
The State Bank of India together with its subsidiaries banks are known as State Bank Group. State Bank of India is largest commercial Bank all over the country in terms of Branch networking resources and network. On the basis of the number of its branches it has the largest office network of its kinds it the whole world. In the world setting it is only Indian bank which find a place within the hundred big banks in the name of world it terms of assets.
Q.48. Discuss briefly the functions of the State Bank of India.
Ans :- Following are the major function of State Bank of India.
(1) Agent of the Reserve Bank :- The State Bank of India acts as the agent of the Reserve Bank of India at all places in the country when there is no branches of RBI. Instead at RBI, it pays receives, collects and remits money etc.
(2) Advancing and Lending :- The SBI advances and lends money and open cash credit against the securities of stocks, funds, debentures, hypothecation of goods to the State Bank, bills of exchange etc.
(3) Dealing in Bill of Exchange :- The SBI undertakes the business of drawing, accepting discounting, buying and selling of Bill of Exchange and other negotiable instrument.
(4) Investment :- The investing of the funds of the bank in any specified securities and the conversation of the same into money.
(5) Remittances :- The issuing of demand draft telegraphic transfers and other remittances.
(6) Deposit :- Receiving of deposit and keeping cash account.
(7) Dealings in Gold and Silver :- The buying and selling of good and silver.
(8) Underwriting :- The underwriting of the issues of any stocks, shares debentures etc.
(9) Agent of cooperative Bank :- Acting as agent of any registered Cooperative Bank.
(10) Borrowing :- The borrowing of money for the purposes of business of State Bank.
(11) Agent of the Government :- Acting as an agent of Central and State government in implementing any scheme for financing the construction of dwelling houses.
(12) Administration of Estates :- The administration of estates for any purpose as on executor trustee or otherwise.
(13) Dealing in Foreign Exchange :- The SBI servers as a major authorised dealer of foreign exchange in the country.
Q.49. Discuss the performance of commercial banks after nationalisation.
Ans :- After Independence the emergency of planning in the country has provided direction and purpose to the commercial banks. A number of progress have taken place in the structure and functioning of Indian banking system. Important among them are discuss below :
The various performance of commercial banks after nationalisation period are discussed as below :-
1. Lead Bank Scheme :- The Lead Banks scheme was introduced by Reserve Bank of India towards the end of 1969 with the objective of enabling the commercial banks to assume the role of leadership for the development of banking and credit facilities throughout the country on the basis of area approach.
2. Branch Expansion :- There has been a spectacular expansion of branch banking after nationalisation of major commercial banks in 1969. The number of branches of all scheduled commercial bank which increase from 4151 to 8262 during the 18 years pre nationalisation period.
3. Coverage of Rural Areas :- The main trust of branch expansion policy in the post nationalisation period has been on increasing the banking facilities in the rural areas. There has been a significant increase in the rural branches of banks since 1969. The number of branches in rural areas having population upto 10,000 has increased from 1832 in June 1969 to 32459 in June 2002.
4. Credit Expansion :- The expansion of Bank credit has also been made more spectacular in the post bank nationalisation period over the period at 18 year before nationalisation total achieves of scheduled banks increased from Rs. 547 crore in 1951 to Rs. 3599 crore in 1969.
5. Expansion of Bank Deposits :- Since nationalisation of banks there has been a significant increase in the deposit of commercial bank. During the 18 years of per-nationalisation period the deposits in the scheduled commercial banks has been increase from Rs. 908 crores to Rs. 4646 crores in 1969.
Q.50. Discuss the main objectives and achievements of bank nationalisation in India.
Ans :- The main objectives behind nationalisation of banks can be discussed as under :
(a) The elimination of concentration of economic power in the hands of a few.
(b) Fostering of new classes of entrepreneurs so as to create sustain and accelerate the economic growth.
(c) Diversification of flow of Bank credit towards priority sectors such as agriculture small industry and export.
(d) Professionalisation of Bank Management.
(e) Providing adequate training as well as reasonable terms of service to bank staff.
(f) Extending burning facilities to unbanked rural areas.
(g) Mobilisation of savings among the people to the largest possible extent and to utilise them for productive purposes in accordance with priority and proper plans.
(h) The operation of banking systems should be influenced by a large social purpose and should be subject to close public regulation.
(i) Legitimate credit needs to private sector industry and trade, big or small should be met.
(j) It will be endeavour of the banks to be sure that the needs of productive sectors of the economy in particularly farmers, industries, self employed in an increasing manner.
(k) Use of bank credit for speculative and after unproductive purposes will be curbed.
(l) Bank staff will be provided training as well as reasonable terms of services.
(m) The emphasis on priorities areas new entrepreneurs and backwards areas will not be at the cost of economic viability.
Q.51. Discuss the progress of public sector banks in India.
Ans :- The progress of public sectors banks have been changing since the nationalisation of commercial banks in India in 1969. The main progress of public sector banks in India we may discuss as follows :
(a) Branch Expansion :- Since the nationalisation of commercial banks branch expansion has been taken as an important task of commercial banks. In order to mobilise savings the Indian Commercial bank have been multiplying their branches and carrying banking facilities to remote parts of the country. The total number of branches offices of both scheduled and non scheduled banks rise from 4,151 in 1951 to 51, 385 in 1985. At present total number of scheduled bank branches are more than 6,00000.
(b) Bank Deposit :- The commercial banks in India have been arising their deposit to higher levels.
(c) Expansion of Bank credit :- In response to the rapidly rising credit needs of agriculture and industry, the bank advances have registered tremendous increase.
(d) Diversification of credit :- Bank credit has income now far more diversified. By November 1983 the share of large and medium industry had declined to about 43 per cent.
(e) Priority Sector Lending :- The commercial banks in India have not only mobilised peoples savings on a satisfactory scale but have also diversified their lending pattern in accordance with planning requirements.
(f) Financing Foreign Trade :- The Indian commercial banks have also taken the active part during the planning area in expanding foreign trade.
(g) Supporting Government Borrowing :- The commercial banks in India have given valuable support to the government’s borrowing programme under the plans.
- Class 11 Finance Chapter 5 Negotiable Instruments
- Class 11 Finance Chapter 4 Different Types of Bank Accounts and Customers
- Class 11 Finance Chapter 3 Commercial Banking in India
- Class 11 Finance Chapter 2 Meaning and Different Types of Banks
- Class 11 Finance Chapter 1 Finance
Class 12 Banking Chapter 1 Commercial Banking in India Question answer to each chapter is provided in the list so that you can easily browse through different chapters HS 2nd Year Banking Chapter 1 Commercial Banking in India Notes and select needs one.
SCERT Class 12 Banking Chapter 1 Commercial Banking in India
Also, you can read the SCERT book online in these sections Solutions by Expert Teachers as per SCERT (CBSE) Book guidelines. These solutions are part of SCERT All Subject Solutions. Here we have given Class 12 Banking Chapter 1 Commercial Banking in India Solutions for All Subject, You can practice these here.
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