BCOM 1ST YR Commercial Bank - Unit I

Commercial bank – Unit I
B.Com I Year
Commercial bank
• A commercial bank is a kind of financial institution that
carries all the operations related to deposit and
withdrawal of money for the general public, providing
loans for investment, and other such activities. These
banks are profit-making institutions and do business
only to make a profit.
• The two primary characteristics of a commercial bank
are lending and borrowing. The bank receives the
deposits and gives money to various projects to earn
interest (profit).
Function of Commercial Bank
• The functions of commercial banks are classified into two main divisions.
Primary functions
• Accepts deposit : The bank takes deposits in the form of saving, current, and
fixed deposits. The surplus balances collected from the firm and individuals are lent
to the temporary requirements of the commercial transactions.
• Provides loan and advances : Another critical function of this bank is to offer
loans and advances to the entrepreneurs and business people, and collect interest.
For every bank, it is the primary source of making profits. In this process, a bank
retains a small number of deposits as a reserve and offers (lends) the remaining
amount to the borrowers in demand loans, overdraft, cash credit, short-run loans,
and more such banks.
• Credit cash: When a customer is provided with credit or loan, they are not provided
with liquid cash. First, a bank account is opened for the customer and then the
money is transferred to the account. This process allows the bank to create money.
Secondary functions
• Discounting bills of exchange: It is a written agreement acknowledging

the amount of money to be paid against the goods purchased at a given
point of time in the future. The amount can also be cleared before the
quoted time through a discounting method of a commercial bank.
• Overdraft facility: It is an advance given to a customer by keeping the
current account to overdraw up to the given limit.
• Purchasing and selling of the securities: The bank offers you with the
facility of selling and buying the securities.
• Locker facilities: A bank provides locker facilities to the customers to
keep their valuables or documents safely. The banks charge a minimum of
an annual fee for this service.
• Paying and gathering the credit : It uses different instruments like a
promissory note, cheques, and bill of exchange.
Types of Commercial Banks
• There are three different types of commercial banks.
• Private bank –: It is a type of commercial banks where private individuals
and businesses own a majority of the share capital. All private banks are
recorded as companies with limited liability. Such as Housing Development
Finance Corporation (HDFC) Bank, Industrial Credit and Investment
Corporation of India (ICICI) Bank, Yes Bank, and more such banks.
• Public bank –: It is a type of bank that is nationalised, and the government
holds a significant stake. For example, Bank of Baroda, State Bank of India
(SBI), Dena Bank, Corporation Bank, and Punjab National Bank.
• Foreign bank –: These banks are established in foreign countries and have
branches in other countries. For instance, American Express Bank, Hong
Kong and Shanghai Banking Corporation (HSBC), Standard & Chartered
Bank, Citibank, and more such banks.
Examples of Commercial Banks
• Few examples of commercial banks in India are as
follows:
• 1. State Bank of India (SBI)
• 2. Housing Development Finance Corporation (HDFC)
Bank
• 3. Industrial Credit and Investment Corporation of
India (ICICI) Bank
• 4. Dena Bank
• 5. Corporation Bank
E-Banking
B.Com I Year
Meaning of e-banking
• Electronic banking has many names like e banking,
virtual banking, online banking, or internet banking. It is
simply the use of electronic and telecommunications
network for delivering various banking products and
services. Through e-banking, a customer can access his
account and conduct many transactions using his
computer or mobile phone.
Importance of e-banking
For Banks
1.Lesser transaction costs – electronic transactions are the
cheapest modes of transaction
2.A reduced margin for human error – since the information is
relayed electronically, there is no room for human error
3.Lesser paperwork – digital records reduce paperwork and make
the process easier to handle. Also, it is environment-friendly.
4.Reduced fixed costs – A lesser need for branches which
translates into a lower fixed cost.
5.More loyal customers – since e-banking services are customer-
friendly, banks experience higher loyalty from its customers.
For Customers
1.Convenience – a customer can access his account and
transact from anywhere 24x7x365.
2.Lower cost per transaction – since the customer does
not have to visit the branch for every transaction, it
saves him both time and money.
3.No geographical barriers – In traditional banking
systems, geographical distances could hamper certain
banking transactions. However, with e-banking,
geographical barriers are reduced.
For Businesses
1.Account reviews – Business owners and designated staff members can access the
accounts quickly using an online banking interface. This allows them to review the
account activity and also ensure the smooth functioning of the account.
2.Better productivity – Electronic banking improves productivity. It allows the automation of
regular monthly payments and a host of other features to enhance the productivity of
the business.
3.Lower costs – Usually, costs in banking relationships are based on the resources utilized.
If a certain business requires more assistance with wire transfers, deposits, etc., then the
bank charges it higher fees. With online banking, these expenses are minimized.
4.Lesser errors – Electronic banking helps reduce errors in regular banking transactions.
Bad handwriting, mistaken information, etc. can cause errors which can prove costly.
Also, easy review of the account activity enhances the accuracy of financial transactions.
5.Reduced fraud – Electronic banking provides a digital footprint for all employees who
have the right to modify banking activities. Therefore, the business has better visibility
into its transactions making it difficult for any fraudsters to play mischief.
E-banking in India
• In India, since 1997, when the ICICI Bank first offered internet banking services,
today, most new-generation banks offer the same to their customers. In fact, all
major banks provide e-banking services to their customers.
• Popular services under e-banking in India
• ATMs (Automated Teller Machines)
• Telephone Banking
• Electronic Clearing Cards
• Smart Cards
• EFT (Electronic Funds Transfer) System
• ECS (Electronic Clearing Services)
• Mobile Banking
• Internet Banking
• Telebanking
• Door-step Banking
• Services available in india
• Bill payments, Funds transfer, Investing and Shopping

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Commercial bank – Unit I

• Discounting bills of exchange: It is a written agreement acknowledging

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