1. Narrate five differences between co-operative bank commercial banks. (2015/2016/2018) (5marks)
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| Basic | Commercial Bank | Co-operative Bank |
| Meaning | A bank that offers banking services to individuals and businesses I know as a commercial bank. | A bank set up to provide finance to agriculturists, rural industries and to trade and industry of urban areas (but up to a limited extent). |
| Nature | These are ordinarily financial institutions. | These are not profit seeking institutions. |
| Credit creation | Commercial bank can create credit | Co-operative bank can create credit. |
| Banking service | Commercial banks offer an array of services. | Co-operative banks have a comparatively less variety of services. |
| Interest rate on deposits | In commercial banks interest rate on deposits is less. | In co-operative banks, the interest rate on deposits is slightly higher. |
2. Elaborately discuss the different types of banks. (2016) (5marks)
-> In modern times banking business has attained much popularity and importance. The following are the different types of bank which are functioning in modern times:
a) Commercial Bank- Commercial banks are those banks which perform all functions of ordinary banking business such as accepting deposit, advancing loan, credit creation and agency and utility function. Commercial bank is a profit seeking institution in the banking sector of a country and needs the short and medium term finance requirement for economics.
Function of commercial bank:-
1. It accepts deposits and withdrawals from the public.
2. Commercial banks provide loans and advances to the general public and also to business organisations.
b) Co-operative Bank- A co-operative bank is a financial entity which belongs to its member who is at the same time the owner and the customer of their bank. Co-operative banks offer short term and medium term loans to the agricultural sector. Farmers get various kinds of loans for purchasing various agricultural inputs from co-operative banks.
c) Savings Banks- A saving bank is a financial institution whose primary purpose is accepting savings deposits and paying interest on those deposits. In this account money can be deposited any number of times however, restrictions are put on withdrawals from the account. Saving accounts are opened to encourage the people to save money and collect their savings. Saving accounts can be opened by salaried people, children, senior citizens etc.
d) Development Banks- Development banks are specialized financial institutions which provide medium and long term finance to private entrepreneurs and help in economic development of the country.
Functions of Development Banks:-
a) They provide risk capital.
b) They provide long-term and medium-term finance to industrial undertakings for purchase of new plants and machinery, expansion, modernization, etc.
c) They purchase the shares and debentures of companies and thus provide them long-term capital.
d) They help the companies in raising capital from the capital market.
e) They underwrite the public issues of shares and debentures by the companies.
e) Investment Banks- Investment Banks are those banks which are specialized in providing medium and long term financial assistance to business and industry. They are also known as Industrial Banks as they are mainly concerned with industrial finance.
Features of Investment Banks:-
1. They accept long term deposits from the public.
2. They provide long term funds to business and industry to meet their fixed capital requirements.
3. They subscribe to the shares and debentures issued by industrial concerns.
4. They underwrite the issues of shares and debentures and help selling these securities to the investing public.
3. Mention four Development Banks in India. Explain the main functions of the Development Bank. (2016) (4+4=8)
-> Some important Development Banks are:-
1. Industrial Finance Corporation of India (IFCI):
The IFCI was the first development bank established in India in 1948. It has been converted into a public limited company with effect from 1 July, 1993. Its main objective is to make medium and long term credit to industrial concerns in the private, public, joint and cooperative sectors in India.
It is a subsidiary of the IDBI which holds 50 per cent of its share capital and the remaining 50 per cent is held by banks, insurance companies, and co-operative banks. It augments its resources by borrowing from the Government of India, RBI, IDBI, UT1, LIC and by issuing its bonds and debentures in the market, and by borrowing in foreign currency from the World Bank and other foreign organisations.
2. Industrial Development Bank of India (IDBI):
The IDBI was established in July 1964 as a wholly owned subsidiary of the Reserve Bank but was made an autonomous institution in February 1976. At the time of its formation, it took over the Refinance Corporation for Industry which was set up in June 1958. At present, the IFCI, UTI and Small Industries Development Bank of India (SIDBI) are its subsidiaries.
Since 1986, the authorised capital of IDBI has been raised to Rs. 1,000 crores which can be further increased to Rs. 2,000 crores. It mobilises funds through borrowings from the Government of India, the RBI, by way of bonds/debentures, by selling capital bonds, through investment deposit account scheme, foreign currency borrowings, etc.
3. Industrial Credit and Investment Corporation of India (ICICI):
The ICICI was established in January 1955 as a public limited company. It is a private sector development bank in India. The World Bank played a key role in its formation. Its authorised capital is Rs. 100 crores. About 11 per cent of its share capital is held by the World Bank and other foreign financial institutions, and the remaining by Indian Banks, UTI, GIC, LIC, etc. During 1990-91 for the first time, ICICI entered the capital market with a public issue and raised Rs. 100 crores.
4. Industrial Investment Bank of India (IIBI):
Earlier the IIBI was known as the Industrial Reconstruction Corporation of India and renamed as Industrial Investment Bank of India from March 27,1997. It is the principal credit and reconstruction institution for rehabilitation of sick and closed industrial units in the public, joint and cooperative sectors and those units in the private sector whose management has been taken over under the Industrial (Development & Regulation) Act.
Functions of Development Banks:-
a) They provide risk capital.
b) They provide long-term and medium-term finance to industrial undertakings for purchase of new plants and machinery, expansion, modernization, etc.
c) They purchase the shares and debentures of companies and thus provide them long-term capital.
d) They help the companies in raising capital from the capital market.
e) They underwrite the public issues of shares and debentures by the companies.
4. What are the differences between Commercial Bank and Central Bank? (2017/2019) (5marks)
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| Basis | Central Bank | Commercial bank |
| Meaning | The bank which looks after the monetary system of the country is known as the Central Bank. | The establishment, which provides banking services to the public, is known as Commercial Bank. |
| What is it? | It is a banker to the banks and the government of the country. | It is the banker to the citizens of the nation. |
| Profit motive | It does not exist for making profit for its owners. | It exists for making profit for its owners. |
| Monetary Authority | It is the supreme monetary authority with wide powers. | No such authority. |
| Deals with | Banks and Governments. | General Public. |
5. Describe the Characteristics of Regional Rural Bank. (2017/2019) (5marks)
-> Regional Rural Banks were set up on the recommendations of a working group headed by M. Narasimham in 1975. RRBs are local level banking organisations operating in different states of our country to fulfil the needs of small and marginal farmers, agricultural labourers and landless workers, small businessmen, etc. by providing short-term and medium-term credit.
Characteristics of Regional Rural Bank:-
1. The RRBs have a particular operation area. They remained confined to a particular district.
2. They are sponsored by the public sector bank.
3. The authorized capital of RRBs is Rs. 5 crore at present and issued capital is at Rs. 1 crore.
4. The RRBs are dependent on NABARD for financial support. The NABARD provides refinance to the RRBs at concessional interest rate.
