1. Discuss the general utility functions of a bank. (2015/2017/2018) (5marks)
-> General Utility functions- These are certain utility functions performed by the modern commercial bank to its customer for the community. These are:-
a) Locker Facility- Commercial bank provides a safety locker facility to its customer to keep valuable articles of customer’s n safe custody. These are kept in specially constructed strong rooms called ‘Lockers’.
b) Traveller’s cheques- Commercial bank issue traveller’s cheque for the benefit of its customers. It helps the customers to travel without fear of theft or loss of money.
c) Letter of Credit- Commercial banks also issue letters of credit to their customers to certify their creditworthiness. Letters of credit is a payment document provided by the buyer’s banker in favour of the seller. It is very popular in foreign trade where the importer and exporter are not known to each other.
d) Collection of statistics- Banks collects and publishes information relating to trade, commerce and industry. Hence, they advise customers on financial matters. This information is made available to various interested parties. Banks also publish valuable journals or bulletins containing research on financial, economic and commercial matters. This function of banks is known as ‘Money Creation’.
e) Act as referee- Banks may act as referee and supply information relating to financial standing, business reputation and respectability of customers to the third parties. It should be noted that the bank will act as referee only if it is desired by the customer.
f) Deals in foreign exchange- Banks are the most important dealers in foreign exchange. They buy and sell foreign currencies. They also collect and accept foreign bills of exchange and thus finance foreign trade.
g) Gift cheques- Banks offer gift cheque facilities to the general public. By paying an equivalent amount one can buy cheques for presentations on occasions like wedding, birthday etc.
h) Credit cards- Banks have also introduced credit card systems to enable a customer to purchase goods and services up to a certain limit on credit basis. Thus on the strength of credit cards one can purchase anything without having cash.
2. Discuss the primary function and secondary function of a commercial bank. (2015/2018) (5marks)
-> The primary function of a bank is:-
1. Acceptance of Deposits- It is the most important function of a bank. According to this function, the commercial bank accepts deposits from different individuals and organizations. The bank accepts deposits from them and provides all securities to them.
2. Making loans and advances-The second important function of a bank is advancing loans. The commercial bank earns interest by lending money.
3. Investment of funds- Besides loan and advances, banks also invest a part of its funds in govt. and industrial securities like govt. bills, share, debenture, etc from their market.
4. Credit Creations- The banks create credit. When a bank advances a loan, it does not give cash to the borrower. It opens an account in the name of the borrower. The borrower is allowed to withdraw money by cheque whenever he needs. This is known as Credit Creation.
The secondary functions of a bank are:-
1. Agency functions- These functions are performed by the banker to its own customer. Various agency functions of commercial bank are-
a) To collect and clear cheque, dividends and interest warrant.
b) To make payment of rent, insurance premium, etc.
c) To deal in foreign exchange transactions.
d) To purchase and sell securities.
e) To accept tax proceeds and tax returns.
2. General Utility functions- These are certain utility functions performed by the modern commercial bank to its customer for the community. These are:-
a) Locker Facility- Commercial bank provides a safety locker facility to its customers to keep valuable articles of customers in safe custody. These are kept in specially constructed strong rooms called ‘Lockers’.
b) Traveller’s cheques- Commercial bank issue traveller’s cheque for the benefit of its customers. It helps the customers to travel without fear of theft or loss of money.
c) Letter of Credit- Commercial banks also issue letters of credit to their customers to certify their creditworthiness. Letters of credit is a payment document provided by the buyer’s banker in favour of the seller. It is very popular in foreign trade where the importer and exporter are not known to each other.
d) Collection of statistics- Banks collects and publishes information relating to trade, commerce and industry. Hence, they advise customers on financial matters. This information is made available to various interested parties. Banks also publish valuable journals or bulletins containing research on financial, economic and commercial matters. This function of banks is known as ‘Money Creation’.
e) Act as referee- Banks may act as referee and supply information relating to financial standing, business reputation and respectability of customers to the third parties. It should be noted that the bank will act as referee only if it is desired by the customer.
f) Deals in foreign exchange- Banks are the most important dealers in foreign exchange. They buy and sell foreign currencies. They also collect and accept foreign bills of exchange and thus finance foreign trade.
g) Gift cheques- Banks offer gift cheque facilities to the general public. By paying an equivalent amount one can buy cheques for presentations on occasions like wedding, birthday etc.
h) Credit cards- Banks have also introduced credit card systems to enable a customer to purchase goods and services up to a certain limit on credit basis. Thus on the strength of credit cards one can purchase anything without having cash.
3. Write about the capital of the bank. (2015) (5marks)
-> Meaning of Capital is different for different types of banks. For:
- Nationalised Banks- In this case, the capital owned by the central government as on the date of the balance sheet as well as those raised from public issues are shown.
- Foreign Banks- In this case the amount brought in by banks by way of start up capital as prescribed by the Reserve bank as well as the amount of deposits kept with the Reserve banks are shown.
- Other Banks- Here, authorised, issued, subscribed, called-up capital are shown separately. Call-in-arrears are deducted and paid-up values of forfeited shares are added from/to the paid-up capital.
4. Discuss the evolution, origin and growth of banking in India. (2015/2017/2018/2019) (8marks)
-> There is no single word or answer to the questions relating to the origin of the word ‘bank’. According to some economists, the word ‘bank’ is derived from German word ‘Banck’ which means heap or mound or joint stock fund. From this, the Italian word, ‘Banco’ which means heap of money, was coined.
According to another group, the word bank is derived from the Greek word ‘banque’ which means a ‘bench’. It refers to a place where money-lenders and money changers used to sit and display their coins and transact business. Thus the origin of the word bank can be traced as follows:-
Banck-> Banco-> Banque-> Bank
Banking industry in India has a long history. It has travelled a long path to assume its present form. The banking industry in India started with small money lenders and has now large joint stock world class banks in its fold. The growth of banks in India is discussed below over two eras: A) Pre-Independence Period and B) Post-Independence Period.
A) Pre-Independence Period- Banking in its crude form is as old as authentic history. All throughout the period of India’s history, indigenous bankers and money lenders are recorded to have existed and carried on the business of banking and money lending on a large scale. From the early Vedic period right through the Moghul period as well as that of the East India Company’s rule until the middle of the 19th Century, indigenous bankers were the hub of the Indian Financial System providing credit not only to the trade but also to the Government.
Agency House: The Indigenous bankers lost their importance to a certain extent with the advent of the English traders in India. The starting of modern banking in India can be traced to the beginning of the East India Company’s trade relation with our country. The bank of Hindustan was the earliest bank started under European direction in India. The banking business of Agency House could not continue for long. Most of these Houses failed because of their complete disregard towards the principle of banking business. The Bank of Hindustan could not withstand the failure of its parent and was closed down in 1832.
Presidency Bank: The banking business of agency houses which survived and continued to carry on trade and banking together was progressively taken over by the presidency bank.
The three Presidency bank are:-
- The Bank of Bengal (1806)
- The Bank of Bombay (1840)
- The Bank of Madras (1843).
The three banks were established under the charter of East India Company. These banks acted as bankers to the East India Company at Calcutta, Bombay and Madras and performed Central banking functions for their respective areas.
Imperial Bank of India: The three presidency banks were amalgamated into the imperial bank of India which was brought into existence on 27th January 1921 by the Imperial bank of India was limited like that of shareholders of other banks registered under the company act. The imperial bank performed both central and commercial banking business.
The Central banking functions are:-
1. It acted as the sole banker to the government.
2. It acted as a banker’s bank.
3. It acted as an exchange bank and promoted foreign banks.
The Commercial banking functions are:-
1. Accepting deposits.
2. Making loans and advances.
3. Remittance of funds from one place to another.
4. Safe custody of valuables.
B) Post-Independence- The government took major steps in the Indian Banking Sector Reforms after Independence. In 1955, it nationalized the Imperial Bank of India (the State Bank of India Act) with extensive banking facilities on a large scale, especially in rural and semi-urban areas as the first phase of nationalization. It formed the State Bank of India (SBI) to act as the principal agent of RBI and to handle banking transactions of the Union and the State Government of the Country.
In 1969, seven subsidiary banks of the State Bank of India were nationalized as a major process of nationalization due to the effort of then Prime Minister Mrs. Indira Gandhi, Later in 1969, 14 Major Private Commercial Banks in the country were nationalized. Again in 1980, 6 more banks were nationalized. In 1993, a new bank was merged with Punjab National Bank. So, there are 19 nationalized banks in our country at present.
5. What do you mean by internal and external organization of commercial banks? Describe the different departments of a commercial bank. (2015/2017/2018) (8marks)
-> Internal organization of a bank refers to the organization which establishes a structural relationship between different working groups and between different departments. Internal organisation of a bank is shown below:-
1. Shareholders
2. Board of directors
3. Chairman
4. Managing director
5. General Manager
6. Deputy General Manager
7. Departmental head or officer.
External organisation of a business concern means legal and constitutional form of a business organisation. It is based on ownership division. Examples of external organisations are sole trade, partnership, company, state enterprise etc. In India, a commercial bank is set up as joint stock companies under the companies Act and sole trade and partnership basis is not allowed.
The different departments of a bank are discussed below:-
1. Secretary department- It is concerned with secretarial work like organising meetings preparation of agenda of the meeting, sending notice of meeting etc.
2. Law department- This department deals with the legal aspects of business and takes steps to solve the legal problems.
3. Accounts department- This department prepares and maintains all the books of accounts like profit and loss account, balance sheet, income expenditure account etc.
4. Personnel department- This department is concerned with the selection of the staff and their training, appointment, salary, pension etc.
5. Statistics department- The statistics department has the duty of keeping statistical reports of various activities of different departments of the bank.
6. Inspection department- This department looks after the working of different departments and takes necessary steps for its improvement.
6. Discuss the agency functions of a bank. (2016) (5marks)
-> Agency functions- These functions are performed by the banker to its own customer. For these services, the bank charges certain commission from its customers. Various agency functions of commercial bank are-
a) To collect and clear cheque, dividends and interest warrant.
b) To make payment of rent, insurance premium, etc.
c) To deal in foreign exchange transactions.
d) To purchase and sell securities.
e) To accept tax proceeds and tax returns.
7. What are the secondary functions of a bank? (2016) (5marks)
-> The secondary functions of a bank are:-
1. Agency functions- These functions are performed by the banker to its own customer. Various agency functions of commercial bank are-
a) To collect and clear cheque, dividends and interest warrant.
b) To make payment of rent, insurance premium, etc.
c) To deal in foreign exchange transactions.
d) To purchase and sell securities.
e) To accept tax proceeds and tax returns.
2. General Utility functions- These are certain utility functions performed by the modern commercial bank to its customer for the community. These are:-
a) Locker Facility- Commercial bank provides a safety locker facility to its customer to keep valuable articles of customers in safe custody. These are kept in specially constructed strong rooms called ‘Lockers’.
b) Traveller’s cheques- Commercial bank issue traveller’s cheque for the benefit of its customers. It helps the customers to travel without fear of theft or loss of money.
c) Letter of Credit- Commercial banks also issue letters of credit to their customers to certify their creditworthiness. Letters of credit is a payment document provided by the buyer’s banker in favour of the seller. It is very popular in foreign trade where the importer and exporter are not known to each other.
d) Collection of statistics- Banks collects and publishes information relating to trade, commerce and industry. Hence, they advise customers on financial matters. This information is made available to various interested parties. Banks also publish valuable journals or bulletins containing research on financial, economic and commercial matters. This function of banks is known as ‘Money Creation’.
e) Act as referee- Banks may act as referee and supply information relating to financial standing, business reputation and respectability of customers to the third parties. It should be noted that the bank will act as referee only if it is desired by the customer.
f) Deals in foreign exchange- Banks are the most important dealers in foreign exchange. They buy and sell foreign currencies. They also collect and accept foreign bills of exchange and thus finance foreign trade.
g) Gift cheques- Banks offer gift cheque facilities to the general public. By paying an equivalent amount one can buy cheques for presentations on occasions like weddings, birthdays etc.
h) Credit cards- Banks have also introduced credit card systems to enable a customer to purchase goods and services up to a certain limit on credit basis. Thus on the strength of credit cards one can purchase anything without having cash.
8. Explain the capital and licensing of a Commercial Bank. (2016/2017) (4+4=8)
-> Meaning of Capital is different for different types of banks. For:
- Nationalised Banks- In this case, the capital owned by the central government as on the date of the balance sheet as well as those raised from public issues are shown.
- Foreign Banks- In this case the amount brought in by banks by way of start up capital as prescribed by the Reserve bank as well as the amount of deposits kept with the Reserve banks are shown.
- Other Banks- Here, authorised, issued, subscribed, called-up capital are shown separately. Call-in-arrears are deducted and paid-up values of forfeited shares are added from/to the paid-up capital.
According to Sec. 22 of the Banking Regulation Act, 1949, no banking company can carry on banking business unless it holds a license granted by the RBI. Before granting license, the RBI may look into the following matters:
a) The bank is in position to pay to the depositors in full.
b) The affairs of the bank should not conduct in a way which is detrimental to the interest of its depositors.
c) In case of foreign banks, the carrying of banking business will be in the public interest.
d) Financial position of the bank is sound.
Cancellation of the license: The RBI has been empowered to cancel a license granted to a banking company if:
a) The company ceases to carry on banking business in India or
b) Any of the conditions imposed by the RBI is not complied with by the banking company.
A banking company whose license has been cancelled may appeal to the central government within 30 days.
