Economic Environment of Business_6

What Is Bank
It is a financial institution that deals in money and its substitutes and provides other financial services.
Banks accept deposits and make loans and derive a profit from the difference in the interest rates paid and charged, respectively.

Functions of a bank

1) Primary functions

a) Accepting deposits:

- Fixed a/c

- Current a/c

- Savings a/c

b) Lending money:

- Term loans

- Overdraft

- Cash credit

2) Secondary Functions

Anywhere Banking, ATMs
Debit cards
Safe Deposit boxes
Doorstep Banking
Mutual Funds
RTGS (Real Time Gross Settlement System)

STRUCTURE

Reserve bank of India

The R.B.I is the apex body in the banking system of India. It is the supreme monetary authority in the country.
The R.B.I was established on 1st April 1935. It was nationalized on 1st January 1949

Functions of RBI

Currency Issue.
Banker to the government.
Bankers bank.
Exchange management and control.
Credit control.
Collection and publication of data.
Agricultural Finance.
Promotion of economic Development

Objective of Monetary Policy
Controlled expansion policy
Channelising credit to desired sectors
Employment generation
External stability
Mobilisation of saving

Methods Of Monetary Controls

1) General Credit Control:
The Quantitative Tools
- Bank Rate
- Cash Reserve Ratio
- Statutory Liquidity Ratio
- Open Market Operation
2) Selective Credit Control:
The Qualitative Tools
- Minimum Margin Requirement
- Ceiling on Credit
- Discriminatory Interest Rates

Nationalisation

July 19, 1969 - A Significant Milestone in the Indian Banking History
For the Achievement of social and developmental goals.

Why Nationalisation?

Diversion of funds to weaker sections
Prevention of Monopolies
Physical extension of banking services
Directing and utilising funds according to plan priorities
Expansion of agricultural credit
Proper allocation of credit

Achievements of Nationalisation

Branch expansion: from 8,262 in 1969 to 62,264 in 1999
Deposit mobilization: from Rs. 4,646 crore in 1969 to Rs. 4,33,819 crore in 1999
Credit Expansion: Loan accounts rose from 4 lakhs to 3.5 crores between 1969 and 1991
Advances to priority sector grew from 14% to 41% between 1969 and 1991
Employment generation and poverty eradication

Limitations Of Nationalisation

Non-Performing Assets (NPAs)
Political and administrative interference
Increasing expenditure of banks
Inadequate credit allocation to rural areas