Table Of Contents

Introduction............................................................................................. ...................2

Methodology........................................................................................................ .......2

Questionnaire...................................................................................... ....................3

Interviews..................................................................................................... ...........3

Critical analysis..........................................................................................................4

Credit Card:.................................................................................... .........................4

Loan:..................................................................................... ..................................6

Car Financing:..................................................................................................... .....7

Social Impact................................................................................................. .............8

Credit Cards:.......................................................................................................... ..8

Loan:..................................................................................... ..................................8

Auto Financing:............................................................................................... .........9

Banking Page 1
 Introduction
Commercial Banking is a kind of banking where banking services are provided to individuals,
small businesses and large organizations. Commercial banking has changed the economic
scenario in not only Pakistan but all around the world. It has given a boost to the buying power
of common people by introducing lease schemes like car finance, home finance, Laptop finance,
education, credit-debit cards and marriage finance. Now common man is able to enjoy such
facilities.

Banks exist because they help reconcile the conflicting desires of savers and borrowers. Savers
want freedom — access to their money on short notice. Borrowers want commitment: they don’t
want to risk facing sudden demands for repayment.

Normally, banks satisfy both desires: depositors have access to their funds whenever they want,
yet most of the money placed in a bank’s care is used to make long-term loans. The reason this
works is that withdrawals are usually more or less matched by new deposits, so that a bank only
needs a modest cash reserve to make good on its promises.

But sometimes — often based on nothing more than a rumor — banks face runs, in which many
people try to withdraw their money at the same time. And a bank that faces a run by depositors,
lacking the cash to meet their demands, may go bust even if the rumor was false.

Worse yet, bank runs can be contagious. If depositors at one bank lose their money, depositors at
other banks are likely to get nervous, too, setting off a chain reaction. And there can be wider
economic effects: as the surviving banks try to raise cash by calling in loans, there can be a
vicious circle in which bank runs cause a credit crunch, which leads to more business failures,
which leads to more financial troubles at banks, and so on.

Methodology
We gathered data from both primary and secondary data sources. But our main focus was
primary source of data and secondary source of data is our second preference.

Banking Page 2
The main sources of primary data are

• Focus group

• Questionnaire

• Interviews

• Focus group

We have conducted a focus group of five people, from which two were users of banks, two were
the employees of banks one did internship in bank and other is bank manager one was the
religious scholar.

Questionnaire
We develop a questionnaire and gather data from users and bank account holder that’s using
credit card facility. We got a bundle of information from questionnaire.

Interviews
We have conducted interview from person to person and some users of credit cards. Some of our
friends are working in banks we met with them and got sufficient information

Our main sources of secondary data are as following:-

• Internet

• Magazine

• Books

• Research papers

Banking Page 3
 Critical analysis

Credit Card:
A credit card is a system of payment named after the small plastic card issued to users of the
system. A credit card is different from a debit card in that it does not remove money from the
user's account after every transaction.

Many of us know that the reality of the credit card specially white collar people and how it trap
the people. Even then people are not fully aware the credit card that’s why the easily caught into
Jews devils system. Basically credit card is a sort of loan. The people who are related with the
accounting field they know little bit about it, that it is use for loan. What banks do, they provide
loans to the people with many ways and credit card is one of the way of loaning system.

Banks normally provides credit cards to business men and well earning people. They use to take
guarantee of their organization or their business related field or any who have credit card.. it
provide a specific credit limit according to your earning per month. You may purchase different
thing from different places for instance hotel, medical stores, petrol, shopping malls and almost
every type of buying of consumer goods. People purchase easily any sort of thing with electronic
money and people usually pay this amount after twelve to fourteen days including non working
days to the bank..

After these facilities of credit cards normally people think its attractive for everyone and they
finally caught in it. In the beginning people use the pay the fee to get the credit card but it is free
of cost. Sales people come to your door step and offer you to get the card.. Now every think that
we should get it but the story is different, when people use credit card and purchase anything
from any store and they have to pay two percent extra amount of the total buying. And if the
person is delay the date then bank will charge 36 % on annually bases. And we have to pay that
amount within twelve or fourteen days if people delay it the bank will highly charge, and people
normally delay because of holidays. In this fast moving world if anyone using the facilities of
credit cards they generally caught in it because of the expenses of a common man is limited and
when he use credit card, it gives a facility of loan which is very fruit full for common man. First

Banking Page 4
two months of a common man is just like a honey moon for him but by the passage of time he’ll
not able to pay that amount which he got from the credit card.

Banks plays with the psychology of people. How? Think common man has very low salary and
when he has to buy something he decided according to his budget. If budget does not permit him
then he postponed many of his shopping for one, two or more months. But when he has the
facility of credit card of worth Rs. 30,000 then will he postponed his shopping? Never ever,
because bank employees force people to buy on credit card psychologically.

Credit card issuers usually ignore interest charges if the balance is paid in full each month, but
typically will charge full interest on the entire outstanding balance from the date of each
purchase if the total balance is not paid.

Let us have an example of a person who bought some things on credit card which cost him
10000 rupees. Now after that when the amount was due, that person was unable to pay that
amount immediately at once. So he asked for monthly installments as there is an option of
paying credit card bill. So, he will pay the amount but with interest. How that interest is applied,
it goes like this. The interest of monthly installments will be based on Rs 10000, even after he
pays the first installment, the interest of the next installment will be calculated from the principle
amount which is Rs 10000. Think for a moment if there is a person who is unable to pay the
principle amount readily, will he be able to pay for the things he is going to buy afterwards?

Another negative aspect of credit card is the credit card fraud. Credit card fraud is a wide-
ranging term for theft and fraud committed using a credit card or any similar payment
mechanism as a fraudulent source of funds in a transaction. The purpose may be to obtain goods
without paying, or to obtain unauthorized funds from an account. Credit card fraud is also an
attachment to identity theft but it happens very rare. The mail and the Internet are major routes
for fraud against merchants who sell and ship products, as well Internet merchants who provide
online services. It is difficult for a merchant to verify that the actual card holder is indeed
authorizing the purchase. In most of the online shipping websites there are no security codes
regarding the entry of your credit card number. So it is easy for the hacker to attack the website
and grab the credit card number for wrong purposes.

Banking Page 5
Loan:
There are various types of loan

• Personal loan

• Running finance

• Mortgage loan

• Auto finance

• Home loan

• Corporate loan

Basically in loan what banks do they are getting benefits from both sides, customer’s side whom
they are giving loan and account holder’s who are depositing money in their account. They work
like third person. Banks just use our money. For instance a person who deposit his money in
bank in saving account and getting interest on that, banks are giving specific interest according to
his deposited money, And in the case of loan the banks will charge more than on deposited
money. The basic loose is for the costumer who takes the loan from bank. He has to pay tax to
the Government on principle amount and interest to the bank. We should have to see what
basically banks do if anyone deposit money in bank the will keep 10% in reserve and give 90%
for loan and then again he deposit money in bank the bank again do the same process bank will
get again 10% of that amount and will give remaining 80% for loan. This creates credit creation
in market. The money supply would increase and money value would decrease. In result the rich
is becoming richer and poor is becoming poorer.

One of the important functions of commercial bank is the creation of credit. Credit creation is the
multiple expansions of banks demand deposits. It is an open secret now that banks advance a
major portion of their deposits to the borrowers and keep smaller parts of deposits to the
customers on demand. Even then the customers of the banks have full confidence that the
Banking Page 6
depositor’s lying in the banks is quite safe and can be withdrawn on demand. The banks exploit
this trust of their clients and expand loans by much more time than the amount of demand
deposits possessed by them. This tendency on the part of the commercial banks to expand their
demand deposits as a multiple of their excess cash reserve is called creation of credit.
The single bank cannot create credit. It is the banking system as a whole which can expand loans
by many times of its excess cash reserves. Further, when a loan is advanced to an individuals or a
business concern, it is not given in cash. The bank opens a deposit account in the name of the
borrower and allows him to draw upon the bank as and when required. The loan advanced
becomes the gain of deposit by some other bank. Loans thus make deposits and deposits make
loans.

Banks purpose was to demonstrate that the growth of the money supply was modest, therefore
future inflation expectations would/should subside. Hence, this would leave the Fed free to slash
rates much further.

Car Financing:
Car financing means that when you go to a dealership to buy your car and they are arranging
financing, you will be paying back a lender that they use not paying them back. In most cases,
they have several lenders with different programs to assist buyers in all kinds of different
circumstances. In this case, when doing a deal with the bank, there is high pressure, usually not
competitive and loans are often front loaded which means payments are made up more of an
interest in the beginning of the loan than towards the end but that’s not fair if you are planning
for paying the loan off early.

The interest rate you get when financing a new or used car can vary quite a bit from the
advertised rates you see on TV or read in the paper. Probably the biggest influence on your rate is
your credit rating. Your credit history and credit score tell lenders a lot about your money habits
and are designed to give them an idea of what their risk is if they loan you money. They often
raise the interest rate if your loan is seen as high-risk. Another thing that affects the rate you get
is the term of the loan. Typically, the shorter the loan, the lower the rate. Keep in mind that the
shorter the term, the higher your payments will be.

Banking Page 7
What basically banks do in car financing is that when you buy a car there is terminology named
as down payment in which you will pay some part of the payment of your car initially. With
which you are given some facilities like 1st year insurance, 1st installment and bank processing
charges. The down payment is applicable on the principle amount of the car. Whereas, the
remaining amount is paid by the bank and simply you become the owner of the car. The interest
rate reaches even upto 100% interest rate. For example, a person buys a car for 3 lac rupees with
time duration of 6 years but at the end of the term he will be paying 5.5 lac rupees for that car.
Not only this if after having car finance, one is capable of paying the full amount in 1 year
instead of 6 years, there is a penalty for that. If he pays financing amount after one year which is
the amount that bank has paid for the car after down payment, so he’ll be paying with 20%
penalty of the financing amount. This penalty decreases as the time goes on but a person has to
be with bank for the specified amount of time.

Social Impact

Credit Cards:
People are becoming materialistic due to the use of credit cards; they simply enter the market and
buy those things whatever they like even if they don’t have any cash or payment. The credit card
venture charges excessive interest, passing on a small percentage to depositors.

Loan:
Loan creates credit creation, it is the most important function of the commercial banks, it is
basically the multiple expansions of bank demand deposits. As a result of this money supply
would increase in the market. Though, it is an open secret that banks give their major portion to
the borrowers, even then the customers of the banks have full confidence that their money is
safe. Every person is capable of taking loan. So rich is becoming richer whereas, the poor is
becoming poorer. This gap is the main impact on the society. In result, the money value is
decreasing day by day.

Banking Page 8
Auto Financing:
Car financing is having a bad impact over the society regarding pollution. Air pollution as well
as noise pollution both, is increasing day by day due to the overcrowding of cars. Another bad
impact is the traffic jam, which is increasing very rapidly. Traffic jam is all due to the increase in
traffic as every that person who can’t buy the car readily is going for auto finance. Moreover,
people prefer to go on car even where they can go on foot. With the increase in traffic there is
also an increase in accidental ratio.

References

Banking Page 9
 • http://www.blurtit.com/q609377.html

• http://www.brettonwoodsproject.org/art-107975

• http://answers.yahoo.com/question/index;_ylt=ArwnJvD5GII4QZzTNDUDmkcjzKIX;_y
lv=3?qid=20070629132709AAgphcR

• http://auto.howstuffworks.com/car-financing9.htm

• http://www.blurtit.com/q780966.html

Banking Page 10