PREFACE

Communication is at the core of almost all aspects of modern life. Education and
health care rely upon it, as do everyday work and community life, and democratic
governance. Since new communication technology does offer significant
opportunities—as well as grave risks—and because the form of the communication
infrastructure of tomorrow is being shaped today, it is critical that people from all
walks of life play more active roles in this crucial transition period.

A financial institution that provides services such as a accepting deposits and giving
business loans. Commercial banking activites are different than those of investment
banking, which include underwriting, acting as an intermediary between an issuer of
securities and the investing public, facilitating mergers and other corporate
reorganizations, and also acting as a broker for institutional clients.
Commercial Banking Page 3
 List Of Contents

 Introduction- Commercial Banking

 History Of Banking

 Some Major Pre-Issues

 Roles Of Commercial Banking

 Loans granted by commercial bank

 Commercial Banking v/s Investment Banking

 Commercial Banking v/s Retail Banking

 Benefits of commercial bank

 Future Perspective

 Conclusive Remarks
Commercial Banking Page 4

Introduction- Commercial Banking

Commercial banking is also known as business banking. It is a bank that provides

checking accounts, savings accounts, and money market accounts and that accepts
time deposits. After the implementation of the Glass-Steagall Act the U.S. Congress
required that banks engage only in banking activities, whereas investment banks
were limited to capital market activities.

As the two no longer have to be under separate ownership under U.S. law, some use
the term "commercial bank" to refer to a bank or a division of a bank primarily
dealing with deposits and loans from corporations or large businesses. In some other
jurisdictions, the strict separation of investment and commercial banking never
applied. Commercial banking may also be seen as distinct from retail banking,
which involves the provision of financial services direct to consumers. Many banks
offer both commercial and retail banking services.
Commercial Banking Page 5

Commercial bank has two possible meanings:

• Commercial bank is the term used for a normal bank to distinguish it from an
investment bank or retail bank.

• Commercial banking can also refer to a bank or a division of a bank that

mostly deals with deposits and loans from corporations or large businesses, as
opposed to normal individual members of the public (retail banking).

It raises funds by collecting deposits from businesses and consumers via checkable
deposits, savings deposits, and time (or term) deposits. It makes loans to businesses
and consumers. It also buys corporate bonds and government bonds. Its primary
liabilities are deposits and primary assets are loans and bonds.
Commercial Banking Page 6

History Of Banking

Banking in India has a very old origin. It started in the Vedic period where literature
shows the giving of loans to others on interest. The interest rates ranged from two to
five percent per month. The payment of debt was made pious obligation on the heir
of the dead person.

 Modern banking in India began with the rise of power of the British. To raise
the resources for the attaining the power the East India Company on 2nd June
1806 promoted the Bank of Calcutta.

 In the mean while two other banks Bank of Bombay and Bank of Madras
were started on 15th April 1840 and 1st July, 1843 respectively. In 1862 the
right to issue the notes was taken away from the presidency banks. The
government also withdrew the nominee directors from these banks.

 The bank of Bombay collapsed in 1867 and was put under the voluntary
liquidation in 1868 and was finally wound up in 1872. The bank was however
able to meet the liability of public in full. A new bank called new Bank of
Bombay was started in 1867.
Commercial Banking Page 7

 On 27th January 1921 all the three presidency banks were merged together to
form the Imperial Bank by passing the Imperial Bank of India Act, 1920. The
bank did not have the right to issue the notes but had the permission to
manage the clearing house and hold Government balances.

 In 1934, Reserve Bank of India came into being which was made the Central
Bank and had power to issue the notes and was also the banker to the
Government.

 The Imperial Bank was given right to act as the agent of the Reserve Bank of
India and represent the bank where it had no braches.

 In 1955 by passing the State Bank of India 1955, the Imperial Bank was taken
over and assets were vested in a new bank, the State Bank of India.

Commercial Banking Page 8

 Some Major Pre- Issues

Bank Nationalization:

After the independence the major historical event in banking sector was the
nationalization of 14 major banks on 19th July 1969. The nationalization was deemed
as a major step in achieving the socialistic pattern of society. In 1980 six more banks
were nationalized taking the total nationalized banks to twenty.

Present Scenario:

Banks are extremely useful and indispensable in the modern community. The banks
create the purchasing power in the form of bank notes, cheques bills, drafts etc,
transfers funds bring borrows and lenders together, encourage the habit of saving
among people.

The banks have played substantial role in the growth of Indian economy. From the
meager start in 1860 the banks have come to long way. At present in India there are
20 nationalized banks, State bank of India and its seven Associate banks, 21 old
private sector banks and 8 new private sector banks. Besides them there are more
than 30 foreign banks either operating themselves or having their branches in India.
The statistical table hereunder shows the financial position of the banks as on
31.03.2005

Commercial Banking Page 9

Structure of schedule commercial banks:

The composition of the board of directors of a scheduled commercial bank shall

consist of whole time chairman. Section 10A of the Banking Regulation Act, 1949
provides that not less than fifty-one per cent, of the total number of members of the
Board of directors of a banking company shall consist of persons, who shall have
special knowledge or practical experience in respect of one or more of the matters
including accountancy, agriculture and rural economy, banking, co-operation,
economics, finance, law, small-scale industry, or any other matter the special
knowledge of, and practical experience in, which would, in the opinion of the
Reserve Bank, be useful to the banking company. Out of the aforesaid number of
directors, not less than two shall be persons having special knowledge or practical
experience in respect of agriculture and rural economy, co-operation or small-scale
industry.

Commercial Banking Page 10

 Roles And Activities

Commercial banks engage in the following activities:

• processing of payments by way of telegraphic transfer, EFTPOS, internet

banking, or other means

• issuing bank drafts and bank cheques

• accepting money on term deposit

• lending money by overdraft, installment loan, or other means

• providing documentary and standby letter of credit, guarantees, performance

bonds, securities underwriting commitments and other forms of off balance

sheet exposures

• safekeeping of documents and other items in safe deposit boxes

Commercial Banking Page 11

 • sale, distribution or brokerage, with or without advice, of insurance, unit trusts

and similar financial products as a “financial supermarket”

• cash management and treasury services

• merchant banking and private equity financing

• traditionally, large commercial banks also underwrite bonds, and make

markets in currency, interest rates, and credit-related securities, but today

large commercial banks usually have an investment bank arm that is involved

in the mentioned activities.

Commercial Banking Page 12

 Types of loans granted by commercial banks

 Secured loan:

A secured loan is a loan in which the borrower pledges some asset (e.g., a car or
property) as collateral (i.e., security) for the loan. Changes in banking laws now
allow commercial banks to make home mortgage loans on a more liberal basis than
ever before. In acquiring mortgages on real estate, these institutions follow two main
practices. First, some of the banks maintain active and well-organized departments
whose primary function is to compete actively for real estate loans. In areas lacking
specialized real estate financial institutions, these banks become the source for
residential and farm mortgage loans. Second, the banks acquire mortgages by simply
purchasing them from mortgage bankers or dealers.

 Mortgage loan:

A mortgage loan is a very common type of debt instrument, used to purchase

realestate. Under this arrangement, the money is used to purchase the property.
Commercial banks, however, are given security - a lien on the title to the house -
until the mortgage is paid off in full. If the borrower defaults on the loan, the bank
would have the legal right to repossess the house and sell it, to recover sums owing
to it.

Commercial Banking Page 13

In the past, commercial banks have not been greatly interested in real estate loans
and have placed only a relatively small percentage of their assets in mortgages. As
their name implies, such financial institutions secured their earning primarily from
commercial and consumer loans and left the major task of home financing to others.

 Unsecured loan:

Unsecured loans are monetary loans that are not secured against the borrowers assets
(i.e., no collateral is involved). These may be available from financial institutions
under many different guises or marketing packages:

• bank overdrafts
• corporate bonds
• credit card debt
• credit facilities or lines of credit
• personal loans

Commercial Banking Page 14

 Commercial banking v/s Investment banking

 Commercial banks accept deposits from customers (which are insured by the
FDIC in the U.S.) and also make consumer and commercial loans.

 The vast majority of the loans made by commercial banks are "held" on the
bank's balance sheet as an asset of the bank.

 Investment banks are simply intermediaries. They do not accept deposits. Instead,
they sell investments.

 Also, any loans (or other debt or equity issues originated by an investment bank)
are typically NOT held by the company, but instead sold to a third party.

Commercial Banking Page 15

 Commercial banking v/s Retail banking

 Often retail banking is referred to as "non commercial banking" this would be

your common checking accounts and consumer loans.

 Where as commercial banking is often the very solid business accounts and
commercial loans. It is referred to, as 'core' because it is a core or central to the
banks business.

 Few banks survive from just retail banking services, they need those core
business accounts that are perhaps more stable than retail business.

 The exact term usage may also be based on the part of the country you live in as
is often the case with our language.

Commercial Banking Page 16

 Benefits Of Commercial Bank

Commercial Bank and Trust Company knows that our team members give their best
every day and deserve the best in return, including the best benefits available for
individuals and families. That is why Commercial Bank and Trust Company offers
an extensive benefits package to help team members make the "Right Choice" about
the benefits that add value to their lives and give them peace of mind.

Health Benefits:
Our health benefits provide affordable, comprehensive coverage through multiple
plans with many options, including your choice of deductibles, types of coverage
and physicians. This allows you to make the choice that best suits your needs.

Wealth Benefits:
Our wealth benefits focus on helping each team member share in our company's
success and build for a secure future. Your wealth building options include
participation in our employee stock purchase plan, money purchase pension plan,
profit sharing and 401(k).

Commercial Banking Page 17

Well-Being Benefits:
Our well-being benefits allow you to be actively involved in the community,
participate in the adoption assistance program, receive tuition assistance, receive
counseling or attend developmental seminars. Additionally, the children of team
members can apply for our Jack Parker Scholarship.

Time Benefits:
Our time benefits are available because we recognize that family is a valuable part of
your life. Whether it is simply time off for relaxation, the opportunity to help out at
your children's school, or the security of knowing you have options when
unexpected situations arise, we provide generous time off and holiday benefits.

Commercial Banking Page 18

 Future Perspective

The Information Technology (IT) is becoming an important component of the

banking sector. The customers have become more demanding and they need value
added services from the banks. The foreign banks have raised the expectations of the
customers causing the bank to invest strongly on IT.

The Indian banks have started to meet the expectations of the people by opening
both onsite and offsite ATMs. Banks have also started telebanking,
anytime/anywhere banking, mobile banking and Internet banking to give the
facilities to the customers.

Banks have also following the RBI sponsored technology programmes like mail
messaging, Electronic fund transfers (EFT), Structured Financial Messaging System
(SFMS), (Real Time Gross Settlement (RTGS), Centralized Fund Management
System (CFMS) and Negotiated Dealing System / Public Debt Office (NDS/PDO).

Banks have been given more teeth to tackle the Non performing assets by passing
the Securitisation and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002. Under this Act, the banks can take over the assets of the
defaulters either by themselves or with the help of Court.

Commercial Banking Page 19

 Conclusive Remarks

Banking Sector in India is likely to undergo a major change. This change will be in
the form of mergers and acquisitions and takeovers. The State Bank of India may
merge all its associate banks with itself to make a one bank. The banks based in
South India may look for a bank in North India to have presence in North. Similarly
banks in North may look for banks in South to increase its area of operations.
Consolidation will be the key to the banking sector in future. Commercial banking
may also be seen as distinct from retail banking, which involves the provision of
financial services direct to consumers. Many banks offer both commercial and retail
banking services. some of the banks maintain active and well-organized departments
whose primary function is to compete actively for real estate loans. In areas lacking
specialized real estate financial institutions, these banks become the source for
residential and farm mortgage loans. Second, the banks acquire mortgages by simply
purchasing them from mortgage bankers or dealers.

Commercial Banking Page 20