COMMERCIAL

BANKS.

A commercial bank is a financial institution

that is authorized by law to receive money
from businesses and individuals and lend
money to them. Commercial banks are open
to the public and serve individuals,
institutions and businesses. A commercial
bank is almost certainly the type of bank you
think of when you think about a bank because
it is the type of bank that most people
regularly use.

Banks are regulated by federal and state laws

depending on how they are organised and the
services they provide.
Commercial banks are also monitored through
the Federal Reserve System.

A commercial bank is authorised to serve the

following functions:
*Receive deposits - take money in from individuals and
businesses (called depositors)
*Disburse payments - make payments upon the direction of
its depositors (such as honouring a check)
*Collections - a bank will act as your agent to collect funds
from another bank payable to you (such as when someone
pays you by check drawn on an account from a different
bank)
*Invest funds in securities for a return
*Safeguard money - banks are considered a safe place to
store your wealth
*Maintain and service savings and checking accounts of its
depositors
*Maintain custodial accounts - accounts controlled by one
person but for the benefit of another person, such as a trust
account
*Lend money

Role in Economy
Commercial banks are probably the largest source of
financing for private capital investment in the
country. A capital investment is the purchase of an
asset with the intention of you either generating
income from the asset, the asset appreciating in
value over time,
or both. A common capital purchases made by
businesses include plants and equipment. The
quintessential capital purchase by individuals is the
purchase of their homes.

CTS

INTRODUCTION
In

the good old days, cheques deposited by

customers used to be presented by the
collecting bank to the paying bank over the
counter of the latter and thus collect the
amount due from each bank.

As

the number of cheques in use grew

substantially, banks introduced the Magnetic
Ink Character Recognition(MICR) format for
sorting of cheques.
This no doubt helped in speeding up the
clearing process, but physical delivery of
cheques continued even under this partial
automaton.

CTS
CTS

is the standard prescribed by the RBI

recently for cheques issued by all banks in
the country.
CTS stands for Cheque Truncation System
This was introduced as a pilot project in
the National Capital Region in 2008 and in
Chennai from September 2011.

Instead

of sending the cheque in physical

form by the collecting bank to the paying
bank, an electronic image of the cheque
is transmitted to the drawee branch for
payment through the clearing house
Therefore it eliminated the cumbersome
physical presentation of the cheque to the
paying bank, thus saving in time and
costs involved in traditional clearing
system.

How to identify a CTS '2010'

compliant cheque ?
Bank's

logo printed
Void pantograph
Cheque printer details/CTS- 2010
Rupee symbol
Signature Space Indicator

Benefits
Shorter

clearing cycle
Superior verification process
No fear of loss of chequesin
transitand chances of cheques being
lost due to mishandling
No geographical restrictions as to
jurisdiction
Operational efficiency for banks and
customers alike

NON PERFORMING
ASSETS

NON PERFORMING
ASSETS
Non

Performing assets means a

loan or an account of borrower,
which has been classified by a
bank or financial institution as
sub-standard, doubtful or loss
asset, in accordance with the
direction or guidelines relating to
asset classified issued by RBI.

Categories of NPA
Standard

assets: they are the

one in which the bank is receiving
interest as well as the principal
amount of the loan regularly from
the customers. The arrears of
interest or principal amount of
loan do not exceed 90 days at
the end of the financial year.

Sub-

standard assets:
A sub standard asset would be one,
which has remained NPA for a period less
than or equal to 12 months.
Doubtful assets:
Assets which has remained in the substandard category for a period of more
than 12 months
Loss Assets:
A loss asset is one which is considered
uncollectable and of such little value.

TYPES OF NPA
Gross

NPA:
They are the sum total of all loan assets
that are classified as NPA as per RBI
guidelines as on balance sheet date
Therefore Gross NPA is the total
outstanding NPAs
Net NPA:
Net
NPAs are those types of NPAs in which
bank have deducted the provision
regarding NPAs. Net NPA shows the actual
burden of banks.

EFFECTS OF NPA ON BANK

Restriction

on flow of cash done

by bank due to the provisions of
fund made against NPA.
Drain of profits
Bad effect on goodwill
Bad effect on equity value

FACTORS IMPACTING RISE IN

NPAs
External factors
Ineffective legal framework.
Lack of demand
Change in govt. policies
Political interferences

Internal Factors
Defective lending process
Managerial deficiencies
Improper use of technology
Inadequate
credit
appraisal
system
Deficiencies in re-loaning process
Absence of regular industrial
visits

THANK YOU