Name- Soumit Kumar Nayak

Reg.no. - 200415140051

Subject- banking Law and Practice

1. What is commercial Bank? Discuss the different product and

services provided by commercial banks?
A commercial bank is a financial institution which accepts deposits from the
public and gives loans for the purposes of consumption and investment to
make profit.
It can also refer to a bank, or a division of a large bank, which deals with
corporations or a large/middle-sized business to differentiate it from a retail
bank and an investment bank. Commercial banks include private sector banks
and public sector banks.

A commercial bank is a financial institution that provides services like loans,

certificates of deposits, savings bank accounts bank overdrafts, etc. to its
customers. These institutions make money by lending loans to individuals and
earning interest on loans. Various types of loans given by a commercial bank
are business loans, car loans, house loans, personal loans, and education loans.

They give out these loans from the money deposited by their customers in
different types of accounts. They use the deposits as capital for providing
loans. Commercial banks are essential for the economy of a country because
they help in creating capital, credit as well as liquidity in the market. These
banks are generally physically located in cities but these days there are online
banks are growing in numbers.

Commercial banks offer basic services of banking to the public including

individual customers as well as small and medium-sized businesses. Money is
made by banks by charging for services and fees. The fees depend on the
products given such as overdraft fees, fees for safe deposit boxes, late fees,
etc. Various loans also consist of fees other than interest on loans.

Banks earn money by giving out loans and for that purpose they use funds
from customer deposits. They charge higher interest rates on loans they give
out and comparatively less rate of interest on the amount they get as deposits
from their customers. For e.g., a bank may provide a 0.30 per cent rate of
interest on savings account to its customers but charges a 4.8 per cent rate of
interest annually for home loans.

Generally, commercial banks are situated in buildings where their customers

come for using ATM machines and other banker window facilities. As internet
technology has risen in recent years, most banks allow customers to do most
services online. People can now make money transfers, deposits or make
payments for bills online.

Services provided by commercial Bank:-

Advancing of Loans
Banks are profit-oriented business organizations. So, they have to advance a
loan to the public and generate interest from them as profit. After keeping
certain cash reserves, banks provide short-term, medium-term, and long-term
loans to needy borrowers.

Overdraft
Sometimes, the bank provides overdraft facilities to its customers through
which they are allowed to withdraw more than their deposits. Interest is
charged from the customers on the overdrawn amount. Bank Overdraft is
different from cash credit.

Discounting of Bills of Exchange

Discounting of Bills of Exchange is another popular type of lending by modern
banks. Through this method, a holder of a bill of exchange can get it
discounted by the bank. In a bill of exchange, the debtor accepts the bill drawn
upon him by the creditor (i.e., holder of the bill) and agrees to pay the amount
mentioned on maturity.

Check/Cheque Payment
Banks provide cheque pads to the account holders. Account-holders can draw
cheques upon the bank to pay money. Banks pay for cheques of customers
after formal verification and official procedures.

Collection and Payment Of Credit Instruments

Different credit instruments such as the bill of exchange, promissory notes,
cheques, etc., are used in modern business. Banks deal with such instruments.
Modern banks collect and pay different types of credit instruments as the
representative of the customers.

Foreign Currency Exchange

Banks deal with foreign currencies. As customers’ requirement, banks
exchange foreign currencies with local currencies, which is essential to settle
down the dues in the international trade.

Bank Guarantee
Customers are provided the facility of bank guarantee by modern commercial
banks. When customers have to deposit certain funds in governmental offices
or courts for a specific purpose, a bank can present itself as the guarantee for
the customer instead of depositing funds by customers.

Credit cards
A credit card is a card that allows its holders to make purchases of goods and
services in exchange for the credit card’s provider immediately paying for the
goods or service. The cardholder promises to pay back the purchase amount to
the card provider over some time and with interest.

ATMs Services
ATMs replace human bank tellers in performing giving banking functions such
as deposits, withdrawals, account inquiries. Key advantages of ATMs include:

 24-hour availability
 Elimination of labour cost
 Convenience of location

Debit cards
Debit cards are used to withdraw funds directly from the cardholders’ accounts
electronically. Most debit cards require a Personal Identification Number (PIN)
to be used to verify the transaction.
Products in Commercial banks:-

Industrial Loans

The primary business of commercial banks is to make loans to large industrial

corporations. Corporations in any nation are interested in obtaining debt at
favourable terms. The bank is in a position to fulfil this demand through the
services that they offer.

Project Finance

Project finance is one type of loan for which mega corporations largely rely on
banks till date. In case of project finance, the banker finances the project as an
individual entity. The parent company that is sponsoring the project has a
limited liability in case the loan goes bad. For instance, if bank funds DEF
project that was initiated by ABC Corporation and the project goes bankrupt
over time.

Syndicated Loans

Banks often times combine to make huge syndicated loans to corporations.

This is because the debt requirements of a particular corporation, let’s say,
General Electric may be so huge that any single bank may not be in a position
to fulfil them without creating a significant risk on their books. Hence, in such
cases, several banks have to form a syndicate to fulfil the loan requirement.

Leasing

With the advent of off-balance sheet financing, a lot of companies have started
using leasing as a financing method. This is because it provides control of the
said asset without leveraging the balance sheet of the given corporation. Banks
have become heavily involved in the business of such financial leases. Financial
leases are being signed by companies for acquiring real estate, automobiles,
factory equipment or such other major fixed assets. It needs to be noted that
banks usually only fund financial leases and not pure play operational leases.
Foreign Trade Financing

A lot of the corporations in the world today are multi-nationals. Thus their
business interests cross national borders. This means that foreign trade in
rampant and has become the norm. Now, foreign trade has some special
financing needs. Banks have traditionally specialized in such financing. In the
modern world too, banks provide letters of credit, export financing, bank
guarantees and other such services to corporations which help them conduct
foreign trade in an efficient manner.

Bills of Exchange

Companies often use bills of exchange for accounts receivables and accounts
payables purposes. For instance, if company A agrees to pay company B at a
later date, they could sign a bill of exchange for the same. Company A can then
take this bill of exchange to the bank at get the bill discounted.

This means that the bank will take over the right to collect receivables from B.
They will do so by purchasing the bill at a discount. This means that they will
pay company A, a discounted amount for the bill. The difference between the
face value of the bill and the discounted price for which the bank bought it is
considered to be the interest earned by the bank.

2. Discuss the Roles and Functions of RBI?

The Reserve Bank of India, chiefly known as RBI, is India's central

bank and regulatory body responsible for regulation of the Indian banking
system. It is under the ownership of Ministry of Finance, Government of India.

RBI is India’s Central Bank. Every country has its own Central Bank. The US has
Federal Reserve Bank (FED) and England has Bank of England (BOE) while the
whole of Europe has European Central Bank (ECB). Simply put the role of a
Central Bank is to monitor a country’s economy and stabilize it by using its
various policies. A Central Bank acts like an adviser to the Government on
issues related to the economy. As opposed to popular belief, the RBI is NOT
controlled by the Government but instead it works as an independent
institution.
Reserve Bank of India (RBI) is the Central Bank of India. RBI was established on
1 April 1935 by the RBI Act 1934. Key functions of RBI are, banker’s bank, the
custodian of foreign reserve, controller of credit and to manage printing and
supply of currency notes in the country.

Role Of RBI:-

Issuer of Currency
The RBI has the sole right to issue new currency notes and coins, exchanges or
destroy currency not fit for circulation.

Monetary Authority
RBI formulates, implements and monitors the monetary policy. This policy is
the most important tool that the RBI has. Using this policy RBI manages the
interest rates offered by banks on loans and deposits and which affects the
inflation and deflation in the country. In simple words, lower rates give rise to
higher inflation and vice versa.

Manager of Foreign Exchange

RBI also manages the flow of foreign currency in Indian economy by enforcing
the Foreign Exchange Management Act, 1999. As part of this function, the RBI
makes sure that the exchange rate value of Indian National Rupee is
maintained in the international markets

Regulator and Supervisor of the Financial System

RBI prescribes broad parameters of banking operations within which the
country’s banking and financial system functions. It makes sure that the banks
are following the issued guidelines by overlooking their financial operations
and in cases of banking failures, RBI comes ahead to safeguard the depositors’
money by bailing out the distressed bank.

Regulator and Supervisor of Payment and Settlement Systems

RBI introduces and upgrades safe and efficient modes of payment systems in
the country to meet the requirements of the public at large. This includes
implementing various advanced technologies like the NEFT, RTGS or the latest
Unified Payment Interface (UPI) or overlooking the operations of National
Financial Switch (NFS) which is necessary for ATMs.

Related Functions
Banker to the Government: performs merchant banking function for the
central and the state governments; also acts as their banker. This includes
dealing with financial securities issued by the Government like treasury bills,
infrastructure bonds, etc.

Banker to the banks: To maintains banking accounts of all scheduled banks.

This includes managing the minimum reserve capital balance required to be
held by the banks with the RBI.

Developmental Role
Performs a wide range of promotional functions to support national objectives.
This includes work like providing timely credit to the productive sectors of the
economy, creating institutions to build financial infrastructure like UPI, NEFT,
etc., expanding access to affordable financial services and working on financial
inclusion of all classes of the society.

Functions of RBI:-

Issue of Notes

The Reserve Bank has a monopoly for printing the currency notes in the
country. It has the sole right to issue currency notes of various denominations
except one rupee note (which is issued by the Ministry of Finance).

Banker to the Government

The second important function of the Reserve Bank is to act as the Banker,
Agent and Adviser to the Government of India and states. It performs all the
banking functions of the State and Central Government and it also tenders
useful advice to the government on matters related to economic and monetary
policy. It also manages the public debt of the government.

Banker’s Bank
The Reserve Bank performs the same functions for the other commercial
banks as the other banks ordinarily perform for their customers. RBI lends
money to all the commercial banks of the country.

Controller of the Credit

The RBI undertakes the responsibility of controlling credit created by

commercial banks. RBI uses two methods to control the extra flow of money in
the economy. These methods are quantitative and qualitative techniques to
control and regulate the credit flow in the country. When RBI observes that
the economy has sufficient money supply and it may cause an inflationary
situation in the country then it squeezes the money supply through its
tight monetary policy and vice versa.