Chapter 8

BANKING

‘Bank 'is usually used in the sense of commercial bank.

Bank seems to have originated from the Germanic word ‘bank’—joint stock fund or heap.

French word ‘banque’and the Italian word ‘banco’

HISTORY OF BANKING

The Italian word banco refers to a bench at which the money changers used to change one kind of money into another

The first public banking –the Bank of Venice

(1157)

The bank of Barcelona and the Bank of Venice –1401 and 1407 respectively.

Exchange banking was developed after the installation of the Bank of Amsterdam in 1609 and Bank of Hamburg in 1690.

The credit of laying the foundation of modern banking in england goes to the Lombards of Italy

The bankers of lombardy –money lending business in england

The bank of England -1694The development of joint stock commercial

banking started functioning in 1833.Modern banking developed in 19th century.In India ,the first modern bank ‘bank of

Bengal’ in 1806

Central bank Commercial bank

Apex institution of the monetary and banking system

It is only a constituent unit of the banking system

Monopoly of note issue Do not have this right

Not profit making institution ,but to promote economic policy of the government.

It is to earn profit for the shareholders

It maintain foreign exchange of the country

It deals with foreign exchange under the guidance of central bank

It is the advisor, banker to the government

It is the banker, advisor to the public

distinguish between central and commercial bank

R.B.I Governor

Regulator of currencyBanker ,agent and adviser to governmentCustodian of cash reserves of commercial

banksCustodian and management of foreign

exchange reservesLeader of the last resortClearing functionController of credit

Function of central bank

Bank rateOpen market operationVariable reserve ratio

Qualitative /selective credit controlMargin requirementsRegulation of consumer creditRationing of creditDirect actionMoral suasionpublicity

Quantative credit control

Accepting or attracting depositsa).saving depositsb)demand depositsc)fixed depositsAdvancing loansa)cash creditb)provision of overdraft facilitiesc)discounting bills of exchangeAdvancing funtion

Functions of commercial banks

Creation of money for credit• Other function transfer of funds Agency function General utility services

Safty lockers Letter of credit Under writing loans Compiling statistics

Any questions

?

Thank

you

S.madan kumar

M.A.,M.A.,B.Ed.,M.Phil.,M.B.A.