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 Commercial banking is a business
organization which deals in money.
 Maintenance of liquidity and
 Credit creation.
Functions of Commercial
1.Acceptance of deposits.
2.Advancing loans
3.Investment of funds
4.Purchase and sales of foreign
5.Other functions
 Issue of travelers cheque
 Safe custody of valuable goods.
Role of commercial banks in
 Capital formulation.
 Monetiazation
 Finance for the priority sectors
 Provision of the medium and long
term loans
 Cheap money policy.
Classification of Banks
1.Indigenous banking.
2.Foreign exchange banks
3.Agricultural banks
4.Industrial banks
5.Central banks
6.Scheduled banks.
Sources of banking funds
1.Share capital
3.Interest on Loans
4.Credit creation
5.Reserve funds.
Investment policy of banks
 Principle of safety
 Principle of liquidity
 Principle of productive investment
 Principle of Diversity
Banks Investments
1.Profitable investments
2.Non- profitable investments
 Cash reserves _____
 Dead stocks
Cash reserves
 Legal obligations
 Banking habits of the people.
 Local business condition
 Nature of the account
 Size of the deposits
 Structure of the money market.
Dead stocks
 Building, furniture, stationary etc.
 It cannot be sold easily
 Bank invests sizable amount on
these type of investment to maintain
its prestige and reputation in the
Credit creation
Credit creation Continued
Central banking
 A monetary institution whose main
function id to control, regulate and
stabilize the banking and monetary
system of the country in the national
 Need :
1.Control of credit.
2.Issue of paper currency
3.economic help to commercial banks
4.Implementation of the monetary policy.
Comparison of central bank
&Commercial Banks
 Both acts in money
 Both creates credit
 Extend short term credits.
 Central authority
 Non profit motive
 No competition
 Monopoly of note issue
 Bankers to the Govt.
 Bankers bank.
1.Monopoly of note issue
 Uniformity in the monetary system.
 Greater confidence of the public.
 Elasticity in the monetary system
 Control of credit
 Profit for the govt. (Synorage)
 Stability in the internal and external value
of money.
2.Acts as banker to the government
3.bankers Bank
4.Lender of last resort
5.Bank of clearance
6.Custodian of nations gold and foreign
7.Publishes economic statistics & other
useful information.
8.Controller of credit.
Objectives of credit control
1. Stability in the internal price level
2. Control of the business cycle
3. Stability in the exchange rate
4. Stabilization of money market
5. Promotion of the economic growth
6. Preparation of war
Methods of credit control
 Moral pressure

2. Quantitative
 Bank rate
 Variable reserve ratio
 Selective credit control