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 pantographCheque printer details/CTS- 2010Rupee symbolSignature Space Indicator

BenefitsShorter clearing cycleSuperior verification processNo fear of loss of cheques in transit and chances

of cheques being lost due to mishandlingNo geographical restrictions as to jurisdictionOperational efficiency for banks and customers

alike

NON PERFORMING ASSETS

NON PERFORMING ASSETSNon 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 NPAStandard 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 sub-

standard 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 NPAGross 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 NPA’s 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 BANKRestriction on flow of cash done

by bank due to the provisions of fund made against NPA.

Drain of profitsBad effect on goodwillBad effect on equity value

FACTORS IMPACTING RISE IN NPAsExternal factorsIneffective legal framework.Lack of demandChange in govt. policiesPolitical interferences

Internal FactorsDefective lending processManagerial deficienciesImproper use of technologyInadequate credit appraisal

systemDeficiencies in re-loaning processAbsence of regular industrial

visits

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