 Banks Credit creation depends on the excess

reserves.
 Excess reserves = actual reserves – required
reserves.
 If reserves required ratio is 10%, banks can
create a loan of 9000 on 1000 deposits.
 The total money supply in the economy is
10000.
Bank position deposits loans reserves
--------------------------------------------------------------------------------------------
Original bank 1000 900 100
2nd bank 900 810 90
3d bank 810 729 81
4th Bank 729 656 72.9
5th Bank 656 590.49 65.61
6th Bank 590.49 531.44 59.05
7th Bank 531.44 478.30 53.14
8th Bank 478.30 430.47 47.80
9th Bank 430.47 387.42 43.05
10th Bank 387.42 348.68 38.04
_____________________________________________________

Sum 10,000 9,000 1,000

Origin of commercial bank can be traced back in vedic
period( use of hundi)

Middle of 19th century Indigenous banking

First bank Bank of Hindustan

(1770)

Later we had Presidency Bank in Calcutta Bombay &

Madras

1919 Imperial Bank of India

Growth and Structure of commercial bank
Importance of Indian commercial Banks in National Economy

Year Deposit/N.I. Deposit / Share in

Saving financial
asset

1951-56 10 16.6
1960-61 13 14.2
1975-76 24 41.8
1980-81 35.9 45.8 73.8
1990-91 48.1 31.8 65.5
1994-95 52 40.2 64.8
1995-96 44.82 28.2 64.7
2001-02 61.5 37.83 72.2
 Indian Banking system

RBI

Non Scheduled Bank

Schedule Banks

State Coop. Commercial Central Coop. bank

Bank Bank and Primary Credit
Banks Societies
Indian Foreign Commercial
Bank

PSU Pvt. Sector

Bank
Banks

SBI & its Other nationalized Regional rural

subsidaries bank bank
Apart from usual function, foreign bank are now playing a special
role in shaping the attitude ,perceptions and policies of foreign
government, corporate, and other clients towards India

(a)Structuring and syndicating project finance for crucial sector

(b)Advising and introducing overseas companies in joint venture
and collaboration with Indian Companies
©Helping to bring the FII and Indian companies
(d) Managing and syndicating the euro issue of debt and equity
(e) Introducing new technology in data management and
information system

The Indian Banks include 27 PSU banks ,196 RRB,30 private

sector bank and 44 Foreign banks in 2001-02
Liabilities of Banks

Demand deposit

Current deposit

Call deposit

Term deposit
Banking Assets
Investment:

1.Cash in hand and balance with RBI

2.Asset with banking system
3.Investment in government and other approved
securities
4.Bank credit among these assets, and is
influence by the RBI policy, quantitatively, bank
credit and investment in government securities.
 Govt. of India securities
 Other approved Securities
 Non approved securities
 Increase in National Income
 Expansion of banking facilities in new area & for
new class of people
 Increase in banking habit
 Increase in relative rate of return
 Increase in deficit financing
 Increase in bank credit
 Inflow of deposit by NRI’s
 Growth in substitutes
Banking Innovations
I) Retail Banking
II) Bank as authorized dealer
III) Customer service
IV) Lead Bank scheme
V) Service area approach
VI) Action plans
VII)Micro finance
VIII)Banking Advisory services
IX) Participation Certificate and inter bank
deposit
X) Consortium approach
XI) Credit cards
XII)New technology in Banking
XIII)Local Area Banks
XIV)Asset Liability Management
XV)Other diversification in Banking