Page 17 - DCOM208_BANKING_THEORY_AND_PRACTICE

Banking Theory and Practice

Notes GTB’s depositors were protected, its shareholders lost their total investments in the bank
overnight.

Questions
1. How financial mismanagement can lead to significant losses for a bank.
2. Analyze the reasons that led to the fall of Global Trust Bank
3. Discuss the importance of proper supervision and control systems in a bank to
mitigate risks.
4. How overexposure to capital markets can lead to huge NPAs for a bank?
5. Write down the need for financial institutions to uphold the ideals of transparency
and absolute scrupulousness where public money was involved.
6. Examine the role of RBI as a regulating authority and debating on the justifiability
of its actions in the GTB fiasco.
Source: http://www.icmrindia.org/casestudies/

1.5 Summary

Banks are institution whose debts usually referred to as bank deposits are commonly
accepted in final settlement of other people’s debts.
A banker is one who in the ordinary course of his business, honours cheques drawn upon
him by persons from and for whom he receives money on current accounts.
Money and credit provide the pivot (axle) around which all the economic activities revolve.
Banks are reservoirs of resources for economic growth and development of the nation.
The Indian financial system is identified with two set of institutions viz. regulators and
intermediaries.
The commercial banking structure in India consists of two major set of players scheduled
commercial banks and unscheduled banks.
A bank accepts money from the people in the form of deposits.
A bank provides easy payment and withdrawal facility to its customers in the form of
cheques, drafts, ATM’s, ETF.
A bank should always add the word “bank” to its name to enable people to know that it is
a bank and that it is dealing in money.

The most important activity of a commercial bank is to mobilize deposits from the public.
People who have surplus income and savings find it convenient to deposit the amounts
with banks.

The rate of interest charged on loans and advances varies depending upon the purpose,
period and the mode of repayment.

1.6 Keywords

Agency: A department or body providing a specific service for a government or similar
organization.
Fiscal: Of or relating to government expenditures, revenues, and debt.

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