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Indian Financial System

Notes mandatory. It raises funds by collecting deposits from businesses and consumers via
checkable deposits, savings deposits, and time (or term) deposits. It makes loans to
businesses and consumers. It also buys corporate bonds and government bonds. Its primary
liabilities are deposits and primary assets are loans and bonds.
2. Commercial banking can also refer to a bank or a division of a bank that mostly deals with
deposits and loans from corporations or large businesses, as opposed to normal individual
members of the public (retail banking).

8.2.2 The Role of Commercial Banks

Commercial banks engage in the following activities:
1. Processing of payments by way of telegraphic transfer, EFTPOs, internet banking, or
other means.

2. Issuing bank drafts and bank cheques.
3. Accepting money on term deposits.
4. Lending money by overdraft, installment, loan, or other means of loans.
5. Providing documentary and standby letter of credit, guarantees, performance bonds,
securities underwriting commitments and other forms of "off balance sheet" exposures.
6. Safekeeping of documents and other items in safe deposit boxes/lockers.
7. Sale, distribution or brokerage, with or without advice, of insurance, unit trusts and
similar financial products as a "financial supermarket".
8. Traditionally, large commercial banks also underwrite bonds, and make markets in
currency, interest rates, and credit-related securities, but today large commercial banks
usually have an investment bank arm that is involved in the above mentioned activities.

8.2.3 Various Types of Loans Granted by Commercial Banks

1. Secured loan: A secured loan is a loan in which the borrower pledges some asset (e.g., a car
or property) as collateral (i.e., security) for the loan.
2. Mortgage loan: A mortgage loan is a very common type of debt instrument, used to
purchase real estate. Under this arrangement, the money is used to purchase the property.
Commercial banks, however, are given security-a lien on the title to the house-until the
mortgage is paid off in full. If the borrower defaults on the loan, the bank would have the
legal right to repossess the house and sell it, to recover sums owing to it. In the past,
commercial banks have not been greatly interested in real estate loans and have placed
only a relatively small percentage of their assets in mortgages. As their name implies,
such financial institutions secured their earning primarily from commercial and consumer
loans and left the major task of home financing to others. However, due to changes in
banking laws and policies, commercial banks are increasingly active in home financing.
Changes in banking laws now allow commercial banks to make home mortgage loans on
a more liberal basis than ever before. In acquiring mortgages on real estate, these
institutions follow two main practices. First, some of the banks maintain active and well-
organized departments whose primary function is to compete actively for real estate
loans. In areas lacking specialized real estate financial institutions, these banks become
the source for residential and farm mortgage loans. Second, the banks acquire mortgages
by simply purchasing them from mortgage bankers or dealers. In addition, dealer service
companies, which were originally used to obtain car loans for permanent lenders such as

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