Functions of Commercial banks in India

Functions of Commercial banks in India 

Commercial Banks like State Bank of India play a lot of important roles and functions as explained below.

I. Primary / Banking Functions :-

Commercial banks have two important banking functions. One is accepting deposits and other is advancing loans.

• 1.1 Deposits :-

One of the main function of a bank is to accept deposits from the public. Deposits are accepted by the banks in various forms.

Which is the lesser of the two Devils - Inflation or Slowdown?

Reserve Bank of India considers Inflation a more cause of concern than slow rate of growth.

Contributed by - Arihant Bhandawat

Inspite of recent noises made by Finance Minister, P. Chidambaram, to prop up the markets, ease liquidity worries and enlist plans of government to reduce deficit financing, RBI has kept liquidity and interest rates on a tight leash. 

Considering inflation as a bigger worry, RBI has kept safe distance from any big-bang rate cut announcements which the market had been expecting following the FinMin's recent announcement to phase out deficit financing to manageable limits by 2017. Clearly, by keeping interest rates unchanged RBI has made everyone know about its priority.

It shall be interesting to see how this battle between Inflation and Slowing economy plays out in the near future.

Watch this space for more action.

Cash Reserve Ratio (CRR) - dymystified

Cash Reserve Ratio (CRR)

Contributed by - Arihant Bhandawat

What is Cash Reserve Ratio (CRR)?

It is the percentage of total deposits (both time and demand deposits) that commercial banks need to keep with the Central Bank of any country.  In India the CRR rate as on 30.10.2012 was 4.5% (w.e.f 22.09.2012). These rates are subject to regular changes as per Reserve Bank of India's notifications.

What is the purpose of Cash Reserve Ratio (CRR)?

Cash Reserve Ratio (CRR) began with the purpose for providing following policy support:

1. Providing safety net to both time and demand deposit holders' money kept with commercial banks.
2. Source of liquidity and fund transfers in the financial sector of any country.
3. Providing platform that aids in inter-bank transactions.
4. Providing financial stability to the financial sector.
5. CRR is also used as an important policy tool to control inflation, interest rates and availability of credit facilities and money supply in the economy. It, therefore, provides Reserve Bank of India (or any other Central Bank) an important Monetary Policy tool to boost investments and business sentiments in the country.