Rameshwar's IAS

Indian commercial banks

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Commercial Bank is a type of financial intermediary that offers a variety of goods and services to businesses in order to help them with their liquidity needs. To generate fee income and serve as a low-cost source of money, the institution accepts and manages deposits. Through the establishment of credit and the provision of credit facilities, funds can earn interest income. Commercial banks' two main sources of income are the generation of credit and the acceptance of deposits, and they serve a wide range of economic sectors as customers.

Commercial Banks and business banks work together to support small and medium-sized businesses (SMEs). Clients may, for instance, be divided into "small business" and "middle market" segments under the business bank channel and Commercial Banks, respectively. Banks still provide assistance to companies that depend primarily or entirely on owner support, despite segmentation. This dependence decreases as a company's size and complexity reach or exceed the mid-market. Businesses with less complicated needs than those serviced by corporate banking and investment banking professionals are often served by commercial banks. It is a type of financial intermediary that bridges depositor capital sources to create credit that can be given to borrowers, hence supplying liquidity. Deposit acceptance, credit creation, treasury and payments, as well as other agency and consulting services, are all functions of a commercial bank. Commercial banks and business banks work together to support small and medium-sized businesses (SMEs). By size and complexity, clients can be divided.

Commercial banks' duties

A Commercial bank serves as a financial bridge between fund suppliers (depositors) and users (borrowers), offering financial services to businesses of all sizes. They do this by providing a wide range of business-focused goods and services. They are essential to any economy that depends on the production of business credit. These are some possible categories for functions. Details about various products and services can be found under business banking.

1. Acceptance of Deposit - Any commercial bank must have the deposit-gathering function in order to provide credit products and services at a cheaper cost than external financing. The expansion of a commercial bank's credit portfolio and interest revenue are correlated with the ability to attract deposits, which is the key to earning a return on equity that is acceptable.

2. Creation of Credit - A commercial bank's required minimum cash reserve to sustain its deposit liabilities is specified by regulators. Extra deposits can be used to generate credit for commercial loans and other credit products, or they can be lent to other institutions at the overnight rate. The production of credit is a crucial task for commercial banks. At commercial banks, interest represents the largest percentage of revenue. Performance indicators that are closely watched are credit portfolio performance and health.

3. Payments and Treasury - Commercial banks provide invoicing, collecting, and merchant (point-of-sale) solutions to fulfill current asset needs for businesses, increasing economies of scope and scale as well as the wallet share. Payment options that support current liability requirements include payments made with checks, charge and credit cards, and electronic payments. Over the past five years, businesses that specialise in the payment sector have outperformed other business bank models, and the industry's expansion makes it a desirable market for high-tech.

4. Advisory and Agency - Due to their advantageous position as financial middlemen, commercial banks also provide a wide variety of agencies and consulting services. Examples of services in this category include recording the performance of cross-border services, providing trade credit with international businesses engaged in import and export, and advisory services to manage risks from business-to-business activities. Institutions have strict regulations and are integrated with international networks (like SWIFT), which makes it difficult for businesses that don't operate on the same scale to enter the market.

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