THE BANKING SPECIALIZATION.

1.Introduction to Indian Financial system:

The financial system of a country is an important tool for economic development of the country as it helps in the
creation of wealth by linking savings with investments. It facilitates the flow of funds from the households
(savers) to business firms (investors) to aid in wealth creation and development of both the parties. The
institutional arrangements include all condition and mechanism governing the production, distribution, exchange
and holding of financial assets or instruments of all kinds. There are four main constituents of the financial system
as follows:
1. Financial Services
2. Financial Assets/Instruments
3. Financial Markets
4. Financial Intermediaries

Financial Services

Financial Services are concerned with the design and delivery of financial instruments, advisory services to
individuals and businesses within the area of banking and related institutions, personal financial planning, leasing,
investment, assets, insurance etc. These services includes
o Banking Services: Includes all the operations provided by the banks including to the simple deposit and
withdrawal of money to the issue of loans, credit cards etc.
o Foreign Exchange services: Includes the currency exchange, foreign exchange banking or the wire
transfer.
o Investment Services: It generally includes the asset management, hedge fund management and the
custody services.
o Insurance Services: It deals with the selling of insurance policies, brokerages, insurance underwriting or
the reinsurance.
 o Some of the other services include the advisory services, venture capital, angel investment etc.
o Financial Instruments can be defined as a market for short-term money and financial assets that is a
substitute for money. The term short-term means generally a period of one year substitutes for money is
used to denote any financial asset which can be quickly converted into money. Some of the important
instruments are as follows:
Financial Instruments/Assets

o Call /Notice-Money: Call/Notice money is the money borrowed on demand for a very short period. When
money is lent for a day it is known as Call Money. Intervening holidays and Sunday are excluded for this
purpose. Thus money borrowed on a day and repaid on the next working day is Call Money. When the
money is borrowed or lent for more than a day up to 14 days it is called Notice Money. No collateral
security is required to cover these transactions.
o Term Money: Deposits with maturity period beyond 14 days is referred as the term money. The entry
restrictions are the same as that of Call/Notice Money, the specified entities not allowed to lend beyond 14
days.
o Treasury Bills: Treasury Bills are short-term (up to one year) borrowing instruments of the union
government. It’s a promise by the Government to pay the stated sum after the expiry of the stated period
from the date of issue (less than one year). They are issued at a discount off the face value and on
maturity, the face value is paid to the holder.
o Certificate of Deposits: Certificates of Deposits is a money market instrument issued in dematerialised
form or as a Promissory Note for funds deposited at a bank, other eligible financial institution for a
specified period.
o Commercial Paper: CP is a note in evidence of the debt obligation of the issuer. On issuing commercial
paper the debt is transformed into an instrument. CP is an unsecured promissory note privately placed with
investors at a discount rate of face value determined by market forces.
Financial Markets

The financial markets are classified into two groups:

Capital Market:

A capital market is an organized market which provides long-term finance for business. Capital Market also refers
to the facilities and institutional arrangements for borrowing and lending long-term funds. Capital Market is
divided into three groups:
 Corporate Securities Market: Corporate securities are equity and preference shares, debentures and
bonds of companies. The corporate security market is a very sensitive and active market. It can be
divided into two groups: primary and secondary.
 Government Securities Market: In this market government securities are bought and sold. The
securities are issued in the form of bonds and credit notes. The buyers of such securities are Banks,
Insurance Companies, Provident funds, RBI and Individuals.
  Long-Term Loans Market: Banks and Financial institutions that provide long-term loans to firms for
modernization, expansion and diversification of business. Long-Term Loan Market can be divided into
Term Loans Market, Mortgages Market and Financial Guarantees Market.
Money Market

Money Market is the market for short-term funds. The money market is divided into two types: Unorganized a nd
Organized Money Market.
 Unorganized Market: It consists of Money lenders, Indigenous Bankers, Chit Funds, etc.
 Organized Money Market: It consists of Treasury Bills, Commercial Paper, Certificate Of Deposit, Call
Money Market and Commercial Bill Market. Organised Markets work as per the rules and regulations of
RBI. RBI controls the Organized Financial Market in India.
FINANCIAL INTERMEDIARIES
A financial intermediary is an institution which connects the deficit and surplus money. The best example of an
intermediary is a bank which transforms the bank deposits to bank loans. The role of the financial intermediary is
to distribute funds from people who have extra inflow of money to those who don’t have enough money to fulfill
the needs. Functions of Financial Intermediary are are as follows:
 Maturity transformation: Deals with the conversion of short-term liabilities to long term assets.
 Risk transformation: Conversion of risky investments into relatively risk free ones.
 Convenience denomination: It is a way of matching small deposits with large loans and large deposits
with small loans.
FinancialIntermediariesaredividedintotwotypes:
Depository institutions: These are Banks and credit unions that collect money from the public and use that
money to advance Loans to financial Customers.
Non-Depository institutions: These are brokerage firms, insurance and mutual funds companies that cannot
collect money deposits but can sell financial products to financial customers.

Indian Financial System accelerates the rate and volume of savings through provision of various financial
instruments and efficient mobilization of savings. It aids in increasing the national output of the country by
providing funds to corporate customers to expand their respective business. It helps economic development and
raising the standard of living of people and promotes the development of weaker section of the society through
rural development banks and co-operative societies.

2.MEANING OF A BANKER & CUSTOMER

2. Meaning of a Banker & customer

Banker & customer
1.There is no statutory definition of the term ‘banker’ and ‘customer’ Banker The business of a banker in
ordinary consists in receiving money from or an account of a customer and repaying the same on demand.
2. The Negotiable Instrument Act defines a banker as any person acting as a banker. The Banking Regulation Act,
1949 defines ‘banking company’ as a ‘company which transact the business of banking in India. ‘The term
banking’ has been defined as‘accepting’ for the purpose of lending or investment. of deposit of money from the
public repayable on demand or withdrawal by cheque,draft or order.
3.Customer A customer is a person who has some sort of account, either deposit or current account, with the
banker.
4.Legal relationship between banker and customer•

3. Banker & Customer Relationship: The Relationship between a Banker and Customer is categorized in to Two
Types.
1. General Relationship.
2. Special relationship.

The general relationship between banker and customer is that of

1.Debtors and creditors: According to the state of the customer‘s account i.e. whether the balance in the account
is credit or debit, but there are certain additional obligations to be borne in mind and these distinguish the
relationship form that of the normal debtors and creditors. In addition to his primary functions, a banker renders a
number of services to his customer.

2. Bankers also act as an agent or trustee: His customer if the latter entrusts the former with agency or trust
work. In such cases, the banker acts as a debtor, agent and a trustee simultaneously but in relation to the specified
business.

Relationship as Debtors and Creditors On the opening of the account the banker assumes the position of a debtor.
He is not a depository or trustee of the customer‘s money because the money handed over to the banker becomes
a debt due from him to the customer. A depository accepts something for safe custody on the condition that it will
not be opened or replaced by similar commodity. A banker does not accept the depositor money on such
condition. The money deposited by the customer with the banker is, in legal terms lent by the customer to the
banker, who makes use of the same according to his discretion. The creditor has the right to demand 80 Central
Bank of India Ltd. Bombay V/S Gopinath Nair and others (A.I.R 1979, Kerala 74) when customer back his
money from the banker, and the banker is under an obligation to repay the debt as and when he is required to do
so. Since the introduction of the deposit insurance in India in 1962, the element of risk to the depositor is
minimized as the Deposit Insurance And Credit Guarantee Corporation undertakes to insure the deposits up to a
specified amount.
Bankers‘ relationship with the customer is reversed as soon as the customer‘s account is overdrawn. Banker
becomes creditors of the customer who has taken a loan from the banker and continues in that capacity till the
loan is repaid.
3. loans and advances granted by a banker: It is usually secured by the tangible assets of the borrower, the
banker becomes a secured creditor of his customer. Thought the relationship between a banker and his customer is
mainly that of a debtor and creditors, this relationship differs from similar relationship arising out of ordinary
commercial debts in following respects .The creditors must demand payment In case of ordinary commercial debt,
the debtors pay the amount on the specified date or earlier or whenever demanded by the creditor as per the terms
of the contract. But in case of a deposit in the bank, the debtors / banker is not required to repay the amount on his
own accord.
“ It is essential that the depositor (creditor) must make a demand for the payment of the deposit in the proper
manner. This difference is due to the fact that a banker is not an ordinary debtors, he accepts the deposits with an
additional obligation to honors his customers” cheques.

If he returns the deposited amount on his own accord by closing the account, some of the cheques issue by the
depositor might be dishonored and his reputation might be adversely affected. Moreover, according to the
statutory definition of banking, the deposits are repayable on demand or otherwise.

The depositors make the deposit for his convenience, apart from his motive to earn an income (except current
account). Demand by the creditor is, therefore, essential for the refund of the deposited money. Thus the deposit
made by a customer with his banker differs substantially from an ordinary debt. Ø Proper place and time of
demand.

The demand by the creditor must be made at the proper place and in proper time. A commercial bank, having a
number of branches, is considered to be one entity, but the depositor enters into relationship with only that branch
where an account is opened in his name his demand for the repayment of the deposit must be made at the same
branch of the bank concerned otherwise the banker is not bound to honor his commitment. However, the customer
may make special arrangement with the banker for the repayment of the deposited money at some other branch.

Demand must be made in proper manner The demand for the refund of money deposited must be made through a
cheque or on order as per the common usage amongst the Banker .

1. Banker as Trustee: A banker is a debtor of his customer in respect of the deposits made by the latter, but
in certain circumstances he acts as a trustee also. A trustee holds money or assets and performs certain
functions for the benefit of some other called the beneficiary. The position of a banker as a trustee or as a
debtor is determined according to the circumstances of each case. If he does in ordinary course of his
business, without any specific direction from the customer, he acts as a debtors / creditors. In case of
money or bills etc., deposited with the bank for specific purpose, the bankers position will be determined
by ascertaining whether the amount was actually debited or credited to the customer‘s account or not.84
On the other hand, if a customer instructs his bank to purchase certain securities out of his deposit with
the latter, but the bank fails before making such purchase, the bank will continue to be a debtor of his
 customer (and not a trustee) in respect of the amount which was not withdrawn from or debited to his
account to carry out his specific. The relationship between the banker and his customer as a trustee and
beneficiary depends upon the specific instruction given by the latter to the former regarding the purpose
of use of the money or documents entrusted to the banker.

2. Banker as an Agent: A Banker acts as an agent of his customer and performs a number of agency
functions for the convenience of his customers. For example, he buys or sells securities on behalf of his
customer, collect cheques on his behalf and makes payment of various dues of his due customers, e.g.
insurance premium, etc. The range of such agency functions has become much wider and the banks are
now rendering large number of agency service of diverse nature Conclusion :This chapter focuses on
customer relationship with the banker that is debtors and creditors. Bankers also act as an agent or
trustee of his customer if the latter entrusts the former with agency or trust work. The outcome of this
chapter shows that banks can assess dimensions of services and to decide which dimensions need
improvement. Hence, efforts of the banks should be not only to equalize the customers‘ expectations with
what the bank offer but efforts have to be made in to ensure that bank employees should provide a
number of Deposits.

3.ROLE OF COMMERCIAL BANKS IN ECONOMIC DEVOLEPMENT:

Banks have always played an important position in the country’s economy. They play a decisive role in the
development of the industry and trade. They are acting not only as the custodian of the wealth of the country but
also as resources of the country, which are necessary for the economic development of a nation. The general role
of commercial banks is to provide financial services to general public and business, ensuring economic and social
stability and sustainable growth of the economy. Commercial Bank in India comprises the State Bank of India
(SBI) and its subsidiaries, nationalized banks, foreign banks and other scheduled commercial banks, regional rural
banks and non-scheduled commercial banks. The total numbers of branches of commercial banks are more than
50,000 and the regional rural banks are approximately 8,000 covering 280 districts in the country. Commercial
banks mostly provide short term loans and in some cases medium term financial assistance also to small scale
units. Most of the commercial banks have got specialized units in their administrative structure to take care of the
financial needs of the small scale industrial units. As we know that the Agriculture is the backbone of economy of
any country like India. Research is based upon the secondary data. Which provide the findings on commercial
banks and how it helpful in economic development. The main objective of the study is to critically examine and
analyze the role of commercial banks on economic growth in India. The study portrays how loans and credit
affect the GDP and consequently the level of economic growth of India. Keywords - social stability, rapid,
realized, tax, GDP.
The Activities of the commercial banks in India are expanding at a rapid space during the period after
Independence. There is territorial as well as functional.
Expansion of the activities of the bank.: Banks which are conservative and conventional in their approach have
come out from their shell and face the challenges of planned economic growth. In recent years non-conventional
sectors are receiving the attention of commercial banks in India. A better understanding of the implications of
financing nonconventional sector by commercial banks is possible only if one looks back the position of
commercial banks during the pre-nationalization era. Banking in India before nationalization. Commercial Banks
are is the institutions that ordinarily accept deposits from the people and advances loans.

Commercial Banks also create in India; such banks alone are called Commercial Banks which have been
established in accordance with the provisions of the Banking Regulation Act, 1949. Commercial Banks may be
Scheduled Banks of NonScheduled Banks. Banking Regulation Act, (BR Act), 1949.
According to Section 5(c) of the BR Act, 'a banking company is a company which transacts the business of
banking in India. According to Reserve Banks of India Act 1934, ‘A Scheduled Bank is that bank which has been
included in the second schedule of the Reserve Bank’.
II. CLASSIFICATION OF COMMERCIAL BANKS
1. Scheduled banks: - Banks which have been included in the Second Schedule of RBI Act 1934. They are
categorized as follows:
2. Public Sector Banks: - are those banks in which majority of stake are held by the government. Eg. SBI, PNB,
Syndicate Bank, Union Bank of India etc.
3. Private Sector Banks: - are those banks in which majority of stake are held by private individuals. Eg. ICICI
Bank, IDBI Bank, HDFC Bank, AXIS Bank etc.
4. Foreign Banks: - are the banks with Head office outside the country in which they are located. Eg. Citi Bank,
Standard Chartered Bank, Bank of Tokyo Ltd. etc.
5. None scheduled commercial banks: - Banks which are not included in the Second Schedule of RBI Act 1934.

(a) The central objective of the study is to empirically investigate the role of Indian banks in Capital formation
and economic growth.
(b) To analyze the impact of banks’ deposit mobilization on capital formation and economic growth in India
(c) To determine the association existing between capital formation and economic growth in India..in

The Role of Commercial Banks in the Economic Development of INDIA

Banks are one of the most important parts of any country. In this modern time money and its necessity is very
important. A developed financial system of the country ensures to attain development. A modern bank provides
valuable services to a country. To attain development there should be a good developed financial system to
support not only the economic but also the society. So, a modern bank plays a vital role in the socio economic
matters of the country. Some of the important role of banks in the development of a country is briefly showing
below.
1.PROMOTE SAVING HABITS OF THE PEOPLE: Bank attracts depositors by introducing attractive deposit
schemes and providing rewards or return in the form of interest. Banks providing different kinds of deposit
schemes to its customers. It enable to create banking habits or saving habits among people.
2 CAPITAL FORMATION AND PROMOTE INDUSTRY: Capital is one of the most important parts of any
business or industry. It is the life blood of business. Banks are increase capital formation by collecting deposits
from depositors and convert these deposits in to loans advances to industries.
3.SMOOTHING OF TRADE AND COMMERCE FUNCTIONS: In this modern era trade and commerce plays
vital role between any countries. So, the money transaction should be user friendly. A modern bank helps its
customers to sent funds to anywhere and receive funds from anywhere of the world. A well developed banking
system provides various attractive services like mobile banking, internet banking, debit cards, credit cards etc.
these kinds of services fast and smooth the transactions. So, bank helps to develop trade and commerce
4.GENERATE EMPLOYMENT OPPORTUNITY: Since a bank promote industry and investment, there
automatically generate employment opportunity. So, a bank enables an economy to generate employment
opportunity.
5.SUPPORT AGRICULTURAL DEVELOPMENT: Agricultural sector is one of the integral part of any economy.
Food self sufficiency is the major challenge and goal of any country. Modern bank promote agricultural sector by
providing loans and advances with low rate of interest compared to other loans and advances schemes. 4.6
6.APPLYING OF MONITORY POLICY: Monitory policy is a important policy of any government. The major
aim of monitory policy is to stabilize financial system of the country from the dangerous of inflation, deflation,
crisis etc. 4.7
7.BALANCED DEVELOPMENT: Modern banks spreading its operations throughout the world. we can see
number of big banks like citi bank, Baroda bank etc. It helps a country to spread banking activities in rural and
semi urban areas. With the spreading of banking operations around the country, helps to attain balanced
development by promoting rural areas. Modern bank plays vital role in the socio- economic development of the
country. A developed banking system enables the country to attain balanced development without any special
consideration of rich and poor, cities and rural areas etc.

4.EVOLUTION OF BANKING IN INDIA:

For the past three decades India’s banking system has several outstanding achievements to its credit. The most
striking is its extensive reach; it is no longer confined to only metropolitans or cosmopolitans in India. In fact,
Indian banking system has reached even the remote comers of the country. This is one of the main reasons of
India’s growth process.
The government’s regular policy for Indian bank since 1969 has paid rich dividends with the nationalization of 14
major private banks of India. Not long ago, an account holder had to wait for hours at the bank counters for
getting a draft or for withdrawing his own money. Today, he has a choice, Gone are days when the most efficient
bank transferred money from one branch to other in two days. Now it is simple as instant messaging or dial a
pizza. Money have become the order of the day.
The first bank in India, though conservative, was established in 1786. From 1786 till today, the journey of Indian
Banking System can be segregated into three distinct phases.

They are as mentioned below:

i. Early phase from 1786 to 1969 of Indian banks.

ii. Nationalization of Indian Banks and up to 1991 prior to Indian banking sector Reforms.

iii. New phase of Indian Banking System with the advent of Indian Financial and Banking Sector Reforms after
1991.

To make this write-up more explanatory, I prefix the scenario as Phase I, Phase II and Phase III.

Phase I:
The Genera; Bank of India was set up in the year 1786. Next came Bank of Hindustan and Bengal Bank. The East
India Company established Bank of Bengal (1806), Bank of Bombay (1840) and Bank of Madras (1843) as
independent units and called them Presidency Banks. These three banks were amalgamated m 1921 and imperial
Bank of India was established which started as private shareholders banks, mostly Europeans shareholders.

In 1865 Allahabad Bank was established and first time exclusively by Indians, Punjab National Bank Ltd. was set
up in 1894 with headquarters at Lahore. Between 1885 and 1913, Bank of India Central Bank of India, Bank of
Baroda, Canara Bank, Indian Bank, and Bank of Mysore were set up Reserve Bank of India came in 1935.

During the first phase the growth was very slow and banks also experienced periodic failures between 1913 and
1948. There were approximately 1100 banks, mostly small. To streamline the functioning and activities of
commercial banks, the Government of India came up with the Banking Companies Act, 1949 which was later
changed to Banking Regulation Act, 1949 as per amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of
India was vested with extensive power for the supervision of banking in India as the Central Banking Authority.

ADVERTISEMENTS:

During those day’s public has lesser confidence in the banks. As an aftermath deposit mobilization was slow.
Abreast of it the savings bank facility provided by the Postal department was comparatively safer. Moreover,
funds were largely given to traders.

Phase II:
Government took major steps in the Indian Banking Sector Reform after independence. In 1955, it nationalized
Imperial Bank of India with extensive banking facilities on a large scale specially in rural and semi urban areas. It
formed State Bank of India to act as the principal agent of RBI and to handle banking transactions of the Union
and State Governments all over the country.
Seven banks forming subsidiary of State Bank of India were nationalized on 19th July 1959. In 1969, major
process of nationalization was carried out. It was the effort of the then Prime Minister of India, Mrs. Indira
Gandhi 14 major commercial banks in the country was nationalized.

Second phase of nationalization in Indian Banking Sector Reform was carried out in 1980 with six more banks.
This step brought 80% of the banking segment in India under Government ownership.

The following are the steps taken by the Government of India to Regulate Banking Institutions in the country.

i. 1949: Enactment of Banking Regulation Act.

ii. 1955: Nationalisation of State Bank of India.

iii. 1959: Nationalisation of SBI subsidiaries.

iv. 1961: Insurance cover extended to deposits.

v. 1969: Nationalisation of 14 major banks.

vi. 1971: Creation of credit guarantee corporation.

vii. 1975: Creation of regional rural banks.

viii. 1980: Nationalisation of 6 banks with deposits over 200 crore.

After the nationalisation the branches of the public sector banks in India rose to approximately 800% and deposits
and advances took a huge jump by 11,000%.Banking in the sunshine of Government ownership gave the public
implicit faith and immense confidence about the sustainability of these institutions.

Phase III:
This phase has introduced many more products and facilities in the banking sector in its reforms measure. In
1991, under the chairmanship of M Narasimham, a committee was setup by his name which worked for the
liberalization of banking practices.

The country is flooded with foreign banks and their ATM stations. Efforts are being made to give a satisfactory
service to customers. Phone banking and net banking is introduced. The entire system became more convenient
and swift. Time is given more importance than money.

The financial system of India has shown a great deal of resilience. It is sheltered from any crisis triggered by any
external macro-economic shock as other East Asian Countries suffered. This is all due to a flexible exchange rate
regime, the foreign reserves are high, the capital account is not yet fully convertible, and banks and their
customers have limited foreign exchange exposure.
5th Topic: Financial statement of Banks with special focus on Indian Banks.
Banking business has done wonders for the world economy. The simple looking method of accepting money
deposits from savers and then lending the same money to borrowers, banking activity encourages the flow of
money to productive use and investments. This in turn allows the economy to grow. In the absence of banking
business, savings would sit idle in our homes, the entrepreneurs would not be in a position to raise the money,
ordinary people dreaming for a new car or house would not be able to purchase cars or houses. The government of
India started the cooperative movement of India in 1904. Then the government therefore decided to develop the
cooperatives as the institutional agency to tackle the problem of usury and rural indebtedness, which has become
a curse for population. In such a situation cooperative banks operate as a balancing centre. At present there are
several cooperative banks which are performing multipurpose functions of financial, administrative, supervisory
and development in nature of expansion and development of cooperative credit system. In brief, the cooperative
banks have to act as a friend, philosopher and guide to entire cooperative structure. The study is based on some
successful co-op banks in Delhi (India). The study of the bank‟s performance along with the lending practices
provided to the customers is herewith undertaken. The customer has taken more than one type of loan from the
banks. Moreover they suggested that the bank should adopt the latest technology of the banking like ATMs,
internet / online banking, credit cards etc. so as to bring the bank at par with the private sector banks. Index
Terms- Cooperative movement of India, Usury, Rural Indebtedness, Cooperative Banks, Bank’s Performance,
Lending Practices, Loan, ATMs, Internet/Online Banking, Credit Cards, Private Sector Banks I.

6.FINANCIAL STATEMENTS OF BANKS WITH SPECIAL FOCUS ON INDIAN BANKS.

Bankers are familiar with Profit & Loss Account and Balance Sheet of Corporate as they day in and day

out read, analyze, disseminate information for processing the credit requirements of the borrowers. They
calculate various ratios including Current Ratio, Interest Coverage Ratio, Debt Equity Ratio, Debt

Service Coverage Ratio to assess whether the Bank will be assured of return of its funds. They flip

through hard bound books of Reports submitted by them in order to be doubly sure that they are

financing the right borrower with eligible financial limits.

But, we hardly come across any banker reading the financial statements of his own Bank.

While preparing financial statements, banks have to follow various guidelines / directions given by

RBI/Government of India governing the Financial Statements. It is important to go through the

Director’s Report, Management Discussion and Analysis Report, Corporate Governance Certificate

which normally precede the Financial Statements. All together all these are incorporated in Annual

Report of the Bank

HIGH LIGHTS OF BANKS’ BALANCE SHEETS:

The following are the highlights of Banks’ Balance Sheets:

1. Balance Sheet is prepared in conformity with Form A of the Third Schedule to the Banking

Regulation Act, 1949 and Profit and Loss Account in conformity with Form B ibid. They are prepared in

accordance with provisions of Section 29 of the Banking Regulation Act read with Section 211 (10), (2),

and 3 © of the Companies Act 1956.

2. They are always prepared as on 31st March of every year. Listed Banks are required to publish

Review financial results every quarter. But full fledged Profit and Loss Account and Balance Sheet are

prepared as on 31st March every year by all the Banks.

3. They contain 18 schedules as under:

Schedules forming part of Form A – Balance Sheet

Schedule - 1 - Capital

Schedule - 2 - Reserves & Surplus

Schedule - 3 - Deposits

Schedule - 4 - Borrowings

Schedule - 5 - Other Liabilities and Provisions

Schedule - 6 - Cash and balances with RBI

Schedule - 7 - Balances with Banks and money at call and short notice.

Schedule - 8 - Investments

Schedule - 9 - Advances.

Schedule - 10 - Fixed Assets.

Schedule - 11 - Other Assets.

Schedule - 12 - Contingent Liabilities / Bills for Collection.

Schedules forming Part of Form B – Profit and Loss Account

Schedule - 13 - Interest Earned.

Schedule - 14 - Other Income.

Schedule - 15 - Interest Expended.

Schedule - 16 - Operating Expenses.

Schedules forming Part of Annual Report

Schedule - 17 - Significant Accounting Policies.

Schedule - 18 - Notes forming part of accounts.

Some of these Schedules viz., 1,2,4,8,17 and 18 are not required to be prepared by Bank’s branches.

They are consolidated at Head office level. Schedule 1 to 5 form Liability Side of the Banks Balance

Sheet and Schedule 6 to 12 on the Asset side of the Balance Sheet. The Assets side of the Balance Sheet
has been arranged in such a manner that liquid assets such as Cash, Balances with Banks and

Investments are shown in that order. This enables the investor to quickly identify how much the Bank is

liquid enough to meet its commitment towards its customers. This arrangement of Assets is from liquid

to fixed assets in contrast to corporate balance sheets where the arrangement is from fixed to liquid.

1. RBI mandated all banks to disclose the accounting policies regarding key areas of operation in

Schedule 17 along with Note to Accounts in their financial statements. They include basis of

Accounting, Transactions involving Foreign Exchange, Investments etc.

2. RBI has also directed Banks to make 53 disclosures to enable the market participants to assess the key

areas of performance of the Banks. In addition to 53 disclosures mandated by RBI, Banks are also
required to comply with the Accounting Standard 1 (AS 1) on Disclosure of Accounting Policies issued

by Institute of Chartered Accountants of India.

3. The performance of Bank is assessed through calculation of various ratios such as CRAR, Gross NPA,

Net NPA, NIM, Interest income as percentage to average working funds, Non interest income as

percentage to average working funds, Operating profit as percentage to average working funds, Return

on Assets, Business / Profit per employee, Provision Coverage Ratio, etc. whereas a Company’s strength

is assessed through Current Ratio, ISCR, DER, DSCR etc.

4. Banks prepare two sets of financial statements (includes Balance Sheet and Profit and Loss Account),

one containing the performance of the Bank through its Banking operations, both domestic and

international and the other called consolidated Financial Statements containing the performance of the

Bank of its Banking operations and subsidiary units, joint ventures and associates in accordance with AS

21, issued by ICAI on a line-by-line basis by adding together the like items of assets, liabilities, income

and expenditure of the Bank. Sometimes, a standalone balance sheet may give a better picture of

performance of the Bank than when consolidated business of the subsidiaries, joint ventures and

associates are combined, if they have less profit making subsidiaries. Investor is interested in

consolidated financial statements as it is the position of the “Group”. Some banks having international

branches may prepare financial statements in dollar terms also to meet the requirements of their overseas

centers.

5. They are prepared on the basis of “going concern approach” adhering to various accounting,

disclosures prescribed by agencies like ICAI (Accounting Standards – GAAP), RBI (Banking

Regulation Act, RBI Act), and Government of India. Banks are also required to prepare their financial

statements based on International Financial Reporting Standards wef. 1.4.2013.

Now look at the Schedules forming part of Financial Statements :

SCHEDULE 1 : CAPITAL & LIABILITIES :

The Schedule gives details of Authorised, Issued, Subscribed and Paid up Capital of the Bank. Special

mention should be made of capital held by Central Government. If calculated in percentage terms, it will

give an idea of Central Government’s contribution to the Capital of the bank. For example, as on
31.3.2012, Oriental Bank of Commerce’s paid up capital was Rs.291.76 Cr out of which Central

Government holding was Rs. 169.22 Cr representing 57.99 %. In the case of Bank of India, the paid up

capital was Rs. 574.51 Cr out of which Central Government holding was Rs.359.88 Cr. representing

62.72 % . Investor can get an idea which bank’s share has velocity in the market and better traded.

SCHEDULE 2 – RESERVES & SURPLUS:

This schedule consists of Statutory Reserves, Capital Reserves (revaluation reserve), Share Premium,

Revenue & Other Reserves.

Statutory Reserve is created by transferring 25 % of net profit earned by the Bank every year.

Capital Reserve consists of revaluation reserve created out of (1) revaluation of property of the Bank ,

(2) Profit on sale of investments, which are “Held to Maturity” (3) Foreign Currency Translation

Reserve and (4) Special Reserve for Currency Swaps. These items of capital reserve are appropriated

from Net Profit of the Bank.

Share Premium is created from the premium collected by the Bank while issuing shares to the public.

Revenue & other reserves are recreated by transferring balance of Net profit after making appropriations

for Statutory, Capital Reserves, Dividend payment and Special Reserves.

SCHEDULE - 3 - DEPOSITS:

Deposits are mainly bifurcated into Demand Deposits (which includes Current Account Deposits,

Sundry Deposits and Overdue Term / Time deposits), Savings Bank Deposits and Term Deposits. Sub-

bifurcation in all these segments is Deposits from Banks and Others. It is now established that a bank

should have higher percentage of Demand Deposits and Savings Bank Deposits (CASA Deposits) for

better NIM (net interest margin). In the computerized environment, Branches should not have major

chunk of Overdue Term Deposits in the Demand Deposits portfolio. It will also have an impact on the

Assets and Liabilities Management of the Bank (ALM). As per the recent guidelines of Government of

India, bulk deposits should not be more than 10 % of the total deposits.

SCHEDULE – 4 – BORROWINGS :
This schedule which is managed at Head Office level, consists of borrowing from RBI and other Banks.

Borrowings from other Banks/other Institutions are mainly funds raised under various instruments

(Innovative Perpetual Debt Instruments, Subordinated debts, Unsecured non convertible redeemable

bonds etc) which qualify for Tier I and II capital of the Bank.

Schedules 1 (Capital), Schedule 2 (Reserves & Surplus) and Schedule 4 (Borrowings) are relevant for

calculation of Capital to Risk Weighted Asset Ratio (CRAR) as some balances under these schedules are

considered for Calculation of CRAR.

Some important points to be noted here for calculation of Capital Adequacy under Basel I and II

guidelines are given below : (Basel III guidelines are still in discussion stage and hence are not

considered here)

1. Banks are required to maintain minimum capital of 9% on on-going basis for Credit Risk, Market

Risk and Operational Risk.

2. The capital so calculated consists of Tier I and Tier II capital.

3. Minimum Tier I capital should be 6%

4. 80% of minimum capital to be maintained under Basel I frame work.

5. Banks are required to declare the CRAR under Basel I and II frame works in their financial

statements.

6. Method of computing risk weights is different under Basel I and Basel II frame works.

SCHEDULE 5 – OTHER LIABILITIES AND PROVISIONS:

The schedule mainly consists of Bills Payable (both inward and outward Bills for collection sent to

upcountry banks/branches), Interest accrued, Contingent provisions against standard assets (banks are

required to maintain provisions on Standard Assets @ 0.25 % to 0.40% and in some cases 1%),

Proposed Dividend and any other liabilities that have to be provided for.
The above schedules 1 to 5 form Liabilities side of the Balance Sheet. The following schedules form

part of Assets side of the Balance Sheet.

SCHEDULE 6 – CASH AND BALANCES WITH RBI :

Cash in Hand represents the cash held by branches of the Bank. All Branches are required to maintain

cash within retention limit prescribed by the bank (normally 0.25% of deposits). Any amount beyond the

limit should be transferred to RBI accounts so that the balances in RBI accounts qualify for CRR (Cash

Reserve Ratio) calculations. Keeping excess cash is fraught with security issues, and the Bank will be

losing interest / other benefits on idle component of the Cash held at branches.

Balances with RBI qualify for CRR calculations. Excess amount over required CRR will qualify for

SLR (Statutory Liquidity Ratio).

Branches should therefore maintain minimum cash with them.

SCHEDULE – 7 – BALANCES WITH BANKS AND MONEY AT CALL AND SHORT NOTICE :

Balances with Banks represent the balances maintained by branches with other Banks (such as SBI) for

clearing purposes, etc. Any excess balance should be transferred to RBI account. Balances with banks do

not earn any interest and also under Basel I frame work, Banks are required to calculate Risk weights @
20% of such balances.

Money at Call and Short Notice are entries created by Treasury of the Bank and hence should not reflect

in individual branch balance sheets unless parked for any reason by the Bank.

SCHEDULE – 8 – INVESTMENTS:

Investments are bifurcated into six segments in Balance sheets, viz. i) Government Securities, ii) Other

approved Securities, iii) Shares, iv) Debentures and Bonds, v) Subsidiaries / joint ventures, vi) Others

The Investments under Government Securities and Other Approved Securities qualify for SLR

(Statutory Liquidity Ratio) calculations. Investments under Others include CDs/CPs etc.
All investments are to be classified into Held to Maturity, Held for Trading and Available for Sale.

Depending upon the classification of the investments into these categories valuation of investments has

to be made as per RBI guidelines. The valuations will have a great bearing on the profit of the bank.

SCHEDULE 9 – ADVANCES :

There are three classifications under Advances, viz. first classification into Bills purchased and

discounted, Cash Credit, Overdrafts and Loans repayable on demand (normally loans with repayment

period less than 36 months) and Term Loans. This classification will enable the investor to know the

liquidity of funds for the Bank and also how the interest streams are ensured. For example, if the

balances under Cash Credit, Overdraft etc are more than Term Loans, the Bank’s liquidity position is

good where as more balances in Term Loans show steady profit by way of interest earnings.

Second classification is based on the security available in the loan portfolio. The classification is i)

secured by tangible assets, ii) covered by Bank/Government Guarantee and iii) unsecured. Large amount

of unsecured advances and / or increase over last may indicate the Bank’s vulnerability for credit risk.

Third classification is, Advances under i) Priority Sector ii) Public Sector iii) Banks iv) Others. This

classification is required as all banks are required to lend 40 % of their Advances under Priority Sector.

As of now, capital requirement for Credit Risk is higher than Capital requirement for Market Risk and
Operational Risk. It is therefore necessary that while undertaking Credit Risk availability and costs of

additional Capital requirement need to be looked into. A realignment of portfolios and/ or securing assets

with collaterals will enable reduce risk weights.

For example, under Basel I frame work, all outstanding advances carry a risk weight of 100%, whereas

under Basel II frame work, the risk weights vary from 20 % to 150% depending upon corporate

borrowers external rating, unsecured portfolios and similar activities.

Under Basel I frame work, cash margins and deposits are eligible financial collaterals. For example, a

borrower has been financed Rs.100 lakhs and there is a deposit of Rs. 10 lakhs as cash collateral, for the

purpose of calculation of risk weights, the amount is Rs. 90 lakhs. Under Basel II frame work, not only
cash collaterals, bonds, gold, debt mutual funds etc. are also considered as collateral for calculation of

risk weights.

Under Basel II frame work, risk weight for restructured advances is 125 % whereas under Basel I, it is

100%.

If branches are able to understand the concept of risk weights for credit risk, they can ensure and

properly account for all eligible securities as collaterals for calculation of risk weights, thus reducing the

higher requirement of Capital.

Further, the advances shown under this schedule are net of provisions. In other words, they only include

performing portion of advances.

SCHEDULE 10 – FIXED ASSETS AND SCHEDULE – 11 OTHER ASSETS:

These schedules do not need much explanation. However, Branches are to be careful while calculating

depreciation of these assets as it will have a direct bearing on the profit of the Bank. Many branches

continue to hold unserviceable, irreparable furniture and redundant computer hardware items on their

books. They should ensure to dispose of the same and properly account for only serviceable items.

SCHEDULE – 12 CONTINGENT LIABILITIES:

They mainly consists of Claims against the bank not acknowledge as debts, Liability on account of

outstanding Forward Exchange Contracts, Derivative Contracts, Guarantees Issued etc.

Notes to accounts should be referred to for any disputed liabilities that are hampering the profit of the

bank in case the contingent liabilities turn out to be funded liabilities.

At branches, bifurcation of guarantees into Financial and Performance should be done correctly as they

carry different risk weights for CRAR calculation. Any cash collaterals available in the guarantees

should be properly reduced from the outstanding amounts for CRAR calculations. The liability in

respect of expired guarantees should be reversed immediately following the guidelines of their Banks.
SCHEDULE 13 – INTEREST EARNED, SCHEDULE – 14 – OTHER INCOME, SCHEDULE 15 – INTEREST EXPENDED AND

SCHEDULE 16 – OPERATING EXPENSES :

These schedules form FORM-B of Financial Statements. They are profit and loss statements of the

Bank.

SCHEDULE – 17 SIGNIFICANT ACCOUNTING POLICIES :

This schedule discusses various accounting policies adopted by the Bank in preparing the financial

statements. The schedule mainly should be looked into to check whether Bank has made any changes in

the accounting procedures which may have bearing on the profit and loss of the Bank.

SCHEDULE 18 – NOTES FORMING PART OF THE FINANCIAL STATEMENTS :

RBI mandated all banks to make 53 specific disclosures in respect of preparation of financial statements.

One must go through these disclosures to really understand the SWOT (STRENGTH, WEAKNESS,

OPPORTUNITY, THREATS) of the Bank. Depending upon the market analysis and requirements, RBI

advises the Banks to make more disclosures in their Financial Statements.

This schedule forms crux of the strength of the Financial statements. Financial Statements reflect

outstanding balances in the books of the Bank on a given date. This schedule disseminates important
information about the balances reflected in each schedule.All stake holders (investors, customers,

depositors, staff and Government, RBI and others) should go through all the schedules to effectively

know the strength of a Bank. Employees should understand how schedules are prepared so that by

realignment of some of the balances their Bank can reflect a good

7.FINANCIAL STATEMENTS OF THE BANKS :(CAMEL APPROACH.)

The Indian banking sector is the backbone of the Indian economy. The two watershed events in the Indian
banking industry are the nationalization of banks in the year 1969 and the initiation of economic reforms in the
year1991. Since 1991, the size of the Indian economy has increased by 15 times in terms of GDP at market prices,
whereas the gross domestic savings have increased by almost 17 times and the household financial savings have
expanded by 16 times during the same period. The banking structure has played a crucial role in the mobilization
of savings and promotion of economic development. The CAMEL approach mainly considered for the purpose of
to know the performance of the different public sector and private sector banks by the different tools like capital
adequacy, asset quality, management capability, earnings capacity, liquidity. The analysis of the financial
performance of the selected public and private sector banks in India and to determine the factors that
predominantly affect the financial performance of the Indian banking sector with efficiently and accurately. The
four factors profit per employee, debt-equity ratio, total assets-to-total deposits ratio, Net NPA’s-to-total advances
ratio are the major dependent factors impacting the financial performance of the banks taking return on assets as
an independent variable. Keywords: Banking Sector, Capital Adequacy, Asset Quality, Management Efficiency,
earning capacity, Liquidity
I. INTRODUCTION s the real economy is dynamic, it is imperative that the banking system is adaptive
and competitive enough to cope with multiple demands and objectives made on it by various constituents
of the economy. From the point of view of financial inclusion also, there is a need to make available the
financial services to the excluded segments of the society. Thus, it can be said that today’s banking
structure in India has scope and need for further growth in size. In the current scenario, where every
industry is so much volatile, it is of great help if a common man can make judgment that are free from
clouding generate by brand name and other promotional strategies. Therefore, this paper makes an effort
to analyze the overall financial health of the selected public and private sector banks in India. Banking in
India originated in the last decades of the 18th century. The first banks were The General Bank of India,
which started in 1786, and Bank of Hindustan, which started in 1790; both are now defunct. The oldest
bank in existence in India is the State Bank of India, which originated in the Bank of Calcutta in June
1806, which almost immediately became the Bank of Bengal. This was one of the three presidency
banks, the other two being the Bank of Bombay and the Bank of Madras, all three of which were
established under charters from the British East India Company. For many years the Presidency banks
acted as quasi-central banks, as did their successors. The three banks merged in 1921 to form the
Imperial Bank of India, which, upon India's independence, became the State Bank of India in 1955.
II. INDUSTRY PROFILE A bank is a financial institution and a financial intermediary that accepts deposits
and channels those deposits into lending activities, either directly or through capital markets. A bank
connects customers that have capital deficits to customers with capital surpluses. Due to their critical
status within the financial system and the economy generally, banks are highly regulated in most
countries. They are generally subject to minimum capital requirements which are based on an
international set of capital standards, known as the Basel Accords. Banking in India originated in the last
decades of the 18th century. The first banks were The General Bank of India, which started in 1786, and
Bank of Hindustan, which started in 1790; both are now defunct. The oldest bank in existence in India is
the State Bank of India, which originated in the Bank of Calcutta in June 1806, which almost
immediately became the Bank of Bengal. This was one of the three presidency banks, the other two
being the Bank of Bombay and the Bank of Madras, all three of which were established under charters
from the British East India Company. For many years the Presidency banks acted as quasi-central banks,
as did their successors. The three banks merged in 1921 to form the Imperial Bank of India, which, upon
India's independence, became the State Bank of India in 1955.
III. III. RESEARCH METHODOLOGY ;
IV. Need For the Study: The CAMEL approach mainly considered for the purpose of to know the
performance of the different public sector and A International Journal of Research and Scientific
Innovation (IJRSI) |Volume III, Issue X, October 2016|ISSN 2321–2705 www.rsisinternational.org Page
31 private sector banks by the different tools like capital adequacy, asset quality, management capability,
earnings capacity, liquidity. Give the ranks to them according to their performance in capital
maintenance, asset quality, management capability, earnings capacity, and liquidity in five different tools
using by CAMEL approach. The overall performance and make a comparative analysis of major private
sector banks in India. Camel approach was used study the performance and composite ranking method
was used to make a
V. Comparative analysis. It was found that in terms the overall performance of private sector banks and
public sector banks in India. The study mentioned that the weakest area of private and public sector
banks were management of NPA’S. The performance of the different banks were found to be impressive
and the performance of private and public sector banks were ranked according to their performance in
capital adequacy, asset quality, management capability, earnings capacity, liquidity and give them to
suggestions to overcome the drawbacks.
VI. Objectives of the Study:
VII. 1) To evaluate the selected public and private sector banks from each of the important parameter of
CAMEL model like: i. Capital Adequacy ii. Asset Quality iii. Management capability iv. Earnings
capacity and v. Liquidity
2) To investigate the factors that predominantly affects the financial performance of the selected public
& private sector banks.
3) To calculate the composite ranking of selected public and private sector banks using CAMEL model.
Hypothesis: H01: There is no significant difference in performance of selected public sector banks in
India assessed by CAMEL model. H02: There is a significant difference in performance of selected
public sector banks in India assessed by CAMEL model. H11: There is no significant difference in
performance of selected private sector banks in India assessed by CAMEL model. H12: There is a
significant difference in performance of selected private sector banks in India assessed by CAMEL
model. H21: There is no significance impact of the parameters of CAMEL model on the performance of
the banks. H22: There is a significance impact of the parameters of CAMEL model on the performance
of the banks. Exploratory Research: Based on the objectives of the study, Exploratory Research Design
has been adopted.
Exploratory research is preliminary study of an unfamiliar problem about which the researcher has little
or no knowledge. The two levels of exploratory study are, to discover the significant variables and to
find out the relationship between variables. Sampling Technique: Stratified Random Sampling Technique
is adopted for selecting the sample.
IV. LITERATURE SURVEY Sangmi and Nazir (2010) have taken two major banks of north India
namely, Punjab national bank and Jammu and Kashmir Bank on the basis of their role and participation
in influencing the financial condition of North India. They applied the Camel Model on these two banks
by taking the annual report data from 2001-2005, and found out that both the banks were financially
 sound and suitable as far as their capital adequacy, asset quality, management capability and liquidity is
concerned. Mishra and Kumari (2011) selected 12 public and private sector banks on the basis of market
capture and measured the efficiency and soundness by Camel Model. From the analysis they ranked the
banks. They said that HDFC takes the lead followed by ICICI and Axis Bank. Bank of Baroda and
Punjab National Bank follows the fourth position holded by IDBI and Kotak Mahindra Bank. Public
Sector Banks like SBI and Union Bank takes the back seat. It donates that Private Sector Banks are
performing better than Public Sector Bank. Jha and Hui (2012) tried to find out the factors affecting the
performance of Nepalese Commercial Banks By using various camel ratios such as return on asset
(ROA), return on equity (ROE), capital adequacy ratio (CAR) etc. As Public sector banks have higher
total assets compared to joint venture or domestic private banks, thus ROA was found higher whereas
overall performance of public sector was unsound because ROE and CAR of joint venture and private
banks was found superior. The financial performance of public sector banks is being eroded by other
factors such as poor management, high overhead cost, political intervention, low quality of collateral etc.
Kumar (2012)has given a definition to camel rating system, according to him it is a mean to categorize
bank based on the overall health, financial status, managerial and operational performance. In his study
he has chosen the SBI and its associates for checking the performance and concludes that State Bank of
India is always in the lead than its associates in every aspect of camel.
VII.TOPIC:
KEY PERFORMANCE INDICATORS-
Key Performance Indicators - KPI'
KPI can also be referred to as key success indicators (KSI) and vary between companies and industries,
depending on the pertinent priorities or performance criteria. For example, if a software company's goal is to have
the fastest growth in its industry, its main performance indicator may be the measure of revenue growth year over
year (YOY). In the retail industry, same-store sales is a key metric used to measure growth.

Financial KPI :
Key performance indicators tied to the financials are usually focused on revenue and profit margins. One of the
basic profit-based measurements is the net profit, also known as the bottom line. This number represents the
amount of revenue that remains as profit for a given period after accounting for all the company's expenses, taxes
and interest payments for the same period.

Since net profit is calculated as a dollar amount, it must be converted into a percentage of revenue, or net profit
margin, to be used in comparative analysis. For example, if the standard net profit margin for a given industry is
50%, a new business in the industry knows it needs to work toward meeting or beating that figure to be
competitive. The gross profit margin, which measures revenues after accounting for only those expenses directly
associated with the production of goods for sale, is another common profit-based KPI.

The current ratio is a financial KPI focused on liquidity and is calculated by dividing a company's current assets
by its current debts. A financially healthy company typically has more than enough cash and cash equivalents on
hand to meet all its financial obligations for the current 12-month period. However, different industries use
different amounts of debt financing, so comparing a company's current ratio to those of other businesses within
the same industry is a good way to establish whether the business' cash flow is in line with industry standards.

Non-financial KPI :
KPI doesn't have to be tied the financials, as a business' success depends on more than its profits and debt levels.
Its relationship with customers and employees are important as well. Some common non-financial KPI includes
measures of foot traffic, employee turnover, the number of repeat customers versus new customers, and various
quality metrics. The specific metrics a company tracks are dictated by its current aims and may change over time
as the business evolves and sets new performance measures.

SOURCES OF BANK FUNDS.

A commercial bank is a financial institution that helps community members open checking and savings accounts
and manage money market accounts. However, as the name implies, a commercial bank also has a broader,
business-oriented focus. Most commercial banks offer business loans and trade financing in addition to the more
traditional deposit, withdrawal and transfer services. With such a diverse business profile, the sources of funds in
commercial banks are varied.

Savings Deposits

Deposits remain the main source of funds for a commercial bank. The money collected can go toward paying on
interest-bearing accounts, completing customer withdrawals and other transactions. As of February 19, 2018, the
total amount of savings deposits held at commercial banks and other banking institutions in the U.S. totaled more
than $9.1 trillion.

Savings account deposits are especially important to banks as the federal Regulation D law limits the amount of
times a savings account holder can withdraw money. Currently, the law mandates that account holders can
perform six transfers per month in the form of online, telephone or overdraft transfers. This allows banks to use
the accounts' funds and still meet the withdrawal needs of the customer.

Reserve Funds

A commercial bank builds a reserve fund with deposits so it can pay interest on accounts and complete
withdrawals. Ideally, a bank's reserve fund should be equal to its capital. A bank builds its reserve fund by
accumulating surplus profits during healthy financial years so that the funds can be used in leaner times. On
average, a bank tries to accumulate approximately 12 percent of its net profit to build and maintain its reserve
fund.

Shareholders Capital

Some commercial banks that trade on the stock exchange can use shareholders' capital to receive the money it
needs to stay in business. For example, if a company sells shares on the market, it increases both its cash flow and
its share capital. This process is also known as equity financing. Banks can only report the amount of capital that
was initially on their balance sheet. Appreciation and depreciation of shares do not count toward the total sum of a
shareholder's capital.

Each time a bank makes a profit it can generally make two choices that include paying dividends to their
shareholders or reinvesting the money back into the bank. Most banks utilize both options as they will retain a
portion of the profit and pay the remainder to their shareholders. The amount reinvested into the bank typically
depends on the company's policy and the condition of the stock market.

Retained Earnings

A lot of commercial banks earn retained earnings or fees to help fund their business. A retained earning can be
collected through overdraft fees, loan interest payments, securities and bonds. Banks also charge fees for
providing customers with services such as maintaining an account, offering overdraft protection and also
monitoring customers' credit scores.