Commercial Banks Long Answer Type Questions

Question 1.
What is a commercial bank? Explain the primary functions of commercial banks.
Answer:
A commercial bank is a profit-seeking business firm, dealing in money and credit. It is a financial institution dealing in money in the sense that it accepts deposits of money from the public to keep them in its custody for safety Primary banking functions of the commercial banks include:

• Acceptance of deposits
• Advancing loans
• Creation of credit
• Clearing of cheques
• Financing foreign trade
• Remittance of funds

(1) Acceptance of Deposits:
Accepting deposits is the primary function of a commercial bank mobilise savings of the household sector. Banks generally accept three types of deposits viz.

• Current Deposits
• Savings Deposits
• Fixed Deposits.

(a) Current Deposits:
These deposits are also known as demand deposits. These deposits can be withdrawn at any time. Generally, no interest is allowed on current deposits, and in case, the customer is required to leave a minimum balance undrawn with the bank

(b) Savings Deposits:
This is meant mainly for professional men and middle class people to help them deposit their small savings. It can be opened without any introduction. Money can be deposited at any time but the maximum cannot go beyond a certain limit. There is a restriction on the amount that can be withdrawn at a particular time or during a week. If the customer wishes to withdraw more than the specied amount at any one time, he has to give prior notice. Interest is allowed on the credit balance of this account.

(c) Fixed Deposits:
These deposits are also known as time deposits. These deposits cannot be withdrawn before the expiry of the period for which they are deposited or without giving a prior notice for withdrawal. If the depositor is in need of money, he has to borrow on the security of this account and pay a slightly higher rate of interest to the bank. They are attracted by the payment of interest which is usually higher for longer period.

(2) Advancing Loans:
The second primary function of a commercial bank is to make loans and advances to all types of persons, particularly to businessmen and entrepreneurs. Loans are made against personal security, gold and silver, stocks of goods and other assets. The most common way of lending is by:

(a) Overdraft Facilities:
In this case, the depositor in a current account is allowed to draw over and above his account up to a previously agreed limit. Suppose a businessman has only Rs. 60,000/- in his current account in a bank but requires Rs. 1,20,000/- to meet his expenses. He may approach his bank and borrow the additional amount of Rs. 60,000/-. The bank allows the customer to overdraw his account through cheques. The bank, however, charges interest only on the amount overdrawn from the account. This type of loan is very popular with the Indian businessmen.

(b) Cash Credit:
Under this account, the bank gives loans to the borrowers against certain security. But the entire loan is not given at one particular time, instead the amount is credited into his account in the bank; but under emergency cash will be given. The borrower is required to pay interest only on the amount of credit availed to him.

(c) Discounting Bills of Exchange:
This is another type of lending which is very popular with the modern banks. The holder of a bill can get it discounted by the bank, when he is in need of money. After deducting its commission, the bank pays the present price of the bill to the holder. Such bills form good investment for a bank. They provide a very liquid asset which can be quickly turned into cash.

(d) Money at Call:
Bank also grant loans for a very short period, generally not exceeding 7 days to the borrowers, usually dealers or brokers in stock exchange markets against collateral securities like stock or equity shares, debentures, etc., offered by them. Such advances are repayable immediately at short notice hence, they are described as money at call or call money.

(e) Term Loans:
Banks give term loans to traders, industrialists and now to agriculturists also against some collateral securities. Term loans are so-called because their maturity period varies between 1 to 10 years. Term loans, as such provide intermediate or working capital funds to the borrowers.

(f) Consumer Credit:
Banks also grant credit to households in a limited amount to buy some durable consumer goods such as television sets, refrigerators, etc., or to meet some personal needs like payment of hospital bills etc. Such consumer credit is made in a lump sum and is repayable in installments in a short time.

(g) Miscellaneous Advances:
Among other forms of bank advances there are packing credits given to exporters for a short duration, export bills purchased/discounted, import finance-advances against import bills, finance to the self employed, credit to the public sector, credit to the cooperative sector and above all, credit to the weaker sections of the community at concessional rates.

(3) Creation of Credit:
A unique function of the bank is to create credit. Banks supply money to traders and manufacturers. They also create or manufacture money. Bank deposits are regarded as money. They are as good as cash. The reason is they can be used for the purchase of goods and services and also in payment of debts. When a bank grants a loan to its customer, it does not pay cash.

It simply credits the account of the borrower. He can withdraw the amount whenever he wants by a cheque. In this case, bank has created a deposit without receiving cash. That is, banks are said to have created credit. Sayers says “banks are not merely purveyors of money, but also in an important sense, manufacturers of money.”

(4) Promote the Use of Cheques:
The commercial banks render an important service by providing to their customers a cheap medium of exchange like cheques. It is found much more convenient to settle debts through cheques rather than through the use of cash.

(5) Financing Internal and Foreign Trade:
The bank finances internal and foreign trade through discounting of exchange bills. Sometimes, the bank gives short-term loans to traders on the security of commercial papers. This discounting business greatly facilitates the movement of internal and external trade.

(6) Remittance of Funds:
Commercial banks, on account of their network of branches throughout the country, also provide facilities to remit funds from one place to another for their customers by issuing bank drafts, mail transfers or telegraphic transfers on nominal commission charges.

Question 2.
Explain the Narasimhan committee report on banking sector reforms 1998.
Answer:
The finance ministry of government of India appointed Mr. M. Narasimham as .chairman of one more committee, this time it was called as the committee on banking sector reforms. The committee was asked to “review the progress of banking sector reforms to the date and chart a programme on financial sector reforms necessary to strengthen India’s financial system and make it internationally competitive”. The narasimham committee on banking sector reforms submitted this report to the government in April 1998. This report covers the entire issues relating to capital adequacy, bank mergers, the condition of global sized banks, recasting of banks boards etc. some important findings are as follows;

Need For Stronger Banking System:
The Narasimham committee has made out a stronger banking system in country, especially in the context of capital account convertibility (CAC) which would involve large amount of inflow and outflow of capital and consequent complications for exchange rate management and domestic liquidity. To handle this India would need a strong resilient banking and financial system.

Experiment With The Concept of Narrow Banking:
The Narasimham committee is seriously concerned with the rehabilitation of weak public sector banks which have accumulated a high percentage of non-paying assets (NPA), and in some cases, as high as 20% of their total assets. They suggested the concept of narrow banking to rehabilitate such weak banks.

Small Local Banks:
The Narasimham committee has argued that “While two or three banks with an international orientation and 8 to 10 of larger banks should take care of their needs of the large and medium corporate sector ad larger of the small enterprises, there will still be a need for a large number of local banks.” The committee has suggested the setting up of small local banks which should be confined to states or clusters of districts in order to serve local trade, small industry etc.

Capital Adequacy Ratio:
The Narasimham committee has also suggested that the government should consider raising the prescribed capital adequacy ratio to improve the inherent strength of banks and to improve their risk taking ability.

Public Ownership And Real Autonomy:
The Narasimham committee has argued that government ownership and management of banks does not enhance autonomy and flexibility in working of public sector banks. Accordingly, the committee has recommended a review of functions of banks boards with a view to make them responsible for enhancing shareholder value through formulation of corporate strategy.

Review And Updating Banking Laws:
The Narasimham committee has suggested the urgent need to review and amended the provisions of RBI Act, Banking Regulation Act, State Bank of act etc so as to bring them on same line of current banking needs.

Question 3.
Explain the secondary functions of commercial banks.
Answer:
Secondary banking functions of the commercial banks include:

• Agency Services
• General Utility Services

These are discussed below.
(i) Agency Services: Banks also perform certain agency functions for and on behalf of their customers. The agency services are of immense value to the people at large.

The various agency services rendered by banks are as follows:
(a) Collection and Payment of Credit Instruments: Banks collect and pay various credit instruments like cheques, bills of exchange, promissory notes etc, on behalf of their customers.

(b) Purchase and Sale of Securities: Banks purchase and sell various securities like shares, stocks, bonds, debentures on behalf of their customers.

(c) Collection of Dividends on Shares: Banks collect dividends and interest on shares and debentures of their customers and credit them to their accounts.

(d) Acts as Correspondent: Sometimes banks act as representative and correspondents of their customers. They get passports, traveller’s tickets and even secure air and sea passages for their customers.

(e) Income-tax Consultancy: Banks may also employ income tax experts to prepare income tax returns for their customers and to help them to get refund of income tax.

(f) Execution of Standing Orders: Banks execute the standing instructions of their customers for making various periodic payments. They pay subscriptions, rents, insurance premier etc., on behalf of their customers.

(g) Acts as Trustee and Executor: Banks preserve the ‘Wills’ of their customers and execute them after their death.

(ii) General Utility Services: In addition to agency services, the modern banks provide many general utility services for the community as given.8 Banking
(a) Locker Facility:
Bank provide locker facility to their customers. The customers can keep their valuables, such as gold and silver ornaments, important documents; shares and debentures in these lockers for safe custody.

(b) Traveller’s Cheques and Credit Cards:
Banks issue traveller’s cheques to help their customers to travel without the fear of theft or loss of money. With this facility, the customers need not take the risk of carrying cash with them during their travels.

(c) Letter of Credit:
Letters of credit are issued by the banks to their customers certifying their credit worthiness. Letters of credit are very useful in foreign trade.

(d) Collection of Statistics:
Banks collect statistics giving important information relating to trade, commerce, industries, money and banking, They also publish valuable journals and bulletins containing articles on economic and financial matters.

(e) Acting Referee:
Banks may act as referees with respect to the financial standing, business reputation and respectability of customers.

(f) Underwriting Securities:
Banks underwrite the shares and debentures issued by the Government, public or private companies.

(g) Gift Cheques:
Some banks issue cheques of various denominations to be used on auspicious occasions.

(h) Accepting Bills of Exchange on Behalf of Customers :
Sometimes, banks accept bills of exchange, internal as well as foreign, on behalf of their customers. It enables customers to import goods.

(i) Merchant Banking:
Some commercial banks have opened merchant banking divisions to provide merchant banking service

Question 4.
Explain the investment policy of a commercial bank.
Answer:
Financial position of a commercial banks is reflected in its balance sheet. Balance sheet is a statement showing the assets and liabilities of the bank. The principles underlying the investment policy of a commercial bank are as follows:

(a) Liquidity:
In the context of the balance sheet of a bank the term liquidity has two interpretations. First, it refers to the ability of the bank to honour the claims of the depositors. Second, it connotes the ability of the bank to convert its noncash assets into cash easily and without loss. Liquidity also means the ability of the bank to convert its non-cash assets into cash easily and without loss. The bank cannot have all its assets in the form of cash because each is an idle asset which does not fetch any return to the bank. So some of the assets of the bank, money at call and short notice, bills discounted, etc. could be made liquid easily and without loss.

(b) Profitability:
A commercial bank by definition, is a profit hunting institution. The bank has to earn profit to earn income to pay salaries to the staff, interest to the depositors, dividend to the shareholders and to meet the day-to-day expenditure. Since cash is the least profitable asset to the bank, there is no point in keeping all the assets in the form of cash on hand. The bank has got to earn income. Hence, some of the items on the assets side are profit yielding assets. They include money at call and short notice, bills discounted, investments, loans and advances, etc.

(c) Safety or Security:
Apart from liquidity and profitability, the bank should look to the principle of safety of its funds also for its smooth working. While advancing loans, it is necessary that the bank should consider the three ‘C’s of credit character, capacity and the collateral of the borrower. The bank cannot afford to invest its funds recklessly without considering the principle of safety. The loans and investments made by the bank should be adequately secured.

(d) Diversity:
The bank should invest its funds in such a way as to secure for itself an adequate and permanent return. And while investing its funds, the bank should not keep all its eggs in the same basket. It is necessary to avoid the dangerous consequences of investing in one or two channels. If the bank invest its funds in different types of securities or makes loans and advances to different objectives and enterprises, it shall ensure for itself a regular ow of income.

(e) Salability of Securities:
Further, the bank should invest its funds in such types of securities as can be easily marketed at a time of emergency. The bank cannot afford to invest its funds in very long term securities or those securities which are unsaleable. It is necessary for the bank to invest its funds in government or in rst class securities or in debentures of reputed rms. It should also advance loans against stocks which can be easily sold.

(f) Stability in the Value of Investments:
The bank should invest its funds in those stocks and securities the prices of which are more or less stable. The bank cannot afford to invest its funds in securities, the prices of which are subject to frequent fluctuations.

(g) Principles of Tax-Exemption of Investments:
Finally, the.investment policy of a bank should be based on the principle of tax exemption of investments. The bank should invest in those government securities which are exempt from tax.

Question 5.
Explain the agency functions of commercial banks.
Answer:
Agency functions include the following:
(i) Collection of cheques, dividends, and interests:
As an agent the bank collects cheques, drafts, promissory notes, interest, dividends etc., on behalf of its customers and credit the amounts to their accounts. Customers may furnish their bank details to corporate where investment is made in shares, debentures, etc. As and when dividend, interest, is due, the companies directly send the warrants/cheques to the bank for credit to customer account.

(ii) Payment of rent, insurance premiums:
The bank makes the payments such as rent, insurance premiums, subscriptions, on standing instructions until further notice. Till the order is revoked, the bank will continue to make such payments regularly by debiting the customer’s account.

(iii) Dealing in foreign exchange:
As an agent the commercial banks purchase and sell foreign exchange as well for customers as per RBI Exchange Control Regulations.

(iv) Purchase and sale of securities:
Commercial banks undertake the purchase and sale of different securities such as shares, debentures, bonds etc., on behalf of their customers. They run a separate ‘Portfolio Management Scheme’ for their big customers.

(v) Act as trustee, executor, attorney, etc:
The banks act as executors of Will, trustees and attorneys. It is safe to appoint a bank as a trustee than to appoint an individual. Acting as attorneys of their customers, they receive payments and sign transfer deeds of the properties of their customers.

(vi) Act as correspondent:
The commercial banks act as a correspondent of their customers. Small banks even get travel tickets, book vehicles; receive letters etc. on behalf of the customers.

(vii) Preparations of Income-Tax returns:
They prepare income-tax returns and provide advices on tax matters for their customers. For this purpose, they employ tax experts and make their services, available to their customers.

B. General Utility Services:
The General utility services include the following:
(i) Safety Locker facility:
Safekeeping of important documents, valuables like jewels are one of the oldest services provided by commercial banks. ‘Lockers’ are small receptacles which are fitted in steel racks and kept inside strong rooms known as vaults. These lockers are available on half-yearly or annual rental basis.

The bank merely provides lockers and the key but the valuables are always under the control of its users. Any customer cannot have access to vault. Only customers of safety lockers after entering into a register his name account number and time can enter into the vault. Because the vault is holding important valuables of customers in lockers, it is also known as ‘Strong Room’.

(ii) Payment Mechanism or Money Transfer:
Transfer of funds is one of the important functions performed by commercial banks. Cheques and credit cards are two important payment mechanisms through banks. Despite an increase in financial transactions, banks are managing the transfer of funds process very efficiently. Cheques are also cleared through the banking system. Correspondent banking is another method of transferring funds over long distance, usually from one country to another. Banks, these days employ computers to speed up money transfer and to reduce cost of transferring funds.

Electronic Transfer of funds is also known as ‘Chequeless banking’ where funds are transferred through computers and sophisticated electronic system by using code words. They offer Mail Transfer, Telegraphic Transfer (TT) facility also.

(iii) Travelers’ cheques:
Travelers Cheques are used by domestic travelers as well as by international travelers. However the use of traveler’s cheques is more common by international travelers because of their safety and convenience. These can be also termed as a modified form of traveler’s letter of credit.

(iv) Circular Notes or Circular Letters of Credit:
Under Circular Letters of Credit, the customer/traveller negotiates the drafts with any of the various branches to which they are addressed. Thus the traveller can obtain funds from many of the branches of banks instead only from a particular branch. Circular Letters of Credit are therefore a more useful method for obtaining funds while travelling to many countries.

(v) Issue “Travellers Cheques”:
Banks issue travellers cheques to help carry money safely while travelling within India or abroad. Thus, the customers can travel without fear, theft or loss of money.

(vi) Letters of Credit:
Letter of Credit is a payment document provided by the buyer’s banker in favour of seller. This document guarantees payment to the seller upon production of document mentioned in the Letter of Credit evidencing dispatch of goods to the buyer.

(vii) Acting as Referees:
The banks act as referees and supply information about the business transactions and financial standing of their customers on enquiries made by third parties. This is done on the acceptance of the customers and help to increase the business activity in general.

(viii) Provides Trade Information:
The commercial banks collect information on business and financial conditions etc., and make it available to their customers to help plan their strategy. Trade information service is very useful for those customers going for cross-border business. It will help traders to know the exact business conditions, payment rules and buyers’financial status in other countries.

(ix) ATM facilities:
The banks today have ATM facilities. Under this system the customers can withdraw their money easily and quickly and 24 hours a’day. This is also known as ‘Any Time Money’. Customers under this system can withdraw funds i.e., currency notes with a help of certain magnetic card issued by the bank and similarly deposit cash/cheque for credit to account.

(x) Credit cards:
Banks have introduced credit card system. Credit cards enable a customer to purchase goods and services from certain specified retail and service establishments*up to a limit without making immediate payment. In other words, purchases can be made on credit basis on the strength of the credit card.

(xi) Gift Cheques:
The commercial banks offer Gift cheque facilities to the general public. These cheques received a wider acceptance in India. Under this system by paying equivalent amount one can buy gift cheque for presentation on occasions like Wedding, Birthday.

(xii) Accepting Bilis:
On behalf of their customers, the banks accept bills drawn by third parties on its customers. This resembles the letter of credit. While banks accept bills, they provide a better security for payment to seller of goods or drawer of bills.

(xiii) Merchant Banking:
The commercial banks provide valuable services through their merchant banking divisions or through their subsidiaries,to the traders. This is the function of underwriting of securities. They underwrite a portion of the Public issue of shares, Debentures and Bonds of Joint Stock Companies.

(xiv) Advice on Financial Matters:
The commercial banks also give advice to their customers on financial matters particularly on investment decisions such as expansion, diversification, new ventures, rising of funds etc.

(xv) Factoring Service:
Today the commercial banks provide factoring service to their customers. It is very much helpful in the development of trade and industry as immediate cash flow and administration of debtors’ accounts are taken care of by factors. This service is again provided only by a separate subsidiary as per RBI regulations.

Question 6.
Explain the investment norms of commercial banks.
Answer:
The Reserve Bank has issued guidelines On categorisation and voluation of banks investment portpolio. These guidelines are in confirmity with international best practices, and are effective from September 30 2000. The salient features of the guide-lines are,

The entire investment portfolio is to be classified under three categories:
(i) Held to Maturity (HTM) – It includes securities acquired with the intention of being held up to maturity.

(ii) Held for Trading (HFT) – It includes securities acquired with the intention of being traded to take advantage of the short-term price/interest rate movements.

(iii) Available for sale (AFS)- It includes securities not included in HTM and HFT. Banks should decide the category of investment at the time of acquisition.
In Balance Sheet, investment will continue to be classified under 6 heads.

• Govt. Securities
• Other approved securities
• Shares
• Debentures and bonds
• Subsidiaries & Joint ventures
• Others

→ Investments classified Under HTM need not be marked to market, and will be carried at acquisition cost.These investments will include, recepitalisation bonds, investments in subsidiaries and joint ventures, Investment in debentures demand as advance.

→ Banks which had already marked to market more than 75 percent of their SLR portfolio, have the option to reclassify their investments under this category upto the permissable level.

→ Profit on sale of investment in the HTM category should be taken to the P & L a/c before being appropriated to the Capital Reserve account. Loss on sale should be recognised in the P & La/c.

→ Banks are free to decide on the extent of holdings under the HFT and AFS categories, based on relevant considerations like tax planning, risk management capabilities and trading strategies individual scrips in the AFS need to be marked to market at the year – end or at more frequent intervals, individual scrips in the HFT category are to be revalued at least at monthly intervals.

→ Market price of the scrip available from the traders quotes on the stock exchange, price of SQL transactions or RBI Price list would serve as the “Market Value” for investment in AFS and HFS.

→ Investment under the HFT category should be sold within 90 days; in the event of inability to sell due to adverse factors like tight liquidity, extreme, volaticity,. or a undirectional movement in market, the unsold securities should be shifted to the AFS category.

→ Profit or loss on sale of investments in both HFT and AFS categories should be taken in the P & L account.

→ Shifting of investments from / to HTM May be done with the approval of the Board once*a year, normally at the beginning of the accounting year. Shifting from investments from AFS to HFT may be done with the approval of the Board/ Investment committee. Shifting from HFT to AFS is generally not allowed.

→ Under all eircumstances the shifting of investments from one category to another should be done at lowest value among acquisition cost, book value or market value. Depreciation if any, should be fully provided for.

→ RBI will no longer announce the yield to Maturity (YTM) rates for unquoted Government securities for the purpose of valuation of investment by banks.

Question 7.
State the factors determining liquidity requirements of commercial banks.
Answer:
(i) Statutory Requirements:
Banks are allowed freedom regarding the size of cash balances that they maintain but other liquid assets that they maintain are regulated by liquidity requirement prescribed by RBI through cash reserve ratio (CRR) and statutory liquidity Ratio (SLR).

(a) Cash Reserve Ratio:
Under Section 42 of RBI Act. 1934, scheduled banks are required to maintain with RBI a specified percentage of their net demand and time liability (NDTL) in the form of cash reserve.This ratio can vary between 3 and 1 5 percent.

(b) Statutory liquidity Ratio:
Under Section 24 of the Banking Regulation Act. 1949, RBI Requires scheduled commercial banks to hold liquid assets, such as gold and unencumbered approved securities against their NDTL in addition to cash reserve requirements government securities are stable in value and are easily marketable and shiftable to RBI. Therefore, they are regarded as eligible securities for SLR. This measure was designed primarily for ensuring adequate solvency for commercial banks.

(ii) Interest on cash balances maintained with the RBI under CRR Before the announcement of credit poficy on October 21 ,1997, all scheduled commercial banks (excluding Regional Rural Banks) were paid interest on eligible cash balances maintained with the Reserve Bank of India under CRR requirement according to a two-tier formual at the rate of 10.5 percent .per annum.

With a view to rationalising this system and making it fair to all new and old banks, it was decided that with effect from October 25, 1997, all banks are paid interest at the rate of 4 percent per annum on all eligible cash balances maintained. At present, all scheduled commercial banks are paid interest at the Bank rate on eligible cash balances maintained with RBI under CRR requirement, without detailed scrutiny by RBI. On the basis of quarterly interest claim statement submitted by banks.

(iii) General Economic activity:
During a period of business boom banks can manage with relatively smaller liquid assets. On the contrary, during depression bank have maintain larger liquidity cause there is higher probability of people with drawing their deposits.

(iv) Nature of Investments:
Banks which make larger investment in assets and securities which cannot be easily converted in to cash in a short period will have to maintain larger cash balances and liquid assets and vice versa.

(v) Nature of customers:
In case most customers of a bank are involved in seasonal activity then liquidity requirements of the bank will also vary from season to season. During busy season, banks will have to finance larger number of transactions and have to maintain larger cash balances. In slack season, banks can do with lessen cash and liquid assets.

(vi) Nature of deposits:
Banks with mostly time deposits can manage with lesser liquidity as compared with banks having mainly current accounts.

(vii) Banking habits of customers:
Where banking habits are strong i.e., most of the transactions in the economy are done through cheques, banks can manage operations with lower liquidity. Contrawise large liquidity needs to be maintained by banks for carrying out same level of operations.

(viii) Number and Size of deposits:
Banks with large number of small depositors can manage with lower cash balances because overall fluctuations in withdrawals will be minimal. Banks with small number of large depositors will have to maintain larger cash balances as sudden withdrawal by a few depositors will make liquidity position of banks precarious.

(ix) Structure of Banking:
In case of branch banking or where each bank has recourse to central bank, liquidity requirement is generally lower compared with that in case of unit banking.

(x) Alternative Source of liquidity:
Banks, which can make emergency arrangements of cash from RBI or a big business house with which they have relation, have to maintain lower liquidity. Otherwise, liquidity requirements will be higher.

(xi) Existence of efficient Money Market:
Wherever there is efficient money market so that investment can be easily and quickly converted into cash, Liquidity requirement of Banks will be lower and vice versa.

(xii) General practice in the banking practice:
Extent of liquidity maintained by a particular commercial bank is also influenced by general practice adopted by other banks doing some type of banking business.

Question 8.
Explain the asset structure of commercial banks.
Answer:
The asset structure of a commercial bank is revealed by the balance sheet of the bank. A balance sheet is prepared to know the financial position of the bank at a given period of time. The balance sheet of a bank has two sides viz. Asset and liabilities.

The asset structures of commercial bank is explained with following example
Balance sheet of ABC Bank on 31^st March 1999

Capital and liabilities	Property and assets
(1) Capital: Authorised capital Issued capital Subscribed capital Part up capital	(1) Cash in hand & with RBI
(2) Reserve fund and other reserves	(2) Balance with other banks
(3) Deposits and other a/cs Fixed deposits Savings bank deposit Current a/c	(3) Money at cash and short notice
(4) Loans from other banks	(4) Investments
(5) Bills payable	(5) Advances
(6) Bills for collection Being bills receivable And bills discounted	(6) Loans, cash, credit, overdrafts
(7) Other liabilities	(7) Bills receivable being bills for collection
(8) Acceptance, endorsementsand other obligations	(8) Constituent liabilities for acceptance an endorsement and other obligations per contract
(9) Profit and loss a/c	(9) Premises and fixtures
(10) Contingent liabilities	(10) Other assets

Analysis of asset side:
The firm asset refers to those terms on account of which the bank has to receive an income from others. The various assets of a bank are shown ill the order of its liquidity. It enables the bank how the banks have employed their resources. The various assets of a commercial bank are as follows.

Cash:
Part of the resources of a bank is kept in the from of cash to honour the cheques of its customers. In some case part of the cash balance is kept with other bank and with central bank. The percentage of cash reserve to be kept is partly determined by statute and partly by convention. This cash reserve can be used during the period of emergency.

Money at call and short notice:
It is a type of loan, which is given for short period of time. The bank can recall such loan by giving a short notice.

Bills discounted:
Represent bills which are discounted by the bank. The bank collects such bills when they mature. Incase, the bank needs cash before the maturity of these bills it can get them re-discounted by the central bank of the country.

Bills for creation :
Before collection these bills represent the assets but after collection they become the liabilities of the bank. It appears on both sides of the balance sheet.

Investments:
Includes total amount of profit yielding assets. The different types of investments are shown separately in the balance sheet. The amount invested in government and non-government securities is also indicated separately.

Advances:
Bank utilize their funds in providing various types of loans and advances. The loan are granted against physical securities.

Constituent liabilities for acceptance and other obligations:
These items represent the total dues of a banks customers in respect of obligation. It has accepted on their lahlaf like accepting a bill and issue of a lettery of credit.

Premises and fixtures:
Includes total value of the mouable and immovable properties of the bank. It includes the office building furniture, stationery and other assets.

Other assets:
A bank in the settlement of claims acquire. Those assets during the ordinary course of business under the banking regulation Act. Such assets are not to be retained permanently. They are to be disposed if within a period of seven years cross the date of their acquisition.