Commercial banking June 2024

Description

Commercial Banking System & Role of RBI

June 2024 Examination

 

 

1. Capital formation is important for economic growth of any country. It helps in making a particular country self-sufficient in such a way that it does not have to be dependent on other nations for foreign investments. Explain the different factors affecting capital formation. (10 Marks)

Ans 1.

Introduction

Capital formation is a critical component of economic development, influencing a nation’s ability to grow and sustain its economic activities. It represents the net addition of capital goods such as machinery, tools, buildings, and other infrastructure that are necessary for producing goods and services. By generating greater productive capacity, capital formation enhances a nation’s self-sufficiency, reducing its reliance on foreign investment. The process of capital formation not only bolsters domestic industries but also strengthens the financial system by mobilizing savings and channeling them into productive investments. This, in turn, leads to job creation, income generation, It is only half solved

 

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2. Commercial banks are life-line of any economy. They play a very important role in development of trade & commerce in the country. Describe different functions of Commercial banks and do SWOT analysis of Commercial Banks. (10 Marks)

Ans 2.

Introduction

Commercial banks are fundamental to the economic framework of any country, serving as the backbone of financial activity. They facilitate the flow of funds within the economy, making capital accessible for consumers, businesses, and government entities. As primary conduits of money, commercial banks play a pivotal role in the development of trade and commerce. They not only manage deposits and provide loans but also extend various other services that aid in the economic and financial stability of a country. Understanding the multifaceted functions of commercial banks and evaluating their strengths, weaknesses, opportunities, and threats (SWOT analysis) provides

 

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3. One of the critical source of income of commercial banks is interest income which bank earns from interest on loans and advances to the customer. Advances may be classified as fund based and non-fund based. In today’s scenario of increasing Non Performing Assets (NPA) of the bank, banks are focusing more on non-fund based loans.
4. Discuss any three fund based loans and its advantages. (5 Marks)

Ans 3a.

Introduction

Commercial banks derive a substantial portion of their income from interest on various types of loans extended to customers. These loans are generally classified into fund-based and non-fund-based categories. With the growing concern over Non-Performing Assets (NPAs), many banks are increasingly focusing on non-fund-based loans. However, fund-based loans remain crucial, offering distinct advantages. Here, we will discuss three specific types of fund-based loans and their benefits.

Concept and Application

 

 

 

 

1. Discuss any three non-fund based loans and its advantages. (5 Marks)

Ans 3b.

Introduction

Non-fund based loans play a strategic role in modern banking, especially as a risk management tool in light of the increasing Non-Performing Assets (NPAs). Unlike fund-based loans where actual funds are disbursed, non-fund based loans involve the issuance of financial instruments by banks as guarantees. These instruments facilitate business transactions and help manage payment risks. We will explore three