Bank Involvement with Smes: Beyond Relationship Lending

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Overview

Banking in India has a long and elaborate history of more than 200 years. The beginning of this industry can be traced back to 1786, when the country’s first bank, Bank of Bengal, was established. But the industry changed rapidly and drastically, after the nationalization of banks in 1969. As a result, the public sector banks began experiencing numerous positive changes and enormous growth. Then came the much-talked-about liberalization and economic reforms that allowed banks to explore new business opportunities and not just remain constrained to generating revenues from mere borrowing and lending. This provided the Indian banking scenario a remarkable face lift that only continues to get better with time. However, even today, despite the foray of foreign banks in the country, nationalized banks continue to be biggest lenders in the country. This is primarily due to the size of the banks and the penetration of the networks.

Nature of the Industry
Banks safeguard money and valuables and provide loans, credit, and payment services, such as checking accounts, money orders, and cashier’s checks. Banks also may offer investment and insurance products, which they were once prohibited from selling. As avariety of models for cooperation and integration among finance industries haveemerged, some of the traditional distinctions between banks, insurance companies, and securities firms have diminished. In spite of these changes, banks continue to maintain and perform their primary role accepting deposits and lending funds from these deposits. There are several types of banks, which differ in the number of services they provide and the clientele they serve. Although some of the differences between these types of banks have lessened as they begin to expand the range of products and services they offer, there are still key distinguishing traits. Commercial banks, which dominate this industry, offer a full range of services for individuals, businesses, and governments. These banks come in a wide range of sizes, from large global banks to regional and community banks. Global banks are involved in international lending and foreign currency trading, in addition to the more typical banking services. Regional banks have numerous branches and automated teller machine (ATM) locations throughout a multi-state area that provide banking services to individuals. Banks have become more oriented toward marketing and sales. As a result, employees need to know about all types of products and services offered by banks. Community banks are based locally and offer more personal attention, which many individuals and small businesses prefer. In recent years, online banks which provide all services entirely over the Internet have entered the market, with some success. However, many traditional banks have also expanded to offer online banking, and some formerly Internet-only banks are opting to open branches. Savings banks and savings and loan associations, sometimes called thrift institutions, are the second largest group of depository institutions. They were first established as community-based institutions to finance mortgages for people to buy homes and still cater mostly to the savings and lending needs of individuals. Credit unions are another kind of depository Institution. Most credit unions are formed by people with a common bond, such as those who work for the same company or belong to the same labor union or church. Members pool their savings and, when they need money, they may borrow from the credit union, often at a lower interest rate than that demanded by other financial institutions.  Federal Reserve banks are Government agencies that perform many financial services for the Government. Their chief responsibilities are to regulate the banking industry and to help implement our Nation’s monetary policy so our economy can run more efficiently by controlling the Nation’s money supply the total quantity of money in the country,...
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