Bank Exam » Bank Exam Study Materials » Banking in India » Bank Credit Operations

Bank Credit Operations

Bank Credit Operations refer to a series of steps that begin with assessing risk and end with the bank lending to a creditworthy customer from a pool of applicants for asset-based loans.

A bank is an institution that accepts deposits from the public and issues loans. The bank itself may do lending, or it may be done through the capital markets. Banks are heavily regulated due to their importance in their economy and financial stability. Accepting money on current or deposit accounts, paying or collecting cheques drawn by or paid in by customers, and granting advances to customers are all examples of banking activities. 

Bank Operations

Banks have a range of roles, ranging from the most fundamental, such as daily transactions at a branch, to those more specialised, such as agency or general utility services. The banking industry’s value chain includes transactions not directly related to revenue or sales but is crucial. 

Banks must conduct a variety of transactions and activities. The value chain of the banking industry can only be fully understood if you have a thorough understanding of the banking sector’s operational elements. The important operating activities are:

  • Deposits can be accepted
  • Lending of Capital
  • Cheque Clearing
  • The Transfer of Money (or Funds)
  • Deposits in Lockers or Safes
  • Bill discounting and payment
  • Online banking 
  • Debit and Credit Cards
  • Banking Services for Customers outside the country
  • Investment and Financial Planning
  • Social Purposes in Investment Banking

Types of Banking 

Central Bank

The Central bank of a country is a bank responsible for managing and regulating the country’s banking system. This type of bank does not serve the public. It serves as the government’s banker by keeping track of all other banks’ deposit accounts and making advances to them as necessary.

Commercial Banks

It is a type of banking organisation that accepts deposits and lends out loans to its customers. Businesses can also apply for medium-term and long-term loans from commercial banks.

Development Banks

Investment in machinery and equipment, new technology, or growth and modernisation necessitates medium and long-term capital. Development Banks provide this kind of financial help. In the event of under subscription of the offer by the public, they also pursue alternative development initiatives, such as purchasing shares and debentures issued by enterprises. India’s development banks include the Industrial Finance Corporation of India and the State Financial Corporations.

Cooperative Banks

Those who organise a co-operative society under the Cooperative Societies Act serve a shared purpose. It is called a cooperative Bank when a cooperative society engages in banking. A licence from the Reserve Bank of India is required before any banking operations begin for society. Every co-operative bank must be supervised by the Registrar, Cooperative Societies of the State at all times. The Reserve Bank of India has developed and issued rules and regulations for the banking industry in India.

Specialised Banks

Some banks specialise in helping new businesses get off the ground by meeting their individual needs and offering comprehensive resources and assistance. Such banks are EXIM Bank, SIDBI, and NABARD. Specialised banks are those that specialise in a particular field or activity.

Bank Credit

The quantity of credit available in loans from a financial institution is the bank credit. Creditworthiness and the total amount of credit available to be lent by a bank determine a borrower’s bank credit. These include car loans, mortgages and personal loans.

Bank Credit Operations

A bank’s profits are derived from its loans to its customers. Customer deposits into savings and checking accounts and investments such as Certificates of deposit provide the funding for this project. Banks reward their customers for using their services by paying interest on their deposits. Bank credit is the term for the money then lent to others. The entire amount of money that financial institutions lend to individuals and businesses is the bank credit. Essentially, banks place their faith in their customers’ ability to pay back the principal and interest on their loans when the time comes. Evaluating a person’s creditworthiness determines how much credit they are accepted for.

A borrower’s credit rating and income, among other factors, are taken into account while determining approval. A person’s assets and debts are also taken into consideration. Debt-to-Income Ratio (DTI) reduction is one of the methods for getting the green light. The permissible DTI ratio is 36%. However, the ideal DTI ratio should be 28%. Credit card balances should be kept at 20% or less of the credit limit, and all late accounts should be paid in full. Banks generally offer creditors with poor credit record loans with terms that favour the banks themselves, such as higher interest rates, smaller credit lines, and more restricted terms and conditions.

Types of Bank Credit

Secured Credit

There must be a form of collateral to secure the credit or debit, which could be cash or another tangible asset. Certain banks may ask for a cash deposit from borrowers to receive a secured credit card. If a borrower defaults on a loan, the bank is less likely to take the full risk. Collateral can be seized by banks, sold, and the earnings used to pay off the loan in full or in part. Low-interest rates and applicable terms and conditions can be expected because it is backed by collateral.

Unsecured Credit

No collateral is required to get unsecured credit. Because of the greater likelihood of default, unsecured loans carry a greater default risk than secured loans. As a result, banks typically charge higher interest rates to unsecured creditors.

Credit Card Operations of Banks

Using a credit card to make a purchase or pay a payment can be convenient, and you may be able to save money by collecting points on the purchases you make. As a side benefit, credit cards can also help you develop a credit history through good money management practices.

Using a Credit Card

Cardholders can use their credit cards to make purchases online and in-store, as well as to settle their accounts. While making payment, the merchant’s bank gets a copy of your credit card information when you pay with a credit card. The credit card network then gives the bank permission to process the transaction. If your card issuer bank approves or denies the transaction, you’ll be notified by email. If the transaction is accepted, the money will be sent to the merchant’s account, and the remaining credit on your card will be deducted accordingly. At the end of each billing cycle, you will receive a statement from your card issuer bank detailing all of your purchases for the month, as well as your current balance and the amount you owe. The grace period is the time that elapses between when you make a purchase with your credit card and when you’re supposed to pay it off, as indicated on your statement. During this period, there are no interest charges, provided you pay your account in full by the due date.

You can, however, be charged interest if you carry a balance from month to month. The Annual Percentage Rate (APR) on your credit card represents how much it costs to carry a balance on an annual basis. If your credit card has an annual charge, that amount is included in your APR. With many credit cards, the APR is tied to the Prime Rate. Since the CARD Act of 2009 imposes strict limitations on when credit card companies can and cannot boost the rate, the APR may fluctuate over time. 


Banking activities are defined as executing banking operations that expose any repayable funds to risk. The actions of a bank entail the danger of money being lost, including repaid money that has been committed to the bank, which creates a risk. To cover the costs (interest, operating costs) associated with the collecting and safekeeping of such money, risk exposure is aimed at delivering such funds, against payment and subject to repayment, to natural people and organisations that indicate their need for such funds. A bank’s deposit and credit activities are the clearest expressions of this.


Frequently asked questions

Get answers to the most common queries related to the Bank Examination Preparation.

Name a few of the services that banks offer to their customers.

Ans. Services provided by banks include the following: Loans...Read full

To what authority does India's monetary system answer?

Ans. Reserve Bank of India.

What is meant by credit limit?

Ans. The credit limit refers to the maximum amount of credit that a financial institution would grant to a customer....Read full

What is the maximum loan amount?

Ans. The utmost amount that a borrower is permitted to borrow is known as the maximum loan amount.