banking grp 7
TRANSCRIPT
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Banking in India- history
Banking in India in the modern sense originated in the last decades of the 18th
century. The largest bank, and the oldest still in existence, is the State Bank of
India, which originated in the Bank of Calcutta in une 18!", which almost
immediately became the Bank of Bengal. This was one of the three #residency
banks, the other two being the Bank of Bombay and the Bank of $adras, all three
of which were established under charters from the British %ast India Com#any. The
three banks merged in 1&'1 to form the Im#erial Bank of India, which, u#on
India(s inde#endence, became the State Bank of India in 1&)). *or many years the #residency banks acted as +uasicentral banks, as did their successors, until the
-esere Bank of India was established in 1&/).
In 1&"& the Indian goernment nationali0ed all the maor banks that it did not
already own and these hae remained under goernment ownershi#. They are run
under a structure known as (#rofitmaking #ublic sector undertaking( 23S45 and are
allowed to com#ete and o#erate as commercial banks. The Indian banking sector is
made u# of four ty#es of banks, as well as the 3S4s and the state banks, they hae
been oined since the 1&&!s by new #riate commercial banks and a number of
foreign banks.
6enerally banking in India was fairly mature in terms of su##ly, #roduct range and
reacheen though reach in rural India and to the #oor still remains a challenge.
The goernment has deelo#ed initiaties to address this through the State Bank of
India ex#anding its branch network and through the 7ational Bank for gricultureand -ural 9eelo#ment with things like microfinance.
http://en.wikipedia.org/wiki/Nationalisedhttp://en.wikipedia.org/wiki/Government-owned_corporation#Indiahttp://en.wikipedia.org/wiki/Commercial_bankhttp://en.wikipedia.org/wiki/National_Bank_for_Agriculture_and_Rural_Developmenthttp://en.wikipedia.org/wiki/National_Bank_for_Agriculture_and_Rural_Developmenthttp://en.wikipedia.org/wiki/Microfinancehttp://en.wikipedia.org/wiki/Government-owned_corporation#Indiahttp://en.wikipedia.org/wiki/Commercial_bankhttp://en.wikipedia.org/wiki/National_Bank_for_Agriculture_and_Rural_Developmenthttp://en.wikipedia.org/wiki/National_Bank_for_Agriculture_and_Rural_Developmenthttp://en.wikipedia.org/wiki/Microfinancehttp://en.wikipedia.org/wiki/Nationalised
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Colonial era
9uring the #eriod of British rule merchants established the 4nion Bank of Calcuttain 18'&, first as a #riate oint stock association, then #artnershi#. Its #ro#rietors
were the owners of the earlier Commercial Bank and the Calcutta Bank, who by
mutual consent created 4nion Bank to re#lace these two banks. In 18:! it
established an agency at Singa#ore, and closed the one at $ir0a#ore that it had
o#ened in the #reious year. lso in 18:! the Bank reealed that it had been the
subect of a fraud by the bank(s accountant. 4nion Bank was incor#orated in 18:)
but failed in 18:8, haing been insolent for some time and haing used new
money from de#ositors to #ay its diidends.
The llahabad Bank , established in 18") and still functioning today, is the oldest
oint Stock bank in India, it was not the first though. That honour belongs to the
Bank of 4##er India, which was established in 18"/, and which suried until
1&1/, when it failed, with some of its assets and liabilities being transferred to the
lliance Bank of Simla.
*oreign banks too started to a##ear, #articularly in Calcutta, in the 18"!s. The
Com#toird(%scom#te de 3aris o#ened a branch in Calcutta in 18"!, and another inBombay in 18"'; branches in $adras and 3ondicherry, then a *rench #ossession,
followed.
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1&:8 enisaged a mixed economy. This resulted into greater inolement of the
state in different segments of the economy including banking and finance. The
maor ste#s to regulate banking included@
• The -esere Bank of India, India(s central banking authority, wasestablished in #ril 1&/), but was nationalised on 1 anuary 1&:& under the
terms of the -esere Bank of India 2Transfer to 3ublic Awnershi#5 ct,
1&:8 2-BI, '!!)b5.
• In 1&:&, the Banking -egulation ct was enacted which em#owered the
-esere Bank of India 2-BI5 to regulate, control, and ins#ect the banks in
India.
Nationalization in the 1960s
9es#ite the #roisions, control and regulations of the -esere Bank of India, banks
in India exce#t the State Bank of India 2SBI5, continued to be owned and o#erated
by #riate #ersons. By the 1&"!s, the Indian banking industry had become an
im#ortant tool to facilitate the deelo#ment of the Indian economy. t the same
time, it had emerged as a large em#loyer, and a debate had ensued about the
nationali0ation of the banking industry. Indira 6andhi, the then 3rime $inister of
India, ex#ressed the intention of the 6oernment of India in the annual conference
of the ll India Congress $eeting in a #a#er entitled " Stray thoughts on Bank
7ationali0ation.The meeting receied the #a#er with enthusiasm.
Thereafter, her moe was swift and sudden. The 6oernment of India issued an
ordinance 2(Banking Com#anies 2c+uisition and Transfer of 4ndertakings5
Ardinance, 1&"&(5 and nationalised the 1: largest commercial banks with effect
from the midnight of 1& uly 1&"&. These banks contained 8) #ercent of bank
de#osits in the country. aya#rakash 7arayan, a national leader of India, describedthe ste# as a " masterstroke of #olitical sagacity." >ithin two weeks of the issue of
the ordinance, the 3arliament #assed the Banking Com#anies 2c+uisition and
Transfer of 4ndertaking5 Bill, and it receied the #residential a##roal on & ugust
1&"&.
http://en.wikipedia.org/wiki/Mixed_economyhttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/State_Bank_of_Indiahttp://en.wikipedia.org/wiki/Indian_economyhttp://en.wikipedia.org/wiki/Indira_Gandhihttp://en.wikipedia.org/wiki/Prime_Minister_of_Indiahttp://en.wikipedia.org/wiki/Prime_Minister_of_Indiahttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/Nationalizationhttp://en.wikipedia.org/wiki/Jayaprakash_Narayanhttp://en.wikipedia.org/wiki/Parliament_of_Indiahttp://en.wikipedia.org/wiki/President_of_Indiahttp://en.wikipedia.org/wiki/Mixed_economyhttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/State_Bank_of_Indiahttp://en.wikipedia.org/wiki/Indian_economyhttp://en.wikipedia.org/wiki/Indira_Gandhihttp://en.wikipedia.org/wiki/Prime_Minister_of_Indiahttp://en.wikipedia.org/wiki/Prime_Minister_of_Indiahttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/Nationalizationhttp://en.wikipedia.org/wiki/Jayaprakash_Narayanhttp://en.wikipedia.org/wiki/Parliament_of_Indiahttp://en.wikipedia.org/wiki/President_of_India
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second dose of nationalisation of " more commercial banks followed in 1&8!.
The stated reason for the nationalisation was to gie the goernment more control
of credit deliery. >ith the second dose of nationalisation, the 6oernment of India
controlled around &1 of the banking business of India. ?ater on, in the year 1&&/,
the goernment merged 7ew Bank of India with 3unab 7ational Bank .D8E It wasthe only merger between nationalised banks and resulted in the reduction of the
number of nationalised banks from '! to 1&. fter this, until the 1&&!s, the
nationalised banks grew at a #ace of around :, closer to the aerage growth rate
of the Indian economy.
Liberalization in the 1990s
In the early 1&&!s, the then goernment embarked on a #olicy of liberali0ation,
licensing a small number of #riate banks. These came to be known as New
Generation tech-savvy banks, and included 6lobal Trust Bank 2the first of such
new generation banks to be set u#5, which later amalgamated with Ariental Bank
of Commerce, 4TI Bank 2since renamed xis Bank 5, ICICI Bank and
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Current period
ll banks which are included in the Second Schedule to the -esere Bank of Indiact, 1&/: are Scheduled Banks. These banks com#rise Scheduled Commercial
Banks and Scheduled Coo#eratie Banks. Scheduled Commercial Banks in India
are categorised into fie different grou#s according to their ownershi# andGor
nature of o#eration. These bank grou#s are@
• State Bank of India and its ssociates
• 7ationalised Banks
• 3riate Sector Banks
• *oreign Banks
• -egional -ural Banks.
In the bank grou#wise classification, I9BI Bank ?td. is included in 7ationalised
Banks. Scheduled Coo#eratie Banks consist of Scheduled State Coo#eratie
Banks and Scheduled 4rban Coo#eratie Banks.
doption o! banking technology
The eolution has had a great im#act on the Indian banking system. The use of
com#uters has led to the introduction of online banking in India. The use of
com#uters in the banking sector in India has increased many fold after the
economic liberalisation of 1&&1 as the country(s banking sector has been ex#osed
to the world(s market. Indian banks were finding it difficult to com#ete with the
international banks in terms of customer serice, without the use of information
technology.
The -BI set u# a number of committees to define and coordinate banking
technology. These hae included@
http://en.wikipedia.org/wiki/Online_bankinghttp://en.wikipedia.org/wiki/Online_banking
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• In 1&8: was formed the Committee on $echanisation in the Banking
Industry 21&8:5D1/E whose chairman was 9r. C -angaraan, 9e#uty 6oernor,
-esere Bank of India. The maor recommendations of this committee were
introducing $IC- technology in all the banks in the metro#olises in India.D1:E
This #roided for the use of standardi0ed che+ue forms and encoders.
• In 1&88, the -BI set u# the Committee on Com#uterisation in Banks 21&885D1)E headed by 9r. C -angaraan. It em#hasi0ed that settlement o#eration
must be com#uteri0ed in the clearing houses of -BI in Bhubaneshwar ,
6uwahati, ai#ur , 3atna and Thiruanantha#uram. It further stated that there
should be 7ational Clearing of intercity che+ues at Holkata, $umbai,
9elhi, Chennai and $IC- should be made o#erational. It also focused on
com#uterisation of branches and increasing connectiityD1"E
• In 1&&:, the Committee on Technology Issues relating to 3ayment systems,
Che+ue Clearing and Securities Settlement in the Banking Industry 21&&:5D1=E
was set u# under Chairman > S Saraf. It em#hasi0ed %lectronic *unds
Transfer 2%*T5 system, with the B7H7%T communications network as its
carrier. It also said that $IC- clearing should be set u# in all branches of all
those banks with more than 1!! branches.
• In 1&&), the Committee for #ro#osing ?egislation on %lectronic *unds
Transfer and other %lectronic 3ayments 21&&)5D18E again em#hasi0ed %*T
system.D1"E
http://en.wikipedia.org/wiki/Banking_in_India#cite_note-13http://en.wikipedia.org/wiki/MICRhttp://en.wikipedia.org/wiki/Banking_in_India#cite_note-14http://en.wikipedia.org/wiki/Banking_in_India#cite_note-15http://en.wikipedia.org/wiki/Clearing_house_(finance)http://en.wikipedia.org/wiki/Bhubaneshwarhttp://en.wikipedia.org/wiki/Guwahatihttp://en.wikipedia.org/wiki/Jaipurhttp://en.wikipedia.org/wiki/Patnahttp://en.wikipedia.org/wiki/Thiruvananthapuramhttp://en.wikipedia.org/wiki/Chequehttp://en.wikipedia.org/wiki/Kolkatahttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Delhihttp://en.wikipedia.org/wiki/Chennaihttp://en.wikipedia.org/wiki/Banking_in_India#cite_note-autogenerated1-16http://en.wikipedia.org/wiki/Payment_systemhttp://en.wikipedia.org/wiki/Clearing_(finance)http://en.wikipedia.org/wiki/Settlement_(finance)http://en.wikipedia.org/wiki/Banking_in_India#cite_note-17http://en.wikipedia.org/wiki/Electronic_Funds_Transferhttp://en.wikipedia.org/wiki/Electronic_Funds_Transferhttp://en.wikipedia.org/wiki/Banking_in_India#cite_note-18http://en.wikipedia.org/wiki/Banking_in_India#cite_note-autogenerated1-16http://en.wikipedia.org/wiki/Banking_in_India#cite_note-13http://en.wikipedia.org/wiki/MICRhttp://en.wikipedia.org/wiki/Banking_in_India#cite_note-14http://en.wikipedia.org/wiki/Banking_in_India#cite_note-15http://en.wikipedia.org/wiki/Clearing_house_(finance)http://en.wikipedia.org/wiki/Bhubaneshwarhttp://en.wikipedia.org/wiki/Guwahatihttp://en.wikipedia.org/wiki/Jaipurhttp://en.wikipedia.org/wiki/Patnahttp://en.wikipedia.org/wiki/Thiruvananthapuramhttp://en.wikipedia.org/wiki/Chequehttp://en.wikipedia.org/wiki/Kolkatahttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Delhihttp://en.wikipedia.org/wiki/Chennaihttp://en.wikipedia.org/wiki/Banking_in_India#cite_note-autogenerated1-16http://en.wikipedia.org/wiki/Payment_systemhttp://en.wikipedia.org/wiki/Clearing_(finance)http://en.wikipedia.org/wiki/Settlement_(finance)http://en.wikipedia.org/wiki/Banking_in_India#cite_note-17http://en.wikipedia.org/wiki/Electronic_Funds_Transferhttp://en.wikipedia.org/wiki/Electronic_Funds_Transferhttp://en.wikipedia.org/wiki/Banking_in_India#cite_note-18http://en.wikipedia.org/wiki/Banking_in_India#cite_note-autogenerated1-16
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"ypes o! Banks in India#
$a%ings banks
The saings banks are es#ecially for those who belong to the low income grou#s or
those who are salaried. The saings banks function with the intention to hel#
#eo#le culminate the saing habits, which is es#ecially for those who belong to the
lower income grou#s or those who are salaried. The #ost office is also in a way a
saing bank, where #eo#le can o#en recurring accounts to sae money.
Co&&ercial Banks
The main function of these ty#es of banks is to gie financial serices to the
entre#reneurs and businesses. It gies financial to the businessmen like #roiding
them with debit cards, banks accounts, short term de#osits, etc. with the money
de#osited by #eo#le in such banks. The commercial banks also lend money to these
businessmen in the form of secured loans, unsecured loans, credit cards, oerdrafts
and mortgage loans. It got the tag of a nationali0ed bank in the year 1&"& and
hence the arious #olicies regarding the loans, rates of interest, etc are controlled
by the -esere Banks of India.
The further classifications of the commercial banks are #riate sector banks, #ublic
sector banks, regional banks and foreign banks.
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Pri%ate $ector Banks
These banks are owned and o#erated by the #riate institutes and are controlled by
the market forces. The greater share of the #riate sector banks is held by #riate
#layers and not the goernment. Some good exam#le of 3riate sector banks areHotak $ahindra bank, ICICI Bank,
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1. State coo#eratie Banks
'. Central coo#eratie banks
/. 3rimary griculture Credit Societies
Inestment Banks#
Inestment banks are financial institutions which #roide financial assistance to its
customers. Their clients include goernment organi0ations, indiiduals or
businesses. >hen there is an ac+uisition or merger, these customers are #roided
with necessary su##ort like foreign exchange, foreign trading, marketing, sale of
e+uities, fixed income instruments, etc. These banks, a#art from ca#ital raising,
also render aluable financial adise to their arious kinds of businesses and
customers. Banks like the Bank of merica, 9eutsche Bank, Citi Bank, etc. aresome exam#les of Inestment Bank.
S#eciali0ed Banks@
The main function of s#eciali0ed banks is to #roide uni+ue serices to their
customers. Some exam#le of s#eciali0ed banks are foreign exchange banks,
industrial banks, deelo#ment banks, ex#ort im#ort banks, etc. S#eciali0ed banks
also #roide financial su##ort to arious kinds of #roects and businesses who hae
to ex#ort or im#ort their serices or goods.
Central Bank@
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It is called the banker(s bank in our country. The 'eser%e Bank o! India is the
central Bank that is fully owned by the 6oernment. It is goerned by a central
board 2headed by a 6oernor5 a##ointed by the Central 6oernment. It issues
guidelines for the functioning of all banks o#erating within the country. The
monetary control is the #rimary function of a central bank and is also considered asthe lender to arious commercial banks.
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>hat is -T6S System
The acronym (-T6S( stands for -eal Time 6ross Settlement, which can be defined
as the continuous realtime settlement of funds transfers indiidually on an order
by order basis . (-eal Time( means the #rocessing of instructions at the time they
are receied rather than at some later time; (6ross Settlement( means the settlement
of funds transfer instructions occurs indiidually . Considering that the funds
settlement takes #lace in the books of the -esere Bank of India, the #ayments are
final and irreocable.
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7ational %lectronic *unds Transfer 27%*T5
7ational %lectronic *unds Transfer 27%*T5 7%*T is electronic funds transfer system, which facilitates transfer of funds to other bank accounts in oer "/!!!
bank branches across the country. This is a sim#le, secure, safe, fastest and cost
effectie way to transfer funds es#ecially for -etail remittances.
()"*')$ + B)N)(I"$
Customers can remit any amount using 7%*T Customer intending to remit money
through 7%*T has to furnish the following #articulars@
• I*SC 2Indian *inancial System Code5 of the beneficiary BankGBranch
• *ull account number of the beneficiary
•
7ame of the beneficiary.
The facility is also aailable through online mode for all internet banking and
mobile banking customers.
*or cor#orate customers, bulk u#load facility is also aailable at branches.
"I,IN$
Customers can use this facility between 8 $ and = 3$ on all weekdays and
between 8 $ and 1 3$ on Saturday. There are twele hourly settlements between
8 $ and = 3$ on all weekdays and six hourly settlements between 8 $ and 1
3$ on Saturdays.
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The money will be credited to the beneficiaryJs account on the same day or at the
most next day in case the message is sent during the last batch of settlement. 4nion
Bank offers 7%*T facility to its customers through all its branches.
"he role o! the In%est&ent Bank @
Inestment banks #roide four #rimary ty#es of serices@ raising ca#ital, adising
in mergers and ac+uisitions, executing securities sales and trading, and #erforming
general adisory serices. $ost of the maor >all Street firms are actie in each of
these categories. Smaller inestment banks may s#eciali0e in two or three of these
categories.
-aising Ca#ital@
n inestment bank can assist a firm in raising funds to achiee a ariety of
obecties, such as to ac+uire another com#any, reduce its debt load, ex#and
existing o#erations, or for s#ecific #roect financing. Ca#ital can include some
combination of debt, common e+uity, #referred e+uity, and hybrid securities such
as conertible debt or debt with warrants. lthough many #eo#le associate raising
ca#ital with #ublic stock offerings, a great deal of ca#ital is actually raised through
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#riate #lacements with institutions, s#eciali0ed inestment funds, and #riate
indiiduals. The inestment bank will work with the client to structure the
transaction to meet s#ecific obecties while being attractie to inestors.
$ergers and c+uisitions@
Inestment banks often re#resent firms in mergers, ac+uisitions, and diestitures.
%xam#le #roects include the ac+uisition of a s#ecific firm, the sale of a com#any
or a subsidiary of the com#any, and assistance in identifying, structuring, and
executing a merger or oint enture. In each case, the inestment bank should #roide a thorough analysis of the entity bought or sold, as well as a aluation
range and recommended structure.
Sales and Trading@
These serices are #rimarily releant only to #ublicly traded firms, or firms which
#lan to go #ublic in the near future. S#ecific functions include making a market ina stock, #lacing new offerings, and #ublishing research re#orts.
6eneral disory Serices@
disory serices include assignments such as strategic #lanning, business
aluations, assisting in financial restructurings, and #roiding an o#inion as to the
fairness of a #ro#osed transaction.
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.i!!erent $er%ices o!!ered under In%est&ent Banking @
Inestment banking is a serice business, and the client should ex#ect to#notch
serice from the inestment banking firm. 6enerally only large client firms will get
this ty#e of serice from the maor >all Street inestment banks; com#anies with
less than about K1!! million in reenues are better sered by smaller inestment
banks. Some criteria to consider include@
Serices Affered
*or all functions exce#t sales and trading, the serices should go well beyond
sim#ly making introductions, or brokering a transaction. *or exam#le, most
#roects will include detailed industry and financial analysis, #re#aration of
releant documentation such as an offering memorandum or #resentation to the
Board of 9irectors, assistance with due diligence, negotiating the terms of the
transaction, coordinating legal, accounting, and other adisors, and generally
assisting in all #hases of the #roect to ensure successful com#letion.
%x#erience @
It extremely im#ortant to make sure that ex#erienced, senior members of the
inestment banking firm will be actie in the #roect on a daytoday basis.
9e#ending on the ty#e of transaction, it may be #referable to work with an
inestment bank that has some background in your s#ecific industry segment. The
inestment bank should hae a wide network of releant contacts, such as #otential
inestors or com#anies that could be a##roached for ac+uisition.
-ecord of Success @
lthough no re#utable inestment bank will guarantee success, the firm must hae
a demonstrated record of closing transactions.
bility to >ork Luickly @
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Aften, inestment banking #roects hae ery s#ecific deadlines, for exam#le when
bidding on a com#any that is for sale. The inestment bank must be willing and
able to #ut the right #eo#le on the #roect and work diligently to meet critical
deadlines.
*ee Structure@
6enerally, an inestment bank will charge an initial retainer fee, which may be
onetime or monthly, with the maority of the fee contingent u#on successful
com#letion of the transaction. It is im#ortant to utili0e a fee structure that aligns the
inestment bank(s incentie with your own.
Angoing Su##ort@
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Corporate Banking and the ser%ices pro%ided under it @
Cor#orate banking ty#ically refers to financial serices offered to large clients2(wholesale clients(5.lthough many wholesale clients are large cor#orations, they
may also include other institutions like #ension funds, goernments and other
2semi5 #ublic entities. Cor#orate banking is a ery #rofitable diision for banks,
far more #rofitable than retail banking, which is aimed towards households and
small and medium enter#rises 2S$%(s5
The Serices #roided@
The serices offered by cor#orate diisions of banks include 2a5 general actiities,
and 2b5 serices #articularly tailored to large clients such as multinational
com#anies.
2a5@ Commercial banking actiities include traditional banking serices like de#osit
taking, lending, lines of credit, and facilitation of arious kinds of financial
transactions 2ebanking, credit cards, etc.5.
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•
• Insurance@
Banks may also sell insurance #roducts, although insurance is traditionally not a
banking actiity. gain, consolidation in the financial serices industry has broughttogether many different financial serices. These serices allow cor#orate clients to
access many different serices within a single financial institution. >hile banks
may also offer retail insurance #roducts to indiiduals, cor#orate insurance may
coer com#any actiities, staff and management.
• disory serices@
>holesale banking actiities also include financial adising for all kinds of
cor#orate and financial actiities, such as mergers and ac+uisitions, asset
management, and taxation 2e.g. the use of tax haens5.
"ypes o! Instru&ents in In%est&ent Banking#
Certificates of 9e#osit
• $ost commercial banks offer certificates of de#osit that #ay a fixed amount
of money for six months, one year or another designated time #eriod. Mou
earn interest on the C9s and your inestment is #rotected. ccording to the
4.S. Securities and %xchange Commission, C9s hae federal de#osit
insurance u# to K')!,!!!, but that amount is subect to change. The
adantage of C9s is that you are guaranteed an income in almost all cases.
Ane of the disadantages it that if you withdraw early you might hae to #ay
a #enalty. lso, the returns on C9s tend to lag well below other ty#es of
inestments.
Treasury Securities
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olatility, due to factors ranging from economic stability to the
com#etitieness of a com#any in the market#lace. 7ewly list com#anies
with short track records and stiff com#etition tend to ex#erience high #rice
olatility.