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Introduction
A bank is a financial institution that provides banking and other financial
services to their customers. A bank is generally understood as an institution
which provides fundamental banking services such as accepting deposits and
providing loans. There are also nonbanking institutions that provide certain
banking services without meeting the legal definition of a bank. Banks are asubset of the financial services industry. A banking system also referred as a
system provided by the bank which offers cash management services for
customers, reporting the transactions of their accounts and portfolios, through
out the day. The banking system in India, should not only be hassle free but it
should be able to meet the new challenges posed by the technology and any
other external and internal factors. For the past three decades, Indias banking
system has several outstanding achievements to its credit. The Banks are the
main participants of the financial system in India. The Banking sector offers
several facilities and opportunities to their customers. All the banks safeguards
the money and valuables and provide loans, credit, and payment services, such
as checking accounts, money orders, and cashiers che!ues. The banks also
offer investment and insurance products. As a variety of models for
cooperation and integration among finance industries have emerged, 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.
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Need of Banks
Before the establishment of banks, the financial activities were handled by
money lenders and individuals. At that time the interest rates were very high.
Again there were no security of public savings and no uniformity regarding
loans. #o as to overcome such problems the organi$ed banking sector was
established, which was fully regulated by the government. The organi$ed
banking sector works within the financial system to provide loans, accept
deposits and provide other services to their customers. The following
functions of the bank explain the need of the bank and its importance%
& To provide the security to the savings of customers.
& To control the supply of money and credit
& To encourage public confidence in the working of the financial system,
increase savings speedily and efficiently.
& To avoid focus of financial powers in the hands of a few individuals and
institutions.
& To set e!ual norms and conditions 'i.e. rate of interest, period of lending etc(
to all types of customers
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History of Indian Banking System
The first bank in India, called The )eneral Bank of India was established in
the year *+-. The ast India /ompany established The Bank of
Bengal0/alcutta '*12(, Bank of Bombay '*31( and Bank of 4adras '*35(.
The next bank was Bank of 6industan which was established in *+1. These
three individual units 'Bank of /alcutta, Bank of Bombay, and Bank of
4adras( were called as 7residency Banks. Allahabad Bank which was
established in *-8, was for the first time completely run by Indians. 7un9ab
:ational Bank ;td. was set up in *23 with head!uarters at ;ahore.
Between *21- and *2*5, Bank of India, /entral Bank of India, Bank of
Baroda, /anara Bank, Indian Bank, and Bank of 4ysore were set up. In *2
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After independence, )overnment has taken most important steps in regard of
Indian Banking #ector reforms. In *288, the Imperial Bank of India was
nationali$ed and was given the name >#tate Bank of India>, to act as the
principal agent of =BI and to handle banking transactions all over the country.
It was established under #tate Bank of India Act, *288. #even banks forming
subsidiary of #tate Bank of India was nationali$ed in *2-1. ?n *2th @uly,
*2-2, ma9or process of nationali$ation was carried out. At the same time *3
ma9or Indian commercial banks of the country were nationali$ed. In *21,
another six banks were nationali$ed, and thus raising the number of
nationali$ed banks to
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*21% :ationali$ation of seven banks with deposits over
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STRUCTURE
The =eserve Bank of India, the nations central bank, began operations on
April 1*, *258. It was established with the ob9ective of ensuring monetary
stability and operating the currency and credit system of the country to its
advantage.
In India, the banks are being segregated in different groups. ach group has
their own benefits, own dedicated target markets, limitations in operating in
India. The commercial banking structure in India consists of #cheduled
/ommercial Banks and Cnscheduled Banks.
"# CO$$ERCIA% BAN
/ommercial banks are type of financial institutions that lends money and
provides transactional, savings, and money market accounts and that accepts
time deposits. /ommercial banking play very important role in economy by
mobili$ing savings from various sectors. The commercial banks are classified
as follows
&u'(ic Sector Banks
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7ublic sector banks are those in which the ma9ority stake is held by the
)overnment of India. 7ublic sector banks together make up the largest
category in the Indian banking system. There are currently
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Foreign Banks
Foreign banks have their registered and head offices in a foreign country but
operate their branches in India. The =BI permits these banks to operate either
through branchesE or through whollyowned subsidiaries.
The primary activity of most foreign banks in India has been in the corporate
segment. 6owever, some of the larger foreign banks have also made consumer
financing a significant part of their portfolios. These banks offer products such
as automobile finance, home loans, credit cards, household consumer finance
etc. Foreign banks in India are re!uired to adhere to all banking regulations,
including prioritysector lending norms as applicable to domestic banks
.
Regiona( Rura( Bank
The history of =egional =ural Banks in India dates back to the year *2+8. Its
the :arasimham committee that conceptuali$ed the foundation of =egional
=ural Banks in India. The committee felt the need of regionally oriented rural
banks that would address the problems and re!uirements of the rural people
in India. =egional =ural Banks were established under the provisions of an
?rdinance promulgated on the
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classification of bank branches, the =eserve bank of India defines rural area as
a place with a population of less than *1,111.==Bs are 9ointly owned by
)overnment of India, the concerned #tate )overnment and #ponsor BanksE
the issued capital of a ==B is shared by the owners in the proportion of 81,*8 and 58 respectively.
*# COO&ERATI+E BANS
The cooperative banks are smallsi$ed units which operate both in urban and
nonurban centers. They finance small borrowers in industrial and trade
sectors besides professional and salary classes. =egulated by the =eserve Bank
of India, they are governed by the Banking =egulations Act *232 and banking
laws 'cooperative societies( act, *2-8. /ooperative banks cater to the
financing needs of agriculture, retail trade, small industry and selfemployed
businessmen in urban, semiurban and rural areas of India. A distinctive
feature of the cooperative credit structure in India is its heterogeneity. The
structure differs across urban and rural areas, across states and loan maturities
The cooperative banking structure in India is divided into following