final projec monu

8/8/2019 Final Projec Monu

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Ch.1. Bank, Banker, Banking,system

Meaning of Bank

A bankis an institution that deals with money and credit different people understand the

meaning of bank in different ways. For a common man bank means a storehouse where

money is stored; for a businessman it is a financial institution and for a day to day

customer it is an institution where he can deposit his savings. In realty bank are service

organization selling banking services bank play an important role in the economy of any

country as they hold the saving of the public provides means of payment for good and

service and provide necessary finance for the development of business and trade thus

bank is a link in the flow of found form savers to the users. Hence they should render and

efficient customer service in order to retain the present customer and also to attract the

potential customer in the past the bank did not find any attractions is the Indian economy

because and little business prospects. Today we find positive change in the National

business development policy earlier the moneylenders had strong had over the rural

population. This resulted in exploitation of small and marginal savers. The privates

sector bank failed is serving the society this resulted in the nationalization of 14commercial bank in 1969.

Nationalization of commercial banks paved ways for the development of Indian economy

and channelized financial resources for the upliftment of weaker section of the society in

1980. The government was induced to nationalize more commercial banks there was a

basic change in the banking concept with a beginning in the Nationalization of big

commercial banks the transform

the Indian economy it was felt that the banker review their service not only as financial

intermediary but also pacesetter.

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All the banks in India are governed and control by RBI (Reserve Bank of India).

The central bank of the country the Reserve Bank of India perform both the traditional

function of central bank variety of development and promotional function the Reserve

bank of India Act 1934, confers upon it the power to act as issuing authority bankers

bank and banker to the Governments

DEFINITION OF A BANKER

According to the Negotiable instruments Act 1881 a banker is a body of persons

who carry on the business of banking.

The banking regulation Act 1949 defines the term banking company as a

company which transact the business of banking in India. And the work banking has

been defined as accepting for the purpose of lending or investment of deposits of money

from the public repayable on demands on otherwise and withdraw able by cheque, draft

order or otherwise.

The essential function of banking company are the acceptance such deposits, and

lending or investing such deposits if the purpose of acceptance of deposit is not for

lending or investing the business cannot be called banking the phrase deposit of money

from the public has great significance. The banker accept deposit from public whoever

offer his or her money as deposit. However a banker can refuse to open account forundesirable person the definition also explains the time and modes of withdrawal. The

banker does not refund the money on his own accord but he customer has demand for the

same either through on order cheque draft or otherwise.

According to six John Paget lays emphasis on the performance of the function in

regular and recognized manner. According to him one claiming to be a banker must

profess himself to be one and the public must accept him as such; his main business must

be that banking from which he should be able to earn his living.

DR. H.L. HART :- A banker is one who is the ordinary course of his business, hour

our cheque drawn upon him by person from and or whom he receives the money on

current account.

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The Banking Sector in India

The Banking sector in India has always been one of the most preferred avenues of

employment. In the current decade, this has emerged as a resurgent sector in the Indian

economy. As per the McKinsey report India Banking 2010, the banking sector index

has grown at a compounded annual rate of over 51 per cent since the year 2001, as

compared to a 27 per cent growth in the market index during the same period. It is

projected that the sector has the potential to account for over 7.7 per cent of GDP with

over Rs.7,500 billion in market cap, and to provide over 1.5 million jobs.

Today, banks have diversified their activities and are getting into new products and

services that include opportunities in credit cards, consumer finance, wealth management,

life and general insurance, investment banking, mutual funds, pension fund regulation,

stock broking services, custodian services, private equity, etc. Further, most of the

leading Indian banks are going global, setting up offices in foreign countries, by

themselves or through their subsidiaries.

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Ch.2.Functions of Bank

The Banking sectors provides a mix of functions essential to run the economy at large

and thereby helps the business community and others to fulfill their day to day financialobligations, however in todays modern world the Bank provides varied services apart

from lending and deposit of money which are stated as Primary and Secondary functions

of Banks.

A) Primary Functions of Banks: -.The primary functions of a commercial bank

include:

a) Accepting deposits; and

b) Granting loans and advances;

a) Accepting deposits:

The most important activity of a commercial bank is to mobilize deposits from the public.

People who have surplus income and savings find it convenient to deposit the amounts

with banks Depending upon the nature of deposits, funds deposited with bank also earn

interest. Thus, deposits with the bank grow along with the interest earned. If the rate of

interest is higher, public are motivated to deposit more funds with the bank. There is also

safety of funds deposited with the bank.

b) Grant of loans and advances:-

The second important function of a commercial bank is to grant loans and advances. Such

loans and advances are given to members of the public and to the business community at

a higher rate of interest than allowed by banks on various deposit accounts. The rate of

interest charged on loans and advances varies depending upon the purpose, period and the

mode of repayment. The difference between the rate of interest allowed on deposits and

the rate charged on the Loans is the main source of a banks income.

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i) Loans:- A loan is granted for a specific time period. Generally, commercial

banks grant short-term loans. But term loans, that is, loan for more than a

year, may also be granted. The borrower may withdraw the entire amount in

lump sum or in installments. However, interest is charged on the full amount

of loan. Loans are generally granted against the security of certain assets. A

loan may be repaid either in lump sum or in installments.

ii) Advances:- An advance is a credit facility provided by the bank to its

customers. It differs from loan in the sense that loans may be granted for

longer period, but advances are normally granted for a short period of time.

Further the purpose of granting advances is to meet the day to day

requirements of business. The rate of interest charged on advances varies from

bank to bank. Interest is charged only on the amount withdrawn and not on the

sanctioned amount.

iii) Modes of short-term financial assistance:- Banks grant short-term

financial assistance by way of cash credit, overdraft and bill discounting.

a) Cash Credit: - Cash credit is an arrangement whereby the bank allows the

borrower to draw amounts upto a specified limit. The amount is credited to the

account of the customer. The customer can withdraw this amount as and when he

requires. Interest is charged on the amount actually withdrawn. Cash Credit is granted

as per agreed terms and conditions with the customers.

b) Overdraft:- Overdraft is also a credit facility granted by bank. A customer who

has a current account with the bank is allowed to withdraw more than the amount of

credit balance in his account. It is a temporary arrangement. Overdraft facility with a

specified limit is allowed either on the security of assets, or on personal security, or

both.

c) Discounting of Bills:- Banks provide short-term finance by discounting bills,

that is, making payment of the amount before the due date of the bills after deducting

a certain rate of discount. The party gets the funds without waiting for the date of

maturity of the bills. In case any bill is dishonoured on the due date, the bank can

recover the amount from the customer.

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ii) Secondary functions: -Besides the primary functions of accepting deposits and

lending money, banks perform a number of other functions which are called secondary

functions. These are as follows

a) Issuing letters of credit, travellers cheques, circular notes etc.

b) Undertaking safe custody of valuables, important documents, and securities by

providing safe deposit vaults or lockers;

c) Providing customers with facilities of foreign exchange.

d) Transferring money from one place to another; and from one branch to another branch

of the bank.

e) Standing guarantee on behalf of its customers, for making payments for purchase of

goods, machinery, vehicles etc.

f) Collecting and supplying business information;

g) Issuing demand drafts and pay orders; and,

h) Providing reports on the credit worthiness of customers

The Other Non Core functions as provided by todays Banks broadly

fall under two categories:

i) Agency services, and

ii) General utility services.

i) Agency Services:- Agency services are those services which are rendered by

commercial banks as agents of their customers. They include the following

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a) Collection and payment of cheques and bills on behalf of the customers;

b) Collection of dividends, interest and rent, etc. on behalf of customers, if so instructed

by them;

c) Purchase and sale of shares and securities on behalf of customers;

d) Payment of rent, interest, insurance premium, subscriptions etc. on behalf of

1customers, if so instructed;

e) Acting as a trustee or executor;

f) Acting as agents or correspondents on behalf of customers for other banks and

financial institutions at home and abroad.

ii) General utility services: -General utility services are those services which are

rendered by commercial banks not only to the customers but also to the general public.

These are available to the public on payment of a fee or charge. They include the

following:

a) Issuing letters of credit and travelers cheques;

b) Underwriting of shares, debentures, etc.;

c) Safe-keeping of valuables in safe deposit locker;

d) Underwriting loans floated by government and public bodies.

e) Supplying trade information and statistical data useful to customers;

f) Acting as a referee regarding the financial status of customers;

g) Undertaking foreign exchange business.

3.History of Banking in India

1

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bank was the Oudh Commercial Bank, established in 1881 in Faizabad. It failed in 1958.

The next was the Punjab National Bank, established in Lahore in 1895, which has

survived to the present and is now one of the largest banks in India.Around the turn of the

20th Century, the Indian economy was passing through a relative period of stability.

Around five decades had elapsed since the Indian Mutiny, and the social, industrial and

other infrastructure had improved. Indians had established small banks, most of which

served particular ethnic and religious communities.

The presidency banks dominated banking in India but there were also some exchange

banks and a number of Indian joint stockbanks. All these banks operated in different

segments of the economy. The exchange banks, mostly owned by Europeans,

concentrated on financing foreign trade. Indian joint stock banks were generally undercapitalized and lacked the experience and maturity to compete with the presidency and

exchange banks. This segmentation let Lord Curzon to observe, "In respect of banking it

seems we are behind the times. We are like some old fashioned sailing ship, divided by

solid wooden bulkheads into separate and cumbersome compartments."

The period between 1906 and 1911, saw the establishment of banks inspired by the

Swadeshi movement. The Swadeshi movement inspired local businessmen and political

figures to found banks of and for the Indian community. A number of banks established

then have survived to the present such as Bank of India, Corporation Bank, Indian Bank,

Bank of Baroda, Canara Bank and India. The fervour of Swadeshi movement lead to

establishing of many private banks in Dakshina Kannada and Udupi district which were

unified earlier and known by the name South Canara ( South Kanara ) district. Four

nationalised banks started in this district and also a leading private sector bank. Hence

undivided Dakshina Kannada district is known as "Cradle of Indian Banking".

During the First World War (1914-1918) through the end of the Second World War

(1939-1945), and two years thereafter until the independence of India were challenging

for Indian banking. The years of the First World War were turbulent, and it took its toll

with banks simply collapsing despite the Indian economy gaining indirect boost due to

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war-related economic activities. At least 94 banks in India failed between 1913 and 1918

as indicated in the following table:

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Number of banks

that failed

Authorized capital

(Rs. Lakhs)

Paid-up Capital

(Rs. Lakhs)

1913 12 274 35

1914 42 710 109

1915 11 56 5

1916 13 231 4

1917 9 76 25

1918 7 209 1

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Post Independence Scenario of Banking in India:-

The partition of India in 1947 adversely impacted the economies of Punjab and West

Bengal, paralyzing banking activities for months. India's independence marked the end of

a regime of the Laissez-faire for the Indian banking. The Government of India initiated

measures to play an active role in the economic life of the nation, and the Industrial

Policy Resolution adopted by the government in 1948 envisaged a mixed economy. This

resulted into greater involvement of the state in different segments of the economy

including banking and finance. The major steps to regulate banking included:

In 1948, the Reserve Bank of India, India's central banking authority, was nationalized,

and it became an institution owned by the Government of India.

In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of

India (RBI) "to regulate, control, and inspect the banks in India."

The Banking Regulation Act also provided that no new bank or branch of an existing

bank could be opened without a license from the RBI, and no two banks could have

common directors.

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However, despite these provisions, control and regulations, banks in India except the

State Bank of India, continued to be owned and operated by private persons. This

changed with the nationalization of major banks in India on 19 July 1969.

Nationalization of Banks: -

The RBI was nationalized on January 1, 1949 in terms of the Reserve Bank of India

(Transfer to Public Ownership) Act, 1948 (RBI, 2005b).By the 1960s, the Indian banking

industry had become an important tool to facilitate the development of the Indian

economy. At the same time, it had emerged as a large employer, and a debate had ensued

about the possibility to nationalise the banking industry. Indira Gandhi, the-then Prime

Minister of India expressed the intention of the GOI in the annual conference of the All

India Congress Meeting in a paper entitled "Stray thoughts on Bank Nationalisation."

The paper was received with positive enthusiasm. Thereafter, her move was swift and

sudden, and the GOI issued an ordinance and nationalised the 14 largest commercial

banks with effect from the midnight of July 19, 1969. Jayaprakash Narayan, a national

leader of India, described the step as a "masterstroke of political sagacity." Within two

weeks of the issue of the ordinance, the Parliament passed the Banking Companies

(Acquisition and Transfer of Undertaking) Bill, and it received the presidential approval

on 9 August 1969.

A second dose of nationalization of 6 more commercial banks followed in 1980. The

stated reason for the nationalization was to give the government more control of credit

delivery. With the second dose of nationalization, the GOI controlled around 91% of the

banking business of India. Later on, in the year 1993, the government merged New Bank

of India with Punjab National Bank. It was the only merger between nationalized banks

and resulted in the reduction of the number of nationalised banks from 20 to 19. After

this, until the 1990s, the nationalised banks grew at a pace of around 4%, closer to the

average growth rate of the Indian economy.

Liberalisation of Banking Sector:-

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In the early 1990s, the then Narsimha Rao government embarked on a policy of

liberalization, licensing a small number of private banks. These came to be known as

New Generation tech-savvy banks, and included Global Trust Bank (the first of such new

generation banks to be set up), which later amalgamated with Oriental Bank of

Commerce, Axis Bank(earlier as UTI Bank), ICICI Bankand HDFC Bank. This move,

along with the rapid growth in the economy of India, revitalized the banking sector in

India, which has seen rapid growth with strong contribution from all the three sectors of

banks, namely, government banks, private banks and foreign banks.

The next stage for the Indian banking has been set up with the proposed relaxation in the

norms for Foreign Direct Investment, where all Foreign Investors in banks may be given

voting rights which could exceed the present cap of 10%,at present it has gone up to 74%

with some restrictions.The new policy shook the Banking sector in India completely.

Bankers, till this time, were used to the 4-6-4 method (Borrow at 4%;Lend at 6%;Go

home at 4) of functioning. The new wave ushered in a modern outlook and tech-savvy

methods of working for traditional banks.All this led to the retail boom in India. People

not just demanded more from their banks but also received more.

Currently (2007), banking in India is generally fairly mature in terms of supply, productrange and reach-even though reach in rural India still remains a challenge for the private

sector and foreign banks. In terms of quality of assets and capital adequacy, Indian banks

are considered to have clean, strong and transparent balance sheets relative to other banks

in comparable economies in its region. The Reserve Bank of India is an autonomous

body, with minimal pressure from the government. The stated policy of the Bank on the

Indian Rupee is to manage volatility but without any fixed exchange rate-and this has

mostly been true.With the growth in the Indian economy expected to be strong for quite

some time-especially in its services sector-the demand for banking services, especially

retail banking, mortgages and investment services are expected to be strong. One may

also expect M&As, takeovers, and asset sales.

In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake

in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an investor

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has been allowed to hold more than 5% in a private sector bank since the RBI announced

norms in 2005 that any stake exceeding 5% in the private sector banks would need to be

vetted by them.In recent years critics have charged that the non-government owned banks

are too aggressive in their loan recovery efforts in connection with housing, vehicle and

personal loans. There are press reports that the banks' loan recovery efforts have driven

defaulting borrowers to suicide.

Ch.4.REFORMS IN INDIAN BANKING SECTOR:

Strengthening Financial system has been one of the central issues facing

emerging markets and developing economies. This is because sound financial system

serve as an important channel for achieving economic growth through the mobilization of

financial savings, putting them to productive use and transforming various risks

(Beck,Levin and Loayza 1999, king and Levin 1993, Rajan and zingales 1998, Demirguc, kunt, Asil and maksimovic 1998, Jayaratne and strahan 1996). Many countries

adopted a series of financial sector liberalization measures in the late 1980s and early

1990s that included intrest rate liberalization, entry deregulations, reduction of reserve

requirements and removal of credit allocation. Domestic banks were given acces to cheap

loans from abroad and allocated those resources to domestic production sectors.

A. MAIN ISSUES AND HYPOTHESES.INDIAS PRE-REFORMS PEROID AND FINANCIAL REFORMS.

Since 19991, India has been engaged in banking sector reforms aimed at

increasing the profitability and efficiency of the 27 public sector banks that controlled

about 90 percent of all deposits, assets and credit . The reforms were initiated in the

middle of a current account crisis that occurred in early 19991.Prior to the reforms,

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Indias financial sector had long been characterized as highly regulated and financial

repressed. The prevence of reserve requirements, interest-rate controls, and allocation .

After independence in 1947, the government took the view that loans extended by

colonial banks were based toward working capital for trade and large firms. Moreover, it

was perceived that banks should be utilized to assist. Indias planned development

strategy by mobilizing financial resources to strategically important sectors. Reflecting

these views, all large private banks were nationalized in two stages:

1 The first in 1969

2The second in 1980. subsequently ,quantitative loan targets were imposed on these

banks to expand their networks in rural areas and they were directed to extend credit to

priority sectors. These nationalized banks were then increasingly used to finance fiscal

deficits.

The major factors that contributed to deteriorating bank

performance included. A Too stringent regulatory requirements (i.e a cash reserve

requirements and [CRR] and statutory liquidity requirement [SLR] that reqired banks

to hold a certain amount of government and eligible securities .

B. Low interest rates charged on government bonds (as compared with those on

commercial advances).

C .Directed and concessional lending.

D .Administered interest rates, and

E .Lack of competition.

While government involvement in the financial sector can be justified at the

initial stage of economic development, the prolonged presence of excessively large

public-sector banks often results in inefficient resource allocation and concentration

of power in a few banks. The CRR requires bank to hold a certain portion of deposits

in the form of cash balances with the Reserve Bank of India. In the 1960s and 1970s,

the CRR was 5 percent, but then rose steadily to its legal upper limit of 15 percent in

early 1991. The statutory liquidity requirement requires bank to hold a certain amount

of deposits in the form of government and other approved securities. It was 25

precent in 1970 and then increased to 38.5 percent in 1991. Nearly to the level of its

legal upper limit of 40 percent. With respect to direct lending, the priority sector

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target of 33 percent of total advances was introduced in 1947, and the ratio was

gradually raised to 40 percent in 1985.

B. DRASTIC VERSUS GRADUAL PRIVATIZATION

APPROACHES:Since this approach was introduced, some criticisms have been

expressed. First, public-sector banks continue to be dominant thanks to their better

branch coverage, customer base, and knowledge of the market compared with

newcomers. Second public-sector banks would find it more difficult to reduce

personnel expenditure because of the strong trade unions. Third, the government

would find it difficult to accept genuine competition within public-sector banks. The

1994 amendment of the banking act allowed banks to raise private equity up to 49

percent of paid up capital. Consequently, public-sector banks, which used to be fully

owned by the government prior to the reform, were now allowed to increase non

government ownership.So far, only eight public sector banks out of 27 have

diversified ownership.

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Ch.5.Structure of Banking in India:-

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1) ROLE OF RESERVE BANK OF INDIA IN THE

INDIAN BANKING SECTOR:-

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Reserve Bank of India

The RBI headquarters in Mumbai

HeadquartersMumbai, Maharashtra, India

Established1 April 1935

Current Governor Duvvuri Subbarao

Currency Indian Rupee Symbol: `

Reserves$287.37 billion(2009)

Base borrowing rate5.2%

Base deposit rate

8.5% (projected for 2010-11)

The Reserve Bank of India (RBI, Hindi: ) is the central banking system

ofIndia and controls the monetary policy of the rupee as well as 287.37 billion US-Dollar

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(2009) currency reserves. The institution was established on 1 April 1935 during the

British-Raj in accordance with the provisions of the Reserve Bank of India Act, 1934 [1]

and plays an important part in the development strategy of the government.

History of RBI: -

1935 1950: -

The central bank was founded in 1935 to respond to economic troubles after the first

world war. The Reserve Bank of India was set up on the recommendations of the Hilton

Young Commission. The commission submitted its report in the year 1926, though the

bank was not set up for another nine years. The Preamble of the Reserve Bank of India

describes the basic functions of the Reserve Bank as to regulate the issue of Bank Notes,

to keep reserves with a view to securing monetary stability in India and generally to

operate the currency and credit system in the best interests of the country. The Central

Office of the Reserve Bank was initially established in Kolkata, Bengal, but was

permanently moved to Mumbai in 1937. The Reserve Bank has continued to act as the

central bank forMyanmartill Japanese occupation ofBurma and later up to April 1947,

though Burma seceded from Indian Union in 1937. After the partition, the Reserve bank

served as the central bank forPakistan up to June 1948 when the State Bank of Pakistancommenced operations. Though originally set up as a shareholder's bank, the RBI has

been fully owned by the Government of India since its nationalization in 1949.

1950 - 1960

Between 1950 and 1960 the Indian government developed a centrally planned economic

policy and focused on the agricultural sector. The administration nationalized commercial

banks and established, based on theBanking Companies Act, 1949 (later called BankingRegulation Act) a central bank regulation as part of the RBI. Beside that the central bank

was ordered to support the economic plan with loans.

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1960 - 1969

As a result of bank crashes the reserve bank was requested to establish and monitor a

deposit insurance system. It should restore the trust in the national bank system and was

initialized on 7. December 1961. The Indian government founded funds to promote the

economy and used the sloganDeveloping Banking. The Gandhi administration and their

successors restructured the national bank market and nationalized a lot of institutes. As a

result the RBI had to play the central part of control and support of this public banking

sector.

19691985

Between 1969 and 1980 the Indian government nationalized 20 banks. The regulation of

the economy and especially the financial economic was reinforced by the Gandhi

administration and their successors in the 1970s and 1980s. The central bank

became the central player and increased her policies for a lot of tasks like

interests, reserve ratio and visible deposits. The measures aimed at a better

economic development and had a huge effect on the company policy of the

institutes. The banks lent money in selected sectors like agri-business and small

trade companies.

The branch was forced to establish two new offices in the country for every new founded

office in a town. The Oil crises in 1973 resulted in increasing inflation and the RBI

restricted the monetary policy to reduce the effects.

19851991

A lot of committees analysed the Indian economy between 1985 and 1991. Their resultshad an effect on the RBI. The Board for Industrial and Financial Reconstruction, the

Indira Gandhi Institute of Development Research and Security & Exchange Board of

India investigated the national economy as a whole and the security and exchange board

proposed better methods for more effective markets and the protection of investor

interests. The Indian financial market was a leading example for - so called - "financial

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repression" (Mackinnon uand Shaw). Discount and Finance House of India began his

operations on the monetary market in April 1988, the National Housing Bank, founded in

July 1988, was forced to invest in the propoerty market and a new financial law improved

the versatility of direct deposit by more secirity measures and liberalisation.

19912000

The national economy came down in July 1991 and the Indian rupee was devalued The

currency lost 18% related to the US-Dollarand theNarsimahmam Committee advised to

restructure the financial sector by a temporal reduced reserve ratio as well as the statutory

liquidity ratio. New guidelines were published in 1993 to establish a private banking

sector. This turning point should reinforce the market and was often called neo-liberal

The central bank deregulated the bank interests and some sectors of the financial market

like the trust and the property market. This first phase was a success and the central

government forced a diversity liberalisation to diversify the owner structures in 1998.[18]

The National Stock Exchange of India took the trade on in June 1994 and the RBI

allowed nationalized banks in July to interact with the capital market to reinforce their

capital base. The central bank founded a subsidiary company - the Bharatiya Reserve

Bank Note Mudran Limited- in February 1995 to produce banknotes.

Since 2000

The Foreign Exchange Management Act from 1999 came into force in June 2000. It

should improve the foreign exchange market, international investments in India and

transactions. The RBI promoted the development of the financial market in the last years,

allowed online banking in 2001 and established a new payment system in 2004 - 2005

(National Electronic Fund Transfer).[20] The Security Printing & Minting Corporation of

India Ltd., a merger of nine institutions, was founded in 2006 and produces banknotes

and coins.

The national economy's growth rate came down to 5,8% in the last quarter of 2008 - 2009

and the central bank promotes the economic development.

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Structure of the Central Board of Directors

The Central Board of Directors is the main committee of the central bank and has not

more than 20 members. The government of the republic appoints the directors for a four

year term.

Central Board of Directors

Name Position

Duwuri Subbarao Governor

Shyamala Gopinath Deputy Governor

Usha Thorat Deputy Governor

K. C. Chakrabarty Deputy Governor

Subir Gokarn Deputy Governor

Y. H. Malegam Regional of the WestSuresh D. Tendulkar Regional of the East

U. R. Rao Regional of the North

Lakshmi Chand Regional of the South

H. P. Ranina Lawyer Supreme Court of India

Ashok S. GangulyChairman Firstsource Solutions

Limited

Azim Premji Chairman WIPRO Limited

Kumar Mangalam BirlaChairman Aditya Birla Group of

CompaniesShashi Rajagopalan Advisor

Suresh Neotia former Chairman Ambuja Cement Co.

A. Vaidyanathan Economist, Professor Madras Inst.

Man Mohan SharmaChemist, Professor Mumbai

University

D. JayavarthanaveluChairman Lakshmi Machine Works

Limited

Sanjay Labroo CEO Asahi India Glass Ltd.

Ashok Chawla Government representative

Supportive bodies

The reserve bank of India has four regional representations: North in New Delhi, South in

Chennai, East in Kolkata and West in Mumbai. The representations are formed by five

members, appointed for four years by the central government and serve - beside the

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advice of the Central Board of Directors - as forum for regional banks and to deal with

delegated tasks from the central board. The institution has 22 regional offices.

The Board of Financial Supervision (BFS), formed in November 1994, serves as a

CCBD committee to control the financial institutions. It has four members, appointed for

two years, and takes measures to strength the role of statutory auditors in the financial

sector, external monitoring and internal controlling systems. The Tarapore committee

was setup by the Reserve Bank of India under the chairmanship of former RBI deputy

governorS S Tarapore to "lay the road map" to capital account convertibility. The five-

member committee recommended a three-year timeframe for complete convertibility by

1999-2000.

On 1 July 2006, in an attempt to enhance the quality of customer service and strengthen

the grievance redressal mechanism, the Reserve Bank of India constituted a new

departmentCustomer Service Department (CSD).

Reserve Bank of India regional office, Delhi entrance with the Yakshini sculpturedepicting "Prosperity through agriculture"

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The RBI Regional Office in Delhi.

The RBI Regional Office in Kolkata.

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Ch.6 .Functions of Reserve Bank of

India

Monetary Authority

The Reserve Bank of India is the main monetary authority of the country and beside that

the central bank acts as the bank of the national and state governments. It formulates,

implements and monitors the monetary policy as well as it has to ensure an adequate flow

of credit to productive sectors. Objectives are maintaining price stability and ensuring

adequate flow of credit to productive sectors. The national economy depends on the

public sector and the central bank promotes an expensive monetary policy to push the

private sector since the financial market reforms of the 1990s.

The institution is also the regulator and supervisor of the financial system and prescribes

broad parameters of banking operations within which the country's banking and financial

system functions. Objectives are to maintain public confidence in the system, protectdepositors' interest and provide cost-effective banking services to the public. The

Banking Ombudsman Scheme has been formulated by the Reserve Bank of India (RBI)

for effective redressal of complaints by bank customers. The RBI controls the monetary

supply, monitors economic indicators like the gross domestic product and has to decide

the design of the rupee banknotes as well as coins.

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Manager of exchange control

The central bank manages to reach the goals of the Foreign Exchange Management Act,

1999. Objective: to facilitate external trade and payment and promote orderly

development and maintenance of foreign exchange market in India.

Issuer of currency

The bank issues and exchanges or destroys currency and coins not fit for circulation. The

Objectives are giving the public adequate supply of currency of good quality and to

provide loans to commercial banks to maintain or improve the GDP. The basic objectives

of RBI are to issue bank notes, to maintain the currency and credit system of the country

to utilize it in its best advantage, and to maintain the reserves. RBI maintains the

economic structure of the country so that it can achieve the objective of price stability as

well as economic development, because both objectives are diverse in themselves.

Developmental role

The central bank has to perform a wide range of promotional functions to support

national objectives and industries. The RBI faces a lot of inter-sectoral and local

inflation-related problems. Some of this problems are results of the dominant part of the

public sector.

Related functions

The RBI is also a banker to the Government and performs merchant banking function for

the central and the state governments. It also acts as their banker. TheNational Housing

Bank (NHB) was established in 1988 to promote private real estate acquisition. The

institution maintains banking accounts of all scheduled banks, too.

There is now an international consensus about the need to focus the tasks of a central

bank upon central banking. RBI is far out of touch with such a principle, owing to the

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sprawling mandate described above. The recent financial turmoil world-over, has

however, vindicated the Reserve Bank's role in maintaining financial stability in India.

2) Commercial, Public, Private and Foreign Banks in

India: -

A) Commercial and PSU Banks in India

State Bank of India

State Bank of India

Type Public (BSE: 500112, LSE: SBID)

IndustryBanking

Financial services

Founded July 1, 1955

Headquarters Mumbai, Maharashtra, India

Key peopleO. P. Bhatt

(Chairman)

Products

Investment Banking

Consumer Banking

Commercial Banking

Retail Banking

Private Banking

Asset Management

Pensions

Mortgages

Credit Cards

Revenue $28.212 billion (2010)[1]

Profit $2.473 billion (2010)[1]

Total assets $323.043 billion (2010)[1]

Total equity $18.519 billion (2010) [1]

Owner(s) Government of India

Employees 205,896 (2010)

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State Bank of India (SBI), Mumbai Main Branch.

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History

The roots of the State Bank of India rest in the first decade of 19th century, when the

Bank of Calcutta, later renamed the Bank of Bengal, was established on 2 June 1806. The

Bank of Bengal and two other Presidency banks, namely, the Bank of Bombay

(incorporated on 15 April 1840) and the Bank of Madras (incorporated on 1 July 1843).

All three Presidency banks were incorporated as joint stock companies, and were the

result of the royal charters. These three banks received the exclusive right to issue paper

currency in 1861 with the Paper Currency Act, a right they retained until the formation of

the Reserve Bank of India. The Presidency banks amalgamated on 27 January 1921, and

the reorganized banking entity took as its name Imperial Bank of India. The Imperial

Bank of India continued to remain a joint stock company.

Pursuant to the provisions of the State Bank of India Act (1955), the Reserve Bank of

India, which is India's central bank, acquired a controlling interest in the Imperial Bank

of India. On 30 April 1955 the Imperial Bank of India became the State Bank of India.

The Govt. of India recently acquired the Reserve Bank of India's stake in SBI so as to

remove any conflict of interest because the RBI is the country's banking regulatory

authority.

SBI has five associate banks that with SBI constitute the State Bank Group. All use the

same logo of a blue keyhole and all the associates use the "State Bank of" name followed

by the regional headquarters' name. Originally, the then seven banks that became the

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associate banks belonged to princely states until the government nationalised them

between October, 1959 and May, 1960. In tune with the first Five Year Plan,

emphasizing the development of rural India, the government integrated these banks into

State Bank of India to expand its rural outreach. There has been a proposal to merge all

the associate banks into SBI to create a "mega bank" and streamline operations.

National Bank for Agriculture and Rural

Development

National Bank for Agriculture and Rural Development (NABARD) is an apex

development bank in India. It has been accredited with "matters concerning policy,

planning and operations in the field of credit foragricultureand other economic activities

in rural areas in India".

History

NABARD was established on the recommendations of Shivaraman Committee, by an act

of Parliament on 12 July 1982 to implement the National Bank for Agriculture and Rural

Development Act 1981. It replaced the Agricultural Credit Department (ACD) and Rural

Planning and Credit Cell (RPCC) ofReserve Bank of India, and Agricultural Refinance

and Development Corporation (ARDC). It is one of the premiere agencies to provide

credit in rural areas.

Role of NABARD

NABARD:serves as an apex financing agency for the institutions providing investment

and production credit for promoting the various developmental activities in rural areas

takes measures towards institution building for improving absorptive capacity of the

credit delivery system, including monitoring, formulation of rehabilitation schemes,

restructuring of credit institutions, training of personnel, etc. co-ordinates the rural

financing activities of all institutions engaged in developmental work at the field level

and maintains liaison with Government of India, State Governments, Reserve Bank of

India (RBI) and other national level institutions concerned with policy formulation

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undertakes monitoring and evaluation of projects refinanced by it. NABARD's refinance

is available to State Co-operative Agriculture and Rural Development Banks

(SCARDBs), State Co-operative Banks (SCBs), Regional Rural Banks (RRBs),

Commercial Banks (CBs) and other financial institutions approved by RBI. While the

ultimate beneficiaries of investment credit can be individuals, partnership concerns,

companies, State-owned corporations or co-operative societies, production credit is

generally given to individuals.

Rural Innovation

NABARD's role in rural development in India is phenomenon. National Bank For

Agriculture & Rural Development (NABARD) is set up as an apex Development Bank

by the Government of India with a mandate for facilitating credit flow for promotion and

development of agriculture, cottage and village industries. The credit flow to agriculture

activities sanctioned by NABARD reached Rs 1,574,800 million in 2005-2006. The

overall GDP is estimated to grow at 8.4 per cent. The Indian economy as a whole is

poised for higher growth in the coming years. Role of NABARD in overall development

of India in general and rural & agricultural in specific is highly pivotal.

Through assistance of Swiss Agency for Development and Cooperation, NABARD set up

the Rural Infrastructure Development Fund. Under the RIDF scheme Rs. 512830 million

have been sanctioned for 2,44,651 projects covering irrigation, rural roads and bridges,

healthy and education, soil conservation, water schemes etc. Rural Innovation Fund is a

fund designed to support innovative, risk friendly, unconventional experiments in these

sectors that would have the potential to promote livelihood opportunities and

employment in rural areas. The assistance is extended to Individuals, NGOs,

Cooperatives, Self Help Group, and Panchayati Raj Institutions who have the expertise

and willingness to implement innovative ideas for improving the quality of life in rural

areas. Through member base of 250 million, 600000 cooperatives are working in India atgrass root level in almost every sector of economy. There are linkages between SHG and

other type institutes with that of cooperatives.

The very purpose of RIDF is to promote innovation in rural & agricultural sector through

viable means. Effectiveness of the program depends upon many factors, but the type of

organization to which the assistance is extended is crucial one in generating, executing

ideas in optimum commercial way. Cooperative is member driven formal organization

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for socio-economic purpose, while SHG is informal one. NGO have more of social color

while that of PRI is political one. Does the legal status of an institute influences

effectiveness of the program? How & to what an extent? Cooperative type of

organization is better (Financial efficiency & effectiveness) in functioning (agriculture &

rural sector) compared to NGO, SHG & PRIs.

Small Industries Development Bank of India

Small Industries Development Bank of India is an independent financial institution aimed

to aid the growth and development of micro, small and medium scale enterprises in India.

Set up in 1990 through an act of parliament, it was incorporated initially as a wholly

owned subsidiary of Industrial Development Bank of India. Current shareholding is

widely spread among various state owned banks, insurance companies and financial

institutions. Beginning as a refinancing agency to banks and state level financial

institutions for their credit to small industries, it has expanded it's activities, including

direct credit to the SME through 100 branches in all major industrial clusters in India.

Besides, it has been playing the development role in several ways such as support to

micro-finance institutions for capacity building and on lending. Recently it has opened 7

branches christened as Micro Finance branches, aimed especially at dispensing loans up

to Rs. 5.00 lakh.SIDBI has also floated several other entities for related activities. CreditGuarantee Fund Trust for Micro and Small Enterprises provides guarantees to banks

for collateral free loans extended to SME. SIDBI Venture Capital Ltd is Venture

Capital company focused at SME. SME Rating Agency of India Ltd. (SMERA) provides

composite ratings to SME.

Provision Of Charter

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SIDBI was established on April 2, 1990. The Charter establishing it, The Small Industries

Development Bank of India Act, 1989 envisaged SIDBI to be "the principal financial

institution for the promotion, financing and development of industry in the small scale

sector and to co-ordinate the functions of the institutions engaged in the promotion and

financing or developing industry in the small scale sector and for matters connected

therewith or incidental thereto.

SIDBI retained its position in the top 30 Development Banks of the World in the latest

ranking of The Banker, London. As per the May 2001 issue of The Banker, London,

SIDBI ranked 25th both in terms of Capital and Assets .

The Charter establishing it, The Small Industries Development Bank of India Act, 1989

envisaged SIDBI to be "the principal financial institution for the promotion, financing

and development of industry in the small scale sector and to co-ordinate the functions of

the institutions engaged in the promotion and financing or developing industry in the

small scale sector and for matters connected therewith or incidental thereto. Credit

Guarantee Fund Trust for Micro and Small Enterprises popularly known as CGTMSE is

widely being used by many PSU Banks and Private sector banks to fund MSME

sector.

Business Domain

The business domain of SIDBI consists of small scale industrial units, that contribute

significantly to the national economy in terms of production, employment and exports.

Small scale industries are the industrial units in which the investment in plant and

machinery does not exceed Rs.10 million . About 3.1 million such units, employing 17.2

million persons account for a share of 36 per cent of India's exports and 40 per cent ofindustrial manufacture. In addition, SIDBI's assistance flows to the transport, health care

and tourism sectors and also to the professional and self-employed persons setting up

small-sized professional ventures

Functions meant to help small scale industries

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1. Refinances loans given to small scale sector by primary lending institutions.

2. Discounts and rediscounts bills relating to the transaction of machinery of the small

scale sector.

3. Extends seed capital through specified agencies.

4. Assistance for export of products of small-scale sector.

5. Provides services like leasing and factoring.

6. Give financial support to purchase raw material and the sales of finished products.

Achievements

SIDBI retained its position in the top 30 Development Banks of the World in the latest

ranking of The Banker, London. As per the May 2001 issue of The Banker, London,

SIDBI ranked 25th both in terms of Capital and Assets. Credit Guarantee Fund Trust for

Micro and Small Enterprises popularly known as CGTMSE is widely being used by

many PSU Banks and Private sector banks to fund MSME sector.

Technology Oriented

SIDBI has developed an internal rating model called CART to assess and rate its

borrowers. CART enables an objective assessment of its borrowers.

B) Private Banks In India

Industrial Credit And Investment

ICICI Bank

Type Public (BSE: 532174,NYSE:IBN)

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IndustryBanking

Financial services

Founded 1955

Headquarters Mumbai,Maharashtra,India

Key people

K.V.Kamath(Chairman)

Chanda Kochhar

(MD & CEO)

N. S. Kannan

(CFO)

Products

Investment Banking

Commercial Banking

Retail Banking

Private Banking

Asset Management

Mortgages

Credit Cards

Revenue Rs 59,599.77 crore (US$ 12.69

billion) (2009)[1]

Operating

income

Rs 6,578.64 crore (US$ 1.4

billion) (2010)[1]

Profit Rs 4,843.41 crore (US$ 1.03

billion) (2010)[1]

Total assets US$ 100.10 billion (2010)[2]

Employees 35,000+ (2009)

Website ICICIBank.com

ICICI Bank :( formerly Industrial Credit and Investment Corporation of India) is a major

banking and financial services organization inIndia. It is the 2th largest bank in India andthe largest private sector bank in India by market capitalization. The bank also has a

network of 2,016 branches (as on 31 March 2010) and about 5,219 ATMs in India and

presence in 18 countries, as well as some 24 million customers (at the end of July 2007).

ICICI Bank offers a wide range of banking products and financial services to corporate

and retail customers through a variety of delivery channels and specialization subsidiaries

and affiliates in the areas of investment banking, life and non-life insurance, venture

39
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capital and asset management. (These data are dynamic.) ICICI Bank is also the largest

issuer of credit cards in India. ICICI Bank's shares are listed on the stock exchanges at

Kolkata and Vadodara, Mumbai and the National Stock Exchange of India Limited; its

ADRs trade on the New York Stock Exchange (NYSE).The Bank is expanding in

overseas markets and has the largest international balance sheet among Indian banks.

ICICI Bank now has wholly-owned subsidiaries, branches and representatives offices in

19 countries, including an offshore unit in Mumbai. This includes wholly owned

subsidiaries in Canada, Russia and the UK (the subsidiary through which the HiSAVE

savings brand is operated), offshore banking units in Bahrain and Singapore, an advisory

branch in Dubai, branches in Belgium, Hong Kong and Sri Lanka, and representative

offices in Bangladesh, China, Malaysia, Indonesia, South Africa, Thailand, the United

Arab Emirates and USA. Overseas, the Bank is targeting the NRI (Non-Resident Indian)

population in particular.

ICICI reported a 1.15% rise in net profit to Rs. 1,014.21 crore on a 1.29% increase in

total income to Rs. 9,712.31 crore in Q2 September 2008 over Q2 September 2007. The

bank's CASA ratio increased to 30% in 2008 from 25% in 2007. ICICI Bank is one of the

Big Four Banks of India, along withState Bank of India, Axis Bankand HDFC Bank

its main competitors

History

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Housing Development Finance Corporation (HDFC)

HDFC Bank Ltd.

TypePublic

(BSE: 500180,NYSE: HDB)

IndustryBanking

Financial services

Founded August 1994

Founder(s) Deepak Parekh

Headquarters Mumbai,India

Key people

Jagdish Capoor

(Chairman)

Aditya Puri

(MD)

Products Investment Banking

Commercial Banking

Retail Banking

Private Banking

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Asset Management

Mortgages

Credit Cards[1]

Revenue

Rs 20,266.99 crore (US$ 4.32

billion) (2010)[2]

Operating

income

Rs. 4,419.01 crore (US$ 941.25

million) (2010)[2]

Profit Rs. 3,032.92 crore (US$ 646.01

million) (2010)[2]

Total assets US$ 39.723 billion (2009)[2]

Total equity Rs 21,158.15 crore (US$ 4.51

billion) (2010)[2]

Employees 51,888 (2010)[3]

HDFC Bank Ltd. (is a major Indian financial services company based in Mumbai,

incorporated in August 1994, after the Reserve Bank of Indiaallowed establishing private

sector banks. The Bank was promoted by the Housing Development Finance

Corporation, a premier housing finance company (set up in 1977) of India. HDFC Bank

has 1,725 branches and over 4,232 ATMs, in 779 cities in India, and all branches of the

bank are linked on an online real-time basis. As of September 30, 2008 the bank had total

assets of INR 1006.82 billion.[4] For the fiscal year 2008-09, the bank has reported netprofit of Rs.2,244.9 crore, up 41% from the previous fiscal. Total annual earnings of the

bank increased by 58% reaching at Rs.19,622.8 crore in 2008-09

History

HDFC Bank was incorporated in the year of 1994 by Housing Development Finance

Corporation Limited (HDFC), India's premier housing finance company. It was among

the first companies to receive an 'in principle' approval from the Reserve Bank of India(RBI) to set up a bank in the private sector.The Bank commenced its operations as a

Scheduled Commercial Bank in January 1995 with the help of RBI's liberalization

policies.In a milestone transaction in the Indian banking industry, Times Bank Limited

(promoted by Bennett, Coleman & Co. / Times Group) was merged with HDFC Bank

Ltd., in 2000. This was the first merger of two private banks in India. As per the scheme

of amalgamation approved by the shareholders of both banks and the Reserve Bank of

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India, shareholders of Times Bank received 1 share of HDFC Bank for every 5.75 shares

of Times Bank.In 2008 HDFC Bank acquired Centurion Bank of Punjab taking its total

branches to more than 1,000. The amalgamated bank emerged with a strong deposit base

of around Rs. 1,22,000 crore and net advances of around Rs. 89,000 crore. The balance

sheet size of the combined entity is over Rs. 1,63,000 crore. The amalgamation added

significant value to HDFC Bank in terms of increased branch network, geographic reach,

and customer base, and a bigger pool of skilled manpower.

Business focus

HDFC Bank deals with three key business segments - Wholesale Banking Services,

Retail Banking Services, Treasury. It has entered the banking consortia of over 50

corporates for providing working capital finance, trade services, corporate finance and

merchant banking. It is also providing sophisticated product structures in areas of foreign

exchange and derivatives, money markets and debt trading and equity research.

Wholesale banking services.HDFC Bank was the first bank in India to launch an

International Debit Card in association with VISA (VISA Electron) and issues the

Mastercard Maestro debit card as well.

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final projec monu

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