Download VTU (Visvesvaraya Technological University) MBA 3rd Semester (Third Semester) 16MBAFM301-Principles and Practices of Banking PPB Notes Module 1 Important Lecture Notes (MBA Study Material Notes)
PRINCIPLES AND
PRACTICES OF BANKING
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PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
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1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
Structure Of Indian Banking System
24
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
Structure Of Indian Banking System
24
Scheduled Banks
Scheduled Banks are those banks which are listed in the
Second Schedule to the Reserve Bank of India Act, 1934. The
Banks satisfying the following conditions are only included in
the Second Schedule.
(a) That the Bank?s paid up capital plus free reserves are not
less than Rs. 5.00 lakh, and
(b) That the affairs of the Bank are not conducted to the
detrimental interest of the depositors.
The Reserve Bank also has powers to deschedule a bank, when
the abovementioned conditions are not satisfied.
It may be noted presently, the RBI has prescribed a minimum
capital of Rs. 100 crores for starting a new commercial bank.
25
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
Structure Of Indian Banking System
24
Scheduled Banks
Scheduled Banks are those banks which are listed in the
Second Schedule to the Reserve Bank of India Act, 1934. The
Banks satisfying the following conditions are only included in
the Second Schedule.
(a) That the Bank?s paid up capital plus free reserves are not
less than Rs. 5.00 lakh, and
(b) That the affairs of the Bank are not conducted to the
detrimental interest of the depositors.
The Reserve Bank also has powers to deschedule a bank, when
the abovementioned conditions are not satisfied.
It may be noted presently, the RBI has prescribed a minimum
capital of Rs. 100 crores for starting a new commercial bank.
25
Non-scheduled Banks
Scheduled Banks are those banks which are not listed in
the Second Schedule to the Reserve Bank of India Act, 1934.
(a)These banks also need to maintain a satutory reserve but
not with RBI
(b) Their banking activities are limited. E.g) they cant deal in
foreign exchange
26
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
Structure Of Indian Banking System
24
Scheduled Banks
Scheduled Banks are those banks which are listed in the
Second Schedule to the Reserve Bank of India Act, 1934. The
Banks satisfying the following conditions are only included in
the Second Schedule.
(a) That the Bank?s paid up capital plus free reserves are not
less than Rs. 5.00 lakh, and
(b) That the affairs of the Bank are not conducted to the
detrimental interest of the depositors.
The Reserve Bank also has powers to deschedule a bank, when
the abovementioned conditions are not satisfied.
It may be noted presently, the RBI has prescribed a minimum
capital of Rs. 100 crores for starting a new commercial bank.
25
Non-scheduled Banks
Scheduled Banks are those banks which are not listed in
the Second Schedule to the Reserve Bank of India Act, 1934.
(a)These banks also need to maintain a satutory reserve but
not with RBI
(b) Their banking activities are limited. E.g) they cant deal in
foreign exchange
26 27
Public Sector Banks, Private Sector Banks
Public sector bank refers to commercial banks
which are owned by the central Government
either directly or indirectly through the reserve
bank of India.
They are also referred to National Banks.
Public sector banks comprise two categories.
1) State Bank Group
2) Nationalised Banks
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
Structure Of Indian Banking System
24
Scheduled Banks
Scheduled Banks are those banks which are listed in the
Second Schedule to the Reserve Bank of India Act, 1934. The
Banks satisfying the following conditions are only included in
the Second Schedule.
(a) That the Bank?s paid up capital plus free reserves are not
less than Rs. 5.00 lakh, and
(b) That the affairs of the Bank are not conducted to the
detrimental interest of the depositors.
The Reserve Bank also has powers to deschedule a bank, when
the abovementioned conditions are not satisfied.
It may be noted presently, the RBI has prescribed a minimum
capital of Rs. 100 crores for starting a new commercial bank.
25
Non-scheduled Banks
Scheduled Banks are those banks which are not listed in
the Second Schedule to the Reserve Bank of India Act, 1934.
(a)These banks also need to maintain a satutory reserve but
not with RBI
(b) Their banking activities are limited. E.g) they cant deal in
foreign exchange
26 27
Public Sector Banks, Private Sector Banks
Public sector bank refers to commercial banks
which are owned by the central Government
either directly or indirectly through the reserve
bank of India.
They are also referred to National Banks.
Public sector banks comprise two categories.
1) State Bank Group
2) Nationalised Banks
State Bank Group
28
The history of nationalization of Indian banks dates back to
the year 1955 when the Imperial Bank of India was
nationalized and re-christened as State Bank of India (under
the SBI Act, 1955).
Later on July 19, 1960, the 7 subsidiaries of SBI viz. State
Bank of Hyderabad (SBH), State Bank of Indore, State Bank
of Saurashtra (SBS), State Bank of Mysore (SBM), State
Bank of Bikaner and Jaipur (SBBJ), State Bank of Patiala
(SBP), and State Bank of Travancore (SBT) were also
nationalized with deposits more than 200 crores.
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
Structure Of Indian Banking System
24
Scheduled Banks
Scheduled Banks are those banks which are listed in the
Second Schedule to the Reserve Bank of India Act, 1934. The
Banks satisfying the following conditions are only included in
the Second Schedule.
(a) That the Bank?s paid up capital plus free reserves are not
less than Rs. 5.00 lakh, and
(b) That the affairs of the Bank are not conducted to the
detrimental interest of the depositors.
The Reserve Bank also has powers to deschedule a bank, when
the abovementioned conditions are not satisfied.
It may be noted presently, the RBI has prescribed a minimum
capital of Rs. 100 crores for starting a new commercial bank.
25
Non-scheduled Banks
Scheduled Banks are those banks which are not listed in
the Second Schedule to the Reserve Bank of India Act, 1934.
(a)These banks also need to maintain a satutory reserve but
not with RBI
(b) Their banking activities are limited. E.g) they cant deal in
foreign exchange
26 27
Public Sector Banks, Private Sector Banks
Public sector bank refers to commercial banks
which are owned by the central Government
either directly or indirectly through the reserve
bank of India.
They are also referred to National Banks.
Public sector banks comprise two categories.
1) State Bank Group
2) Nationalised Banks
State Bank Group
28
The history of nationalization of Indian banks dates back to
the year 1955 when the Imperial Bank of India was
nationalized and re-christened as State Bank of India (under
the SBI Act, 1955).
Later on July 19, 1960, the 7 subsidiaries of SBI viz. State
Bank of Hyderabad (SBH), State Bank of Indore, State Bank
of Saurashtra (SBS), State Bank of Mysore (SBM), State
Bank of Bikaner and Jaipur (SBBJ), State Bank of Patiala
(SBP), and State Bank of Travancore (SBT) were also
nationalized with deposits more than 200 crores.
Nationalized Banks
29
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
Structure Of Indian Banking System
24
Scheduled Banks
Scheduled Banks are those banks which are listed in the
Second Schedule to the Reserve Bank of India Act, 1934. The
Banks satisfying the following conditions are only included in
the Second Schedule.
(a) That the Bank?s paid up capital plus free reserves are not
less than Rs. 5.00 lakh, and
(b) That the affairs of the Bank are not conducted to the
detrimental interest of the depositors.
The Reserve Bank also has powers to deschedule a bank, when
the abovementioned conditions are not satisfied.
It may be noted presently, the RBI has prescribed a minimum
capital of Rs. 100 crores for starting a new commercial bank.
25
Non-scheduled Banks
Scheduled Banks are those banks which are not listed in
the Second Schedule to the Reserve Bank of India Act, 1934.
(a)These banks also need to maintain a satutory reserve but
not with RBI
(b) Their banking activities are limited. E.g) they cant deal in
foreign exchange
26 27
Public Sector Banks, Private Sector Banks
Public sector bank refers to commercial banks
which are owned by the central Government
either directly or indirectly through the reserve
bank of India.
They are also referred to National Banks.
Public sector banks comprise two categories.
1) State Bank Group
2) Nationalised Banks
State Bank Group
28
The history of nationalization of Indian banks dates back to
the year 1955 when the Imperial Bank of India was
nationalized and re-christened as State Bank of India (under
the SBI Act, 1955).
Later on July 19, 1960, the 7 subsidiaries of SBI viz. State
Bank of Hyderabad (SBH), State Bank of Indore, State Bank
of Saurashtra (SBS), State Bank of Mysore (SBM), State
Bank of Bikaner and Jaipur (SBBJ), State Bank of Patiala
(SBP), and State Bank of Travancore (SBT) were also
nationalized with deposits more than 200 crores.
Nationalized Banks
29
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank
Private Sector Banks
Private sector banks are those commercial banks
which are owned and controlled by private
entrepreneurs.
This banks comprise two categories of banks:
1) Private Sector Indian Banks
2) Private Sector Foreign Banks.
30
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
Structure Of Indian Banking System
24
Scheduled Banks
Scheduled Banks are those banks which are listed in the
Second Schedule to the Reserve Bank of India Act, 1934. The
Banks satisfying the following conditions are only included in
the Second Schedule.
(a) That the Bank?s paid up capital plus free reserves are not
less than Rs. 5.00 lakh, and
(b) That the affairs of the Bank are not conducted to the
detrimental interest of the depositors.
The Reserve Bank also has powers to deschedule a bank, when
the abovementioned conditions are not satisfied.
It may be noted presently, the RBI has prescribed a minimum
capital of Rs. 100 crores for starting a new commercial bank.
25
Non-scheduled Banks
Scheduled Banks are those banks which are not listed in
the Second Schedule to the Reserve Bank of India Act, 1934.
(a)These banks also need to maintain a satutory reserve but
not with RBI
(b) Their banking activities are limited. E.g) they cant deal in
foreign exchange
26 27
Public Sector Banks, Private Sector Banks
Public sector bank refers to commercial banks
which are owned by the central Government
either directly or indirectly through the reserve
bank of India.
They are also referred to National Banks.
Public sector banks comprise two categories.
1) State Bank Group
2) Nationalised Banks
State Bank Group
28
The history of nationalization of Indian banks dates back to
the year 1955 when the Imperial Bank of India was
nationalized and re-christened as State Bank of India (under
the SBI Act, 1955).
Later on July 19, 1960, the 7 subsidiaries of SBI viz. State
Bank of Hyderabad (SBH), State Bank of Indore, State Bank
of Saurashtra (SBS), State Bank of Mysore (SBM), State
Bank of Bikaner and Jaipur (SBBJ), State Bank of Patiala
(SBP), and State Bank of Travancore (SBT) were also
nationalized with deposits more than 200 crores.
Nationalized Banks
29
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank
Private Sector Banks
Private sector banks are those commercial banks
which are owned and controlled by private
entrepreneurs.
This banks comprise two categories of banks:
1) Private Sector Indian Banks
2) Private Sector Foreign Banks.
30 31
Regional Banks
These are the banking organizations operating in
different states of India.
Created to serve the rural areas with banking and
financial services.
However, RRB's may have branches set up for urban
operations and there area of operation may include
urban areas too.
They are also referred to as Grameen Banks/ Gramin
Banks. There are as many as 67 RRB's.
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
Structure Of Indian Banking System
24
Scheduled Banks
Scheduled Banks are those banks which are listed in the
Second Schedule to the Reserve Bank of India Act, 1934. The
Banks satisfying the following conditions are only included in
the Second Schedule.
(a) That the Bank?s paid up capital plus free reserves are not
less than Rs. 5.00 lakh, and
(b) That the affairs of the Bank are not conducted to the
detrimental interest of the depositors.
The Reserve Bank also has powers to deschedule a bank, when
the abovementioned conditions are not satisfied.
It may be noted presently, the RBI has prescribed a minimum
capital of Rs. 100 crores for starting a new commercial bank.
25
Non-scheduled Banks
Scheduled Banks are those banks which are not listed in
the Second Schedule to the Reserve Bank of India Act, 1934.
(a)These banks also need to maintain a satutory reserve but
not with RBI
(b) Their banking activities are limited. E.g) they cant deal in
foreign exchange
26 27
Public Sector Banks, Private Sector Banks
Public sector bank refers to commercial banks
which are owned by the central Government
either directly or indirectly through the reserve
bank of India.
They are also referred to National Banks.
Public sector banks comprise two categories.
1) State Bank Group
2) Nationalised Banks
State Bank Group
28
The history of nationalization of Indian banks dates back to
the year 1955 when the Imperial Bank of India was
nationalized and re-christened as State Bank of India (under
the SBI Act, 1955).
Later on July 19, 1960, the 7 subsidiaries of SBI viz. State
Bank of Hyderabad (SBH), State Bank of Indore, State Bank
of Saurashtra (SBS), State Bank of Mysore (SBM), State
Bank of Bikaner and Jaipur (SBBJ), State Bank of Patiala
(SBP), and State Bank of Travancore (SBT) were also
nationalized with deposits more than 200 crores.
Nationalized Banks
29
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank
Private Sector Banks
Private sector banks are those commercial banks
which are owned and controlled by private
entrepreneurs.
This banks comprise two categories of banks:
1) Private Sector Indian Banks
2) Private Sector Foreign Banks.
30 31
Regional Banks
These are the banking organizations operating in
different states of India.
Created to serve the rural areas with banking and
financial services.
However, RRB's may have branches set up for urban
operations and there area of operation may include
urban areas too.
They are also referred to as Grameen Banks/ Gramin
Banks. There are as many as 67 RRB's.
32
Functions
The main purpose of RRB's is to mobilize financial
resources from rural / semi-urban areas and
grant loans and advances mostly to
small and marginal farmers,
agricultural laborers and
rural artisans.
The area of operation of RRBs is limited to the
area as notified by GoI covering one or more
districts in the State.
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
Structure Of Indian Banking System
24
Scheduled Banks
Scheduled Banks are those banks which are listed in the
Second Schedule to the Reserve Bank of India Act, 1934. The
Banks satisfying the following conditions are only included in
the Second Schedule.
(a) That the Bank?s paid up capital plus free reserves are not
less than Rs. 5.00 lakh, and
(b) That the affairs of the Bank are not conducted to the
detrimental interest of the depositors.
The Reserve Bank also has powers to deschedule a bank, when
the abovementioned conditions are not satisfied.
It may be noted presently, the RBI has prescribed a minimum
capital of Rs. 100 crores for starting a new commercial bank.
25
Non-scheduled Banks
Scheduled Banks are those banks which are not listed in
the Second Schedule to the Reserve Bank of India Act, 1934.
(a)These banks also need to maintain a satutory reserve but
not with RBI
(b) Their banking activities are limited. E.g) they cant deal in
foreign exchange
26 27
Public Sector Banks, Private Sector Banks
Public sector bank refers to commercial banks
which are owned by the central Government
either directly or indirectly through the reserve
bank of India.
They are also referred to National Banks.
Public sector banks comprise two categories.
1) State Bank Group
2) Nationalised Banks
State Bank Group
28
The history of nationalization of Indian banks dates back to
the year 1955 when the Imperial Bank of India was
nationalized and re-christened as State Bank of India (under
the SBI Act, 1955).
Later on July 19, 1960, the 7 subsidiaries of SBI viz. State
Bank of Hyderabad (SBH), State Bank of Indore, State Bank
of Saurashtra (SBS), State Bank of Mysore (SBM), State
Bank of Bikaner and Jaipur (SBBJ), State Bank of Patiala
(SBP), and State Bank of Travancore (SBT) were also
nationalized with deposits more than 200 crores.
Nationalized Banks
29
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank
Private Sector Banks
Private sector banks are those commercial banks
which are owned and controlled by private
entrepreneurs.
This banks comprise two categories of banks:
1) Private Sector Indian Banks
2) Private Sector Foreign Banks.
30 31
Regional Banks
These are the banking organizations operating in
different states of India.
Created to serve the rural areas with banking and
financial services.
However, RRB's may have branches set up for urban
operations and there area of operation may include
urban areas too.
They are also referred to as Grameen Banks/ Gramin
Banks. There are as many as 67 RRB's.
32
Functions
The main purpose of RRB's is to mobilize financial
resources from rural / semi-urban areas and
grant loans and advances mostly to
small and marginal farmers,
agricultural laborers and
rural artisans.
The area of operation of RRBs is limited to the
area as notified by GoI covering one or more
districts in the State.
COMMERCIAL BANKING
33
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
Structure Of Indian Banking System
24
Scheduled Banks
Scheduled Banks are those banks which are listed in the
Second Schedule to the Reserve Bank of India Act, 1934. The
Banks satisfying the following conditions are only included in
the Second Schedule.
(a) That the Bank?s paid up capital plus free reserves are not
less than Rs. 5.00 lakh, and
(b) That the affairs of the Bank are not conducted to the
detrimental interest of the depositors.
The Reserve Bank also has powers to deschedule a bank, when
the abovementioned conditions are not satisfied.
It may be noted presently, the RBI has prescribed a minimum
capital of Rs. 100 crores for starting a new commercial bank.
25
Non-scheduled Banks
Scheduled Banks are those banks which are not listed in
the Second Schedule to the Reserve Bank of India Act, 1934.
(a)These banks also need to maintain a satutory reserve but
not with RBI
(b) Their banking activities are limited. E.g) they cant deal in
foreign exchange
26 27
Public Sector Banks, Private Sector Banks
Public sector bank refers to commercial banks
which are owned by the central Government
either directly or indirectly through the reserve
bank of India.
They are also referred to National Banks.
Public sector banks comprise two categories.
1) State Bank Group
2) Nationalised Banks
State Bank Group
28
The history of nationalization of Indian banks dates back to
the year 1955 when the Imperial Bank of India was
nationalized and re-christened as State Bank of India (under
the SBI Act, 1955).
Later on July 19, 1960, the 7 subsidiaries of SBI viz. State
Bank of Hyderabad (SBH), State Bank of Indore, State Bank
of Saurashtra (SBS), State Bank of Mysore (SBM), State
Bank of Bikaner and Jaipur (SBBJ), State Bank of Patiala
(SBP), and State Bank of Travancore (SBT) were also
nationalized with deposits more than 200 crores.
Nationalized Banks
29
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank
Private Sector Banks
Private sector banks are those commercial banks
which are owned and controlled by private
entrepreneurs.
This banks comprise two categories of banks:
1) Private Sector Indian Banks
2) Private Sector Foreign Banks.
30 31
Regional Banks
These are the banking organizations operating in
different states of India.
Created to serve the rural areas with banking and
financial services.
However, RRB's may have branches set up for urban
operations and there area of operation may include
urban areas too.
They are also referred to as Grameen Banks/ Gramin
Banks. There are as many as 67 RRB's.
32
Functions
The main purpose of RRB's is to mobilize financial
resources from rural / semi-urban areas and
grant loans and advances mostly to
small and marginal farmers,
agricultural laborers and
rural artisans.
The area of operation of RRBs is limited to the
area as notified by GoI covering one or more
districts in the State.
COMMERCIAL BANKING
33 34
Commercial Banking Overview
Commercial banks provide banking
services to individuals, small
businesses and large organizations
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
Structure Of Indian Banking System
24
Scheduled Banks
Scheduled Banks are those banks which are listed in the
Second Schedule to the Reserve Bank of India Act, 1934. The
Banks satisfying the following conditions are only included in
the Second Schedule.
(a) That the Bank?s paid up capital plus free reserves are not
less than Rs. 5.00 lakh, and
(b) That the affairs of the Bank are not conducted to the
detrimental interest of the depositors.
The Reserve Bank also has powers to deschedule a bank, when
the abovementioned conditions are not satisfied.
It may be noted presently, the RBI has prescribed a minimum
capital of Rs. 100 crores for starting a new commercial bank.
25
Non-scheduled Banks
Scheduled Banks are those banks which are not listed in
the Second Schedule to the Reserve Bank of India Act, 1934.
(a)These banks also need to maintain a satutory reserve but
not with RBI
(b) Their banking activities are limited. E.g) they cant deal in
foreign exchange
26 27
Public Sector Banks, Private Sector Banks
Public sector bank refers to commercial banks
which are owned by the central Government
either directly or indirectly through the reserve
bank of India.
They are also referred to National Banks.
Public sector banks comprise two categories.
1) State Bank Group
2) Nationalised Banks
State Bank Group
28
The history of nationalization of Indian banks dates back to
the year 1955 when the Imperial Bank of India was
nationalized and re-christened as State Bank of India (under
the SBI Act, 1955).
Later on July 19, 1960, the 7 subsidiaries of SBI viz. State
Bank of Hyderabad (SBH), State Bank of Indore, State Bank
of Saurashtra (SBS), State Bank of Mysore (SBM), State
Bank of Bikaner and Jaipur (SBBJ), State Bank of Patiala
(SBP), and State Bank of Travancore (SBT) were also
nationalized with deposits more than 200 crores.
Nationalized Banks
29
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank
Private Sector Banks
Private sector banks are those commercial banks
which are owned and controlled by private
entrepreneurs.
This banks comprise two categories of banks:
1) Private Sector Indian Banks
2) Private Sector Foreign Banks.
30 31
Regional Banks
These are the banking organizations operating in
different states of India.
Created to serve the rural areas with banking and
financial services.
However, RRB's may have branches set up for urban
operations and there area of operation may include
urban areas too.
They are also referred to as Grameen Banks/ Gramin
Banks. There are as many as 67 RRB's.
32
Functions
The main purpose of RRB's is to mobilize financial
resources from rural / semi-urban areas and
grant loans and advances mostly to
small and marginal farmers,
agricultural laborers and
rural artisans.
The area of operation of RRBs is limited to the
area as notified by GoI covering one or more
districts in the State.
COMMERCIAL BANKING
33 34
Commercial Banking Overview
Commercial banks provide banking
services to individuals, small
businesses and large organizations
Structure Of Commercial Bank
35
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
Structure Of Indian Banking System
24
Scheduled Banks
Scheduled Banks are those banks which are listed in the
Second Schedule to the Reserve Bank of India Act, 1934. The
Banks satisfying the following conditions are only included in
the Second Schedule.
(a) That the Bank?s paid up capital plus free reserves are not
less than Rs. 5.00 lakh, and
(b) That the affairs of the Bank are not conducted to the
detrimental interest of the depositors.
The Reserve Bank also has powers to deschedule a bank, when
the abovementioned conditions are not satisfied.
It may be noted presently, the RBI has prescribed a minimum
capital of Rs. 100 crores for starting a new commercial bank.
25
Non-scheduled Banks
Scheduled Banks are those banks which are not listed in
the Second Schedule to the Reserve Bank of India Act, 1934.
(a)These banks also need to maintain a satutory reserve but
not with RBI
(b) Their banking activities are limited. E.g) they cant deal in
foreign exchange
26 27
Public Sector Banks, Private Sector Banks
Public sector bank refers to commercial banks
which are owned by the central Government
either directly or indirectly through the reserve
bank of India.
They are also referred to National Banks.
Public sector banks comprise two categories.
1) State Bank Group
2) Nationalised Banks
State Bank Group
28
The history of nationalization of Indian banks dates back to
the year 1955 when the Imperial Bank of India was
nationalized and re-christened as State Bank of India (under
the SBI Act, 1955).
Later on July 19, 1960, the 7 subsidiaries of SBI viz. State
Bank of Hyderabad (SBH), State Bank of Indore, State Bank
of Saurashtra (SBS), State Bank of Mysore (SBM), State
Bank of Bikaner and Jaipur (SBBJ), State Bank of Patiala
(SBP), and State Bank of Travancore (SBT) were also
nationalized with deposits more than 200 crores.
Nationalized Banks
29
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank
Private Sector Banks
Private sector banks are those commercial banks
which are owned and controlled by private
entrepreneurs.
This banks comprise two categories of banks:
1) Private Sector Indian Banks
2) Private Sector Foreign Banks.
30 31
Regional Banks
These are the banking organizations operating in
different states of India.
Created to serve the rural areas with banking and
financial services.
However, RRB's may have branches set up for urban
operations and there area of operation may include
urban areas too.
They are also referred to as Grameen Banks/ Gramin
Banks. There are as many as 67 RRB's.
32
Functions
The main purpose of RRB's is to mobilize financial
resources from rural / semi-urban areas and
grant loans and advances mostly to
small and marginal farmers,
agricultural laborers and
rural artisans.
The area of operation of RRBs is limited to the
area as notified by GoI covering one or more
districts in the State.
COMMERCIAL BANKING
33 34
Commercial Banking Overview
Commercial banks provide banking
services to individuals, small
businesses and large organizations
Structure Of Commercial Bank
35
36
Commercial Banks
Commercial banks comprising public sector
banks, foreign banks, and private sector banks
represent the most important financial
intermediary in the Indian financial system.
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
Structure Of Indian Banking System
24
Scheduled Banks
Scheduled Banks are those banks which are listed in the
Second Schedule to the Reserve Bank of India Act, 1934. The
Banks satisfying the following conditions are only included in
the Second Schedule.
(a) That the Bank?s paid up capital plus free reserves are not
less than Rs. 5.00 lakh, and
(b) That the affairs of the Bank are not conducted to the
detrimental interest of the depositors.
The Reserve Bank also has powers to deschedule a bank, when
the abovementioned conditions are not satisfied.
It may be noted presently, the RBI has prescribed a minimum
capital of Rs. 100 crores for starting a new commercial bank.
25
Non-scheduled Banks
Scheduled Banks are those banks which are not listed in
the Second Schedule to the Reserve Bank of India Act, 1934.
(a)These banks also need to maintain a satutory reserve but
not with RBI
(b) Their banking activities are limited. E.g) they cant deal in
foreign exchange
26 27
Public Sector Banks, Private Sector Banks
Public sector bank refers to commercial banks
which are owned by the central Government
either directly or indirectly through the reserve
bank of India.
They are also referred to National Banks.
Public sector banks comprise two categories.
1) State Bank Group
2) Nationalised Banks
State Bank Group
28
The history of nationalization of Indian banks dates back to
the year 1955 when the Imperial Bank of India was
nationalized and re-christened as State Bank of India (under
the SBI Act, 1955).
Later on July 19, 1960, the 7 subsidiaries of SBI viz. State
Bank of Hyderabad (SBH), State Bank of Indore, State Bank
of Saurashtra (SBS), State Bank of Mysore (SBM), State
Bank of Bikaner and Jaipur (SBBJ), State Bank of Patiala
(SBP), and State Bank of Travancore (SBT) were also
nationalized with deposits more than 200 crores.
Nationalized Banks
29
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank
Private Sector Banks
Private sector banks are those commercial banks
which are owned and controlled by private
entrepreneurs.
This banks comprise two categories of banks:
1) Private Sector Indian Banks
2) Private Sector Foreign Banks.
30 31
Regional Banks
These are the banking organizations operating in
different states of India.
Created to serve the rural areas with banking and
financial services.
However, RRB's may have branches set up for urban
operations and there area of operation may include
urban areas too.
They are also referred to as Grameen Banks/ Gramin
Banks. There are as many as 67 RRB's.
32
Functions
The main purpose of RRB's is to mobilize financial
resources from rural / semi-urban areas and
grant loans and advances mostly to
small and marginal farmers,
agricultural laborers and
rural artisans.
The area of operation of RRBs is limited to the
area as notified by GoI covering one or more
districts in the State.
COMMERCIAL BANKING
33 34
Commercial Banking Overview
Commercial banks provide banking
services to individuals, small
businesses and large organizations
Structure Of Commercial Bank
35
36
Commercial Banks
Commercial banks comprising public sector
banks, foreign banks, and private sector banks
represent the most important financial
intermediary in the Indian financial system.
37
Functions of a commercial bank
Functions of
commercial
banks
Primary
Functions
Receiving
Deposits
Time Liabilities
FD
RD
Demand Liabilities
SB A/c
Current Ac
Lending
O.D
Cash Credit
Money at call
Discounting
BoE
Loans &
Advances(term
loans)
Secondary
Functions
Agency Services
Payment of rent, insurance premium etc
Collecting cheques
Dealing in forex
D- Mat accounts, E Ticket, purchase and sale of securities, acts as trustee
and executor
General Utility Services
Safe Custody Deposits
Lockers
Transfer of money
Issue of traveler's chq etc
Merchant banking
ATMs
Credit Cards
E-banking
Misc Services
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
Structure Of Indian Banking System
24
Scheduled Banks
Scheduled Banks are those banks which are listed in the
Second Schedule to the Reserve Bank of India Act, 1934. The
Banks satisfying the following conditions are only included in
the Second Schedule.
(a) That the Bank?s paid up capital plus free reserves are not
less than Rs. 5.00 lakh, and
(b) That the affairs of the Bank are not conducted to the
detrimental interest of the depositors.
The Reserve Bank also has powers to deschedule a bank, when
the abovementioned conditions are not satisfied.
It may be noted presently, the RBI has prescribed a minimum
capital of Rs. 100 crores for starting a new commercial bank.
25
Non-scheduled Banks
Scheduled Banks are those banks which are not listed in
the Second Schedule to the Reserve Bank of India Act, 1934.
(a)These banks also need to maintain a satutory reserve but
not with RBI
(b) Their banking activities are limited. E.g) they cant deal in
foreign exchange
26 27
Public Sector Banks, Private Sector Banks
Public sector bank refers to commercial banks
which are owned by the central Government
either directly or indirectly through the reserve
bank of India.
They are also referred to National Banks.
Public sector banks comprise two categories.
1) State Bank Group
2) Nationalised Banks
State Bank Group
28
The history of nationalization of Indian banks dates back to
the year 1955 when the Imperial Bank of India was
nationalized and re-christened as State Bank of India (under
the SBI Act, 1955).
Later on July 19, 1960, the 7 subsidiaries of SBI viz. State
Bank of Hyderabad (SBH), State Bank of Indore, State Bank
of Saurashtra (SBS), State Bank of Mysore (SBM), State
Bank of Bikaner and Jaipur (SBBJ), State Bank of Patiala
(SBP), and State Bank of Travancore (SBT) were also
nationalized with deposits more than 200 crores.
Nationalized Banks
29
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank
Private Sector Banks
Private sector banks are those commercial banks
which are owned and controlled by private
entrepreneurs.
This banks comprise two categories of banks:
1) Private Sector Indian Banks
2) Private Sector Foreign Banks.
30 31
Regional Banks
These are the banking organizations operating in
different states of India.
Created to serve the rural areas with banking and
financial services.
However, RRB's may have branches set up for urban
operations and there area of operation may include
urban areas too.
They are also referred to as Grameen Banks/ Gramin
Banks. There are as many as 67 RRB's.
32
Functions
The main purpose of RRB's is to mobilize financial
resources from rural / semi-urban areas and
grant loans and advances mostly to
small and marginal farmers,
agricultural laborers and
rural artisans.
The area of operation of RRBs is limited to the
area as notified by GoI covering one or more
districts in the State.
COMMERCIAL BANKING
33 34
Commercial Banking Overview
Commercial banks provide banking
services to individuals, small
businesses and large organizations
Structure Of Commercial Bank
35
36
Commercial Banks
Commercial banks comprising public sector
banks, foreign banks, and private sector banks
represent the most important financial
intermediary in the Indian financial system.
37
Functions of a commercial bank
Functions of
commercial
banks
Primary
Functions
Receiving
Deposits
Time Liabilities
FD
RD
Demand Liabilities
SB A/c
Current Ac
Lending
O.D
Cash Credit
Money at call
Discounting
BoE
Loans &
Advances(term
loans)
Secondary
Functions
Agency Services
Payment of rent, insurance premium etc
Collecting cheques
Dealing in forex
D- Mat accounts, E Ticket, purchase and sale of securities, acts as trustee
and executor
General Utility Services
Safe Custody Deposits
Lockers
Transfer of money
Issue of traveler's chq etc
Merchant banking
ATMs
Credit Cards
E-banking
Misc Services
38
Role of commercial banks in socio
economic development.
Banks promote capital formation.
Investment in new enterprise.
Promotion of trade and industry.
Development of agriculture.
Balanced development of different regions.
Implementation of monetary policy.
Export promotion.
Financing the priority sectors.
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
Structure Of Indian Banking System
24
Scheduled Banks
Scheduled Banks are those banks which are listed in the
Second Schedule to the Reserve Bank of India Act, 1934. The
Banks satisfying the following conditions are only included in
the Second Schedule.
(a) That the Bank?s paid up capital plus free reserves are not
less than Rs. 5.00 lakh, and
(b) That the affairs of the Bank are not conducted to the
detrimental interest of the depositors.
The Reserve Bank also has powers to deschedule a bank, when
the abovementioned conditions are not satisfied.
It may be noted presently, the RBI has prescribed a minimum
capital of Rs. 100 crores for starting a new commercial bank.
25
Non-scheduled Banks
Scheduled Banks are those banks which are not listed in
the Second Schedule to the Reserve Bank of India Act, 1934.
(a)These banks also need to maintain a satutory reserve but
not with RBI
(b) Their banking activities are limited. E.g) they cant deal in
foreign exchange
26 27
Public Sector Banks, Private Sector Banks
Public sector bank refers to commercial banks
which are owned by the central Government
either directly or indirectly through the reserve
bank of India.
They are also referred to National Banks.
Public sector banks comprise two categories.
1) State Bank Group
2) Nationalised Banks
State Bank Group
28
The history of nationalization of Indian banks dates back to
the year 1955 when the Imperial Bank of India was
nationalized and re-christened as State Bank of India (under
the SBI Act, 1955).
Later on July 19, 1960, the 7 subsidiaries of SBI viz. State
Bank of Hyderabad (SBH), State Bank of Indore, State Bank
of Saurashtra (SBS), State Bank of Mysore (SBM), State
Bank of Bikaner and Jaipur (SBBJ), State Bank of Patiala
(SBP), and State Bank of Travancore (SBT) were also
nationalized with deposits more than 200 crores.
Nationalized Banks
29
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank
Private Sector Banks
Private sector banks are those commercial banks
which are owned and controlled by private
entrepreneurs.
This banks comprise two categories of banks:
1) Private Sector Indian Banks
2) Private Sector Foreign Banks.
30 31
Regional Banks
These are the banking organizations operating in
different states of India.
Created to serve the rural areas with banking and
financial services.
However, RRB's may have branches set up for urban
operations and there area of operation may include
urban areas too.
They are also referred to as Grameen Banks/ Gramin
Banks. There are as many as 67 RRB's.
32
Functions
The main purpose of RRB's is to mobilize financial
resources from rural / semi-urban areas and
grant loans and advances mostly to
small and marginal farmers,
agricultural laborers and
rural artisans.
The area of operation of RRBs is limited to the
area as notified by GoI covering one or more
districts in the State.
COMMERCIAL BANKING
33 34
Commercial Banking Overview
Commercial banks provide banking
services to individuals, small
businesses and large organizations
Structure Of Commercial Bank
35
36
Commercial Banks
Commercial banks comprising public sector
banks, foreign banks, and private sector banks
represent the most important financial
intermediary in the Indian financial system.
37
Functions of a commercial bank
Functions of
commercial
banks
Primary
Functions
Receiving
Deposits
Time Liabilities
FD
RD
Demand Liabilities
SB A/c
Current Ac
Lending
O.D
Cash Credit
Money at call
Discounting
BoE
Loans &
Advances(term
loans)
Secondary
Functions
Agency Services
Payment of rent, insurance premium etc
Collecting cheques
Dealing in forex
D- Mat accounts, E Ticket, purchase and sale of securities, acts as trustee
and executor
General Utility Services
Safe Custody Deposits
Lockers
Transfer of money
Issue of traveler's chq etc
Merchant banking
ATMs
Credit Cards
E-banking
Misc Services
38
Role of commercial banks in socio
economic development.
Banks promote capital formation.
Investment in new enterprise.
Promotion of trade and industry.
Development of agriculture.
Balanced development of different regions.
Implementation of monetary policy.
Export promotion.
Financing the priority sectors.
Continued?
Assistance to agriculture and SSIs
Assistance to women and students
Control the trade cycle
Catalyst to social change
39
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
Structure Of Indian Banking System
24
Scheduled Banks
Scheduled Banks are those banks which are listed in the
Second Schedule to the Reserve Bank of India Act, 1934. The
Banks satisfying the following conditions are only included in
the Second Schedule.
(a) That the Bank?s paid up capital plus free reserves are not
less than Rs. 5.00 lakh, and
(b) That the affairs of the Bank are not conducted to the
detrimental interest of the depositors.
The Reserve Bank also has powers to deschedule a bank, when
the abovementioned conditions are not satisfied.
It may be noted presently, the RBI has prescribed a minimum
capital of Rs. 100 crores for starting a new commercial bank.
25
Non-scheduled Banks
Scheduled Banks are those banks which are not listed in
the Second Schedule to the Reserve Bank of India Act, 1934.
(a)These banks also need to maintain a satutory reserve but
not with RBI
(b) Their banking activities are limited. E.g) they cant deal in
foreign exchange
26 27
Public Sector Banks, Private Sector Banks
Public sector bank refers to commercial banks
which are owned by the central Government
either directly or indirectly through the reserve
bank of India.
They are also referred to National Banks.
Public sector banks comprise two categories.
1) State Bank Group
2) Nationalised Banks
State Bank Group
28
The history of nationalization of Indian banks dates back to
the year 1955 when the Imperial Bank of India was
nationalized and re-christened as State Bank of India (under
the SBI Act, 1955).
Later on July 19, 1960, the 7 subsidiaries of SBI viz. State
Bank of Hyderabad (SBH), State Bank of Indore, State Bank
of Saurashtra (SBS), State Bank of Mysore (SBM), State
Bank of Bikaner and Jaipur (SBBJ), State Bank of Patiala
(SBP), and State Bank of Travancore (SBT) were also
nationalized with deposits more than 200 crores.
Nationalized Banks
29
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank
Private Sector Banks
Private sector banks are those commercial banks
which are owned and controlled by private
entrepreneurs.
This banks comprise two categories of banks:
1) Private Sector Indian Banks
2) Private Sector Foreign Banks.
30 31
Regional Banks
These are the banking organizations operating in
different states of India.
Created to serve the rural areas with banking and
financial services.
However, RRB's may have branches set up for urban
operations and there area of operation may include
urban areas too.
They are also referred to as Grameen Banks/ Gramin
Banks. There are as many as 67 RRB's.
32
Functions
The main purpose of RRB's is to mobilize financial
resources from rural / semi-urban areas and
grant loans and advances mostly to
small and marginal farmers,
agricultural laborers and
rural artisans.
The area of operation of RRBs is limited to the
area as notified by GoI covering one or more
districts in the State.
COMMERCIAL BANKING
33 34
Commercial Banking Overview
Commercial banks provide banking
services to individuals, small
businesses and large organizations
Structure Of Commercial Bank
35
36
Commercial Banks
Commercial banks comprising public sector
banks, foreign banks, and private sector banks
represent the most important financial
intermediary in the Indian financial system.
37
Functions of a commercial bank
Functions of
commercial
banks
Primary
Functions
Receiving
Deposits
Time Liabilities
FD
RD
Demand Liabilities
SB A/c
Current Ac
Lending
O.D
Cash Credit
Money at call
Discounting
BoE
Loans &
Advances(term
loans)
Secondary
Functions
Agency Services
Payment of rent, insurance premium etc
Collecting cheques
Dealing in forex
D- Mat accounts, E Ticket, purchase and sale of securities, acts as trustee
and executor
General Utility Services
Safe Custody Deposits
Lockers
Transfer of money
Issue of traveler's chq etc
Merchant banking
ATMs
Credit Cards
E-banking
Misc Services
38
Role of commercial banks in socio
economic development.
Banks promote capital formation.
Investment in new enterprise.
Promotion of trade and industry.
Development of agriculture.
Balanced development of different regions.
Implementation of monetary policy.
Export promotion.
Financing the priority sectors.
Continued?
Assistance to agriculture and SSIs
Assistance to women and students
Control the trade cycle
Catalyst to social change
39
Service Rendered by Commercial Banks
40
1)Teller System
2)Plastic Money
3)Online Banking
4)Traveller?s Cheque
5)Gifts Cheques
6)Telegraphic Transfer
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
Structure Of Indian Banking System
24
Scheduled Banks
Scheduled Banks are those banks which are listed in the
Second Schedule to the Reserve Bank of India Act, 1934. The
Banks satisfying the following conditions are only included in
the Second Schedule.
(a) That the Bank?s paid up capital plus free reserves are not
less than Rs. 5.00 lakh, and
(b) That the affairs of the Bank are not conducted to the
detrimental interest of the depositors.
The Reserve Bank also has powers to deschedule a bank, when
the abovementioned conditions are not satisfied.
It may be noted presently, the RBI has prescribed a minimum
capital of Rs. 100 crores for starting a new commercial bank.
25
Non-scheduled Banks
Scheduled Banks are those banks which are not listed in
the Second Schedule to the Reserve Bank of India Act, 1934.
(a)These banks also need to maintain a satutory reserve but
not with RBI
(b) Their banking activities are limited. E.g) they cant deal in
foreign exchange
26 27
Public Sector Banks, Private Sector Banks
Public sector bank refers to commercial banks
which are owned by the central Government
either directly or indirectly through the reserve
bank of India.
They are also referred to National Banks.
Public sector banks comprise two categories.
1) State Bank Group
2) Nationalised Banks
State Bank Group
28
The history of nationalization of Indian banks dates back to
the year 1955 when the Imperial Bank of India was
nationalized and re-christened as State Bank of India (under
the SBI Act, 1955).
Later on July 19, 1960, the 7 subsidiaries of SBI viz. State
Bank of Hyderabad (SBH), State Bank of Indore, State Bank
of Saurashtra (SBS), State Bank of Mysore (SBM), State
Bank of Bikaner and Jaipur (SBBJ), State Bank of Patiala
(SBP), and State Bank of Travancore (SBT) were also
nationalized with deposits more than 200 crores.
Nationalized Banks
29
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank
Private Sector Banks
Private sector banks are those commercial banks
which are owned and controlled by private
entrepreneurs.
This banks comprise two categories of banks:
1) Private Sector Indian Banks
2) Private Sector Foreign Banks.
30 31
Regional Banks
These are the banking organizations operating in
different states of India.
Created to serve the rural areas with banking and
financial services.
However, RRB's may have branches set up for urban
operations and there area of operation may include
urban areas too.
They are also referred to as Grameen Banks/ Gramin
Banks. There are as many as 67 RRB's.
32
Functions
The main purpose of RRB's is to mobilize financial
resources from rural / semi-urban areas and
grant loans and advances mostly to
small and marginal farmers,
agricultural laborers and
rural artisans.
The area of operation of RRBs is limited to the
area as notified by GoI covering one or more
districts in the State.
COMMERCIAL BANKING
33 34
Commercial Banking Overview
Commercial banks provide banking
services to individuals, small
businesses and large organizations
Structure Of Commercial Bank
35
36
Commercial Banks
Commercial banks comprising public sector
banks, foreign banks, and private sector banks
represent the most important financial
intermediary in the Indian financial system.
37
Functions of a commercial bank
Functions of
commercial
banks
Primary
Functions
Receiving
Deposits
Time Liabilities
FD
RD
Demand Liabilities
SB A/c
Current Ac
Lending
O.D
Cash Credit
Money at call
Discounting
BoE
Loans &
Advances(term
loans)
Secondary
Functions
Agency Services
Payment of rent, insurance premium etc
Collecting cheques
Dealing in forex
D- Mat accounts, E Ticket, purchase and sale of securities, acts as trustee
and executor
General Utility Services
Safe Custody Deposits
Lockers
Transfer of money
Issue of traveler's chq etc
Merchant banking
ATMs
Credit Cards
E-banking
Misc Services
38
Role of commercial banks in socio
economic development.
Banks promote capital formation.
Investment in new enterprise.
Promotion of trade and industry.
Development of agriculture.
Balanced development of different regions.
Implementation of monetary policy.
Export promotion.
Financing the priority sectors.
Continued?
Assistance to agriculture and SSIs
Assistance to women and students
Control the trade cycle
Catalyst to social change
39
Service Rendered by Commercial Banks
40
1)Teller System
2)Plastic Money
3)Online Banking
4)Traveller?s Cheque
5)Gifts Cheques
6)Telegraphic Transfer
41
Important function of commercial banks.
The tendency on the part of commercial
banks to expand their demand deposits as
a multiple of their excess cash reserve is
called creation of credit.
Credit Creation:
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
Structure Of Indian Banking System
24
Scheduled Banks
Scheduled Banks are those banks which are listed in the
Second Schedule to the Reserve Bank of India Act, 1934. The
Banks satisfying the following conditions are only included in
the Second Schedule.
(a) That the Bank?s paid up capital plus free reserves are not
less than Rs. 5.00 lakh, and
(b) That the affairs of the Bank are not conducted to the
detrimental interest of the depositors.
The Reserve Bank also has powers to deschedule a bank, when
the abovementioned conditions are not satisfied.
It may be noted presently, the RBI has prescribed a minimum
capital of Rs. 100 crores for starting a new commercial bank.
25
Non-scheduled Banks
Scheduled Banks are those banks which are not listed in
the Second Schedule to the Reserve Bank of India Act, 1934.
(a)These banks also need to maintain a satutory reserve but
not with RBI
(b) Their banking activities are limited. E.g) they cant deal in
foreign exchange
26 27
Public Sector Banks, Private Sector Banks
Public sector bank refers to commercial banks
which are owned by the central Government
either directly or indirectly through the reserve
bank of India.
They are also referred to National Banks.
Public sector banks comprise two categories.
1) State Bank Group
2) Nationalised Banks
State Bank Group
28
The history of nationalization of Indian banks dates back to
the year 1955 when the Imperial Bank of India was
nationalized and re-christened as State Bank of India (under
the SBI Act, 1955).
Later on July 19, 1960, the 7 subsidiaries of SBI viz. State
Bank of Hyderabad (SBH), State Bank of Indore, State Bank
of Saurashtra (SBS), State Bank of Mysore (SBM), State
Bank of Bikaner and Jaipur (SBBJ), State Bank of Patiala
(SBP), and State Bank of Travancore (SBT) were also
nationalized with deposits more than 200 crores.
Nationalized Banks
29
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank
Private Sector Banks
Private sector banks are those commercial banks
which are owned and controlled by private
entrepreneurs.
This banks comprise two categories of banks:
1) Private Sector Indian Banks
2) Private Sector Foreign Banks.
30 31
Regional Banks
These are the banking organizations operating in
different states of India.
Created to serve the rural areas with banking and
financial services.
However, RRB's may have branches set up for urban
operations and there area of operation may include
urban areas too.
They are also referred to as Grameen Banks/ Gramin
Banks. There are as many as 67 RRB's.
32
Functions
The main purpose of RRB's is to mobilize financial
resources from rural / semi-urban areas and
grant loans and advances mostly to
small and marginal farmers,
agricultural laborers and
rural artisans.
The area of operation of RRBs is limited to the
area as notified by GoI covering one or more
districts in the State.
COMMERCIAL BANKING
33 34
Commercial Banking Overview
Commercial banks provide banking
services to individuals, small
businesses and large organizations
Structure Of Commercial Bank
35
36
Commercial Banks
Commercial banks comprising public sector
banks, foreign banks, and private sector banks
represent the most important financial
intermediary in the Indian financial system.
37
Functions of a commercial bank
Functions of
commercial
banks
Primary
Functions
Receiving
Deposits
Time Liabilities
FD
RD
Demand Liabilities
SB A/c
Current Ac
Lending
O.D
Cash Credit
Money at call
Discounting
BoE
Loans &
Advances(term
loans)
Secondary
Functions
Agency Services
Payment of rent, insurance premium etc
Collecting cheques
Dealing in forex
D- Mat accounts, E Ticket, purchase and sale of securities, acts as trustee
and executor
General Utility Services
Safe Custody Deposits
Lockers
Transfer of money
Issue of traveler's chq etc
Merchant banking
ATMs
Credit Cards
E-banking
Misc Services
38
Role of commercial banks in socio
economic development.
Banks promote capital formation.
Investment in new enterprise.
Promotion of trade and industry.
Development of agriculture.
Balanced development of different regions.
Implementation of monetary policy.
Export promotion.
Financing the priority sectors.
Continued?
Assistance to agriculture and SSIs
Assistance to women and students
Control the trade cycle
Catalyst to social change
39
Service Rendered by Commercial Banks
40
1)Teller System
2)Plastic Money
3)Online Banking
4)Traveller?s Cheque
5)Gifts Cheques
6)Telegraphic Transfer
41
Important function of commercial banks.
The tendency on the part of commercial
banks to expand their demand deposits as
a multiple of their excess cash reserve is
called creation of credit.
Credit Creation:
42
Credit creation happens in two ways ?
1. Primary deposits
A normal deposit by the customer
Debt to the bank
Primary deposits bring cash into banking system
2. Derivative deposits
Using the cash deposited the bank grants advances and buys
bills, bonds etc
While lending, the bank places the amount of loan in the
account of borrower
These deposits are derived from the primary deposits and are
known as derivative deposits
Credit Creation:
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
Structure Of Indian Banking System
24
Scheduled Banks
Scheduled Banks are those banks which are listed in the
Second Schedule to the Reserve Bank of India Act, 1934. The
Banks satisfying the following conditions are only included in
the Second Schedule.
(a) That the Bank?s paid up capital plus free reserves are not
less than Rs. 5.00 lakh, and
(b) That the affairs of the Bank are not conducted to the
detrimental interest of the depositors.
The Reserve Bank also has powers to deschedule a bank, when
the abovementioned conditions are not satisfied.
It may be noted presently, the RBI has prescribed a minimum
capital of Rs. 100 crores for starting a new commercial bank.
25
Non-scheduled Banks
Scheduled Banks are those banks which are not listed in
the Second Schedule to the Reserve Bank of India Act, 1934.
(a)These banks also need to maintain a satutory reserve but
not with RBI
(b) Their banking activities are limited. E.g) they cant deal in
foreign exchange
26 27
Public Sector Banks, Private Sector Banks
Public sector bank refers to commercial banks
which are owned by the central Government
either directly or indirectly through the reserve
bank of India.
They are also referred to National Banks.
Public sector banks comprise two categories.
1) State Bank Group
2) Nationalised Banks
State Bank Group
28
The history of nationalization of Indian banks dates back to
the year 1955 when the Imperial Bank of India was
nationalized and re-christened as State Bank of India (under
the SBI Act, 1955).
Later on July 19, 1960, the 7 subsidiaries of SBI viz. State
Bank of Hyderabad (SBH), State Bank of Indore, State Bank
of Saurashtra (SBS), State Bank of Mysore (SBM), State
Bank of Bikaner and Jaipur (SBBJ), State Bank of Patiala
(SBP), and State Bank of Travancore (SBT) were also
nationalized with deposits more than 200 crores.
Nationalized Banks
29
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank
Private Sector Banks
Private sector banks are those commercial banks
which are owned and controlled by private
entrepreneurs.
This banks comprise two categories of banks:
1) Private Sector Indian Banks
2) Private Sector Foreign Banks.
30 31
Regional Banks
These are the banking organizations operating in
different states of India.
Created to serve the rural areas with banking and
financial services.
However, RRB's may have branches set up for urban
operations and there area of operation may include
urban areas too.
They are also referred to as Grameen Banks/ Gramin
Banks. There are as many as 67 RRB's.
32
Functions
The main purpose of RRB's is to mobilize financial
resources from rural / semi-urban areas and
grant loans and advances mostly to
small and marginal farmers,
agricultural laborers and
rural artisans.
The area of operation of RRBs is limited to the
area as notified by GoI covering one or more
districts in the State.
COMMERCIAL BANKING
33 34
Commercial Banking Overview
Commercial banks provide banking
services to individuals, small
businesses and large organizations
Structure Of Commercial Bank
35
36
Commercial Banks
Commercial banks comprising public sector
banks, foreign banks, and private sector banks
represent the most important financial
intermediary in the Indian financial system.
37
Functions of a commercial bank
Functions of
commercial
banks
Primary
Functions
Receiving
Deposits
Time Liabilities
FD
RD
Demand Liabilities
SB A/c
Current Ac
Lending
O.D
Cash Credit
Money at call
Discounting
BoE
Loans &
Advances(term
loans)
Secondary
Functions
Agency Services
Payment of rent, insurance premium etc
Collecting cheques
Dealing in forex
D- Mat accounts, E Ticket, purchase and sale of securities, acts as trustee
and executor
General Utility Services
Safe Custody Deposits
Lockers
Transfer of money
Issue of traveler's chq etc
Merchant banking
ATMs
Credit Cards
E-banking
Misc Services
38
Role of commercial banks in socio
economic development.
Banks promote capital formation.
Investment in new enterprise.
Promotion of trade and industry.
Development of agriculture.
Balanced development of different regions.
Implementation of monetary policy.
Export promotion.
Financing the priority sectors.
Continued?
Assistance to agriculture and SSIs
Assistance to women and students
Control the trade cycle
Catalyst to social change
39
Service Rendered by Commercial Banks
40
1)Teller System
2)Plastic Money
3)Online Banking
4)Traveller?s Cheque
5)Gifts Cheques
6)Telegraphic Transfer
41
Important function of commercial banks.
The tendency on the part of commercial
banks to expand their demand deposits as
a multiple of their excess cash reserve is
called creation of credit.
Credit Creation:
42
Credit creation happens in two ways ?
1. Primary deposits
A normal deposit by the customer
Debt to the bank
Primary deposits bring cash into banking system
2. Derivative deposits
Using the cash deposited the bank grants advances and buys
bills, bonds etc
While lending, the bank places the amount of loan in the
account of borrower
These deposits are derived from the primary deposits and are
known as derivative deposits
Credit Creation:
CREDIT CREATION PROCESS
43
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
Structure Of Indian Banking System
24
Scheduled Banks
Scheduled Banks are those banks which are listed in the
Second Schedule to the Reserve Bank of India Act, 1934. The
Banks satisfying the following conditions are only included in
the Second Schedule.
(a) That the Bank?s paid up capital plus free reserves are not
less than Rs. 5.00 lakh, and
(b) That the affairs of the Bank are not conducted to the
detrimental interest of the depositors.
The Reserve Bank also has powers to deschedule a bank, when
the abovementioned conditions are not satisfied.
It may be noted presently, the RBI has prescribed a minimum
capital of Rs. 100 crores for starting a new commercial bank.
25
Non-scheduled Banks
Scheduled Banks are those banks which are not listed in
the Second Schedule to the Reserve Bank of India Act, 1934.
(a)These banks also need to maintain a satutory reserve but
not with RBI
(b) Their banking activities are limited. E.g) they cant deal in
foreign exchange
26 27
Public Sector Banks, Private Sector Banks
Public sector bank refers to commercial banks
which are owned by the central Government
either directly or indirectly through the reserve
bank of India.
They are also referred to National Banks.
Public sector banks comprise two categories.
1) State Bank Group
2) Nationalised Banks
State Bank Group
28
The history of nationalization of Indian banks dates back to
the year 1955 when the Imperial Bank of India was
nationalized and re-christened as State Bank of India (under
the SBI Act, 1955).
Later on July 19, 1960, the 7 subsidiaries of SBI viz. State
Bank of Hyderabad (SBH), State Bank of Indore, State Bank
of Saurashtra (SBS), State Bank of Mysore (SBM), State
Bank of Bikaner and Jaipur (SBBJ), State Bank of Patiala
(SBP), and State Bank of Travancore (SBT) were also
nationalized with deposits more than 200 crores.
Nationalized Banks
29
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank
Private Sector Banks
Private sector banks are those commercial banks
which are owned and controlled by private
entrepreneurs.
This banks comprise two categories of banks:
1) Private Sector Indian Banks
2) Private Sector Foreign Banks.
30 31
Regional Banks
These are the banking organizations operating in
different states of India.
Created to serve the rural areas with banking and
financial services.
However, RRB's may have branches set up for urban
operations and there area of operation may include
urban areas too.
They are also referred to as Grameen Banks/ Gramin
Banks. There are as many as 67 RRB's.
32
Functions
The main purpose of RRB's is to mobilize financial
resources from rural / semi-urban areas and
grant loans and advances mostly to
small and marginal farmers,
agricultural laborers and
rural artisans.
The area of operation of RRBs is limited to the
area as notified by GoI covering one or more
districts in the State.
COMMERCIAL BANKING
33 34
Commercial Banking Overview
Commercial banks provide banking
services to individuals, small
businesses and large organizations
Structure Of Commercial Bank
35
36
Commercial Banks
Commercial banks comprising public sector
banks, foreign banks, and private sector banks
represent the most important financial
intermediary in the Indian financial system.
37
Functions of a commercial bank
Functions of
commercial
banks
Primary
Functions
Receiving
Deposits
Time Liabilities
FD
RD
Demand Liabilities
SB A/c
Current Ac
Lending
O.D
Cash Credit
Money at call
Discounting
BoE
Loans &
Advances(term
loans)
Secondary
Functions
Agency Services
Payment of rent, insurance premium etc
Collecting cheques
Dealing in forex
D- Mat accounts, E Ticket, purchase and sale of securities, acts as trustee
and executor
General Utility Services
Safe Custody Deposits
Lockers
Transfer of money
Issue of traveler's chq etc
Merchant banking
ATMs
Credit Cards
E-banking
Misc Services
38
Role of commercial banks in socio
economic development.
Banks promote capital formation.
Investment in new enterprise.
Promotion of trade and industry.
Development of agriculture.
Balanced development of different regions.
Implementation of monetary policy.
Export promotion.
Financing the priority sectors.
Continued?
Assistance to agriculture and SSIs
Assistance to women and students
Control the trade cycle
Catalyst to social change
39
Service Rendered by Commercial Banks
40
1)Teller System
2)Plastic Money
3)Online Banking
4)Traveller?s Cheque
5)Gifts Cheques
6)Telegraphic Transfer
41
Important function of commercial banks.
The tendency on the part of commercial
banks to expand their demand deposits as
a multiple of their excess cash reserve is
called creation of credit.
Credit Creation:
42
Credit creation happens in two ways ?
1. Primary deposits
A normal deposit by the customer
Debt to the bank
Primary deposits bring cash into banking system
2. Derivative deposits
Using the cash deposited the bank grants advances and buys
bills, bonds etc
While lending, the bank places the amount of loan in the
account of borrower
These deposits are derived from the primary deposits and are
known as derivative deposits
Credit Creation:
CREDIT CREATION PROCESS
43 44
Limitations of credit creation
Adequate cash reserve
Availability of securities
Quantity of money in circulation
Banking habit of people
Policy of the central bank
Nature of business conditions
Behavior of other banks
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
Structure Of Indian Banking System
24
Scheduled Banks
Scheduled Banks are those banks which are listed in the
Second Schedule to the Reserve Bank of India Act, 1934. The
Banks satisfying the following conditions are only included in
the Second Schedule.
(a) That the Bank?s paid up capital plus free reserves are not
less than Rs. 5.00 lakh, and
(b) That the affairs of the Bank are not conducted to the
detrimental interest of the depositors.
The Reserve Bank also has powers to deschedule a bank, when
the abovementioned conditions are not satisfied.
It may be noted presently, the RBI has prescribed a minimum
capital of Rs. 100 crores for starting a new commercial bank.
25
Non-scheduled Banks
Scheduled Banks are those banks which are not listed in
the Second Schedule to the Reserve Bank of India Act, 1934.
(a)These banks also need to maintain a satutory reserve but
not with RBI
(b) Their banking activities are limited. E.g) they cant deal in
foreign exchange
26 27
Public Sector Banks, Private Sector Banks
Public sector bank refers to commercial banks
which are owned by the central Government
either directly or indirectly through the reserve
bank of India.
They are also referred to National Banks.
Public sector banks comprise two categories.
1) State Bank Group
2) Nationalised Banks
State Bank Group
28
The history of nationalization of Indian banks dates back to
the year 1955 when the Imperial Bank of India was
nationalized and re-christened as State Bank of India (under
the SBI Act, 1955).
Later on July 19, 1960, the 7 subsidiaries of SBI viz. State
Bank of Hyderabad (SBH), State Bank of Indore, State Bank
of Saurashtra (SBS), State Bank of Mysore (SBM), State
Bank of Bikaner and Jaipur (SBBJ), State Bank of Patiala
(SBP), and State Bank of Travancore (SBT) were also
nationalized with deposits more than 200 crores.
Nationalized Banks
29
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank
Private Sector Banks
Private sector banks are those commercial banks
which are owned and controlled by private
entrepreneurs.
This banks comprise two categories of banks:
1) Private Sector Indian Banks
2) Private Sector Foreign Banks.
30 31
Regional Banks
These are the banking organizations operating in
different states of India.
Created to serve the rural areas with banking and
financial services.
However, RRB's may have branches set up for urban
operations and there area of operation may include
urban areas too.
They are also referred to as Grameen Banks/ Gramin
Banks. There are as many as 67 RRB's.
32
Functions
The main purpose of RRB's is to mobilize financial
resources from rural / semi-urban areas and
grant loans and advances mostly to
small and marginal farmers,
agricultural laborers and
rural artisans.
The area of operation of RRBs is limited to the
area as notified by GoI covering one or more
districts in the State.
COMMERCIAL BANKING
33 34
Commercial Banking Overview
Commercial banks provide banking
services to individuals, small
businesses and large organizations
Structure Of Commercial Bank
35
36
Commercial Banks
Commercial banks comprising public sector
banks, foreign banks, and private sector banks
represent the most important financial
intermediary in the Indian financial system.
37
Functions of a commercial bank
Functions of
commercial
banks
Primary
Functions
Receiving
Deposits
Time Liabilities
FD
RD
Demand Liabilities
SB A/c
Current Ac
Lending
O.D
Cash Credit
Money at call
Discounting
BoE
Loans &
Advances(term
loans)
Secondary
Functions
Agency Services
Payment of rent, insurance premium etc
Collecting cheques
Dealing in forex
D- Mat accounts, E Ticket, purchase and sale of securities, acts as trustee
and executor
General Utility Services
Safe Custody Deposits
Lockers
Transfer of money
Issue of traveler's chq etc
Merchant banking
ATMs
Credit Cards
E-banking
Misc Services
38
Role of commercial banks in socio
economic development.
Banks promote capital formation.
Investment in new enterprise.
Promotion of trade and industry.
Development of agriculture.
Balanced development of different regions.
Implementation of monetary policy.
Export promotion.
Financing the priority sectors.
Continued?
Assistance to agriculture and SSIs
Assistance to women and students
Control the trade cycle
Catalyst to social change
39
Service Rendered by Commercial Banks
40
1)Teller System
2)Plastic Money
3)Online Banking
4)Traveller?s Cheque
5)Gifts Cheques
6)Telegraphic Transfer
41
Important function of commercial banks.
The tendency on the part of commercial
banks to expand their demand deposits as
a multiple of their excess cash reserve is
called creation of credit.
Credit Creation:
42
Credit creation happens in two ways ?
1. Primary deposits
A normal deposit by the customer
Debt to the bank
Primary deposits bring cash into banking system
2. Derivative deposits
Using the cash deposited the bank grants advances and buys
bills, bonds etc
While lending, the bank places the amount of loan in the
account of borrower
These deposits are derived from the primary deposits and are
known as derivative deposits
Credit Creation:
CREDIT CREATION PROCESS
43 44
Limitations of credit creation
Adequate cash reserve
Availability of securities
Quantity of money in circulation
Banking habit of people
Policy of the central bank
Nature of business conditions
Behavior of other banks
RESERVE BANK OF INDIA
45
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
Structure Of Indian Banking System
24
Scheduled Banks
Scheduled Banks are those banks which are listed in the
Second Schedule to the Reserve Bank of India Act, 1934. The
Banks satisfying the following conditions are only included in
the Second Schedule.
(a) That the Bank?s paid up capital plus free reserves are not
less than Rs. 5.00 lakh, and
(b) That the affairs of the Bank are not conducted to the
detrimental interest of the depositors.
The Reserve Bank also has powers to deschedule a bank, when
the abovementioned conditions are not satisfied.
It may be noted presently, the RBI has prescribed a minimum
capital of Rs. 100 crores for starting a new commercial bank.
25
Non-scheduled Banks
Scheduled Banks are those banks which are not listed in
the Second Schedule to the Reserve Bank of India Act, 1934.
(a)These banks also need to maintain a satutory reserve but
not with RBI
(b) Their banking activities are limited. E.g) they cant deal in
foreign exchange
26 27
Public Sector Banks, Private Sector Banks
Public sector bank refers to commercial banks
which are owned by the central Government
either directly or indirectly through the reserve
bank of India.
They are also referred to National Banks.
Public sector banks comprise two categories.
1) State Bank Group
2) Nationalised Banks
State Bank Group
28
The history of nationalization of Indian banks dates back to
the year 1955 when the Imperial Bank of India was
nationalized and re-christened as State Bank of India (under
the SBI Act, 1955).
Later on July 19, 1960, the 7 subsidiaries of SBI viz. State
Bank of Hyderabad (SBH), State Bank of Indore, State Bank
of Saurashtra (SBS), State Bank of Mysore (SBM), State
Bank of Bikaner and Jaipur (SBBJ), State Bank of Patiala
(SBP), and State Bank of Travancore (SBT) were also
nationalized with deposits more than 200 crores.
Nationalized Banks
29
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank
Private Sector Banks
Private sector banks are those commercial banks
which are owned and controlled by private
entrepreneurs.
This banks comprise two categories of banks:
1) Private Sector Indian Banks
2) Private Sector Foreign Banks.
30 31
Regional Banks
These are the banking organizations operating in
different states of India.
Created to serve the rural areas with banking and
financial services.
However, RRB's may have branches set up for urban
operations and there area of operation may include
urban areas too.
They are also referred to as Grameen Banks/ Gramin
Banks. There are as many as 67 RRB's.
32
Functions
The main purpose of RRB's is to mobilize financial
resources from rural / semi-urban areas and
grant loans and advances mostly to
small and marginal farmers,
agricultural laborers and
rural artisans.
The area of operation of RRBs is limited to the
area as notified by GoI covering one or more
districts in the State.
COMMERCIAL BANKING
33 34
Commercial Banking Overview
Commercial banks provide banking
services to individuals, small
businesses and large organizations
Structure Of Commercial Bank
35
36
Commercial Banks
Commercial banks comprising public sector
banks, foreign banks, and private sector banks
represent the most important financial
intermediary in the Indian financial system.
37
Functions of a commercial bank
Functions of
commercial
banks
Primary
Functions
Receiving
Deposits
Time Liabilities
FD
RD
Demand Liabilities
SB A/c
Current Ac
Lending
O.D
Cash Credit
Money at call
Discounting
BoE
Loans &
Advances(term
loans)
Secondary
Functions
Agency Services
Payment of rent, insurance premium etc
Collecting cheques
Dealing in forex
D- Mat accounts, E Ticket, purchase and sale of securities, acts as trustee
and executor
General Utility Services
Safe Custody Deposits
Lockers
Transfer of money
Issue of traveler's chq etc
Merchant banking
ATMs
Credit Cards
E-banking
Misc Services
38
Role of commercial banks in socio
economic development.
Banks promote capital formation.
Investment in new enterprise.
Promotion of trade and industry.
Development of agriculture.
Balanced development of different regions.
Implementation of monetary policy.
Export promotion.
Financing the priority sectors.
Continued?
Assistance to agriculture and SSIs
Assistance to women and students
Control the trade cycle
Catalyst to social change
39
Service Rendered by Commercial Banks
40
1)Teller System
2)Plastic Money
3)Online Banking
4)Traveller?s Cheque
5)Gifts Cheques
6)Telegraphic Transfer
41
Important function of commercial banks.
The tendency on the part of commercial
banks to expand their demand deposits as
a multiple of their excess cash reserve is
called creation of credit.
Credit Creation:
42
Credit creation happens in two ways ?
1. Primary deposits
A normal deposit by the customer
Debt to the bank
Primary deposits bring cash into banking system
2. Derivative deposits
Using the cash deposited the bank grants advances and buys
bills, bonds etc
While lending, the bank places the amount of loan in the
account of borrower
These deposits are derived from the primary deposits and are
known as derivative deposits
Credit Creation:
CREDIT CREATION PROCESS
43 44
Limitations of credit creation
Adequate cash reserve
Availability of securities
Quantity of money in circulation
Banking habit of people
Policy of the central bank
Nature of business conditions
Behavior of other banks
RESERVE BANK OF INDIA
45
RBI
The Reserve Bank of India Act 1934 was commenced on
April1, 1935. The Act, 1934 (II of 1934) provides the
statutory basis of the functioning of the bank.
The bank was constituted for the need of following:
? To regulate the issue of banknotes.
? To maintain reserves with a view to securing monetary
stability.
? To operate the credit and currency system of the
country to its advantage.
46
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
Structure Of Indian Banking System
24
Scheduled Banks
Scheduled Banks are those banks which are listed in the
Second Schedule to the Reserve Bank of India Act, 1934. The
Banks satisfying the following conditions are only included in
the Second Schedule.
(a) That the Bank?s paid up capital plus free reserves are not
less than Rs. 5.00 lakh, and
(b) That the affairs of the Bank are not conducted to the
detrimental interest of the depositors.
The Reserve Bank also has powers to deschedule a bank, when
the abovementioned conditions are not satisfied.
It may be noted presently, the RBI has prescribed a minimum
capital of Rs. 100 crores for starting a new commercial bank.
25
Non-scheduled Banks
Scheduled Banks are those banks which are not listed in
the Second Schedule to the Reserve Bank of India Act, 1934.
(a)These banks also need to maintain a satutory reserve but
not with RBI
(b) Their banking activities are limited. E.g) they cant deal in
foreign exchange
26 27
Public Sector Banks, Private Sector Banks
Public sector bank refers to commercial banks
which are owned by the central Government
either directly or indirectly through the reserve
bank of India.
They are also referred to National Banks.
Public sector banks comprise two categories.
1) State Bank Group
2) Nationalised Banks
State Bank Group
28
The history of nationalization of Indian banks dates back to
the year 1955 when the Imperial Bank of India was
nationalized and re-christened as State Bank of India (under
the SBI Act, 1955).
Later on July 19, 1960, the 7 subsidiaries of SBI viz. State
Bank of Hyderabad (SBH), State Bank of Indore, State Bank
of Saurashtra (SBS), State Bank of Mysore (SBM), State
Bank of Bikaner and Jaipur (SBBJ), State Bank of Patiala
(SBP), and State Bank of Travancore (SBT) were also
nationalized with deposits more than 200 crores.
Nationalized Banks
29
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank
Private Sector Banks
Private sector banks are those commercial banks
which are owned and controlled by private
entrepreneurs.
This banks comprise two categories of banks:
1) Private Sector Indian Banks
2) Private Sector Foreign Banks.
30 31
Regional Banks
These are the banking organizations operating in
different states of India.
Created to serve the rural areas with banking and
financial services.
However, RRB's may have branches set up for urban
operations and there area of operation may include
urban areas too.
They are also referred to as Grameen Banks/ Gramin
Banks. There are as many as 67 RRB's.
32
Functions
The main purpose of RRB's is to mobilize financial
resources from rural / semi-urban areas and
grant loans and advances mostly to
small and marginal farmers,
agricultural laborers and
rural artisans.
The area of operation of RRBs is limited to the
area as notified by GoI covering one or more
districts in the State.
COMMERCIAL BANKING
33 34
Commercial Banking Overview
Commercial banks provide banking
services to individuals, small
businesses and large organizations
Structure Of Commercial Bank
35
36
Commercial Banks
Commercial banks comprising public sector
banks, foreign banks, and private sector banks
represent the most important financial
intermediary in the Indian financial system.
37
Functions of a commercial bank
Functions of
commercial
banks
Primary
Functions
Receiving
Deposits
Time Liabilities
FD
RD
Demand Liabilities
SB A/c
Current Ac
Lending
O.D
Cash Credit
Money at call
Discounting
BoE
Loans &
Advances(term
loans)
Secondary
Functions
Agency Services
Payment of rent, insurance premium etc
Collecting cheques
Dealing in forex
D- Mat accounts, E Ticket, purchase and sale of securities, acts as trustee
and executor
General Utility Services
Safe Custody Deposits
Lockers
Transfer of money
Issue of traveler's chq etc
Merchant banking
ATMs
Credit Cards
E-banking
Misc Services
38
Role of commercial banks in socio
economic development.
Banks promote capital formation.
Investment in new enterprise.
Promotion of trade and industry.
Development of agriculture.
Balanced development of different regions.
Implementation of monetary policy.
Export promotion.
Financing the priority sectors.
Continued?
Assistance to agriculture and SSIs
Assistance to women and students
Control the trade cycle
Catalyst to social change
39
Service Rendered by Commercial Banks
40
1)Teller System
2)Plastic Money
3)Online Banking
4)Traveller?s Cheque
5)Gifts Cheques
6)Telegraphic Transfer
41
Important function of commercial banks.
The tendency on the part of commercial
banks to expand their demand deposits as
a multiple of their excess cash reserve is
called creation of credit.
Credit Creation:
42
Credit creation happens in two ways ?
1. Primary deposits
A normal deposit by the customer
Debt to the bank
Primary deposits bring cash into banking system
2. Derivative deposits
Using the cash deposited the bank grants advances and buys
bills, bonds etc
While lending, the bank places the amount of loan in the
account of borrower
These deposits are derived from the primary deposits and are
known as derivative deposits
Credit Creation:
CREDIT CREATION PROCESS
43 44
Limitations of credit creation
Adequate cash reserve
Availability of securities
Quantity of money in circulation
Banking habit of people
Policy of the central bank
Nature of business conditions
Behavior of other banks
RESERVE BANK OF INDIA
45
RBI
The Reserve Bank of India Act 1934 was commenced on
April1, 1935. The Act, 1934 (II of 1934) provides the
statutory basis of the functioning of the bank.
The bank was constituted for the need of following:
? To regulate the issue of banknotes.
? To maintain reserves with a view to securing monetary
stability.
? To operate the credit and currency system of the
country to its advantage.
46
Organizational Structure OF RBI
47
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
Structure Of Indian Banking System
24
Scheduled Banks
Scheduled Banks are those banks which are listed in the
Second Schedule to the Reserve Bank of India Act, 1934. The
Banks satisfying the following conditions are only included in
the Second Schedule.
(a) That the Bank?s paid up capital plus free reserves are not
less than Rs. 5.00 lakh, and
(b) That the affairs of the Bank are not conducted to the
detrimental interest of the depositors.
The Reserve Bank also has powers to deschedule a bank, when
the abovementioned conditions are not satisfied.
It may be noted presently, the RBI has prescribed a minimum
capital of Rs. 100 crores for starting a new commercial bank.
25
Non-scheduled Banks
Scheduled Banks are those banks which are not listed in
the Second Schedule to the Reserve Bank of India Act, 1934.
(a)These banks also need to maintain a satutory reserve but
not with RBI
(b) Their banking activities are limited. E.g) they cant deal in
foreign exchange
26 27
Public Sector Banks, Private Sector Banks
Public sector bank refers to commercial banks
which are owned by the central Government
either directly or indirectly through the reserve
bank of India.
They are also referred to National Banks.
Public sector banks comprise two categories.
1) State Bank Group
2) Nationalised Banks
State Bank Group
28
The history of nationalization of Indian banks dates back to
the year 1955 when the Imperial Bank of India was
nationalized and re-christened as State Bank of India (under
the SBI Act, 1955).
Later on July 19, 1960, the 7 subsidiaries of SBI viz. State
Bank of Hyderabad (SBH), State Bank of Indore, State Bank
of Saurashtra (SBS), State Bank of Mysore (SBM), State
Bank of Bikaner and Jaipur (SBBJ), State Bank of Patiala
(SBP), and State Bank of Travancore (SBT) were also
nationalized with deposits more than 200 crores.
Nationalized Banks
29
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank
Private Sector Banks
Private sector banks are those commercial banks
which are owned and controlled by private
entrepreneurs.
This banks comprise two categories of banks:
1) Private Sector Indian Banks
2) Private Sector Foreign Banks.
30 31
Regional Banks
These are the banking organizations operating in
different states of India.
Created to serve the rural areas with banking and
financial services.
However, RRB's may have branches set up for urban
operations and there area of operation may include
urban areas too.
They are also referred to as Grameen Banks/ Gramin
Banks. There are as many as 67 RRB's.
32
Functions
The main purpose of RRB's is to mobilize financial
resources from rural / semi-urban areas and
grant loans and advances mostly to
small and marginal farmers,
agricultural laborers and
rural artisans.
The area of operation of RRBs is limited to the
area as notified by GoI covering one or more
districts in the State.
COMMERCIAL BANKING
33 34
Commercial Banking Overview
Commercial banks provide banking
services to individuals, small
businesses and large organizations
Structure Of Commercial Bank
35
36
Commercial Banks
Commercial banks comprising public sector
banks, foreign banks, and private sector banks
represent the most important financial
intermediary in the Indian financial system.
37
Functions of a commercial bank
Functions of
commercial
banks
Primary
Functions
Receiving
Deposits
Time Liabilities
FD
RD
Demand Liabilities
SB A/c
Current Ac
Lending
O.D
Cash Credit
Money at call
Discounting
BoE
Loans &
Advances(term
loans)
Secondary
Functions
Agency Services
Payment of rent, insurance premium etc
Collecting cheques
Dealing in forex
D- Mat accounts, E Ticket, purchase and sale of securities, acts as trustee
and executor
General Utility Services
Safe Custody Deposits
Lockers
Transfer of money
Issue of traveler's chq etc
Merchant banking
ATMs
Credit Cards
E-banking
Misc Services
38
Role of commercial banks in socio
economic development.
Banks promote capital formation.
Investment in new enterprise.
Promotion of trade and industry.
Development of agriculture.
Balanced development of different regions.
Implementation of monetary policy.
Export promotion.
Financing the priority sectors.
Continued?
Assistance to agriculture and SSIs
Assistance to women and students
Control the trade cycle
Catalyst to social change
39
Service Rendered by Commercial Banks
40
1)Teller System
2)Plastic Money
3)Online Banking
4)Traveller?s Cheque
5)Gifts Cheques
6)Telegraphic Transfer
41
Important function of commercial banks.
The tendency on the part of commercial
banks to expand their demand deposits as
a multiple of their excess cash reserve is
called creation of credit.
Credit Creation:
42
Credit creation happens in two ways ?
1. Primary deposits
A normal deposit by the customer
Debt to the bank
Primary deposits bring cash into banking system
2. Derivative deposits
Using the cash deposited the bank grants advances and buys
bills, bonds etc
While lending, the bank places the amount of loan in the
account of borrower
These deposits are derived from the primary deposits and are
known as derivative deposits
Credit Creation:
CREDIT CREATION PROCESS
43 44
Limitations of credit creation
Adequate cash reserve
Availability of securities
Quantity of money in circulation
Banking habit of people
Policy of the central bank
Nature of business conditions
Behavior of other banks
RESERVE BANK OF INDIA
45
RBI
The Reserve Bank of India Act 1934 was commenced on
April1, 1935. The Act, 1934 (II of 1934) provides the
statutory basis of the functioning of the bank.
The bank was constituted for the need of following:
? To regulate the issue of banknotes.
? To maintain reserves with a view to securing monetary
stability.
? To operate the credit and currency system of the
country to its advantage.
46
Organizational Structure OF RBI
47
Role of Reserve Bank and GOI as
regulator of Banking system.
Bank regulations are a form of government
regulation which subject banks to certain
requirements, restrictions and guidelines.
This regulatory structure creates transparency between
banking institutions and the individuals and corporations
with whom they conduct business, among other things.
48
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
Structure Of Indian Banking System
24
Scheduled Banks
Scheduled Banks are those banks which are listed in the
Second Schedule to the Reserve Bank of India Act, 1934. The
Banks satisfying the following conditions are only included in
the Second Schedule.
(a) That the Bank?s paid up capital plus free reserves are not
less than Rs. 5.00 lakh, and
(b) That the affairs of the Bank are not conducted to the
detrimental interest of the depositors.
The Reserve Bank also has powers to deschedule a bank, when
the abovementioned conditions are not satisfied.
It may be noted presently, the RBI has prescribed a minimum
capital of Rs. 100 crores for starting a new commercial bank.
25
Non-scheduled Banks
Scheduled Banks are those banks which are not listed in
the Second Schedule to the Reserve Bank of India Act, 1934.
(a)These banks also need to maintain a satutory reserve but
not with RBI
(b) Their banking activities are limited. E.g) they cant deal in
foreign exchange
26 27
Public Sector Banks, Private Sector Banks
Public sector bank refers to commercial banks
which are owned by the central Government
either directly or indirectly through the reserve
bank of India.
They are also referred to National Banks.
Public sector banks comprise two categories.
1) State Bank Group
2) Nationalised Banks
State Bank Group
28
The history of nationalization of Indian banks dates back to
the year 1955 when the Imperial Bank of India was
nationalized and re-christened as State Bank of India (under
the SBI Act, 1955).
Later on July 19, 1960, the 7 subsidiaries of SBI viz. State
Bank of Hyderabad (SBH), State Bank of Indore, State Bank
of Saurashtra (SBS), State Bank of Mysore (SBM), State
Bank of Bikaner and Jaipur (SBBJ), State Bank of Patiala
(SBP), and State Bank of Travancore (SBT) were also
nationalized with deposits more than 200 crores.
Nationalized Banks
29
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank
Private Sector Banks
Private sector banks are those commercial banks
which are owned and controlled by private
entrepreneurs.
This banks comprise two categories of banks:
1) Private Sector Indian Banks
2) Private Sector Foreign Banks.
30 31
Regional Banks
These are the banking organizations operating in
different states of India.
Created to serve the rural areas with banking and
financial services.
However, RRB's may have branches set up for urban
operations and there area of operation may include
urban areas too.
They are also referred to as Grameen Banks/ Gramin
Banks. There are as many as 67 RRB's.
32
Functions
The main purpose of RRB's is to mobilize financial
resources from rural / semi-urban areas and
grant loans and advances mostly to
small and marginal farmers,
agricultural laborers and
rural artisans.
The area of operation of RRBs is limited to the
area as notified by GoI covering one or more
districts in the State.
COMMERCIAL BANKING
33 34
Commercial Banking Overview
Commercial banks provide banking
services to individuals, small
businesses and large organizations
Structure Of Commercial Bank
35
36
Commercial Banks
Commercial banks comprising public sector
banks, foreign banks, and private sector banks
represent the most important financial
intermediary in the Indian financial system.
37
Functions of a commercial bank
Functions of
commercial
banks
Primary
Functions
Receiving
Deposits
Time Liabilities
FD
RD
Demand Liabilities
SB A/c
Current Ac
Lending
O.D
Cash Credit
Money at call
Discounting
BoE
Loans &
Advances(term
loans)
Secondary
Functions
Agency Services
Payment of rent, insurance premium etc
Collecting cheques
Dealing in forex
D- Mat accounts, E Ticket, purchase and sale of securities, acts as trustee
and executor
General Utility Services
Safe Custody Deposits
Lockers
Transfer of money
Issue of traveler's chq etc
Merchant banking
ATMs
Credit Cards
E-banking
Misc Services
38
Role of commercial banks in socio
economic development.
Banks promote capital formation.
Investment in new enterprise.
Promotion of trade and industry.
Development of agriculture.
Balanced development of different regions.
Implementation of monetary policy.
Export promotion.
Financing the priority sectors.
Continued?
Assistance to agriculture and SSIs
Assistance to women and students
Control the trade cycle
Catalyst to social change
39
Service Rendered by Commercial Banks
40
1)Teller System
2)Plastic Money
3)Online Banking
4)Traveller?s Cheque
5)Gifts Cheques
6)Telegraphic Transfer
41
Important function of commercial banks.
The tendency on the part of commercial
banks to expand their demand deposits as
a multiple of their excess cash reserve is
called creation of credit.
Credit Creation:
42
Credit creation happens in two ways ?
1. Primary deposits
A normal deposit by the customer
Debt to the bank
Primary deposits bring cash into banking system
2. Derivative deposits
Using the cash deposited the bank grants advances and buys
bills, bonds etc
While lending, the bank places the amount of loan in the
account of borrower
These deposits are derived from the primary deposits and are
known as derivative deposits
Credit Creation:
CREDIT CREATION PROCESS
43 44
Limitations of credit creation
Adequate cash reserve
Availability of securities
Quantity of money in circulation
Banking habit of people
Policy of the central bank
Nature of business conditions
Behavior of other banks
RESERVE BANK OF INDIA
45
RBI
The Reserve Bank of India Act 1934 was commenced on
April1, 1935. The Act, 1934 (II of 1934) provides the
statutory basis of the functioning of the bank.
The bank was constituted for the need of following:
? To regulate the issue of banknotes.
? To maintain reserves with a view to securing monetary
stability.
? To operate the credit and currency system of the
country to its advantage.
46
Organizational Structure OF RBI
47
Role of Reserve Bank and GOI as
regulator of Banking system.
Bank regulations are a form of government
regulation which subject banks to certain
requirements, restrictions and guidelines.
This regulatory structure creates transparency between
banking institutions and the individuals and corporations
with whom they conduct business, among other things.
48
Objectives of bank regulation
1. Prudential?to reduce the level of risk to which bank
creditors are exposed (i.e. to protect depositors)
2. Systemic risk reduction?to reduce the risk of disruption
resulting from adverse trading conditions for banks causing
multiple or major bank failures.
3. Avoid misuse of banks?to reduce the risk of banks being
used for criminal purposes.
e.g. laundering the proceeds of crime
4. To protect banking confidentiality
5. Credit allocation?to direct credit to favored sectors
6. It may also include rules about treating customers fairly
and having corporate social responsibility (CSR)
49
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
Structure Of Indian Banking System
24
Scheduled Banks
Scheduled Banks are those banks which are listed in the
Second Schedule to the Reserve Bank of India Act, 1934. The
Banks satisfying the following conditions are only included in
the Second Schedule.
(a) That the Bank?s paid up capital plus free reserves are not
less than Rs. 5.00 lakh, and
(b) That the affairs of the Bank are not conducted to the
detrimental interest of the depositors.
The Reserve Bank also has powers to deschedule a bank, when
the abovementioned conditions are not satisfied.
It may be noted presently, the RBI has prescribed a minimum
capital of Rs. 100 crores for starting a new commercial bank.
25
Non-scheduled Banks
Scheduled Banks are those banks which are not listed in
the Second Schedule to the Reserve Bank of India Act, 1934.
(a)These banks also need to maintain a satutory reserve but
not with RBI
(b) Their banking activities are limited. E.g) they cant deal in
foreign exchange
26 27
Public Sector Banks, Private Sector Banks
Public sector bank refers to commercial banks
which are owned by the central Government
either directly or indirectly through the reserve
bank of India.
They are also referred to National Banks.
Public sector banks comprise two categories.
1) State Bank Group
2) Nationalised Banks
State Bank Group
28
The history of nationalization of Indian banks dates back to
the year 1955 when the Imperial Bank of India was
nationalized and re-christened as State Bank of India (under
the SBI Act, 1955).
Later on July 19, 1960, the 7 subsidiaries of SBI viz. State
Bank of Hyderabad (SBH), State Bank of Indore, State Bank
of Saurashtra (SBS), State Bank of Mysore (SBM), State
Bank of Bikaner and Jaipur (SBBJ), State Bank of Patiala
(SBP), and State Bank of Travancore (SBT) were also
nationalized with deposits more than 200 crores.
Nationalized Banks
29
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank
Private Sector Banks
Private sector banks are those commercial banks
which are owned and controlled by private
entrepreneurs.
This banks comprise two categories of banks:
1) Private Sector Indian Banks
2) Private Sector Foreign Banks.
30 31
Regional Banks
These are the banking organizations operating in
different states of India.
Created to serve the rural areas with banking and
financial services.
However, RRB's may have branches set up for urban
operations and there area of operation may include
urban areas too.
They are also referred to as Grameen Banks/ Gramin
Banks. There are as many as 67 RRB's.
32
Functions
The main purpose of RRB's is to mobilize financial
resources from rural / semi-urban areas and
grant loans and advances mostly to
small and marginal farmers,
agricultural laborers and
rural artisans.
The area of operation of RRBs is limited to the
area as notified by GoI covering one or more
districts in the State.
COMMERCIAL BANKING
33 34
Commercial Banking Overview
Commercial banks provide banking
services to individuals, small
businesses and large organizations
Structure Of Commercial Bank
35
36
Commercial Banks
Commercial banks comprising public sector
banks, foreign banks, and private sector banks
represent the most important financial
intermediary in the Indian financial system.
37
Functions of a commercial bank
Functions of
commercial
banks
Primary
Functions
Receiving
Deposits
Time Liabilities
FD
RD
Demand Liabilities
SB A/c
Current Ac
Lending
O.D
Cash Credit
Money at call
Discounting
BoE
Loans &
Advances(term
loans)
Secondary
Functions
Agency Services
Payment of rent, insurance premium etc
Collecting cheques
Dealing in forex
D- Mat accounts, E Ticket, purchase and sale of securities, acts as trustee
and executor
General Utility Services
Safe Custody Deposits
Lockers
Transfer of money
Issue of traveler's chq etc
Merchant banking
ATMs
Credit Cards
E-banking
Misc Services
38
Role of commercial banks in socio
economic development.
Banks promote capital formation.
Investment in new enterprise.
Promotion of trade and industry.
Development of agriculture.
Balanced development of different regions.
Implementation of monetary policy.
Export promotion.
Financing the priority sectors.
Continued?
Assistance to agriculture and SSIs
Assistance to women and students
Control the trade cycle
Catalyst to social change
39
Service Rendered by Commercial Banks
40
1)Teller System
2)Plastic Money
3)Online Banking
4)Traveller?s Cheque
5)Gifts Cheques
6)Telegraphic Transfer
41
Important function of commercial banks.
The tendency on the part of commercial
banks to expand their demand deposits as
a multiple of their excess cash reserve is
called creation of credit.
Credit Creation:
42
Credit creation happens in two ways ?
1. Primary deposits
A normal deposit by the customer
Debt to the bank
Primary deposits bring cash into banking system
2. Derivative deposits
Using the cash deposited the bank grants advances and buys
bills, bonds etc
While lending, the bank places the amount of loan in the
account of borrower
These deposits are derived from the primary deposits and are
known as derivative deposits
Credit Creation:
CREDIT CREATION PROCESS
43 44
Limitations of credit creation
Adequate cash reserve
Availability of securities
Quantity of money in circulation
Banking habit of people
Policy of the central bank
Nature of business conditions
Behavior of other banks
RESERVE BANK OF INDIA
45
RBI
The Reserve Bank of India Act 1934 was commenced on
April1, 1935. The Act, 1934 (II of 1934) provides the
statutory basis of the functioning of the bank.
The bank was constituted for the need of following:
? To regulate the issue of banknotes.
? To maintain reserves with a view to securing monetary
stability.
? To operate the credit and currency system of the
country to its advantage.
46
Organizational Structure OF RBI
47
Role of Reserve Bank and GOI as
regulator of Banking system.
Bank regulations are a form of government
regulation which subject banks to certain
requirements, restrictions and guidelines.
This regulatory structure creates transparency between
banking institutions and the individuals and corporations
with whom they conduct business, among other things.
48
Objectives of bank regulation
1. Prudential?to reduce the level of risk to which bank
creditors are exposed (i.e. to protect depositors)
2. Systemic risk reduction?to reduce the risk of disruption
resulting from adverse trading conditions for banks causing
multiple or major bank failures.
3. Avoid misuse of banks?to reduce the risk of banks being
used for criminal purposes.
e.g. laundering the proceeds of crime
4. To protect banking confidentiality
5. Credit allocation?to direct credit to favored sectors
6. It may also include rules about treating customers fairly
and having corporate social responsibility (CSR)
49
General principles of Bank regulation
Minimum requirements
Supervisory review
Market discipline
50
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
Structure Of Indian Banking System
24
Scheduled Banks
Scheduled Banks are those banks which are listed in the
Second Schedule to the Reserve Bank of India Act, 1934. The
Banks satisfying the following conditions are only included in
the Second Schedule.
(a) That the Bank?s paid up capital plus free reserves are not
less than Rs. 5.00 lakh, and
(b) That the affairs of the Bank are not conducted to the
detrimental interest of the depositors.
The Reserve Bank also has powers to deschedule a bank, when
the abovementioned conditions are not satisfied.
It may be noted presently, the RBI has prescribed a minimum
capital of Rs. 100 crores for starting a new commercial bank.
25
Non-scheduled Banks
Scheduled Banks are those banks which are not listed in
the Second Schedule to the Reserve Bank of India Act, 1934.
(a)These banks also need to maintain a satutory reserve but
not with RBI
(b) Their banking activities are limited. E.g) they cant deal in
foreign exchange
26 27
Public Sector Banks, Private Sector Banks
Public sector bank refers to commercial banks
which are owned by the central Government
either directly or indirectly through the reserve
bank of India.
They are also referred to National Banks.
Public sector banks comprise two categories.
1) State Bank Group
2) Nationalised Banks
State Bank Group
28
The history of nationalization of Indian banks dates back to
the year 1955 when the Imperial Bank of India was
nationalized and re-christened as State Bank of India (under
the SBI Act, 1955).
Later on July 19, 1960, the 7 subsidiaries of SBI viz. State
Bank of Hyderabad (SBH), State Bank of Indore, State Bank
of Saurashtra (SBS), State Bank of Mysore (SBM), State
Bank of Bikaner and Jaipur (SBBJ), State Bank of Patiala
(SBP), and State Bank of Travancore (SBT) were also
nationalized with deposits more than 200 crores.
Nationalized Banks
29
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank
Private Sector Banks
Private sector banks are those commercial banks
which are owned and controlled by private
entrepreneurs.
This banks comprise two categories of banks:
1) Private Sector Indian Banks
2) Private Sector Foreign Banks.
30 31
Regional Banks
These are the banking organizations operating in
different states of India.
Created to serve the rural areas with banking and
financial services.
However, RRB's may have branches set up for urban
operations and there area of operation may include
urban areas too.
They are also referred to as Grameen Banks/ Gramin
Banks. There are as many as 67 RRB's.
32
Functions
The main purpose of RRB's is to mobilize financial
resources from rural / semi-urban areas and
grant loans and advances mostly to
small and marginal farmers,
agricultural laborers and
rural artisans.
The area of operation of RRBs is limited to the
area as notified by GoI covering one or more
districts in the State.
COMMERCIAL BANKING
33 34
Commercial Banking Overview
Commercial banks provide banking
services to individuals, small
businesses and large organizations
Structure Of Commercial Bank
35
36
Commercial Banks
Commercial banks comprising public sector
banks, foreign banks, and private sector banks
represent the most important financial
intermediary in the Indian financial system.
37
Functions of a commercial bank
Functions of
commercial
banks
Primary
Functions
Receiving
Deposits
Time Liabilities
FD
RD
Demand Liabilities
SB A/c
Current Ac
Lending
O.D
Cash Credit
Money at call
Discounting
BoE
Loans &
Advances(term
loans)
Secondary
Functions
Agency Services
Payment of rent, insurance premium etc
Collecting cheques
Dealing in forex
D- Mat accounts, E Ticket, purchase and sale of securities, acts as trustee
and executor
General Utility Services
Safe Custody Deposits
Lockers
Transfer of money
Issue of traveler's chq etc
Merchant banking
ATMs
Credit Cards
E-banking
Misc Services
38
Role of commercial banks in socio
economic development.
Banks promote capital formation.
Investment in new enterprise.
Promotion of trade and industry.
Development of agriculture.
Balanced development of different regions.
Implementation of monetary policy.
Export promotion.
Financing the priority sectors.
Continued?
Assistance to agriculture and SSIs
Assistance to women and students
Control the trade cycle
Catalyst to social change
39
Service Rendered by Commercial Banks
40
1)Teller System
2)Plastic Money
3)Online Banking
4)Traveller?s Cheque
5)Gifts Cheques
6)Telegraphic Transfer
41
Important function of commercial banks.
The tendency on the part of commercial
banks to expand their demand deposits as
a multiple of their excess cash reserve is
called creation of credit.
Credit Creation:
42
Credit creation happens in two ways ?
1. Primary deposits
A normal deposit by the customer
Debt to the bank
Primary deposits bring cash into banking system
2. Derivative deposits
Using the cash deposited the bank grants advances and buys
bills, bonds etc
While lending, the bank places the amount of loan in the
account of borrower
These deposits are derived from the primary deposits and are
known as derivative deposits
Credit Creation:
CREDIT CREATION PROCESS
43 44
Limitations of credit creation
Adequate cash reserve
Availability of securities
Quantity of money in circulation
Banking habit of people
Policy of the central bank
Nature of business conditions
Behavior of other banks
RESERVE BANK OF INDIA
45
RBI
The Reserve Bank of India Act 1934 was commenced on
April1, 1935. The Act, 1934 (II of 1934) provides the
statutory basis of the functioning of the bank.
The bank was constituted for the need of following:
? To regulate the issue of banknotes.
? To maintain reserves with a view to securing monetary
stability.
? To operate the credit and currency system of the
country to its advantage.
46
Organizational Structure OF RBI
47
Role of Reserve Bank and GOI as
regulator of Banking system.
Bank regulations are a form of government
regulation which subject banks to certain
requirements, restrictions and guidelines.
This regulatory structure creates transparency between
banking institutions and the individuals and corporations
with whom they conduct business, among other things.
48
Objectives of bank regulation
1. Prudential?to reduce the level of risk to which bank
creditors are exposed (i.e. to protect depositors)
2. Systemic risk reduction?to reduce the risk of disruption
resulting from adverse trading conditions for banks causing
multiple or major bank failures.
3. Avoid misuse of banks?to reduce the risk of banks being
used for criminal purposes.
e.g. laundering the proceeds of crime
4. To protect banking confidentiality
5. Credit allocation?to direct credit to favored sectors
6. It may also include rules about treating customers fairly
and having corporate social responsibility (CSR)
49
General principles of Bank regulation
Minimum requirements
Supervisory review
Market discipline
50
Role of Reserve Bank and GOI as
regulator of Banking system.
Controlling money supply in the system
Monitoring different key indicators like GDP
and inflation.
Maintaining people?s confidence in the banking
and financial system.
Providing different tools for customer?s help.
51
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
Structure Of Indian Banking System
24
Scheduled Banks
Scheduled Banks are those banks which are listed in the
Second Schedule to the Reserve Bank of India Act, 1934. The
Banks satisfying the following conditions are only included in
the Second Schedule.
(a) That the Bank?s paid up capital plus free reserves are not
less than Rs. 5.00 lakh, and
(b) That the affairs of the Bank are not conducted to the
detrimental interest of the depositors.
The Reserve Bank also has powers to deschedule a bank, when
the abovementioned conditions are not satisfied.
It may be noted presently, the RBI has prescribed a minimum
capital of Rs. 100 crores for starting a new commercial bank.
25
Non-scheduled Banks
Scheduled Banks are those banks which are not listed in
the Second Schedule to the Reserve Bank of India Act, 1934.
(a)These banks also need to maintain a satutory reserve but
not with RBI
(b) Their banking activities are limited. E.g) they cant deal in
foreign exchange
26 27
Public Sector Banks, Private Sector Banks
Public sector bank refers to commercial banks
which are owned by the central Government
either directly or indirectly through the reserve
bank of India.
They are also referred to National Banks.
Public sector banks comprise two categories.
1) State Bank Group
2) Nationalised Banks
State Bank Group
28
The history of nationalization of Indian banks dates back to
the year 1955 when the Imperial Bank of India was
nationalized and re-christened as State Bank of India (under
the SBI Act, 1955).
Later on July 19, 1960, the 7 subsidiaries of SBI viz. State
Bank of Hyderabad (SBH), State Bank of Indore, State Bank
of Saurashtra (SBS), State Bank of Mysore (SBM), State
Bank of Bikaner and Jaipur (SBBJ), State Bank of Patiala
(SBP), and State Bank of Travancore (SBT) were also
nationalized with deposits more than 200 crores.
Nationalized Banks
29
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank
Private Sector Banks
Private sector banks are those commercial banks
which are owned and controlled by private
entrepreneurs.
This banks comprise two categories of banks:
1) Private Sector Indian Banks
2) Private Sector Foreign Banks.
30 31
Regional Banks
These are the banking organizations operating in
different states of India.
Created to serve the rural areas with banking and
financial services.
However, RRB's may have branches set up for urban
operations and there area of operation may include
urban areas too.
They are also referred to as Grameen Banks/ Gramin
Banks. There are as many as 67 RRB's.
32
Functions
The main purpose of RRB's is to mobilize financial
resources from rural / semi-urban areas and
grant loans and advances mostly to
small and marginal farmers,
agricultural laborers and
rural artisans.
The area of operation of RRBs is limited to the
area as notified by GoI covering one or more
districts in the State.
COMMERCIAL BANKING
33 34
Commercial Banking Overview
Commercial banks provide banking
services to individuals, small
businesses and large organizations
Structure Of Commercial Bank
35
36
Commercial Banks
Commercial banks comprising public sector
banks, foreign banks, and private sector banks
represent the most important financial
intermediary in the Indian financial system.
37
Functions of a commercial bank
Functions of
commercial
banks
Primary
Functions
Receiving
Deposits
Time Liabilities
FD
RD
Demand Liabilities
SB A/c
Current Ac
Lending
O.D
Cash Credit
Money at call
Discounting
BoE
Loans &
Advances(term
loans)
Secondary
Functions
Agency Services
Payment of rent, insurance premium etc
Collecting cheques
Dealing in forex
D- Mat accounts, E Ticket, purchase and sale of securities, acts as trustee
and executor
General Utility Services
Safe Custody Deposits
Lockers
Transfer of money
Issue of traveler's chq etc
Merchant banking
ATMs
Credit Cards
E-banking
Misc Services
38
Role of commercial banks in socio
economic development.
Banks promote capital formation.
Investment in new enterprise.
Promotion of trade and industry.
Development of agriculture.
Balanced development of different regions.
Implementation of monetary policy.
Export promotion.
Financing the priority sectors.
Continued?
Assistance to agriculture and SSIs
Assistance to women and students
Control the trade cycle
Catalyst to social change
39
Service Rendered by Commercial Banks
40
1)Teller System
2)Plastic Money
3)Online Banking
4)Traveller?s Cheque
5)Gifts Cheques
6)Telegraphic Transfer
41
Important function of commercial banks.
The tendency on the part of commercial
banks to expand their demand deposits as
a multiple of their excess cash reserve is
called creation of credit.
Credit Creation:
42
Credit creation happens in two ways ?
1. Primary deposits
A normal deposit by the customer
Debt to the bank
Primary deposits bring cash into banking system
2. Derivative deposits
Using the cash deposited the bank grants advances and buys
bills, bonds etc
While lending, the bank places the amount of loan in the
account of borrower
These deposits are derived from the primary deposits and are
known as derivative deposits
Credit Creation:
CREDIT CREATION PROCESS
43 44
Limitations of credit creation
Adequate cash reserve
Availability of securities
Quantity of money in circulation
Banking habit of people
Policy of the central bank
Nature of business conditions
Behavior of other banks
RESERVE BANK OF INDIA
45
RBI
The Reserve Bank of India Act 1934 was commenced on
April1, 1935. The Act, 1934 (II of 1934) provides the
statutory basis of the functioning of the bank.
The bank was constituted for the need of following:
? To regulate the issue of banknotes.
? To maintain reserves with a view to securing monetary
stability.
? To operate the credit and currency system of the
country to its advantage.
46
Organizational Structure OF RBI
47
Role of Reserve Bank and GOI as
regulator of Banking system.
Bank regulations are a form of government
regulation which subject banks to certain
requirements, restrictions and guidelines.
This regulatory structure creates transparency between
banking institutions and the individuals and corporations
with whom they conduct business, among other things.
48
Objectives of bank regulation
1. Prudential?to reduce the level of risk to which bank
creditors are exposed (i.e. to protect depositors)
2. Systemic risk reduction?to reduce the risk of disruption
resulting from adverse trading conditions for banks causing
multiple or major bank failures.
3. Avoid misuse of banks?to reduce the risk of banks being
used for criminal purposes.
e.g. laundering the proceeds of crime
4. To protect banking confidentiality
5. Credit allocation?to direct credit to favored sectors
6. It may also include rules about treating customers fairly
and having corporate social responsibility (CSR)
49
General principles of Bank regulation
Minimum requirements
Supervisory review
Market discipline
50
Role of Reserve Bank and GOI as
regulator of Banking system.
Controlling money supply in the system
Monitoring different key indicators like GDP
and inflation.
Maintaining people?s confidence in the banking
and financial system.
Providing different tools for customer?s help.
51
RBI is the issuer of Currency
Section 22 of the RBI act gives
authority to the RBI to issue the
currency notes.
RBI also takes the control of
circulation of fake currency.
52
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
Structure Of Indian Banking System
24
Scheduled Banks
Scheduled Banks are those banks which are listed in the
Second Schedule to the Reserve Bank of India Act, 1934. The
Banks satisfying the following conditions are only included in
the Second Schedule.
(a) That the Bank?s paid up capital plus free reserves are not
less than Rs. 5.00 lakh, and
(b) That the affairs of the Bank are not conducted to the
detrimental interest of the depositors.
The Reserve Bank also has powers to deschedule a bank, when
the abovementioned conditions are not satisfied.
It may be noted presently, the RBI has prescribed a minimum
capital of Rs. 100 crores for starting a new commercial bank.
25
Non-scheduled Banks
Scheduled Banks are those banks which are not listed in
the Second Schedule to the Reserve Bank of India Act, 1934.
(a)These banks also need to maintain a satutory reserve but
not with RBI
(b) Their banking activities are limited. E.g) they cant deal in
foreign exchange
26 27
Public Sector Banks, Private Sector Banks
Public sector bank refers to commercial banks
which are owned by the central Government
either directly or indirectly through the reserve
bank of India.
They are also referred to National Banks.
Public sector banks comprise two categories.
1) State Bank Group
2) Nationalised Banks
State Bank Group
28
The history of nationalization of Indian banks dates back to
the year 1955 when the Imperial Bank of India was
nationalized and re-christened as State Bank of India (under
the SBI Act, 1955).
Later on July 19, 1960, the 7 subsidiaries of SBI viz. State
Bank of Hyderabad (SBH), State Bank of Indore, State Bank
of Saurashtra (SBS), State Bank of Mysore (SBM), State
Bank of Bikaner and Jaipur (SBBJ), State Bank of Patiala
(SBP), and State Bank of Travancore (SBT) were also
nationalized with deposits more than 200 crores.
Nationalized Banks
29
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank
Private Sector Banks
Private sector banks are those commercial banks
which are owned and controlled by private
entrepreneurs.
This banks comprise two categories of banks:
1) Private Sector Indian Banks
2) Private Sector Foreign Banks.
30 31
Regional Banks
These are the banking organizations operating in
different states of India.
Created to serve the rural areas with banking and
financial services.
However, RRB's may have branches set up for urban
operations and there area of operation may include
urban areas too.
They are also referred to as Grameen Banks/ Gramin
Banks. There are as many as 67 RRB's.
32
Functions
The main purpose of RRB's is to mobilize financial
resources from rural / semi-urban areas and
grant loans and advances mostly to
small and marginal farmers,
agricultural laborers and
rural artisans.
The area of operation of RRBs is limited to the
area as notified by GoI covering one or more
districts in the State.
COMMERCIAL BANKING
33 34
Commercial Banking Overview
Commercial banks provide banking
services to individuals, small
businesses and large organizations
Structure Of Commercial Bank
35
36
Commercial Banks
Commercial banks comprising public sector
banks, foreign banks, and private sector banks
represent the most important financial
intermediary in the Indian financial system.
37
Functions of a commercial bank
Functions of
commercial
banks
Primary
Functions
Receiving
Deposits
Time Liabilities
FD
RD
Demand Liabilities
SB A/c
Current Ac
Lending
O.D
Cash Credit
Money at call
Discounting
BoE
Loans &
Advances(term
loans)
Secondary
Functions
Agency Services
Payment of rent, insurance premium etc
Collecting cheques
Dealing in forex
D- Mat accounts, E Ticket, purchase and sale of securities, acts as trustee
and executor
General Utility Services
Safe Custody Deposits
Lockers
Transfer of money
Issue of traveler's chq etc
Merchant banking
ATMs
Credit Cards
E-banking
Misc Services
38
Role of commercial banks in socio
economic development.
Banks promote capital formation.
Investment in new enterprise.
Promotion of trade and industry.
Development of agriculture.
Balanced development of different regions.
Implementation of monetary policy.
Export promotion.
Financing the priority sectors.
Continued?
Assistance to agriculture and SSIs
Assistance to women and students
Control the trade cycle
Catalyst to social change
39
Service Rendered by Commercial Banks
40
1)Teller System
2)Plastic Money
3)Online Banking
4)Traveller?s Cheque
5)Gifts Cheques
6)Telegraphic Transfer
41
Important function of commercial banks.
The tendency on the part of commercial
banks to expand their demand deposits as
a multiple of their excess cash reserve is
called creation of credit.
Credit Creation:
42
Credit creation happens in two ways ?
1. Primary deposits
A normal deposit by the customer
Debt to the bank
Primary deposits bring cash into banking system
2. Derivative deposits
Using the cash deposited the bank grants advances and buys
bills, bonds etc
While lending, the bank places the amount of loan in the
account of borrower
These deposits are derived from the primary deposits and are
known as derivative deposits
Credit Creation:
CREDIT CREATION PROCESS
43 44
Limitations of credit creation
Adequate cash reserve
Availability of securities
Quantity of money in circulation
Banking habit of people
Policy of the central bank
Nature of business conditions
Behavior of other banks
RESERVE BANK OF INDIA
45
RBI
The Reserve Bank of India Act 1934 was commenced on
April1, 1935. The Act, 1934 (II of 1934) provides the
statutory basis of the functioning of the bank.
The bank was constituted for the need of following:
? To regulate the issue of banknotes.
? To maintain reserves with a view to securing monetary
stability.
? To operate the credit and currency system of the
country to its advantage.
46
Organizational Structure OF RBI
47
Role of Reserve Bank and GOI as
regulator of Banking system.
Bank regulations are a form of government
regulation which subject banks to certain
requirements, restrictions and guidelines.
This regulatory structure creates transparency between
banking institutions and the individuals and corporations
with whom they conduct business, among other things.
48
Objectives of bank regulation
1. Prudential?to reduce the level of risk to which bank
creditors are exposed (i.e. to protect depositors)
2. Systemic risk reduction?to reduce the risk of disruption
resulting from adverse trading conditions for banks causing
multiple or major bank failures.
3. Avoid misuse of banks?to reduce the risk of banks being
used for criminal purposes.
e.g. laundering the proceeds of crime
4. To protect banking confidentiality
5. Credit allocation?to direct credit to favored sectors
6. It may also include rules about treating customers fairly
and having corporate social responsibility (CSR)
49
General principles of Bank regulation
Minimum requirements
Supervisory review
Market discipline
50
Role of Reserve Bank and GOI as
regulator of Banking system.
Controlling money supply in the system
Monitoring different key indicators like GDP
and inflation.
Maintaining people?s confidence in the banking
and financial system.
Providing different tools for customer?s help.
51
RBI is the issuer of Currency
Section 22 of the RBI act gives
authority to the RBI to issue the
currency notes.
RBI also takes the control of
circulation of fake currency.
52
RBI is the issuer of Monetary Policy
RBI formulates the monetary policy twice a year and
reviews the policy every quarter as well.
The main objectives of monitoring policy are:
Inflation control
Control on bank credit
Interest rate control
Tools used for implementation of the objectives of
Monetary Policy are:
CRR & SLR
Open market operations
Different rates such as repo rate, reverse repo rate
and bank rate
53
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
Structure Of Indian Banking System
24
Scheduled Banks
Scheduled Banks are those banks which are listed in the
Second Schedule to the Reserve Bank of India Act, 1934. The
Banks satisfying the following conditions are only included in
the Second Schedule.
(a) That the Bank?s paid up capital plus free reserves are not
less than Rs. 5.00 lakh, and
(b) That the affairs of the Bank are not conducted to the
detrimental interest of the depositors.
The Reserve Bank also has powers to deschedule a bank, when
the abovementioned conditions are not satisfied.
It may be noted presently, the RBI has prescribed a minimum
capital of Rs. 100 crores for starting a new commercial bank.
25
Non-scheduled Banks
Scheduled Banks are those banks which are not listed in
the Second Schedule to the Reserve Bank of India Act, 1934.
(a)These banks also need to maintain a satutory reserve but
not with RBI
(b) Their banking activities are limited. E.g) they cant deal in
foreign exchange
26 27
Public Sector Banks, Private Sector Banks
Public sector bank refers to commercial banks
which are owned by the central Government
either directly or indirectly through the reserve
bank of India.
They are also referred to National Banks.
Public sector banks comprise two categories.
1) State Bank Group
2) Nationalised Banks
State Bank Group
28
The history of nationalization of Indian banks dates back to
the year 1955 when the Imperial Bank of India was
nationalized and re-christened as State Bank of India (under
the SBI Act, 1955).
Later on July 19, 1960, the 7 subsidiaries of SBI viz. State
Bank of Hyderabad (SBH), State Bank of Indore, State Bank
of Saurashtra (SBS), State Bank of Mysore (SBM), State
Bank of Bikaner and Jaipur (SBBJ), State Bank of Patiala
(SBP), and State Bank of Travancore (SBT) were also
nationalized with deposits more than 200 crores.
Nationalized Banks
29
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank
Private Sector Banks
Private sector banks are those commercial banks
which are owned and controlled by private
entrepreneurs.
This banks comprise two categories of banks:
1) Private Sector Indian Banks
2) Private Sector Foreign Banks.
30 31
Regional Banks
These are the banking organizations operating in
different states of India.
Created to serve the rural areas with banking and
financial services.
However, RRB's may have branches set up for urban
operations and there area of operation may include
urban areas too.
They are also referred to as Grameen Banks/ Gramin
Banks. There are as many as 67 RRB's.
32
Functions
The main purpose of RRB's is to mobilize financial
resources from rural / semi-urban areas and
grant loans and advances mostly to
small and marginal farmers,
agricultural laborers and
rural artisans.
The area of operation of RRBs is limited to the
area as notified by GoI covering one or more
districts in the State.
COMMERCIAL BANKING
33 34
Commercial Banking Overview
Commercial banks provide banking
services to individuals, small
businesses and large organizations
Structure Of Commercial Bank
35
36
Commercial Banks
Commercial banks comprising public sector
banks, foreign banks, and private sector banks
represent the most important financial
intermediary in the Indian financial system.
37
Functions of a commercial bank
Functions of
commercial
banks
Primary
Functions
Receiving
Deposits
Time Liabilities
FD
RD
Demand Liabilities
SB A/c
Current Ac
Lending
O.D
Cash Credit
Money at call
Discounting
BoE
Loans &
Advances(term
loans)
Secondary
Functions
Agency Services
Payment of rent, insurance premium etc
Collecting cheques
Dealing in forex
D- Mat accounts, E Ticket, purchase and sale of securities, acts as trustee
and executor
General Utility Services
Safe Custody Deposits
Lockers
Transfer of money
Issue of traveler's chq etc
Merchant banking
ATMs
Credit Cards
E-banking
Misc Services
38
Role of commercial banks in socio
economic development.
Banks promote capital formation.
Investment in new enterprise.
Promotion of trade and industry.
Development of agriculture.
Balanced development of different regions.
Implementation of monetary policy.
Export promotion.
Financing the priority sectors.
Continued?
Assistance to agriculture and SSIs
Assistance to women and students
Control the trade cycle
Catalyst to social change
39
Service Rendered by Commercial Banks
40
1)Teller System
2)Plastic Money
3)Online Banking
4)Traveller?s Cheque
5)Gifts Cheques
6)Telegraphic Transfer
41
Important function of commercial banks.
The tendency on the part of commercial
banks to expand their demand deposits as
a multiple of their excess cash reserve is
called creation of credit.
Credit Creation:
42
Credit creation happens in two ways ?
1. Primary deposits
A normal deposit by the customer
Debt to the bank
Primary deposits bring cash into banking system
2. Derivative deposits
Using the cash deposited the bank grants advances and buys
bills, bonds etc
While lending, the bank places the amount of loan in the
account of borrower
These deposits are derived from the primary deposits and are
known as derivative deposits
Credit Creation:
CREDIT CREATION PROCESS
43 44
Limitations of credit creation
Adequate cash reserve
Availability of securities
Quantity of money in circulation
Banking habit of people
Policy of the central bank
Nature of business conditions
Behavior of other banks
RESERVE BANK OF INDIA
45
RBI
The Reserve Bank of India Act 1934 was commenced on
April1, 1935. The Act, 1934 (II of 1934) provides the
statutory basis of the functioning of the bank.
The bank was constituted for the need of following:
? To regulate the issue of banknotes.
? To maintain reserves with a view to securing monetary
stability.
? To operate the credit and currency system of the
country to its advantage.
46
Organizational Structure OF RBI
47
Role of Reserve Bank and GOI as
regulator of Banking system.
Bank regulations are a form of government
regulation which subject banks to certain
requirements, restrictions and guidelines.
This regulatory structure creates transparency between
banking institutions and the individuals and corporations
with whom they conduct business, among other things.
48
Objectives of bank regulation
1. Prudential?to reduce the level of risk to which bank
creditors are exposed (i.e. to protect depositors)
2. Systemic risk reduction?to reduce the risk of disruption
resulting from adverse trading conditions for banks causing
multiple or major bank failures.
3. Avoid misuse of banks?to reduce the risk of banks being
used for criminal purposes.
e.g. laundering the proceeds of crime
4. To protect banking confidentiality
5. Credit allocation?to direct credit to favored sectors
6. It may also include rules about treating customers fairly
and having corporate social responsibility (CSR)
49
General principles of Bank regulation
Minimum requirements
Supervisory review
Market discipline
50
Role of Reserve Bank and GOI as
regulator of Banking system.
Controlling money supply in the system
Monitoring different key indicators like GDP
and inflation.
Maintaining people?s confidence in the banking
and financial system.
Providing different tools for customer?s help.
51
RBI is the issuer of Currency
Section 22 of the RBI act gives
authority to the RBI to issue the
currency notes.
RBI also takes the control of
circulation of fake currency.
52
RBI is the issuer of Monetary Policy
RBI formulates the monetary policy twice a year and
reviews the policy every quarter as well.
The main objectives of monitoring policy are:
Inflation control
Control on bank credit
Interest rate control
Tools used for implementation of the objectives of
Monetary Policy are:
CRR & SLR
Open market operations
Different rates such as repo rate, reverse repo rate
and bank rate
53
RBI under takes supervisory roles
qIssue of licence
qPrudential norms
qCorporate governance
qKYC norms
qTransparency Norms
qRisk Management
qAudit and inspection
qForeign exchange control
qdevelopment
54
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
Structure Of Indian Banking System
24
Scheduled Banks
Scheduled Banks are those banks which are listed in the
Second Schedule to the Reserve Bank of India Act, 1934. The
Banks satisfying the following conditions are only included in
the Second Schedule.
(a) That the Bank?s paid up capital plus free reserves are not
less than Rs. 5.00 lakh, and
(b) That the affairs of the Bank are not conducted to the
detrimental interest of the depositors.
The Reserve Bank also has powers to deschedule a bank, when
the abovementioned conditions are not satisfied.
It may be noted presently, the RBI has prescribed a minimum
capital of Rs. 100 crores for starting a new commercial bank.
25
Non-scheduled Banks
Scheduled Banks are those banks which are not listed in
the Second Schedule to the Reserve Bank of India Act, 1934.
(a)These banks also need to maintain a satutory reserve but
not with RBI
(b) Their banking activities are limited. E.g) they cant deal in
foreign exchange
26 27
Public Sector Banks, Private Sector Banks
Public sector bank refers to commercial banks
which are owned by the central Government
either directly or indirectly through the reserve
bank of India.
They are also referred to National Banks.
Public sector banks comprise two categories.
1) State Bank Group
2) Nationalised Banks
State Bank Group
28
The history of nationalization of Indian banks dates back to
the year 1955 when the Imperial Bank of India was
nationalized and re-christened as State Bank of India (under
the SBI Act, 1955).
Later on July 19, 1960, the 7 subsidiaries of SBI viz. State
Bank of Hyderabad (SBH), State Bank of Indore, State Bank
of Saurashtra (SBS), State Bank of Mysore (SBM), State
Bank of Bikaner and Jaipur (SBBJ), State Bank of Patiala
(SBP), and State Bank of Travancore (SBT) were also
nationalized with deposits more than 200 crores.
Nationalized Banks
29
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank
Private Sector Banks
Private sector banks are those commercial banks
which are owned and controlled by private
entrepreneurs.
This banks comprise two categories of banks:
1) Private Sector Indian Banks
2) Private Sector Foreign Banks.
30 31
Regional Banks
These are the banking organizations operating in
different states of India.
Created to serve the rural areas with banking and
financial services.
However, RRB's may have branches set up for urban
operations and there area of operation may include
urban areas too.
They are also referred to as Grameen Banks/ Gramin
Banks. There are as many as 67 RRB's.
32
Functions
The main purpose of RRB's is to mobilize financial
resources from rural / semi-urban areas and
grant loans and advances mostly to
small and marginal farmers,
agricultural laborers and
rural artisans.
The area of operation of RRBs is limited to the
area as notified by GoI covering one or more
districts in the State.
COMMERCIAL BANKING
33 34
Commercial Banking Overview
Commercial banks provide banking
services to individuals, small
businesses and large organizations
Structure Of Commercial Bank
35
36
Commercial Banks
Commercial banks comprising public sector
banks, foreign banks, and private sector banks
represent the most important financial
intermediary in the Indian financial system.
37
Functions of a commercial bank
Functions of
commercial
banks
Primary
Functions
Receiving
Deposits
Time Liabilities
FD
RD
Demand Liabilities
SB A/c
Current Ac
Lending
O.D
Cash Credit
Money at call
Discounting
BoE
Loans &
Advances(term
loans)
Secondary
Functions
Agency Services
Payment of rent, insurance premium etc
Collecting cheques
Dealing in forex
D- Mat accounts, E Ticket, purchase and sale of securities, acts as trustee
and executor
General Utility Services
Safe Custody Deposits
Lockers
Transfer of money
Issue of traveler's chq etc
Merchant banking
ATMs
Credit Cards
E-banking
Misc Services
38
Role of commercial banks in socio
economic development.
Banks promote capital formation.
Investment in new enterprise.
Promotion of trade and industry.
Development of agriculture.
Balanced development of different regions.
Implementation of monetary policy.
Export promotion.
Financing the priority sectors.
Continued?
Assistance to agriculture and SSIs
Assistance to women and students
Control the trade cycle
Catalyst to social change
39
Service Rendered by Commercial Banks
40
1)Teller System
2)Plastic Money
3)Online Banking
4)Traveller?s Cheque
5)Gifts Cheques
6)Telegraphic Transfer
41
Important function of commercial banks.
The tendency on the part of commercial
banks to expand their demand deposits as
a multiple of their excess cash reserve is
called creation of credit.
Credit Creation:
42
Credit creation happens in two ways ?
1. Primary deposits
A normal deposit by the customer
Debt to the bank
Primary deposits bring cash into banking system
2. Derivative deposits
Using the cash deposited the bank grants advances and buys
bills, bonds etc
While lending, the bank places the amount of loan in the
account of borrower
These deposits are derived from the primary deposits and are
known as derivative deposits
Credit Creation:
CREDIT CREATION PROCESS
43 44
Limitations of credit creation
Adequate cash reserve
Availability of securities
Quantity of money in circulation
Banking habit of people
Policy of the central bank
Nature of business conditions
Behavior of other banks
RESERVE BANK OF INDIA
45
RBI
The Reserve Bank of India Act 1934 was commenced on
April1, 1935. The Act, 1934 (II of 1934) provides the
statutory basis of the functioning of the bank.
The bank was constituted for the need of following:
? To regulate the issue of banknotes.
? To maintain reserves with a view to securing monetary
stability.
? To operate the credit and currency system of the
country to its advantage.
46
Organizational Structure OF RBI
47
Role of Reserve Bank and GOI as
regulator of Banking system.
Bank regulations are a form of government
regulation which subject banks to certain
requirements, restrictions and guidelines.
This regulatory structure creates transparency between
banking institutions and the individuals and corporations
with whom they conduct business, among other things.
48
Objectives of bank regulation
1. Prudential?to reduce the level of risk to which bank
creditors are exposed (i.e. to protect depositors)
2. Systemic risk reduction?to reduce the risk of disruption
resulting from adverse trading conditions for banks causing
multiple or major bank failures.
3. Avoid misuse of banks?to reduce the risk of banks being
used for criminal purposes.
e.g. laundering the proceeds of crime
4. To protect banking confidentiality
5. Credit allocation?to direct credit to favored sectors
6. It may also include rules about treating customers fairly
and having corporate social responsibility (CSR)
49
General principles of Bank regulation
Minimum requirements
Supervisory review
Market discipline
50
Role of Reserve Bank and GOI as
regulator of Banking system.
Controlling money supply in the system
Monitoring different key indicators like GDP
and inflation.
Maintaining people?s confidence in the banking
and financial system.
Providing different tools for customer?s help.
51
RBI is the issuer of Currency
Section 22 of the RBI act gives
authority to the RBI to issue the
currency notes.
RBI also takes the control of
circulation of fake currency.
52
RBI is the issuer of Monetary Policy
RBI formulates the monetary policy twice a year and
reviews the policy every quarter as well.
The main objectives of monitoring policy are:
Inflation control
Control on bank credit
Interest rate control
Tools used for implementation of the objectives of
Monetary Policy are:
CRR & SLR
Open market operations
Different rates such as repo rate, reverse repo rate
and bank rate
53
RBI under takes supervisory roles
qIssue of licence
qPrudential norms
qCorporate governance
qKYC norms
qTransparency Norms
qRisk Management
qAudit and inspection
qForeign exchange control
qdevelopment
54
Principles of Banking
q Safety
q Liquidity
q Profitability
55
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
Structure Of Indian Banking System
24
Scheduled Banks
Scheduled Banks are those banks which are listed in the
Second Schedule to the Reserve Bank of India Act, 1934. The
Banks satisfying the following conditions are only included in
the Second Schedule.
(a) That the Bank?s paid up capital plus free reserves are not
less than Rs. 5.00 lakh, and
(b) That the affairs of the Bank are not conducted to the
detrimental interest of the depositors.
The Reserve Bank also has powers to deschedule a bank, when
the abovementioned conditions are not satisfied.
It may be noted presently, the RBI has prescribed a minimum
capital of Rs. 100 crores for starting a new commercial bank.
25
Non-scheduled Banks
Scheduled Banks are those banks which are not listed in
the Second Schedule to the Reserve Bank of India Act, 1934.
(a)These banks also need to maintain a satutory reserve but
not with RBI
(b) Their banking activities are limited. E.g) they cant deal in
foreign exchange
26 27
Public Sector Banks, Private Sector Banks
Public sector bank refers to commercial banks
which are owned by the central Government
either directly or indirectly through the reserve
bank of India.
They are also referred to National Banks.
Public sector banks comprise two categories.
1) State Bank Group
2) Nationalised Banks
State Bank Group
28
The history of nationalization of Indian banks dates back to
the year 1955 when the Imperial Bank of India was
nationalized and re-christened as State Bank of India (under
the SBI Act, 1955).
Later on July 19, 1960, the 7 subsidiaries of SBI viz. State
Bank of Hyderabad (SBH), State Bank of Indore, State Bank
of Saurashtra (SBS), State Bank of Mysore (SBM), State
Bank of Bikaner and Jaipur (SBBJ), State Bank of Patiala
(SBP), and State Bank of Travancore (SBT) were also
nationalized with deposits more than 200 crores.
Nationalized Banks
29
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank
Private Sector Banks
Private sector banks are those commercial banks
which are owned and controlled by private
entrepreneurs.
This banks comprise two categories of banks:
1) Private Sector Indian Banks
2) Private Sector Foreign Banks.
30 31
Regional Banks
These are the banking organizations operating in
different states of India.
Created to serve the rural areas with banking and
financial services.
However, RRB's may have branches set up for urban
operations and there area of operation may include
urban areas too.
They are also referred to as Grameen Banks/ Gramin
Banks. There are as many as 67 RRB's.
32
Functions
The main purpose of RRB's is to mobilize financial
resources from rural / semi-urban areas and
grant loans and advances mostly to
small and marginal farmers,
agricultural laborers and
rural artisans.
The area of operation of RRBs is limited to the
area as notified by GoI covering one or more
districts in the State.
COMMERCIAL BANKING
33 34
Commercial Banking Overview
Commercial banks provide banking
services to individuals, small
businesses and large organizations
Structure Of Commercial Bank
35
36
Commercial Banks
Commercial banks comprising public sector
banks, foreign banks, and private sector banks
represent the most important financial
intermediary in the Indian financial system.
37
Functions of a commercial bank
Functions of
commercial
banks
Primary
Functions
Receiving
Deposits
Time Liabilities
FD
RD
Demand Liabilities
SB A/c
Current Ac
Lending
O.D
Cash Credit
Money at call
Discounting
BoE
Loans &
Advances(term
loans)
Secondary
Functions
Agency Services
Payment of rent, insurance premium etc
Collecting cheques
Dealing in forex
D- Mat accounts, E Ticket, purchase and sale of securities, acts as trustee
and executor
General Utility Services
Safe Custody Deposits
Lockers
Transfer of money
Issue of traveler's chq etc
Merchant banking
ATMs
Credit Cards
E-banking
Misc Services
38
Role of commercial banks in socio
economic development.
Banks promote capital formation.
Investment in new enterprise.
Promotion of trade and industry.
Development of agriculture.
Balanced development of different regions.
Implementation of monetary policy.
Export promotion.
Financing the priority sectors.
Continued?
Assistance to agriculture and SSIs
Assistance to women and students
Control the trade cycle
Catalyst to social change
39
Service Rendered by Commercial Banks
40
1)Teller System
2)Plastic Money
3)Online Banking
4)Traveller?s Cheque
5)Gifts Cheques
6)Telegraphic Transfer
41
Important function of commercial banks.
The tendency on the part of commercial
banks to expand their demand deposits as
a multiple of their excess cash reserve is
called creation of credit.
Credit Creation:
42
Credit creation happens in two ways ?
1. Primary deposits
A normal deposit by the customer
Debt to the bank
Primary deposits bring cash into banking system
2. Derivative deposits
Using the cash deposited the bank grants advances and buys
bills, bonds etc
While lending, the bank places the amount of loan in the
account of borrower
These deposits are derived from the primary deposits and are
known as derivative deposits
Credit Creation:
CREDIT CREATION PROCESS
43 44
Limitations of credit creation
Adequate cash reserve
Availability of securities
Quantity of money in circulation
Banking habit of people
Policy of the central bank
Nature of business conditions
Behavior of other banks
RESERVE BANK OF INDIA
45
RBI
The Reserve Bank of India Act 1934 was commenced on
April1, 1935. The Act, 1934 (II of 1934) provides the
statutory basis of the functioning of the bank.
The bank was constituted for the need of following:
? To regulate the issue of banknotes.
? To maintain reserves with a view to securing monetary
stability.
? To operate the credit and currency system of the
country to its advantage.
46
Organizational Structure OF RBI
47
Role of Reserve Bank and GOI as
regulator of Banking system.
Bank regulations are a form of government
regulation which subject banks to certain
requirements, restrictions and guidelines.
This regulatory structure creates transparency between
banking institutions and the individuals and corporations
with whom they conduct business, among other things.
48
Objectives of bank regulation
1. Prudential?to reduce the level of risk to which bank
creditors are exposed (i.e. to protect depositors)
2. Systemic risk reduction?to reduce the risk of disruption
resulting from adverse trading conditions for banks causing
multiple or major bank failures.
3. Avoid misuse of banks?to reduce the risk of banks being
used for criminal purposes.
e.g. laundering the proceeds of crime
4. To protect banking confidentiality
5. Credit allocation?to direct credit to favored sectors
6. It may also include rules about treating customers fairly
and having corporate social responsibility (CSR)
49
General principles of Bank regulation
Minimum requirements
Supervisory review
Market discipline
50
Role of Reserve Bank and GOI as
regulator of Banking system.
Controlling money supply in the system
Monitoring different key indicators like GDP
and inflation.
Maintaining people?s confidence in the banking
and financial system.
Providing different tools for customer?s help.
51
RBI is the issuer of Currency
Section 22 of the RBI act gives
authority to the RBI to issue the
currency notes.
RBI also takes the control of
circulation of fake currency.
52
RBI is the issuer of Monetary Policy
RBI formulates the monetary policy twice a year and
reviews the policy every quarter as well.
The main objectives of monitoring policy are:
Inflation control
Control on bank credit
Interest rate control
Tools used for implementation of the objectives of
Monetary Policy are:
CRR & SLR
Open market operations
Different rates such as repo rate, reverse repo rate
and bank rate
53
RBI under takes supervisory roles
qIssue of licence
qPrudential norms
qCorporate governance
qKYC norms
qTransparency Norms
qRisk Management
qAudit and inspection
qForeign exchange control
qdevelopment
54
Principles of Banking
q Safety
q Liquidity
q Profitability
55
Provisions of Banking Regulation
Act and Reserve Bank of India Act.
56
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
Structure Of Indian Banking System
24
Scheduled Banks
Scheduled Banks are those banks which are listed in the
Second Schedule to the Reserve Bank of India Act, 1934. The
Banks satisfying the following conditions are only included in
the Second Schedule.
(a) That the Bank?s paid up capital plus free reserves are not
less than Rs. 5.00 lakh, and
(b) That the affairs of the Bank are not conducted to the
detrimental interest of the depositors.
The Reserve Bank also has powers to deschedule a bank, when
the abovementioned conditions are not satisfied.
It may be noted presently, the RBI has prescribed a minimum
capital of Rs. 100 crores for starting a new commercial bank.
25
Non-scheduled Banks
Scheduled Banks are those banks which are not listed in
the Second Schedule to the Reserve Bank of India Act, 1934.
(a)These banks also need to maintain a satutory reserve but
not with RBI
(b) Their banking activities are limited. E.g) they cant deal in
foreign exchange
26 27
Public Sector Banks, Private Sector Banks
Public sector bank refers to commercial banks
which are owned by the central Government
either directly or indirectly through the reserve
bank of India.
They are also referred to National Banks.
Public sector banks comprise two categories.
1) State Bank Group
2) Nationalised Banks
State Bank Group
28
The history of nationalization of Indian banks dates back to
the year 1955 when the Imperial Bank of India was
nationalized and re-christened as State Bank of India (under
the SBI Act, 1955).
Later on July 19, 1960, the 7 subsidiaries of SBI viz. State
Bank of Hyderabad (SBH), State Bank of Indore, State Bank
of Saurashtra (SBS), State Bank of Mysore (SBM), State
Bank of Bikaner and Jaipur (SBBJ), State Bank of Patiala
(SBP), and State Bank of Travancore (SBT) were also
nationalized with deposits more than 200 crores.
Nationalized Banks
29
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank
Private Sector Banks
Private sector banks are those commercial banks
which are owned and controlled by private
entrepreneurs.
This banks comprise two categories of banks:
1) Private Sector Indian Banks
2) Private Sector Foreign Banks.
30 31
Regional Banks
These are the banking organizations operating in
different states of India.
Created to serve the rural areas with banking and
financial services.
However, RRB's may have branches set up for urban
operations and there area of operation may include
urban areas too.
They are also referred to as Grameen Banks/ Gramin
Banks. There are as many as 67 RRB's.
32
Functions
The main purpose of RRB's is to mobilize financial
resources from rural / semi-urban areas and
grant loans and advances mostly to
small and marginal farmers,
agricultural laborers and
rural artisans.
The area of operation of RRBs is limited to the
area as notified by GoI covering one or more
districts in the State.
COMMERCIAL BANKING
33 34
Commercial Banking Overview
Commercial banks provide banking
services to individuals, small
businesses and large organizations
Structure Of Commercial Bank
35
36
Commercial Banks
Commercial banks comprising public sector
banks, foreign banks, and private sector banks
represent the most important financial
intermediary in the Indian financial system.
37
Functions of a commercial bank
Functions of
commercial
banks
Primary
Functions
Receiving
Deposits
Time Liabilities
FD
RD
Demand Liabilities
SB A/c
Current Ac
Lending
O.D
Cash Credit
Money at call
Discounting
BoE
Loans &
Advances(term
loans)
Secondary
Functions
Agency Services
Payment of rent, insurance premium etc
Collecting cheques
Dealing in forex
D- Mat accounts, E Ticket, purchase and sale of securities, acts as trustee
and executor
General Utility Services
Safe Custody Deposits
Lockers
Transfer of money
Issue of traveler's chq etc
Merchant banking
ATMs
Credit Cards
E-banking
Misc Services
38
Role of commercial banks in socio
economic development.
Banks promote capital formation.
Investment in new enterprise.
Promotion of trade and industry.
Development of agriculture.
Balanced development of different regions.
Implementation of monetary policy.
Export promotion.
Financing the priority sectors.
Continued?
Assistance to agriculture and SSIs
Assistance to women and students
Control the trade cycle
Catalyst to social change
39
Service Rendered by Commercial Banks
40
1)Teller System
2)Plastic Money
3)Online Banking
4)Traveller?s Cheque
5)Gifts Cheques
6)Telegraphic Transfer
41
Important function of commercial banks.
The tendency on the part of commercial
banks to expand their demand deposits as
a multiple of their excess cash reserve is
called creation of credit.
Credit Creation:
42
Credit creation happens in two ways ?
1. Primary deposits
A normal deposit by the customer
Debt to the bank
Primary deposits bring cash into banking system
2. Derivative deposits
Using the cash deposited the bank grants advances and buys
bills, bonds etc
While lending, the bank places the amount of loan in the
account of borrower
These deposits are derived from the primary deposits and are
known as derivative deposits
Credit Creation:
CREDIT CREATION PROCESS
43 44
Limitations of credit creation
Adequate cash reserve
Availability of securities
Quantity of money in circulation
Banking habit of people
Policy of the central bank
Nature of business conditions
Behavior of other banks
RESERVE BANK OF INDIA
45
RBI
The Reserve Bank of India Act 1934 was commenced on
April1, 1935. The Act, 1934 (II of 1934) provides the
statutory basis of the functioning of the bank.
The bank was constituted for the need of following:
? To regulate the issue of banknotes.
? To maintain reserves with a view to securing monetary
stability.
? To operate the credit and currency system of the
country to its advantage.
46
Organizational Structure OF RBI
47
Role of Reserve Bank and GOI as
regulator of Banking system.
Bank regulations are a form of government
regulation which subject banks to certain
requirements, restrictions and guidelines.
This regulatory structure creates transparency between
banking institutions and the individuals and corporations
with whom they conduct business, among other things.
48
Objectives of bank regulation
1. Prudential?to reduce the level of risk to which bank
creditors are exposed (i.e. to protect depositors)
2. Systemic risk reduction?to reduce the risk of disruption
resulting from adverse trading conditions for banks causing
multiple or major bank failures.
3. Avoid misuse of banks?to reduce the risk of banks being
used for criminal purposes.
e.g. laundering the proceeds of crime
4. To protect banking confidentiality
5. Credit allocation?to direct credit to favored sectors
6. It may also include rules about treating customers fairly
and having corporate social responsibility (CSR)
49
General principles of Bank regulation
Minimum requirements
Supervisory review
Market discipline
50
Role of Reserve Bank and GOI as
regulator of Banking system.
Controlling money supply in the system
Monitoring different key indicators like GDP
and inflation.
Maintaining people?s confidence in the banking
and financial system.
Providing different tools for customer?s help.
51
RBI is the issuer of Currency
Section 22 of the RBI act gives
authority to the RBI to issue the
currency notes.
RBI also takes the control of
circulation of fake currency.
52
RBI is the issuer of Monetary Policy
RBI formulates the monetary policy twice a year and
reviews the policy every quarter as well.
The main objectives of monitoring policy are:
Inflation control
Control on bank credit
Interest rate control
Tools used for implementation of the objectives of
Monetary Policy are:
CRR & SLR
Open market operations
Different rates such as repo rate, reverse repo rate
and bank rate
53
RBI under takes supervisory roles
qIssue of licence
qPrudential norms
qCorporate governance
qKYC norms
qTransparency Norms
qRisk Management
qAudit and inspection
qForeign exchange control
qdevelopment
54
Principles of Banking
q Safety
q Liquidity
q Profitability
55
Provisions of Banking Regulation
Act and Reserve Bank of India Act.
56
Applicability of the Banking Regulation Act, 1949
This Act applies to following categories
of Banks:
? Nationalized Banks
? Non-Nationalized Banks
? Cooperative Banks
57
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
Structure Of Indian Banking System
24
Scheduled Banks
Scheduled Banks are those banks which are listed in the
Second Schedule to the Reserve Bank of India Act, 1934. The
Banks satisfying the following conditions are only included in
the Second Schedule.
(a) That the Bank?s paid up capital plus free reserves are not
less than Rs. 5.00 lakh, and
(b) That the affairs of the Bank are not conducted to the
detrimental interest of the depositors.
The Reserve Bank also has powers to deschedule a bank, when
the abovementioned conditions are not satisfied.
It may be noted presently, the RBI has prescribed a minimum
capital of Rs. 100 crores for starting a new commercial bank.
25
Non-scheduled Banks
Scheduled Banks are those banks which are not listed in
the Second Schedule to the Reserve Bank of India Act, 1934.
(a)These banks also need to maintain a satutory reserve but
not with RBI
(b) Their banking activities are limited. E.g) they cant deal in
foreign exchange
26 27
Public Sector Banks, Private Sector Banks
Public sector bank refers to commercial banks
which are owned by the central Government
either directly or indirectly through the reserve
bank of India.
They are also referred to National Banks.
Public sector banks comprise two categories.
1) State Bank Group
2) Nationalised Banks
State Bank Group
28
The history of nationalization of Indian banks dates back to
the year 1955 when the Imperial Bank of India was
nationalized and re-christened as State Bank of India (under
the SBI Act, 1955).
Later on July 19, 1960, the 7 subsidiaries of SBI viz. State
Bank of Hyderabad (SBH), State Bank of Indore, State Bank
of Saurashtra (SBS), State Bank of Mysore (SBM), State
Bank of Bikaner and Jaipur (SBBJ), State Bank of Patiala
(SBP), and State Bank of Travancore (SBT) were also
nationalized with deposits more than 200 crores.
Nationalized Banks
29
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank
Private Sector Banks
Private sector banks are those commercial banks
which are owned and controlled by private
entrepreneurs.
This banks comprise two categories of banks:
1) Private Sector Indian Banks
2) Private Sector Foreign Banks.
30 31
Regional Banks
These are the banking organizations operating in
different states of India.
Created to serve the rural areas with banking and
financial services.
However, RRB's may have branches set up for urban
operations and there area of operation may include
urban areas too.
They are also referred to as Grameen Banks/ Gramin
Banks. There are as many as 67 RRB's.
32
Functions
The main purpose of RRB's is to mobilize financial
resources from rural / semi-urban areas and
grant loans and advances mostly to
small and marginal farmers,
agricultural laborers and
rural artisans.
The area of operation of RRBs is limited to the
area as notified by GoI covering one or more
districts in the State.
COMMERCIAL BANKING
33 34
Commercial Banking Overview
Commercial banks provide banking
services to individuals, small
businesses and large organizations
Structure Of Commercial Bank
35
36
Commercial Banks
Commercial banks comprising public sector
banks, foreign banks, and private sector banks
represent the most important financial
intermediary in the Indian financial system.
37
Functions of a commercial bank
Functions of
commercial
banks
Primary
Functions
Receiving
Deposits
Time Liabilities
FD
RD
Demand Liabilities
SB A/c
Current Ac
Lending
O.D
Cash Credit
Money at call
Discounting
BoE
Loans &
Advances(term
loans)
Secondary
Functions
Agency Services
Payment of rent, insurance premium etc
Collecting cheques
Dealing in forex
D- Mat accounts, E Ticket, purchase and sale of securities, acts as trustee
and executor
General Utility Services
Safe Custody Deposits
Lockers
Transfer of money
Issue of traveler's chq etc
Merchant banking
ATMs
Credit Cards
E-banking
Misc Services
38
Role of commercial banks in socio
economic development.
Banks promote capital formation.
Investment in new enterprise.
Promotion of trade and industry.
Development of agriculture.
Balanced development of different regions.
Implementation of monetary policy.
Export promotion.
Financing the priority sectors.
Continued?
Assistance to agriculture and SSIs
Assistance to women and students
Control the trade cycle
Catalyst to social change
39
Service Rendered by Commercial Banks
40
1)Teller System
2)Plastic Money
3)Online Banking
4)Traveller?s Cheque
5)Gifts Cheques
6)Telegraphic Transfer
41
Important function of commercial banks.
The tendency on the part of commercial
banks to expand their demand deposits as
a multiple of their excess cash reserve is
called creation of credit.
Credit Creation:
42
Credit creation happens in two ways ?
1. Primary deposits
A normal deposit by the customer
Debt to the bank
Primary deposits bring cash into banking system
2. Derivative deposits
Using the cash deposited the bank grants advances and buys
bills, bonds etc
While lending, the bank places the amount of loan in the
account of borrower
These deposits are derived from the primary deposits and are
known as derivative deposits
Credit Creation:
CREDIT CREATION PROCESS
43 44
Limitations of credit creation
Adequate cash reserve
Availability of securities
Quantity of money in circulation
Banking habit of people
Policy of the central bank
Nature of business conditions
Behavior of other banks
RESERVE BANK OF INDIA
45
RBI
The Reserve Bank of India Act 1934 was commenced on
April1, 1935. The Act, 1934 (II of 1934) provides the
statutory basis of the functioning of the bank.
The bank was constituted for the need of following:
? To regulate the issue of banknotes.
? To maintain reserves with a view to securing monetary
stability.
? To operate the credit and currency system of the
country to its advantage.
46
Organizational Structure OF RBI
47
Role of Reserve Bank and GOI as
regulator of Banking system.
Bank regulations are a form of government
regulation which subject banks to certain
requirements, restrictions and guidelines.
This regulatory structure creates transparency between
banking institutions and the individuals and corporations
with whom they conduct business, among other things.
48
Objectives of bank regulation
1. Prudential?to reduce the level of risk to which bank
creditors are exposed (i.e. to protect depositors)
2. Systemic risk reduction?to reduce the risk of disruption
resulting from adverse trading conditions for banks causing
multiple or major bank failures.
3. Avoid misuse of banks?to reduce the risk of banks being
used for criminal purposes.
e.g. laundering the proceeds of crime
4. To protect banking confidentiality
5. Credit allocation?to direct credit to favored sectors
6. It may also include rules about treating customers fairly
and having corporate social responsibility (CSR)
49
General principles of Bank regulation
Minimum requirements
Supervisory review
Market discipline
50
Role of Reserve Bank and GOI as
regulator of Banking system.
Controlling money supply in the system
Monitoring different key indicators like GDP
and inflation.
Maintaining people?s confidence in the banking
and financial system.
Providing different tools for customer?s help.
51
RBI is the issuer of Currency
Section 22 of the RBI act gives
authority to the RBI to issue the
currency notes.
RBI also takes the control of
circulation of fake currency.
52
RBI is the issuer of Monetary Policy
RBI formulates the monetary policy twice a year and
reviews the policy every quarter as well.
The main objectives of monitoring policy are:
Inflation control
Control on bank credit
Interest rate control
Tools used for implementation of the objectives of
Monetary Policy are:
CRR & SLR
Open market operations
Different rates such as repo rate, reverse repo rate
and bank rate
53
RBI under takes supervisory roles
qIssue of licence
qPrudential norms
qCorporate governance
qKYC norms
qTransparency Norms
qRisk Management
qAudit and inspection
qForeign exchange control
qdevelopment
54
Principles of Banking
q Safety
q Liquidity
q Profitability
55
Provisions of Banking Regulation
Act and Reserve Bank of India Act.
56
Applicability of the Banking Regulation Act, 1949
This Act applies to following categories
of Banks:
? Nationalized Banks
? Non-Nationalized Banks
? Cooperative Banks
57
Business of banking Companies -
Section 6(1) and 6(2) r.w. 56(b)
Borrowing, raising or taking of money
Giving advance
Bills business
L/C , Bank Guarantee, Indemnity
Foreign exchange
Providing safe deposit
Collecting and transmitting money
Managing, selling and realizing any property that
may come into the possession of the bank in
satisfaction or part satisfaction of any of its dues.
58
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
Structure Of Indian Banking System
24
Scheduled Banks
Scheduled Banks are those banks which are listed in the
Second Schedule to the Reserve Bank of India Act, 1934. The
Banks satisfying the following conditions are only included in
the Second Schedule.
(a) That the Bank?s paid up capital plus free reserves are not
less than Rs. 5.00 lakh, and
(b) That the affairs of the Bank are not conducted to the
detrimental interest of the depositors.
The Reserve Bank also has powers to deschedule a bank, when
the abovementioned conditions are not satisfied.
It may be noted presently, the RBI has prescribed a minimum
capital of Rs. 100 crores for starting a new commercial bank.
25
Non-scheduled Banks
Scheduled Banks are those banks which are not listed in
the Second Schedule to the Reserve Bank of India Act, 1934.
(a)These banks also need to maintain a satutory reserve but
not with RBI
(b) Their banking activities are limited. E.g) they cant deal in
foreign exchange
26 27
Public Sector Banks, Private Sector Banks
Public sector bank refers to commercial banks
which are owned by the central Government
either directly or indirectly through the reserve
bank of India.
They are also referred to National Banks.
Public sector banks comprise two categories.
1) State Bank Group
2) Nationalised Banks
State Bank Group
28
The history of nationalization of Indian banks dates back to
the year 1955 when the Imperial Bank of India was
nationalized and re-christened as State Bank of India (under
the SBI Act, 1955).
Later on July 19, 1960, the 7 subsidiaries of SBI viz. State
Bank of Hyderabad (SBH), State Bank of Indore, State Bank
of Saurashtra (SBS), State Bank of Mysore (SBM), State
Bank of Bikaner and Jaipur (SBBJ), State Bank of Patiala
(SBP), and State Bank of Travancore (SBT) were also
nationalized with deposits more than 200 crores.
Nationalized Banks
29
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank
Private Sector Banks
Private sector banks are those commercial banks
which are owned and controlled by private
entrepreneurs.
This banks comprise two categories of banks:
1) Private Sector Indian Banks
2) Private Sector Foreign Banks.
30 31
Regional Banks
These are the banking organizations operating in
different states of India.
Created to serve the rural areas with banking and
financial services.
However, RRB's may have branches set up for urban
operations and there area of operation may include
urban areas too.
They are also referred to as Grameen Banks/ Gramin
Banks. There are as many as 67 RRB's.
32
Functions
The main purpose of RRB's is to mobilize financial
resources from rural / semi-urban areas and
grant loans and advances mostly to
small and marginal farmers,
agricultural laborers and
rural artisans.
The area of operation of RRBs is limited to the
area as notified by GoI covering one or more
districts in the State.
COMMERCIAL BANKING
33 34
Commercial Banking Overview
Commercial banks provide banking
services to individuals, small
businesses and large organizations
Structure Of Commercial Bank
35
36
Commercial Banks
Commercial banks comprising public sector
banks, foreign banks, and private sector banks
represent the most important financial
intermediary in the Indian financial system.
37
Functions of a commercial bank
Functions of
commercial
banks
Primary
Functions
Receiving
Deposits
Time Liabilities
FD
RD
Demand Liabilities
SB A/c
Current Ac
Lending
O.D
Cash Credit
Money at call
Discounting
BoE
Loans &
Advances(term
loans)
Secondary
Functions
Agency Services
Payment of rent, insurance premium etc
Collecting cheques
Dealing in forex
D- Mat accounts, E Ticket, purchase and sale of securities, acts as trustee
and executor
General Utility Services
Safe Custody Deposits
Lockers
Transfer of money
Issue of traveler's chq etc
Merchant banking
ATMs
Credit Cards
E-banking
Misc Services
38
Role of commercial banks in socio
economic development.
Banks promote capital formation.
Investment in new enterprise.
Promotion of trade and industry.
Development of agriculture.
Balanced development of different regions.
Implementation of monetary policy.
Export promotion.
Financing the priority sectors.
Continued?
Assistance to agriculture and SSIs
Assistance to women and students
Control the trade cycle
Catalyst to social change
39
Service Rendered by Commercial Banks
40
1)Teller System
2)Plastic Money
3)Online Banking
4)Traveller?s Cheque
5)Gifts Cheques
6)Telegraphic Transfer
41
Important function of commercial banks.
The tendency on the part of commercial
banks to expand their demand deposits as
a multiple of their excess cash reserve is
called creation of credit.
Credit Creation:
42
Credit creation happens in two ways ?
1. Primary deposits
A normal deposit by the customer
Debt to the bank
Primary deposits bring cash into banking system
2. Derivative deposits
Using the cash deposited the bank grants advances and buys
bills, bonds etc
While lending, the bank places the amount of loan in the
account of borrower
These deposits are derived from the primary deposits and are
known as derivative deposits
Credit Creation:
CREDIT CREATION PROCESS
43 44
Limitations of credit creation
Adequate cash reserve
Availability of securities
Quantity of money in circulation
Banking habit of people
Policy of the central bank
Nature of business conditions
Behavior of other banks
RESERVE BANK OF INDIA
45
RBI
The Reserve Bank of India Act 1934 was commenced on
April1, 1935. The Act, 1934 (II of 1934) provides the
statutory basis of the functioning of the bank.
The bank was constituted for the need of following:
? To regulate the issue of banknotes.
? To maintain reserves with a view to securing monetary
stability.
? To operate the credit and currency system of the
country to its advantage.
46
Organizational Structure OF RBI
47
Role of Reserve Bank and GOI as
regulator of Banking system.
Bank regulations are a form of government
regulation which subject banks to certain
requirements, restrictions and guidelines.
This regulatory structure creates transparency between
banking institutions and the individuals and corporations
with whom they conduct business, among other things.
48
Objectives of bank regulation
1. Prudential?to reduce the level of risk to which bank
creditors are exposed (i.e. to protect depositors)
2. Systemic risk reduction?to reduce the risk of disruption
resulting from adverse trading conditions for banks causing
multiple or major bank failures.
3. Avoid misuse of banks?to reduce the risk of banks being
used for criminal purposes.
e.g. laundering the proceeds of crime
4. To protect banking confidentiality
5. Credit allocation?to direct credit to favored sectors
6. It may also include rules about treating customers fairly
and having corporate social responsibility (CSR)
49
General principles of Bank regulation
Minimum requirements
Supervisory review
Market discipline
50
Role of Reserve Bank and GOI as
regulator of Banking system.
Controlling money supply in the system
Monitoring different key indicators like GDP
and inflation.
Maintaining people?s confidence in the banking
and financial system.
Providing different tools for customer?s help.
51
RBI is the issuer of Currency
Section 22 of the RBI act gives
authority to the RBI to issue the
currency notes.
RBI also takes the control of
circulation of fake currency.
52
RBI is the issuer of Monetary Policy
RBI formulates the monetary policy twice a year and
reviews the policy every quarter as well.
The main objectives of monitoring policy are:
Inflation control
Control on bank credit
Interest rate control
Tools used for implementation of the objectives of
Monetary Policy are:
CRR & SLR
Open market operations
Different rates such as repo rate, reverse repo rate
and bank rate
53
RBI under takes supervisory roles
qIssue of licence
qPrudential norms
qCorporate governance
qKYC norms
qTransparency Norms
qRisk Management
qAudit and inspection
qForeign exchange control
qdevelopment
54
Principles of Banking
q Safety
q Liquidity
q Profitability
55
Provisions of Banking Regulation
Act and Reserve Bank of India Act.
56
Applicability of the Banking Regulation Act, 1949
This Act applies to following categories
of Banks:
? Nationalized Banks
? Non-Nationalized Banks
? Cooperative Banks
57
Business of banking Companies -
Section 6(1) and 6(2) r.w. 56(b)
Borrowing, raising or taking of money
Giving advance
Bills business
L/C , Bank Guarantee, Indemnity
Foreign exchange
Providing safe deposit
Collecting and transmitting money
Managing, selling and realizing any property that
may come into the possession of the bank in
satisfaction or part satisfaction of any of its dues.
58
? Acquiring, holding and dealing with any property
or any right, title or interest in any such property
that may form the security or part of the security
for any loans or advances or which may be
connected with such security.
? Undertaking and executing trusts
? Acquiring, constructing, maintaining and altering
of any building for the purpose of the bank.
59
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
Structure Of Indian Banking System
24
Scheduled Banks
Scheduled Banks are those banks which are listed in the
Second Schedule to the Reserve Bank of India Act, 1934. The
Banks satisfying the following conditions are only included in
the Second Schedule.
(a) That the Bank?s paid up capital plus free reserves are not
less than Rs. 5.00 lakh, and
(b) That the affairs of the Bank are not conducted to the
detrimental interest of the depositors.
The Reserve Bank also has powers to deschedule a bank, when
the abovementioned conditions are not satisfied.
It may be noted presently, the RBI has prescribed a minimum
capital of Rs. 100 crores for starting a new commercial bank.
25
Non-scheduled Banks
Scheduled Banks are those banks which are not listed in
the Second Schedule to the Reserve Bank of India Act, 1934.
(a)These banks also need to maintain a satutory reserve but
not with RBI
(b) Their banking activities are limited. E.g) they cant deal in
foreign exchange
26 27
Public Sector Banks, Private Sector Banks
Public sector bank refers to commercial banks
which are owned by the central Government
either directly or indirectly through the reserve
bank of India.
They are also referred to National Banks.
Public sector banks comprise two categories.
1) State Bank Group
2) Nationalised Banks
State Bank Group
28
The history of nationalization of Indian banks dates back to
the year 1955 when the Imperial Bank of India was
nationalized and re-christened as State Bank of India (under
the SBI Act, 1955).
Later on July 19, 1960, the 7 subsidiaries of SBI viz. State
Bank of Hyderabad (SBH), State Bank of Indore, State Bank
of Saurashtra (SBS), State Bank of Mysore (SBM), State
Bank of Bikaner and Jaipur (SBBJ), State Bank of Patiala
(SBP), and State Bank of Travancore (SBT) were also
nationalized with deposits more than 200 crores.
Nationalized Banks
29
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank
Private Sector Banks
Private sector banks are those commercial banks
which are owned and controlled by private
entrepreneurs.
This banks comprise two categories of banks:
1) Private Sector Indian Banks
2) Private Sector Foreign Banks.
30 31
Regional Banks
These are the banking organizations operating in
different states of India.
Created to serve the rural areas with banking and
financial services.
However, RRB's may have branches set up for urban
operations and there area of operation may include
urban areas too.
They are also referred to as Grameen Banks/ Gramin
Banks. There are as many as 67 RRB's.
32
Functions
The main purpose of RRB's is to mobilize financial
resources from rural / semi-urban areas and
grant loans and advances mostly to
small and marginal farmers,
agricultural laborers and
rural artisans.
The area of operation of RRBs is limited to the
area as notified by GoI covering one or more
districts in the State.
COMMERCIAL BANKING
33 34
Commercial Banking Overview
Commercial banks provide banking
services to individuals, small
businesses and large organizations
Structure Of Commercial Bank
35
36
Commercial Banks
Commercial banks comprising public sector
banks, foreign banks, and private sector banks
represent the most important financial
intermediary in the Indian financial system.
37
Functions of a commercial bank
Functions of
commercial
banks
Primary
Functions
Receiving
Deposits
Time Liabilities
FD
RD
Demand Liabilities
SB A/c
Current Ac
Lending
O.D
Cash Credit
Money at call
Discounting
BoE
Loans &
Advances(term
loans)
Secondary
Functions
Agency Services
Payment of rent, insurance premium etc
Collecting cheques
Dealing in forex
D- Mat accounts, E Ticket, purchase and sale of securities, acts as trustee
and executor
General Utility Services
Safe Custody Deposits
Lockers
Transfer of money
Issue of traveler's chq etc
Merchant banking
ATMs
Credit Cards
E-banking
Misc Services
38
Role of commercial banks in socio
economic development.
Banks promote capital formation.
Investment in new enterprise.
Promotion of trade and industry.
Development of agriculture.
Balanced development of different regions.
Implementation of monetary policy.
Export promotion.
Financing the priority sectors.
Continued?
Assistance to agriculture and SSIs
Assistance to women and students
Control the trade cycle
Catalyst to social change
39
Service Rendered by Commercial Banks
40
1)Teller System
2)Plastic Money
3)Online Banking
4)Traveller?s Cheque
5)Gifts Cheques
6)Telegraphic Transfer
41
Important function of commercial banks.
The tendency on the part of commercial
banks to expand their demand deposits as
a multiple of their excess cash reserve is
called creation of credit.
Credit Creation:
42
Credit creation happens in two ways ?
1. Primary deposits
A normal deposit by the customer
Debt to the bank
Primary deposits bring cash into banking system
2. Derivative deposits
Using the cash deposited the bank grants advances and buys
bills, bonds etc
While lending, the bank places the amount of loan in the
account of borrower
These deposits are derived from the primary deposits and are
known as derivative deposits
Credit Creation:
CREDIT CREATION PROCESS
43 44
Limitations of credit creation
Adequate cash reserve
Availability of securities
Quantity of money in circulation
Banking habit of people
Policy of the central bank
Nature of business conditions
Behavior of other banks
RESERVE BANK OF INDIA
45
RBI
The Reserve Bank of India Act 1934 was commenced on
April1, 1935. The Act, 1934 (II of 1934) provides the
statutory basis of the functioning of the bank.
The bank was constituted for the need of following:
? To regulate the issue of banknotes.
? To maintain reserves with a view to securing monetary
stability.
? To operate the credit and currency system of the
country to its advantage.
46
Organizational Structure OF RBI
47
Role of Reserve Bank and GOI as
regulator of Banking system.
Bank regulations are a form of government
regulation which subject banks to certain
requirements, restrictions and guidelines.
This regulatory structure creates transparency between
banking institutions and the individuals and corporations
with whom they conduct business, among other things.
48
Objectives of bank regulation
1. Prudential?to reduce the level of risk to which bank
creditors are exposed (i.e. to protect depositors)
2. Systemic risk reduction?to reduce the risk of disruption
resulting from adverse trading conditions for banks causing
multiple or major bank failures.
3. Avoid misuse of banks?to reduce the risk of banks being
used for criminal purposes.
e.g. laundering the proceeds of crime
4. To protect banking confidentiality
5. Credit allocation?to direct credit to favored sectors
6. It may also include rules about treating customers fairly
and having corporate social responsibility (CSR)
49
General principles of Bank regulation
Minimum requirements
Supervisory review
Market discipline
50
Role of Reserve Bank and GOI as
regulator of Banking system.
Controlling money supply in the system
Monitoring different key indicators like GDP
and inflation.
Maintaining people?s confidence in the banking
and financial system.
Providing different tools for customer?s help.
51
RBI is the issuer of Currency
Section 22 of the RBI act gives
authority to the RBI to issue the
currency notes.
RBI also takes the control of
circulation of fake currency.
52
RBI is the issuer of Monetary Policy
RBI formulates the monetary policy twice a year and
reviews the policy every quarter as well.
The main objectives of monitoring policy are:
Inflation control
Control on bank credit
Interest rate control
Tools used for implementation of the objectives of
Monetary Policy are:
CRR & SLR
Open market operations
Different rates such as repo rate, reverse repo rate
and bank rate
53
RBI under takes supervisory roles
qIssue of licence
qPrudential norms
qCorporate governance
qKYC norms
qTransparency Norms
qRisk Management
qAudit and inspection
qForeign exchange control
qdevelopment
54
Principles of Banking
q Safety
q Liquidity
q Profitability
55
Provisions of Banking Regulation
Act and Reserve Bank of India Act.
56
Applicability of the Banking Regulation Act, 1949
This Act applies to following categories
of Banks:
? Nationalized Banks
? Non-Nationalized Banks
? Cooperative Banks
57
Business of banking Companies -
Section 6(1) and 6(2) r.w. 56(b)
Borrowing, raising or taking of money
Giving advance
Bills business
L/C , Bank Guarantee, Indemnity
Foreign exchange
Providing safe deposit
Collecting and transmitting money
Managing, selling and realizing any property that
may come into the possession of the bank in
satisfaction or part satisfaction of any of its dues.
58
? Acquiring, holding and dealing with any property
or any right, title or interest in any such property
that may form the security or part of the security
for any loans or advances or which may be
connected with such security.
? Undertaking and executing trusts
? Acquiring, constructing, maintaining and altering
of any building for the purpose of the bank.
59
Doing all such other things as are incidental
or conducive to the promotion or
advancement of the business of the bank
Any other business the Central Govt. may by
notification specify as a allowed business
Banks are prohibited to do any other
business.
60
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
Structure Of Indian Banking System
24
Scheduled Banks
Scheduled Banks are those banks which are listed in the
Second Schedule to the Reserve Bank of India Act, 1934. The
Banks satisfying the following conditions are only included in
the Second Schedule.
(a) That the Bank?s paid up capital plus free reserves are not
less than Rs. 5.00 lakh, and
(b) That the affairs of the Bank are not conducted to the
detrimental interest of the depositors.
The Reserve Bank also has powers to deschedule a bank, when
the abovementioned conditions are not satisfied.
It may be noted presently, the RBI has prescribed a minimum
capital of Rs. 100 crores for starting a new commercial bank.
25
Non-scheduled Banks
Scheduled Banks are those banks which are not listed in
the Second Schedule to the Reserve Bank of India Act, 1934.
(a)These banks also need to maintain a satutory reserve but
not with RBI
(b) Their banking activities are limited. E.g) they cant deal in
foreign exchange
26 27
Public Sector Banks, Private Sector Banks
Public sector bank refers to commercial banks
which are owned by the central Government
either directly or indirectly through the reserve
bank of India.
They are also referred to National Banks.
Public sector banks comprise two categories.
1) State Bank Group
2) Nationalised Banks
State Bank Group
28
The history of nationalization of Indian banks dates back to
the year 1955 when the Imperial Bank of India was
nationalized and re-christened as State Bank of India (under
the SBI Act, 1955).
Later on July 19, 1960, the 7 subsidiaries of SBI viz. State
Bank of Hyderabad (SBH), State Bank of Indore, State Bank
of Saurashtra (SBS), State Bank of Mysore (SBM), State
Bank of Bikaner and Jaipur (SBBJ), State Bank of Patiala
(SBP), and State Bank of Travancore (SBT) were also
nationalized with deposits more than 200 crores.
Nationalized Banks
29
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank
Private Sector Banks
Private sector banks are those commercial banks
which are owned and controlled by private
entrepreneurs.
This banks comprise two categories of banks:
1) Private Sector Indian Banks
2) Private Sector Foreign Banks.
30 31
Regional Banks
These are the banking organizations operating in
different states of India.
Created to serve the rural areas with banking and
financial services.
However, RRB's may have branches set up for urban
operations and there area of operation may include
urban areas too.
They are also referred to as Grameen Banks/ Gramin
Banks. There are as many as 67 RRB's.
32
Functions
The main purpose of RRB's is to mobilize financial
resources from rural / semi-urban areas and
grant loans and advances mostly to
small and marginal farmers,
agricultural laborers and
rural artisans.
The area of operation of RRBs is limited to the
area as notified by GoI covering one or more
districts in the State.
COMMERCIAL BANKING
33 34
Commercial Banking Overview
Commercial banks provide banking
services to individuals, small
businesses and large organizations
Structure Of Commercial Bank
35
36
Commercial Banks
Commercial banks comprising public sector
banks, foreign banks, and private sector banks
represent the most important financial
intermediary in the Indian financial system.
37
Functions of a commercial bank
Functions of
commercial
banks
Primary
Functions
Receiving
Deposits
Time Liabilities
FD
RD
Demand Liabilities
SB A/c
Current Ac
Lending
O.D
Cash Credit
Money at call
Discounting
BoE
Loans &
Advances(term
loans)
Secondary
Functions
Agency Services
Payment of rent, insurance premium etc
Collecting cheques
Dealing in forex
D- Mat accounts, E Ticket, purchase and sale of securities, acts as trustee
and executor
General Utility Services
Safe Custody Deposits
Lockers
Transfer of money
Issue of traveler's chq etc
Merchant banking
ATMs
Credit Cards
E-banking
Misc Services
38
Role of commercial banks in socio
economic development.
Banks promote capital formation.
Investment in new enterprise.
Promotion of trade and industry.
Development of agriculture.
Balanced development of different regions.
Implementation of monetary policy.
Export promotion.
Financing the priority sectors.
Continued?
Assistance to agriculture and SSIs
Assistance to women and students
Control the trade cycle
Catalyst to social change
39
Service Rendered by Commercial Banks
40
1)Teller System
2)Plastic Money
3)Online Banking
4)Traveller?s Cheque
5)Gifts Cheques
6)Telegraphic Transfer
41
Important function of commercial banks.
The tendency on the part of commercial
banks to expand their demand deposits as
a multiple of their excess cash reserve is
called creation of credit.
Credit Creation:
42
Credit creation happens in two ways ?
1. Primary deposits
A normal deposit by the customer
Debt to the bank
Primary deposits bring cash into banking system
2. Derivative deposits
Using the cash deposited the bank grants advances and buys
bills, bonds etc
While lending, the bank places the amount of loan in the
account of borrower
These deposits are derived from the primary deposits and are
known as derivative deposits
Credit Creation:
CREDIT CREATION PROCESS
43 44
Limitations of credit creation
Adequate cash reserve
Availability of securities
Quantity of money in circulation
Banking habit of people
Policy of the central bank
Nature of business conditions
Behavior of other banks
RESERVE BANK OF INDIA
45
RBI
The Reserve Bank of India Act 1934 was commenced on
April1, 1935. The Act, 1934 (II of 1934) provides the
statutory basis of the functioning of the bank.
The bank was constituted for the need of following:
? To regulate the issue of banknotes.
? To maintain reserves with a view to securing monetary
stability.
? To operate the credit and currency system of the
country to its advantage.
46
Organizational Structure OF RBI
47
Role of Reserve Bank and GOI as
regulator of Banking system.
Bank regulations are a form of government
regulation which subject banks to certain
requirements, restrictions and guidelines.
This regulatory structure creates transparency between
banking institutions and the individuals and corporations
with whom they conduct business, among other things.
48
Objectives of bank regulation
1. Prudential?to reduce the level of risk to which bank
creditors are exposed (i.e. to protect depositors)
2. Systemic risk reduction?to reduce the risk of disruption
resulting from adverse trading conditions for banks causing
multiple or major bank failures.
3. Avoid misuse of banks?to reduce the risk of banks being
used for criminal purposes.
e.g. laundering the proceeds of crime
4. To protect banking confidentiality
5. Credit allocation?to direct credit to favored sectors
6. It may also include rules about treating customers fairly
and having corporate social responsibility (CSR)
49
General principles of Bank regulation
Minimum requirements
Supervisory review
Market discipline
50
Role of Reserve Bank and GOI as
regulator of Banking system.
Controlling money supply in the system
Monitoring different key indicators like GDP
and inflation.
Maintaining people?s confidence in the banking
and financial system.
Providing different tools for customer?s help.
51
RBI is the issuer of Currency
Section 22 of the RBI act gives
authority to the RBI to issue the
currency notes.
RBI also takes the control of
circulation of fake currency.
52
RBI is the issuer of Monetary Policy
RBI formulates the monetary policy twice a year and
reviews the policy every quarter as well.
The main objectives of monitoring policy are:
Inflation control
Control on bank credit
Interest rate control
Tools used for implementation of the objectives of
Monetary Policy are:
CRR & SLR
Open market operations
Different rates such as repo rate, reverse repo rate
and bank rate
53
RBI under takes supervisory roles
qIssue of licence
qPrudential norms
qCorporate governance
qKYC norms
qTransparency Norms
qRisk Management
qAudit and inspection
qForeign exchange control
qdevelopment
54
Principles of Banking
q Safety
q Liquidity
q Profitability
55
Provisions of Banking Regulation
Act and Reserve Bank of India Act.
56
Applicability of the Banking Regulation Act, 1949
This Act applies to following categories
of Banks:
? Nationalized Banks
? Non-Nationalized Banks
? Cooperative Banks
57
Business of banking Companies -
Section 6(1) and 6(2) r.w. 56(b)
Borrowing, raising or taking of money
Giving advance
Bills business
L/C , Bank Guarantee, Indemnity
Foreign exchange
Providing safe deposit
Collecting and transmitting money
Managing, selling and realizing any property that
may come into the possession of the bank in
satisfaction or part satisfaction of any of its dues.
58
? Acquiring, holding and dealing with any property
or any right, title or interest in any such property
that may form the security or part of the security
for any loans or advances or which may be
connected with such security.
? Undertaking and executing trusts
? Acquiring, constructing, maintaining and altering
of any building for the purpose of the bank.
59
Doing all such other things as are incidental
or conducive to the promotion or
advancement of the business of the bank
Any other business the Central Govt. may by
notification specify as a allowed business
Banks are prohibited to do any other
business.
60
Cash Reserve (CRR) ? Section 18 r. w. 56 (j)
Every bank is required to keep cash reserve,
with itself or by way of balance in the current
account with RBI or Central / District Co-
operative Bank or net balance in all such way,
of minimum prescribed % amount of its DTL.
? A return about this has to be submitted to
RBI before 15
th
of each month about alternate
Friday.
61
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
Structure Of Indian Banking System
24
Scheduled Banks
Scheduled Banks are those banks which are listed in the
Second Schedule to the Reserve Bank of India Act, 1934. The
Banks satisfying the following conditions are only included in
the Second Schedule.
(a) That the Bank?s paid up capital plus free reserves are not
less than Rs. 5.00 lakh, and
(b) That the affairs of the Bank are not conducted to the
detrimental interest of the depositors.
The Reserve Bank also has powers to deschedule a bank, when
the abovementioned conditions are not satisfied.
It may be noted presently, the RBI has prescribed a minimum
capital of Rs. 100 crores for starting a new commercial bank.
25
Non-scheduled Banks
Scheduled Banks are those banks which are not listed in
the Second Schedule to the Reserve Bank of India Act, 1934.
(a)These banks also need to maintain a satutory reserve but
not with RBI
(b) Their banking activities are limited. E.g) they cant deal in
foreign exchange
26 27
Public Sector Banks, Private Sector Banks
Public sector bank refers to commercial banks
which are owned by the central Government
either directly or indirectly through the reserve
bank of India.
They are also referred to National Banks.
Public sector banks comprise two categories.
1) State Bank Group
2) Nationalised Banks
State Bank Group
28
The history of nationalization of Indian banks dates back to
the year 1955 when the Imperial Bank of India was
nationalized and re-christened as State Bank of India (under
the SBI Act, 1955).
Later on July 19, 1960, the 7 subsidiaries of SBI viz. State
Bank of Hyderabad (SBH), State Bank of Indore, State Bank
of Saurashtra (SBS), State Bank of Mysore (SBM), State
Bank of Bikaner and Jaipur (SBBJ), State Bank of Patiala
(SBP), and State Bank of Travancore (SBT) were also
nationalized with deposits more than 200 crores.
Nationalized Banks
29
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank
Private Sector Banks
Private sector banks are those commercial banks
which are owned and controlled by private
entrepreneurs.
This banks comprise two categories of banks:
1) Private Sector Indian Banks
2) Private Sector Foreign Banks.
30 31
Regional Banks
These are the banking organizations operating in
different states of India.
Created to serve the rural areas with banking and
financial services.
However, RRB's may have branches set up for urban
operations and there area of operation may include
urban areas too.
They are also referred to as Grameen Banks/ Gramin
Banks. There are as many as 67 RRB's.
32
Functions
The main purpose of RRB's is to mobilize financial
resources from rural / semi-urban areas and
grant loans and advances mostly to
small and marginal farmers,
agricultural laborers and
rural artisans.
The area of operation of RRBs is limited to the
area as notified by GoI covering one or more
districts in the State.
COMMERCIAL BANKING
33 34
Commercial Banking Overview
Commercial banks provide banking
services to individuals, small
businesses and large organizations
Structure Of Commercial Bank
35
36
Commercial Banks
Commercial banks comprising public sector
banks, foreign banks, and private sector banks
represent the most important financial
intermediary in the Indian financial system.
37
Functions of a commercial bank
Functions of
commercial
banks
Primary
Functions
Receiving
Deposits
Time Liabilities
FD
RD
Demand Liabilities
SB A/c
Current Ac
Lending
O.D
Cash Credit
Money at call
Discounting
BoE
Loans &
Advances(term
loans)
Secondary
Functions
Agency Services
Payment of rent, insurance premium etc
Collecting cheques
Dealing in forex
D- Mat accounts, E Ticket, purchase and sale of securities, acts as trustee
and executor
General Utility Services
Safe Custody Deposits
Lockers
Transfer of money
Issue of traveler's chq etc
Merchant banking
ATMs
Credit Cards
E-banking
Misc Services
38
Role of commercial banks in socio
economic development.
Banks promote capital formation.
Investment in new enterprise.
Promotion of trade and industry.
Development of agriculture.
Balanced development of different regions.
Implementation of monetary policy.
Export promotion.
Financing the priority sectors.
Continued?
Assistance to agriculture and SSIs
Assistance to women and students
Control the trade cycle
Catalyst to social change
39
Service Rendered by Commercial Banks
40
1)Teller System
2)Plastic Money
3)Online Banking
4)Traveller?s Cheque
5)Gifts Cheques
6)Telegraphic Transfer
41
Important function of commercial banks.
The tendency on the part of commercial
banks to expand their demand deposits as
a multiple of their excess cash reserve is
called creation of credit.
Credit Creation:
42
Credit creation happens in two ways ?
1. Primary deposits
A normal deposit by the customer
Debt to the bank
Primary deposits bring cash into banking system
2. Derivative deposits
Using the cash deposited the bank grants advances and buys
bills, bonds etc
While lending, the bank places the amount of loan in the
account of borrower
These deposits are derived from the primary deposits and are
known as derivative deposits
Credit Creation:
CREDIT CREATION PROCESS
43 44
Limitations of credit creation
Adequate cash reserve
Availability of securities
Quantity of money in circulation
Banking habit of people
Policy of the central bank
Nature of business conditions
Behavior of other banks
RESERVE BANK OF INDIA
45
RBI
The Reserve Bank of India Act 1934 was commenced on
April1, 1935. The Act, 1934 (II of 1934) provides the
statutory basis of the functioning of the bank.
The bank was constituted for the need of following:
? To regulate the issue of banknotes.
? To maintain reserves with a view to securing monetary
stability.
? To operate the credit and currency system of the
country to its advantage.
46
Organizational Structure OF RBI
47
Role of Reserve Bank and GOI as
regulator of Banking system.
Bank regulations are a form of government
regulation which subject banks to certain
requirements, restrictions and guidelines.
This regulatory structure creates transparency between
banking institutions and the individuals and corporations
with whom they conduct business, among other things.
48
Objectives of bank regulation
1. Prudential?to reduce the level of risk to which bank
creditors are exposed (i.e. to protect depositors)
2. Systemic risk reduction?to reduce the risk of disruption
resulting from adverse trading conditions for banks causing
multiple or major bank failures.
3. Avoid misuse of banks?to reduce the risk of banks being
used for criminal purposes.
e.g. laundering the proceeds of crime
4. To protect banking confidentiality
5. Credit allocation?to direct credit to favored sectors
6. It may also include rules about treating customers fairly
and having corporate social responsibility (CSR)
49
General principles of Bank regulation
Minimum requirements
Supervisory review
Market discipline
50
Role of Reserve Bank and GOI as
regulator of Banking system.
Controlling money supply in the system
Monitoring different key indicators like GDP
and inflation.
Maintaining people?s confidence in the banking
and financial system.
Providing different tools for customer?s help.
51
RBI is the issuer of Currency
Section 22 of the RBI act gives
authority to the RBI to issue the
currency notes.
RBI also takes the control of
circulation of fake currency.
52
RBI is the issuer of Monetary Policy
RBI formulates the monetary policy twice a year and
reviews the policy every quarter as well.
The main objectives of monitoring policy are:
Inflation control
Control on bank credit
Interest rate control
Tools used for implementation of the objectives of
Monetary Policy are:
CRR & SLR
Open market operations
Different rates such as repo rate, reverse repo rate
and bank rate
53
RBI under takes supervisory roles
qIssue of licence
qPrudential norms
qCorporate governance
qKYC norms
qTransparency Norms
qRisk Management
qAudit and inspection
qForeign exchange control
qdevelopment
54
Principles of Banking
q Safety
q Liquidity
q Profitability
55
Provisions of Banking Regulation
Act and Reserve Bank of India Act.
56
Applicability of the Banking Regulation Act, 1949
This Act applies to following categories
of Banks:
? Nationalized Banks
? Non-Nationalized Banks
? Cooperative Banks
57
Business of banking Companies -
Section 6(1) and 6(2) r.w. 56(b)
Borrowing, raising or taking of money
Giving advance
Bills business
L/C , Bank Guarantee, Indemnity
Foreign exchange
Providing safe deposit
Collecting and transmitting money
Managing, selling and realizing any property that
may come into the possession of the bank in
satisfaction or part satisfaction of any of its dues.
58
? Acquiring, holding and dealing with any property
or any right, title or interest in any such property
that may form the security or part of the security
for any loans or advances or which may be
connected with such security.
? Undertaking and executing trusts
? Acquiring, constructing, maintaining and altering
of any building for the purpose of the bank.
59
Doing all such other things as are incidental
or conducive to the promotion or
advancement of the business of the bank
Any other business the Central Govt. may by
notification specify as a allowed business
Banks are prohibited to do any other
business.
60
Cash Reserve (CRR) ? Section 18 r. w. 56 (j)
Every bank is required to keep cash reserve,
with itself or by way of balance in the current
account with RBI or Central / District Co-
operative Bank or net balance in all such way,
of minimum prescribed % amount of its DTL.
? A return about this has to be submitted to
RBI before 15
th
of each month about alternate
Friday.
61
Statutory Liquidity Ratio
Bank shall maintain unencumbered
approved securities, valued not
exceeding the current market price, or
an amount which shall not be less than
24% of the total of its demand and time
liabilities (DTL).
62
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
Structure Of Indian Banking System
24
Scheduled Banks
Scheduled Banks are those banks which are listed in the
Second Schedule to the Reserve Bank of India Act, 1934. The
Banks satisfying the following conditions are only included in
the Second Schedule.
(a) That the Bank?s paid up capital plus free reserves are not
less than Rs. 5.00 lakh, and
(b) That the affairs of the Bank are not conducted to the
detrimental interest of the depositors.
The Reserve Bank also has powers to deschedule a bank, when
the abovementioned conditions are not satisfied.
It may be noted presently, the RBI has prescribed a minimum
capital of Rs. 100 crores for starting a new commercial bank.
25
Non-scheduled Banks
Scheduled Banks are those banks which are not listed in
the Second Schedule to the Reserve Bank of India Act, 1934.
(a)These banks also need to maintain a satutory reserve but
not with RBI
(b) Their banking activities are limited. E.g) they cant deal in
foreign exchange
26 27
Public Sector Banks, Private Sector Banks
Public sector bank refers to commercial banks
which are owned by the central Government
either directly or indirectly through the reserve
bank of India.
They are also referred to National Banks.
Public sector banks comprise two categories.
1) State Bank Group
2) Nationalised Banks
State Bank Group
28
The history of nationalization of Indian banks dates back to
the year 1955 when the Imperial Bank of India was
nationalized and re-christened as State Bank of India (under
the SBI Act, 1955).
Later on July 19, 1960, the 7 subsidiaries of SBI viz. State
Bank of Hyderabad (SBH), State Bank of Indore, State Bank
of Saurashtra (SBS), State Bank of Mysore (SBM), State
Bank of Bikaner and Jaipur (SBBJ), State Bank of Patiala
(SBP), and State Bank of Travancore (SBT) were also
nationalized with deposits more than 200 crores.
Nationalized Banks
29
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank
Private Sector Banks
Private sector banks are those commercial banks
which are owned and controlled by private
entrepreneurs.
This banks comprise two categories of banks:
1) Private Sector Indian Banks
2) Private Sector Foreign Banks.
30 31
Regional Banks
These are the banking organizations operating in
different states of India.
Created to serve the rural areas with banking and
financial services.
However, RRB's may have branches set up for urban
operations and there area of operation may include
urban areas too.
They are also referred to as Grameen Banks/ Gramin
Banks. There are as many as 67 RRB's.
32
Functions
The main purpose of RRB's is to mobilize financial
resources from rural / semi-urban areas and
grant loans and advances mostly to
small and marginal farmers,
agricultural laborers and
rural artisans.
The area of operation of RRBs is limited to the
area as notified by GoI covering one or more
districts in the State.
COMMERCIAL BANKING
33 34
Commercial Banking Overview
Commercial banks provide banking
services to individuals, small
businesses and large organizations
Structure Of Commercial Bank
35
36
Commercial Banks
Commercial banks comprising public sector
banks, foreign banks, and private sector banks
represent the most important financial
intermediary in the Indian financial system.
37
Functions of a commercial bank
Functions of
commercial
banks
Primary
Functions
Receiving
Deposits
Time Liabilities
FD
RD
Demand Liabilities
SB A/c
Current Ac
Lending
O.D
Cash Credit
Money at call
Discounting
BoE
Loans &
Advances(term
loans)
Secondary
Functions
Agency Services
Payment of rent, insurance premium etc
Collecting cheques
Dealing in forex
D- Mat accounts, E Ticket, purchase and sale of securities, acts as trustee
and executor
General Utility Services
Safe Custody Deposits
Lockers
Transfer of money
Issue of traveler's chq etc
Merchant banking
ATMs
Credit Cards
E-banking
Misc Services
38
Role of commercial banks in socio
economic development.
Banks promote capital formation.
Investment in new enterprise.
Promotion of trade and industry.
Development of agriculture.
Balanced development of different regions.
Implementation of monetary policy.
Export promotion.
Financing the priority sectors.
Continued?
Assistance to agriculture and SSIs
Assistance to women and students
Control the trade cycle
Catalyst to social change
39
Service Rendered by Commercial Banks
40
1)Teller System
2)Plastic Money
3)Online Banking
4)Traveller?s Cheque
5)Gifts Cheques
6)Telegraphic Transfer
41
Important function of commercial banks.
The tendency on the part of commercial
banks to expand their demand deposits as
a multiple of their excess cash reserve is
called creation of credit.
Credit Creation:
42
Credit creation happens in two ways ?
1. Primary deposits
A normal deposit by the customer
Debt to the bank
Primary deposits bring cash into banking system
2. Derivative deposits
Using the cash deposited the bank grants advances and buys
bills, bonds etc
While lending, the bank places the amount of loan in the
account of borrower
These deposits are derived from the primary deposits and are
known as derivative deposits
Credit Creation:
CREDIT CREATION PROCESS
43 44
Limitations of credit creation
Adequate cash reserve
Availability of securities
Quantity of money in circulation
Banking habit of people
Policy of the central bank
Nature of business conditions
Behavior of other banks
RESERVE BANK OF INDIA
45
RBI
The Reserve Bank of India Act 1934 was commenced on
April1, 1935. The Act, 1934 (II of 1934) provides the
statutory basis of the functioning of the bank.
The bank was constituted for the need of following:
? To regulate the issue of banknotes.
? To maintain reserves with a view to securing monetary
stability.
? To operate the credit and currency system of the
country to its advantage.
46
Organizational Structure OF RBI
47
Role of Reserve Bank and GOI as
regulator of Banking system.
Bank regulations are a form of government
regulation which subject banks to certain
requirements, restrictions and guidelines.
This regulatory structure creates transparency between
banking institutions and the individuals and corporations
with whom they conduct business, among other things.
48
Objectives of bank regulation
1. Prudential?to reduce the level of risk to which bank
creditors are exposed (i.e. to protect depositors)
2. Systemic risk reduction?to reduce the risk of disruption
resulting from adverse trading conditions for banks causing
multiple or major bank failures.
3. Avoid misuse of banks?to reduce the risk of banks being
used for criminal purposes.
e.g. laundering the proceeds of crime
4. To protect banking confidentiality
5. Credit allocation?to direct credit to favored sectors
6. It may also include rules about treating customers fairly
and having corporate social responsibility (CSR)
49
General principles of Bank regulation
Minimum requirements
Supervisory review
Market discipline
50
Role of Reserve Bank and GOI as
regulator of Banking system.
Controlling money supply in the system
Monitoring different key indicators like GDP
and inflation.
Maintaining people?s confidence in the banking
and financial system.
Providing different tools for customer?s help.
51
RBI is the issuer of Currency
Section 22 of the RBI act gives
authority to the RBI to issue the
currency notes.
RBI also takes the control of
circulation of fake currency.
52
RBI is the issuer of Monetary Policy
RBI formulates the monetary policy twice a year and
reviews the policy every quarter as well.
The main objectives of monitoring policy are:
Inflation control
Control on bank credit
Interest rate control
Tools used for implementation of the objectives of
Monetary Policy are:
CRR & SLR
Open market operations
Different rates such as repo rate, reverse repo rate
and bank rate
53
RBI under takes supervisory roles
qIssue of licence
qPrudential norms
qCorporate governance
qKYC norms
qTransparency Norms
qRisk Management
qAudit and inspection
qForeign exchange control
qdevelopment
54
Principles of Banking
q Safety
q Liquidity
q Profitability
55
Provisions of Banking Regulation
Act and Reserve Bank of India Act.
56
Applicability of the Banking Regulation Act, 1949
This Act applies to following categories
of Banks:
? Nationalized Banks
? Non-Nationalized Banks
? Cooperative Banks
57
Business of banking Companies -
Section 6(1) and 6(2) r.w. 56(b)
Borrowing, raising or taking of money
Giving advance
Bills business
L/C , Bank Guarantee, Indemnity
Foreign exchange
Providing safe deposit
Collecting and transmitting money
Managing, selling and realizing any property that
may come into the possession of the bank in
satisfaction or part satisfaction of any of its dues.
58
? Acquiring, holding and dealing with any property
or any right, title or interest in any such property
that may form the security or part of the security
for any loans or advances or which may be
connected with such security.
? Undertaking and executing trusts
? Acquiring, constructing, maintaining and altering
of any building for the purpose of the bank.
59
Doing all such other things as are incidental
or conducive to the promotion or
advancement of the business of the bank
Any other business the Central Govt. may by
notification specify as a allowed business
Banks are prohibited to do any other
business.
60
Cash Reserve (CRR) ? Section 18 r. w. 56 (j)
Every bank is required to keep cash reserve,
with itself or by way of balance in the current
account with RBI or Central / District Co-
operative Bank or net balance in all such way,
of minimum prescribed % amount of its DTL.
? A return about this has to be submitted to
RBI before 15
th
of each month about alternate
Friday.
61
Statutory Liquidity Ratio
Bank shall maintain unencumbered
approved securities, valued not
exceeding the current market price, or
an amount which shall not be less than
24% of the total of its demand and time
liabilities (DTL).
62
Restrictions on loans and advances
(1) Notwithstanding anything to the contrary contained in section
77 of the Companies Act, 1956 (1 of 1956), no banking
company shall,
? (a) grant any loans or advances on the security of its own
shares, or
? (b) enter into any commitment for granting any loan or
advance to or on behalf of any of its directors,
? (ii) any firm in which any of its directors is interested as
partner, manager, employee or guarantor, or
? (iii) any company [not being a subsidiary of the banking
company or a company registered under section 25 of the
Companies Act, 1956 any of the directors of the banking
company is a director, managing agent, manager, employee or
guarantor or in which he holds substantial interest, or
? (iv) Any individual in respect of whom any of its directors is a
partner or guarantor.
63
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
Structure Of Indian Banking System
24
Scheduled Banks
Scheduled Banks are those banks which are listed in the
Second Schedule to the Reserve Bank of India Act, 1934. The
Banks satisfying the following conditions are only included in
the Second Schedule.
(a) That the Bank?s paid up capital plus free reserves are not
less than Rs. 5.00 lakh, and
(b) That the affairs of the Bank are not conducted to the
detrimental interest of the depositors.
The Reserve Bank also has powers to deschedule a bank, when
the abovementioned conditions are not satisfied.
It may be noted presently, the RBI has prescribed a minimum
capital of Rs. 100 crores for starting a new commercial bank.
25
Non-scheduled Banks
Scheduled Banks are those banks which are not listed in
the Second Schedule to the Reserve Bank of India Act, 1934.
(a)These banks also need to maintain a satutory reserve but
not with RBI
(b) Their banking activities are limited. E.g) they cant deal in
foreign exchange
26 27
Public Sector Banks, Private Sector Banks
Public sector bank refers to commercial banks
which are owned by the central Government
either directly or indirectly through the reserve
bank of India.
They are also referred to National Banks.
Public sector banks comprise two categories.
1) State Bank Group
2) Nationalised Banks
State Bank Group
28
The history of nationalization of Indian banks dates back to
the year 1955 when the Imperial Bank of India was
nationalized and re-christened as State Bank of India (under
the SBI Act, 1955).
Later on July 19, 1960, the 7 subsidiaries of SBI viz. State
Bank of Hyderabad (SBH), State Bank of Indore, State Bank
of Saurashtra (SBS), State Bank of Mysore (SBM), State
Bank of Bikaner and Jaipur (SBBJ), State Bank of Patiala
(SBP), and State Bank of Travancore (SBT) were also
nationalized with deposits more than 200 crores.
Nationalized Banks
29
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank
Private Sector Banks
Private sector banks are those commercial banks
which are owned and controlled by private
entrepreneurs.
This banks comprise two categories of banks:
1) Private Sector Indian Banks
2) Private Sector Foreign Banks.
30 31
Regional Banks
These are the banking organizations operating in
different states of India.
Created to serve the rural areas with banking and
financial services.
However, RRB's may have branches set up for urban
operations and there area of operation may include
urban areas too.
They are also referred to as Grameen Banks/ Gramin
Banks. There are as many as 67 RRB's.
32
Functions
The main purpose of RRB's is to mobilize financial
resources from rural / semi-urban areas and
grant loans and advances mostly to
small and marginal farmers,
agricultural laborers and
rural artisans.
The area of operation of RRBs is limited to the
area as notified by GoI covering one or more
districts in the State.
COMMERCIAL BANKING
33 34
Commercial Banking Overview
Commercial banks provide banking
services to individuals, small
businesses and large organizations
Structure Of Commercial Bank
35
36
Commercial Banks
Commercial banks comprising public sector
banks, foreign banks, and private sector banks
represent the most important financial
intermediary in the Indian financial system.
37
Functions of a commercial bank
Functions of
commercial
banks
Primary
Functions
Receiving
Deposits
Time Liabilities
FD
RD
Demand Liabilities
SB A/c
Current Ac
Lending
O.D
Cash Credit
Money at call
Discounting
BoE
Loans &
Advances(term
loans)
Secondary
Functions
Agency Services
Payment of rent, insurance premium etc
Collecting cheques
Dealing in forex
D- Mat accounts, E Ticket, purchase and sale of securities, acts as trustee
and executor
General Utility Services
Safe Custody Deposits
Lockers
Transfer of money
Issue of traveler's chq etc
Merchant banking
ATMs
Credit Cards
E-banking
Misc Services
38
Role of commercial banks in socio
economic development.
Banks promote capital formation.
Investment in new enterprise.
Promotion of trade and industry.
Development of agriculture.
Balanced development of different regions.
Implementation of monetary policy.
Export promotion.
Financing the priority sectors.
Continued?
Assistance to agriculture and SSIs
Assistance to women and students
Control the trade cycle
Catalyst to social change
39
Service Rendered by Commercial Banks
40
1)Teller System
2)Plastic Money
3)Online Banking
4)Traveller?s Cheque
5)Gifts Cheques
6)Telegraphic Transfer
41
Important function of commercial banks.
The tendency on the part of commercial
banks to expand their demand deposits as
a multiple of their excess cash reserve is
called creation of credit.
Credit Creation:
42
Credit creation happens in two ways ?
1. Primary deposits
A normal deposit by the customer
Debt to the bank
Primary deposits bring cash into banking system
2. Derivative deposits
Using the cash deposited the bank grants advances and buys
bills, bonds etc
While lending, the bank places the amount of loan in the
account of borrower
These deposits are derived from the primary deposits and are
known as derivative deposits
Credit Creation:
CREDIT CREATION PROCESS
43 44
Limitations of credit creation
Adequate cash reserve
Availability of securities
Quantity of money in circulation
Banking habit of people
Policy of the central bank
Nature of business conditions
Behavior of other banks
RESERVE BANK OF INDIA
45
RBI
The Reserve Bank of India Act 1934 was commenced on
April1, 1935. The Act, 1934 (II of 1934) provides the
statutory basis of the functioning of the bank.
The bank was constituted for the need of following:
? To regulate the issue of banknotes.
? To maintain reserves with a view to securing monetary
stability.
? To operate the credit and currency system of the
country to its advantage.
46
Organizational Structure OF RBI
47
Role of Reserve Bank and GOI as
regulator of Banking system.
Bank regulations are a form of government
regulation which subject banks to certain
requirements, restrictions and guidelines.
This regulatory structure creates transparency between
banking institutions and the individuals and corporations
with whom they conduct business, among other things.
48
Objectives of bank regulation
1. Prudential?to reduce the level of risk to which bank
creditors are exposed (i.e. to protect depositors)
2. Systemic risk reduction?to reduce the risk of disruption
resulting from adverse trading conditions for banks causing
multiple or major bank failures.
3. Avoid misuse of banks?to reduce the risk of banks being
used for criminal purposes.
e.g. laundering the proceeds of crime
4. To protect banking confidentiality
5. Credit allocation?to direct credit to favored sectors
6. It may also include rules about treating customers fairly
and having corporate social responsibility (CSR)
49
General principles of Bank regulation
Minimum requirements
Supervisory review
Market discipline
50
Role of Reserve Bank and GOI as
regulator of Banking system.
Controlling money supply in the system
Monitoring different key indicators like GDP
and inflation.
Maintaining people?s confidence in the banking
and financial system.
Providing different tools for customer?s help.
51
RBI is the issuer of Currency
Section 22 of the RBI act gives
authority to the RBI to issue the
currency notes.
RBI also takes the control of
circulation of fake currency.
52
RBI is the issuer of Monetary Policy
RBI formulates the monetary policy twice a year and
reviews the policy every quarter as well.
The main objectives of monitoring policy are:
Inflation control
Control on bank credit
Interest rate control
Tools used for implementation of the objectives of
Monetary Policy are:
CRR & SLR
Open market operations
Different rates such as repo rate, reverse repo rate
and bank rate
53
RBI under takes supervisory roles
qIssue of licence
qPrudential norms
qCorporate governance
qKYC norms
qTransparency Norms
qRisk Management
qAudit and inspection
qForeign exchange control
qdevelopment
54
Principles of Banking
q Safety
q Liquidity
q Profitability
55
Provisions of Banking Regulation
Act and Reserve Bank of India Act.
56
Applicability of the Banking Regulation Act, 1949
This Act applies to following categories
of Banks:
? Nationalized Banks
? Non-Nationalized Banks
? Cooperative Banks
57
Business of banking Companies -
Section 6(1) and 6(2) r.w. 56(b)
Borrowing, raising or taking of money
Giving advance
Bills business
L/C , Bank Guarantee, Indemnity
Foreign exchange
Providing safe deposit
Collecting and transmitting money
Managing, selling and realizing any property that
may come into the possession of the bank in
satisfaction or part satisfaction of any of its dues.
58
? Acquiring, holding and dealing with any property
or any right, title or interest in any such property
that may form the security or part of the security
for any loans or advances or which may be
connected with such security.
? Undertaking and executing trusts
? Acquiring, constructing, maintaining and altering
of any building for the purpose of the bank.
59
Doing all such other things as are incidental
or conducive to the promotion or
advancement of the business of the bank
Any other business the Central Govt. may by
notification specify as a allowed business
Banks are prohibited to do any other
business.
60
Cash Reserve (CRR) ? Section 18 r. w. 56 (j)
Every bank is required to keep cash reserve,
with itself or by way of balance in the current
account with RBI or Central / District Co-
operative Bank or net balance in all such way,
of minimum prescribed % amount of its DTL.
? A return about this has to be submitted to
RBI before 15
th
of each month about alternate
Friday.
61
Statutory Liquidity Ratio
Bank shall maintain unencumbered
approved securities, valued not
exceeding the current market price, or
an amount which shall not be less than
24% of the total of its demand and time
liabilities (DTL).
62
Restrictions on loans and advances
(1) Notwithstanding anything to the contrary contained in section
77 of the Companies Act, 1956 (1 of 1956), no banking
company shall,
? (a) grant any loans or advances on the security of its own
shares, or
? (b) enter into any commitment for granting any loan or
advance to or on behalf of any of its directors,
? (ii) any firm in which any of its directors is interested as
partner, manager, employee or guarantor, or
? (iii) any company [not being a subsidiary of the banking
company or a company registered under section 25 of the
Companies Act, 1956 any of the directors of the banking
company is a director, managing agent, manager, employee or
guarantor or in which he holds substantial interest, or
? (iv) Any individual in respect of whom any of its directors is a
partner or guarantor.
63
Licensing of banking companies
Save as hereinafter provided, no company shall carry on
banking business in India unless it holds a license issued in that
behalf by the Reserve Bank and any such license may be issued
subject of such conditions as the Reserve Bank may think fit to
impose.]
Every banking company in existence on the commencement of
this Act, before the expiry of six months from such
commencement, and every other company before commencing
banking business [in India], shall apply in writing to the Reserve
Bank for a license under this section.
64
FirstRanker.com - FirstRanker's Choice
1
PRINCIPLES AND
PRACTICES OF BANKING
2
MODULE 1
BANKING?SYSTEM?AND?STRUCTURE?IN?INDIA?
AND
?COMMERCIAL?BANKING
3
Outline
Banking system and structure in India
? Evolution of Indian Banks
? Types of Banks
? Public Sector Banks, Private Sector Banks
? Regional Banks
? Performance of Public Sector Banks
Commercial Banking
? Structure, Functions, primary and secondary functions.
? Role of commercial banks in socio economic development
? Services rendered by Commercial Banks
? Credit Creation and Deployment of Funds
? Role of Reserve Bank and GOI as regulator of Banking system.
? Provisions of Banking Regulation Act and Reserve Bank of India
Act.
4
Introduction Of Banking Industry
The Banking Companies Act of 1949, defines :
Banking company as a company which transacts the
business of banking in India. It defines banking as, accepting
for the purpose of lending or investment of deposit money
from the public, repayable on demand or otherwise and
withdraw able by cheque draft, order or otherwise.
A bank as an institution dealing in money and credit. It
safeguard of the savings of the Public and gives loans and
advances.
5
Bank defined?..
A bank is a financial institution and a
financial intermediary that accepts deposits
and channels those deposits into lending
activities, either directly by loaning or
indirectly through capital markets. A bank is
the connection between customers that have
capital deficits and customers with capital
surpluses.
6 7
Indian Banking : Evolution
Three presidency banks were established in Calcutta (1806) in Bombay
(1840) and in Madras (1843)
In the early part of 20
th
century, on account of the Swadeshi movement a
number of join stock banks were established by Indians like Bank of India,
Bank of Baroda and Central Bank of India.
In 1921 the three presidency banks were merged and the Imperial Bank
of India was created.
During the period 1900 to 1925 many banks failed, and the Government
appointed in 1929 a Central Banking Enquiry Committee to trace the
reasons for the failure of banks.
The Reserve Bank of India Act was passed in 1934 and the RBI came into
existence in 1935 and RBI was nationalised in 1949
8
Indian Banking : Evolution
The Banking Regulation Act,1949 gave wide powers to
RBI to act as the regulator for banks in India.
In 1955, State Bank of India became the successor to
the Imperial Bank of India ,under the State Bank of
India Act,1955.
In 1959, State Bank of India (Subsidiary Banks) Act was
passed to enable SBI to take over State Associated
banks as SBI?s subsidiaries.
In 1969, the Government of India nationalised 14 major
commercial banks having deposits of Rs.50 crore or more.
In 1975 Regional Rural Banks were established under RRB
Act 1976, which was preceded by RRB Ordinance in 1975.
In 1980, six more commercial banks were nationalised, with
a deposit of Rs.200 crore or more.
9
Indian Banking : Evolution
10
Progress of banking in India
In the liberalized, privatized and globalized environment,
banks operating in India have diversified their banking
activities by offering Para Banking facilities like
? Merchant banking/Mutual funds
? ATMs/Credit Cards/Internet banking
? Venture capital funds
? Factoring
? Bancassurance
11
Banking in India
Banking in India is governed by BR Act,1949
and RBI Act,1934
Banking in India is controlled/monitored
by RBI and Govt. of India
The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
12
Banking Regulation Act,1949
(BR Act)-1
BR Act covers banking companies and
cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue
license for banks
13
Reserve Bank of India Act,1934
(RBI Act)-1
? RBI Act was enacted to constitute the
Reserve Bank of India
? RBI Act has been amended from time to
time
? RBI Act deals with the constitution,
powers and functions of RBI
14
Reserve Bank of India Act,1934
(RBI Act)-2
RBI Act deals with:
incorporation, capital management and
business of banks
central banking functions
financial supervision of banks and
financial institutions
management of forex reserves
control functions : bank rate, audit,accounts
penalties for violation
Types Of Banking:
The principal banking institutions of a country may be classified
into following types:
(1) Central Banks
(2) Commercial Banks
(3) Industrial Or Development Banks
(4) Exchange Banks (authorized dealers in foreign exchange)
(5) Co-operative Banks
(6) Agriculture & Rural development Banks
(6) Indigenous Banks
(7) International Banks
15
Central Banks
16
Central Bank is the bank of a country ? a nation.
Its main function is to issue currency known as ?Bank Notes?.
This bank acts as the leader of the banking system and money
market of the country by regulating money and credit.
These banks are the bankers to the government; they are
banker?s banks and the ultimate custodian of a nation?s
foreign exchange reserves.
The aim of the Central Bank is not to earn profit, but to
maintain price stability and to strive for economic
development with all round growth of the country.
Commercial Banks
A bank, which undertakes all kinds of ordinary
banking business, is called a commercial bank.
17
Industrial Banks or Financial Institutions
An Industrial Bank is one which specializes by
providing loans and fixed capital to industrial
concerns by subscribing to share and debenture
issued by public companies.
18
Exchange Banks (Authorised Dealers in Foreign
Exchange):
These types of banks are primarily engaged in
transactions involving foreign exchange. They
deal in foreign bills of exchange import and
export of bullion and otherwise participate in the
financing of foreign trade.
19
Co-operative Banks
They are organized on co-operative principles of
mutual help and assistance. They grant short-term
loans to the agriculturists for purchase of seeds,
harvesting and for other cultivation expenses. They
accept money on deposit from and make loans to
their members at a low rate of interest.
20
Land-mortgage Banks (Presently known as
Agriculture and Rural Development Banks):
They are agriculture development banks. The Land-mortgage
banks supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields. They
grant loan for permanent improvements in agricultural
lands.
The National Bank for Agriculture and Rural Development
(NABARD) was constituted by the Government to promote
rural development.
21
Indigenous Banks
The Central Banking Enquiry Commission defined
an indigenous banker as an individual or firm
accepting deposits and dealing in indigenous
lending of money to the needy.
They form unorganized part of the banking
structure, i.e., these are unrecognized operators in
receiving deposits and lending money.
22
International Banks
International Banks are those which are operating in
different countries. While, the registered office/head office
is situated in one country, they operate through their
branches in other countries. They specialize in Banking
business pertaining to foreign trade like opening of letters
of credit, providing short-term finance in foreign currency,
issue of performance guarantee, arranging foreign
currency credits, etc. They are the main traders in
International Currencies like US 'dollars', Japanese 'Yen',
the new-born European Currency 'Euro', etc.
23
Structure Of Indian Banking System
24
Scheduled Banks
Scheduled Banks are those banks which are listed in the
Second Schedule to the Reserve Bank of India Act, 1934. The
Banks satisfying the following conditions are only included in
the Second Schedule.
(a) That the Bank?s paid up capital plus free reserves are not
less than Rs. 5.00 lakh, and
(b) That the affairs of the Bank are not conducted to the
detrimental interest of the depositors.
The Reserve Bank also has powers to deschedule a bank, when
the abovementioned conditions are not satisfied.
It may be noted presently, the RBI has prescribed a minimum
capital of Rs. 100 crores for starting a new commercial bank.
25
Non-scheduled Banks
Scheduled Banks are those banks which are not listed in
the Second Schedule to the Reserve Bank of India Act, 1934.
(a)These banks also need to maintain a satutory reserve but
not with RBI
(b) Their banking activities are limited. E.g) they cant deal in
foreign exchange
26 27
Public Sector Banks, Private Sector Banks
Public sector bank refers to commercial banks
which are owned by the central Government
either directly or indirectly through the reserve
bank of India.
They are also referred to National Banks.
Public sector banks comprise two categories.
1) State Bank Group
2) Nationalised Banks
State Bank Group
28
The history of nationalization of Indian banks dates back to
the year 1955 when the Imperial Bank of India was
nationalized and re-christened as State Bank of India (under
the SBI Act, 1955).
Later on July 19, 1960, the 7 subsidiaries of SBI viz. State
Bank of Hyderabad (SBH), State Bank of Indore, State Bank
of Saurashtra (SBS), State Bank of Mysore (SBM), State
Bank of Bikaner and Jaipur (SBBJ), State Bank of Patiala
(SBP), and State Bank of Travancore (SBT) were also
nationalized with deposits more than 200 crores.
Nationalized Banks
29
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank
Private Sector Banks
Private sector banks are those commercial banks
which are owned and controlled by private
entrepreneurs.
This banks comprise two categories of banks:
1) Private Sector Indian Banks
2) Private Sector Foreign Banks.
30 31
Regional Banks
These are the banking organizations operating in
different states of India.
Created to serve the rural areas with banking and
financial services.
However, RRB's may have branches set up for urban
operations and there area of operation may include
urban areas too.
They are also referred to as Grameen Banks/ Gramin
Banks. There are as many as 67 RRB's.
32
Functions
The main purpose of RRB's is to mobilize financial
resources from rural / semi-urban areas and
grant loans and advances mostly to
small and marginal farmers,
agricultural laborers and
rural artisans.
The area of operation of RRBs is limited to the
area as notified by GoI covering one or more
districts in the State.
COMMERCIAL BANKING
33 34
Commercial Banking Overview
Commercial banks provide banking
services to individuals, small
businesses and large organizations
Structure Of Commercial Bank
35
36
Commercial Banks
Commercial banks comprising public sector
banks, foreign banks, and private sector banks
represent the most important financial
intermediary in the Indian financial system.
37
Functions of a commercial bank
Functions of
commercial
banks
Primary
Functions
Receiving
Deposits
Time Liabilities
FD
RD
Demand Liabilities
SB A/c
Current Ac
Lending
O.D
Cash Credit
Money at call
Discounting
BoE
Loans &
Advances(term
loans)
Secondary
Functions
Agency Services
Payment of rent, insurance premium etc
Collecting cheques
Dealing in forex
D- Mat accounts, E Ticket, purchase and sale of securities, acts as trustee
and executor
General Utility Services
Safe Custody Deposits
Lockers
Transfer of money
Issue of traveler's chq etc
Merchant banking
ATMs
Credit Cards
E-banking
Misc Services
38
Role of commercial banks in socio
economic development.
Banks promote capital formation.
Investment in new enterprise.
Promotion of trade and industry.
Development of agriculture.
Balanced development of different regions.
Implementation of monetary policy.
Export promotion.
Financing the priority sectors.
Continued?
Assistance to agriculture and SSIs
Assistance to women and students
Control the trade cycle
Catalyst to social change
39
Service Rendered by Commercial Banks
40
1)Teller System
2)Plastic Money
3)Online Banking
4)Traveller?s Cheque
5)Gifts Cheques
6)Telegraphic Transfer
41
Important function of commercial banks.
The tendency on the part of commercial
banks to expand their demand deposits as
a multiple of their excess cash reserve is
called creation of credit.
Credit Creation:
42
Credit creation happens in two ways ?
1. Primary deposits
A normal deposit by the customer
Debt to the bank
Primary deposits bring cash into banking system
2. Derivative deposits
Using the cash deposited the bank grants advances and buys
bills, bonds etc
While lending, the bank places the amount of loan in the
account of borrower
These deposits are derived from the primary deposits and are
known as derivative deposits
Credit Creation:
CREDIT CREATION PROCESS
43 44
Limitations of credit creation
Adequate cash reserve
Availability of securities
Quantity of money in circulation
Banking habit of people
Policy of the central bank
Nature of business conditions
Behavior of other banks
RESERVE BANK OF INDIA
45
RBI
The Reserve Bank of India Act 1934 was commenced on
April1, 1935. The Act, 1934 (II of 1934) provides the
statutory basis of the functioning of the bank.
The bank was constituted for the need of following:
? To regulate the issue of banknotes.
? To maintain reserves with a view to securing monetary
stability.
? To operate the credit and currency system of the
country to its advantage.
46
Organizational Structure OF RBI
47
Role of Reserve Bank and GOI as
regulator of Banking system.
Bank regulations are a form of government
regulation which subject banks to certain
requirements, restrictions and guidelines.
This regulatory structure creates transparency between
banking institutions and the individuals and corporations
with whom they conduct business, among other things.
48
Objectives of bank regulation
1. Prudential?to reduce the level of risk to which bank
creditors are exposed (i.e. to protect depositors)
2. Systemic risk reduction?to reduce the risk of disruption
resulting from adverse trading conditions for banks causing
multiple or major bank failures.
3. Avoid misuse of banks?to reduce the risk of banks being
used for criminal purposes.
e.g. laundering the proceeds of crime
4. To protect banking confidentiality
5. Credit allocation?to direct credit to favored sectors
6. It may also include rules about treating customers fairly
and having corporate social responsibility (CSR)
49
General principles of Bank regulation
Minimum requirements
Supervisory review
Market discipline
50
Role of Reserve Bank and GOI as
regulator of Banking system.
Controlling money supply in the system
Monitoring different key indicators like GDP
and inflation.
Maintaining people?s confidence in the banking
and financial system.
Providing different tools for customer?s help.
51
RBI is the issuer of Currency
Section 22 of the RBI act gives
authority to the RBI to issue the
currency notes.
RBI also takes the control of
circulation of fake currency.
52
RBI is the issuer of Monetary Policy
RBI formulates the monetary policy twice a year and
reviews the policy every quarter as well.
The main objectives of monitoring policy are:
Inflation control
Control on bank credit
Interest rate control
Tools used for implementation of the objectives of
Monetary Policy are:
CRR & SLR
Open market operations
Different rates such as repo rate, reverse repo rate
and bank rate
53
RBI under takes supervisory roles
qIssue of licence
qPrudential norms
qCorporate governance
qKYC norms
qTransparency Norms
qRisk Management
qAudit and inspection
qForeign exchange control
qdevelopment
54
Principles of Banking
q Safety
q Liquidity
q Profitability
55
Provisions of Banking Regulation
Act and Reserve Bank of India Act.
56
Applicability of the Banking Regulation Act, 1949
This Act applies to following categories
of Banks:
? Nationalized Banks
? Non-Nationalized Banks
? Cooperative Banks
57
Business of banking Companies -
Section 6(1) and 6(2) r.w. 56(b)
Borrowing, raising or taking of money
Giving advance
Bills business
L/C , Bank Guarantee, Indemnity
Foreign exchange
Providing safe deposit
Collecting and transmitting money
Managing, selling and realizing any property that
may come into the possession of the bank in
satisfaction or part satisfaction of any of its dues.
58
? Acquiring, holding and dealing with any property
or any right, title or interest in any such property
that may form the security or part of the security
for any loans or advances or which may be
connected with such security.
? Undertaking and executing trusts
? Acquiring, constructing, maintaining and altering
of any building for the purpose of the bank.
59
Doing all such other things as are incidental
or conducive to the promotion or
advancement of the business of the bank
Any other business the Central Govt. may by
notification specify as a allowed business
Banks are prohibited to do any other
business.
60
Cash Reserve (CRR) ? Section 18 r. w. 56 (j)
Every bank is required to keep cash reserve,
with itself or by way of balance in the current
account with RBI or Central / District Co-
operative Bank or net balance in all such way,
of minimum prescribed % amount of its DTL.
? A return about this has to be submitted to
RBI before 15
th
of each month about alternate
Friday.
61
Statutory Liquidity Ratio
Bank shall maintain unencumbered
approved securities, valued not
exceeding the current market price, or
an amount which shall not be less than
24% of the total of its demand and time
liabilities (DTL).
62
Restrictions on loans and advances
(1) Notwithstanding anything to the contrary contained in section
77 of the Companies Act, 1956 (1 of 1956), no banking
company shall,
? (a) grant any loans or advances on the security of its own
shares, or
? (b) enter into any commitment for granting any loan or
advance to or on behalf of any of its directors,
? (ii) any firm in which any of its directors is interested as
partner, manager, employee or guarantor, or
? (iii) any company [not being a subsidiary of the banking
company or a company registered under section 25 of the
Companies Act, 1956 any of the directors of the banking
company is a director, managing agent, manager, employee or
guarantor or in which he holds substantial interest, or
? (iv) Any individual in respect of whom any of its directors is a
partner or guarantor.
63
Licensing of banking companies
Save as hereinafter provided, no company shall carry on
banking business in India unless it holds a license issued in that
behalf by the Reserve Bank and any such license may be issued
subject of such conditions as the Reserve Bank may think fit to
impose.]
Every banking company in existence on the commencement of
this Act, before the expiry of six months from such
commencement, and every other company before commencing
banking business [in India], shall apply in writing to the Reserve
Bank for a license under this section.
64
ASSIGNMENTS 1:
1. Define Banking. Dec.15/Jan16. (3 marks)
2. What are the types of banks? June/July 2016 (3 marks)
3. Explain the functions of commercial banks. June/July 2016 (7 marks)
4. Discuss the role of commercial bank in socio economic development.
Dec.15/Jan16 (7 marks).
5. Explain the bank?s basics of creation on assets. June/July 2016 (7
marks)
6. Explain the role of RBI & GOI as regulator of banking system.
Dec.15/Jan16, June/July 2016 ( 10 marks)
65
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This post was last modified on 18 February 2020