Report

1) Status of Banks in India

2) History
3) Types and Roles
4) Advancements
5) Challenges faced
6) How they plan to come out of it

1) History

Evolution of Indian Banking Sector

Origin of Modern Banking Industry in India

1. First Bank of India

The first bank of India is Bank of Hindustan established in 1770. This bank was established at
Calcutta under European management. It was liquidated in 1830-32.

of the local Mughal emperors.In this process, they had established three presidency towns viz.
Madras in 1640, Bombay in 1687 and Bengal Presidency in 1690. East India Company’s
headquarters moved from Surat to Bombay (Mumbai) in 1687. Three Presidency banks were set
up under charters from the British East India Company- Bank of Calcutta, Bank of Bombay and
the Bank of Madras. The dates of their establishment were as follows:
● 2 June 1806:Bank of Calcutta was established in 1806; it was renamed in 1809 as Bank
of Bengal
● 15 April 1840: Bank of Bombay established
● 1 July 1843: Bank of Madras established

These worked as quasi central banks in India for many years. Since Calcutta was the most active
trading port in India, mainly due to the trade of the British Empire; it became a banking center.

2. Imperial Bank of India

In 1921, the presidency banks viz. Bank of Bengal, Bank of Bombay and Bank of Madras were
amalgamated to form Imperial Bank of India. It was a private entity till that time. In 1955, this
Imperial Bank of India

3. Presidency Banks

From 1612 onwards, British East India Company had set up various factories or trading posts in
India with the permission was nationalized and renamed as State Bank of India. Thus, State bank
of India is oldest Bank of India among the banks that exist today.

4. Oldest Joint Stock Bank of India

A bank that has multiple shareholders is called joint-stock bank. Oldest Joint Stock bank of India
was Bank of Upper India that was established in 1863. But this bank failed in 1913. India’s
Oldest Joint Stock Bank which is still working is Allahabad Bank. It is also known as India’s
oldest public sector bank. It was established in 1865.

5. First banks owned / managed by Indians

The first Bank with Limited Liability to be managed by Indian Board was Oudh Commercial
Bank. It was established in 1881 at Faizabad. This bank failed in 1958. The first bank purely
managed by Indians was Punjab National Bank, established in Lahore in 1895. The Punjab
national Bank has not only survived till date but also is one of the largest banks in India.
However, the first Indian commercial bank which was wholly owned and managed by Indians
was Central Bank of India which was established in 1911. So, Central Bank of India is called
India’s First Truly Swadeshi bank. Its founder was Sir Sorabji Pochkhanawala and its first
chairman was Sir Pherozeshah Mehta.
2) Status of Banks in India

The Indian banking system consists of 27 public sector banks, 21 private sector banks, 49 foreign
banks, 56 regional rural banks, 1,562 urban cooperative banks and 94,384 rural cooperative
banks, in addition to cooperative credit institutions.

Structure Of Indian Banking Sector

As of Q2 FY19@ total credit extended by commercial banks surged to Rs 90,579.89 billion

(US$ 1,290.68 billion) and deposits grew to Rs 118,501.82 billion (US$ 1,688.54 billion). Assets
of public sector banks stood at US$ 1,557.04 billion in FY18.
Indian banks are increasingly focusing on adopting integrated approach to risk management.
Banks have already embraced the international banking supervision accord of Basel II, and
majority of the banks already meet capital requirements of Basel III, which has a deadline of
March 31, 2019.
Reserve Bank of India (RBI) has decided to set up Public Credit Registry (PCR) an extensive
database of credit information which is accessible to all stakeholders. The Insolvency and
Bankruptcy Code (Amendment) Ordinance, 2017 Bill has been passed and is expected to
strengthen the banking sector.
Deposits under Pradhan Mantri Jan Dhan Yojana (PMJDY) increased to Rs 863.21 billion (US$
11.96 billion) were deposited and 336.6 million accounts were opened in India. In May 2018, the
Government of India provided Rs 6 trillion (US$ 93.1 billion) loans to 120 million beneficiaries
under Mudra scheme. In May 2018, the total number of subscribers was 11 million, under Atal
Pension Yojna.
Rising incomes are expected to enhance the need for banking services in rural areas and
therefore drive the growth of the sector. As of September 2018, Department of Financial
Services (DFS), Ministry of Finance and National Informatics Centre (NIC) launched Jan Dhan
Darshak as a part of financial inclusion initiative. It is a mobile app to help people locate
financial services in India.
The digital payments revolution will trigger massive changes in the way credit is disbursed in
India. Debit cards have radically replaced credit cards as the preferred payment mode in India,
after demonetisation. Debit cards garnered a share of 87.14 per cent of the total card spending.

3) Types and Roles of Banks-

The Banking sector has varied functions and caters to the whole demographic. The
services range from savings account to housing to business loans and many more. With
the fast changing world, people and customers are demanding innovative solutions for
their needs. Thus, various banks have emerged across the globe that try and solve the
different complexities of the financial world.

Based on the clientele and products and services offered, we can classify banks into the
following categories-

Central Bank - Every country has a central bank that is the most important and is of the
highest financial authority. It is also called the bankers bank and is the sole authority to
maintain the financial health of a country. Their main function include maintaining
healthy interest rates, monetary policy, managing foreign exchange and gold reserves,
acting as banker to the government and other banks, and regulating and supervising the
overall banking industry. In India, Reserve Bank of India is the central bank and
manages the money market of the country.

The central bank can be further classified into Scheduled, Non Scheduled and
Specialized Banks.

Scheduled and Non Scheduled Banks- Scheduled Banks are those banks which
have been included in the Second Schedule of the Reserve Bank of India Act, 1934.
They have reserves of value not less than 5 lakhs and are eligible and other privileges
from the RBI.

Non Scheduled Banks are those banks which are not included in the Second Schedule
of the Reserve Bank of India Act, 1934. RBI as such has no specific control over the
Non Scheduled Banks.

Commercial Banks- The Banks that accept deposits fall into the category of
Commercial Banks. These banks act as depositors of people’s money and lend these
same funds to the borrowers. The services provided by commercial banks include,
credit and debit cards, bank accounts, deposits and loans etc. They also provide
secured and unsecured loans. These commercial banks are the oldest institutions in
banking history and generally have a wide network of branches spread throughout the
area of their operations. These can be government owned or privately held.

Public Sector Banks- The Banks in which government is a majority shareholder is

called a public sector bank. The main objective of Public Sector Banks is to ensure that
no institution has a monopoly in the market and subsequent attention is paid to
increasing the level of unprivileged sections of the society. In totality, there are 27 public
sector banks in India.
Private Sector Banks- The majority shareholders in this type of bank are the private
owners and not the government. They govern the bank according to the market forces.
Some examples of private sector banks in India are ICICI Bank, Yes Bank and Axis
Bank.

Foreign Banks- Foreign banks have their registered and head offices in a foreign
country but operate their branches in India. The RBI permits these banks to operate
either through branches; or through subsidiaries. The primary activity of most foreign
banks in India has been in the corporate segment. These banks offer products such as
automobile finance, home loans, credit cards, household consumer finance etc.
Regional Rural Banks- The government of India set up Regional Rural Banks (RRBs)
on October 2, 1975. They operate in different states of India. They have been created to
serve the rural areas with banking and financial services. These banks support small
and marginal farmers by extending credit to them in rural areas. They cater to the credit
needs of small and marginal farmers, agricultural laborers, artisans and small
entrepreneurs. These banks are sponsored by scheduled banks, usually a nationalized
commercial bank. They are also referred to as Grameen Banks/ Gramin Banks. Over
the years, the Government has introduced a number of measures of improve their
profitability.

Cooperative Banks - Cooperative banks are private sector banks. They also provide
cheap credit to their members. They accept deposits and make mortgage and other
types of loans to its members. These banks are also subject to control by the Reserve
Bank of India. In India, they are governed by the provisions of State Cooperative
Societies Act.

Another type is credit unions, which are cooperative organizations that issue share
certificates and make consumer and other loans. Co-operative banks get their
resources from issuance of their shares, accepting public deposits and also taking loans
from the state cooperative banks. They also get short and medium term loans from the
Reserve Bank of India. To enhance safety and public confidence in cooperative banks,
the Reserve Bank of India has extended the Credit Guarantee Scheme to cooperative
banks.

Specialized Banks- Specialized banks are banks that excel in a particular product,
service or sector and provide mission-based services to a section of society. Some
examples of specialized banks are industrial banks, land development banks, regional
rural banks, foreign exchange banks, and export-import banks etc. addressing specific
needs of these unique areas.