Banking & Insurance

Sub: Business Aspects in Banking & Insurance Topic: Structure of Indian Banking Sector

Presented by: Group no.8

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Group Members

Names
1) Naseema Shaikh 2) Maya Wala 3) Priya Singh 4) Pooja Patil 5) Khushboo Singh

Roll No.
84 109 97 70 94

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Acknowledgement
Well to say this is my project would be totally untrue. At best this was my effort. There are people in this world, some of them so wonderful that made this effort become a project. I would like to thank all of them, and in particular: Prof: Seema who gave her guidance very conveniently in the completion of our project. And also my Parents who always encouraged and motivated me for every issues relating
to my studies. As well as Our Librarian who helped us by providing books according to our topics. My Team Mates Priya, Maya, Pooja, Khushboo, and Seema without whose support I would not be able to complete this project alone. Last but not the least it is only when one writes and realizes the true power of MS word 2007, from grammar checks to replace-alls. It is simple. And the power of Windows XP the OS where MS Office is . Thank you Mr. Bill Gates and Microsoft Corp!

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Index
Table of Contents
History : Phase I....................................................................................................................................................................... 2 Phase II .................................................................................................................................................................................... 2 Phase III ................................................................................................................................................................................... 2 Phase IV ................................................................................................................................................................................... 2 Structure of Indian Banking .................................................................................................................................................... 2 Reserve Bank of India (RBI) ..................................................................................................................................................... 2 Scheduled & non-scheduled banks. ........................................................................................................................................ 2 Commercial Banks................................................................................................................................................................... 2 Rural Banks.............................................................................................................................................................................. 2 Foreign banks .......................................................................................................................................................................... 2 Co-operative banks ................................................................................................................................................................. 2 Public Sector banks ................................................................................................................................................................. 2 Private Sector banks ............................................................................................................................................................... 2 Sources of funds...................................................................................................................................................................... 2 Bibliography .................................................................................................................................................................... 2 Conclusion.. .......................................................................................................................................................................... 2

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History : Phase I
In the ancient India, Sahukars, Thakurs, Munshi, Landlords and many others were the people who use to give out loan to the people who were in need for money. The money lenders exploited the poor people, by charging high rate of interest that the poor people(farmers), were not able to pay up there loans. In the 18th century the British entered India. The General Bank of India was set up in the year 1786. Next came Bank of Hindustan and Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of Bombay (1840) and Bank of Madras (1843) as independent units and called it Presidency Banks

Phase II
The second phase of nationalisation of Indian banks took place in the year 1980. Seven more banks were nationalised with deposits over 200 corers. Till this year, approximately 80% of the banking segments in India were under Government ownership. In 1921 the three presidency banks were merged to form The Imperial Bank of India.

Phase III
The nationalisation of banks in India that took place in 1969 by Mrs. Indira Gandhi the then prime minister, nationalised 14 banks then. These banks were mostly owned by businessmen and even managed by them.

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Central Bank of India, Bank of Maharashtra, Dena Bank, Punjab National Bank, Syndicate Bank, Canara Bank, Indian Bank, Indian Overseas Bank, Bank of Baroda, Union Bank, Allahabad Bank, United Bank of India, UCO Bank

Phase IV
This phase has introduced many more products and facilities in the banking sector in its reforms measure. In 1991, under the chairmanship of M Narasimham, a committee was set up by his name which worked for the liberalisation of banking practices. The country is flooded with foreign banks and their ATM stations. Efforts are being put to give a satisfactory service to customers. Phone banking and Net banking is introduced. The entire system became more convenient and swift. Time is given more importance than money.

Structure of Indian Banking

The Indian banking can be broadly categorizied into nationalized ,private banks , co-operative banks and specialized banking institutions .The Reserve bank of India acts as a centralized body monitoring any discrepancies and shortcomings in the system .

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Reserve Bank of India (RBI)

Overview of RBI:The reserve bank of India was originally constituted as a shareholders bank in 1935 under the Reserve Bank of India Act, 1934.It has to regulate the issue of bank notes and the keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage. The Bank was nationalised on 1st January,1949 .The bank has been performing a number of functions as a Central Banking Regulation Act,1949,the bank is vested with large powers of supervision , control , direction and inspection of scheduled and non-scheduled banks. The powers originally given to the reserve bank have been enhanced and redefined from time to time through legislation .Under the Act of 1963, the Reserve bank was granted regulatory powers over non-banking institutions which accept deposits .The Act of 1965 ,vested further powers with the bank in the matter of supervision , control and inspection of cooperative banks. With the formulation of the Social Control policy of the central government ,the powers of the bank were further enlarged by the Act of 1968. The Act, of 1974 , while further enhancing the banks powers in the matter of granting finance and refinance ,defined and redefined certain terms .The Act in particular vested wide powers with the bank to make loans and advances to banking companies in terms of emergency. The Reserve Bank is managed by the Central Board of directors , Four Local Board or directors ,and the committee of the Central Board of Directors . The functions of Local Boards to advise the Central Board on the matters referred to them. They are also required to perform duties delegated to them .The final control of the Bank vests in the duties delegated to them .The final control of the Bank vests in the Central Board which comprises the Governor , Four Deputy Governors and Fifteen Directors nominated by the central Government .The bank has twenty departments and three training establishment s at the Central Office of the bank.

Functions of Reserve Bank of India :1. Regulation of currency :

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The Reserve Bank of India enjoys the monopoly of note issue in the country. The RBI Act ,1934 provided for the proportional Reserve System for the issue of notes . It means the RBI is required to keep in reserve against the note issue Rs. 200 crores worth of gold coin , gold bullion and foreign securities of which the value of gold coin and gold bullion must not be less than Rs. 115 crores . The bank has established a separate department for this purpose . The department has been entrusted with the responsibility of the of the issue of currency into circulation . Thus , RBI occupies a strategic role in controlling the economy of the country . All currency notes except the one rupee notes and the coins are issued by the Reserve Bank of India . One rupee notes are issued by the Ministry of Finance Government of India. 2. Bankers Bank : The Reserve Bank of India acts as a banker to other banks .All other banks work under the control of reserve bank of India .The Reserve Bank performs for its client .The Reserve bank of India accepts deposits from the banks , advances loans to them , acts as a clearing house for them and comes to rescue whenever they realize any difficulty as the last resort . The RBI also advises the other banks whenever they require. It also keeps their balance of cash and remits funds on their behalf. The member banks are require. It also keeps their balance of cash and remits funds on their behalf. The member banks are required to submit a report to the Reserve Bank Of India about their business and activities from time to time. They have to submit full balance sheets to the Reserve Bank .The RBI formulates rules for these banks . 3. Banker to Government : The Reserve Bank of India acts as a banker to the central and state governments .The functions involve the receipts and payments of money on behalf of the government ,the Reserve Bank of India performs the following functions : a) The Bank manages the public debt and helps in flotation of new loans. b) The bank maintains currency chests at prescribed places in order to provide currency for the transactions of the government. c) It provides short term credit to the government against securities. d) It also acts as the adviser to the government on banking and financial matters. 4. Custodian of Foreign Exchange Reserves :
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Scheduled & non-scheduled banks.

As a custodian of foreign exchange , the Reserve Bank of India maintains the external value of the rupee . It also manages exchange control and acts as an agent of the government in respect of Indias membership of the International Monetary Fund.

Scheduled Banks :
Scheduled Banks in India constitute those banks which have been included in the Second Schedule of Reserve Bank of India(RBI) Act, 1934. RBI in turn includes only those banks in this schedule which satisfy the criteria laid down vide section 42 (6) (a) of the Act. As on 30th June, 1999, there were 300 scheduled banks in India having a total network of 64,918 branches .The scheduled commercial banks in India comprise of State bank of India and its associates (8) , nationalised banks (19), foreign banks (45), private sector banks (32), cooperative banks and regional rural banks. Scheduled banks in India means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934), but does not include a co-operative bank.

Non scheduled Banks :

Non-scheduled bank in India" means a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949), which is not a scheduled bank" . The commercial banks which are not included in the second schedule of the reserve bank of India act ,1934 are called as Non-scheduled banks. They are not entitled to facilities like refinance, and rediscounting of bills from the reserve bank . They donot get the privileges that are available to the scheduled banks .They are mainly engaged in money lending ,discounting and collecting bills and various other agency services . Therefore , they insist higher security for loans.

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Commercial Banks
Commercial banks are the oldest and fastest growing banks in India. They are also most important depositories of public savings and the most important lenders. Commercial banking in India is a unique system in the world. The commercial banking in India has social control and public ownership. The operations of banks have been determined by Lead Bank Scheme, Differential Rate of Interest Scheme, Credit Authorization Scheme, inventory norms and lending systems prescribed by the authorities. Commercial banks are simple business organizations which provide various types of financial services to customers in return for payments in one form or another, such as interest, discount, commission, fees, etc. Their objective is to make profits. Commercial banks include scheduled, non-scheduled, Indian, foreign, public sector, private sector and regional rural banks. Profitability, liquidity, safety and social welfare are the major principles which commercial banks strive to incorporate in their working. The Indian banking system is of branch banking type and it is characterized by excessive concentration of business in a small number of big public sector banks. There has been a tremendous growth of commercial banks during the past 40 years. There has been phenomenal increase in bank deposits and bank branches. Banks accept various types of deposits such as demand, saving, fixed and call. Individuals own more than three-fourths of these deposits. The commercial banks have developed innovative approaches such as consortium, single-window and participatory lending. Banking business is subject to marked seasonal variations. The massive quantitative expansion has not been accompanied by quick, reliable and better customer service. The low efficiency, productivity, overdues, bad debts and defaults are some of the problems of these banks. These banks have diversified into many related areas such as merchant banking, mutual funds, venture capital, equipment leasing, housing finance, hire-purchase credit, either directly or indirectly. Commercial banks are the oldest and fastest growing banks in India. They are also most important depositories of public savings and the most important lenders. Commercial banking in India is a unique system in the world. The commercial banking in India has social control and public ownership. The operations of banks have been determined by Lead Bank Scheme, Differential Rate of Interest Scheme, Credit Authorization Scheme, inventory norms and lending systems prescribed by the authorities.

Rural Banks
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Regional Rural Banks were set up under an Act of Parliament in 1976, with the objective of developing rural economy through promotion of agriculture, trade, commerce, industry and extending credit, particularly to the small and marginal farmers, agricultural labourers, artisans and small entrepreneurs. These banks are small banks. Their authorized capital shall not exceed Rs. 5 Crores. Of the issued capital of each Regional Rural Bank, Central Government has to invest minimum of Rs. 25 Lakhs and maximum of Rs. One Crore. Each Regional Rural Bank is sponsored by a Commercial bank who shall hold 35% of the issued capital, the concerned Stage Government and the Central Government subscribing to 15% and 85% respectively. Additional capital if approved by the concerned State Government and the sponsored bank, shall also be subscribed in the same proportion. Regional Rural Banks have been gaining greater responsibility in the agricultural development of the country. There are 196 RRBs covering 349 districts of the country. The aggregate deposits and advances of RRBs are in the order of Rs. 1,800 crores each. The RRBs are not restricted by the Statutory Liquidity Ratio or the Cash Reserve Ratio as in the case of commercial banks.

Foreign banks
Foreign Banks in India have brought an explanation about the prompt service to customers. Banking sector in India has become competitive and accurative after the set up of foreign banks. Now foreign banks are permitted to set up local subsidiaries. The policy conveys that foreign banks in India may not be required to acquire Indian banks and their Indian subsidiaries will not be able to open branches freely. The list of foreign banks in India is given below: 1. ABN Amro Bank 2. Abu Dhabi Commercial Bank 3. Bank of Ceylon 4. BNP Paribas Bank 5. CITI Bank 6. China Trust Commercial Bank 7. Deutsche Bank 8. HSBC Bank 9. J P Morgan Chase Bank 10.Standard Chartered Bank 11.Scotia Bank 12.Taib Bank
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Foreign banks have brought latest technology and latest banking practices in India. They have helped make Indian Banking system more competitive and efficient. Therefore, Government of India has come up with a road map for expansion of foreign banks in India.

Co-operative banks
The co-operative banking started in India in 1904.Co-operative Banks in India are registered under the Co-operative Societies Act. The cooperative bank is also regulated by the RBI. They are governed by the Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965. Today co-operative banks form a set of institutions which engaged in financing rural & agricultural development. They also work on NO PROFIT NO LOSS basis & they perform all the main banking function. The co-operative banking system composed state co-operative banks, central co-operative banks, urban co-operative banks, primary agricultural banks credit society & land development banks. Co-operative banks are managed by the BOD on the principle of co-operation,self & mutual help. They function are as per rule of one member one vote. They do not pursue the goal of profit maximization.co-operative banks were doing business mainly in the agricultural &rural sector. They perform all the major banking function such as depositmobilisation, supply of credit, provision of transfer of money etc. State Co-operative Banks:They operate at state level only. State co-operative banks have access to RBI. They are the apex level. District Central Co-operative banks:They operate at district level. They are at middle level. Urban Co-Operative Banks:They operate at the town level. They are bottom level.

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Public Sector banks

Commercial bank were operating like any other business and they were mainly concerned with the maximisation of their private gains. They were lacking in social purpose. The freedom to commercial with the freedom commercial bank was not in harmony with the concept of the socialistic pattern of society. TheHazari committee Report on Industrial Planning and licensing policy submitted to the Planning Commission on September 14th, 1967,clearly underlined the point and stated ,it would be difficult to undertake credit planning unless the linked control of industry and banks in the same hands is snapped by nationalisation of banks.Public sector banks are the banks which are owned and runned by the government of India. Among the Public Sector Banks in India, United Bank of India is one of the 14 major banks, which were nationalized on July 19, 1969. OBC is implementing a GRAMEEN PROJECT in Dehradun District (UP) and Hanumangarh District (Rajasthan) disbursing small loans.

Private Sector banks

The new private banks emerged on the Indian financing Topography in 1994. Private sector banks are owned by the group of individuals. Narasimhan committee envisaged a large role for the private sector banks in 1991. The RBI agreed to make banking sector more efficient and competitive. Therefore it issued, in January 1993, the guidelines governing the entry of new private bank with a minimum paid up capital of Rs.100corers. The RBI issued the fresh banking licenses to private sector banks. The first Private bank in India to be set up in was IndusInd Bank. It is one of the fastest growing Bank Private Sector Banks in India.

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Sources of funds
The following are the main sources of funds: 1) Share capital: Banking company is a company registered under the companies act ,1956.It has to issue shares to raise capital . The share capital of a banking company should include only ordinary or equity shares. A banking company can not carry on business, if the share capital is less than 50% of its authorised capital or paid up capital is less than 50% of its subscribed capital. Thus ,share capital raised by a banking company becomes an important source of funds for the bank. 2)Borrowings: A banking company can borrow funds for financing its activities . Bank can borrow from other banks , financial institutions & reserve bank of india .The Reserve Bank of India refinances the banks to meet their requirements . The banks can also borrow from foreign banks or from outside India . However, there is a limit on borrowings as per Companies Act ,1956. The banks have to follow RBI guidelines while borrowing funds from outside India as well as within India . These borrowings are shown separately in the balance sheet. 3)Reserve & Surplus: Section 17 of the Banking Regulation Act,1949 provides that at least 25% of the profits prior to declaration of dividend must be transferred to the Reserve called as Statutory Reserve . It should be shown separately in the balance sheet . However, the central Government on recommendation of RBI, may exempt any bank from this provision if the amount of reserve fund together with share premium is at least equal to the paid up share capital . The net profit after providing for dividend is also shown in the balance sheet as surplus . The amount of Reserve & Surplus cannot have this kind of funds because it depends upon the profits of the bank. 4)Accepting deposits: Tapping the savings of the public by means of different kinds of deposits is one of the major functions of a bank. When a bank accepts deposits, it is said to borrow money. As a borrower, the bank has to safeguard its position. Therefore before opening an account a bank has to observe certain general precautions. Every deposit is a property of the bank. The bank is responsible for the safety of the deposit. A bank may use its discretion in allowing or not alllowing a personal deposit and it can not be questioned. In order to open an account in a bank, the depositor has to furnish all his details in an application form with his specimen signature. The account is open with a proper introduction , and verification of the documents. Today, the bank ask for photograph and proof of residence as
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well as nominee, at the time of opening an account. In case of a company or a co-operative society, the documents like memorandum of association, articles of association, byelaws are verified with their copies. A new account is always open with cash. The depositor is supplied with a pay-in-slip book for depositing cash or cheques and the withdrawal slip can be used for withdrawing cash from the bank. Certain account holders are provided a cheque book for making payment by cheques.in addition to the above, a depositor is also given a passbook, which reflects customers accounts in the banks ledgers. The passbook also contains the rules and regulations of the bank and the term and conditions of the deposit. A bank normally accepts the following type of deposits: CURRENT DEPOSIT: a current account is normally opened by businessman for their convenience. Money can be deposited & withdrawn at any number of times. Withdrawals are made by cheques only. Usually, a bank does not allow any interest on this account. The current account is opened because of two important privileges (i)overdraft facilites and (ii) other facilities like collection of cheques , transfer of money and for other services. The current accountholders have to keep certain minimum balance as per rules of the bank . They are provided a statement of account instead of a Passbook .A current account is a running and active account that may be operated any number of times during a working day . current accounts are suitable for the requirements of big businessmen, companies, institutions, public authorities .the primary objective of a current account is meant for the convience of customers who are relieved of the yask of handling cash themselves & to take the risk inherent therein. Fixed Deposit: A fixed deposit is one , which is repayable after the expiry of a certain period determined by the depositor. The period may be 30days to 5years or more.the rate of interest depends upon the maturity period .Normally, the deposit is not refunded before the expiry of maturity . It is also known as Time Deposit. An application form is filled up by the depositor for opening an account stating the Name,Address,Amount of Deposit, Period of Deposit ,Name of Nominee and his/her signature. A fixed deposit account can be opened in the names of two or more individuals which is called joint accont.The banker can utilize such amount more profitably.The rate or interest on fixed deposits is higher than other kinds of deposits. Fixed deposits are more popular in India & constitute more than 50% of the total bank deposits. Savings Deposit: The main object of this deposit is to promote savings of the people .It is intended primarily for small savers.Minimum 500Rs. Can be deposited to open the account.
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There is a restriction on withdrawals. A cheque book facility is available only with higher minimum balance.it carries low rate of interest i.e.3.5%to 4% depending upon the type of a bank . Overdraft facility is not available in this account. Savings deposits are meant for the households of the lower & middle income classes who want to save a part of their current income to meet their future needs & earn an income from their savings. The need of keeping cash reserves against such deposits is comparatively larger than the fixed deposits. Recurring Deposit: It is one form of savings deposit. Depositor has to open an account with a fixed amount with aq fixed maturity period and then deposit the same amount every month with the bank. It will enable the depositor to meet his target of expenses. The amount gets accumulated togather with interest. Normally, higher rate of interest is paid depending upon the maturity period. The depositor gets a big amount at maturity. Pre-maturity withdrawals are not allowed. But the depositor can get a loan on the security of the deposit to the extent of 75% of the deposit amount rate is charged by the bank on this loan. It is also called as cumulative deposit account. It is intended to inculcate the habit of saving on a regular basis. A recurring deposit account can be opened by any person, more than one person, jointly, or by guardian in the name of a minor.

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ConClusion..

Today, the banking sector in India is fairly mature in terms of supply, product range and reach. As far as private sector and foreign banks are concerned, the reach in rural India still remains a challenge. The Indian banking situation is very different from that in Europe and the US. There, banks' distress is the cause of the economic crisis.

BiBliography

www.google.com www.slideshare.com www.pepsiindia.com www.scribd.com

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