Indian Banking

Group-3
Chandan Kumar Hemant Kumar Arya Kailash Chandra Kumud Kiran Mennon Kumar Kacchap Shrinadh Choudhary
1

 AN INTRODUCTION TO INDIAN
BANKING SECTOR
Banking in India originated in the first decade of 18th century with The General Bank of India coming into existence in 1786 BANK OF BENGAL The oldest bank in existence in India is the State Bank of India being established as "The Bank of Bengal" in Calcutta in June 1806. Bank of Bombay (1840) and Bank of Madras (1843) as independent units and called it Presidency Banks.

Imperial Bank of India in 1921.

State Bank of India in 1955.

RBI in 1935

AN INTRODUCTION TO INDIAN BANKING SECTOR (cont.)

Foreign banks too started to arrive, particularly in Calcutta, in the 1860s. The Comptoire d'Escompte de Paris opened a branch in Calcutta in 1860. HSBC established itself in Bengal in 1869. Calcutta was the most active trading port in India, mainly due to the trade of the British Empire, and so became a banking center.

Post independence banking scenario

In 1948, the Reserve Bank of India, India's central banking authority, was nationalized, and it became an institution owned by the Government of India .
In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of India (RBI) "to regulate, control, and inspect the banks in India." The Banking Regulation Act also ensures license for new banks. Government took major steps in this Indian Banking Sector Reform after independence
4

 In 1955, it nationalized Imperial Bank of India with extensive banking facilities on a large scale especially in rural and semi-urban areas.
It formed State Bank of India to act as the principal agent of RBI and to handle banking transactions of the Union and State Governments all over the country. However, despite these provisions, control and regulations, banks in India except the State Bank of India, continued to be owned and operated by private persons
5

Major Events in Indian Banking

LIBERALISATION
In the early 1990s, the then Narsimha Rao government embarked on a policy of liberalization, licensing a small number of private banks
These came to be known as New Generation tech-savvy banks, and included Global Trust Bank ,which later amalgamated with Oriental Bank of Commerce, Axis Bank earlier as UTI Bank), ICICI Bank and HDFC Bank. The next stage for the Indian banking has been setup with the proposed relaxation in the norms for Foreign Direct Investment, where all Foreign Investors in banks may be given voting rights which could exceed the present cap of 10%,at present it has gone up to 74% with some restrictions
7

BANKING SYSTEM IN INDIA

RBI
Public sector bank Private sector bank

BA NK

Co operative banks
Foreign sector bank
8

FUNCTIONS OF RBI
MONETARY ISSUER OF CURRENCY REGULATOR OF BANKING SYSTEM BANKER AND DEBT MANAGER TO GOVERNMENT AUTHORITY BANKER TO GOVERNMENT

RESERVE BANK OF INDIA

DEVELOPMENTAL ROLE
REGULATOR & SUPERVISOR OF PAYMENT & SETTLEMENT SYSTEM
9

MANAGER OF FOR-EX

10

PUBLIC SECTOR BANKS

The public sector is the one whose working is in the hands of the government. The government holds a majority stake in public sector industries.

Their activities are mostly influenced by the government.

It may be defined as an enterprise where there is no private ownership but its activities are not mainly confined to the maximization of profits and private interests of the enterprise but it is influenced by social.
11

Preamble of RBI
Our Objective ".........to regulate the issue of Bank Notes and 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."
12

BASEL NORMS

Basel II : is a series of guidelines given by the BASEL Committee which manages and supervise the banking operations throughout the world.

13

BASEL II Implementation

14

BASEL COMMITTEE FRAMEWORK

Pillar 1 Minimum capital requirements Credit risk Operational risk Pillar 2 Supervisory review process Pillar 3 Market discipline

15

Mapping between Pillars 1 & 2

Eight inhe re nt ris ks unde r ris k-ba s d e s upe rvis ion Pilla r 1 ris ks Pilla r 2 ris ks - Counterparty default risk Credit risk - Transaction risk (e.g. through recognition of CRM) Trading risk arising from adv erse mov ements in interest rates, FX security and , commodity prices - Credit concentration risk - Portfolio risk (aggressiv e expansion / deterioration in asset quality etc) - Residual risk (from using CRM / securitisation etc) Residual risk (e.g. v ulnerability under stress and scenario tests)

Market risk

Interest rate risk

Interest rate risk in the trading book

Interest rate risk in the banking book

Liquidity risk

- Funding (cash) liquidity risk - Asset (market) liquidity risk Risk of loss resulting from inadequate or failed internal processes, people and systems / from external ev ents Residual operational risk (e.g. risk of loss resulting from low-frequency, highimpact ev ents) Risk due to: - bad / imprudent or inproperly implemented business decisions or strategies - lack of response to external changes (industry, economic or IT) Risk due to contagion, negativ e publicity or susceptibility to market rumours

Operational risk (including legal risk)

Strategic risk

16

Reputation risk

Policy Rate
Bank Rate Rate @ which bank borrow money from RBI for long term. Repo Rate/(Repurchase Option Rate): Rate at which bank borrow money from RBI. Currently -8.25% Reverse Repo Rate: Rate at which bank park their money with RBI Currently 7.25% Marginal Standing Facility Rate: Under this scheme, Banks will be able to borrow up to 1% of their respective Net Demand and Time Liabilities @ 1% above Repo rate. This scheme is likely to reduce volatility in the overnight rates . 17 Currently- 9.25%

Reserve Rate
CRR: The % of of demand & time liabilities bank each bank have to keep with RBI. Currently- 6%.
SLR: The % of demand & time liabilities bank have to keep in liquid form or invest in Govt. securities. Currently- 24%

18

Lending Rate
Base Rate: Rate below which no bank can advance loan to any one. Currently - 9.50-10.75% Saving Bank Rate: Interest given on money in saving bank A/C Currently- 4% Deposit Rate: Rate at which bank keeps the money of people Currently- 8.5-9.5%

19

Recent Issues
Entry for new private banks. Financial Inclusion. Security standard for plastic money. New banking model

20

RBI & INFLATION CONTROL

I will charge more interest on loans than the rate @ which I borrowed money from RBI. Thus I make profit.

BANK RATE
I dont have enough money @ hand to give loan to everyone so I am going to borrow more from RBI @ this rate

I lend money to bank @ this rate

Repo(Repurchase) Rate

BANK

There is too much money in the market= inflation. So let me suck away extra money via borrowing from banks @ this interest rate

RBI

Reverse Repo
I've to invest a portion of money into Govt. securities

I've to keep a portion of my cash in RBI

CRR
Cash Reserve Ratio
I shall prevent banks from pumping more money in the market by increasing this rate!

SLR Statutory Liquidity Ratio

21

Thank you
22