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Structure of Indian Banking

system
Central Bank (R.B.I)

Origin OF RBI
The origin of the Reserve Bank can be traced to 1926,
when the Royal Commission on Indian Currency and
Financealso known as the Hilton-Young Commission
recommended the creation of a central bank to
separate the control of currency and credit from the
government and to augment banking facilities
throughout the country.
The Reserve Bank of India Act of 1934 established the
Reserve Bank as the banker to the central government
and set in motion a series of actions culminating in the
start of operations in 1935.
Since then, the Reserve Banks role and functions
have undergone numerous changesas the nature of
the Indian economy has changed.

RBI ORGANISATION
STRUCTURE

Management and structure

What do they do ?
Monetary Authority
Issuer of Currency
Banker and Debt Manager to
Government
Banker to Banks
Regulator of the Banking System
Manager of Foreign Exchange
Maintaining Financial Stability
Regulator and Supervisor of the
Payment and Settlement
Systems
Developmental Role

Reserve Bank of India legal


Regulations
Reserve Bank of India was established in
1935, after the enactment of the Reserve
Bank of India Act 1934 (RBI Act).
Banking Regulation Act,1949 (BR Act) gave
wide powers to RBI as regards to
establishment of new banks/mergers and
amalgamation of banks, opening of new
branches, etc
BR Act,1949 gave RBI powers to regulate,
supervise and develop the banking system
in India

Reserve Bank of India


CENTRAL BANK
RBI

REGULATOR

SUPERVISOR

FACILITATOR

COMMERCIAL BANKS

DEFINITION OF COMMERCIAL BANK :Commercial Banking has been defined as


Accepting for the purpose of lending &
investment, of deposit of money from the
public, repayable on demand order or
otherwise and withdraw able by cheque,
draft or otherwise.

- The Banking Companies (Regulation) Act,


1949

CONCLUSION OF DEFINITION
1) A bank is a commercial establishment
-a dealer in debts which
2) aims at earning profits
3) by accepting deposits from public, which
4) are repayable on demand or otherwise ;
through
5) cheques, draft or otherwise ; and
6) which are used for lending or investment

COMMERCIAL BANIKING IN
INDIA
Public Sector Banks =State Bank of
India + SBIs associate banks +
Nationalised banks
Private Sector Banks=Indian Private
Sector Banks (Old/New generation
banks)+Foreign banks in India
Other Banks=Regional Rural
Banks(RRB)

PUBLIC SECTOR BANKS


Public Sector Banks(PSBs) in India are
banks where a majority stake (i.e.
more than 50%) is held by a
government. Thus at present all the
nationalised banks are Public Sector
banks. In addition to these, we can
also say that IDBI Bank Ltd and SBI
are too Public Sector Bank (though
not nationalised bank) as GoI has
over 50% stake in these banks too)

PUBLIC SECTOR BANKS IN


INDIA

The banks which falls into the category of Nationalized Banks are:

1. Allahabad Bank
2. Andhra Bank
3. Bank of Baroda
4. Bank of India
5. Bank of Maharashtra
6. Canara Bank
7. Central Bank of India
8. Corporation Bank
9. Dena Bank
10. Indian Bank
11. Indian Overseas Bank
12. Oriental Bank of Commerce
13. Punjab and Sind Bank
14. Punjab National Bank
15. Syndicate Bank
16. UCO Bank
17. Union Bank of India
18. United Bank of India
19. Vijaya Bank
20. SBI and its associates (a. State Bank of Bikaner & Jaipur
b. State Bank of Hyderabad
c. State Bank of Mysore
d. State Bank of Patiala
e. State Bank of Travancore)

PRIVATE SECTOR BANKS


Theprivate-sector banks in
Indiarepresent part of theindian
banking sectorthat is made up of
both private and public sector banks.
The "private-sectorbanks" are banks
where greater parts of stake
orequityare held by the private
shareholders and not by government.

PRIVATE SECTOR BANKS IN


INDIA

1) AXIS Bank Ltd.


2) Capital Local Area Bank Ltd.
3) City Union Bank Ltd.
4) Coastal Local Area Bank Ltd.
5) DCB Bank Limited
6) Dhanlaxmi Bank Ltd.
7) ICICI Bank Limited
8) IndusInd Bank Limited
9) ING Vysya Bank Ltd.
10)Karnataka Bank Ltd.
11)Kotak Mahindra Bank Limited
12)Krishna Bhima Samruddhi Local Area Bank
13)RBL Bank
14)Tamilnad Mercantile Bank Ltd.
15)The Catholic Syrian Bank Ltd
16)The Federal Bank Ltd.
17)The HDFC Bank Ltd.
18)The Jammu & Kashmir Bank Ltd.
19)The Karur Vysya Bank Ltd.
20)The Lakshmi Vilas Bank Ltd.
21)The Nainital Bank Ltd.
22)The South Indian Bank Ltd.
23)Yes Bank Limited

Foreign Bank In India


foreign bank is a bankthat is obligated to follow the regulations of both the
home and host countries. At present some foreign banks in India are in the
following :
1) AB Bank Ltd.
2) ABN-AMRO Bank N.V.
3) Abu Dhabi Commercial Bank Ltd.
4) American Express Banking Corp.
5) Antwerp Diamond Bank NV
6) BNP Paribas
7) Bank of America N.T. & S.A.
8) Bank of Bahrain & Kuwait B.S.C.
9) Bank of Ceylon
10)Bank of Nova Scotia
11)Barclays Bank PLC
12)Calyon Bank
13)Chinatrust Commercial Bank
14)Citibank N.A.
15)Deutsche Bank (Asia)
16)DBS Bank Ltd.

Other Banks
Regional rural banks : Regional Rural
Banks(alsoRRBs) are local
levelbankingorganizations operating in different
States ofIndia. They have been created with a view
to serve primarily the rural areas of India with basic
banking andfinancial services. However, RRBs may
have branches set up for urban operations and their
area of operation may include urban areas too.
The area of operation of RRBs is limited to the area
as notified by Government of India covering one or
more districts in the State. The number of Regional
rural banks in India is around 70.

PRIMARY FUNCTIONS
The main functions of banks are accepting deposit and lending
loans:
A ACCEPTING DEPOSITSAccepting deposits is the main function of commercial banks. Banks
offer different types of Bank accounts to suit the requirements and
needs of different customers. Different types of Bank accounts are
as follows :
1. Fixed deposits:Money is deposited in the account for a fixed period. After expiry of
specified period person can claim his money from the bank. Usually
the rate of interest is maximum in this account. The longer the
period of deposit, the higher will be the rate of interest on deposit.

Current A/C deposit:This is also called open account. The special feature
of this account is that amount can be deposited or
withdrawn any number of time without giving any
notice to the bank.
These are mainly maintain by business community
to facilitate frequent transaction with big amounts.
Generally no rate of interest or very low rate of
interest is paid on this account.
As the deposit is repayable on demand, it is also
known as demand deposit Withdrawals are always
made by cheque.

3. Savings bank A/C :It is kind of demand deposits which is


generally kept by the people for the sake
of safety. This facility is given for small
saver and normally a small rate of interest
is paid. There is no restriction on the
number of deposits but the number of
withdrawals are restricted (it may be
restricted to once or twice a week)
4. Recurring deposit A/C :In case of recurring deposit the fixed
amount is deposited in a bank every month
for a fixed period of time. The amount of
interest charged is also more in case of RD
a/c as compared to savings bank a/c.

B -LENDING LOANS
1. Call loans :These loan are called back at any time(given for 1
to 14 days). Normally, this loans are taken by bill
brokers or stock brokers.
2. Short term loans:These are sanctioned for a period up to 1 year.
3.Medium term loans:These are sanctioned for the period varying
between 1 and 5 years.
4. Long term loans :
These loan are sanctioned for a period of more than
5 years

Other types of loans :


1. Bank Overdraft:- The customer who maintains a current
account with the bank, takes permission from the bank to
withdraw more money than deposited in his acc xount. The extra
amount withdrawn is called overdraft. This facility is available to
trustworthy customers for a small period. This facility is usually
given against the security of some assets or on the personal
security of the customer (negotiable security).Bank overdraft
facility is available for a short period.Interest is charged on the
actual amount overdrawn by the customer.
2. Cash credit:
Under this arrangement, the bank advances cash loan up to a
specified limit against current assets and other securities. The
bank opens an account in the name of the borrower and allows
him to withdraw the borrowed money from time to time subject to
the sanctioned limit. Interest is charged on the amount actually
withdrawn.
3. Bills of Exchange:The bank provide funds to their customers by purchasing or
discounting bills of exchange. The bank charges commission up
to the maturity period of bills.

SECONDARY FUNCTIONS
Apart from the main functions, the banks also provide financial services
to the corporate sector and business and society. They are as follows:
A AGENCY FUNCTIONS :Where bank act as agent of its customer are called agency functions.
Funds Transfer
Cheques collection
Periodic payments/collection

Periodic payments/collection
Portfolio management
Other functions

B GENERAL UTILITY FUNCTIONS

Issue of demand drafts


Locker facility.
Underwriting of shares.
Dealing in foreign exchange.
Project reports.
Debit card & Credit card
Other utility functions.
NEFT ( National electronic fund transfer & RTGS
(Real time gross settlement)

DEVELOPMENT BANKS
Development Bankis a financial
institution dedicated to fund new and
upcoming
businesses
and
economicdevelopment projects by
equity capital or loan capital.
Development
banksare
those
financial institutions engaged in the
promotion
and
developmentof
industry, agriculture and other key
sectors.

Co-operative Banks
Co operative Banks in India are
registered under the Co-operative
Societies Act. The cooperative bank
is also regulated by theRBI. They
are governed by the Banking
Regulations Act 1949 and Banking
Laws (Co-operative Societies) Act,
1965.

Legal regulatory framework


Legal frame work
of
Banks

Banking Regulation
Act,1949

Reserve Bank of India


Act,1934

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

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

Banking Regulation Act,1949


Act)-2

Penalities

Regulation

Suspension
&
Winding up

Control over
management

(BR

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

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
penalities for violation

Indian Banking - Significant events 1


Three presidency banks were established in Calcutta (1806) in
Bombay (1840) and in Madras (1843)
In the early part of 19S, 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
The Banking Regulation Act,1949 gave wide powers to RBI to
act as the regulator for banks in India

Indian Banking -Significant events 2


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 SBIs 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

Progress of banking in India


In the liberalised, privatised and
globalised environment, banks
opeating 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

Know Your Customer (KYC)


-1
KYC: Know Your Customer
Know your customer (KYC) norms are
applicable to all types of customer
a/cs.
It deals with not only to identify the
customer but also to understand the
activities of the customer, and to
ensure that the operations in the
customer account/s is/are for
genuine purpose

Know Your Customer (KYC)


-2
Application of KYC norms have
become
important due to various reasons.
In view of many issues on account of
drugs smuggling, money laundering,
terrorist activities, arms dealing,etc.,
banks need to be careful in dealing
with their clients.

Know Your Customer (KYC)


-3
Risk Management

Customer
Acceptance
Policy

Monitoring of
Transactions

Customer
Identification
Procedure

Bank Customers - 1
Individuals
Power of
Attorney
Holders

Joint account
hoders

Bank Customers
Executors/Trustees
Illiterate
Perons

Minors

Bank Customers - 2
Clubs/
Socities

Sole
Proprietor

Partnership

Corporates
Hindu
Undivided
Family

BANKER-CUSTOMER
RELATIONSHIP

DEBTOR-CREDITOR
CREDITOR-DEBTOR
AGENT-PRINCIPAL
LESSOR-LESSEE

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