STRUCTURE OF INDIAN

BANKING SYSTEM
BY
ROHIT PANDEY
PRAGYA BHARDWAJ
SHIVALIKA BHARTI
AVNEET KAUR

Beginnin
g of
institutio
nal
banking
with 3
joint
stock
banks
Nationalisa
tion of
Imperial
Bank and
20 other
SCBs

Acceptan
ce of
recomme
ndations
of
Narasimh
am
committe

Phase 4
continue
s. More
Liberalis
ation
expecte
d
Hike in FDI
ceiling for
banking
sector and
declaration
of
roadmap
for
Liberalisati
on

PHASE 1
PRENATIONALISATION
PHASE
PHASE 2
ERA OF NATIONALISATION AND
CONSOLIDATION
PHASE 3
INTRODUCTION OF INDIAN
FINANCIAL AND BANKING SECTOR
REFROMS AND PARTIAL
LIBERALISATION

PHASE 4
PERIOD OF INCREASED
LIBERALISATION

Introduction of deposit
banking and bank
branches.
Presidency banks and
other joint stock banks
formed setting the
foundation of modern
system
SBI banking
formed out
of Imperial

banks.
20 SCBs nationalised in two
phases.
Introduction of Social banking.

Interest rates deregulated.

Statutory pre-emption of
resources eased more
private sectors came in
strengthened the system
as a whole.
FDI ceiling increased to 74% from
49% in banking sector.
Roadmap for inclusion of foreign
banks declared.
More liberalisation expected.

FATHER OF ALL THE

BANKS

Reserve Bank of India

Established in 1935 , under the Reserve Bank of India

Act,1934.
Apex body of Indian banking system
Headquarter in Mumbai
Indias monetary authority
Supervisor of financial system
Issuer of currency
Banker to bank
Banker to government
Maintains financial stability

RBI has classified Banks

under two major
categories:

SCHEDULED BANKS
Scheduled banks are those banks
whose name appears in the 2nd
schedule of Reserve Bank Of India
Act, 1934.

NON-SCHEDULED BANKS
Non-scheduled banks are those
banks whose name doesnt
appear in the 2nd schedule of
Reserve Bank Of India Act, 1934.

SCHEDULED BANKS
Definition:
Scheduled Banks in India are those banks which have been

included in the Second Schedule of Reserve Bank of India (RBI)

Act, 1934.
Reserve Bank of India in turn includes only those banks in this
schedule which satisfy the criteria mentioned on section 42 (6)
(a) of the Reserve Bank of India Act 1934.
Criteria for a Scheduled Banks:
Scheduled Banks are those banks whose minimum paid up

capital and reserve and amount to 25 lakhs.

These bank have to submit details of their activities to the
Reserve Bank of India every week.
These banks are listed on the second schedule of the Reserve
Bank of India Act 1934.

BANKS UNDER SCHEDULED BANKS

Schedule
d banks

Commerci
al banks

Cooperative
banks

COMMERCIAL BANKS
They are the banks mainly deal with commercial banking
operations like acceptance of deposits and granting loans to
the public. They are mainly classified into four:-

1. PUBLIC SECTOR BANKS

Public sector banks are those banks in which the government has the major
holdings.

At least 51% of ownership is vested with the government

The shares of these banks are listed on stock exchanges.

All the nationalized banks and regional rural are public sector banks.

Examples:

State Bank of India and its 6 Subsidiaries.

Bank Of Baroda

Syndicate Bank

Vijaya Bank

Canara Bank etc.

2. PRIVATE SECTOR BANKS

All those banks in which majority of stake are held by private individuals
The banks which came in operation after 1991, with the introduction of

economic reforms and financial sector reforms are called NEW PRIVATE
SECTOR BANKS.
New banks are strategic in their thinks and operations.
Examples:
South Indian Bank
ICICI
HDFC
Axis bank etc.

3. FOREIGN BANKS
A foreign branch bank is a type of foreign bank that is obligated to follow the

regulations of both host and home countries.

Because the foreign branch banks loans limits are based on the parent banks

capital , foreign banks can provide more loans than subsidiary banks.
For example ;suppose the State Bank Of India opens up a foreign branch bank in

America. The branch would be legally obligated to follow both the Indian and
American regulations .
Examples:
Citi Bank
HSBC
Deutsche Bank
Standard Chartered Bank

4. REGIONAL RURAL BANKS

Regional Rural Banks (RRB) are local level banking
organizations operating in different states of India.
They have been created with a view to serve primarily the rural
areas in India with basic banking and financial services.
Examples;
Andhra Pradesh Grameena Vikas Bank,
Chaitanya Godavari Grameena Bank,
Kerala Grameen Bank etc.

CO-OPERATIVE BANKS
A bank that holds deposits , makes loans or

provides other financial services to the

cooperatives and member owned organizations.
Also known as Banks of Cooperatives'.

CO-OPERATIVE
BANKS

URBAN COOPERATIVE
BANKS

STATE COOPERATIVE
BANKS

1. URBAN CO-OPERATIVE BANKS

The term Urban Co-operative Banks (UCBs), though not formally defined, refers
to primary cooperative banks located in urban and semi-urban areas.

These banks, till 1996, were allowed to lend money only for non-agricultural purposes.
This distinction does not hold today. These banks were traditionally centred around

communities, localities work place groups.

They essentially lent to small borrowers and businesses

Examples:

Ahmedabad Mercantile Co-operative Bank

Goa Urban Co-operative Bank

Shikshak Sahakari Bank

Bombay Mercantile Co-operative Bank

2. STATE CO-OPERATIVE BANKS

State co-operative banks are the apex co-operative institution in a state . They
are federations of district co-operative banks, and they monitor the activities of
all co-operative banks in the state.

Examples: Kerala State Co-operative Bank

Orissa State Co-operative Bank
Gujarat State Co-operative Bank
Maharashtra State Co-operative Bank
Bihar State Co-operative Bank

Bank of Madras MERGED into

TWO PRESIDENCY BANKS
in British India , Bank of
Bombay and Bank of Calcutta
, to form IMPERIAL BANK.

Pursuant to the provisions of

the State Bank of India Act of
1955, theReserve Bank of
India , acquired a controlling
interest in the Imperial Bank
of India .On 1 July 1955, the
imperial Bank of India became

State bank of India

Established in 1806 as Bank of Calcutta.
State Bank of India is a multinational, public sector

banking and financial services company.

Government owned corporation
Headquarters in Mumbai
It is the oldest bank of indian sub-continent.
Largest branch network in India with 14000 branches,
including 191 foreign offices spread across 36
countries.

Brief History
Started as Bank of Calcutta later renamed as Bank of Bengal

established on 2nd June,1806.

The Bank of Bengal was one of three Presidency banks, the
other two being the Bank of Bombay (incorporated on 15 April
1840) and the Bank of Madras (incorporated on 1 July 1843).
All the three presidency banks were first joint-stock companies.
Later on Bank of Madras, Bank of Bombay and Bank of Bengal
were amalgamated to form Imperial bank of India on 27
January 1921.
It was nationalized on 1955 and was renamed as state Bank of
India.

Associate banks
State
Bank of
Indore.
State
Bank of
Travancor
e

State
Bank Of
Bikaner
and
Jaipur
State
Bank Of
Hyderab
ad

State
Bank of
Patiala
State
Bank Of
Mysore

Services
Services
Internet Banking
Mobile Banking
ATM Services
Demat Services
Service Charges and Fees
Aadhaar Seeding
Cash Deposit Machine

Consolidation of SBI by march

2017
Consolidation among public sector banks

(PSBs) is expected to happen only after the

completion of merger between State Bank
of India (SBI) and its associates, a senior
finance ministry official said.
Banks can consider merger and
acquisition only when their financial
strength improves significantly. Logically,
the next round of mergers and acquisition
may take place after consolidation of
associate banks and acquisition of
Bharatiya Mahila Bank with SBI, the official
said.

According to the official, post-March 2017, when

the balance sheet clean up exercise is likely to be

completed, the banks financial performance
should consequently see an uptick.
Merger of SBI with associate banks is likely to
happen towards the end of this fiscal.
Last week, the cabinet gave in-principle approval
for the merger of SBI with its associate banks and
acquisition of Bharatiya Mahila Bank.
The government has announced a revamp plan
Indradhanush to infuse Rs.70,000 crore in stateowned banks over four years, while they will have
to raise a further Rs 1.1 trillion from markets to
meet capital requirements in line with global risk
norms under Basel-III.

Local area bank

Local area Bank is a concept that came into the bank purview in

August 1996.
The Local Area Banks (LABs) are small private banks,
conceived as low cost structures which would provide efficient
and competitive financial intermediation services in a limited
area of operation, i.e., primarily in rural and semi-urban areas,
comprising three contiguous districts

Scope of activities
These LABs are restricted to operate maximum in

three districts.
They will be extending loan facility to agricultural
requirements, agro-trade, agro-industrial
accomplishments, non-husbandry accomplishments
etc.
These banks will observe the priority sector lending
target at 40% of Net Bank Credit as other banks do.

Capital
The minimum paid up capital of LABs shall be Rs. 5

cr. However, they are required to increase their capital

from Rs. 5 crores to Rs.25 crores in next 5-7 years.

Introduction of New Banks

Since April 2014, the Reserve Bank of India (RBI) has

granted 23 banking licences to new players - two were

given universal banking licences (April 2, 2014) that
are IDFC Bank and Bhandhan Bank , 11 were issued
payments banks licences (August 19, 2015) and 10
were given licences for small finance banks (September
16, 2015).
The niche banks - small finance and payments banks
-have been set up to further the regulator's objective of
deepening financial inclusion. Going ahead, RBI is
planning to come up with "on tap" licences which
means there will not be any cut-off date for applying for
the licences.

IDFC BANK
IDFC Bank Ltd. is an Indian banking company with

headquarters in Mumbai that forms part of IDFC, an

integrated infrastructure finance company. The
bank started operations on 1 October 2015.
IDFC received a universal banking licence from the
Reserve Bank of India(RBI) in July 2015. On 6th
November, 2015, IDFC Bank was listed on BSE and
NSE.IDFC was incorporated on 30 January 1997 with
its registered office in Chennai and started
operations on 9 June 1997. In 1998 the company
registered with the Reserve Bank of India (RBI) as a
non-banking financial company and in 1999 it
formally became a Public Financial Institution.

To conform with RBI guidelines IDFC founded a

non-operative financial holding company

(NOFHC) in 2014 to manage its five
subsidiaries IDFC Bank, IDFC MF, IDFC
Alternatives, IDFC IDF & IDFC Securities. IDFC
is the holding company for NOFHC IDFC
Projects Ltd and IDFC Foundation.
IDFC Bank started operations with 23 branches
in Madhya Pradesh, Delhi, Mumbai, Hyderabad,
Bengaluru, Pune, Chennai, Ahmedabad and
Kolkata. 15 branches are in settlements with a
population of less than 10,000.
Prime Minister Narendra Modi formally
launched IDFC Bank on 19 October 2015.

Bhandhan Bank
Bhandhan Bank Ltd. is an Indian banking and financial

services company headquartered in Kolkata, West Bengal.

Bandhan, which started as a micro-finance company in 2001,
received banking licence by Reserve Bank of India in 2014.
On 24 August 2015, Union Finance Minister Arun Jaitley
officially inaugurated the bank in Kolkata. Initially it opened
with 501 branches across India. Bandhan Bank was
incorporated on 23 December 2014 as a wholly owned
subsidiary of Bandhan Financial Holdings. Bandhan received
the in-principle approval of the (RBI) for setting up a universal
bank in April 2014; the banking regulator gave its final nod in
June 2015.
Incidentally, Kolkata-headquartered Bandhan is the first bank
to be set up in eastern part of India after Independence.

Bandhan Financial Holdings is owned by

Bandhan Financial Services Limited (BFSL),

the largest micro finance organization in
India. Its public shareholders include
International Finance Corporation (IFC),
Small Industries Development Bank of India
(SIDBI), Caladium Investment Ptv. Ltd. (a
company managed by GIC Special
Investments Private Limited), Bandhan
Employees Welfare Trust, and a few
individuals.
The RBI licensing norms stipulate that a
new bank must have a 500 crore capital.

Small banks and payment banks

Reserve Bank of India (RBI) on 17 July issued draft

guidelines for two new categories of bankssmall and

payments.
Payment banks and Small Banks are expected to meet
credit and remittance needs of small businesses,
unorganized sector, low income households, farmers
and migrant work force.

Small Banks
The purpose of the small banks will be to provide a

whole suite of basic banking products such as

deposits and supply of credit, but in a limited area
of operation.
The bank shall primarily undertake basic banking
activities of accepting deposits and lending to small
farmers, small businesses, micro and small
industries, and unorganised sector entities.
It cannot set up subsidiaries to undertake nonbanking financial services activities. After the initial
stabilisation period of five years, and after a review,
the RBI may liberalise the scope of activities for
Small Banks.

 The Reserve Bank of India (RBI) on September 16,

2015 decided to grant in-principle approval to the

following 10 applicants to set up small finance banks.
I. Au Financiers (India) Ltd., Jaipur
II. Capital Local Area Bank Ltd., Jalandhar
III. Disha Microfin Private Ltd., Ahmedabad
IV. Equitas Holdings P Limited, Chennai
V. ESAF Microfinance and Investments Private Ltd.,
Chennai
VI. Janalakshmi Financial Services Private Limited,
Bengaluru
VII. RGVN (North East) Microfinance Limited, Guwahati
VIII. Suryoday Micro Finance Private Ltd., Navi Mumbai
IX. Ujjivan Financial Services Private Ltd., Bengaluru
X. Utkarsh Micro Finance Private Ltd., Varanasi.

Objective Of Small Banks

(i)Provision of savings vehicles to

underserved and unserved sections of the

population, and
(ii) Supply of credit to small business units,
small farmers, micro and small industries,
and other unorganised sector entities, in
their limited areas of operations, through
high technology-low cost operations.

REGULATION
The firms must have a capital of 100 crore (minimum

paid-up equity capital) .

Eligibility Professionals with 10 years of experience
in banking / finance / Micro Finance Institutions.
Local focus and ability to serve smaller customers will
be a key criterion in licensing such banks.
The bank shall primarily undertake basic banking
activities of accepting deposits and lending to small
farmers, small businesses, micro and small industries.

Payment Banks
New stripped-down type of banks, which are expected

to reach customers mainly through their mobile

phones rather than traditional bank branches.
They cant offer loans but can raise deposits of upto
Rs. 1 lakh, and pay interest on these balances just like
a savings bank account does.
They can enable transfers and remittances through a
mobile phone.
They can offer services such as automatic payments
of bills, and purchases in cashless, cheque less
transactions through a phone.
They can issue debit cards and ATM cards usable on
ATM networks of all banks.

They can transfer money directly to bank

accounts at nearly no cost being a part of

the gateway that connects banks.
They can provide forex cards to travellers,
usable again as a debit or ATM card all over
India.
They can offer forex services at charges
lower than banks.
They can also offer card acceptance
mechanisms to third parties.

On 19 August 2015, the Reserve Bank of India gave "in-

principle" licences to eleven entities to launch payments

banksI. Aditya Birla Nuvo Ltd
II. Airtel M Commerce Services Ltd
III. Cholamandalam Distribution Services Ltd
IV. Department of Posts
V. Fino PayTech Ltd
VI. National Securities Depository Ltd
VII. Reliance Industries Ltd
VIII. Dilip Shantilal Shanghvi
IX. Vijay Shekhar Sharma
X. Tech Mahindra Ltd
XI. Vodafone m-pesa Ltd
Out of these, three have surrendered their licenses. First one
being "Chalomandalam Distribution Services", then "Dilip
Shanghvi, Sun Pharmaceuticals" and the latest, "Tech
Mahindra".

Objective of Payment Banks

(i) Small savings accounts
(ii) Payments/remittance services to migrant labour

workforce, low income households, small businesses,

other unorganised sector entities and other users.

Why are they going to be a

game-changer?
This is for the first time in the history of India's banking

sector that RBI is giving out differentiated licences for

specific activities.
The Reserve Bank expects payment banks to target Indias
migrant labourers, low-income households and small
businesses, offering savings accounts and remittance
services with a low transaction cost.
It hopes payments banks will enable poorer citizens who
transact only in cash to take their first step into formal
banking. It could be uneconomical for traditional banks to
open branches in every village but the mobile phones
coverage is a promising low-cost platform for quickly taking
basic banking services to every rural citizen.
The innovation is also expected to accelerate Indias journey
into a cashless economy.

Indias domestic remittance market is estimated

to be about Rs. 800-900 billion and growing.

With money transfers made possible through
mobile phones, a big chunk of it, especially that
of the migrant labour, could shift to this new
platform.
Payment banks can also play a crucial role in
implementing the governments direct benefit
transfer scheme, where subsidies on healthcare,
education and gas are paid directly to
beneficiaries accounts.
Also, this is the first time since banks were
nationalized, that private sector business groups
have bagged the RBIs nod for banking services.

INTERACTIVE SESSION
Ques. 1 How Imperial bank was formed ?
Ques. 2 What is RBI Act ?
Ques. 3 Explain the Demat Service provided
by SBI.
Ques. 4 Under which section of RBI act
scheduled banks are mentioned ?
Ques. 5 Minimum paid up capital for LAB ?

THANK YOU