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What Is a Bank?
A bank is a financial intermediary that accepts deposits and channels those deposits into lending
activities, either directly or through capital markets.
A bank connects customers with capital deficits to customers with capital surpluses.
Banking is generally a highly regulated industry
Government restrictions on financial activities by banks have varied over time and location.
Genesis
Banking in India originated in the last decades of the 18th century.
The first banks were The General Bank of India which started in 1786, followed by the Bank of
Hindustan, both of which are now defunct.
The oldest bank in existence in India is the State Bank of India, which originated as the Bank of
Calcutta in June 1806, which almost immediately became the Bank of Bengal. This was one of the
three presidency banks, the other two being the Bank of Bombay and the Bank of Madras, all three
of which were established under charters from the British East India Company. For many years the
Presidency banks acted as quasi-central banks, as did their successors. The three banks merged in
1921 to form the Imperial Bank of India, which, upon India's independence, became the State Bank
of India.
First Fully Indian Owned Bank Allahabad Bank 1865
ComptoiredEscompte de Paris First Foreign Bank opened branch in 1860 in Calcutta & another
branch in 1862 at Mumbai
Punjab National Bank was first Swadeshi Bank founded by Lala Lajapat Rai
Most of the Banks opened during late 18th Century failed due to large exposure to Cotton &
speculative ventures as American Civil War stopped supply of Cotton to Lancashire from
Confederate States
94 Banks closed during 1914-1918 ( First World War)
Functions of RBI
Issuance of currency notes.
Governments Banker
Bankers Bank
Banks Supervision (Board of financial supervision set-up in 1994, Ch. Man RBI Governor, a full time
VC & 6 members)
Development of the Financial System.
Exchange Control.
Monetary Control.
Lender of the last resort.
Role of RBI
The central board consisting of 1 Governor, 4 Dy. Governors & 15 directors governs the day-to-day
functioning of RBI. The Central Banking authority has two distinct roles:
Monetary control including controlling inflation. (Through CRR & SLR mechanism and Bank / Repo
rates main instruments available to central banks to control Prime / Base rates of leading banks.)
Bank supervision.
CRR : Mandatory deposit to be held with RBI. It is a percentage of their Demand & Time liabilities. To
pump in or soak liquidity in the banking system.
SLR : Prescribedpercentage of Demand and Time liabilities of a bank to be held in prescribed
securities, mostly government securities.
The increase or decrease in the CRR &SLR, contracts and enhances credit creation in the economy.
RBI
Commercial Bank
The Indian Banking industry, which is governed by the Banking Regulation Act of India, 1949 can be
broadly classified into two major categories, non-scheduled banks and scheduled banks.
Scheduled banks comprise commercial banks and the co-operative banks.In terms of ownership,
commercial banks can be further grouped into nationalized banks, the State Bank of India and its
group banks, regional rural banks and private sector banks (the old / new domestic and foreign).
These banks have over 70,000 branches spread across the country.
Universal Banking: All types of financial products like banking, insurance, mutual funds, capital
market related products including share broking, commodity broking, providing advisory services
and merchant banking activities etc., all at one place.
Banking Scenario in the early part of first decade of 21st century& Innovative Services
The new private sector banks first made their appearance after the guidelines permitting them were
issued in January 1993. Eight new private sector banks started their operations.
These banks due to their late start had access to state-of-the-art technology, which in turn helped
them to save on manpower costs and provide better services.
PSBs, which then accounted for more than 78 percent of total banking industry assets were saddled
with NPAs (a mind-boggling Rs 110 crore in 2003), falling revenues from traditional sources, lack of
modern technology and a massive workforce
The new private sector banks were forging ahead and rewriting the traditional banking business
model by way of their sheer innovation and service.
The PSBs were of course working out challenging strategies even as 20 percent of their massive
employee strength dwindled in the wake of the successful Voluntary Retirement Schemes (VRS)
schemes.The PSBs were still grappling with disgruntled employees in the aftermath of successful VRS
schemes.
The private players however were not able to match the PSBs great reach, great size and access to
low cost deposits. Therefore one of the means for them to combat the PSBs was been through the
merger and acquisition (M& A) route.The UTI bank- Global Trust Bank merger however opened a
pandoras box and brought about the realization that all was not well in the functioning of many of
the private sector banks
Private sector Banks pioneered the internet banking, phone banking, anywhere banking, mobile
banking, debit cards, Automatic Teller Machines (ATMs) and combined various other services and
integrated them into the mainstream banking arena.
Following Indias commitment to the WTO agreement in respect of the services sector, foreign
banks, including both new and the existing ones, were permitted to open more branches.
The rollout of core banking solutions by most of the PBSs and introduction of alternate channels
such as ATMs, Internet Banking, RTGS, NEFT, MCC, SMS alerts, mobile Banking etc. along with has
improved the perception of the general public towards the PSBs.
The BPR initiatives like LCPCs, CAC, CPCC, RACPC, SMECCC etc. implemented by SBI has had a
positive effect on the TAT of the various liability as well as credit products offered by the Bank.
Opportunities in banking:
Mortgages to cross 40 Lack crore by 2020.
Wealth management to be a big business.
Rapid growth of branches and ATM
Mobile banking has huge growth potential
Infrastructure financing to be reaching over 20 Trillion by 2020.
New models to serve SMEs.