A Project Report

STRUCTURE OF INDIAN BANKING SYSTEM
A PROJECT REPORT
ON
“STRUCTURE OF INDIAN BANKING
SYSTEM”
Bachelor of Commerce
(Banking & Insurance)
Semester – V
(2017-2018)
Submitted by
ROHIT MANOJ BAHETI
Roll No.- 3
Under Guidance of
PROF. RACHANA MEHTA
K.P.B HINDUJA COLLEGE OF

COMMERCE
315, New Charni Road,
Mumbai- 04
K P B HINDUJA COLLEGE OF COMMERCE

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vCOMMERCE
CERTIFICATE
COMMERCE
COMMERCE
This is to certify that Mr. ROHIT MANOJ BAHETI of B.Com (Banking &
COMMERCE
Insurance) Semester
COMMERCE 5th [2017-2018] has successfully completed the Project
cccCOMMERCE
on “STRUCTURE OF INDIAN BANKING SYSTEM” under the guidance
of PROF. RACHANA MEHTA
________________ ________________
Project Guide Co-ordinator
________________ ________________
Internal Examiner External Examiner
________________ ________________
Principal College Seal

DECLRATION
I ROHIT MANOJ BAHETI studying in T.Y. Banking & Insurance hereby

declare that I have done this project on
“ STRUCTURE OF INDIAN BANKING SYSTEM”. As required by the
university rules.
The information submitted is true and original to the best of my knowledge, has
not been submitted so far to any other university.
Signature of Student
(ROHIT MANOJ BAHETI)

ACKNOWLEDGEMENT
The project on structure of Indian banking system is a result of co-operation,

hard work and good wishes of many people. I student of K.P.B. HINDUJA
COLLEGE OF COMMERCE would like to thank. The principal and the vice
principal of our college.
I would like thank MISS.RACHANA MEHTA for his involvement in my

project work and timely assessment that provided me inspiration and valued
guidance throughout my study.
I own my debt to PROF. NITIN BHARASKAR course coordinator for her

friendly guidance and constant encouragement.
I also take this opportunity to express my sincere gratitude to the library

staff,which provided me with right information and right material at the right
time
I express my deep gratitude to all my college friends and my family members

whose efforts and creativity has helped me in giving me the final structure to the
project work

EXECUTIVE SUMMARY
Banking system occupies an important place in nation's economy. A banking

institution is indispensable in a modern society. It plays a pivotal role in the
economic development of a country. Thus, economic development of a country
depends upon success of banking industry and success of banking Industry is
determined to a large extent by now well then needs of its customers have been
understood and satisfied.
The Indian banking industry has come a long way from being a sleepy business
institution to a highly proactive and dynamic entity. The liberalization and
economic reforms have largely brought about this transformation. The entry of
private banks has revamped the services and product portfolio of nationalized
banks. With efficiency being the major focus, the private banks are leveraging
on their strengths.
To compete with the private banks, the public sector banks are now going in for
major image changes and customer friendly schemes. Increasing competition
and technology driven products are some of the trends which the banking
industry is currently experiencing. The technology oriented banking has
become one of the latest success mantra in market especially to win over the
customers. Due to entry of private banks which are known for technical and
financial innovation their professional management has gained a remarkable
position in banking sector.
The dissertation entitled “Structure of Indian Banking System” is focused to

study:
 The structure of Indian banking system by which the working of Indian
banks is done.
 Research on Central Bank of India (i.e. Reserve Banks of India ) to

study its history and functions.
 All the types of banks working in India are included in this project to
study the proper structure of Indian Banking System.

INDEX
Sr. TOPIC PAGE
No.
No.
CHAPTER-1
(INTRODUCTION)
1.1 Objectives of the Study
1.2 Scope of the Study
1.3 Limitations of the Study
1.4 Problems
CHAPTER-2
(BANKING IN INDIA)
2.1 Introduction
2.2 History
2.3 Banking- a need of time
CHAPTER-3
(STRUCTURE OF INDIAN BANKING
SYSTEM)

3.1 Reserve Bank of India

3.2 Commercial Banks
3.3 Regional Rural Banks
3.4 Cooperative Banks
CHAPTER-4
4.1 Different types of Products
4.2 Loans & Advances
4.3 Other Services
Investment / Development
Government Initiative
Career in Banking
Conclusion
Bibliography

CHAPTER-1
1.1 OBJECTIVES OF THE STUDY:-
 To study the complete structure of Indian Banking System.

 To study the role of bank in Indian Market.
 To study the current bank scenario and its problems.
 To study about the different types of banks in India.
 To study different types of services provided by banks in India.
 To study the function of banks in Indian Market.
 To understand the importance of banking sector.
 To study various banks in India: Central, Commercial, Cooperate.
1.2 SCOPE OF THE STUDY:-
 A healthy banking system is essential for any economy striving to

achieve good growth and yet remain stable in an increasingly global
business environment. The Indian Banking System, with one of the
largest banking networks in the world, has witnessed a series of reforms
over the past few years like the deregulation of interest rates, dilution of
the government stake in Public Sector Banks (PSBs), and the increased
participants of private sector banks.
 The growth of the retail financial services sector has been a key
development on the market front. Indian banks have not only been keen
to tap the domestic market but also to compete in the global market place.
 Studying the increasing business scope of the bank.
 Market segmentation to find the potential customers for the bank.
 The corporate sector has stepped up its demand for credit to funds its
expansion plans; there has also been growth in retail banking.
 The report seeks to present a comprehensive picture of various types of
bank. The bank can broadly classified into two categories:-
i. Nationalize Bank.
ii. Private Bank.

1.3 LIMITATIONS OF THE STUDY:-
Every work has its own limitation. Limitations are extent to which process
should not exceed. Limitations of this project are:-
 Each bank, in conforming to the RBI guidelines, may develop its own
methods for measuring and managing risk.
 Due to the ongoing process of globalization and increasing competition,
no one model or method will stay over a long period of time and constant
up gradation will be required. As such the project can be considered as an
overview of the various banks prevailing in the Banking Industy.
 The major limitation of this study shall be data availability as the datais
proprietary and not readily shared for dissemination.
 The project study is restricted to banking sector used in India only.
 The conclusion made is based on a sample study and does not apply to all
the individuals.
 In India, the banks are being segregated in different groups. Each group
has their own benefits and limitations in operating in India.
 All banks are not included.
1.4 PROBLEMS:-
The corporate sector has stepped up its demand for credit to fund its expansion
plans, there has also been a growth in retail banking. However, even as the
opportunities increase, there are some issues and challenges that Indian Banking
will have to contend with if they are to emerge successful in the medium of long
term.

CHAPTER-2
2.1 INTRODUCTION
Banking in India, in the modern sense, originated in the last decades of the
18th century. Among the first banks were the Bank of Hindostan, which was
established in 1770 and liquidated in 1829-32; and the General Bank of India,
established in 1786 but failed in 1791.[1][2][3][4]
The largest bank, and the oldest still in existence, is the State Bank of India
(S.B.I). It originated as the Bank of Calcutta in June 1806. In 1809, it was
renamed as the Bank of Bengal. This was one of the three banks funded by a
presidency government, the other two were the Bank of Bombay and the Bank
of Madras. The three banks were merged in 1921 to form the Imperial Bank of
India, which upon India's independence, became the State Bank of India in
1955. For many years the presidency banks had acted as quasi-central banks, as
did their successors, until the Reserve Bank of India was established in 1935,
under the Reserve Bank of India Act, 1934.[5][6]
In 1960, the State Banks of India was given control of eight state-associated
banks under the State Bank of India (Subsidiary Banks) Act, 1959. These are
now called its associate banks.[5] In 1969 the Indian government nationalised 14
major private banks. In 1980, 6 more private banks were nationalised.[7] These
nationalised banks are the majority of lenders in the Indian economy. They
dominate the banking sector because of their large size and widespread
networks.[8]
The Indian banking sector is broadly classified into scheduled banks and non-
scheduled banks. The scheduled banks are those included under the 2nd
Schedule of the Reserve Bank of India Act, 1934. The scheduled banks are
further classified into: nationalised banks; State Bank of India and its associates;
Regional Rural Banks (RRBs); foreign banks; and other Indian private sector
banks.[6] The term commercial banks refers to both scheduled and non-
scheduled commercial banks regulated under the Banking Regulation Act,
1949.[9]
Generally banking in India is fairly mature in terms of supply, product range

and reach-even though reach in rural India and to the poor still remains a
challenge. The government has developed initiatives to address this through the

State Bank of India expanding its branch network and through the National
Bank for Agriculture and Rural Development with facilities like microfinance.
The banking sector is the lifeline of any modern economy. It is one of the
important financial pillars of the financial sector, which plays a vital role in the
functioning of an economy. It is very important for economic development of a
country that its financing requirements of trade, industry and agriculture are met
with higher degree of commitment and responsibility. Thus, the development of
a country is integrally linked withthe development of banking. In a modern
economy, banks are to be considered not as dealers in money but as the leaders
of development. They play an important role in the mobilization of deposits and
disbursement of credit to various sectors of the economy.
The banking system reflects the economic health of the country. The strength of
an economy depends on the strength and efficiency of the financial system,
which in turn depends on a sound and solvent banking system. A sound banking
system efficiently mobilized savings in productive sectors and a solvent banking
system ensures that the bank is capable of meeting its obligation to the
depositors.
In India, banks are playing a crucial role in socio-economic progress of the

country after independence. The banking sector is dominant in India as it
accounts for more than half the assets of the financial sector. Indian banks have
been going through a fascinating phase through rapid changes brought about by
financial sector reforms, which are being implemented ina phased manner.
The current process of transformation should be viewed as an opportunity to
convert Indian banking into a sound, strong and vibrant system capable of
playing its role efficiently and effectively on their own without imposing any
burden on government.
After the liberalization of the Indian economy, the Government has announced a
number of reform measures on the basis of the recommendation of the
Narasimhan Committee to make the banking sector economically viable and
competitively strong.

2.2 HISTORY OF BANKING IN INDIA
Ancient India
The Vedas (2000-1400 BCE) are earliest Indian texts to mention the concept of
usury. The word kusidin is translated as usurer. The Sutras (700-100 BCE) and
the Jatakas (600-400 BCE) also mention usury. Also, during this period, texts
began to condemn usury. Vasishtha forbade Brahmin and Kshatriya varnas from
participating in usury. By the 2nd century CE, usury seems to have become
more acceptable.[10] The Manusmriti considers usury an acceptable means of
acquiring wealth or leading a livelihood.[11] It also considers money lending
above a certain rate, different ceiling rates for different caste, a grave sin.[12]
The Jatakas also mention the existence of loan deeds. These were called
rnapatra or rnapanna. The Dharmashastras also supported the use of loan
deeds. Kautilya has also mentioned the usage of loan deeds.[13] Loans deeds
were also called rnalekhaya.[14]
Later during the Mauryan period (321-185 BCE), an instrument called adesha
was in use, which was an order on a banker directing him to pay the sum on the
note to a third person, which corresponds to the definition of a modern bill of
exchange. The considerable use of these instruments has been recorded[citation
needed]
. In large towns, merchants also gave letters of credit to one another.[14]
Medieval era
The use of loan deeds continued into the Mughal era and were called dastawez.
Two types of loans deeds have been recorded. The dastawez-e-indultalab was
payable on demand and dastawez-e-miadi was payable after a stipulated time.
The use of payment orders by royal treasuries, called barattes, have been also
recorded. There are also records of Indian bankers using issuing bills of
exchange on foreign countries. The evolution of hundis, a type of credit
instrument, also occurred during this period and remain in use.[14]
Colonial era
During the period of British rule merchants established the Union Bank of
Calcutta in 1829,[15] first as a private joint stock association, then partnership. Its

proprietors were the owners of the earlier Commercial Bank and the Calcutta
Bank, who by mutual consent created Union Bank to replace these two banks.
In 1840 it established an agency at Singapore, and closed the one at Mirzapore
that it had opened in the previous year. Also in 1840 the Bank revealed that it
had been the subject of a fraud by the bank's accountant. Union Bank was
incorporated in 1845 but failed in 1848, having been insolvent for some time
and having used new money from depositors to pay its dividends.[16]
The Allahabad Bank, established in 1865 and still functioning today, is the
oldest Joint Stock bank in India, it was not the first though. That honour belongs
to the Bank of Upper India, which was established in 1863 and survived until
1913, when it failed, with some of its assets and liabilities being transferred to
the Alliance Bank of Simla.
Foreign banks too started to appear, particularly in Calcutta, in the 1860s. The
Comptoir d'Escompte de Paris opened a branch in Calcutta in 1860, and another
in Bombay in 1862; branches followed in Madras and Pondicherry, then a
French possession. 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 centre.
The first entirely Indian joint stock bank was the Oudh Commercial Bank,
established in 1881 in Faizabad. It failed in 1958. The next was the Punjab
National Bank, established in Lahore in 1894, which has survived to the present
and is now one of the largest banks in India.
Around the turn of the 20th Century, the Indian economy was passing through a
relative period of stability. Around five decades had elapsed since the Indian
rebellion, and the social, industrial and other infrastructure had improved.
Indians had established small banks, most of which served particular ethnic and
religious communities.
The presidency banks dominated banking in India but there were also some
exchange banks and a number of Indian joint stock banks. All these banks
operated in different segments of the economy. The exchange banks, mostly
owned by Europeans, concentrated on financing foreign trade. Indian joint stock
banks were generally under capitalised and lacked the experience and maturity
to compete with the presidency and exchange banks. This segmentation let Lord
Curzon to observe, "In respect of banking it seems we are behind the times. We
are like some old fashioned sailing ship, divided by solid wooden bulkheads
into separate and cumbersome compartments."[citation needed]

The period between 1906 and 1911 saw the establishment of banks inspired by
the Swadeshi movement. The Swadeshi movement inspired local businessmen
and political figures to found banks of and for the Indian community. A number
of banks established then have survived to the present such as The South Indian
Bank, Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara
Bank and Central Bank of India.
The fervour of Swadeshi movement led to the establishment of many private

banks in Dakshina Kannada and Udupi district, which were unified earlier and
known by the name South Canara (South Kanara) district. Four nationalised
banks started in this district and also a leading private sector bank. Hence
undivided Dakshina Kannada district is known as "Cradle of Indian
Banking".[citation needed]
The inaugural officeholder was the Britisher Sir Osborne Smith(1 April 1935),
while C. D. Deshmukh(11 August 1943) was the first Indian governor.On
September 4, 2016, Urjit R Patel begins his journey as the new RBI Governor,
taking charge from Raghuram Rajan.[17]
During the First World War (1914–1918) through the end of the Second World
War (1939–1945), and two years thereafter until the independence of India were
challenging for Indian banking. The years of the First World War were
turbulent, and it took its toll with banks simply collapsing despite the Indian
economy gaining indirect boost due to war-related economic activities. At least
94 banks in India failed between 1913 and 1918 as indicated in the following
table:
Number of banks Authorised Capital Paid-up Capital

Years
that failed (₹ Lakhs) (₹ Lakhs)
1918 7 209 1
1917 9 76 25
1916 13 231 4
1915 11 56 5
1914 42 710 109
1913 12 274 35

Post-Independence
The partition of India in 1947 adversely impacted the economies of Punjab and
West Bengal, paralysing banking activities for months. India's independence
marked the end of a regime of the Laissez-faire for the Indian banking. The
Government of India initiated measures to play an active role in the economic
life of the nation, and the Industrial Policy Resolution adopted by the
government in 1948 envisaged a mixed economy. This resulted in greater
involvement of the state in different segments of the economy including
banking and finance. The major steps to regulate banking included:
 The Reserve Bank of India, India's central banking authority, was

established in April 1935, but was nationalised on 1 January 1949 under
the terms of the Reserve Bank of India (Transfer to Public Ownership)
Act, 1948 (RBI, 2005b).[18]
 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 provided that no new bank or branch of
an existing bank could be opened without a license from the RBI, and no
two banks could have common directors.
Nationalisation in the 1960s

Despite the provisions, control and regulations of the Reserve Bank of India,
banks in India except the State Bank of India (SBI), remain owned and operated
by private persons. By the 1960s, the Indian banking industry had become an
important tool to facilitate the development of the Indian economy. At the same
time, it had emerged as a large employer, and a debate had ensued about the
nationalisation of the banking industry. Indira Gandhi, the then Prime Minister
of India, expressed the intention of the Government of India in the annual
conference of the All India Congress Meeting in a paper entitled "Stray
thoughts on Bank Nationalization."[19] The meeting received the paper with
enthusiasm.
Thereafter, her move was swift and sudden. The Government of India issued an
ordinance ('Banking Companies (Acquisition and Transfer of Undertakings)
Ordinance, 1969') and nationalised the 14 largest commercial banks with effect
from the midnight of 19 July 1969. These banks contained 85 percent of bank

deposits in the country.[19] Jayaprakash Narayan, a national leader of India,

described the step as a "masterstroke of political sagacity." Within two weeks
of the issue of the ordinance, the Parliament passed the Banking Companies
(Acquisition and Transfer of Undertaking) Bill, and it received the presidential
approval on 9 August 1969.
A second dose of nationalisation of 6 more commercial banks followed in 1980.

The stated reason for the nationalisation was to give the government more
control of credit delivery. With the second dose of nationalisation, the
Government of India controlled around 91% of the banking business of India.
Later on, in the year 1993, the government merged New Bank of India with
Punjab National Bank.[20] It was the only merger between nationalised banks
and resulted in the reduction of the number of nationalised banks from 20 to 19.
Until the 1990s, the nationalised banks grew at a pace of around 4%, closer to
the average growth rate of the Indian economy.
Liberalisation in the 1990s

In the early 1990s, the then government embarked on a policy of liberalisation,
licensing a small number of private banks. These came to be known as New
Generation tech-savvy banks, and included Global Trust Bank (the first of such
new generation banks to be set up), which later amalgamated with Oriental
Bank of Commerce, UTI Bank (since renamed Axis Bank), ICICI Bank and
HDFC Bank. This move, along with the rapid growth in the economy of India,
revitalised the banking sector in India, which has seen rapid growth with strong
contribution from all the three sectors of banks, namely, government banks,
private banks and foreign banks.
The next stage for the Indian banking has been set up, with proposed relaxation
of norms for foreign direct investment. All foreign investors in banks may be
given voting rights that could exceed the present cap of 10% at present. It has
gone up to 74% with some restrictions.
The new policy shook the Banking sector in India completely. Bankers, till this
time, were used to the 4–6–4 method (borrow at 4%; lend at 6%; go home at 4)
of functioning. The new wave ushered in a modern outlook and tech-savvy
methods of working for traditional banks. All this led to the retail boom in
India. People demanded more from their banks and received more.

2.3 BANKING - A NEED OF TIME

Although using a bank is the most common method of storing and accessing
your money, there are some alternatives you should consider. If you feel that
your bank isn't giving you what you want, then perhaps it is time for a change.
Here are some banking alternatives that might be able to offer you the features
and services that you require.
Of course, the main reason to use a bank is the fact that banks are widely
available, and they are the first option that comes to mind when dealing with
finances. In fact, some people aren't even aware that there are alternatives to
banking apart from keeping your money at home. Although banking has its
uses, it can cost you money for day-to-day financial matters that you can get for
less. Bank fees can be extremely expensive, but there are some alternatives.
Credit unions are one alternative to using conventional banks. Unlike banks,
credit unions are not for profit organisations that are run by their members.
Credit unions are used by people who share a workplace or occupation, or even
a religion. They offer many of the same services as banks, but because profit is
not their main function they can offer lower fees and higher interest rates on
savings than normal banks. Credit unions can be fairly large and organisations,
and some offer similar levels of convenience to a regular bank. If you are
looking for cheaper fees and better interest rates on savings then a credit union
might be right for you. However, credit unions are still small compared to
banks, and you cannot simply join the credit union of your choice. You have to
meet their specific requirements or be related to someone who is already a
member in order to join. Also, you generally have to save money with a credit
union before you can have access to other financial products
Perhaps the best alternative to traditional banking is online banking. There are
many banks that operate solely online, and there are a lot of benefits to this sort
of bank. Although you might not be able to get money as easily as you could
with a normal bank, you can transfer funds and pay bills much more efficiently.
Also, online banks usually operate all day every day, meaning that you can
access your account and carry out transactions whenever you want. For paying
bills and transferring money, you can't really beat online banking.

2.4 DIFFERENT TYPES OF BANKS
1. CENTRAL BANK
A central bank, reserve bank, or monetary authority is a public institution that
usually issues the currency, regulates the money supply, and controls the
interest rates in a country. Central banks often also oversee the commercial
banking system of their respective countries. In contrast to a commercial bank, a
central bank possesses a monopoly on printing the national currency, which
usually serves as the nation's legal tender.
The primary function of a central bank is to provide the nation's money supply,
but more active duties include controlling interest rates, and acting as a lender
of last resort to the banking sector during times of financial crisis. It may also
have supervisory powers, to ensure that banks and other financial institutions do
not behave recklessly or fraudulently.
Central banks in most developed nations are independent in that they operate
under rules designed to render them free from political interference. Examples
include the European Central Bank (ECB), the Bank of England, and
the Federal Reserve System of the United States
2. ADVISING BANK
An advising bank (also known as a notifying bank) advises
a beneficiary (exporter) that a letter of credit (L/C) opened by an issuing
bank for anapplicant (importer) is available. Advising Bank's responsibility is to
authenticate the letter of credit issued by the issuer to avoid fraud. The advising
bank is not necessarily responsible for the payment of the credit which it
advises the beneficiary of.
The advising bank is usually located in the beneficiary's country. It can be (1) a
branch office of the issuing bank or a correspondent bank, or (2) a bank
appointed by the beneficiary. Important point is the beneficiary has to be
comfortable with the advising bank.

3. COMMERCIAL BANK
A commercial bank (or business bank) is a type of financial
institution and intermediary. It is a bank that provides transactional, savings,
and money market accounts and that accepts time deposits Commercial banks
engage in processing of payments by way of telegraphic transfer, EFTPOS,
internet banking, or other means, issuing bank drafts and bank cheques,
accepting money on term deposit, lending money by overdraft, installment loan,
or other means, providing documentary and standby letter of credit,
guarantees, performance bonds, securities underwriting commitments and other
forms of off balance sheet exposures, safekeeping of documents and other items
in safe deposit boxes, distribution or brokerage, with or without advice,
of insurance, unit trusts and similar financial products as a “financial
supermarket”, cash management and treasury, merchant banking and private
equity financing
Traditionally, large commercial banks also underwrite bonds, and make

markets in currency, interest rates, and credit-related securities, but today large
commercial banks usually have an investment bank arm that is involved in the
mentioned activities.
4. COMMUNITY DEVELOPMENT BANK

In the United States, community development banks (CDBs or CDFI Banks)
are commercial banks that operate with a mission to generate economic
development in low- to moderate-income (LMI) geographical areas and serve
residents of these communities. In the United States, community development
banks are certified as such by the Community Development Financial
Institutions Fund, a department within the U.S. Department of the Treasury.
In order to become a certified CDFI, CD Banks must apply to the United

States Community Development Financial Institutions Fund. Successful
applicants will have a primary mission of promoting community development
and principally serve under served markets and provide development services,
in addition to meeting other requirements

5. CREDIT UNION
A credit union is a cooperative financial institution that is owned and controlled
by its members and operated for the purpose of promoting thrift,
providing credit at competitive rates, and providing other financial services to
its members. Many credit unions exist to further community development or
sustainable international development on a local level.
Worldwide, credit union systems vary significantly in terms of total system

assets and average institution asset size, ranging from volunteer operations with
a handful of members to institutions with several billion dollars in assets and
hundreds of thousands of members. Credit unions are typically smaller than
banks; for example, the average U.S. credit union has $93 million in assets,
while the average U.S. bank has $1.53 billion, as of 2007.
6. CUSTODIAN BANK
A Custodian bank, or simply custodian, is a specialized financial
institution responsible for safeguarding a firm's or individual's financial assets
and is not likely to engage in "traditional" commercial or consumer/retail
banking such as mortgage or personal lending, branch banking, personal
accounts, ATMs and so forth.
The role of a custodian in such a case would be to hold in safekeeping

assets/securities such as stocks, bonds, commodities such as precious
metals and currency (cash), domestic and foreign, arrange settlement of any
purchases and sales and deliveries in/out of such securities and currency, collect
information on and income from such assets (dividends in the case of
stocks/equities and coupons (interest payments) in the case of bonds) and
administer related tax withholding documents and foreign tax reclamation,
administer voluntary and involuntary corporate actions on securities held such
as stock dividends, splits, business combinations (mergers), tender offers, bond
calls, etc.

7. DEPOSITORY BANK
A depository bank (U.S. usage) is a bank organized in the United States which
provides all the stock transfer and agency services in connection with
a depository receipt program. This function includes arranging for
a custodian to accept deposits of ordinary shares, issuing the negotiable receipts
which back up the shares, maintaining the register of holders to reflect all
transfers and exchanges, and distributing dividends in U.S. dollars.
8. EXPORT CREDIT AGENCY

An export credit agency (known in trade finance as ECA) or Investment
Insurance Agency, is a private or quasi-governmental institution that act as an
intermediary between national governments and exporters to issue export
financing. The financing can take the form of credits (financial support) or
credit insurance and guarantees (pure cover) or both, depending on the mandate
the ECA has been given by its government. ECAs can also offer credit or cover
on their own account. This does not differ from normal banking activities. Some
agencies are government-sponsored, others private, and others a bit of both.
9. INVESTMENT BANKING
An investment bank is a financial institution that assists individuals,
corporations and governments in raising capital by underwriting and/or acting
as the client's agent in the issuance of securities. An investment bank may also
assist companies involved in mergers and acquisitions, and provide ancillary
services such as market making, trading of derivatives, fixed
income instruments, foreign exchange, commodities, and equity securities.
Unlike commercial banks and retail banks, investment banks do not take
deposits. From 1933 (Glass–Steagall Act) until 1999 (Gramm–Leach–Bliley
Act), the United States maintained a separation between investment banking
and commercial banks. Other industrialized countries, including G8countries,
have historically not maintained such a separation.

10. INDUSTRIAL BANK

An industrial loan company (ILC) or industrial bank is a financial
institution in the United States that lends money, and may be owned by non-
financial institutions. Though such banks offer FDIC-insured deposits and are
subject to FDIC and state regulator oversight, a debate exists to allow parent
companies such as Wal-Mart to remain unregulated by the financial regulators.
11. MERCHANT BANK

A merchant bank is a financial institution which provides capital to companies
in the form of share ownership instead of loans. A merchant bank also provides
advisory on corporate matters to the firms they lend to.
Today, according to the US Federal Deposit Insurance Corporation (acronym

FDIC), "the term merchant banking is generally understood to mean negotiated
private equity investment by financial institutions in the unregistered securities
of either privately or publicly held companies."[1] Bothcommercial
banks and investment banks may engage in merchant banking activities.
Historically, merchant banks' original purpose was to facilitate and/or finance
production and trade of commodities, hence the name "merchant". Few banks
today restrict their activities to such a narrow scope.
12. MUTUAL SAVINGS BANK

A mutual savings bank is a financial institution chartered through a state or
federal government to provide a safe place for individuals to save and
toinvest those savings in mortgages, loans, stocks, bonds and other securities.
Mutual savings banks were designed to stimulate savings by individuals; the

exclusive function of these banks is to protect deposits, make limited, secure
investments, and provide depositors with interest. Unlikecommercial banks,
savings banks have no stockholders; the entirety of profits beyond the upkeep of
the bank belongs to the depositors of the mutual savings bank. Mutual savings
banks prioritize security, and as a result, have historically been characteristically

conservative in their investments. This conservatism is what allowed mutual

savings banks to remain stable throughout the turbulent period of the Great
Depression, despite the failing of commercial banks and savings and loan
associations.
13. NATIONAL BANK

In banking, the term national bank carries several meanings:
 especially in developing countries, a bank owned by the state

 an ordinary private bank which operates nationally (as opposed to
regionally or locally or even internationally)
 In the United States, an ordinary private bank operating within a specific
regulatory structure, which may or may not operate nationally, under the
supervision of the Office of the Comptroller of the Currency.
In the past, the term "national bank" has been used synonymously with "central
bank", but it is no longer used in this sense today. Some central banks may have
the words "National Bank" in their name; conversely if a bank is named in this
way, it is not automatically considered a central bank. For example, National-
Bank AG in Essen, Germany is a privately owned commercial bank, just
like National Bank of Canada of Montreal, Canada. On the other side, National
Bank of Ethiopia is the central bank of Ethiopia and National Bank of
Cambodia is the central bank of Cambodia.
14. OFFSHORE BANK

An offshore bank is a bank located outside the country of residence of the
depositor, typically in a low tax jurisdiction (or tax haven) that provides
financial and legal advantages. These advantages typically include
greater privacy (see also bank secrecy, a principle born with the 1934 Swiss
Banking Act), low or no taxation (i.e. tax havens), easy access to deposits (at
least in terms of regulation) and protection against local political or financial
instability

15. POSTAL SAVINGS SYSTEM

Many nations' post offices operated, or continue to operate postal savings
systems, to provide depositors who did not have access to banks a safe,
convenient method to save money and to promote saving among the poor.
16. PRIVATE BANK

Private banks are banks that are not incorporated. A private bank is owned by
either an individual or a general partner(s) with limited partner(s). In any such
case, the creditors can look to both the "entirety of the bank's assets" as well as
the entirety of the sole-proprietor's/general-partners' assets.
These banks have a long tradition in Switzerland, dating back to at least

the revocation of the Edict of Nantes (1685). However most have now become
incorporated companies, so the term is rarely true anymore. There are a few
private banks remaining in the U.S. One is Brown Brothers Harriman & Co., a
general partnership with about 30 members. Private banking also has a long
tradition in the UK where Coutts & Co has been in business since 1692.
17. RETAIL BANK

Retail banking refers to banking in which banking institutions execute
transactions directly with consumers, rather than corporations or other banks.
Services offered include: savings and transactional
accounts, mortgages, personal loans, debit cards, credit cards, and so forth.
18. SAVINGS AND LOAN ASSOCIATION

A savings and loan association (or S&L), also known as a thrift, is a financial
institution that specializes in accepting savings deposits and
making mortgage and other loans. The terms "S&L" or "thrift" are mainly used
in the United States; similar institutions in the United Kingdom, Ireland and
some Commonwealth countries include building societies and trustee savings

banks. They are often mutually held (often called mutual savings banks[citation
needed]
), meaning that the depositors and borrowers are members with voting
rights, and have the ability to direct the financial and managerial goals of the
organization, similar to the policyholders of a mutual insurance company. It is
possible for an S&L to be a joint stock companyand even publicly traded.
However, this means that it is no longer truly an association, and depositors and
borrowers no longer have managerial control.
19. SAVINGS BANK

A savings bank is a financial institution whose primary purpose is
accepting savings deposits. It may also perform some other functions.
In Europe, savings banks originated in the 19th or sometimes even the 18th
century. Their original objective was to provide easily accessible savings
products to all strata of the population. In some countries, savings banks were
created on public initiative, while in others, socially committed individuals
created foundations to put in place the necessary infrastructure.
20. UNIVERSAL BANK
A universal bank participates in many kinds of banking activities and is both a

commercial bank and an investment bank as well as providing other financial
services such as insurance.[1] These are also called full-service financial firms,
although there can also be full-service investment banks which provide wealth
and asset management, trading, underwriting, researching as well as financial
advisory.

CHAPTER-3

The organised banking system in India can be classified as given below:

3.1 RESERVE BANK OF INDIA

The Reserve Bank of India (RBI, Hindi: भारतीय ररज़र्व बैंक) is India's central
banking institution, which controls the monetary policy of the Indian rupee. It
commenced its operations on 1 April 1935 during the British Rule in
accordance with the provisions of the Reserve Bank of India Act, 1934.[5] The
original share capital was divided into shares of 100 each fully paid, which were
initially owned entirely by private shareholders.[6] Following India's
independence on 15 August 1947, the RBI was nationalised on 1 January 1949.
The RBI plays an important part in the Development Strategy of the

Government of India. It is a member bank of the Asian Clearing Union. The
general superintendence and direction of the RBI is entrusted with the 21-
member Central Board of Directors: the Governor, 4 Deputy Governors, 2
Finance Ministry representatives, 10 government-nominated directors to
represent important elements from India's economy, and 4 directors to represent
local boards headquartered at Mumbai, Kolkata, Chennai and New Delhi. Each
of these local boards consists of 5 members who represent regional interests,
and the interests of co-operative and indigenous banks.
The bank is often referred to by the name Mint Street.[8]
HISTORY
1935–1950
Reserve Bank of India-10 Rupees (1938), first year of banknote issue.

The Reserve Bank of India was founded on 1 April 1935 to respond to

economic troubles after the First World War.[9] The Reserve Bank of India was
conceptualized based on the guidelines presented by the Central Legislative
Assembly passed these guidelines as the RBI Act 1934.[10] RBI was
conceptualized as per the guidelines, working style and outlook presented by Dr
B R Ambedkar in his book. It was titled “The Problem of the Rupee – Its origin
and its solution” and presented to the Hilton Young Commission. The bank was
set up based on the recommendations of the 1926 Royal Commission on Indian
Currency and Finance, also known as the Hilton–Young Commission.[11] The
original choice for the seal of RBI was The East India Company Double Mohur,
with the sketch of the Lion and Palm Tree. However it was decided to replace
the lion with the tiger, the national animal of India. The Preamble of the RBI
describes its basic functions to regulate the issue of bank notes, keep reserves to
secure monetary stability in India, and generally to operate the currency and
credit system in the best interests of the country.[12] The Central Office of the
RBI was established in Calcutta (now Kolkata), but was moved to Bombay
(now Mumbai) in 1937. The RBI also acted as Burma's central bank, except
during the years of the Japanese occupation of Burma (1942–45), until April
1947, even though Burma seceded from the Indian Union in 1937. After the
Partition of India in 1947, the bank served as the central bank for Pakistan until
June 1948 when the State Bank of Pakistan commenced operations.
1950–1960
In the 1950s, the Indian government, under its first Prime Minister Jawaharlal
Nehru, developed a centrally planned economic policy that focused on the
agricultural sector. The administration nationalized commercial banks[14] and
established, based on the Banking Companies Act of 1949 (later called the
Banking Regulation Act), a central bank regulation as part of the RBI.
Furthermore, the central bank was ordered to support economic plan with
loans.[15]
1960–1969
As a result of bank crashes, the RBI was requested to establish and monitor a
deposit insurance system. It should restore the trust in the national bank system
and was initialized on 7 December 1961. The Indian government found funds to
promote the economy and used the slogan "Developing Banking". The
government of India restructured the national bank market and nationalized a lot
of institutes. As a result, the RBI had to play the central part of control and
support of this public banking sector.

1969–1985
In 1969, the Indira Gandhi-headed government nationalized 14 major

commercial banks. Upon Gandhi's return to in 1980, a further 6 banks were
nationalized.[11] The regulation of the economy and especially the financial
sector was reinforced by the Government of India in the 1970s and 1980s.[16]
The central bank became the central player and increased its policies for a lot of
tasks like interests, reserve ratio and visible deposits.[17] These measures aimed
at better economic development and had a huge effect on the company policy of
the institutes. The banks lent money in selected sectors, like agri-business and
small trade companies.[18]
The branch was forced to establish two new offices in the country for every
newly established office in a town.[19] The oil crises in 1973 resulted in
increasing inflation, and the RBI restricted monetary policy to reduce the
effects.[20]
1985–1991
A lot of committees analysed the Indian economy between 1985 and 1991.
Their results had an effect on the RBI. The Board for Industrial and Financial
Reconstruction, the Indira Gandhi Institute of Development Research and the
Security & Exchange Board of India investigated the national economy as a
whole, and the security and exchange board proposed better methods for more
effective markets and the protection of investor interests. The Indian financial
market was a leading example for so-called "financial repression" (Mackinnon
and Shaw).[21] The Discount and Finance House of India began its operations on
the monetary market in April 1988; the National Housing Bank, founded in July
1988, was forced to invest in the property market and a new financial law
improved the versatility of direct deposit by more security measures and
liberalisation.[22]
1991–2000 the new century
The national economy contracted in July 1991 as the Indian rupee was
devalued.[23] The currency lost 18% relative to the US dollar, and the
Narsimham Committee advised restructuring the financial sector by a temporal
reduced reserve ratio as well as the statutory liquidity ratio. New guidelines
were published in 1993 to establish a private banking sector. This turning point
should reinforce the market and was often called neo-liberal.[24] The central

bank deregulated bank interests and some sectors of the financial market like
the trust and property markets.[25] This first phase was a success and the central
government forced a diversity liberalisation to diversify owner structures in
1998.[26]
The National Stock Exchange of India took the trade on in June 1994 and the
RBI allowed nationalized banks in July to interact with the capital market to
reinforce their capital base. The central bank founded a subsidiary company—
the Bharatiya Reserve Bank Note Mudran Private Limited—on 3 February 1995
to produce banknotes.[27]
Since 2000
The Foreign Exchange Management Act from 1999 came into force in June
2000. It should improve the item in 2004–2005 (National Electronic Fund
Transfer).[28] The Security Printing & Minting Corporation of India Ltd., a
merger of nine institutions, was founded in 2006 and produces banknotes and
coins.[29]
FUNCTIONS OF RESERVE BANK OF INDIA:-

1. Monopoly Power of Note Issue:
Like any other central bank, the RBI acts as a sole currency authority of the
country, ft issues notes of every denomination except one-rupee note and coins
and small coins—through the Issue Department of the Bank.
One-rupee notes and coins and small coins are issued by the Government of
India. In actuality, the RBI also issues these coins on behalf of the Government
of India.
2. Bankers’ Bank:
As a regulator and supervisor of the country’s financial system, the RBI

prescribes the broad parameters of banking operations within which the entire
banking and financial system operates in the country. The basic objective of this
activity of the RBI is to (i) maintain public confidence in the country’s banking
system, (ii) protect the interests of depositors, and (iii) provide cost- effective
banking services to the public.
As a bankers’ bank, the RBI holds a part of the cash reserves of commercial
banks and lends them funds for short periods. All banks are required to maintain

a certain percentage (lying between 3 p.c. and 20 p.c.) of their total liabilities.
The main objective of changing this cash reserve ratio by the RBI is to control
credit.
3. Banker to the Government:
The RBI acts as the banker to the Government of India and State Governments
(except Jammu and Kashmir). As such, it transacts all merchant banking
functions for these Governments.The RBI accepts and pays money on behalf of
the Government and carries out exchange remittances and other banking
operations.
As the Government’s banker, the RBI provides short-term credit to the

Government of India. This short-term credit is obtainable through the sale of the
treasury bills. Not only this, the RBI also provides ways and means of advances
(repayable within 90 days) to State governments. It may be noted that the Cen-
tral Government is empowered to borrow any amount it likes from the RBI.
4. Controller of Credit:
As an apex bank of the country, the RBI has been empowered to formulate,
implement and monitor its monetary policy with the objective of maintaining
price stability (both internal and external) and ensuring adequate flow of credit
to the productive sectors.
The RBI controls the total supply of money and bank credit to subserve the
country’s interest. The RBI controls credit to ensure price and exchange rate
stability. To achieve this, the RBI uses all types of credit control instruments
quantitative, qualitative, and selective. The most extensively used credit instru-
ment of the RBI is the bank rate and now repo rate, cash, reserve ratio, etc. The
RBI also relies on the selective methods of credit control. But, it has fallen into
disuse during the reform era.
5. Exchange Management and Control:
One of the essential central banking functions performed by the RBI is that of
maintaining the external value of rupee. The RBI has the authority to enter into
foreign exchange transactions both on its own account and on behalf of the
Government. The official external reserve of the country consists of monetary

gold and foreign assets of the Reserve Bank, besides (Special Drawing Rights
or) SDR holdings.
The Reserve Bank, as the custodian of the country’s foreign exchange reserves,
is vested with the duty of managing the investment and utilisation of the
reserves in the most advantageous manner. Being a manager of foreign
exchange, it manages the Foreign Exchange Management Act, (FEMA) 1999.
As a manager of foreign exchange, the RBI helps in facilitating trade (external)
and payment and aims at promoting orderly development and maintenance of
the foreign exchange market in India.
6. Miscellaneous Functions:
The RBI collects, collates and publishes all monetary and banking data
regularly in its weekly statements, in the RBI Bulletin (monthly), and in the
Report on Currency and Finance (annually).
7. Promotional and Developmental Functions:
Apart from these traditional functions, the RBI performs various activities of
promotional and developmental nature. It attempts to mobilise savings for
productive purposes. This is done in various ways. For instance, the RBI has
helped a lot in building the huge financial infrastructure that we see now.
This consists of such institutions as the Deposit Insurance and Guarantee

Corporation (DIGC) (to safeguard the interests of depositors against bank
failure), the Agriculture Refinance and Development Corporation (to meet the
needs of agriculturists), IFCI, SFCs, IDBI, UTI (to meet the long and medium-
term needs of industry), etc. As for cooperative credit movement, the RBI’s
performance is really commendable. This has resulted in curbing the activities
of moneylenders in the rural economy.
8. Licensing Authority
The Reserve Bank of India is empowered to grant license to commence banking

business in India, including the power to cancel a license granted to a banking
company.
A petition was filed under Article 226 of the Constitution, challenging the
constitutional validity of section 22 of the Banking Companies Act, 1949.
Section 22 empowers, Reserve Bank of India to grant license to Banks and
banks which were already in existence on the commencement of the Act have to

apply for license before the expiry of six months from commence.The petitioner
contended that the section 22 of the Banking Regulating Act, 1949 is in restraint
of trade and business hence unconstitutional. The writ was dismissed and the
High Court declared section 22 of the Banking Regulating Act, 1949 as
constitutionally valid and cherished the role of Reserve Bank of India in the
economic development of the country.
Thus, it is clear that the RBI is not a typical central bank as is traditionally
understood. It is something more than a central bank. It regulates not only
currency and credit but aids the development of the Indian economy by con-
ducting various types of promotional activities. As such, in the RBI we see
many activities combined into one.
3.2 COMMERCIAL BANKS:-

Commercial banks form a significant part of the country’s Financial Institution
System. Commercial Banks are those profit seeking institutions which accept
deposits from general public and advance money to individuals like household,
entrepreneurs, businessmen etc. with the prime objective of earning profit in the
form of interest, commission etc. The operations of all these banks are regulated
by the Reserve Bank of India, which is the central bank and supreme financial
authority in India. The main source of income of a commercial bank is the
difference between these two rates which they charge to borrowers and pay to
depositers. Examples of commercial banks – ICICI Bank, State Bank of India,
Axis Bank, and HDFC Bank.
CLASSIFICATION OF COMMERCIAL BANKS IN INDIA:-

Scheduled banks :- Banks which have been included in the Second
Schedule of RBI Act 1934. They are categorized as follows:
 Public Sector Banks :- are those banks in which majority of stake is held
by the government. Eg. SBI, PNB, Syndicate Bank, Union Bank of India
etc.

 Private Sector Banks :- are those banks in which majority of stake is

held by private indivisuals. Eg. ICICI Bank, IDBI Bank, HDFC Bank,
AXIS Bank etc.
 Foreign Banks :- are the banks with Head office outside the country in
which they are located. Eg. Citi Bank, Standard Chartered Bank, Bank of
Tokyo Ltd. etc.
Non scheduled commercial banks :- Banks which are not included in the
Second Schedule of RBI Act 1934.
Commercial Banks in India: Role and Importance:-

Banks help in accelerating the economic growth of a country in the
following ways:
1. Accelerating the Rate of Capital Formation:
Commercial banks encourage the habit of thrift and mobilise the savings of
people. These savings are effectively allocated among the ultimate users of
funds, i.e., investors for productive investment. So, savings of people result in
capital formation which forms the basis of economic development.
2. Provision of Finance and Credit:
Commercial banks are a very important source of finance and credit for trade
and industry. The activities of commercial banks are not only confined to
domestic trade and commerce, but extend to foreign trade also.
3. Developing Entrepreneurship:
Banks promote entrepreneurship by underwriting the shares of new and existing

companies and granting assistance in promoting new ventures or financing
promotional activities. Banks finance sick (loss-making) industries for making
them viable units.
4. Promoting Balanced Regional Development:
Commercial banks provide credit facilities to rural people by opening branches

in the backward areas. The funds collected in developed regions may be

channelised for investments in the under developed regions of the country. In

this way, they bring about more balanced regional development.
5. Help to Consumers:
Commercial banks advance credit for purchase of durable consumer items like
Vehicles, T.V., refrigerator etc., which are out of reach for some consumers due
to their limited paying capacity. In this way, banks help in creating demand for
such consumer goods.
Structure of Commercial Banks in India:

The commercial banks can be broadly classified under two heads:
1. Scheduled Banks:
Scheduled Banks refer to those banks which have been included in the Second
Schedule of Reserve Bank of India Act, 1934.
In India, scheduled commercial banks are of three types:

(i) Public Sector Banks:
These banks are owned and controlled by the government. The main objective
of these banks is to provide service to the society, not to make profits. State
Bank of India, Bank of India, Punjab National Bank, Canada Bank and
Corporation Bank are some examples of public sector banks.
Public sector banks are of two types:
(a) SBI and its subsidiaries;
(b) Other nationalized banks.
(ii) Private Sector Banks:
These banks are owned and controlled by private businessmen. Their main
objective is to earn profits. ICICI Bank, HDFC Bank, IDBI Bank is some
examples of private sector banks.
(iii) Foreign Banks:
These banks are owned and controlled by foreign promoters. Their number has
grown rapidly since 1991, when the process of economic liberalization had
started in India. Bank of America, American Express Bank, Standard Chartered
Bank are examples of foreign banks.
2. Non-Scheduled Banks:
Non-Scheduled banks refer to those banks which are not included in the Second
Schedule of Reserve Bank of India Act, 1934.
Till today India has only four non-scheduled banks in existence. These four
Non-scheduled banks under operation in India are:
1. Akhand Anand Co-operative Bank Limited

2. Alavi Co-Operative Bank Limited
3. Amarnath Co-Operative Bank Limited
4. Amod Nagrik Sahakari Bank Limited

Public sector banks in India

Public Sector Banks (PSBs) are banks where a majority stake (i.e. more than
50%) is held by a government.[1] The shares of these banks are listed on stock
exchanges. There are a total of 27 PSBs in India [21 Nationalized banks + 6
State bank group (SBI + 5 associates) ].
In 2011, IDBI bank and in 2014 Bharatiya Mahila Bank were nationalized with
a minimum capital of Rs 500 crore.
Emergence of public sector banks
The Central Government entered the banking business with the nationalization
of the Imperial Bank Of India in 1955. A 60% stake was taken by the Reserve
Bank of India and the new bank was named as the State Bank of India. The
seven other state banks became the subsidiaries of the new bank when
nationalised on 19 July 1960.[2] The next major nationalisation of banks took
place in 1969 when the government of India, under prime minister Indira
Gandhi, nationalised an additional 14 major banks. The total deposits in the
banks nationalised in 1969 amounted to 50 crores. This move increased the
presence of nationalised banks in India, with 84% of the total branches coming
under government control.[3]
The next round of nationalisation took place in April 1980. The government
nationalised six banks. The total deposits of these banks amounted to around
200 crores. This move led to a further increase in the number of branches in the
market, increasing to 91% of the total branch network of the country. The
objectives behind nationalisation were:
 To break the ownership and control of banks by a few business families,

 To prevent the concentration of wealth and economic power,
 To mobilize savings from masses from all parts of the country,
 To cater to the needs of the priority sectors......
Total public sector banks in India are 27 including IDBI and BMB.

Private-sector banks in India

The private-sector banks in India represent part of the indian banking sector
that is made up of both private and public sector banks. The "private-sector
banks" are banks where greater parts of state or equity are held by the private
shareholders and not by government.
Banking in India has been dominated by public sector banks since the 1969
when all major banks were nationalised by the Indian government They have
grown faster & bigger over the two decades since liberalisation using the latest
technology, providing contemporary innovations and monetary tools and
techniques.[1]
The private sector banks are split into two groups by financial regulators in
India, old and new. The old private sector banks existed prior to the
nationalisation in 1969 and kept their independence because they were either
too small or specialist to be included in nationalisation. The new private sector
banks are those that have gained their banking license since the liberalisation in
the 1990s.
New private-sector banks
The banks, which came in operation after 1991, with the introduction of
economic reforms and financial sector reforms are called "new private-sector
banks". Banking regulation act was then amended in 1993, which permitted the
entry of new private-sector banks in the Indian banking s sector. However, there
were certain criteria set for the establishment of the new private-sector banks,
some of those criteria being:#The bank should have a minimum net worth of Rs.
200 crores.
1. The promoters holding should be a minimum of 25% of the paid-up

capital.
2. Reliance Capital, India Post, Larsen & Toubro, Shriram Transport
Finance are companies pending a banking license with the RBI under the
new policy, while IDFC & Bandhan were given a go ahead to start
banking services for 2015.
Within 3 years of the starting of the operations, the bank should offer shares to
public and their net worth must increased to 300 crores

List of new Private-Sector Banks in India
Name Year
1. Axis Bank (earlier UTI Bank) 1994
2. Bank of Punjab (actually an old generation private bank since it was not
1989
founded under post-1993 new bank licensing regime)
3. Centurion Bank Ltd. (Merged Bank of Punjab in late 2005 to become

1994
Centurion Bank of Punjab, acquired by HDFC Bank Ltd. in 2008)
4. Development Credit Bank (Converted from Co-operative Bank, now

1995
DCB Bank Ltd.)
5. ICICI Bank (previously ICICI and then both merged;total merger

1996
SCICI+ICICI+ICICI Bank Ltd)
6. IndusInd Bank 1994
7. Kotak Mahindra Bank 2003
8. Yes Bank 2005
10. Times Bank (Merged with HDFC Bank Ltd.) 2000
11. Global Trust Bank (India) (Merged with Oriental Bank of Commerce) 1994
12. Balaji Corporation Limited - Private Loan Company, not a Bank 2010
13. HDFC Bank 1994
14. Bandhan Bank 2015
15. IDFC Bank 2015

Foreign banks
Foreign banks have brought latest technology and latest banking practices in
India. They have helped made Indian Banking system more competitive and
efficient. Government has come up with a road map for expansion of foreign
banks in India The road map has two phases. During the first phase between
March 2005 and March 2009, foreign banks may establish a presence by
way of setting up a wholly owned subsidiary (WOS) or conversion of
existing branches into a WOS. The second phase will commence in April
2009 after a review of the experience gained after due consultation with all
the stake holders in the banking sector. The review would examine issues
concerning extension of national treatment to WOS, dilution of stake and
permitting mergers/acquisitions of any private sector banks in India by a
foreign bank.
3.3 Regional Rural Bank:-

Regional Rural Banks (also RRBs) are local level banking organizations
operating in different States of India. They have been created with a view to
serve primarily the rural areas of India with basic banking and financial
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. RRBs also perform a variety
of different functions. RRBs perform various functions in following heads •
Providing banking facilities to rural and semi-urban areas. Carrying out
government operations like disbursement of wages of MGNREGA workers,
distribution of pensions etc. • Providing Para-Banking facilities like locker
facilities, debit and credit cards.
History
Regional Rural Banks were established under the provisions of an Ordinance
passed on September 1975 and the RRB Act. 1976 to provide sufficient banking
and credit facility for agriculture and other rural sectors. These were set up on
the recommendations of The M. Narasimham Working Group[1] during the
tenure of Indira Gandhi's government with a view to include rural areas into
economic mainstream since that time about 70% of the Indian Population was
of Rural Orientation. The development process of RRBs started on 2 October

1975 with the forming of the first RRB, the Prathama Bank with authorised
capital of Rs. 5 crore at its starting. Also on 2 October 1976 five regional rural
banks were set up with a total authorised capital Rs. 100 crore ($10 Million)
which later augmented to 500 crore ($50 Million). The Regional Rural Bank
were owned by the Central Government, the State Government and the Sponsor
Bank(There were five commercial banks, Punjab National Bank, State Bank of
India, Syndicate Bank, United Bank of India and United Commercial Bank,
which sponsored the regional rural banks) who held shares in the ratios as
follows Central Government-50%, State Government- 15% and Sponsor Banks-
35[2]%.. Earlier, Reserve Bank of India had laid down ceilings on the rate of
interest to be charged by these RRBs.
List of Regional Rural banks :-
NABARD is the regulatory authority of Regional Rural Banks
1. Allahabad UP Gramin Bank,

2. Andhra Pradesh Grameena Vikas Bank,
3. Andhra Pragathi Grameena Bank,
4. Arunachal Pradesh Rural Bank,
5. Assam Gramin Vikash Bank,
6. Bangiya Gramin Vikash Bank,
7. Baroda Gujarat Gramin Bank,
8. Baroda Rajasthan Ksethriya Gramin Bank,
9. Baroda UP Gramin Bank,
10.Bihar Gramin Bank,.
Objectives of Regional Rural Banks
The RBBs Act has made various provisions regarding the incorporation,
regulation and working of RRBs. According to this Act, the RRBs are to be set-
up mainly with a view to develop rural economy by providing credit facilities
for the purpose of development of agriculture, trade, commerce, industry and
other productive activities in the rural areas.

Such facility is provided particularly to the small and marginal farmers,

agricultural labourers, artisans, and small entrepreneurs and for other related
matters.
The objectives of RRBs can be summarized as follows:
(i) To provide cheap and liberal credit facilities to small and marginal farmers,
agriculture labourers, artisans, small entrepreneurs and other weaker sections.
(ii) To save the rural poor from the moneylenders.
(iii) To act as a catalyst element and thereby accelerate the economic growth in
the particular region.
(iv) To cultivate the banking habits among the rural people and mobilize
savings for the economic development of rural areas.
(v) To increase employment opportunities by encouraging trade and commerce

in rural areas.
(vi) To encourage entrepreneurship in rural areas.
(vii) To cater to the needs of the backward areas which are not covered by the
other efforts of the Government?
(viii) To develop underdeveloped regions and thereby strive to remove

economic disparity between regions.
Other special features of these banks are:

(i) their area of operation is limited to a specified region,
comprising one or more districts in any state;
(ii) their lending rates cannot be higher than the prevailing lending
rates of cooperative credit societies in any particular state;
(iii) the paid-up capital of each rural bank is Rs. 25 lakh, 50 percent
of which has been contributed by the Central Government, 15
percent by State Government and 35 percent by sponsoring
public sector commercial banks which are also responsible for
actual setting up of the RRBs.
These banks are helped by higher-level agencies: the sponsoring banks lend
them funds and advise and train their senior staff, the NABARD (National Bank

for Agriculture and Rural Development) gives them short-term and medium,
term loans: the RBI has kept CRR (Cash Reserve Requirements) of them at 3%
and SLR (Statutory Liquidity Requirement) at 25% of their total net liabilities,
whereas for other commercial banks the required minimum ratios have been
varied over time.
Regulation of RRBs :-
Regional Rural Banks are regulated by National Bank for Agriculture and
Rural Development (NABARD). Please note that currently seven states viz.
Tripura, Nagaland, Manipur, Mizoram, Arunachal Pradesh Meghalaya and
Puducherry, have state-level RRBs. Gujarat and Karnataka too have demanded
formation of state level RRB.
3.4 Cooperative Banks:

Cooperative banks are so-called because they are organised under the provisions
of the Cooperative Credit Societies Act of the states. The major beneficiary of
the Cooperative Banking is the agricultural sector in particular and the rural
sector in general.
The cooperative credit institutions operating in the country are mainly of two
kinds: agricultural (dominant) and non-agricultural. There are two separate
cooperative agencies for the provision of agricultural credit: one for short and
medium-term credit, and the other for long-term credit. The former has three
tier and federal structure.
At the apex is the State Co-operative Bank (SCB) (cooperation being a state
subject in India), at the intermediate (district) level are the Central Cooperative
Banks (CCBs) and at the village level are Primary Agricultural Credit Societies
(PACs).
Long-term agriculture credit is provided by the Land Development Banks. The

funds of the RBI meant for the agriculture sector actually pass through SCBs
and CCBs. Originally based in rural sector, the cooperative credit movement
has now spread to urban areas also and there are many urban cooperative banks
coming under SCBs.

Cooperative banking is retail and commercial banking organized on a

cooperative basis. Cooperative banking institutions take deposits and lend
money in most parts of the world.
Cooperative banking, as discussed here, includes retail banking carried out by

credit unions, mutual savings banks, building societies and cooperatives, as well
as commercial banking services provided by mutual organizations (such as
cooperative federations) to cooperative businesses.
History of Cooperative Banking in India :-

The historical roots of the Cooperative Movement in the world days back to
days of misery and distress in Europe faced by common people who had little or
no access to credit to fund their basic needs, in uncertain times. The idea spread
when the continent was faced with economic turmoil which led large
populations to live at subsistence level without any economic security. People
were forced to poverty and deprivation. It was the idea of Hermann Schulze
(1808-83) and Friedrich Wilhelm Raiffeisen (1818-88) which took shape as
cooperative banks of today across the world. They started to promote the idea of
easy availability of credit to small businesses and for the poor segment of
society.
 The Cooperative Credit Societies Act, 1904 led to the formation of

Cooperative Credit Societies in both rural and urban areas. The act was
based on recommendations of Sir Frederick Nicholson (1899) and Sir
Edward Law (1901). Their ideas in turn were based on the pattern of
Raiffeisen and Schulze respectively.
 The Cooperative Societies Act of 1912, further gave recognition to the
formation of non-credit societies and the central cooperative
organizations.
 In independent India, with the onset of planning, the cooperative
organizations gained more leverage and role with the continued
governmental support.
 Machlagan Committee in 1915, highlighted the deficiencies of in
cooperative societies which seeped-in due to lack of proper education to
the masses. He also laid down the importance of Central Assistance by
the Government to support the movement.

 The Royal Commission on Agriculture 1928, enumerated the importance

of education of members/staff for effective implementation of
cooperative movement.
 Saraiya Committee, in 1945, further recommended the setting up of a
Cooperative Training College in every state and a Cooperative Training
Institute for Advanced Study and Research at the Central level.
 Central Committee for Cooperative Training in 1953, constituted by
RBI for establishing Regional Training Centres.
 Rural Credit Survey Committee, 1954 was the first committee formed
till then to first delve into the problems of Rural credit and other
financial issues of rural society.
Extent of Cooperative Banking

Indian cooperative structures are one of the largest such networks in the
world with more than 200 million members. It has about 67% penetration in
villages and fund 46% of the total rural credit. It also stands for 36% of the
total distribution of rural fertilizers and 28% of rural fair price shops.
Structure of Cooperative Banking in India

The structure of cooperative network in India can be divided into 2 broad
segments-
Urban Cooperatives
Urban Cooperatives can be further divided into scheduled and non-scheduled.
Both the categories are further divided into multi-state and single-state.
Majority of these banks fall in the non-scheduled and single-state category.
 Banking activities of Urban Cooperative Banks are monitored by RBI.
 Registration and Management activities are managed by Registrar of
Cooperative Societies (RCS). These RCS operate in single-state and
Central RCS (CRCS) operate in multiple state.
Rural Cooperatives
The rural cooperatives are further divided into short-term and long-term
structures. The short-term cooperative banks are three tiered operating in
different states.
 These are- State Cooperative Banks- They operate at the apex level in
states
 District Central Cooperative Banks-They operate at the district levels

 Primary Agricultural Credit Societies-They operate at the village or

grass-root level.
Likewise, the long-term structures are further divided into –

 State Cooperative Agriculture and Rural Development Banks
(SCARDS)- These operate at state-level.
 Primary Cooperative Agriculture and Rural Development Banks
(PCARDBS)-They operate at district/block level.
The rural banking cooperatives have a complex monitoring structure as they

have a dual control which has led to many problems. A Forum called State
Level Task Force on Cooperative Urban Banks (TAFCUB) has been set-up to
look into issues related to duality in control.
Types of Co-operative Banks in India
The co-operative banks are small-sized units which operate both in urban and
non-urban centers. They finance small borrowers in industrial and trade sectors
besides professional and salary classes. Regulated by the Reserve Bank of India,
they are governed by the Banking Regulations Act 1949 and banking laws (co-
operative societies) act, 1965. The co-operative banking structure in India is
divided into following 5 categories:
Primary Co-operative Credit Society
The primary co-operative credit society is an association of borrowers and non-

borrowers residing in a particular locality. The funds of the society are derived
from the share capital and deposits of members and loans from central co-
operative banks. The borrowing powers of the members as well as of the society
are fixed. The loans are given to members for the purchase of cattle, fodder,
fertilizers, pesticides, etc.
Central Co-operative Banks
These are the federations of primary credit societies in a district and are of two
types-those having a membership of primary societies only and those having a
membership of societies as well as individuals. The funds of the bank consist of
share capital, deposits, loans and overdrafts from state co-operative banks and
joint stocks. These banks provide finance to member societies within the limits
of the borrowing capacity of societies. They also conduct all the business of a
joint stock bank.

State Co-operative Banks
The state co-operative bank is a federation of central co-operative bank and acts
as a watchdog of the co-operative banking structure in the state. Its funds are
obtained from share capital, deposits, loans and overdrafts from the Reserve
Bank of India. The state co-operative banks lend money to central co-operative
banks and primary societies and not directly to the farmers.
Land Development Banks
The Land development banks are organized in 3 tiers namely; state, central, and
primary level and they meet the long term credit requirements of the farmers for
developmental purposes. The state land development banks oversee, the
primary land development banks situated in the districts and tehsil areas in the
state. They are governed both by the state government and Reserve Bank of
India. Recently, the supervision of land development banks has been assumed
by National Bank for Agriculture and Rural development (NABARD). The
sources of funds for these banks are the debentures subscribed by both central
and state government. These banks do not accept deposits from the general
public.
Urban Co-operative Banks
The term Urban Co-operative Banks (UCBs), though not formally defined,
refers to primary co-operative 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
centered on communities, localities, work place groups. They essentially lend to
small borrowers and businesses. Today, their scope of operations has widened
considerably.
Functions of Co-operative Banks

Co-operative banks also perform the basic banking functions of banking
but they differ from commercial banks in the following respects:-
1. Commercial banks are joint-stock companies under the companies’ act of

1956, or public sector bank under a separate act of a parliament whereas co-

operative banks were established under the co-operative society’s acts of

different states.
2. Commercial bank structure is branch banking structure whereas co-operative

banks have a three tier setup, with state co-operative bank at apex level, central /
district co-operative bank at district level, and primary co-operative societies at
rural level.
3. Only some of the sections of banking regulation act of 1949 (fully applicable
to commercial banks), are applicable to co-operative banks, resulting only in
partial control by RBI of co-operative banks and

CHAPTER-4
4.1 DIFFERENT TYPES OF PRODUCTS
Bank deposits serve different purposes for different people. Some people cannot
save regularly; they deposit money in the bank only when they have extra
income. The purpose of deposit then is to keep money safe for future needs.
Some may want to deposit money in a bank for as long as possible to earn
interest or to accumulate savings with interest so as to buy a flat, or to meet
hospital expenses in old age, etc. Some, mostly businessmen, deposit all their
income from sales in a bank account and pay all business expenses out of the
deposits. Keeping in view these differences, banks offer the facility of opening
different types of deposit accounts by people to suit their purpose and
convenience.
On the basis of purpose they serve, bank deposit accounts may be classified as
follows:
1. Savings Bank Account
If a person has limited income and wants to save money for future needs, the
Saving Bank Account is most suited for his purpose. This type of account can
be opened with a minimum initial deposit that varies from bank to bank. Money
can be deposited any time in this account. Withdrawals can be made either by
signing a withdrawal form or by issuing a cheque or by using ATM card.
Normally banks put some restriction on the number of withdrawal from this
account. Interest is allowed on the balance of deposit in the account. The rate of
interest on savings bank account varies from bank to bank and also changes
from time to time. A minimum balance has to be maintained in the account as
prescribed by the bank.
2. Current Deposit Account
Big businessmen, companies and institutions such as schools, colleges, and

hospitals have to make payment through their bank accounts. Since there are
restriction on number of withdrawals from savings bank account, that type of
account is not suitable for them. They need to have an account from which
withdrawal can be made any number of times.

3. Fixed Deposit Account
Fixed Deposit Account is also known as Term Deposit Account. Many a time
people want to save money for long period. If money is deposited in savings
bank account, banks allow a lower rate of interest. Therefore, money is
deposited in a fixed deposit account to earn a interest at a higher rate. This type
of deposit account allows deposit to be made of an amount for a specified
period. This period of deposit may range from 15 days to three years or more
during which no withdrawal is allowed. However, on request, the depositor can
encash the amount before its maturity. In that case banks give lower interest
than what was agreed upon. The interest on fixed deposit account can be
withdrawn at certain intervals of time. At the end of the period, the deposit may
be withdrawn or renewed for a further period. Banks also grant loan on the
security of fixed deposit receipt.
4. Recurring Deposit Account.
This type of account is suitable for those who can save regularly and expect to
earn a fair return on the deposits over a period of time. While opening the
account a person has to agree to deposit a fixed amount once in a month for a
certain period. The total deposit along with the interest therein is payable on
maturity. However, the depositor can also be allowed to close the account
before its maturity and get back the money along with the interest till that
period. The account can be opened by a person individually, or jointly with
another, or by the guardian in the name of a minor. The rate of interest allowed
on the deposits is higher than that on a savings bank deposit but lower than the
rate allowed on a fixed deposit for the same period.
Recurring Deposit Accounts may be of different types depending on the

purpose underlying the deposit. Some of these are as follows:
a) Home Safe Account (also known as Money Box Scheme):
Small savers find it convenient to deposit money under this scheme. For regular
savings, the bank provides a safe or box (Gullak) to the depositor. The safe or
box cannot be opened by the depositor, who can put money in it regularly,

which is collected by the bank’s representative at intervals and the amount is

credited to the depositor’s account. The deposits carry a nominal rate of interest.
b) Cumulative-cum-Sickness Deposit Account:
Regular deposits made in this type of account serve the purpose of having
money to meet large expenses in case there is sudden illness or other unforeseen
expenses. A certain fixed sum is deposited at regular intervals in this account.
The accumulated deposits over time along with interest can be used for payment
of medical expenses, hospital charges, etc.
c) Home Construction deposit Scheme/Saving Account:
This is also a type of recurring deposit account in which money can be

deposited regularly either for the purchase or construction of a flat or house in
future. The rate of interest offered on the deposit in this case is relatively higher
than in other recurring deposit accounts.
4.2 LOANS AND ADVANCES

The term ‘loan’ refers to the amount borrowed by one person from another. The
amount is in the nature of loan and refers to the sum paid to the borrower. Thus.
from the view point of borrower, it is ‘borrowing’ and from the view point of
bank, it is ‘lending’. Loan may be regarded as ‘credit’ granted where the money
is disbursed and its recovery is made on a later date. It is a debt for the
borrower. While granting loans, credit is given for a definite purpose and for a
predetermined period. Interest is charged on the loan at agreed rate and intervals
of payment. ‘Advance’ on the other hand, is a ‘credit facility’ granted by the
bank. Banks grant advances largely for short-term purposes, such as purchase of
goods traded in and meeting other short-term trading liabilities. There is a sense
of debt in loan, whereas an advance is a facility being availed of by the
borrower. However, like loans, advances are also to be repaid. Thus a credit
facility- repayable in instalments over a period is termed as loan while a credit

facility repayable within one year may be known as advances. However, in the
present lesson these two terms are used interchangeably.
TYPES OF LOANS
1. Loans
Loan is the amount borrowed from bank. The nature of borrowing is that the
money is disbursed and recovery is made in instalments. While lending money
by way of loan, credit is given for a definite purpose and for a pre-determined
period. Depending upon the purpose and period of loan, each bank has its own
procedure for granting loan. However the bank is at liberty to grant the loan
requested or refuse it depending upon its own cash position and lending policy.
There are two types of loan available from banks:
a) Demand loan
A Demand Loan is a loan which is repayable on demand by the bank. In other

words, it is repayable at short-notice. The entire amount of demand loan is
disbursed at one time and the borrower has to pay interest on it. The borrower
can repay the loan either in lumpsum (one time) or as agreed with the bank. For
example, if it is so agreed the amount of loan may be repaid in suitable
instalments. Such loans are normally granted by banks against security. The
security may include materials or goods in stock, shares of companies or any
other asset. Demand loans are raised normally for working capital purposes, like
purchase of raw materials, making payment of short-term liabilities.
b) Term loan
Medium and long term loans are called term loans. Term loans are granted for
more than a year and repayment of such loans is spread over a longer period.
The repayment is generally made in suitable instalments of a fixed amount.
Term loan is required for the purpose of starting a new business activity,
renovation, modernization, expansion/ extension of existing units, purchase of
plant and machinery, purchase of land for setting up of a factory, construction of
factory building or purchase of other immovable assets. These loans are

generally secured against the mortgage of land, plant and machinery, building
and the like.
2. Cash credit
Cash credit is a flexible system of lending under which the borrower has the
option to withdraw the funds as and when required and to the extent of his
needs. Under this arrangement the banker specifies a limit of loan for the
customer (known as cash credit limit) up to which the customer is allowed to
draw. The cash credit limit is based on the borrower’s need and as agreed with
the bank. Against the limit of cash credit, the borrower is permitted to withdraw
as and when he needs money subject to the limit sanctioned. It is normally
sanctioned for a period of one year and secured by the security of some tangible
assets or personal guarantee. If the account is running satisfactorily, the limit of
cash credit may be renewed by the bank at the end of year. The interest is
calculated and charged to the customer’s account.
3. Overdraft
Overdraft facility is more or less similar to ‘cash credit’ facility. Overdraft

facility is the result of an agreement with the bank by which a current account
holder is allowed to draw over and above the credit balance in his/her account.
It is a short-period facility. This facility is made available to current account
holders who operate their account through cheques. The customer is permitted
to withdraw the amount of overdraft allowed as and when he/she needs it and to
repay it through deposits in the account as and when it is convenient to him/her.
Overdraft facility is generally granted by a bank on the basis of a written request

by the customer. Sometimes the bank also insists on either a promissory note
from the borrower or personal security of the borrower to ensure safety of
amount withdrawn by the customer. The interest rate on overdraft is higher than
is charged on loan. The following are some of the benefits of cash credits and
overdraft:

i. Cash credit and overdraft allow flexibility of borrowing, which depends

upon the need of the borrower.
ii. There is no necessity of providing security and documentation again and

again for borrowing funds.
iii. This mode of borrowing is simple and elastic and meets the short term
financial needs of the business.
4. Discounting of Bills
Apart from sanctioning loans and advances, discounting of bills of exchange by

bank is another way of making funds available to the customers. Bills of
exchange are negotiable instruments which enable debtors to discharge their
obligations to the creditors. Such Bills of exchange arise out of commercial
transactions both in inland trade and foreign trade. When the seller of goods has
to realise his dues from the buyer at a distant place immediately or after the
lapse of the agreed period of time, the bill of exchange facilitates this task with
the help of the banking institution.
4.3 Apart from these the banks also provides financial services to the
corporate sector and business and society
1) Merchant Banking
In banking, a merchant bank is a financial institution primarily engaged in

offering financial services and advice to corporations and to wealthy
individuals. The term can also be used to describe the private equity activities of
banking. The chief distinction between an investment bank and a merchant bank
is that a merchant bank invests its own capital in a client company whereas an
investment bank purely distributes (and trades) the securities of that company in
its capital raising role. Both merchant banks and investment banks provide fee
based corporate advisory services including in relation to mergers and
acquisitions.

2) Leasing
Leasing is a process by which a firm can obtain the use of a certain fixed assets
for which it must pay a series of contractual, periodic, tax deductible payments.
The lessee is the receiver of the services or the assets under the lease contract
and the lessor is the owner of the assets. The relationship between the tenant
and the landlord is called a tenancy, and can be for a fixed or an indefinite
period of time (called the term of the lease). The consideration for the lease is
called rent. A gross lease is when the tenant pays a flat rental amount and the
landlord pays for all property charges regularly incurred by the ownership from
lawnmowers and washing machines to handbags and jewellry.[1]
3) Mutual Funds
A Mutual Fund is a trust that pools the savings of a number of investors who
share a common financial goal. The money thus collected is then invested in
capital market instruments such as shares, debentures and other securities. The
income earned through these investments and the capital appreciation realised
are shared by its unit holders in proportion to the number of units owned by
them. Thus a Mutual Fund is the most suitable investment for the common man
as it offers an opportunity to invest in a diversified, professionally managed
basket of securities at a relatively low cost.
4) Money Transfer
Banks are helping business and society for transfer of money from place to
place or person to person. For this purpose, Demand Draft, Pay orders,
Telegraphic Transfer, Mail Transfer, Credit Cards etc type methods are used.

5) Factoring
Factoring is a financial transaction whereby a business job sells its accounts

receivable (i.e., invoices) to a third party (called a factor) at a discount in
exchange for immediate money with which to finance continued business.
Factoring differs from a bank loan in three main ways. First, the emphasis is on
the value of the receivables (essentially a financial asset),[1][2] not the firm’s
credit worthiness. Secondly, factoring is not a loan – it is the purchase of a
financial asset (the receivable). Finally, a bank loan involves two parties
whereas factoring involves three.
The three parties directly involved are: the one who sells the receivable, the
debtor, and the factor. The receivable is essentially a financial asset associated
with the debtor's liability to pay money owed to the seller (usually for work
performed or goods sold). The seller then sells one or more of its invoices (the
receivables) at a discount to the third party, the specialized financial
organization (aka the factor), to obtain cash. The sale of the receivables
essentially transfers ownership of the receivables to the factor, indicating the
factor obtains all of the rights and risks associated with the receivables.
6) Finance Housing
There are a variety of housing finance schemes started by banks. Such as

purchase of new house, construction of new home, home improvement, repairs,
extension, land purchase, bridge loans, and balance transfer loans. Commercial
banks through their subsidiaries undertake housing finance as a specialized
business. Now a days, all the banks are permitted to provide housing finance to
the people. They provide housing finance and other related services to the needy
people at reasonable rate of interest.

7) Credit Cards
A Lot of people miscomprehend the usage of credit card thinking that it only
augments their expenditure & nothing else, however they are not aware of the
proper usage of the card. A Credit Card is plastic money which is used as a way
of payment, facilitating you to purchase products/services on credit. It eases
your life & your shopping experience is made simpler as you are not required to
carry cash at all the places; just swipe your credit card & you are given a free
credit period of 50-55 days by the bank. You should not cross the limit of the
credit allotted by the bank as they charge hefty fine from the card holders. -
Always check sales vouchers/charge slips and the purchase amount when you
sign them. - Change your PIN regularly & do not give out your card number or
CVV number (three-digit number) to anyone on the phone, unless you are
dealing with a reputable company. - When shopping online, submit credit card
details only through secure websites. - Always keep a track of your billing cycle
& pay bills on time to avoid interest charges & late fees. - Always scan your
credit card statements for unauthorized transactions
8) Portfolio Management
Portfolio management is a process of investment in securities. It involves a

proper investment decision making. It involves proper money management. The
objective of this service is to help investors with the expertise of professionals.
It involves construction of a portfolio based upon the fact sheet of the investor
giving out his objectives, constraints, preferences and tax liability. The portfolio
should be reviewed and adjusted from time to time in tune with the market
conditions. The portfolio manager is an important person who holds the
financial institutions and banks. They handle the funds of the investors for a fee.
As per SEBI guidelines, the portfolio manager should get a certificate from the
SEBI for rendering the portfolio management services to the clients. The SEBI
has framed the code of conduct for the portfolio managers. The violation of the
regulations of SEBI is an offence and is punishable under the SEBI Act. Banks
usually extend services for managing surplus funds of their corporate customers
either directly or through merchant bankers. It involves helping their clients in
investing their funds in a manner that balances the liquidity, safety and
maximum yield

9) ATM
One of the channels of banking service delivery is vide the Automated Teller
Machine (ATM) whose traditional and primary use is to dispense cash upon
insertion of a plastic card and its unique Personal Identification Number (PIN).
ATM card is a plastic card with a magnetic strip with the account number of the
individual. The bank issues ATM cards to its current and saving accountholders.
A typical transaction would be that of cash withdrawal. The bank generally
restricts the maximum amount and the frequency with which one can withdraw
cash. The amount withdrawn is immediately debited to the concerned account
through accounting entries pre programmed on the ATM. Cash or cheques can
be deposited through the ATM for the credit to an account. ATMs can be
accessed may time. No employee interface is necessary. ATM offers a cost
effective solution alternative to labour costs. The scope of frauds, robberies and
misappropriation are reduced considerably if the PIN is maintained diligently.
10) Tele banking
Tele banking is a banking service offered by banks to enable customers to

access their accounts for information or transactions. A Telephone PIN (T-PIN)
is provided to each accountholder. The customer can call the exclusive tele-
banking numbers and provide the details to identify himself to the automated
voice. Upon the respective numbers matching the computerized systems, the
customer is given access to his account to query or transact on his account. Cash
withdrawal and deposit are not enabled through this service but many banks
offer a cash delivery or collection service to certain classes of cutomers.
11) Internet Banking
Internet is one of the channels of service delivery to a banking customer. The

access to account information as well as transaction is offered through the
worldwide network of computers on the internet. Every bank has special
firewalls and its own security measure to protect the accounts from non-
authentic use from unauthorized users. Each accountholder is provided a PIN
similar to that of the ATM. The access to the account is allowed upon a match

of the account details and PIN entered on the computer system. A higher level
of security may be reached by an electronic finger print. Account querying as
well as transaction are possible on the Internet Banking Platform. The
accounting is instantaneous and funds transfers can be effected immediately.
Financial services companies are using the Internet as the new distribution
channel.
Investments/Developments
Key investments and developments in India’s banking industry include:
 Canada Pension Plan Investment Board (CPPIB), an investment

management company, has bought a large stake in Kotak Mahindra Bank
Ltd from Japan-based Sumitomo Mitsui Banking Corporation.
 India’s first small finance bank called the Capital Small Finance Bank has
started its operations by launching 10 branch offices in Punjab, and aims
to increase the number of branches to 29 in the current FY 2016-17.
 FreeCharge, the wallet company owned by online retailer Snapdeal, has
partnered with Yes Bank and MasterCard to launch FreeCharge Go, a
virtual card that allows users to pay for goods and services at online
shops and offline retailers.
 Exim Bank of India and the Government of Andhra Pradesh has signed a
Memorandum of Understanding (MoU) to promote exports in the state.
 Kotak Mahindra Bank Limited has bought 19.9 per cent stake in Airtel M
Commerce Services Limited (AMSL) for Rs 98.38 crore (US$ 14.43
million) to set up a payments bank. AMSL provides semi-closed prepaid
instrument and offers services under the ‘Airtel Money’ brand name.
 Ujjivan Financial Services Ltd, a microfinance services company, has
raised Rs 312.4 crore (US$ 45.84 million) in a private placement from 33
domestic investors including mutual funds, insurance firms, family
offices and High Net Worth Individuals (HNIs)).
 India's largest public sector bank, State Bank of India (SBI), has opened
its first branch dedicated to serving start-up companies, in Bengaluru.
 Global rating agency Moody's has upgraded its outlook for the Indian
banking system to stable from negative based on its assessment of five
drivers including improvement in operating environment and stable asset
risk and capital scenario.
 Lok Capital, a private equity investor backed by US-based non-profit
organisation Rockefeller Foundation, plans to invest up to US$ 15 million
in two proposed small finance banks in India over the next one year.

 The Reserve Bank of India (RBI) has granted in-principle licences to 10

applicants to open small finance banks, which will help expanding access
to financial services in rural and semi-urban areas.
 IDFC Bank has become the latest new bank to start operations with 23
branches, including 15 branches in rural areas of Madhya Pradesh.
 The RBI has given in-principle approval to 11 applicants to establish
payment banks. These banks can accept deposits and remittances, but are
not allowed to extend any loans.
 The Bank of Tokyo-Mitsubishi (BTMU), a Japanese financial services
group, aims to double its branch count in India to 10 over the next three
years and also target a 10 per cent credit growth during FY16.
 The RBI has allowed third-party white label automated teller machines
(ATM) to accept international cards, including international prepaid
cards, and said white label ATMs can now tie up with any commercial
bank for cash supply.
 The RBI has allowed Indian alternative investment funds (AIFs), to
invest abroad, in order to increase the investment opportunities for these
funds.
 RBL Bank informed that it would be the anchor investor in Trifecta
Capital’s Venture Debt Fund, the first alternative investment fund (AIF)
in India with a commitment of Rs 50 crore (US$ 7.34 million). This move
provides RBL Bank the opportunity to support the emerging venture debt
market in India.
 Bandhan Financial Services raised Rs 1,600 crore (US$ 234.8 million)
from two international institutional investors to help convert its
microfinance business into a full service bank. Bandhan, one of the two
entities to get a banking licence along with IDFC, launched its banking
operations in August 2015.
Government Initiatives
The government and the regulator have undertaken several measures to
strengthen the Indian banking sector.
 The Reserve Bank of India (RBI) has issued guidelines for priority sector
lending certificates (PSLCs), according to which banks can issue four
different kinds of PSLCs—those for the shortfall in agriculture lending,
lending to small and marginal farmers, lending to micro enterprises and
for overall lending targets – to meet their priority sector lending targets.
 The Reserve Bank of India (RBI) has allowed additional reserves to be
part of tier-1 or core capital of banks, such as revaluation reserves linked

to property holdings, foreign currency translation reserves and deferred

tax assets, which is expected to shore up the capital of state-run banks and
privately owned banks by up to Rs 35,000 crore (US$ 5.14 billion) and
Rs 5,000 crore (US$ 734 million) respectively.
 Scheduled commercial banks can grant non-fund based facilities
including partial credit enhancement (PEC), to those customers, who do
not avail any fund based facility from any bank in India.
 Ministry of Finance has planned to inject Rs 5,000 crore (US$ 734
million) in eight public sector banks in order to boost their capital,
 To reduce the burden of loan repayment on farmers, a provision of Rs
15,000 crore (US$ 2.2 billion) has been made in the Union Budget 2016-
17 towards interest subvention.
 Under Pradhan Mantri Jan Dhan Yojna (PMJDY), 217 million accounts!
have been opened and 174.6 million RuPay debit cards have been issued.
These new accounts have mustered deposits worth almost Rs 37,000crore
(US$ 5.53 billion).
 The Government of India is looking to set up a special fund, as a part of
National Investment and Infrastructure Fund (NIIF), to deal with stressed
assets of banks. The special fund will potentially take over assets which
are viable but don’t have additional fresh equity from promoters coming
in to complete the project.
 The Reserve Bank of India (RBI) plans to soon come out with guidelines,
such as common risk-based know-your-customer (KYC) norms, to
reinforce protection for consumers, especially since a large number of
Indians have now been financially included post the government’s
massive drive to open a bank account for each household.
 To provide relief to the state electricity distribution companies,
Government of India has proposed to their lenders that 75 per cent of
their loans be converted to state government bonds in two phases by
March 2017. This will help several banks, especially public sector banks,
to offload credit to state electricity distribution companies from their loan
book, thereby improving their asset quality.
 Government of India aims to extend insurance, pension and credit
facilities to those excluded from these benefits under the PradhanMantri
Jan DhanYojana (PMJDY).
 To facilitate an easy access to finance by Micro and Small Enterprises
(MSEs), the Government/RBI has launched Credit Guarantee Fund
Scheme to provide guarantee cover for collateral free credit facilities
extended to MSEs upto Rs 1 Crore (US$ 0.15 million). Moreover, Micro
Units Development & Refinance Agency (MUDRA) Ltd. was also
established to refinance all Micro-finance Institutions (MFIs), which are

in the business of lending to micro / small business entities engaged in

manufacturing, trading and services activities upto Rs 10 lakh (US$ 0.015
million).
CAREERS IN BANKING
Banking is one of the most sought after career choice among the students. It is
an entry into a well paid, secure and status career. Though it may appear that
these jobs are meant for commerce/economics students but the fact is that
majority of bank officers are from different streams of education. Further, it is
also not a fact that top positions in Foreign/Multinational Banks are held by
MBA's from Premier Management Institutes. Though the Public sector Banks
are now appointing management graduates, CAs and CFAs but bright graduates
from any subject can get entry in the Public sector Banks through an All India
Examination conducted by them.
The emergence of technology-driven new private banks have broadened the

scope and range of banking service and entry of Financial Institutions are into
the short-term lending business, is resulting in needs for more professionals.
Now banks are in the mutual funds , securitisation business credit cards,
consumer loans, housing loans, housing loans besides trading in gold and forex
activities.
Generally banks look for good communication skills, good interpersonal skills,
the ability to deal with customers, an alert nature, and basic knowledge of the
industry. However to join foreign or private sector banks at higher than entry
level one needs specialisation in some specific areas. For example expertise in
project analysis, credit appraisal skills, managing huge loan portfolios general
and foreign exchange and money .Good computer knowledge is always
preferred.
There are front office personnel in all banks, and then there are supervisors who
handle most back office operations like completion of transactions, general
ledger work, overall supervision. Banks are now offering good salary packages.
Most Public sector officers can begin in the Rs 6000-8000 per month scale.
MBAs recruited by private and foreign banks are given plum packages to the
extent of about Rs 25000-30000 a month.

Nationalization of the major commercial banks in India in 1969/1980 brought

almost the entire banking system within the public sector. State Bank of India
being the top commercial bank of the country.
The Private sector with the entry of new banks mostly promoted by the major
Financial Institutions like IDBI, ICICI etc has provided competition to both
Public sector and Foreign Banks. They are more technology savvy and offer
better salaries than Public sector Banks. Unlike public sector banks, the
promotional avenues are not time-bound.
Foreign Banks are the most sought after due to their salary packages
comparable to the best in the country and better job profiles. However, in
addition to personal performance, the job security in these banks is also
dependent on various external factors, like the economy of the parent country,
performance of the bank worldwide, change in expatriate management etc.
Public sector Banks recruit mainly graduates at the entry level on the basis of
All India Level examination. However professionals like engineers, doctors,
technologists, lawyers, ex-defence officers etc are recruited on senior positions
through All India tests.
Private sector/Foreign Banks prefer to take MBA's, CA's etc at junior positions
through Campus recruitment and interviews. However, at the senior positions
they opt for experienced bankers. Thus the officers from Public sector Banks
become the natural choice for such positions. Thus job-hopping has become an
well-accepted norm in the Industry.
Therefore joining a Public sector Bank as Probationary Officer (Direct Officer)

on the basis All India exam has become a stepping stone for the career growth
in the Banking Industry.

CONCLUSION
In general, what banks do is pretty easy to figure out. For the average person
banks accept deposits, make loans, provide a safe place for money and
valuables, and act as payment agents between merchants and banks.
Banks are quite important to the economy and are involved in such economic
activities as issuing money, settling payments, credit intermediation, maturity
transformation and money creation in the form of fractional reserve banking.
To make money, banks use deposits and whole sale deposits, share equity and
fees and interest from debt, loans and consumer lending, such as credit cards
and bank fees.
In addition to fees and loans, banks are also involved in various other types of
lending and operations including, buy/hold securities, non-interest income,
insurance and leasing and payment treasury services.
History has proven banks to be vulnerable to many risks, however, including

credit, liquidity, market, operating, interesting rate and legal risks. Many global
crises have been the result of such vulnerabilities and this has led to the strict
regulation of state and national banks.
However, other financial institutions exist that are not restricted by such
regulations. Such institutions include: savings and loans, credit unions,
investment and merchant banks, shadow banks, Islamic banks and industrial
banks.
The face of banking is changing rapidly. Competition is going to be tough and

with financial liberalisation under the WTO, banks in India will have to
benchmark themselves against the best in the world.

Over the last three decades the role of banking in the process of financial
intermediation has been undergoing a profound transformation, owing to
changes in the global financial system. It is now clear that a thriving and vibrant
banking system requires a well developed financial structure with multiple
intermediaries operating in markets with different risk profiles. Taking the
banking industry to the heights of international excellence will require a
combination of new technologies, better processes of credit and risk appraisal,
treasury management, product diversification, internal control and external
regulations and not the least, human resources.
Fortunately, we have a comparative advantage in almost all these areas. Our

professionals are at the forefront of technological change and financial
developments all over the world. It is time to harness these resources for
development of Indian banking in the new century.

BIBLIOGRAPHY
Books
Structure of Indian banking
System theory and practices
MAGAZINE
Business India
WEBSITE
 http://www.dgftcom.nic.in/ecommerce/faqeft.htm
 http://en.wikipedia.org/wiki/guide_to_e-payments
 http://www.efta.org
 http://www.rbidocs.rbi.org.in/rdocs/rtgs
 http://www.rbi.org.in/scripts

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STRUCTURE OF INDIAN BANKING SYSTEM

K.P.B HINDUJA COLLEGE OF

K P B HINDUJA COLLEGE OF COMMERCE

Smt. P.D. Hinduja

Prin. Dr. Minu Madlani (M. Com., Ph. D.)

of PROF. RACHANA MEHTA

K P B HINDUJA COLLEGE OF COMMERCE

I ROHIT MANOJ BAHETI studying in T.Y. Banking & Insurance hereby

(ROHIT MANOJ BAHETI)

K P B HINDUJA COLLEGE OF COMMERCE

The project on structure of Indian banking system is a result of co-operation,

I would like thank MISS.RACHANA MEHTA for his involvement in my

I own my debt to PROF. NITIN BHARASKAR course coordinator for her

I also take this opportunity to express my sincere gratitude to the library

I express my deep gratitude to all my college friends and my family members

K P B HINDUJA COLLEGE OF COMMERCE

Banking system occupies an important place in nation's economy. A banking

The dissertation entitled “Structure of Indian Banking System” is focused to

 Research on Central Bank of India (i.e. Reserve Banks of India ) to

K P B HINDUJA COLLEGE OF COMMERCE

K P B HINDUJA COLLEGE OF COMMERCE

3.1 Reserve Bank of India

K P B HINDUJA COLLEGE OF COMMERCE

1.1 OBJECTIVES OF THE STUDY:-

 To study the complete structure of Indian Banking System.

1.2 SCOPE OF THE STUDY:-

 A healthy banking system is essential for any economy striving to

K P B HINDUJA COLLEGE OF COMMERCE

1.3 LIMITATIONS OF THE STUDY:-

K P B HINDUJA COLLEGE OF COMMERCE

Generally banking in India is fairly mature in terms of supply, product range

K P B HINDUJA COLLEGE OF COMMERCE

In India, banks are playing a crucial role in socio-economic progress of the

K P B HINDUJA COLLEGE OF COMMERCE

2.2 HISTORY OF BANKING IN INDIA

K P B HINDUJA COLLEGE OF COMMERCE

K P B HINDUJA COLLEGE OF COMMERCE

The fervour of Swadeshi movement led to the establishment of many private

Number of banks Authorised Capital Paid-up Capital

K P B HINDUJA COLLEGE OF COMMERCE

 The Reserve Bank of India, India's central banking authority, was

Nationalisation in the 1960s

K P B HINDUJA COLLEGE OF COMMERCE

deposits in the country.[19] Jayaprakash Narayan, a national leader of India,

A second dose of nationalisation of 6 more commercial banks followed in 1980.

Liberalisation in the 1990s

K P B HINDUJA COLLEGE OF COMMERCE

2.3 BANKING - A NEED OF TIME

K P B HINDUJA COLLEGE OF COMMERCE

2.4 DIFFERENT TYPES OF BANKS

K P B HINDUJA COLLEGE OF COMMERCE

Traditionally, large commercial banks also underwrite bonds, and make

4. COMMUNITY DEVELOPMENT BANK

In order to become a certified CDFI, CD Banks must apply to the United

K P B HINDUJA COLLEGE OF COMMERCE

Worldwide, credit union systems vary significantly in terms of total system

The role of a custodian in such a case would be to hold in safekeeping

K P B HINDUJA COLLEGE OF COMMERCE

8. EXPORT CREDIT AGENCY

K P B HINDUJA COLLEGE OF COMMERCE

10. INDUSTRIAL BANK

11. MERCHANT BANK

Today, according to the US Federal Deposit Insurance Corporation (acronym

12. MUTUAL SAVINGS BANK