A bank is a financial institution

that provides banking and other

financial services to their
customers. A bank is generally
understood as an institution which
provides fundamental banking
services such as accepting deposits
and providing loans. There are also
nonbanking institutions that
provide certain banking services
without meeting the legal definition
of a bank. Banks are a subset of the
financial services industry.
 To provide the security to the savings of customers.
 To control the supply of money and credit
 To encourage public confidence in the working of the
financial system, increase savings speedily and
efficiently.
 To avoid focus of financial powers in the hands of a few
individuals and institutions.
 To set equal norms and conditions (i.e. rate of interest,
period of lending etc) to all types of customers
 was Bank of Hindustan which was established in 1770.
 The General Bank of India was established in the year
1786.
 The East India Company established The Bank of
Bengal/Calcutta (1809), Bank of Bombay (1840) and
Bank of Madras (1843).
 These three individual units (Bank of Calcutta, Bank
of Bombay, and Bank of Madras) were called as
Presidency Banks.
 Allahabad Bank which was established in 1865,
was for the first time completely run by Indians.
 Punjab National Bank Ltd. was set up in 1894 with
head quarters at Lahore.
 Between 1906 and 1913, Bank of India, Central Bank of
India, Bank of Baroda, Canara Bank, Indian Bank,
 And Bank of Mysore were set up. In 1921.
 Presidency banks were merged in 1921 a called IBI
(Imperial bank of India)
 RBI was set up in 1935 (RBI ACT 1934)
 1949 : Enactment of Banking Regulation Act.
 1955 : Nationalization of State Bank of India.
 1959 : Nationalization of SBI subsidiaries.
 1969 : Nationalization of 14 major Banks.
 1971 : Creation of credit guarantee corporation.
 1975 : Creation of regional rural banks.
 1980 : Nationalization of seven banks with
 deposits over 200 Crores.
 By the 1960s, the Indian banking industry has become an important tool to facilitate the

development of the Indian economy. At the same time, it has emerged as a large employer, and

a debate has ensured about the possibility to nationalize the banking industry.

 Thereafter, her move was swift and sudden, and the GOI issued

 an ordinance and nationalised the 14 largest commercial banks with effect from the midnight

of July 19, 1969. 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 step of nationalization of 6 more commercial
banks followed in 1980. The stated reason for the
nationalization was to give the government more control of
credit delivery. With the second step of nationalization, the
GOI controlled around 91% of the banking business in
India. Later on, in the year 1993, the government merged
New Bank of India with Punjab National Bank.
 It was the only merger between nationalized banks and
resulted in the reduction of the number of nationalized
banks from 20 to 19. After this, until the 1990s, the
nationalized banks grew at a pace of around 4%, closer to
the average growth rate of the Indian economy.
 The main reasons why the banks are heavily regulated
are as follows:
 To protect the safety of the public’s savings.
 To control the supply of money and credit in order to achieve a nation’s
broad economic goal.
 To ensure equal opportunity and fairness in the public’s access to credit
and other vital financial services.
 To promote public confidence in the financial system, so that savings
are made speedily and efficiently.
 To avoid concentrations of financial power in the hands of a few
individuals and institutions.
 Provide the Government with credit, tax revenues and other services.
 To help sectors of the economy that they have special credit needs for
eg.
 Housing, small business and agricultural loans etc.
Financial Sector consists of three main segments viz.,
1) Financial institutions -banks, mutual funds,
insurance companies
2) Financial markets -money market,
debt market, capital market, forex market
3) Financial products -loans, deposits, bonds,
equities
 Regulators

Insurance Regulatory
Reserve Bank of Securities Exchange
and Development
India Board of India
Authority
(RBI) (SEBI)
(IRDA)

Capital Markets/ Insurance

Banks
Mutual Funds Companies
 Legal frame work
of
Banks

Banking Regulation Reserve Bank of India

Act,1949 Act,1934
 In the liberalized, privatized and globalised
environment, banks operating in India have diversified
their banking activities by offering Para Banking
facilities like
 Merchant banking / Mutual funds
 ATMs / Credit Cards / Internet banking
 Venture capital funds
 Factoring
 Bancassurance
 1. Reserve banks of India.
 2. Indian Scheduled Commercial Banks.
 A)Nationalized banks.
 B) Regional rural banks.
 C) Private sector banks.
 3. Foreign Banks
 4. Non-scheduled banks.
 5. Co-operative banks.
 Commercial banks have to perform a variety of
functions which are common to both developed and
developing countries. These are known as ‘General
Banking’ functions of the commercial banks. The
modern banks perform a variety of functions. These
can be broadly divided into two categories: (a) Primary
functions and (b) Secondary functions.
 Primary banking functions of the commercial banks include:
 1. Acceptance of deposits
 2. Advancing loans
 Overdraft Facilities
 Cash Credit
 Money at Call
 Term Loans
 Consumer Credit
 Miscellaneous Advances
 3. Creation of credit
 4. Clearing of cheques
 5. Financing foreign trade
 6. Remittance of funds
 Accepting deposits is the primary function of a
commercial bank mobilize savings of the household
sector. Banks generally accept three types of deposits
viz.,
 (a) Current Deposits,
 (b) Savings Deposits, and
 (c) Fixed Deposits.
 The second primary function of a commercial bank is to
make loans and advances to all types of persons,
particularly to businessmen and entrepreneurs. Loans
are made against personal security, gold and silver,
stocks of goods and other assets.
 Overdraft Facilities: In this case, the depositor in a
current account is allowed to draw over and above his
account up to a previously agreed limit. Suppose a
businessman has only Rs. 30,000/- in his current account
in a bank but requires Rs. 60,000/- to meet his expenses.
He may approach his bank and borrow the additional
amount of Rs. 30,000/-. The bank allows the customer to
overdraw his account through cheques. The bank,
however, charges interest only on the amount overdrawn
from the account. This type of loan is very popular with
 (b) Cash Credit: Under this account, the bank gives
loans to the borrowers against certain security. But
the entire loan is not given at one particular time,
instead the amount is credited into his account in the
bank; but under emergency cash will be given. The
borrower is required to pay interest only on the
amount of credit availed to him.
 (c) Money at Call: Bank also grant loans for a very
short period, generally not exceeding 7 days to the
borrowers, usually dealers or brokers in stock
exchange markets against collateral securities like
stock or equity shares, debentures, etc., offered by
them. Such advances are repayable immediately at
short notice hence, they are described as money at call
or call money.
 Term Loans: Banks give term loans to traders, industrialists and now
to agriculturists also against some collateral securities. Term loans are
so-called because their maturity period varies between 1 to 10 years.
Term loans, as such provide intermediate or working capital funds to
the borrowers. Sometimes, two or more banks may jointly provide large
term loans to the borrower against a common security. Such loans are
called participation loans or consortium finance.
 Consumer Credit: Banks also grant credit to households in a limited
amount to buy some durable consumer goods such as television sets,
refrigerators, etc., or to meet some personal needs like payment of
hospital bills etc. Such consumer credit is made in a lump sum and is
repayable in instalments in a short time.
 Creation of Credit: A unique function of the bank is to create credit.
Banks supply money to traders and manufacturers. They also create or
manufacture money. Bank deposits are regarded as money. They are as
good as cash. The reason is they can be used for the purchase of goods
and services and also in payment of debts. When a bank grants a loan
to its customer, it does not pay cash. It simply credits the account of the
borrower. He can withdraw the amount whenever he wants by a
cheque. In this case, bank has created a deposit without receiving cash.
That is, banks are said to have created credit.
 Promote the Use of Cheques: The commercial banks render an
important service by providing to their customers a cheap medium of
exchange like cheques. It is found much more convenient to settle
debts through cheques rather than through the use of cash. The cheque
is the most developed type of credit instrument in the money market.
 Financing Internal and Foreign Trade: The bank
finances internal and foreign trade through discounting of
exchange bills. Sometimes, the bank gives short-term loans
to traders on the security of commercial papers. This
discounting business greatly facilitates the movement of
internal and external trade.
 Remittance of Funds: Commercial banks, on account of
their network of branches throughout the country, also
provide facilities to remit funds from one place to another
for their customers by issuing bank drafts, mail transfers or
telegraphic transfers on nominal commission charges. As
compared to the postal money orders or other instruments,
bank drafts have proved to be a much cheaper mode of
transferring money and has helped the business
 Secondary banking functions of the commercial banks
include:
 1. Agency Services
 Collection and Payment of Credit Instruments
 Purchase and Sale of Securities
 Collection of Dividends on Shares
 Income-tax Consultancy
 Execution of Standing Orders
 Acts as Trustee and Executor
 Agency Services: Banks also perform certain agency
functions for and on behalf of their customers. The agency
services are of immense value to the people at large. The
various agency services rendered by banks are as follows:
 (a) Collection and Payment of Credit Instruments:
Banks collect and pay various credit instruments like
cheques, bills of exchange, promissory notes etc., on behalf
of their customers.
 (b) Purchase and Sale of Securities: Banks purchase and
sell various securities like shares, stocks, bonds, debentures
on behalf of their customers.
 (c) Collection of Dividends on Shares: Banks collect
dividends and interest on shares and debentures of their
customers and credit them to their accounts.
 Income-tax Consultancy: Banks may also employ
income tax experts to prepare income tax returns for
their customers and to help them to get refund of
income tax.
 Execution of Standing Orders: Banks execute the
standing instructions of their customers for making
various periodic payments. They pay subscriptions,
rents, insurance premia etc., on behalf of their
customers.
 Acts as Trustee and Executor: Banks preserve the
‘Wills’ of their customers and execute them after their
death.
 General Utility Services
 Locker Facility
 Traveller’s Cheques and Credit Cards
 Letter of Credit
 Collection of Statistics
 Acting Referee
 Underwriting Securities
 Accepting Bills of Exchange on Behalf of Customers
 Merchant Banking
 General Utility Services: In addition to agency services, the
modern banks provide many general utility services for the
community as given.
 Locker Facility: Bank provide locker facility to their customers.
The customers can keep their valuables, such as gold and silver
ornaments, important documents; shares and debentures in
these lockers for safe custody.
 Traveller’s Cheques and Credit Cards: Banks issue traveller’s
cheques to help their customers to travel without the fear of theft
or loss of money. With this facility, the customers need not take
the risk of carrying cash with them during their travels.
 Letter of Credit: Letters of credit are issued by the banks to
their customers certifying their credit worthiness. Letters of
credit are very useful in foreign trade.
 Collection of Statistics: Banks collect statistics giving
important information relating to trade, commerce,
industries, money and banking. They also publish valuable
journals and bulletins containing articles on economic and
financial matters.
 Underwriting Securities: Banks underwrite the shares
and debentures issued by the Government, public or
private companies.
 Accepting Bills of Exchange on Behalf of Customers:
Sometimes, banks accept bills of exchange, internal as well
as foreign, It enables customers to import goods.
 Merchant Banking: Some commercial banks have opened
merchant banking divisions to provide merchant banking
services.
 Central bank of the country
 Established in April 1935 with a share capital of
Rs. 5 crores
 Recommendation-Hilton Young Commission.
 The share capital was divided into shares of Rs.
100 each fully paid .
 Reserve Bank of India was nationalized in the
year 1949
 Apex controlling institution in the banking and
financial system.
 STRUCTURE RBI Have 20 Directors :
 The Governor And Four Deputy Governor
 One Govt. Official from Ministry of Finance.
 Ten Nominate Director, nominated by Govt.
 Four Directors to represent Headquarters at Mumbai,
Kolkata, Chennai & New Delhi. Appointed/
Nominated for period of Four Years
  SCHEME OF THE ACT
CHAPTER I – PRELIMINARY
 It extends whole of India
 Provisions and dates notified in the official gazette in India

CHAPTER II – Incorporation, Capital Management & Business

 Establishment of banks
 Provisions regarding share Capital
 Mgt- central govt., offices, branches, and agencies as well as
composition
 As well as disqualification, removal, remuneration of directors etc..,

Incorporation The process of legally declaring a corporate entity as

separate from its owners.
 •CHAPTER III - CENTRAL BANKING FUNCTION
• CHAPTER IIIA : COLLECTION AND FURNISHING OF CREDIT
INFORMATION:
Provisions regarding the power of the bank to collect credit information,

 Nature of loans
 Advances
 Credit facilities
Procedure for furnishing information and prohibited information
 Credit information as may be specified in the application.
 The Bank may in respect of each application levy such fees, not exceeding
 twenty-five rupees, as it may deem fit for furnishing credit information.

Chapter IIIB: Provisions relating to non-banking institutions

receiving deposits and financial institutions:
Chapter IIIC: Prohibition of acceptance of deposits by
unincorporated bodies:
 Chapter IIID: Regulation of transactions in derivatives, money
market instruments or securities:
 Derivatives,
 Money market instruments,
 repo and securities
Chapter IV : General Provisions
 Contribution of central government to reserve funds,
 National, Rural, Industrial and housing credit,
 Appointment Powers and duties of auditors
 Exemption of banks from income tax
 Delegation of powers
 Liquidation of the bank etc.
Chapter V :Penalties
Penalities for any person, Directors, Auditor and company who ever
makes a wrong statement willfully,(Application, Declaration, Return,
Advertisement, Book, Account, Document)
 Primary function
 Promotional function
 Regulatory/ supervisory function
 Other functions
 Bank of Issue (Under Sec 22)
 Banker to Government
 Banker’s Bank
 Central clearance, settlement and transfer
 Credit Control & Monetary Policy
 Exchange Control & Forex Management
 Compilation of statistics
 Custodian of foreign currency reserve
1) Bank of issue
 Sole right issue bank notes for all type of denomination
 RBI – gold (55%) – foreign exchange reserve
 Uniformity, elasticity, and security

2) Banker to government
- agent and advisor of governments (state and central
governments)
- it advance short term loans to government
- it pay interest on the national debt
- it advice government to follow a suitable
monetary policy in times of booms and
depression
- RBI helps the Government to float new loans and to
manage public debt.
3) Bankers bank
-RBI maintains banking accounts of all schedule
banks
-Every schedule bank have to keep cash
reserve a fix percentage of their aggregate
deposit (NDTL)
-commercial banks always look to the
central banks guidance and directions
- inter-bank transfer of funds.
4) Foreign reserves
- It maintain and stabilizes official rate of exchange
-observe the relationship with foreign
currency
 5.Central clearance, settlement and transfer
 RBI act as a clearinghouse for schedule banks
 Through this function RBI enables the banks to settle
their transaction among various banks easily and
economically.
 RBI Clearinghouse offices in 14 places in india
 Mumbai, Bangalore, Kolkatta, Chennai, Nagpur,
Hyderabad, Delhi, Patna and Nagpur
 6) credit control and monitory policies
- RBI holds the cash reserves of all schedule banks.
- Every bank gives weekly return showing assets
and liabilities
- Every bank have to get license from RBI for
banking operation. RBI can also cancel this license
 7.Compilation of statistics :
 The RBI Collects data as to economic, financial,
monetary and banking sector of the economy.
 it keenly observe the trend of development in India and
abroad
 It conduct surveys for collecting statistics, studying
problems s to the currency an money supply, capital
market, trade, industry, etc..,
 It analysis the budget of state nd central banks
 It compute the indias balance of payments also.
 8. custodian of the foreign currency reserves of the
country
 The RBI act as the custodian of the foreign currency
reserves of the country concerned.
 Under gold standard, the central bank were required by
law to maintain gold reserves against note issues
 And now after the abandonment of gold standard the
RBI should keep both Gold s well as foreign reserves
RBI Act – promotional functions
Promotion of banking habit
Providing refinance to export
Provide credit to agriculture
Providing credit to small scale industries
Provide indirect finance to cooperative sector
Making institutional arrangement for industrial finance
 1.Promotion of banking habit
 It helps to mobilizing the savings of the people for
investment, it expand the banking system through out
the nation
 By setting up various institutions like IDBI, NABARD,
etc..,
2. Providing refinance to export
-ECGC, and EXIM banks were established initially by
RBI to finance foreign trade
- they finance foreign trade in the form of insurance
cover, long term finance and foreign currency credit.
- now they are run separately
3. Providing credit to agriculture
- It make an institutional arrangements for rural and
agriculture fianance. For example the bank has set up
special credit cells.
-
 4. Providing Credit to small scale units
 RBI consider advances given to SSI as priority sector advances. It
also direct commercial bank to open specialized branches to
provide adequate financial and technical assistance to small scale
industrial branches
5. Providing indirect finance to Cooperative sector
- RBI has directed NABARD to give loans to state
cooperative bank, which in turn lend loans to
cooperative sector.
6. Making Institutional Arrangement for industrial
Finance
- IFCI, IDBI
 Licensing of banks
 Inspection of banks
 Deposit Insurance
 Control over banks
 Giving training and educating the banking personnel
 Control of NBFC
 Controller of credit
 Role of development
 Promotion of saving
 Publication of information
 Issue department
 Banking department
 Secretarial department
 Department of administration and personnel
 Dept of accounts and exp
 Premises dept
 Inspection dept
 Foreign exchange control dept
 Agriculture credit dept
 Banking operation and development dept
 Dept of Non – Banking supervision
 Financial institution division
 Dept of government and bank accounts
 HRD dept
 Section 2 (e) : definition of scheduled banks names in
II schedule
 Section 17 : RBI can transact business like
 Accepting deposits of state and central government
 Purchase of rediscount of bill of exchange from banks
 Purchase / sale of FOREX
 To give loans to banks, SFC, etc..,
 To provide advances to central and state government
 To purchase and sale of government securities
 To deal in derivatives
 Repo and revere repo
 Section 18: Emergence loan to banks
 Section 19 :Business which may not transact
 Section 20: As a banker to government, RBI transact government
business and manage public dept of the central banks
 Section 21: central government is obliged to give its banking
business to RBI and entrust management of public dept of RBI
 Section 22 : exclusive rights to issue bank notes
 Section 26: bank notes issued by RBI shall be legal tender and
guaranteed by central government
 Section 28: RBI can frame rules for refunding value of mutilated,
soiled or imperfect notes as a matter
 Section 29: Bank notes shall be exempted from stamp duty under
Indian stamp act
 Section 33: Asset of issues department of RBI shall consist of
gold coins, gold bullions, and foreign securities not at any time
be less than 200 crore of which gold bullion and gold coin is not
less than 115 crore
 Section 42 : CRR of scheduled banks to be kept with
RBI
 Section 43: publication of fortnightly consolidated
statements showing aggregate liabilities and asset of
SCBs
 Section 45:Power of RBI to collect credit information
 Section 45H: regulation relating to Non-Banking
finance companies
 Section 48 : Exemption to RBI from paying Income-
Tax or super tax
 Section 49: Announcement / publication of bank rule
i.e. The standard rate of which the RBI is prepred
 Monetary policy consists of the actions of a central bank,
currency board or other regulatory committee that
determine the size and rate of growth of the money supply,
which in turn affects interest rates. Monetary policy is
maintained through actions such as modifying the interest
rate, buying or selling government bonds, and changing
the amount of money banks are required to keep in the
vault
 Policy by which a central authority attempts to control
liquidity and interest aimed high growth rate and price
stability.

 Broadly speaking, there are two types of monetary
policy, expansionary and contractionary.
Expansionary monetary policy increases the money
supply in order to lower unemployment, boost
private-sector borrowing and consumer spending,
and stimulate economic growth. Often referred to as
"easy monetary policy," this description applies to
many central banks since the 2008 financial crisis, as
interest rates have been low and in many cases near
zero.

 Contractionary monetary policy slows the rate of
growth in the money supply or outright decreases
the money supply in order to control inflation; while
sometimes necessary, contractionary monetary policy
can slow economic growth, increase unemployment
and depress borrowing and spending by consumers
and businesses. An example would be the Federal
Reserve's intervention in the early 1980s: in order to
curb inflation of nearly 15%, the Fed raised its
benchmark interest rate to 20%. This hike resulted in
a recession, but did keep spiraling inflation in check.
 Fiscal policy is the means by which a government
adjusts its spending levels and tax rates to monitor and
influence a nation's economy. It is the sister strategy
to monetary policy through which a central
bank influences a nation's money supply. These two
policies are used in various combinations to direct a
country's economic goals. Here we look at how fiscal
policy works, how it must be monitored and how its
implementation may affect different people in an
economy.
 Inflation is the rate at which the general level of prices
for goods and services is rising and, consequently, the
purchasing power of currency is falling.
 Bank CEO / CMD / Head
S No.

1. State Banks of India Rajnish Kumar (Chairman)

2. Allahabad Bank Usha Ananthasubramanian (MD & CEO)

3. Andhra Bank Suresh N. Patel (MD & CEO)

4. Bank of Baroda Ravi Venkatesan (Non-Executive Chairman)P. S. Jayakumar (MD & CEO)

5. Bank of India G. Padmanabhan (Non-Executive Chairman)Dinabandhu Mohapatra (MD & CEO)

6. Bank of Maharashtra Ravindra Prabhakar Marathe (MD & CEO)

7. Canara Bank T N Manoharan (Chairman)Rakesh Sharma (MD & CEO)

8. Central Bank of India Rajeev Rishi (CMD)

9. Corporation Bank Jai Kumar Garg (MD & CEO)

10. Dena Bank Ashwani Kumar (CMD)

11. IDBI Bank Ltd Mahesh Kumar Jain (MD & CEO)

12. Indian Bank T C Venkat Subramanian (Non-Executive Chairman)Kishore Piraji Kharat (MD & CEO)

13. Indian Overseas Bank T C A Ranganathan (Non-Executive Chairman)R. Subramaniakumar (MD & CEO)

14. Oriental Bank of Commerce Mukesh Kumar Jain (MD & CEO)

15. Punjab And Sind Bank Jatinder Bir Singh (CMD)

 Sunil Mehta (MD & CEO)Sunil Mehta (Non-Executive Chairman)
Punjab National Bank
16.
*Both are different personalities!

17. Syndicate Bank Melwyn Rego (MD & CEO)

18. UCO Bank Ravi Krishan Takkar (MD & CEO)

19. Union Bank of India Rajkiran Rai G (MD & CEO)

20. United Bank of India Pawan Kumar Bajaj (MD & CEO)

21. Vijaya Bank G Narayanan (Non-Executive Chairman)R.A. Sankara Narayanan (MD & CEO)