Banking system and operations

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Banking system and operations

  1. 1. BANKS IN INDIA
  2. 2. INDIA  All banks which are included in the Second Schedule to the Reserve Bank of India Act, 1934 are Scheduled Banks.  These banks comprise Scheduled Commercial Banks and Scheduled Co-operative Banks.
  3. 3. Scheduled Commercial Banks State Bank of India and its Associates Nationalized Banks Foreign Banks Private Sector Banks, Regional Rural Banks Scheduled Co-operative Banks Regional Rural bank Scheduled State Co-operative Banks Scheduled Urban Co operative Banks
  4. 4. Section 42(6) The Reserve Bank Of India Act, 1934 Scheduled Bank  The Bank shall, save as hereinafter provided, by notification in the Gazette of India,- (a) direct the inclusion in the Second Schedule of any bank not already so included which carries on the business banking 3[ in India] and which–  (i) has a paid- up capital and reserves of an aggregate value of not less than five lakhs of rupees, and  (ii) satisfies the Bank that its affairs are not being conducted in a manner detrimental to the interest of its depositors, and  (iii) 4[ is a State co- operative bank or a company] as defined in 5[ section 3 of the Companies Act, 1956 (1 of 1956 ), or an institution notified by the Central Government in this behalf] or a corporation or a company incorporated by or under any law in force in any place 6[ outside India];
  5. 5. EVOLUTION OF BANKING  Prior to 1950  Some schedule banks after RBI founded in 1935 were PNB, Allahabad Bank, Oudh Commercial bank  Total around 58 banks existed
  6. 6. Foundation Phase 1948-1967  1949 Banking Regulation Act  Imperial Bank Of India converted into State bank of India  Institutional frame work for long term financing to agri and industry  By 1968 there were 281 banks 71 scheduled and 210 non scheduled  Till 1968 RBI and SBI with associates were under the govt control
  7. 7. Expansion Phase 1968-1984 Socialization of Banking started in 1968 .Commercial banks were viewed as agents of change 14 banks were nationalized in 1969 6 in 1980 Birth of RRB in 1975 and NABARD in 1982 By 1984 scheduled banks 264 and non scheduled banks reduced to 268
  8. 8. Consolidation Phase( 1985-1990)  Consolidation of exiting banks  Focus on credit management , staff productivity  Assest liabilities priced by Rbi  High CRR and SLR  Consolidation of losses because of farmer debt relief schemes
  9. 9. Reformatory Phase  NARASIMHAM COMMITTEE REPORT PHASE 1 – report submitted – 1991  Recommended CRR reduction to 10% and SLR to 25%  Interest payment of 3% on cash balances above minimum          CRR balances Interest rate deregulation Minimum of 4% CAR capital adequacy ratio Income recognition ,assets classification and provisioning norms Restructure to create 3or 4 large banks – gave the concept of universal banks Entry of Pvt. Banks with level playing field Abolishment of branch licensing Opening for foreign banks Supervision of banks rather than regulation Elimination of duality of control on banking sector
  10. 10. ACTION ON RECOMMENDATION  CRR brought down from 15% to 5% in 2004  SLR from 38.5% to 25%  Inclusion in other areas in priority sector lending     of 40% Bank to have PLR Capital adequacy norms of 8% Creation of Assets reconstruction fund Restructuring new India bank merged with PNB
  11. 11. CRR AND SLR DYNAMICS
  12. 12. Pvt banks  Banking regulation Amendment Act 1994 permited entry of pvt sector banks 30  Allowed entry of foreign banks currently 33
  13. 13. (Narasimham Committee IIBanking Sector Reforms  RECOMMENDATIONS  The Committee suggests that pending the emergence of markets in India where market risks can be covered, it would be desirable that capital adequacy requirements take into account market risks in addition to the credit risks.  In the next three years, the entire portfolio of Government securities should be marked to market and this schedule of adjustment should be announced at the earliest. It would be appropriate that there should be a 5% weight for market risk for Govt. and approved securities.
  14. 14. CENTRAL BANK RBI  CENTRAL BANK OF INDIA  UNDER RBI ACT 1934  FUNCTIONAL SINCE 1935
  15. 15. REGULATION OF MONEY AND CREDIT  MONETARY TECHNIQUES  CRR AND SLR  OMO  REPO AND REVERSE REPO THROUGH LAF
  16. 16. REGULATION OF MONEY AND CREDIT CONDITIONS  NON- MONETARY TECHNIQUES  DIRECT CREDIT ALLOCATION  CREDIT RATIONING  REPO AND REVERSE REPO

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