12/8/2012 Indian Banking System. Indian Banking SystemPresented by : 1Saurabh Bhati9716819100
Roadmap for Presentation.IntroductionNeed of the Banks. 12/8/2012History. Indian Banking SystemClassification of Banking industry in India.Reserve Bank of India (RBI).Functions of RBI.Tools to credit control the Banks. 2
Background : India Transformed !! …Yesterday Slow rate of growth Poor Banking Facilities 12/8/2012 Protected and slow Small consumer markets Weak infrastructure 3 Indian Banking System …Today Strong macro economic fundamentals Outsourcing destination Strong Baking Impetus on infrastructure development India -- the largest Democracy - one of the fastest growing economies in the World!
Introduction.• A bank is a financial institution that provides banking and other financial services to their customers such as accepting 12/8/2012 deposits and providing loans.• A banking system also referred as a system provided by the bank which offers cash management services for Indian Banking System customers, reporting the transactions of their accounts and portfolios, through out the day.• The banks safeguards the money and valuables and provide loans, credit, and payment services, such as checking accounts, money orders, and cashier’s cheques. The banks also offer investment and insurance products. 4
Need of the Banks.• To provide the security to the savings of customers.• To control the supply of money and credit. 12/8/2012• To encourage public confidence in the working of the financial system, increase savings speedily and efficiently. Indian Banking System• 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. 5
History.The first bank in India, called The General Bank of India wasestablished in the year 1786. The East India Company established The 12/8/2012Bank of Bengal/Calcutta (1809), Bank of Bombay (1840) and Bank ofMadras (1843). The next bank was Bank of Hindustan which wasestablished in 1870. These three individual units (Bank of Indian Banking SystemCalcutta, Bank of Bombay, and Bank of Madras) were called asPresidency Banks. Allahabad Bank which was established in 1865, wasfor the first time completely run by Indians. Punjab National Bank Ltd.was set up in 1894 with head quarters at Lahore. Between 1906 and1913, Bank of India, Central Bank of India, Bank of Baroda, CanaraBank, Indian Bank, and Bank of Mysore were set up. In 1921, allpresidency banks were amalgamated to form the Imperial Bank ofIndia which was run by European Shareholders. After that the ReserveBank of India was established in April 1935. 6
Government policy on banking industry.• To protect the safety of the public’s savings.• To control the supply of money and credit in order to achieve 12/8/2012 a nation’s broad economic goal.• To ensure equal opportunity and fairness in the public’s access to credit and other vital financial services. Indian Banking System• 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 7 etc.
Regulations for Indian Bank.• Commercial banks are regulated by government entities and require a special bank license to operate. Usually the 12/8/2012 definition of the business of banking for the purposes of regulation is extended to include acceptance of deposits, even if they are not repayable to the customers order—although Indian Banking System money lending.• Central Bank regulates the banking industry. Central banks also typically have a monopoly on the business of issuing banknotes. 8
Classification of Banking Industry.• Indian banking industry has been divided into two parts, organized and unorganized sectors. The organized 12/8/2012 sector consists of Reserve Bank of India, Commercial Banks and Co-operative Banks, and Specialized Financial Institutions (IDBI, ICICI, IFC etc.). The unorganized sector, which is not Indian Banking System homogeneous, is largely made up of money lenders and indigenous bankers. 9
Cont.An outline of the Indian Banking structure may be presented asfollows:- 12/8/20121. Reserve banks of India.2. Indian Scheduled Commercial Banks. Indian Banking Systema) State Bank of India and its associate banks.b) Twenty nationalized banks.c) Regional rural banks.d) Other scheduled commercial banks.3. Foreign Banks4. Non-scheduled banks.5. Co-operative banks. 10
Reserve Bank of India.• The reserve bank of India is a central bank and 12/8/2012 was established in April 1, 1935 in accordance Indian Banking System with the provisions of reserve bank of India act 1934.• The central office of RBI is located at Mumbai. since nationalization in 1949, RBI is fully owned by the Government of India. It was inaugurated with share capital of Rs. 5 Crores divided into 11 shares of Rs. 100 each fully paid up.
Cont.• The RBI Act 1934 was commenced on April 1, 1935. The 12/8/2012 Act, 1934 provides the statutory basis of the functioning of the bank. The bank was constituted for the need of Indian Banking System following:- To regulate the issues of banknotes.- To maintain reserves with a view to securing monetarystability- To operate the credit and currency system of the country to its advantage. 12
Functions of RBI.• Bank of Issue: The RBI formulates, implements, and monitors the monetary policy. Its main objective is maintaining price stability and ensuring adequate flow of credit to productive 12/8/2012 sector.• Regulator-Supervisor of the financial system: RBI prescribes Indian Banking System parameters of banking operations within which the banking and financial system functions. Their main objective is to maintain public confidence in the system, protect depositor’s interest and provide cost effective banking services to the public.• Issuer of currency: RBI issues and exchanges or destroys the currency and coins that are not fit for circulation. His main objective is to give the public adequate quantity of supplies of currency notes and coins and in good quality. 13
Cont.• Developmental role: The RBI performs the wide range of promotional functions to support national objectives such as 12/8/2012 contests, coupons maintaining good public relations and many more.• Controller of Credit: RBI performs the following tasks: Indian Banking SystemIt holds the cash reserves of all the scheduled banks.It controls the credit operations of banks through quantitative and qualitative controls.It controls the banking system through the system of licensing, inspection and calling for information.It acts as the lender of the last resort by providing rediscount facilities to scheduled banks. 14
12/8/2012 Indian Banking System 15The commercial banking structure in India
Indian Scheduled Commercial Banks.• COMMERCIAL BANK- An institution which accepts deposits, makes business loans, and offers related services. 12/8/2012 Commercial banks also allow for a variety of deposit accounts, such as checking, savings, and time deposit. These institutions are run to make a profit and owned by a group of Indian Banking System individuals, yet some may be members of the Federal Reserve System. While commercial banks offer services to individuals, they are primarily concerned with receiving deposits and lending to businesses.• The commercial banking structure in India consists of scheduled commercial banks, and unscheduled banks. 16
Cont.• Scheduled Banks: Scheduled Banks in India constitute those banks which have been included in the second schedule of RBI 12/8/2012 act 1934.• Scheduled bank are those banks whose minimum paid up capital and reserves are not less than 25 lakhs. Indian Banking System• Scheduled banks in India means the State Bank of India constituted under the State Bank of India Act, 1955 a subsidiary bank as defined in the State Bank of India Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking companies Act, 1980• Private sector, Public sector, and Foreign banks come under the umbrella of scheduled commercial banks. 17
Cont.• Unscheduled Banks: “Unscheduled Bank in India” means a banking company as defined in clause (c) of section 5 of the 12/8/2012 Banking Regulation Act, 1949, which is not a scheduled bank”.• Commercial banks, which dominate this industry, offer a full range of services for individuals, businesses, and Indian Banking System governments. These banks come in a wide range of sizes, from large global banks to regional and community banks.• Regional Rural Banks were set up on October 2, 1975. The banks provide credit to the weaker sections of the rural areas, particularly the small and marginal farmers, agricultural labourers and small entrepreneurs. 18
Co-operative Banks.• Co-operative Banks Role in rural financing continues to be important even today, and their business in the urban areas 12/8/2012 also has increased phenomenally in recent years mainly due to the sharp increase in the number of primary co-operative banks. While the co-operative banks in rural areas mainly Indian Banking System finance agricultural based activities including farming, cattle, milk, hatchery, personal finance etc, along with some small scale industries and self-employment driven activities, the co-operative banks in urban areas mainly finance various categories of people for self- employment, industries, small scale units, home finance, consumer finance, personal finance, etc. Example of co-operative banks - Saraswat Co-operative Bank , Jankalyan 19 Sahakari Bank etc.
Tools to Credit Control by RBI.• Cash Reserve Ratio- Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. If RBI decides to 12/8/2012 increase the percent of this, the available amount with the banks comes down. RBI is using this method (increase of CRR rate), to drain out the excessive money from the banks. Indian Banking System CURRENLTY CRR- 4.25%.• Repo Rate- Whenever the banks have any shortage of funds they can borrow it from RBI. Repo rate is the rate at which our banks borrow money from RBI. A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases borrowing from RBI becomes more expensive. CURRENTLY REPO RATE -8.0%. 20
Cont.• Reverse Repo Rate- Reverse Repo rate is the rate at which Reserve Bank of India (RBI) borrows money from banks. Banks 12/8/2012 are always happy to lend money to RBI since their money are in safe hands with a good interest. An increase in Reverse repo rate can cause the banks to transfer more funds to RBI due to Indian Banking System this attractive interest rates. It can cause the money to be drawn out of the banking system. Due to this fine tuning of RBI using its tools of CRR, Bank Rate, Repo Rate and Reverse Repo rate our banks adjust their lending or investment rates for common man. CURRENTLY REVERSE REPO RATE -7%. 21
Cont.• SLR Rate- SLR (Statutory Liquidity Ratio) is the amount a commercial bank needs to maintain in the form of cash, or 12/8/2012 gold or govt. approved securities (Bonds) before providing credit to its customers. SLR rate is determined and maintained by the RBI (Reserve Bank of India) in order to control the Indian Banking System expansion of bank credit. CURRENLTY CRR RATE- 23%.• Bank Rate-Bank rate is also called as the discount rate. It is the rate of interest which a central bank charges on the loans and advances provided to commercial banks. CURRENLTY BANK RATE- 9%. 22