U can Study what types of various banking System in India

1. INDIAN
BANKING

2. Meaning of Bank
Bank is a lawful organisation, which accepts deposits that can be withdrawn on demand. It also lends money to
individuals and business houses that need it.
Reserve Bank of India (RBI)
The country had no central bank prior to the establishment of the RBI. The RBI is the supreme monetary and
banking authority in the country and controls the banking system in India. It is called the Reserve Bank’ as it keeps
the reserves of all commercial banks.
Scheduled & Non –scheduled Banks
A scheduled bank is a bank that is listed under the second schedule of the RBI Act, 1934. In order to be included
under this schedule of the RBI Act, banks have to fulfill certain conditions such as having a paid up capital and
reserves of at least 0.5 million and satisfying the Reserve Bank that its affairs are not being conducted in a manner
prejudicial to the interests of its depositors. Scheduled banks are further classified into commercial and cooperative
banks. Non- scheduled banks are those which are not included in the second schedule of the RBI Act, 1934. At
present these are only three such banks in the country.
Commercial Banks
Commercial banks may be defined as, any banking organization that deals with the deposits and loans of business
organizations.Commercial banks issue bank checks and drafts, as well as accept money on term
deposits. Commercial banks also act as moneylenders, by way of installment loans and overdrafts.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 individuals.
Scheduled Commercial Banks (SCBs):
Scheduled commercial banks (SCBs) account for a major proportion of the business of the scheduled banks. SCBs
in India are categorized into the five groups based on their ownership and/or their nature of operations. State Bank
of India and its six associates (excluding State Bank of Saurashtra, which has been merged with the SBI with effect
from August 13, 2008) are recognised as a separate category of SCBs, because of the distinct statutes (SBI Act,

3. 1955 and SBI Subsidiary Banks Act, 1959) that govern them. Nationalised banks and SBI and associates together
form the public sector banks group IDBI ltd. has been included in the nationalised banks group since December
2004. Private sector banks include the old private sector banks and the new generation private sector banks- which
were incorporated according to the revised guidelines issued by the RBI regarding the entry of private sector banks
in 1993.
Foreign banks are present in the country either through complete branch/subsidiary route presence or through their
representative offices.
Types of Scheduled Commercial Banks
Public Sector Banks
These are banks where majority stake is held by the Government of India.
Examples of public sector banks are: SBI, Bank of India, Canara Bank, etc.
Private Sector Banks
These are banks majority of share capital of the bank is held by private individuals. These banks are registered as
companies with limited liability. Examples of private sector banks are: ICICI Bank, Axis bank, HDFC, etc.
Foreign Banks
These banks are registered and have their headquarters in a foreign country but operate their branches in our
country. Examples of foreign banks in India are: HSBC, Citibank, Standard Chartered Bank, etc
Regional Rural Banks
Regional Rural Banks were established under the provisions of an Ordinance promulgated on the 26th September
1975 and the RRB Act, 1976 with an objective to ensure sufficient institutional credit for agriculture and other rural
sectors. The area of operation of RRBs is limited to the area as notified by GoI covering one or more districts in the
State.
RRBs are jointly owned by GoI, the concerned State Government and Sponsor Banks (27 scheduled commercial
banks and one State Cooperative Bank); the issued capital of a RRB is shared by the owners in the proportion of
50%, 15% and 35% respectively.
Cooperative Banks
A co-operative bank is a financial entity which belongs to its members, who are at the same time the owners and the
customers of their bank. Co-operative banks are often created by persons belonging to the same local or

4. professional community or sharing a common interest. Co-operative banks generally provide their members with a
wide range of banking and financial services (loans, deposits, banking accounts, etc).
They provide limited banking products and are specialists in agriculture-related products.
Cooperative banks are the primary financiers of agricultural activities, some small-scale industries and self-
employed workers.
Co-operative banks function on the basis of “no-profit no-loss”.
Difference between Scheduled Commercial and Schedule Co-operative Banks
The basic difference between scheduled commercial banks and scheduled cooperative banks is in their holding
pattern. Scheduled cooperative banks are cooperative credit institutions that are registered under the Cooperative
Societies Act. These banks work according to the cooperative principles of mutual assistance.Also,unlike
commercial banks ,these banks work on the basis of “no-profit no-loss”.
How Banks Function
Banks make money by lending your money out at interest and by charging you for services provided. Banks keep on
lending money.
The other big revenue items generated by banks are the fees they charge. Bank charge for every service, whether it
is for an electronic transaction, or permitting a transfer through the Internet banking system.

7. THE RESERVE BANK OF INDIA
The Reserve Bank of India was inaugurated in April 1935 with a share capital of Rs. 5crores, divided into shares of Rs.100
each fully paid up. The entire share capital was in the beginning, owned by private shareholders. But in view of the
public nature of the Bank‟s functions, the Reserve Bank of India, Act, 1934 provided for the appointment by the Central
Government of the Governor and two 3 Deputy Governor (who were also directors of the central Board). The Reserve
Bank was nationalized in 1949. Besides the central Board, there are four local Boards with headquarters at Bombay,
Calcutta, Madras and New Delhi
FUNCTIONS OF THE RESERVE BANK OF INDIA:
By the reserve Bank of India Act of 1934, all the important functions of a central bank have been entrusted to the
Reserve Bank of India.
Bank of Issue: Under Section 22 of the Reserve Bank of India Act, the Bank has the sole right to issue bank notes of all
denominations. The distribution of one rupee notes and conies and small coins all over the country is undertaken by the
Reserve Bank as agent of the Government. The Reserve Bank has a separate Issue Department which is entrusted with
the issue of currency notes. The assets and liabilities of the Issue Department are kept separate from those of the
Banking Department. Since 1957, the Reserve Bank of India is required to maintain gold and foreign exchange reserves
of Rs.200 crores, of which at least Rs.115 crores should be in gold. The system as it exists today is known as the
minimum reserve system.
Bankers to Government: The second important function of the Reserve Bank of India is to act as Government banker,
agent and adviser. The Reserve Bank is agent of central Government and of all state Government in India excepting that
of Jammu and Kashmir. The Reserve Bank has the obligation to transact Government business, viz., to keep the cash
balances as deposits free of interest, to receive and to make payments on behalf of the Government and to carry out
their exchange remittances and other banking operations. The Reserve Bank of India helps the Government-both the
Union and the States to float new loans and to manage public debt. The Banks makes ways and means advances to the
Governments for 90 days. It makes loans and advances to the states and local authorities. It acts as adviser to the
Government on all monetary and banking matters.
Bankers’ Bank and Lender of the last resort: The Reserve Bank of India acts as the bankers‟ bank. According to the
provisions of the Banking Companies Act of 1949, every scheduled bank was required to maintain with Reserve Bank a
cash balance equivalent to 5 percent of its demand liabilities and 2 per cent of its time liabilities in India. By an
amendment of 1962, the distinction between demand 4 and time liabilities was abolished and banks have been asked to
keep cash reserves equal to3 percent of their aggregate deposit liabilities. The minimum cash requirements can be
changed by the Reserve Bank of India.
Controller of credit: The Reserve Bank of India is the controller of credit, i.e., it has the power to influence the volume
of credit created by banks in India. It can do so through changing the Bank rate or through open market operations.
According to the Banking Regulation Act of 1949, the Reserve Bank of India can ask any particular bank or the whole
banking system not to lend to particular groups or persons on the basis of certain types of securities. Since 1956,
selective controls of credit are increasingly being used by the Reserve Bank.
Custodian of Foreign Exchange Reserves: The Reserve Bank of India has the responsibility to maintain the official
rate of exchange. According to the Reserve Bank of India Act of 1934, the Bank was required to buy and sell at fixed
rates any amount of sterling in lots of not less than Rs. 10,000. The rate of exchange fixed was the exchange rate fixed at
1sh.6d. Though there were periods of extreme pressure in favour of or against the rupee. After India became a member

8. of the International Monetary Fund in 1946, the Reserve Bank has the responsibility of maintaining fixed exchange rates
with all other member countries of the I.M.F.
MONEY SUPPLY
When RBI calculates money supply in country on the basis of narrow money & broad money for Narrow money it uses
symbol like;
M1 which means, currency & coins in inclusion + demand deposits of banks + other deposits with the RBI government
IDBI etc.
M2 = M1 + post office saving deposits
M3 is called broad money = M1 +timed deposits of banks
M4 = M3+ total post office deposits
Reserve money is money created by the central bank of the country also called HF-powered money which is actually the
base of monetary expansion in country. Currency and coins in circulation +cash in hands with banks + cash reserves in
hand of RBI+ other deposits with RBI.
CAMELS is an acronym used for banking Regulation
C: Capital adequacy
A: Asset quality
M: Management
E: Earning
L: Liquidity
S: Systems control
All banks have to be conformed of CAMELS at any time.
ACCEPTING DEPOSITS
The most important activity of a commercial bank is to mobilise deposits from the public. People who have surplus
income and savings find it convenient to deposit the amounts with banks. Depending upon the nature of deposits, funds
deposited with bank also earn interest. Thus, deposits with the bank grow alongwith the interest earned. If the rate of
interest is higher, public feels motivated to deposit more funds with the bank. There is also safety of funds deposited
with the bank.
1. Grant of loans and advances-The second important function of a commercial bank is to grant loans and
advances. Such loans and advances are given to members of the public and to the business community at a
higher rate of interest than allowed by banks on various deposit accounts. The rate of interest charged on loans
and advances varies according to the purpose and period of loan and also the mode of repayment.

9. 2. Loans-A loan is granted for a specific time period. Generally commercial banks provide short-term loans. But
term loans, i.e., loans for more than a year may also be granted. The borrower may be given the entire amount
in lump sum or in instalments. Loans are generally granted against the security of certain assets. A loan is
normally repaid in instalments. However, it may also be repaid in lump sum.
3. Advances-An advance is a credit facility provided by the bank to its customers. It differs from loan in the sense
that loans may be granted for longer period, but advances are normally granted for a short period of time.
Further the purpose of granting advances is to meet the day-to-day requirements of business. The rate of
interest charged on advances varies from bank to bank. Interest is charged only on the amount withdrawn and
not on the sanctioned amount.
Types of Advances
Banks grant short-term financial assistance by way of cash credit, overdraft and bill discounting
1. Cash Credit-Cash credit is an arrangement whereby the bank allows the borrower to draw amount upto a
specified limit. The amount is credited to the account of the customer. The customer can withdraw this
amount as and when he requires. Interest is charged on the amount actually withdrawn. Cash Credit is
granted as per terms and conditions agreed with the customers.
2. Overdraft-Overdraft is also a credit facility granted by bank. A customer who has a current account with the
bank is allowed to withdraw more than the amount of credit balance in his account. It is a temporary
arrangement. Overdraft facility with a specified limit may be allowed either on the security of assets, or on
personal security, or both.
3. Discounting of Bills-Banks provide short-term finance by discounting bills, that is, making payment of the
amount before the due date of the bills after deducting a certain rate of discount. The party gets the funds
without waiting for the date of maturity of the bills. In case any bill is dishonoured on the due date, the bank
can recover the amount from the customer.
NON BANKING FINANCIAL COMPANIES (NBFC)
A Non-Banking Financial Company (NBFC) is a company a) registered under the Companies Act. 1956, b) its
principal business is lending, investments in various types of shares/stocks/bonds/debentures/securities,
leasing, hire-purchase, insurance business, chit business, and c) its principal business is receiving deposits
under any scheme or arrangement in one lump sum or in installments. However, a Non-Banking Financial
Company does not include any institution whose principal business is agricultural activity, industrial activity,
trading activity or sale/purchase/construction of immovable property. (Section 45 I (c) of the RBI Act, 1934) .
One key aspect to be kept in view is that the financial activity of loans/advances as stated in 45 I ( c) , should
be for activity other than its own. In the absence of this provision, all companies would have been NBFCs.
NBFCs whose asset size is of Rs.100 cr or more as per last audited balance sheet are considered as
systemically important NBFCs. The rationale for such classification is that the activities of such NBFCs will
have a bearing on the financial stability in our country. The Reserve Bank of India regulates and supervises
Non-Banking Financial Companies which are into the business of (i) lending (ii) acquisition of shares, stocks,
bonds, etc., or (iii) financial leasing or hire purchase. The Reserve Bank also regulates companies whose
principal business is to accept deposits. (Section 45I (c) of the RBI Act, 1934) The Reserve Bank has been
given the powers under the RBI Act 1934 to register, lay down policy, issue directions, inspect, regulate,
supervise and exercise surveillance over NBFCs that meet the 50-50 criteria of principal business. The
Reserve Bank can penalize NBFCs for violating the provisions of the RBI Act or the directions or orders issued

10. by RBI under RBI Act. The penal action can also result in RBI cancelling the Certificate of Registration issued
to the NBFC, or prohibiting them from accepting deposits and alienating their assets or filing a winding up
petition.
SOCIAL BANKING IN INDIA
LEAD BANK SCHEME-To bring about all round development of the rural areas of the country a committee
of Mr. Gardgil and Mr. FF Nariman recommended in 1969 that the reponsiblity of fiancial development of
different districts of the country may be given to various big banks. Accordingly after consulting the public
sector banks operating in the country the Reserve Bank of India assigned different districts to different
public sector banks. The bank that was assigned the reponsibility to carry out allround financial
development of a district, in co-ordination with the district government authorities became the lead bank
for the district. To carry out the development the lead bank cordinates with the district authorities through
the District Level Cordination Committee (DLCC) prepares an annual plan and implements the same through
the banks operating in the district. It also collects and analyses statistical data of development taking place
in the district. While all the lead banks in the country are public sector banks, the lead bank of one district in
Rajasthan viz. Mewar is ICICI Bank.
REGIONAL RURAL BANKS-The M.Narisaman committee in 1975 after studying the impact of the Lead
Bank Scheme recommended the establishment of rural banks in each district that may be dedicated to rural
development. The first Gramin Banks started functioning on 2nd October 1975 under an ordinance and
subsquently the Regional Rural Banks Act was passed in 1976. The management of Regional Rural banks
was with a public sector bank generally the lead bank of the district. The Regional Rural Bank operates
within a given geographical area. The Capital for these banks was contributed by the Central Government
(50%), the Sponsor Bank (35%) and the State Government (15%). Initially around 186 Gramin Bank
established all over India but now in keeping with the government directive to merge the gramin banks
there were 57 gramin banks as on November 2013
FINANCIAL INCLUSION-Financial inclusion is delivery of banking services at an affordable cost to the vast
sections of disadvantaged and low income groups. Unrestrained access to public goods and services is the
„sine qua non‟ (an essential condition) of an open and efficient society. As banking services are in the nature
of public good, it is essential that availability of banking and payment services to the entire population
without discrimination is the prime objective of the public policy. The former United Nations Secretary
General Mr. Kofi Annan on December 29th 2003, while addressing Unesco highlighted that 84% of the world
population were not financially included. In 2004 a committe headed by Shri. Haroon Rashid Khan studied
the functioning of gramin banks and found that 67% of the Indian population were not financially included.
This matter was highlighted in the Reserve Bank of India term policy paper of 2005-2006 and banks were
asked to take up financial inclusion for the country. The government of India has initiated a movement
called Swabhiman for financial inclusion and had targeted all villages with population of 2000 or above by
March 2012 and villages with population of 1000 or above by March 2015. As result to the campaign, States
or Union territories like Punducherry, Himanchal Pradesh and Kerala have announced 100% financial
inclusion in all the districts. RBI‟s vision for 2020 is to open nearly 600 million new customers accounts and
service them through a variety of channels by leveraging on IT

14. Electronic banking
National Electronic Funds Transfer (NEFT)- National Electronic Funds Transfer (NEFT) is a nation-wide payment
system facilitating one-to-one funds transfer. Under this Scheme, individuals, firms and corporates can
electronically transfer funds from any bank branch to any individual, firm or corporate having an account with any
other bank branch in the country participating in the Scheme. For being part of the NEFT funds transfer network, a
bank branch has to be NEFT- enabled. Individuals, firms or corporates maintaining accounts with a bank branch can
transfer funds using NEFT. Even such individuals who do not have a bank account (walk-in customers) can also
deposit cash at the NEFT-enabled branches with instructions to transfer funds using NEFT. However, such cash
remittances will be restricted to a maximum of Rs.50,000/- per transaction. Such customers have to furnish full
details including complete address, telephone number, etc. NEFT, thus, facilitates originators or remitters to initiate
funds transfer transactions even without having a bank account. Individuals, firms or corporates maintaining
accounts with a bank branch can receive funds through the NEFT system. It is, therefore, necessary for the
beneficiary to have an account with the NEFT enabled destination bank branch in the country. The NEFT system
also facilitates one-way cross-border transfer of funds from India to Nepal. This is known as the Indo-Nepal
Remittance Facility Scheme. A remitter can transfer funds from any of the NEFT-enabled branches to Nepal,
irrespective of whether the beneficiary in Nepal maintains an account with a bank branch in Nepal or not. There is
no limit - either minimum or maximum - on the amount of funds that could be transferred using NEFT. However,
maximum amount per transaction is limited to Rs.50,000/- for cash-based remittances and remittances to Nepal.
There is no restriction of centres or of any geographical area within the country. The NEFT system takes advantage
of the core banking system in banks. Accordingly, the settlement of funds between originating and receiving banks
takes places centrally at Mumbai, whereas the branches participating in NEFT can be located anywhere across the
length and breadth of the country. Presently, NEFT operates in hourly batches - there are twelve settlements from 8
am to 7 pm on week days (Monday through Friday) and six settlements from 8 am to 1 pm on Saturdays.

15. REAL TIME GROSS SETTLEMENT (RTGS) SYSTEM-The acronym 'RTGS' stands for Real Time Gross Settlement,
which can be defined as the continuous (real-time) settlement of funds transfers individually on an order by order
basis (without netting). 'Real Time' means the processing of instructions at the time they are received rather than at
some later time.'Gross Settlement' means the settlement of funds transfer instructions occurs individually (on an
instruction by instruction basis). Considering that the funds settlement takes place in the books of the Reserve Bank
of India, the payments are final and irrevocable. RBI has operationalized a new ISO 20022 complaint RTGS system
october 19-2-2013. The RTGS system is primarily meant for large value transactions. The minimum amount to be
remitted through RTGS is Rs.2 lakh. There is no upper ceiling for RTGS transactions. Under normal circumstances
the beneficiary branches are expected to receive the funds in real time as soon as funds are transferred by the
remitting bank. The beneficiary bank has to credit the beneficiary's account within two hours of receiving the funds
transfer message. The remitting bank receives a message from the Reserve Bank that money has been credited to
the receiving bank. Based on this the remitting bank can advise the remitting customer that money has been
delivered to the receiving bank. It is expected that the receiving bank will credit the account of the beneficiary
instantly. If the money cannot be credited for any reason, the receiving bank would have to return the money to
the 16 remitting bank within 2 hours. Once the money is received back by the remitting bank, the original debit
entry in the customer's account is reversed. The RTGS service window for customer's transactions is available from
9.00 hours to 16.30 hours on week days and from 9.00 hours to 13.30 hours on Saturdays for settlement at the RBI
end. However, the timings that the banks follow may vary depending on the customer timings of the bank
branches. With a view to rationalize the service charges levied by banks for offering funds transfer through RTGS
system, a broad framework has been mandated as under: Inward Transactions Free, no charge to be levied.
Outward Transactions Rs. 2 lakh to Rs. 5 lakh - not exceeding Rs. 30 per transaction Above Rs. 5 lakh - not
exceeding Rs. 55 per transaction
What is an ATM card? ATM means Automatic Transfer Machine and they have been around since the late
1960’s. ATMs are mostly used to withdraw cash, but a consumer can also make deposits into one’s account
during and outside normal business banking hours. This card can only be used at ATMs.
All withdrawals using an ATM card are immediately deducted from the customer’s account
What is a credit card? Credit cards allow a consumer to purchase goods and services by borrowing against
an approved line of credit. It is a loan. Purchases made during the month are billed to the consumer and the
consumer pays the bill at a later date. Should the consumer be unable to pay the entire balance due, then the credit
card issuer charges the consumer interest.
Unlike an ATM or ATM/Debit card, all charges as well as any cash advances are not automatically deducted from a
consumer’s checking account, unless specific arrangements are made through the consumer’s bank.
What is a 'Debit Card'
A payment card that deducts money directly from a consumer’s checking account to pay for a
purchase. Debit cards eliminate the need to carry cash or physical checks to make purchases. In addition,
debit cards, also called check cards, offer the convenience of credit cards and many of the same
consumer protections when issued by major payment processors like Visa or MasterCard. Unlike credit
cards, they do not allow the user to go into debt, except perhaps for small negative balances that might be
incurred if the account holder has signed up for overdraft coverage. However, debit cards usually have
daily purchase limits, meaning it may not be possible to make an especially large purchase with a debit
card.

16. What is 'Online Banking'
Online banking allows a user to execute financial transactions via the internet. Online banking is also
known as "internet banking" or "web banking." An online bank offers customers just about every service
traditionally available through a local branch, including deposits, which is done online or through the mail,
and online bill payment.
BREAKING DOWN 'Online Banking'
Online banks do not provide direct ATM access, but they make provisions for consumers to use ATMs at
other banks and retail stores, and they may reimburse consumers for some of the ATM fees charged by
other financial institutions. Reduced overhead costs associated with not having physical branches
typically allow online banks to offer consumers significant savings on banking fees; they also offer
higher interest rates on accounts. Online banks handle customer service by phone, email or online chat.
Online banking is frequently performed on mobile devices as Wi-Fi and 4G networks have become widely
available. In the United States, prominent online banks include Ally Bank, Bank5 Connect, Discover Bank,
GE Capital Bank and Synchrony Bank.
Advantages of Online Banking
Convenience is a major advantage of online banking. Basic banking transactions such as paying bills and
transferring funds between accounts can easily be performed at times convenient to consumers. In effect,
consumers can perform banking transactions 24 hours-a-day, seven-days a week. Online banking is fast
and efficient. Funds can be transferred between accounts almost instantly, especially if the two accounts
are held at the same banking institution. Banking accounts can be monitored more closely thanks to
online banking. This allows consumers to keep their accounts safe. Around-the-clock access to banking
information provides early detection of fraudulent activity that has the potential to cause financial or
damage loss. Online banking allows for the opening and closing of fixed deposit and recurring deposit
accounts that typically offer higher rates of interest.
Disadvantages of Online Banking
For a novice online banking customer, using systems for the first time may present challenges that
prevent transactions from being processed. Although online banking security is continually improving,
such accounts are still vulnerable when it comes to hacking. Consumers are advised to use their data
plans, rather than public Wi-Fi networks when using online banking, to prevent unauthorized access.
Additionally, online banking is dependent on a reliable internet connection. Connectivity issues from time-
to-time may make it difficult to determine if banking transactions have been successfully processed. On
occasion, consumers may prefer face-to-face interactions for more complex banking issues.