MAHATMA EDUCATION SOCITY’S PILLAI’S COLLEGE OFARTS, COMMERCE & SCIENCEEnvironment of Financial System Subject INDIAN BANKING SYSTEM Topic Prepared BY F.Y.F.M Semester-II
GROUP MEMBER NAME ROLL. NONIMISH PATANKAR 35SACHIN PADOL 34SHASHIKANT KAMBLE 18SURAJ SHINDE 46
INTRODUCTION OF A BANKThe Banking Companies Act of 1949, define Banking Company as a company which transacts the business of banking in India. It defines banking as, accepting for the purpose of lending or investment of deposit money from the public, repayable on demand or otherwise and withdraw able by cheque draft , order or otherwise A bank as an institution dealing in money and credit. It safeguard of the savings of the public and gives loans and advances.
Origin of BankingThe word of “Bank” is said to be of Germanic origin , cognate with the French word“Banque” and theItalian word “Banca” , both meaning “bench”.Banking is as old as the authentic history and origins of modern Commercial banking tare traceable toancient times. The New Testament mention about activities of the money changers in the temple ofJerusalem. In ancient Greece around 2000 B.C . The famous temples of Ephesus, Delphi and Olympiawere used as depositories for peoples surplus funds and these temples were the centers of Moneylending transaction.In, India the ancient Hindu scriptures refer to money lending activities in the Vedic period. In IndiaThe Ramayana and Mahabharata eras, banking had become a full fledged activity and during theSmriti period which followed the Vedic period and Epic age the business of banking was carried onby the members of the Vaish community.
Pre Independence banking system of IndiaBanking in India originated in the last decades of the 18th century. The first banks wereThe General Bank of India which started in 1786, and the Bank of Hindustan, both ofwhich are now defunct. The oldest bank in existence in India is the State Bank of India,which originated in the Bank of Calcutta in June 1806, which almost immediatelybecame the Bank of Bengal . This was one of the three presidency banks, the other twobeing the Bank of Bombay and the Bank of Madras, all three of which were establishedunder charters from the British East India Company.Indian merchants in Calcutta established the Union Bank in 1839, but it failed in 1848 as consequence of the economic crisis of 1848-49. The Allahabad Bank, established in 1865 and still functioning today, is the oldest Joint Stock bank in India.The presidency banks dominated banking in India but there were also some exchangebanks and a number of Indian joint stock banks. All these banks operated in differentsegments of the economy. The exchange banks, mostly owned by Europeans,concentrated on financing foreign trade. Indian joint stock banks were generally undercapitalized and lacked the experience and maturity to compete with the presidency andexchange banks.The first entirely Indian joint stock bank was the Oudh CommercialBank, established in 1881 in Faizabad. It failed in 1958. The next was the PunjabNational Bank, established in Lahore in 1895, which has survived to the present and isnow one of the largest banks in India.
Post Independence Banking system of IndiaIn the post-independence period, India observed the emergence of large number of institutionsfor providing finance to different sectors of the economy.There were two nationalizations of banks in India, one in 1969 and the other in 1980. The entryactivities of private sector and foreign banks were restricted through branch licensing andregulation norms.The over regulated and over administered polices eroded the capital base of most of the publicSector banks and recapitalization of 19 nationalized banks was made by government through ofbudgetary provision Nevertheless, acute problem arises in productivity, efficiency and profitabilityfront of the commercial banks. The policy of directed investment in the form high SLR and CRR,directed credit programs, extra administrative interference in credit decision making, highoperating costs, regulated interest rates, non-transparent accounting system coupled Non existenceof operational flexibility, internal autonomy and absence of competition contaminated the health ofthe commercial banks and threatened their future survival.
Liberal policies facilitate to increase market competition among banks to augment efficiency and by productivity by the management to choose independent decisions about input-output and their pricesindividual banks. The Committee on Financial Systems (GOI, 1998) suggested the road map for second-generation reform to keep pace with liberalization of financial sector in other parts of the world.The other remarkable developments to enhance competition in banking sector reforms 1) It abolished administered interest rate regime by allowing banks to determine lending and deposit rates. 2) Competition has infused by allowing the operation of new private sector banks and more liberal entry of foreign banks. 3) Measures to broaden the ownership base of PSBs have also taken. 4) The system has also observed greater levels of transparency and standards of disclosure. 5) It introduced ratification of the legal structure to strengthen banks position in the areas of loan and default loan.
Nationalization of Indian banking systemIndian marched towards the establishment of public sector banking through The progressive nationalisationof commercial banks. There were three phases of bank nationalisation:• Nationalistion of Imperial Bank of India in1955 and its seven associate banks in 1959-60.• Nationlisation of the 14 major commercial banks in 1969.• Nationlisation of 6 more commercial banks in 1980.On July 1, 1955 the government of India nationlised the Imperial Bank of India and converted it into theState Bank of India. The establishment of the State Bank of India was a pioneering attempt in public introducing sector banking in the country. Later on in 1959-60, seven subsidiary State Banks were also nationalised to form the SBI Group.For a short period during December 1967 to June 1969, the Government of India pursued the banking ofpolicy control of banks, aiming at an equitable and purposeful distribution of credit towards developmenta-l needs.A such over 90 percent of the banking activity in the country is brought under into the public sector.In short, nationalization of banks implied a bold and major economic step in the process of bankingreforms in the country. It has resulted in the evolution of public sector banking.
Types of Banks1) Central Bank A bank which is entrusted with the functions of guiding and regulating the banking system of a country is known as its Central bank.2) Commercial Banks Commercial banks are of three types (i) Public Sector Banks (ii) Private Sectors Banks (iii) Foreign Banks
3) Development BanksBusiness often requires medium and long-term capital for purchase of machineryand equipment, for using latest technology, or for expansion and modernization.Such financial assistance is provided by Development banks. 4) Co-operative Banks There are three types of co-operative banks operating in our country. (i) Primary Credit Societies (ii) Central Co-operative Banks (iii) State Co-operative Banks
5) Specialised Banks There are some banks, which cater to the requirements and provide overall support for setting are examples of such banks. They engage themselves in some specific area or activity and thus, are called Specialised banks. Let us know about them. (i) Export Import Bank of India (EXIM Bank) (ii) Small Industries Development Bank of India (SIDBI) (iii) National Bank for Agricultural and Rural Development (NABARD)
Policies of Indian Banking System during 1991Recommendations of Narasimhan committee:1) Establishment of 4 tier hierarchy for the banking structure with 3 to 4 large banks at the top and rural banks at bottom mainly engaged in agriculture and allied activities.2) The supervisory functions over banks and financial institutions can be assigned to aquasi autonomous body sponsored by RBI.3) Phased achievement of 8 % capital adequacy ratio. Abolition of branch licensing policy. Phased reduction in Statutory Liquidity Ratio. Deregulation of interest rates which are related to the bank rateCompetition among financial institutions on a syndicating or participating approach .4) Delegation of direct lending activity of the IDBI to a separate corporatebody . Proper classification of assets and full disclosure and transparency of of accounts of banks and other financial institutions.5) Setting up Asset Reconstruction Fund to make over a portion of the loan portfolio of banks whose recovery has become difficulty
Globalization Of Indian Banking SystemBanking sector in India is expanding at an incredibly faster pace, with more and more banks reliazing thebenefits offered by globalization. Publicly owned banks handle more than 80% of the banking business inIndia and the rest is in the hands of private sector banks. However, banking in both the government andprivate sector is being revolutionized by this latest phenomenon called “globalization”.As per the latest market research report named, “Indian Banking Sector Analysis (2006-2007)”,published, by RNCOS“The banking sector in India is heading towards consolidation. There are about 90 players in.the banking sector in India, with 30competitors from each of the public, private and foreign sectors With so many players present in the banking sector in India, a few of them will emerge as global competitors in the near future”.The report highlights:1) An overview of the current trends in banking sector in India to enable the clients Profiles of 5 prominent players, from each of the public, private and foreign segment, in the banking sector.2) Discussion of the opportunities and challenges faced by the banking sector in India.3) Future forecast of the banking industry in India till the year 2010.
Bank of India• Bank of India, founded on 7th September in the year 1906 was nationalised along with 13 other banks in July 1969. Then its paid-up capital was Rs.50 lakh with only 50 employees and the only office in Mumbai• The promoters incorporated the Bank of India on 7 September, 1906 under Act VI of 1882 with an authorized capital of Rs. 1 crore divided into 100,000 shares each of Rs. 100. The promoters placed 55,000 shares privately, and issued 45,000 to the public by way of IPO on 3 October, 1906; the bank commenced operations on 1 November, 1906.• Today Bank of India has been spread with 2594 branches including 93 specialised branches controlled by 48 Zonal Offices.• Bank of India came up with its maiden public issue in the year 1997 and the total number of shareholders stands to 3,17,890 as on 30/06/2004.