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BBA-III SEMESTER
Indian Banking System- UNIT- 1
Structure and Organization of Banks , Reserve
bank of India, Apex banking institutions,
Commercial banks , Regional rural banks , Co-
operative banks , Development banks.

STRUCTURE & ORGANISATION OF BANKS :
Indian banking structure can be broadly
classified in to two categories :
(i) ORGANISED SECTOR
(ii) UNORGANISED SECTOR
ORGANISED SECTOR BANKS


Main constituents of organized sector
banks are:
 1. RESERVE BANK OF INDIA
 2. COMMERCIAL BANKS
 3. CO-OPERATIVE BANKS
 4. SPECIALISED BANKS
Reserve Bank of India

Reserve Bank of India is the apex monetary
Institution of India which is responsible for the
regulation of currency, printing of banknotes
and minting coins. It is also called as the
central bank of the country. The bank was
established on April1, 1935 in Kolkata
according to the Reserve Bank of India act
1934 but was later shifted to Mumbai in 1937.
RBI was initially privately owned but since
nationalization in 1949, the Reserve Bank is
owned by the Government of India.
COMMERCIAL BANKS

Commercial Banking System
consists of :
(i) Scheduled Banks
(ii) Non scheduled Banks
Scheduled Banks : Scheduled banks
are included in the second Schedule
of the Reserve Bank of India under
Act, 1934. Every scheduled bank
must have a paid up capital &
reserves of an aggregate value of at
least Rs.5 lakhs.
CLASSIFICATION OF SCHEDULED
BANKS
(I) PUBLIC SECTOR BANKS: These
banks are owned & controlled by the
government . The public sector
commercial banking in India started with
setting up of State Bank of India in 1955. At
present 8 state banks & associate banks
are in the group of S.B.I. i.e. State bank of
Hyderabad, State Bank of Indore etc. as
well as 20 nationalized banks i.e. Bank of
Baroda , Allahabad Bank etc. Regional
Rural Banks are also the scheduled banks
which are governed by R.R.B. ACT,1976.
(II)
         Private Sector Banks : Private sector
banks continued to operate in the banking
sector after nationalization of 20 banks in 1969
&1980. According to new policy framed in
January1993 by R. B. I. new banks were
formed in private sector . Such as :
The U.T.I. Bank Ltd., HDFC Bank Ltd., etc.
(III)
Foreign Banks : Foreign banks are working in
India from British days. ANG Grindlays Bank has
56 branches, The Standard Chartered Bank has 21
branches. New foreign banks are : Barclays bank,
Bank of Ceylon, Fuji bank etc.

CO-OPERATIVE BANKS: It mainly meets the
credit needs of rural areas & agriculture. Co-
operative banks has three tier functioning . State
Co-operative bank acts as an apex body at the
state level , District co-operative banks are
operating at the district level and co-operative
society (banks) are operating at villages & town
SPECIALISED BANKS
These institutions look after different
sectors of economy . For example:
IDBI,NABARD ,EXIM BANK ETC.
Unorganized Banking Sector

The unorganized sector of banking in
India consists of money lenders and
indigenous bankers known as
shroffs, sahukars, mahajans, chettis,
etc. These are individuals doing
banking business, along with trading
and commission business in many
cases. Their activities are not
organized. They follow rules of their
own. The rate of interest charged by
them is very high.
Organizational structure of
banks
Definition of organizational
structure of banks
According to G.Dessler, “ An organizational
set up consists of people who carry out
differentiated tasks which are co-ordinated
to contribute to organizations goals.”
Types of organizational structure of banks:
The organizational set up of a bank is
mainly based on departmentalization :
Departmentalization:- It is the process of
dividing the total activities of the bank in to
various departments, unit or sections. The
similar nature of bank activities are
grouped in one department.
Types of departmentalization
In banking system these two types of
departmentalization is followed:-
1. Departmentalization by territory:- The
organizational set up of a commercial bank on
the basis of territory is of following type :
(i)Central office: central office is main
controlling authority of a particular bank.it is
supreme body that determines the objectives ,
policies & frame rule & regulation.
(ii) Regional office: The regional office co-
ordinate the functions of the branches located in
a particular region. It is charged with
responsibilities of implementing the objectives
& policies of top management to the branches.
(iii)
Branch Office: The branch offices are the
centers that do the actual banking
business. They are in direct contact with
customers & cater to their needs.
2. Departmentalization by Function:
Functions include such activities as
lending, investing, trust services,
international banking, accepting
deposits etc. Line managers are
responsible for the direct functions of a
commercial bank.
Management of banks
According to George R. Terry, “management
is a distinct process consisting of planning,
organizing ,activating & controlling
performance to determine & accomplish the
objective by the use of people & resources.”
Objectives of bank management:
1.Maximisation of profit
2.Meet challenges of competitors
3.Improve the customer services
4.Introduction of new schemes
5. Manpower planning
Fundamental functions of
 bank management

1.Planning
2.Organising
3.Staffing
4.Directing
5.Communication
6.Controlling
Functional areas of bank
 management

1.Deposit mobilization
2.Financial management
3.Credit management
4. Profit evaluation
5.Liquidity management(CRR,SLR)
6.Marketing Management
7.Portfolio(Asset) Management
Commercial banks
 According to the Banking Companies
(Regulation)Act of India ,1949, “Banking
means the accepting ,for the purpose of
lending or investment , of deposits of money
from the public, repayable on demand or
otherwise , and withdraw able by cheese ,
draft or otherwise.”
Features of commercial banks:
1.Commercial establishment
2.Accept deposits
3.Repayment of accepted deposits
4.Advancing loans to public
5.Earning profit
The role of commercial
banks
Commercial banks engage in the
following activities:
1. processing of payments by way of
telegraphic transfer, internet banking, or
other means
2. issuing bank drafts and bank cheques
3. accepting money on term deposit
---------
4. lending money by overdraft, installment
loan, or other means
5. providing documentary and standby
letter of credit, guarantees, performance
bonds, securities underwriting
commitments and other forms of off
balance sheet exposures
6. safekeeping of documents and other
items in safe deposit boxes
7. sales, distribution or brokerage, with or
without advice, of: insurance, unit trusts
and similar financial products as a
Functions of Commercial
Banks
The functions of a commercial banks
are divided into two categories:
(i) Primary functions, and
(ii) Secondary functions including
agency functions.
(iii) Modern Functions
(i) Primary functions:
The primary functions of a commercial
bank include:
(a) accepting deposits; and
(b) granting loans and advances;
(a) 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
along with the interest earned. If the rate of
interest is higher, public are motivated to
deposit more funds with the bank. There is
also safety of funds deposited with the
Different Modes of Accepting
 Deposits
Different modes of Acceptance of Deposits

Banks receive money from the public by way of deposits. The
following
types of deposits are usually received by banks:
i) Current deposit
ii) Saving deposit
iii) Fixed deposit
iv) Recurring deposit
v) Miscellaneous deposits
------
i) Current Deposit

Also called „demand deposit‟, current deposit can be withdrawn by
the depositor at any time by cheques. Businessmen generally open
currentaccounts with banks. Current accounts do not carry any
interest as theamount deposited in these accounts is repayable on
demand withoutany restriction.
The Reserve bank of India prohibits payment of interest on current
accounts or on deposits upto 14 Days or less except where prior
sanctionhas been obtained. Banks usually charge a small amount
known asincidental charges on current deposit accounts depending
on the numberof transaction
Savings deposit/Savings Bank
Accounts

  Savings deposit account is meant for
  individuals who wish to deposit small
  amounts out of their current income. It
  helps in safe guarding their future and also
  earning interest on the savings. A saving
  account can be opened with or without
  cheque book facility. There are restrictions
  on the withdrawls from this account. To
  open a savings account, it is necessary for
  the depositor to be introduced by a person
  having a current or savings account with
  the same bank.
Fixed deposit


The term „Fixed deposit‟ means deposit
repayable after the expiry of a specified
period. Since it is repayable only after a
fixed period of time, which is to be
determined at the time of opening of
the account it is also known as time
deposit. The rate of interest on fixed
deposits depends upon the period of
deposits. The longer the period, the
higher is the rate of interest offered
Recurring Deposits

Recurring Deposits are gaining wide
popularity these days. Under this type of
deposit, the depositor is required to deposit
a fixed amount of money every month for a
specific period of time. Each instalment
may vary from Rs.5/- to Rs.500/- or more per
month and the period of account may vary
from 12 months to 10 years. After the
completion of the specified period, the
customer gets back all his deposits along
with the cumulative interest accrued on the
deposits.
Miscellaneous Deposits
Banks have introduced several
deposit schemes to attract deposits
from different types of people, like
Home Construction deposit scheme ,
Sickness Benefit deposit scheme,
Children Gift plan, Old age pension
scheme, Mini deposit scheme, etc.
-----
b) 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
depending upon the purpose, period and the mode of repayment.
The difference between the rate of interest allowed on deposits
and the rate charged on the Loans is the main source of a bank‟s
income.
(I)LOAN
A loan is granted for a specific time period. Generally,
commercial banks grant short-term loans. But term loans,
that is, loan for more than a year, may also be granted.
The borrower may withdraw the entire amount in lumpsum
or in instalments. However, interest is charged on the full
amount of loan. Loans are generally granted against the
security of certain assets. A loan may be repaid either in
lumpsum or in instalments
Different methods of Granting
   Loans by Bank
The basic function of a commercial bank is to make loans and
advancesout of the money which is received from the public by way
of deposits.The loans are particularly granted to businessmen and
members of thepublic against personal security, gold and silver and
other movable andimmovable assets. Commercial bank generally lend
money in thefollowing form:

i) Cash credit
ii) Loans
iii) Bank overdraft, and
iv) Discounting of Bills
------
i) Cash Credit :
A cash credit is an arrangement whereby the bank agrees to lend
money to the borrower up to a certain limit. The bank puts this
amount of money to the credit of the borrower. The borrower draws
the money as and when he needs. Interest is charged only on the
amount actually drawn and not on the amount placed to the credit of
borrower‟s account. Cash credit is generally granted on a bond of
credit or certain other securities. This a very popular method of
lending in our country
-------
ii) Loans :
A specified amount sanctioned by a bank to the customer is called a
„loan‟. It is granted for a fixed period, say six months, or a year. The
specified amount is put on the credit of the borrower‟s account. He
canwithdraw this amount in lump sum or can draw cheques against
thissum for any amount. Interest is charged on the full amount even if
theborrower does not utilise it. The rate of interest is lower on loans
incomparison to cash credit. A loan is generally granted against the
security of property or personal security. The loan may be repaid in
lump sum or in instalments. Every bank has its own procedure of
granting loans. Hence a bank is at liberty to grant loan depending on
its own resources.
The loan can be granted as:
a) Demand loan, or
b) Term loan
a) Demand loan

Demand loan is repayable on demand.
In other words it is repayable at short
notice. The entire amount of demand
loan is disbursed at one time and the
borrower has to pay interest on it. The
borrower can repay the loan either in
lump sum (one time)or as agreed with
the bank. Loans are normally granted
by the bank against tangible securities
including securities like N.S.C., Kisan
Vikas Patra Life Insurance policies
and U.T.I. certificates.
b) Term loans

Medium and long term loans are called „Term
loans‟. These loans are repayable over a period
of 5 years and maximum up to 15 years. Term
loan is required for the purpose of setting up of
new business activity, renovation,
modernization,
 purchase of plant and machinery, vehicles,
land
or purchase of other immovable assets. These
loans are generally secured against the
mortgage of land, plant and machinery, building
and other securities. The normal rate of interest
charged for such loans is generally quite high.
ii) Advances

An advance is a credit facility provided by
the bank to its customers. It differs from
loan in the sense that loans maybe
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.
Modes of short-term financial
assistance
Banks grant short-term financial assistance by
way of cash credit, overdraft and bill discounting.
a)    Cash Credit
Cash credit is an arrangement whereby the bank
allows the borrower to draw amounts up to 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 agreed
terms and conditions with the customers.
(b)Bank 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
is allowed either on the security of
assets, or on personal security , or
both.
(c) 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. Incase any bill is
dishonoured on the due date, the bank
can recover the amount from the
customer
Secondary functions

These are as follows -
1) Issuing letters of credit, travellers cheques,
circular notes etc.
2) Undertaking safe custody of valuables,
important documents, and
securities by providing safe deposit vaults or
lockers;
3) Providing customers with facilities of foreign
exchange.
4) Transferring money from one place to
another; and from one
branch to another branch of the bank.
--
5) Standing guarantee on behalf of
its customers, for making
payments for purchase of goods,
machinery, vehicles etc.
6 Collecting and supplying business
information;
7) Issuing demand drafts and pay
orders; and,
8) Providing reports on the credit
worthiness of customers.
AGENCY & GENERAL UTILITY SERVICES

(i) Agency Services
Agency services are those services which
are rendered by commercial
banks as agents of their customers. They
include :
a) Collection and payment of cheques and
bills on behalf of the customers;
b) Collection of dividends, interest and
rent, etc. on behalf of customers, if so
instructed by them;                    c)
Purchase and sale of shares and securities
on behalf of customers;
---
d) Payment of rent, interest,
insurance premium, subscriptions
etc. on behalf of customers, if so
instructed;
e) Acting as a trustee or executor;
f) Acting as agents or
correspondents on behalf of
customers for other banks and
financial institutions at home and
abroad.
ii) General utility services

These are available to the public on
payment of a fee or charge:-
a)Issuing letters of credit and travellers‟
cheques;
b) Underwriting of shares, debentures,
etc.;
c) Safe-keeping of valuables in safe
deposit locker;
d) Underwriting loans floated by
government and public bodies.
--
e) Supplying trade information and
statistical data useful to customers;
f) Acting as a referee regarding the
financial status of customers;
g) Undertaking foreign exchange
business.
(iii)Modern functions
1. Automatic teller machines (ATM)
2. Credit Cards
3. Mail Transfer & Telegrafic Transfer
4. Tele Banking
5. Internate Banking
6.Round the clock Banking
Different Types of Banks -
These are various kinds of Banks :
Type 1. Saving Banks

Saving banks are established to create
saving habit among the people. These
banks are helpful for salaried people and
low income groups. The deposits collected
from customers are invested in bonds,
securities, etc. At present most of the
commercial banks carry the functions of
savings banks. Postal department also
performs the functions of saving bank
Type 2. Commercial Banks

Commercial banks are established with an objective
to help businessmen. These banks collect money
from general public and give short-term loans to
businessmen by way of cash credits, overdrafts, etc.
Commercial banks provide various services like
collecting cheques, bill of exchange, remittance
money from one place to another place.
In India, commercial banks are established under
Companies Act, 1956. In 1969, 14 commercial banks
were nationalised by Government of India. The
policies regarding deposits, loans, rate of interest,
etc. of these banks are controlled by the Central
Bank.
Type 3. Industrial Banks /
Development Banks

 Industrial / Development banks collect
  cash by issuing shares & debentures and
  providing long-term loans to industries.
  The main objective of these banks is to
  provide long-term loans for expansion
  and modernisation of industries.
 In India such banks are established on a
  large scale after independence. They are
  Industrial Finance Corporation of India
  (IFCI), Industrial Credit and Investment
  Corporation of India (ICICI) and Industrial
  Development Bank of India (IDBI).
Type 4. Land Mortgage / Land
Development Banks

Land Mortgage or Land Development banks
  are also known as Agricultural Banks
  because these are formed to finance
  agricultural sector. They also help in land
  development.
In India, Government has come forward to
  assist these banks. The Government has
  guaranteed the debentures issued by
  such banks. There is a great risk involved
  in the financing of agriculture and
  generally commercial banks do not take
  much interest in financing agricultural
  sector.
Type 5. Indigenous Banks


Indigenous banks means Money Lenders
  and Sahukars. They collect deposits from
  general public and grant loans to the
  needy persons out of their own funds as
  well as from deposits. These indigenous
  banks are popular in villages and small
  towns. They perform combined functions
  of trading and banking activities. Certain
  well-known indian communities like
  Marwaries and Multani even today run
  specialised indigenous banks.
Type 6. Central / Federal /
National Bank

 Every country of the world has a central bank.
  In India, Reserve Bank of India, in U.S.A,
  Federal Reserve and in U.K, Bank of England.
  These central banks are the bankers of the
  other banks. They provide specialised
  functions i.e. issue of paper currency,
  working as bankers of government,
  supervising and controlling foreign
  exchange. A central bank is a non-profit
  making institution. It does not deal with the
  public but it deals with other banks. The
  principal responsibility of Central Bank is
  thorough control on currency of a country.
Type 7. Co-operative Banks


In India, Co-operative banks are
 registered under the Co-operative
 Societies Act, 1912. They generally
 give credit facilities to small farmers,
 salaried employees, small-scale
 industries, etc. Co-operative Banks
 are available in rural as well as in
 urban areas. The functions of these
 banks are just similar to commercial
 banks.
Type8. Exchange Banks

Hong Kong Bank, Bank of Tokyo, Bank of
  America are the examples of Foreign Banks
  working in India. These banks are mainly
  concerned with financing foreign trade.
Following are the various functions of
  Exchange Banks :-
1.Remitting money from one country to another
  country,
2.Discounting of foreign bills,
3.Buying and Selling Gold and Silver, and
4.Helping Import and Export Trade
Type 9. Consumers Bank


 Consumers bank is a new addition to
 the existing type of banks. Such
 banks are usually found only in
 advanced countries like U.S.A. and
 Germany. The main objective of this
 bank is to give loans to consumers
 for purchase of the durables like
 Motor car, television set, washing
 machine, furniture, etc. The
 consumers have to repay the loans in
 easy installments.
Features of organizational
structure of banks
1. High degree of Departmentation
2. Regional or zonal office
3. Hierarchal management
A- Top management
B- Middle management
C- Branch management
BOARD OF DIRECTORS
The Board of Directors is the apex management
of a commercial bank. The board of Directors
frame policies ,concentrate more on important
issues & take strategic decisions .
Functions of Boards of Directors :-
Following are the important functions-
1. Setting bank purpose & mission- Directors of a
bank is to determine the goals and objectives of
the banks business . The boards of directors has
to decide in the light of capital position, size of
deposits , demand for loan& investment .
---
2. Formulating Bank Policies :- Board
has to formulate specific policies for
the successful attainment of the
objectives. The realization of objectives
is made easy with the help of policies .
3. Selection of bank executives :-
Banking activities require trained
executives with knowledge. Executives
must have knowledge of investments,
credits operations , people & machines.
--
4. Determination of Duty & Authority of Executive
:- The executives must be given sufficient
training to enable them to cope with
administrative details & follow the policies.
5. Standing Committee:- Standing
committee is constituted by boards. It ensures
better co-ordination between various
departments .
6.Delegation of authorities :- Boards determine
authority and duties of executives to perform
their functions properly and efficiently.
Duties & liabilities of directors
Statutory Duties of Directors :- 1.Not to
   pay commission , brokerage , discount
   on shares in excess of the aggregate
   2.5% the of paid up value of shares.
2.Not to create any charge upon the
   unpaid capital of the bank.
3.Not to pay dividends unless all the
   capitalized expenses are completely
   written off .
4.To maintain not less than 20% of the total
   time & demand liabilities of the bank in
   form of cash , gold or securities.
---
5. To ensure that the annual accounts
  of the bank are prepared on last
  working day of every calendar year as
  given in the third schedule of the act.
6.To seek prior approval of Reserve
  Bank before appointing or removing
  any auditors of the bank.
7. To furnish three copies of account
  and balance sheet and auditors
  report with in three months of the of
  the period they refer.
General duties of directors of a
bank
1.   To supervise the general affairs of of
     the bank
2.   To direct and control its
     subordinates
3.   To attend board meetings
4.   To examine reports and audit
     records
5.   To make best efforts to collect slow
     & doubt full debts
6.   To investigate credit worthy ness of
     the applicant granting loan.
Liabilities of bank directors
a.   Liable to outsiders for ultra-vires
     act
b.   Liability for mis-statement in
     prospectus
c.   Liability for breach of trust-
     (i)liability for making secret profit
     (ii)liability for loss caused by his
     negligence
Organizational set up of
central office
1. Board of directors :- The board of
  directors is the highest authority of
  a commercial bank The board of
  directors shall consist of not more
  than two whole –time directors&
  three directors to represent the
  interest of farmers , workers &
  artisans . One directors have to
  represent the depositors.
2. Chairman –cum-managing
director
The chairman cum managing director is
  the chief executive of the bank . He
  presides over the meeting of board of
  directors.
3. Executive director: He is the
  executive head of the bank . He co-
  ordinates & supervises all operational
  responsibilities .
4. General managers of various
  departments :- a- loans & advances
  department b-investment department
--
c. Foreign exchange department :- (
  issue of letter of credit ,
  rediscounting ,foreign securities.)
d. Audit department
e. Public relation department
f. Legal department
g. Organizational set up of zonal
  offices
Regional Rural Bank

Establishment & Growth
1. Initially, five RRBs were set up on October 2, 1975
   which were sponsored by Syndicate Bank, State
   Bank of India, Punjab National Bank, United
   Commercial Bank & United Bank of India . Capital
   share being 50% by the central government, 15% by
   the state government and 35% by the scheduled
   bank.
2. Earlier Reserve Bank of India had laid down
   ceilings on the rate of interest to be charged by
   these RRBs. However from August 1996 the RRBs
   have been granted freedom to fix rates of interest,
  which is usually in the range of 14-18% for advances.
  There are 84 RRB banks at present.
---
 3. Each RRB is sponsored by a public
 sector bank‚ which provides assistance
 in several ways‚ viz., subscription to its
 share capital‚ provision of such
 managerial and financial assistance as
 may be mutually agreed upon and help
 the recruitment and training of
 personnel during the initial period of its
 functioning.
Objectives of RRBs
RRBs was established with the
 following objective :-
  1. Bridging the credit gap in rural
 areas
  2. Check the outflow of rural deposits
 to urban areas
  3. Reduce regional imbalances and
 increase rural employment ,
 4.provide credit and other facilities‚
 especially to the small and marginal
 farmers‚ agricultural laborers,
 artisans etc.
---
  5.will operate within the local limits
  specified by notification.
   6.establishing branches or
  agencies at places notified by the
  Government.
Functions of RRBs

1.Every RRB is authorized to carry on
  to transact the business of banking as
  defined in the Banking Regulation
  Act:-
(a) granting loans and advances to
  small and marginal farmers and
  agricultural laborers‚ including
  agricultural marketing societies‚
  agricultural processing societies‚
  cooperative farming societies &
  primary agricultural credit societies.
---
(b) granting loans and advances to artisans‚
  small entrepreneurs and persons of small
  means engaged in trade‚ commerce‚
  industry or other productive activities‚
  within its area of operation.
 (c)The Reserve Bank of India has brought
  RRB‟s under the ambit of priority sector
  lending on par with the commercial banks.
  They have to ensure that forty percent of
  their advances are accounted for the
  priority sector. Within the 40% priority
  target, 25% should go to weaker section
  or 10% of their total advances to go to
  weaker section.
Regional Rural Banks in India


1.The State Bank of India is one of the
  major commercial banks having
  regional rural banks. There are 30
  Regional Rural Banks in India, under
  the State Bank of India and it is
  spread in 13 states across India. The
  number of branches the SBI Regional
  Rural Banks is more than 2000.
2. Haryana State Cooperative
Apex Bank Limited
 The main purpose of the Haryana
 State Cooperative Apex Bank Limited
 is to financially assist the artisans in
 the rural areas, farmers and agrarian
 unskilled labor, and the small rural
 entrepreneurs of Haryana. Haryana
 State Cooperative Apex Bank Limited
 also referred as the HARCOBANK, is
 one of the apex organizations in the
 state of Haryana.
3. National Bank for Agriculture
and Rural Development
  The main purpose of the National Bank
 for Agriculture and Rural Development is
 to provide credit for the development
 and publicity of small scaled industries,
 handicrafts, rural crafts, village
 industries, cottage industries,
 agriculture, etc.
4. United Bank of India

The role played by the United Bank of India
 (UBI) as one of the regional rural banks is
 phenomenal. The UBI has propagated the
 network of branches in order to actively
 take part in the rural improvement and
 development.
5. Syndicate Bank
The development of the Syndicate Bank
 was in accordance to the development of
 the rural banking sector in India . The
 Syndicate Bank has performed actively in
 the development of the rural sector .
6. Regional Rural Banks in
  Tamil Nadu
Indian Bank has sponsored two
  Regional Rural Banks (RRBs) viz.,
  Saptagiri Grameena Bank and
  Pallavan GramaBank.
Pallavan Grama Bank with Head
  Quarters at Salem is operating in 14
  districts .
7. Regional Rural Banks in Uttar
Pradesh:
 1.Allahabad UP Gramin Bank
 2.Aryavart Gramin Bank
 3.Ballia –Etawah Gramin Bank
 4.Baroda Uttar Pradesh Gramin Bank
 5.Kashi Gomti Samyut Gramin Bank
 6.Kshetriya Kisan Gramin Bank
 7.Prathama Bank
 8.Sarva UP Gramin Bank
 9.Shreyas Gramin Bank
 10.Purvanchal Gramin Bank
----
Regional rural banks allowed to
 start branches in Tier 2 cities
 without RBI nod;-
The Reserve Bank of India allowed
 regional rural banks (RRBs) to open
 branches in Tier –ii cities without taking
 its permission on August 2, 2012. It has
 been decided to allow RRBs to open
 branches without having the need to take
 permission from Reserve Bank of India .
Organizational structure
of Regional Rural Banks
1. A Regional Rural Bank is sponsored by
  a commercial bank. The sponsored bank
  requests the Central Government for this
  purpose which issues a notification after
  consulting the concerned state
  government.
2. Generally , regional rural bank covers
  one district & maximum coverage of a
  RRB has been eight district.
3. Only the Manipur RRB covers the entire
  state of Manipur.
Board of Directors
The RRB is governed by a Board of
  directors who exercises all the
  powers and discharges all the
  functions of RRB. It consists of :-
i- a chairman appointed by the Central
  government for five years,
ii- three directors nominated by the
  central government
iii- two directors nominated by the
  concerned state
iv- three directors nominated by the
  sponsor bank
V- NABARD is vested with powers of
  inspection of RRBs.
Functions /objectives of RRBs
1. Provide loans to Rural population :-
   RRB provides loans & advances to
   weaker section of the society.
2. Grant loans to co-operative societies:-
   RRBs also provides loans & advances
   to co-operative societies including
   marketing societies , co-operative
   farming society etc.
3. Banking services:- RRB has to take the
   banking services to the doorsteps of
   the rural masses .
---

4. Mobilize Rural saving:- RRB mobilize
  the rural savings by accepting
  deposits & channelise them for
  productive activities in the rural
  areas.
5. Arrangement of credit :- RRB provide
  credit to rural areas through
  refinance.
6. Cheap supply of credit :- RRB is to
  bring down the cost of supplying
  credit in rural areas.
7. Generate Employment opportunities
  :- RRB is major employment provider
  in rural areas.
Recent position(
achievements)
In recent years RRBs performance is as
  follows:-
1. Extend advances for purchase of
    durable consumer goods.
2. Issue travellers’ cheques as agents of
    their sponsor bank & provides locker
    facility,
3. There are now 195 RRB in 23 states
    with 14500 branches ,
4. Over 95% loans are provided to
    weaker section of society.
Performance of RRBS by
March 2011
The following programmes were
 included in the performance of RRB-
 · Credit Flow to Agriculture;
 · Current Viability;
 · Non-Performing Assets (NPA)
 position;
 · Capital-To-Risk-Weighted Assets
 Ratio (CRAR) position;
 · Core Banking Solutions (CBS) IN
 RRBs;
 · Branch Expansion of RRBs, etc.
---
As on 31 March 2010, there were 82 RRBs with a network
  of 15475 branches spread over 619 districts in 26 States
  and 1 Union Territory. The following measures have
  been initiated to expand the outreach of the RRBs:

  1.The RRBs were given a target in 2007 to open 2000
  branches by March, 2011;

  2.RRBs are required to migrate to Core Banking
  Solution (CBS) by September 2011 (As on date, 21 RRBs
  have already achieved 100% CBS status);

  3. The Sponsor Banks would provide the required
  support to the RRBs sponsored by them for this purpose;
----
 4. For up gradation of Technology for
 Financial Inclusion, the RRBs are being
 provided funds from Financial Inclusion
 Fund (FIF) and Financial Inclusion
 Technology Fund (FITF) by NABARD.

  5.As on 31.03.2010, 3 RRBs out of 82 RRBs
  were incurring losses. (Manipur Rural Bank
  –Rs. 2.98 crore, Puduval Bharthiar Grama
  Bank –Rs. 0.22 crore and Mahakaushall
  Gramin Bank- Rs. 2.45 crore)

  6.The profitability of RRBs, as a segment,
  has been improving.
Factors responsible for losses
 some of the factors responsible for losses in
 RRBs are identified as :
 1.low recovery,
 2.High NPA,
 3.low business level,
 4.low productivity per branch and per staff,
 5. high cost structure,
 6.poor financial management,
 7.limited area of operation,
 8.non-viable level of operation in branches
 located in resource-poor areas etc.
 9.one of the RRBs, namely Puduval Bharthiar
 Grama Bank, which was set up in March 2008,
 has not yet reached a breakeven point;
What is co-operative bank :-
According to the International Co-
operative Alliance Statement of co-
operative identity, „a co-operative is
an autonomous association of
persons united voluntarily to meet
their common economic, social, and
cultural needs and aspirations
through a jointly-owned and
democratically-controlled enterprise.
Co-operatives are based on the
values of self-help, self-responsibility,
democracy, equality, equity and
solidarity.
Principles (functions)of co-
operative bank
The 7 co-operative principles are :
1. Voluntary and open membership
2. Democratic member control
3. Member economic participation
4. Autonomy and independence
  5. Education, training and
  information
6. Co-operation among Co-operatives
7. Concern for Community
features :
 1. Customer's owned entities : In a co-
 operative bank, the needs of the
 customers meet the needs of the
 owners, as co-operative bank members
 are both. As a consequence, the first aim
 of a co-operative bank is not to maximize
 profit but to provide the best possible
 products and services to its members.
 Some co-operative banks only operate
 with their members but most of them
 also admit non-member clients to benefit
 from their banking and financial services.
----
2. Democratic member control : co-
  operative banks are owned and
  controlled by their members, who
  democratically elect the board of
  directors. Members usually have equal
  voting rights, according to the co-
  operative principle of "one person, one
  vote".
3.Profit allocation : In a co-operative
  bank, a significant part of the yearly
  profit/surplus is usually allocated to
  constitute reserves. A part of this profit
  can also be distributed to the co-
  operative members.
--
4. Co-operative banks are deeply rooted
  inside local areas and communities. They
  are involved in local development and
  contribute to the sustainable development
  of their communities, as their members
  and management board usually belong to
  the communities in which they exercise
  their activities. By increasing banking
  access in areas or markets where other
  banks are less present - farmers in rural
  areas, middle or low income households
  in urban areas - co-operative banks
  reduce banking exclusion and foster the
  economic ability of millions of people.
Organizational structure of co-
operative Bank
  The structure of commercial banking is of
  branch-banking type; while the co-
  operative
  banking structure is a three tier federal
  one.
- A State Co-operative Bank works at the
  apex level (i.e. works at state level).
- The Central Co-operative Bank works at
  the Intermediate Level (i.e. District Co-
  operative Banks ltd. works at district
  level)
- Primary co-operative credit societies at
  base level (At village level)
Difference between Co-operative banks &
Commercial bank

They differ from commercial banks in the
  following respects
1. Commercial banks are joint-stock companies
  under the companies‟ act of 1956 whereas co-
  operative banks were established under the
  co-operative society‟s acts of different states.

2. Commercial bank structure is branch
  banking structure whereas co-operative
  banks have a three tier setup, with state co-
  operative bank at apex level, central /district
  co-operative bank at district level, and
  primary co-operative societies at rural level.
---
3. Only some of the sections of
  banking regulation act of 1949 (fully
  applicable to commercial banks),
  are applicable to co-operative
  banks, resulting only in partial
  control by RBI of co-operative
  banks and
4.Co-operative banks function on the
  principle of cooperation and not
  entirely on commercial parameters.
RBI Policies for co-operative
banks
The RBI appointed a high power committee in
  May 1999 under the chairmanship of Shri. K.
  Madhava Rao, Ex-Chief Secretary,
  Government of Andhra Pradesh to review the
  performance of Urban Co-operative Banks
  (UCBs) and to suggest necessary measures
  to strengthen this sector. With reference to
  the terms given to the committee, the
  committee identified five broad objectives:
1. To preserve the co-operative character of
  UCBs
2. To protect the depositors‟ interest
3. To reduce financial risk
Types of Co-operative Banks

The co-operative banks are small-sized
 units which operate both in urban and
 non-urban centers. They finance small
 borrowers in industrial and trade sectors
 besides professional and salary classes.
 Regulated by the Reserve Bank of India,
 they are governed by the Banking
 Regulations Act 1949 and banking laws
 (co-operative societies) act, 1965. The
 co-operative banking structure in India is
 divided into following 5 components:
1. Primary Co-operative Credit
Society
 The primary co-operative credit
 society is an association of borrowers
 and non-borrowers residing in a
 particular locality. The funds of the
 society are derived from the share
 capital and deposits of members and
 loans from central co-operative
 banks. The loans are given to
 members for the purchase of cattle,
 fodder, fertilizers, pesticides, etc.
2. Central co-operative banks

 These are the federations of primary
 credit societies in a district and are of two
 types those
 having a membership of primary societies
 only and those having a membership of
 societies as well as individuals. The funds
 of the bank consist of share capital,
 deposits, loans and overdrafts from state
 co-operative banks and joint stocks.
 These banks provide finance to member
 societies within the limits of the
 borrowing capacity of societies. They also
 conduct all the business of a joint stock
 bank.
3.State co-operative banks

 The state co-operative bank is a
 federation of central co-operative
 bank and acts as a
 watchdog of the co-operative banking
 structure in the state. Its funds are
 obtained from share capital, deposits,
 loans and overdrafts from the
 Reserve Bank of India. The state
 cooperative banks lend money to
 central co-operative banks and
 primary societies and not directly to
 the farmers.
4. Land development banks

  The Land development banks are organized
 in 3 tiers namely:- state, central, and primary
 level. They meet the long term credit
 requirements of the farmers for
 developmental purposes. They are governed
 both by the state government and Reserve
 Bank of India. Recently, the supervision of
 land development banks has been assumed
 by NABARD. The sources of funds for these
 banks are the debentures subscribed by both
 central and state government. These banks
 do not accept deposits from the general
 public.
5.Urban Co-operative Banks

 The term Urban Co-operative Banks
 (UCBs) refers to primary co-operative
 banks located in urban and semi-urban
 areas.. They mainly rely upon deposits
 from members and non-members and in
 case of need, they get finance from either
 the district central co-operative bank to
 which they are affiliated or from the apex
 co-operative bank if they work in big cities
 where the apex bank has its Head Office.
 They provide credit to small scale
 industrialists, salaried employees, and
 other urban and semi-urban residents.
What are the functions of Cooperative
Banks in India?


  1.Cooperative banks in India finance
  rural areas under:

  1.Farming
  2.Cattle
  3.Milk
  4.Hatchery
  5.Personal finance
11. Cooperative banks in India
finance urban areas under:-

 1.Self-employment
 2.Industries
 3.Small scale units
 4Home finance
 5.Consumer finance
 6.Personal finance
Meaning of Development
Banks
 Development banks are those
  financial institutions engaged in the
  promotion and development of
  industry, agriculture and other key
  sectors.
In the words of A.G. Kheradjou :- “A
  development bank is like a living
  organism that reacts to the social-
  economic environment and its
  success depends on reacting most
  aptly to that environment”.
Definition
 D.M. Mithani states that “A
 development bank may be defined
 as a financial institution concerned
 with providing all types of financial
 assistance i.e. medium as well as
 long-term ,to business units in the
 form of loans, underwriting,
 investment and guarantee
 operations and development in
 general and industrial.”
Features of a development
bank
A development bank has the following features or
  characteristics:
 1. A development bank does not accept deposits from
  the public like commercial banks and other financial
  institutions who entirely depend upon saving
  mobilization.

 2. It is a specialized financial institution which
 provides medium term and long-term lending
 facilities.
 3. It is a multipurpose financial institution. Besides
 providing financial help it undertakes promotional
 activities also.

 4. It helps an enterprises from planning to operational
 level.
-----
5. It provides financial assistance to both
  private as well as public sector
  institutions.
6. The role of a development bank is of gap
  filler. When assistance from other sources
  is not sufficient then this channel helps.
7. Development banks primarily aim to
  accelerate the rate of growth. It helps
  industrialization specific and economic
  development in general.
8. The objective of these banks is to serve
  public interest rather than earning profits.
9. Development banks react to the socio-
  economic needs of development.
Small Industries Development
Bank of India (SIDBI)
SIDBI was established as wholly owned
  subsidiary of Industrial Development
  Bank of India (IDBI) under the small
  Industries Development of India Act
  1989. It is the principal institution for
  promotion, financing and development
  of industries in the small-scale sector.
  Capital:- SIDBI started its operations
  from April 1990 with an initial
  authorised capital of Rs. 250 crore, which
  could be increased to Rs. 1000 crore.
What are the objectives of
SIDBI?
   In the setting up of SIDBI, the main purpose of
   the government was to ensure larger flow of
   assistance to the small-scale units. To meet
   this objective, the immediate thrust of the SIDBI
   was on the following measures:
  (i) initiating steps for technological upgradation
   and modernisation of existing units;
(ii) expanding the channels for marketing the
   products of the small scale sector; and
(iii) promotion of employment-oriented industries,
   especially in semi- urban areas to create more
   employ-ment opportunities and thereby
   checking migration of population to urban
   areas.
What are the functions of
SIDBI?
The major functions of SIDBI are given
   below:
(i) It refinances loans and advances
   provided by the existing lending
   institutions to the small-scale units.
(ii) It discounts and rediscounts bills arising
   from sale of machinery to and
   manufactured by small-scale industrial
   units.
(iii) It extends seed capital/soft loan
   assistance under National Equity Fund,
   Mahila Udyam Nidhi and Mahila Vikas
   Nidhi and seed capital schemes.
----
(iv) It grants direct assistance and refinance
   loans extended by primary lending
   institutions for financing exports of products
   manufactured by small-scale units.
(v) It provides services like factoring, leasing,
   etc. to small units.
(vi) It extends financial support to State Small
   Industries Corporations for providing scarce
   raw materials to and marketing the products
   of the small-scale units.
(vii) It provides financial support to National
   Small Industries Corporation for providing;
   leasing, hire pur-chase and marketing help to
   the small-scale units.
Development Banks in India


   Development banking was started
  after the World War II. It provided
  finance to reconstruct the buildings
  and industries which were destroyed
  in the war.
 In India, development banking was
  started immediately after
  independence.
 The arrangement of development
Types of development bank
Development banks in India are
classified into following five groups:
  1.Industrial Development Banks : It includes, for
  example, Industrial Finance Corporation of India (IFCI),
  Industrial Development Bank of India (IDBI), and Small
  Industries Development Bank of India (SIDBI).
 2.Agricultural Development Banks : It includes, for
  example, National Bank for Agriculture & Rural
  Development (NABARD).
 3. Export-Import Development Banks : It includes, for
  example, Export-Import Bank of India (EXIM Bank).
 4. Housing Development Banks : It includes, for
  example, National Housing Bank (NHB).
 5.Industrial Finance Corporation of India (IFCI) is the
  first development bank in India. It started in 1948 to
  provide finance to medium and large-scale industries in
  India.
NABARD
NABARD is set up as an apex Development
Bank with a mandate for facilitating credit
flow for promotion and development of
agriculture, small-scale industries, cottage
and village industries, handicrafts and other
rural crafts. It also has the mandate to
support all other allied economic activities in
rural areas, promote integrated and
sustainable rural development and secure
prosperity of rural areas. NABARD was set
up in the year 1982. The Agricultural
Refinance & Development Corporation
(ARDC) which was set up to look in to the
credit requirements in 1963 has also been
merged with NABARD.
Role of NABARD
  NABARD is entrusted with the following role
 :-
 1.Providing refinance to lending institutions
 in rural areas.


 2.Bringing about or promoting institutional
 development.

 3.Evaluating, monitoring and inspecting the
 client banks .

 4.Acts as a coordinator in the operations of
 rural credit institutions .
----
5.Extends assistance to the government,
  the Reserve Bank of India and other
  organizations in matters relating to rural
  development
6.Offers training and research facilities for
  banks, cooperatives and organizations
  working in the field of rural development
7.Helps the state governments in reaching
  their targets of providing assistance to
  eligible institutions in agriculture and
  rural development
8. Acts as regulator for cooperative banks
  and RRBs.
Some of the milestones in
NABARD's activities are:
1. NABARD has been pursuing a policy of
   promoting agricultural credit. NABARD
   provides 70% of loans through co-
   operatives & 30% through commercial
   banks.
2. About 67% of the total disbursement of
   the NABARD have been for minor
   irrigation.
3. NABARD has created Rural
   Infrastructural Development Fund to
   accelerate the agricultural
   development.
-----
4.   NABARD also provides financial help
     to small scale & cottage industry.
5.   NABARD has set up Research &
     Development Fund for granting
     assistance to various institution
     involved in rural credit.
Core banking

 Core banking is a general term used
 to describe the services provided
 by a group of networked bank
 branches. Bank customers may
 access their funds and other simple
 transactions from any of the
 member branch offices.
Core banking definition
CORE stands for "centralized online real-time
 environment".
Core Banking is normally defined as the
 business conducted by a banking institution
 with its retail and small business customers.
 Many banks treat the retail customers as their
 core banking customers, and have a separate
 line of business to manage small businesses.
 Larger businesses are managed via the
 corporate banking division of the institution.
 Core banking basically includes deposit
 accounts, loans, mortgages and payments.
 Banks make these services available across
 multiple channels like ATMs, Internet
 banking, and branches.
-----
 A few decades ago it used to take at
 least a day for a transaction to
 reflect in the account because each
 branch had their local servers, and
 the data from the server in each
 branch was sent in a batch to the
 servers in the datacenter only at the
 end of the day (E o D).
Core banking solutions
MEANING:- Core banking solutions are
 banking applications on a platform
 enabling a phased, strategic approach
 that is intended to allow banks to improve
 operations, reduce costs, and be prepared
 for growth. Core banking solutions are
 new terminology frequently used in
 banking circles. The advancement in
 technology, especially Internet and
 information technology has led to new
 ways of doing business in banking. These
 technologies have also cut down time,
 working simultaneously on different
 issues and increasing efficiency.
DEFINITION
Gartner defines a core banking system as
a back-end system that processes daily
banking transactions, and posts updates
to accounts and other financial records.
Core banking systems typically include
deposit, loan and credit-processing
capabilities, with interfaces to general
ledger systems and reporting tools.
Strategic spending on these systems is
based on a combination of service-
oriented architecture and supporting
technologies that create extensible, agile
architectures.

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indian banking unit 1

  • 1. BBA-III SEMESTER Indian Banking System- UNIT- 1 Structure and Organization of Banks , Reserve bank of India, Apex banking institutions, Commercial banks , Regional rural banks , Co- operative banks , Development banks. STRUCTURE & ORGANISATION OF BANKS : Indian banking structure can be broadly classified in to two categories : (i) ORGANISED SECTOR (ii) UNORGANISED SECTOR
  • 2. ORGANISED SECTOR BANKS Main constituents of organized sector banks are: 1. RESERVE BANK OF INDIA 2. COMMERCIAL BANKS 3. CO-OPERATIVE BANKS 4. SPECIALISED BANKS
  • 3. Reserve Bank of India Reserve Bank of India is the apex monetary Institution of India which is responsible for the regulation of currency, printing of banknotes and minting coins. It is also called as the central bank of the country. The bank was established on April1, 1935 in Kolkata according to the Reserve Bank of India act 1934 but was later shifted to Mumbai in 1937. RBI was initially privately owned but since nationalization in 1949, the Reserve Bank is owned by the Government of India.
  • 4. COMMERCIAL BANKS Commercial Banking System consists of : (i) Scheduled Banks (ii) Non scheduled Banks Scheduled Banks : Scheduled banks are included in the second Schedule of the Reserve Bank of India under Act, 1934. Every scheduled bank must have a paid up capital & reserves of an aggregate value of at least Rs.5 lakhs.
  • 5. CLASSIFICATION OF SCHEDULED BANKS (I) PUBLIC SECTOR BANKS: These banks are owned & controlled by the government . The public sector commercial banking in India started with setting up of State Bank of India in 1955. At present 8 state banks & associate banks are in the group of S.B.I. i.e. State bank of Hyderabad, State Bank of Indore etc. as well as 20 nationalized banks i.e. Bank of Baroda , Allahabad Bank etc. Regional Rural Banks are also the scheduled banks which are governed by R.R.B. ACT,1976.
  • 6. (II) Private Sector Banks : Private sector banks continued to operate in the banking sector after nationalization of 20 banks in 1969 &1980. According to new policy framed in January1993 by R. B. I. new banks were formed in private sector . Such as : The U.T.I. Bank Ltd., HDFC Bank Ltd., etc.
  • 7. (III) Foreign Banks : Foreign banks are working in India from British days. ANG Grindlays Bank has 56 branches, The Standard Chartered Bank has 21 branches. New foreign banks are : Barclays bank, Bank of Ceylon, Fuji bank etc. CO-OPERATIVE BANKS: It mainly meets the credit needs of rural areas & agriculture. Co- operative banks has three tier functioning . State Co-operative bank acts as an apex body at the state level , District co-operative banks are operating at the district level and co-operative society (banks) are operating at villages & town
  • 8. SPECIALISED BANKS These institutions look after different sectors of economy . For example: IDBI,NABARD ,EXIM BANK ETC.
  • 9. Unorganized Banking Sector The unorganized sector of banking in India consists of money lenders and indigenous bankers known as shroffs, sahukars, mahajans, chettis, etc. These are individuals doing banking business, along with trading and commission business in many cases. Their activities are not organized. They follow rules of their own. The rate of interest charged by them is very high.
  • 11. Definition of organizational structure of banks According to G.Dessler, “ An organizational set up consists of people who carry out differentiated tasks which are co-ordinated to contribute to organizations goals.” Types of organizational structure of banks: The organizational set up of a bank is mainly based on departmentalization : Departmentalization:- It is the process of dividing the total activities of the bank in to various departments, unit or sections. The similar nature of bank activities are grouped in one department.
  • 12. Types of departmentalization In banking system these two types of departmentalization is followed:- 1. Departmentalization by territory:- The organizational set up of a commercial bank on the basis of territory is of following type : (i)Central office: central office is main controlling authority of a particular bank.it is supreme body that determines the objectives , policies & frame rule & regulation. (ii) Regional office: The regional office co- ordinate the functions of the branches located in a particular region. It is charged with responsibilities of implementing the objectives & policies of top management to the branches.
  • 13. (iii) Branch Office: The branch offices are the centers that do the actual banking business. They are in direct contact with customers & cater to their needs. 2. Departmentalization by Function: Functions include such activities as lending, investing, trust services, international banking, accepting deposits etc. Line managers are responsible for the direct functions of a commercial bank.
  • 14. Management of banks According to George R. Terry, “management is a distinct process consisting of planning, organizing ,activating & controlling performance to determine & accomplish the objective by the use of people & resources.” Objectives of bank management: 1.Maximisation of profit 2.Meet challenges of competitors 3.Improve the customer services 4.Introduction of new schemes 5. Manpower planning
  • 15. Fundamental functions of bank management 1.Planning 2.Organising 3.Staffing 4.Directing 5.Communication 6.Controlling
  • 16. Functional areas of bank management 1.Deposit mobilization 2.Financial management 3.Credit management 4. Profit evaluation 5.Liquidity management(CRR,SLR) 6.Marketing Management 7.Portfolio(Asset) Management
  • 17. Commercial banks According to the Banking Companies (Regulation)Act of India ,1949, “Banking means the accepting ,for the purpose of lending or investment , of deposits of money from the public, repayable on demand or otherwise , and withdraw able by cheese , draft or otherwise.” Features of commercial banks: 1.Commercial establishment 2.Accept deposits 3.Repayment of accepted deposits 4.Advancing loans to public 5.Earning profit
  • 18. The role of commercial banks Commercial banks engage in the following activities: 1. processing of payments by way of telegraphic transfer, internet banking, or other means 2. issuing bank drafts and bank cheques 3. accepting money on term deposit
  • 19. --------- 4. lending money by overdraft, installment loan, or other means 5. providing documentary and standby letter of credit, guarantees, performance bonds, securities underwriting commitments and other forms of off balance sheet exposures 6. safekeeping of documents and other items in safe deposit boxes 7. sales, distribution or brokerage, with or without advice, of: insurance, unit trusts and similar financial products as a
  • 20. Functions of Commercial Banks The functions of a commercial banks are divided into two categories: (i) Primary functions, and (ii) Secondary functions including agency functions. (iii) Modern Functions (i) Primary functions: The primary functions of a commercial bank include: (a) accepting deposits; and (b) granting loans and advances;
  • 21. (a) 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 along with the interest earned. If the rate of interest is higher, public are motivated to deposit more funds with the bank. There is also safety of funds deposited with the
  • 22. Different Modes of Accepting Deposits Different modes of Acceptance of Deposits Banks receive money from the public by way of deposits. The following types of deposits are usually received by banks: i) Current deposit ii) Saving deposit iii) Fixed deposit iv) Recurring deposit v) Miscellaneous deposits
  • 23. ------ i) Current Deposit Also called „demand deposit‟, current deposit can be withdrawn by the depositor at any time by cheques. Businessmen generally open currentaccounts with banks. Current accounts do not carry any interest as theamount deposited in these accounts is repayable on demand withoutany restriction. The Reserve bank of India prohibits payment of interest on current accounts or on deposits upto 14 Days or less except where prior sanctionhas been obtained. Banks usually charge a small amount known asincidental charges on current deposit accounts depending on the numberof transaction
  • 24. Savings deposit/Savings Bank Accounts Savings deposit account is meant for individuals who wish to deposit small amounts out of their current income. It helps in safe guarding their future and also earning interest on the savings. A saving account can be opened with or without cheque book facility. There are restrictions on the withdrawls from this account. To open a savings account, it is necessary for the depositor to be introduced by a person having a current or savings account with the same bank.
  • 25. Fixed deposit The term „Fixed deposit‟ means deposit repayable after the expiry of a specified period. Since it is repayable only after a fixed period of time, which is to be determined at the time of opening of the account it is also known as time deposit. The rate of interest on fixed deposits depends upon the period of deposits. The longer the period, the higher is the rate of interest offered
  • 26. Recurring Deposits Recurring Deposits are gaining wide popularity these days. Under this type of deposit, the depositor is required to deposit a fixed amount of money every month for a specific period of time. Each instalment may vary from Rs.5/- to Rs.500/- or more per month and the period of account may vary from 12 months to 10 years. After the completion of the specified period, the customer gets back all his deposits along with the cumulative interest accrued on the deposits.
  • 27. Miscellaneous Deposits Banks have introduced several deposit schemes to attract deposits from different types of people, like Home Construction deposit scheme , Sickness Benefit deposit scheme, Children Gift plan, Old age pension scheme, Mini deposit scheme, etc.
  • 28. ----- b) 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 depending upon the purpose, period and the mode of repayment. The difference between the rate of interest allowed on deposits and the rate charged on the Loans is the main source of a bank‟s income.
  • 29. (I)LOAN A loan is granted for a specific time period. Generally, commercial banks grant short-term loans. But term loans, that is, loan for more than a year, may also be granted. The borrower may withdraw the entire amount in lumpsum or in instalments. However, interest is charged on the full amount of loan. Loans are generally granted against the security of certain assets. A loan may be repaid either in lumpsum or in instalments
  • 30. Different methods of Granting Loans by Bank The basic function of a commercial bank is to make loans and advancesout of the money which is received from the public by way of deposits.The loans are particularly granted to businessmen and members of thepublic against personal security, gold and silver and other movable andimmovable assets. Commercial bank generally lend money in thefollowing form: i) Cash credit ii) Loans iii) Bank overdraft, and iv) Discounting of Bills
  • 31. ------ i) Cash Credit : A cash credit is an arrangement whereby the bank agrees to lend money to the borrower up to a certain limit. The bank puts this amount of money to the credit of the borrower. The borrower draws the money as and when he needs. Interest is charged only on the amount actually drawn and not on the amount placed to the credit of borrower‟s account. Cash credit is generally granted on a bond of credit or certain other securities. This a very popular method of lending in our country
  • 32. ------- ii) Loans : A specified amount sanctioned by a bank to the customer is called a „loan‟. It is granted for a fixed period, say six months, or a year. The specified amount is put on the credit of the borrower‟s account. He canwithdraw this amount in lump sum or can draw cheques against thissum for any amount. Interest is charged on the full amount even if theborrower does not utilise it. The rate of interest is lower on loans incomparison to cash credit. A loan is generally granted against the security of property or personal security. The loan may be repaid in lump sum or in instalments. Every bank has its own procedure of granting loans. Hence a bank is at liberty to grant loan depending on its own resources. The loan can be granted as: a) Demand loan, or b) Term loan
  • 33. a) Demand loan Demand loan is repayable on demand. In other words it is repayable at short notice. The entire amount of demand loan is disbursed at one time and the borrower has to pay interest on it. The borrower can repay the loan either in lump sum (one time)or as agreed with the bank. Loans are normally granted by the bank against tangible securities including securities like N.S.C., Kisan Vikas Patra Life Insurance policies and U.T.I. certificates.
  • 34. b) Term loans Medium and long term loans are called „Term loans‟. These loans are repayable over a period of 5 years and maximum up to 15 years. Term loan is required for the purpose of setting up of new business activity, renovation, modernization, purchase of plant and machinery, vehicles, land or purchase of other immovable assets. These loans are generally secured against the mortgage of land, plant and machinery, building and other securities. The normal rate of interest charged for such loans is generally quite high.
  • 35. ii) Advances An advance is a credit facility provided by the bank to its customers. It differs from loan in the sense that loans maybe 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.
  • 36. Modes of short-term financial assistance Banks grant short-term financial assistance by way of cash credit, overdraft and bill discounting. a) Cash Credit Cash credit is an arrangement whereby the bank allows the borrower to draw amounts up to 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 agreed terms and conditions with the customers.
  • 37. (b)Bank 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 is allowed either on the security of assets, or on personal security , or both.
  • 38. (c) 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. Incase any bill is dishonoured on the due date, the bank can recover the amount from the customer
  • 39. Secondary functions These are as follows - 1) Issuing letters of credit, travellers cheques, circular notes etc. 2) Undertaking safe custody of valuables, important documents, and securities by providing safe deposit vaults or lockers; 3) Providing customers with facilities of foreign exchange. 4) Transferring money from one place to another; and from one branch to another branch of the bank.
  • 40. -- 5) Standing guarantee on behalf of its customers, for making payments for purchase of goods, machinery, vehicles etc. 6 Collecting and supplying business information; 7) Issuing demand drafts and pay orders; and, 8) Providing reports on the credit worthiness of customers.
  • 41. AGENCY & GENERAL UTILITY SERVICES (i) Agency Services Agency services are those services which are rendered by commercial banks as agents of their customers. They include : a) Collection and payment of cheques and bills on behalf of the customers; b) Collection of dividends, interest and rent, etc. on behalf of customers, if so instructed by them; c) Purchase and sale of shares and securities on behalf of customers;
  • 42. --- d) Payment of rent, interest, insurance premium, subscriptions etc. on behalf of customers, if so instructed; e) Acting as a trustee or executor; f) Acting as agents or correspondents on behalf of customers for other banks and financial institutions at home and abroad.
  • 43. ii) General utility services These are available to the public on payment of a fee or charge:- a)Issuing letters of credit and travellers‟ cheques; b) Underwriting of shares, debentures, etc.; c) Safe-keeping of valuables in safe deposit locker; d) Underwriting loans floated by government and public bodies.
  • 44. -- e) Supplying trade information and statistical data useful to customers; f) Acting as a referee regarding the financial status of customers; g) Undertaking foreign exchange business.
  • 45. (iii)Modern functions 1. Automatic teller machines (ATM) 2. Credit Cards 3. Mail Transfer & Telegrafic Transfer 4. Tele Banking 5. Internate Banking 6.Round the clock Banking
  • 46. Different Types of Banks - These are various kinds of Banks : Type 1. Saving Banks Saving banks are established to create saving habit among the people. These banks are helpful for salaried people and low income groups. The deposits collected from customers are invested in bonds, securities, etc. At present most of the commercial banks carry the functions of savings banks. Postal department also performs the functions of saving bank
  • 47. Type 2. Commercial Banks Commercial banks are established with an objective to help businessmen. These banks collect money from general public and give short-term loans to businessmen by way of cash credits, overdrafts, etc. Commercial banks provide various services like collecting cheques, bill of exchange, remittance money from one place to another place. In India, commercial banks are established under Companies Act, 1956. In 1969, 14 commercial banks were nationalised by Government of India. The policies regarding deposits, loans, rate of interest, etc. of these banks are controlled by the Central Bank.
  • 48. Type 3. Industrial Banks / Development Banks  Industrial / Development banks collect cash by issuing shares & debentures and providing long-term loans to industries. The main objective of these banks is to provide long-term loans for expansion and modernisation of industries.  In India such banks are established on a large scale after independence. They are Industrial Finance Corporation of India (IFCI), Industrial Credit and Investment Corporation of India (ICICI) and Industrial Development Bank of India (IDBI).
  • 49. Type 4. Land Mortgage / Land Development Banks Land Mortgage or Land Development banks are also known as Agricultural Banks because these are formed to finance agricultural sector. They also help in land development. In India, Government has come forward to assist these banks. The Government has guaranteed the debentures issued by such banks. There is a great risk involved in the financing of agriculture and generally commercial banks do not take much interest in financing agricultural sector.
  • 50. Type 5. Indigenous Banks Indigenous banks means Money Lenders and Sahukars. They collect deposits from general public and grant loans to the needy persons out of their own funds as well as from deposits. These indigenous banks are popular in villages and small towns. They perform combined functions of trading and banking activities. Certain well-known indian communities like Marwaries and Multani even today run specialised indigenous banks.
  • 51. Type 6. Central / Federal / National Bank Every country of the world has a central bank. In India, Reserve Bank of India, in U.S.A, Federal Reserve and in U.K, Bank of England. These central banks are the bankers of the other banks. They provide specialised functions i.e. issue of paper currency, working as bankers of government, supervising and controlling foreign exchange. A central bank is a non-profit making institution. It does not deal with the public but it deals with other banks. The principal responsibility of Central Bank is thorough control on currency of a country.
  • 52. Type 7. Co-operative Banks In India, Co-operative banks are registered under the Co-operative Societies Act, 1912. They generally give credit facilities to small farmers, salaried employees, small-scale industries, etc. Co-operative Banks are available in rural as well as in urban areas. The functions of these banks are just similar to commercial banks.
  • 53. Type8. Exchange Banks Hong Kong Bank, Bank of Tokyo, Bank of America are the examples of Foreign Banks working in India. These banks are mainly concerned with financing foreign trade. Following are the various functions of Exchange Banks :- 1.Remitting money from one country to another country, 2.Discounting of foreign bills, 3.Buying and Selling Gold and Silver, and 4.Helping Import and Export Trade
  • 54. Type 9. Consumers Bank Consumers bank is a new addition to the existing type of banks. Such banks are usually found only in advanced countries like U.S.A. and Germany. The main objective of this bank is to give loans to consumers for purchase of the durables like Motor car, television set, washing machine, furniture, etc. The consumers have to repay the loans in easy installments.
  • 55. Features of organizational structure of banks 1. High degree of Departmentation 2. Regional or zonal office 3. Hierarchal management A- Top management B- Middle management C- Branch management
  • 56. BOARD OF DIRECTORS The Board of Directors is the apex management of a commercial bank. The board of Directors frame policies ,concentrate more on important issues & take strategic decisions . Functions of Boards of Directors :- Following are the important functions- 1. Setting bank purpose & mission- Directors of a bank is to determine the goals and objectives of the banks business . The boards of directors has to decide in the light of capital position, size of deposits , demand for loan& investment .
  • 57. --- 2. Formulating Bank Policies :- Board has to formulate specific policies for the successful attainment of the objectives. The realization of objectives is made easy with the help of policies . 3. Selection of bank executives :- Banking activities require trained executives with knowledge. Executives must have knowledge of investments, credits operations , people & machines.
  • 58. -- 4. Determination of Duty & Authority of Executive :- The executives must be given sufficient training to enable them to cope with administrative details & follow the policies. 5. Standing Committee:- Standing committee is constituted by boards. It ensures better co-ordination between various departments . 6.Delegation of authorities :- Boards determine authority and duties of executives to perform their functions properly and efficiently.
  • 59. Duties & liabilities of directors Statutory Duties of Directors :- 1.Not to pay commission , brokerage , discount on shares in excess of the aggregate 2.5% the of paid up value of shares. 2.Not to create any charge upon the unpaid capital of the bank. 3.Not to pay dividends unless all the capitalized expenses are completely written off . 4.To maintain not less than 20% of the total time & demand liabilities of the bank in form of cash , gold or securities.
  • 60. --- 5. To ensure that the annual accounts of the bank are prepared on last working day of every calendar year as given in the third schedule of the act. 6.To seek prior approval of Reserve Bank before appointing or removing any auditors of the bank. 7. To furnish three copies of account and balance sheet and auditors report with in three months of the of the period they refer.
  • 61. General duties of directors of a bank 1. To supervise the general affairs of of the bank 2. To direct and control its subordinates 3. To attend board meetings 4. To examine reports and audit records 5. To make best efforts to collect slow & doubt full debts 6. To investigate credit worthy ness of the applicant granting loan.
  • 62. Liabilities of bank directors a. Liable to outsiders for ultra-vires act b. Liability for mis-statement in prospectus c. Liability for breach of trust- (i)liability for making secret profit (ii)liability for loss caused by his negligence
  • 63. Organizational set up of central office 1. Board of directors :- The board of directors is the highest authority of a commercial bank The board of directors shall consist of not more than two whole –time directors& three directors to represent the interest of farmers , workers & artisans . One directors have to represent the depositors.
  • 64. 2. Chairman –cum-managing director The chairman cum managing director is the chief executive of the bank . He presides over the meeting of board of directors. 3. Executive director: He is the executive head of the bank . He co- ordinates & supervises all operational responsibilities . 4. General managers of various departments :- a- loans & advances department b-investment department
  • 65. -- c. Foreign exchange department :- ( issue of letter of credit , rediscounting ,foreign securities.) d. Audit department e. Public relation department f. Legal department g. Organizational set up of zonal offices
  • 66. Regional Rural Bank Establishment & Growth 1. Initially, five RRBs were set up on October 2, 1975 which were sponsored by Syndicate Bank, State Bank of India, Punjab National Bank, United Commercial Bank & United Bank of India . Capital share being 50% by the central government, 15% by the state government and 35% by the scheduled bank. 2. Earlier Reserve Bank of India had laid down ceilings on the rate of interest to be charged by these RRBs. However from August 1996 the RRBs have been granted freedom to fix rates of interest, which is usually in the range of 14-18% for advances. There are 84 RRB banks at present.
  • 67. --- 3. Each RRB is sponsored by a public sector bank‚ which provides assistance in several ways‚ viz., subscription to its share capital‚ provision of such managerial and financial assistance as may be mutually agreed upon and help the recruitment and training of personnel during the initial period of its functioning.
  • 68. Objectives of RRBs RRBs was established with the following objective :- 1. Bridging the credit gap in rural areas 2. Check the outflow of rural deposits to urban areas 3. Reduce regional imbalances and increase rural employment , 4.provide credit and other facilities‚ especially to the small and marginal farmers‚ agricultural laborers, artisans etc.
  • 69. --- 5.will operate within the local limits specified by notification. 6.establishing branches or agencies at places notified by the Government.
  • 70. Functions of RRBs 1.Every RRB is authorized to carry on to transact the business of banking as defined in the Banking Regulation Act:- (a) granting loans and advances to small and marginal farmers and agricultural laborers‚ including agricultural marketing societies‚ agricultural processing societies‚ cooperative farming societies & primary agricultural credit societies.
  • 71. --- (b) granting loans and advances to artisans‚ small entrepreneurs and persons of small means engaged in trade‚ commerce‚ industry or other productive activities‚ within its area of operation. (c)The Reserve Bank of India has brought RRB‟s under the ambit of priority sector lending on par with the commercial banks. They have to ensure that forty percent of their advances are accounted for the priority sector. Within the 40% priority target, 25% should go to weaker section or 10% of their total advances to go to weaker section.
  • 72. Regional Rural Banks in India 1.The State Bank of India is one of the major commercial banks having regional rural banks. There are 30 Regional Rural Banks in India, under the State Bank of India and it is spread in 13 states across India. The number of branches the SBI Regional Rural Banks is more than 2000.
  • 73. 2. Haryana State Cooperative Apex Bank Limited The main purpose of the Haryana State Cooperative Apex Bank Limited is to financially assist the artisans in the rural areas, farmers and agrarian unskilled labor, and the small rural entrepreneurs of Haryana. Haryana State Cooperative Apex Bank Limited also referred as the HARCOBANK, is one of the apex organizations in the state of Haryana.
  • 74. 3. National Bank for Agriculture and Rural Development The main purpose of the National Bank for Agriculture and Rural Development is to provide credit for the development and publicity of small scaled industries, handicrafts, rural crafts, village industries, cottage industries, agriculture, etc.
  • 75. 4. United Bank of India The role played by the United Bank of India (UBI) as one of the regional rural banks is phenomenal. The UBI has propagated the network of branches in order to actively take part in the rural improvement and development. 5. Syndicate Bank The development of the Syndicate Bank was in accordance to the development of the rural banking sector in India . The Syndicate Bank has performed actively in the development of the rural sector .
  • 76. 6. Regional Rural Banks in Tamil Nadu Indian Bank has sponsored two Regional Rural Banks (RRBs) viz., Saptagiri Grameena Bank and Pallavan GramaBank. Pallavan Grama Bank with Head Quarters at Salem is operating in 14 districts .
  • 77. 7. Regional Rural Banks in Uttar Pradesh: 1.Allahabad UP Gramin Bank 2.Aryavart Gramin Bank 3.Ballia –Etawah Gramin Bank 4.Baroda Uttar Pradesh Gramin Bank 5.Kashi Gomti Samyut Gramin Bank 6.Kshetriya Kisan Gramin Bank 7.Prathama Bank 8.Sarva UP Gramin Bank 9.Shreyas Gramin Bank 10.Purvanchal Gramin Bank
  • 78. ---- Regional rural banks allowed to start branches in Tier 2 cities without RBI nod;- The Reserve Bank of India allowed regional rural banks (RRBs) to open branches in Tier –ii cities without taking its permission on August 2, 2012. It has been decided to allow RRBs to open branches without having the need to take permission from Reserve Bank of India .
  • 79. Organizational structure of Regional Rural Banks 1. A Regional Rural Bank is sponsored by a commercial bank. The sponsored bank requests the Central Government for this purpose which issues a notification after consulting the concerned state government. 2. Generally , regional rural bank covers one district & maximum coverage of a RRB has been eight district. 3. Only the Manipur RRB covers the entire state of Manipur.
  • 80. Board of Directors The RRB is governed by a Board of directors who exercises all the powers and discharges all the functions of RRB. It consists of :- i- a chairman appointed by the Central government for five years, ii- three directors nominated by the central government iii- two directors nominated by the concerned state iv- three directors nominated by the sponsor bank V- NABARD is vested with powers of inspection of RRBs.
  • 81. Functions /objectives of RRBs 1. Provide loans to Rural population :- RRB provides loans & advances to weaker section of the society. 2. Grant loans to co-operative societies:- RRBs also provides loans & advances to co-operative societies including marketing societies , co-operative farming society etc. 3. Banking services:- RRB has to take the banking services to the doorsteps of the rural masses .
  • 82. --- 4. Mobilize Rural saving:- RRB mobilize the rural savings by accepting deposits & channelise them for productive activities in the rural areas. 5. Arrangement of credit :- RRB provide credit to rural areas through refinance. 6. Cheap supply of credit :- RRB is to bring down the cost of supplying credit in rural areas. 7. Generate Employment opportunities :- RRB is major employment provider in rural areas.
  • 83. Recent position( achievements) In recent years RRBs performance is as follows:- 1. Extend advances for purchase of durable consumer goods. 2. Issue travellers’ cheques as agents of their sponsor bank & provides locker facility, 3. There are now 195 RRB in 23 states with 14500 branches , 4. Over 95% loans are provided to weaker section of society.
  • 84. Performance of RRBS by March 2011 The following programmes were included in the performance of RRB- · Credit Flow to Agriculture; · Current Viability; · Non-Performing Assets (NPA) position; · Capital-To-Risk-Weighted Assets Ratio (CRAR) position; · Core Banking Solutions (CBS) IN RRBs; · Branch Expansion of RRBs, etc.
  • 85. --- As on 31 March 2010, there were 82 RRBs with a network of 15475 branches spread over 619 districts in 26 States and 1 Union Territory. The following measures have been initiated to expand the outreach of the RRBs: 1.The RRBs were given a target in 2007 to open 2000 branches by March, 2011; 2.RRBs are required to migrate to Core Banking Solution (CBS) by September 2011 (As on date, 21 RRBs have already achieved 100% CBS status); 3. The Sponsor Banks would provide the required support to the RRBs sponsored by them for this purpose;
  • 86. ---- 4. For up gradation of Technology for Financial Inclusion, the RRBs are being provided funds from Financial Inclusion Fund (FIF) and Financial Inclusion Technology Fund (FITF) by NABARD. 5.As on 31.03.2010, 3 RRBs out of 82 RRBs were incurring losses. (Manipur Rural Bank –Rs. 2.98 crore, Puduval Bharthiar Grama Bank –Rs. 0.22 crore and Mahakaushall Gramin Bank- Rs. 2.45 crore) 6.The profitability of RRBs, as a segment, has been improving.
  • 87. Factors responsible for losses some of the factors responsible for losses in RRBs are identified as : 1.low recovery, 2.High NPA, 3.low business level, 4.low productivity per branch and per staff, 5. high cost structure, 6.poor financial management, 7.limited area of operation, 8.non-viable level of operation in branches located in resource-poor areas etc. 9.one of the RRBs, namely Puduval Bharthiar Grama Bank, which was set up in March 2008, has not yet reached a breakeven point;
  • 88. What is co-operative bank :- According to the International Co- operative Alliance Statement of co- operative identity, „a co-operative is an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise. Co-operatives are based on the values of self-help, self-responsibility, democracy, equality, equity and solidarity.
  • 89. Principles (functions)of co- operative bank The 7 co-operative principles are : 1. Voluntary and open membership 2. Democratic member control 3. Member economic participation 4. Autonomy and independence 5. Education, training and information 6. Co-operation among Co-operatives 7. Concern for Community
  • 90. features : 1. Customer's owned entities : In a co- operative bank, the needs of the customers meet the needs of the owners, as co-operative bank members are both. As a consequence, the first aim of a co-operative bank is not to maximize profit but to provide the best possible products and services to its members. Some co-operative banks only operate with their members but most of them also admit non-member clients to benefit from their banking and financial services.
  • 91. ---- 2. Democratic member control : co- operative banks are owned and controlled by their members, who democratically elect the board of directors. Members usually have equal voting rights, according to the co- operative principle of "one person, one vote". 3.Profit allocation : In a co-operative bank, a significant part of the yearly profit/surplus is usually allocated to constitute reserves. A part of this profit can also be distributed to the co- operative members.
  • 92. -- 4. Co-operative banks are deeply rooted inside local areas and communities. They are involved in local development and contribute to the sustainable development of their communities, as their members and management board usually belong to the communities in which they exercise their activities. By increasing banking access in areas or markets where other banks are less present - farmers in rural areas, middle or low income households in urban areas - co-operative banks reduce banking exclusion and foster the economic ability of millions of people.
  • 93. Organizational structure of co- operative Bank The structure of commercial banking is of branch-banking type; while the co- operative banking structure is a three tier federal one. - A State Co-operative Bank works at the apex level (i.e. works at state level). - The Central Co-operative Bank works at the Intermediate Level (i.e. District Co- operative Banks ltd. works at district level) - Primary co-operative credit societies at base level (At village level)
  • 94. Difference between Co-operative banks & Commercial bank They differ from commercial banks in the following respects 1. Commercial banks are joint-stock companies under the companies‟ act of 1956 whereas co- operative banks were established under the co-operative society‟s acts of different states. 2. Commercial bank structure is branch banking structure whereas co-operative banks have a three tier setup, with state co- operative bank at apex level, central /district co-operative bank at district level, and primary co-operative societies at rural level.
  • 95. --- 3. Only some of the sections of banking regulation act of 1949 (fully applicable to commercial banks), are applicable to co-operative banks, resulting only in partial control by RBI of co-operative banks and 4.Co-operative banks function on the principle of cooperation and not entirely on commercial parameters.
  • 96. RBI Policies for co-operative banks The RBI appointed a high power committee in May 1999 under the chairmanship of Shri. K. Madhava Rao, Ex-Chief Secretary, Government of Andhra Pradesh to review the performance of Urban Co-operative Banks (UCBs) and to suggest necessary measures to strengthen this sector. With reference to the terms given to the committee, the committee identified five broad objectives: 1. To preserve the co-operative character of UCBs 2. To protect the depositors‟ interest 3. To reduce financial risk
  • 97. Types of Co-operative Banks The co-operative banks are small-sized units which operate both in urban and non-urban centers. They finance small borrowers in industrial and trade sectors besides professional and salary classes. Regulated by the Reserve Bank of India, they are governed by the Banking Regulations Act 1949 and banking laws (co-operative societies) act, 1965. The co-operative banking structure in India is divided into following 5 components:
  • 98. 1. Primary Co-operative Credit Society The primary co-operative credit society is an association of borrowers and non-borrowers residing in a particular locality. The funds of the society are derived from the share capital and deposits of members and loans from central co-operative banks. The loans are given to members for the purchase of cattle, fodder, fertilizers, pesticides, etc.
  • 99. 2. Central co-operative banks These are the federations of primary credit societies in a district and are of two types those having a membership of primary societies only and those having a membership of societies as well as individuals. The funds of the bank consist of share capital, deposits, loans and overdrafts from state co-operative banks and joint stocks. These banks provide finance to member societies within the limits of the borrowing capacity of societies. They also conduct all the business of a joint stock bank.
  • 100. 3.State co-operative banks The state co-operative bank is a federation of central co-operative bank and acts as a watchdog of the co-operative banking structure in the state. Its funds are obtained from share capital, deposits, loans and overdrafts from the Reserve Bank of India. The state cooperative banks lend money to central co-operative banks and primary societies and not directly to the farmers.
  • 101. 4. Land development banks The Land development banks are organized in 3 tiers namely:- state, central, and primary level. They meet the long term credit requirements of the farmers for developmental purposes. They are governed both by the state government and Reserve Bank of India. Recently, the supervision of land development banks has been assumed by NABARD. The sources of funds for these banks are the debentures subscribed by both central and state government. These banks do not accept deposits from the general public.
  • 102. 5.Urban Co-operative Banks The term Urban Co-operative Banks (UCBs) refers to primary co-operative banks located in urban and semi-urban areas.. They mainly rely upon deposits from members and non-members and in case of need, they get finance from either the district central co-operative bank to which they are affiliated or from the apex co-operative bank if they work in big cities where the apex bank has its Head Office. They provide credit to small scale industrialists, salaried employees, and other urban and semi-urban residents.
  • 103. What are the functions of Cooperative Banks in India? 1.Cooperative banks in India finance rural areas under: 1.Farming 2.Cattle 3.Milk 4.Hatchery 5.Personal finance
  • 104. 11. Cooperative banks in India finance urban areas under:- 1.Self-employment 2.Industries 3.Small scale units 4Home finance 5.Consumer finance 6.Personal finance
  • 105. Meaning of Development Banks Development banks are those financial institutions engaged in the promotion and development of industry, agriculture and other key sectors. In the words of A.G. Kheradjou :- “A development bank is like a living organism that reacts to the social- economic environment and its success depends on reacting most aptly to that environment”.
  • 106. Definition D.M. Mithani states that “A development bank may be defined as a financial institution concerned with providing all types of financial assistance i.e. medium as well as long-term ,to business units in the form of loans, underwriting, investment and guarantee operations and development in general and industrial.”
  • 107. Features of a development bank A development bank has the following features or characteristics: 1. A development bank does not accept deposits from the public like commercial banks and other financial institutions who entirely depend upon saving mobilization. 2. It is a specialized financial institution which provides medium term and long-term lending facilities. 3. It is a multipurpose financial institution. Besides providing financial help it undertakes promotional activities also. 4. It helps an enterprises from planning to operational level.
  • 108. ----- 5. It provides financial assistance to both private as well as public sector institutions. 6. The role of a development bank is of gap filler. When assistance from other sources is not sufficient then this channel helps. 7. Development banks primarily aim to accelerate the rate of growth. It helps industrialization specific and economic development in general. 8. The objective of these banks is to serve public interest rather than earning profits. 9. Development banks react to the socio- economic needs of development.
  • 109. Small Industries Development Bank of India (SIDBI) SIDBI was established as wholly owned subsidiary of Industrial Development Bank of India (IDBI) under the small Industries Development of India Act 1989. It is the principal institution for promotion, financing and development of industries in the small-scale sector. Capital:- SIDBI started its operations from April 1990 with an initial authorised capital of Rs. 250 crore, which could be increased to Rs. 1000 crore.
  • 110. What are the objectives of SIDBI? In the setting up of SIDBI, the main purpose of the government was to ensure larger flow of assistance to the small-scale units. To meet this objective, the immediate thrust of the SIDBI was on the following measures: (i) initiating steps for technological upgradation and modernisation of existing units; (ii) expanding the channels for marketing the products of the small scale sector; and (iii) promotion of employment-oriented industries, especially in semi- urban areas to create more employ-ment opportunities and thereby checking migration of population to urban areas.
  • 111. What are the functions of SIDBI? The major functions of SIDBI are given below: (i) It refinances loans and advances provided by the existing lending institutions to the small-scale units. (ii) It discounts and rediscounts bills arising from sale of machinery to and manufactured by small-scale industrial units. (iii) It extends seed capital/soft loan assistance under National Equity Fund, Mahila Udyam Nidhi and Mahila Vikas Nidhi and seed capital schemes.
  • 112. ---- (iv) It grants direct assistance and refinance loans extended by primary lending institutions for financing exports of products manufactured by small-scale units. (v) It provides services like factoring, leasing, etc. to small units. (vi) It extends financial support to State Small Industries Corporations for providing scarce raw materials to and marketing the products of the small-scale units. (vii) It provides financial support to National Small Industries Corporation for providing; leasing, hire pur-chase and marketing help to the small-scale units.
  • 113. Development Banks in India Development banking was started after the World War II. It provided finance to reconstruct the buildings and industries which were destroyed in the war. In India, development banking was started immediately after independence. The arrangement of development
  • 115. Development banks in India are classified into following five groups: 1.Industrial Development Banks : It includes, for example, Industrial Finance Corporation of India (IFCI), Industrial Development Bank of India (IDBI), and Small Industries Development Bank of India (SIDBI). 2.Agricultural Development Banks : It includes, for example, National Bank for Agriculture & Rural Development (NABARD). 3. Export-Import Development Banks : It includes, for example, Export-Import Bank of India (EXIM Bank). 4. Housing Development Banks : It includes, for example, National Housing Bank (NHB). 5.Industrial Finance Corporation of India (IFCI) is the first development bank in India. It started in 1948 to provide finance to medium and large-scale industries in India.
  • 116. NABARD NABARD is set up as an apex Development Bank with a mandate for facilitating credit flow for promotion and development of agriculture, small-scale industries, cottage and village industries, handicrafts and other rural crafts. It also has the mandate to support all other allied economic activities in rural areas, promote integrated and sustainable rural development and secure prosperity of rural areas. NABARD was set up in the year 1982. The Agricultural Refinance & Development Corporation (ARDC) which was set up to look in to the credit requirements in 1963 has also been merged with NABARD.
  • 117. Role of NABARD NABARD is entrusted with the following role :- 1.Providing refinance to lending institutions in rural areas. 2.Bringing about or promoting institutional development. 3.Evaluating, monitoring and inspecting the client banks . 4.Acts as a coordinator in the operations of rural credit institutions .
  • 118. ---- 5.Extends assistance to the government, the Reserve Bank of India and other organizations in matters relating to rural development 6.Offers training and research facilities for banks, cooperatives and organizations working in the field of rural development 7.Helps the state governments in reaching their targets of providing assistance to eligible institutions in agriculture and rural development 8. Acts as regulator for cooperative banks and RRBs.
  • 119. Some of the milestones in NABARD's activities are: 1. NABARD has been pursuing a policy of promoting agricultural credit. NABARD provides 70% of loans through co- operatives & 30% through commercial banks. 2. About 67% of the total disbursement of the NABARD have been for minor irrigation. 3. NABARD has created Rural Infrastructural Development Fund to accelerate the agricultural development.
  • 120. ----- 4. NABARD also provides financial help to small scale & cottage industry. 5. NABARD has set up Research & Development Fund for granting assistance to various institution involved in rural credit.
  • 121. Core banking Core banking is a general term used to describe the services provided by a group of networked bank branches. Bank customers may access their funds and other simple transactions from any of the member branch offices.
  • 122. Core banking definition CORE stands for "centralized online real-time environment". Core Banking is normally defined as the business conducted by a banking institution with its retail and small business customers. Many banks treat the retail customers as their core banking customers, and have a separate line of business to manage small businesses. Larger businesses are managed via the corporate banking division of the institution. Core banking basically includes deposit accounts, loans, mortgages and payments. Banks make these services available across multiple channels like ATMs, Internet banking, and branches.
  • 123. ----- A few decades ago it used to take at least a day for a transaction to reflect in the account because each branch had their local servers, and the data from the server in each branch was sent in a batch to the servers in the datacenter only at the end of the day (E o D).
  • 124. Core banking solutions MEANING:- Core banking solutions are banking applications on a platform enabling a phased, strategic approach that is intended to allow banks to improve operations, reduce costs, and be prepared for growth. Core banking solutions are new terminology frequently used in banking circles. The advancement in technology, especially Internet and information technology has led to new ways of doing business in banking. These technologies have also cut down time, working simultaneously on different issues and increasing efficiency.
  • 125. DEFINITION Gartner defines a core banking system as a back-end system that processes daily banking transactions, and posts updates to accounts and other financial records. Core banking systems typically include deposit, loan and credit-processing capabilities, with interfaces to general ledger systems and reporting tools. Strategic spending on these systems is based on a combination of service- oriented architecture and supporting technologies that create extensible, agile architectures.