Today, we are having a fairly well developed banking system with different classes of banks – public sector banks, foreign banks, private sector banks – both old and new generation, regional rural banks and co-operative banks with the Reserve Bank of India as the fountain Head of the system. 

1. BANKING THEORY
LAW AND PRACTICE
Dr.P.MAHESWARI

2. BASIC TERMS
• Finance
- The proper management of Money
Money
- The current medium of exchange or means of payment
Credit
- A sum of money to be returned normally with interest

3. Banking History
• Today, we are having a fairly well developed banking system with
different classes of banks – public sector banks, foreign banks,
private sector banks – both old and new generation, regional rural
banks and co-operative banks with the Reserve Bank of India as the
fountain Head of the system. In the banking field, there has been an
unprecedented growth and diversification of banking industry has
been so stupendous that it has no parallel in the annals of banking
anywhere in the world.

4. Banking History
• During the last 41 years since 1969, tremendous changes have
taken place in the banking industry. The banks have shed their
traditional functions and have been innovating, improving and
coming out with new types of the services to cater to the emerging
needs of their customers.

5. THE INDIAN BANKING SECTOR
The history of Indian banking can be divided into three main phases.
Phase I (1786- 1969) - Initial phase of banking in India when many small banks
were set up
Phase II (1969- 1991) - Nationalization, regularization and growth
Phase III (1991 onwards) - Liberalization and its aftermath

6. Phase III
• With the reforms in Phase III the Indian banking sector, as it stands today,
is mature in supply, product range and reach, with banks having clean,
strong and transparent balance sheets. The major growth drivers are
increase in retail credit demand, proliferation of ATMs and debit-cards,
decreasing NPAs due to Securitization, improved macroeconomic
conditions, diversification, interest rate spreads, and regulatory and policy
changes (e.g. amendments to the Banking Regulation Act).
•

7. RECENT TRENDS IN BANKING
SECTORS

8. Electronic-cheques
• Electronic cheques works same as paper cheques but payment
transaction can be done through digital format.
• XML document provide mechanism to authenticate parties to make
transactions.
• In e-cheques signatures are accompanied by bank –issued certificates
which tie with signer’s key to bank account.
• Now a days it is very commonly using by everyone.
• E-cheques make easy transfer of payments to customers which are easily
available to make payment for online purchases

9. Real time gross settlement (RTGS)
• Real time gross settlement is a fund transfer system.
• Settlement in “real time” means the transactions happen almost immediately
“gross settlement “means transaction is settled one to one basis unlike national
electronic fund transfer (NEFT).
• Where the transaction happen in bulk at a given point in time during the day.
• This is mainly used for transaction which high in value and need to be cleared
immediately.
• In this the bank that receives money has to credit the amount in the account with
in 30 min after receiving it.
• Services of RTG’s window for transaction are available to banks from 9.00 am to
4.30 p.m in a week and 9.00 am to 4.00 pm in Saturday’s for settlement at from
RBI’s end

10. Electronic fund transfer
• It is a system of transforming money from one bank account direct to
another without any paper money charging hands.
• Direct deposits are one of the most widely used EFT program. It
refers transfer of funds initiated through on electronic terminal,
including credit cards, ATM, and point of sale transactions.
• It used for both credit transfer and debit transfer. Electronic fund
transfer transactions are processed through the automated clearing
house network.

11. De-mat account
• India adopted the de-mat system for electronic storing.
• According to depositary act 1996 to maintain shares and securities electronically and
eliminating the troubles associated with as per shares.
• De-mat system was introduced to invest shares and securities every investor should
have registration.
• Instead of investor taking physical passion of certificates a de-mat account is opened.
• De-mat account can be provided by through stockbrokers. It can be held electronically.
• For the purpose of purchase and transfer of shares and their process for sales. To
access de-mat account it requires two types of passwords. 1. Internet password 2.
Transaction password

12. Point of sale (POS)
• Making a payment in exchange of for goods and for retail transaction point of sale is useful.
• The transaction usually can be done by using debit and credit cards.
• Since 1990 POS transaction had become very common and it is using overall the world.
• To complete pose transaction cards usually authenticated with a pin number.
• The information transmitted via the pin number travel through ATM network until it reaches the
bank it is used to register products by a bar scanner and to read the descriptions and price on
the tag of every time.
• All the activities can be done automatically like finding the total balance deducts any discounts
and applies the sales tax and sending customer information to marketing database and
transactions record to an investors system.
• Point of Sale Terminal is a computer terminal that is linked online to the computerized customer
information files in a bank and magnetically encoded plastic transaction card that identifies the
customer to the computer. During a transaction, the customer's account is debited and the
retailer's account is credited by the computer for the amount of purchase.

13. UPI (Unified Payments Interface)
• UPI or Unified Payments Interface has changed the way payments are made.
• It is a real-time payment system that enables instant inter-bank transactions with the
use of a mobile platform.
• In India, this payment system is considered the future of retail banking.
• It is one of the fastest and most secure payment gateways that is developed by
National Payments Corporation of India and regulated by the Reserve Bank of India.
• The year 2016 saw the launch of this revolutionary transactions system.
• This system makes funds transfer available 24 hours, 365 days unlike other internet
banking systems.
• There are approximately 39 apps and more than 50 banks supporting the transaction
system. In the post-demonetization India, this system played a significant role.

14. Mobile Banking
• Mobile banking facility is an extension of internet banking.
• The bank is in association with the cellular service providers offers
this service.
• For this service, mobile phone should either be SMS or WAP
enabled.
• These facilities are available even to those customers with only
credit card accounts with the bank.

15. Types of Banks
Classification of Banking
1. Commercial Banks 1.Branch Banking
2. Investment Banks (or) Industrial Banks 2.Unit Banking
3. Exchange Banks
4. Co-Operative Banks
5. Land development
6. Saving Banks
7. CentralBank (RBI)

16. On the basis of Function:
• Commercial Banking:-
• The Commercial banks mobilise deposit from the
public which are repayable on demand. They lend to traders and
manufactures for short periods. They provide the working capital to the
business in the form of overdraft and cash credit. The services of Banks
are ever expanding with the change in the needs and requirement of the
society.
• Banks, which help for the development of trade and commerce, are called
Commercial Banks. The commercial banks may be owned by government
or owned by private sector. For eg: Canara Bank, Punjab National Bank,
Lakshmi Vilas Bank, Karur Visya Bank etc., are called as commercial
banks.

17. Investment Bank (or) Industrial Banking
• Investment banks provide medium term and long term finance to
industries to meet their fixed capital requirement for existing industries
they lend for expansion and modernisation of industries. Now a day the
bank provides techniques & guides for the efficient management of
industries.
• These banks assist to promote industrial development by providing
medium and longterm loans, underwrites the shares and debentures,
assisting in the preparation of project reports, providing technical advice
and managerial service to the industries. For eg: Industrial Development
Bank of India (IDBI), Industrial Credit and Investment Corporation of India
(ICICI), are known as industrial banks

18. Exchange Banks
• Exchange bank specialise in financing the foreign trade. They supply
necessary foreign exchange require for settlement of
transactions in foreign trade. Now a day’s commercial banks
themselves under take foreign exchange business. So there is no
separate bank called foreign exchange bank.
• Exchange banks deal in foreign exchange and specialize in foreign
trade. It plays an important role in promoting international trade. It
encourages flow of foreign investments into India and helps in
capturing international capital markets.

19. ON THE BASIS OF OWNERSHIP
• Public Sector Banks:
• These types of banks are owned and controlled by the government.
The nationalized banks and regional rural banks come under this
category.
• Private sector Banks:
• These Banks are owned by private individuals and corporations

20. Co-operative Bank
• Bank formed on the principle of Co-operation are called Co-
operative bank. They provide short term credits to Agriculturist,
Artisans, Small formers and small scale industries. It accepts all kind
of deposits and make loan to the members at lower rate of interest.
• These banks are operated on cooperative principles. It is a voluntary
association of members for self-help and caters to their financial
needs on a mutual basis. These banks are also subject to control
and inspection by Reserve Bank of India. The main function of co-
operative banking is to link the farmers with the money markets of
the country

21. a) Primary Agricultural Co-operative societies
(PACS):
• It is the root of the credit structure.
• It is also called as village societies and the members belong to the
related villages.
• Functions:
• It gives short-term and medium term loans to farmers.
• It helps in distribution of fertilizers and seeds.
• It helps in distribution of consumer goods to their members.
• It helps in milk, egg, sugar production in the village

22. b) Central Co-operative Banks (CCB):
• It is the federation of all primary societies at the district level. Therefore it is also called
as District co-operative central bank. It supervises, controls and finances the primary
credit societies.
Functions:
• It gives finances to primary credit societies.
• It gives credit to individual customers on the basis of security.
• It accepts deposit and pays higher rate of interest than commercial banks.
• It helps in remitting money to their customers.
• It helps in solving problems of primary co-operative societies.
• It control and supervises the working of primary co-operative societies.

23. c. State Co-operative Banks (SCBs):
• State Co-operative Bank is the federation of district Co-operative central
banks. Each state has one state central co-operative bank. It is also
called as Apex Bank in the three-tier structure.
• Functions:
• It co-ordinates the activities of primary and Central Co-operative Banks in
the state.
• It mobilizes deposits for the benefit of co-operatives.
• It helps in maintaining a balance among Central Co-operative banks
• It also functions as a commercial bank.

24. Land development bank
• Agriculturist requires short term and long term loans. It provide long term
loan to agriculturist for purchasing tools and equipment and making
permanent improvement on land.
• Land development banks are orgainsed on Co-operative basis in India
• It was earlier called as Land Mortgage Banks. Its structure is not uniform
in all the states. In some states it is separate, in some states it is federal.
And in some state it is mixed.
• Functions:
• It gives long-term loans to agriculturalists for making improvements on
the land, repaying old debts etc., loans.
• It gives loan to free the mortgaged land and to buy new land
• It also grants loans to cottage and small industries in rural areas.

25. Savings Banks
• Savings banks are specialised institutions to collect savings from the
poor & middle income people of the society. It is primarily intended to
encourage habits of thrift and savings among people with small
income. Government runs savings bank and they are managed by
the postal department.

26. Central Bank
• Every Country has generally one central bank. The Central bank
acts as the leader of the money market Supervising, Controlling and
regulating the activities of commercial bank and Financial
institutions. It seeks to manage the issue and circulation of currency
and control the creation of bank deposits with a view to safeguard
the financial stability in the country. Thus the central bank is the Apex
bank of the country in maintaining monitory and economic stability.

27. Reserve Bank of India
• Reserve Bank of India was established in 1935. It is the central bank of
India.
• The following are the main objectives of RBI:
• (a) To manage and regulate foreign exchange.
• (b) To build a sound and adequate banking and credit structure.
• (c) To promote specialized institutions to increase the term finance to
industry.
• (d) To give support to government and planning authorities for the
economic development of the country.
• (e) To control and manage the banking system in India.
• (f) To execute the monetary policy of the country.

28. On the basis of Organisational
Structure
• Branch banking:-
• Branch banking is a system where the banking business is
carried on by a single bank with a network of branches throughout
length and breadth of the country. The bank will have a head office in
one town and branches in different part of the country.

29. Unit banking
• In the unit banking system the banking operations are carried
through a single office and confined to particular area. The banks
maintain no branches. In some exceptional case the banks are
allowed to have branches with in the limited area. The size of the
bank is small and capital is limited. The USA is the home of unit
banking system.

30. Briefly explain recent developments in Banking.
• Recent developments in Banking (Technological development)
• a) Core Banking
• b) Electronic Fund Transfer
• c) Tele Banking
• d) Anywhere Banking
• e) Mobile Banking.

31. a) Core Banking :-
• Core banking is one of the technological developments in banking
system. Core banking is type of banking in which a person, who
opens a bank a/c in a branch of a bank, will become a customer not
only of that branch, but he becomes a customer of all branches of
that bank and can conduct banking transactions anywhere and at
anytime. Thus he can deposit and withdraw cash from any where
with the branches of same bank.

32. b) Electronic Fund Transfer:-
• (EFT): EFT is a scheme introduce by RBI as per the
recommendations of SHARE Committee. EFT is a system by which
money can be transfer from one a/c to another a/c at any time from
any where electronically. The use of pay-in-slips, cheques and drafts
are converted into electronic form and there by amount can easily be
either debited or credited to the customer a/c within no time.

33. c) Tele Banking
• : Tele banking is one of the popular technological developments in
banking systems. Tele-banking refers to telephone banking under
which a number of banking services or facilities offered by bank to
the customers by using telephone.

34. d) Anywhere Banking :
• It is one of the banking facilities extended under core banking
system. Under this facility, a bank customer can operate his a/c from
any branches of the bank at any place and at any time. It is
considered as 24x7 services. In this system customer can operate
his a/c from any branches of the bank in one city (inter-city) between
different cities (intra-city). It includes Tele-banking, Mobile banking,
ATM, etc.

35. e) Mobile Banking:
• Mobile banking is a latest development in banking service. Mobile
banking is a type of banking facility under which a customer can
conduct banking transactions with his bank by using his mobile
phone. Mobile banking works through SMS (Short Messaging
Service) technology. Mobile banking works through a set of text
messages appears on the mobile phone screen

36. THANK YOU