Indian banking structure includes the central bank (RBI), commercial banks, development financial institutions, cooperative banks, and specialized banks. Commercial banks obtain most of their funds from deposits and use them primarily for lending. In addition to interest income from loans, they earn non-interest income from fees, commissions, and other sources. The Indian Banks Association represents banking interests and promotes coordination and standards among members.

1. Ch-4. INDIAN BANKING
Banking structure in India, Indian banks
association, identify sources of funds
for Indian Banks, Explain the functions
of Indian banks

2. Banking structure in India
• Central Bank-RBI
• Commercial banks-public sector, private sector
and foreign banks
• Development financial Institutions-DFI’s
• Cooperative banks-primary credit societies,
Central Cooperative Banks and State
Cooperative Banks
• Specialized Banks-EXIM Bank, NABARD, SIDBI

3. Central Bank
• Regulates and guides the financial system
• Does not deal with the public
• Acts as banker to the government
• It maintains the financial details of institutions
it supervises
• It attends to the problems faced by the banks
• At times may provide a line of credit
• It is bankers' bank

4. Central Bank…
• Maintains governments revenue and
expenditure, under various heads
• Advises government on monitory and credit
policies
• Keeps a watch on interest rates
• Keeps a watch on foreign exchange rates
• Issue of currency notes
• Regulates currency circulation, by different
methods
• No other bank can issue currency

5. Commercial banks
• Accept deposits from the public for the
purpose of lending
• Now, commercial banks are granting long term
loans in addition to working capital
• Issue solvency certificates
• Issue guarantees
• Deferred payment guarantees and
acceptances

6. Commercial banks….
• Merchant banking activities
• Issue Management, lead managers, under-writing
• Other capital market services-payment of
dividend and interest
• Managing float funds
• Corporate banking branches
• MSME Branches
• Hi-tech agriculture branch
• Overseas Banking Unit

7. Public sector Banks
• Majority stake held by government
• SBI & Subsidiaries-since merged
• Banks nationalized in two stages
• Presently enjoy autonomy
• Corporate governance in place
• Risk based supervision
• Technology driven and some are highly rated

8. Private sector banks
• Majority of share capital is held by private
individuals
• Registered as companies with limited liability
• Old private sector bank
• Financial sector reforms
• New private sector banks
• Technology driven

9. Foreign banks
• These banks are registered and have their
head quarters in foreign country
• Operate branches in India
• Many have global presence
• Advent of liberalization has increased the
number of foreign bank branches.
• Pose severe competition to Indian banks

10. Development banks
• Development Financial Institutions
• Established under various acts
• To provide medium & long term capital funds
• Promote Entrepreneurial development
• Establishment of new industries
• Develop technology
• Assist economic growth

11. Cooperative Banks
• Came in to existence after the enactment of
agricultural credit cooperative societies act in
1904
• An instrument of banking access to rural
masses
• Vehicle for democratization of Indian financial
system
• Provide agricultural and rural credit

12. Cooperative Banks…
• Mobilize deposits
• Attracts deposits with higher rate of interest
• Work on up-lifting of rural masses and weaker
sections
• Carry out subsidy programs for the poor
• Urban & rural cooperative credit institutions
• RBI regulates since 1966 in the aftermath of
failure of some cooperative banks

13. Cooperative banks….
• Now-RBI supervises UCB’s(Urban Corp Banks)
• NABARD supervises other cooperative banks
• There is a role play for registrar of cooperative
societies
• The “Banking regulation(amendment) &
Miscellaneous provisions bill-2003 introduced-
proposed supervision by RBI

14. Payment banks
• Definition: A payments bank is like any other
bank, but operating on a smaller scale without
involving any credit risk.
• In simple words, it can carry out most banking
operations but can’t advance loans or issue credit
cards.
• It can accept demand deposits (up to Rs 1 lakh),
offer remittance services, mobile payments,
transfers, purchases and other banking services
like ATM/debit cards, net banking and third party
fund transfers.

15. Payment bank
• In September 2013, RBI constituted a committee headed by Dr
Nachiket Mor to study 'Comprehensive financial services for small
businesses and low income households'.
• Objective of the committee was to propose measures for achieving
financial inclusion and increased access to financial services.
Committee submitted its report to RBI in 2014. One of the key
suggestions of the committee was to introduce specialised banks or
‘payments bank’ to cater to the lower income groups and small
businesses.
Why payments banks?-widen the spread of payment and financial
services to small business, low-income households, migrant labour
workforce in secured technology-driven environment.
With payments banks, RBI seeks to increase penetration level of
financial services to remote areas of the country.

16. INDIAN BANKS ASSOCIATION
• IBA was formed on the 26th September 1946
with 22 members.
• As on 31st March 2012 IBA has 173 members
• The members comprise of
• - Public Sector Banks,
• - Private Sector Banks
- Foreign Banks having offices in India and
- Urban Co-operative Banks.

17. Indian Banks Association
• IBA, formed as a representative body of management of banking in
India operating in India - an association of Indian banks and
financial institutions based in Mumbai.
• With an initial membership representing 22 banks in India in 1946,
IBA currently represents 247 banking companies operating in India.
• IBA was formed for development, coordination and strengthening
of Indian banking, and assist member banks in various ways
including implementation of new systems and adoption of
standards among the members.
• Indian Banks' Association is managed by a managing committee,
and the current managing committee consists of one chairman, 3
deputy chairmen, 1 honorary secretary and 26 members.

18. Managing committee of IBA
• Banks which are members of managing
committee of the IBA include-
• Citibank, Indian Bank, Indian Overseas Bank,
Punjab National Bank, Union Bank of India,
Central Bank of India, State Bank of India, Bank of
Baroda, Mashreq Bank, Bank of America,
Standard Chartered Bank, UCO Bank, IDBI Bank,
Qatar National Bank, JPMorgan Chase Bank,
Punjab & Sind Bank, Bank of Maharashtra

19. Managing committee of IBA
• Private Sector Banks
• ICICI Bank
• South Indian Bank
• Karnataka Bank
• City Union Bank
• Federal Bank
• Co-operative Sector Banks
• Saraswat Co-operative Bank Ltd
• Nagpur Nagarik Sahakari Bank Ltd.
• A. P. Mahesh Co-operative Urban Bank Ltd.
• Payments Banks and Small Finance Banks
• Equitas Small Finance Bank

20. Indian Banks Association…
• IBA is a ‘self regulatory authority’ to
strengthen Indian banking system
• Works in liaison with RBI and member banks
• Banking sectors moral regulator
• Broad agenda-continued implementation of
prudential business practices.
• Supplements the role of RBI

21. IBA-Main activities..
• Generation and exchange of ideas on banking
issues, policies and practices
• Collection and analysis of sectoral data
• Personal administration and wage
negotiations, between labour unions and
managements.
• Banks have consolidated under the guidance
of IBA

22. IBA encourages….
• Asset quality maintenance
• Implement more stringent prudential norms
• Best practices
• Improvement in accounting standards and
balance sheet practices
• Reporting standards, vigilance
• Encourage provisioning

23. IBA Departments
• Corporate & International Banking
• Corporate Communication
• Department of Research and Statistics
• HR & Industrial Relations
• Legal
• MC Secretariat & Banking Operations
• Payment Systems & Banking Technology
• Retail Banking
• Social Banking and financial inclusion
• Doorstep Banking –correspondent banking
• Finance & Administration

24. Working of IBA
• To promote sound and progressive banking
principles and practices
• To render assistance and provide common
services to members
• To organize coordination and cooperation on
procedural, legal, technical, administrative and
professional matters
• To collect, classify and circulate statistical and
other information

25. Working of IBA…
• To pool together expertise towards common
purposes such as reduction of costs, increase
in efficiency, productivity and improve
systems, procedures and banking practices
• To project good public image of banking
through publicity & public relations
• To encourage sports and cultural activities
among bank employees

26. SOURCES OF FUNDS FOR BANKS
• Describe the most common sources of funds
for commercial banks
• Describe the most common uses of funds for
commercial banks
• Describe typical off-balance sheet activities for
commercial banks

27. Sources of funds…
• Capital-Capital adequacy standards of BIS
• Deposits-domestic and foreign currency
• Borrowings in India-Interbank call money
market-DFHI
• Borrowing outside India-foreign currency
loans
• Refinance-RBI, NABARD, SIDBI
• Internal accruals-general reserve

28. Interest income
• Interest on advances
• Purchase & discount of bills
• Interest on balances with RBI
• Inter bank funds
• others

29. Non-interest income
• Commission, exchange and brokerage
• Profit on sale of investment
• Profit on revaluation of investments
• Profit on sale of land/building & other assets
• Profit on exchange transaction
• Miscellaneous income

30. Capital funds
• Tier I capital mean-
• paid up capital
• statutory reserves, capital reserves representing
surplus arising out of sale proceeds of assets
• Minus-
• Equity investments in subsidiaries
• Intangible assets
• Losses-in the current period, losses brought
forward from previous periods

31. Capital funds…
• Tier II capital consists of-
• Undisclosed reserves
• Cumulative perpetual preference shares(fully
paid and not to contain clause of permitting
redemption by the holder)
• Revaluation reserve
• General provision and loss reserves-up to a
maximum of 1.25% of RWA
• Hybrid debt capital instruments
• Subordinated debt-bonds

32. Tier II capital…
• undisclosed reserve
• Undisclosed reserves are not common, but
accepted by certain regulators, where a bank
has made a profit which has not reflected in
normal retained profits or in general reserve.
• Most regulators do not allow this type reserve
as it does not reflect a true and fair picture of
the results

33. Tier II capital…
• Revaluation reserves
Reserve created when a company has an asset
revalued and an increase in value is brought to
account
General provisions
Created when a company is aware that a loss may
have occurred but is not sure of the exact nature
of the loss.
As these does not represent incurred losses,
regulators tended to allow them to be counted as
capital

34. Subordinated debt
• Subordinated debt is classed as lower tier II
debt
• Usually it has a maturity of 10 years
• Ranks senior to tier I debt

35. Deposits
• Demand deposits
Current account deposit
Savings bank deposit
Term deposits
Recurring deposit
Other terms deposits-short term, medium term
and long term.
Reinvestment schemes, withdrawal by units

36. Borrowings
• Borrowings in India
From RBI-Line of credit, Rediscounting of bills
From other banks-interbank money market
Other institutions and agencies
Refinance-RBI, NABARD, SIDBI
Borrowings outside India-foreign currency
funds

37. Functioning of Indian banks
• Accept deposits from public
• Lend to the public
• Facilitate flow of goods and services from
producers to consumers
• Helps in the financial activities of the government
• Banks are the media through which monetary
policy is affected
• Banks are mirror of Indian economy

38. Secondary functions
• Issuing LC, TC
• Safe custody and SDV’s
• Foreign exchange facility
• Money transfers
• Issuing guarantees, certificates of solvency
• Providing report on creditworthiness of
customers
• Project Consultancy services, merchant banking,
custodial services, correspondent banking

39. Secondary functions…
• Investment counseling
• Mutual fund
• Project appraisal
• Segment-wise specialized branches
• Credit card/ATM/24 hours banking
• Government business
• Securities trading
• Factoring
• Trading in gold
• Selling insurance products