This document discusses banking and non-banking financial institutions. It provides information on the types of banking institutions such as commercial banks, savings and loans associations, and credit unions. It also discusses non-banking financial institutions like insurance companies, pension funds, and hedge funds. The document further describes banking and non-banking financial institutions, their regulations, types, and differences between public and private sector banks.

1. UNIT 3:
THE BANKING AND NON-BANKING
INSTITUTIONS

2. BANKING AND NON-BANKING.
BANKING INSTITUTIONS
• There are two main types of financial institutions: banking
and non-banking.
• Banking institutions include commercial banks, savings and
loan associations, and credit unions.
• Non-banking financial institutions include insurance
companies, pension funds, and hedge funds.

3. What are Banking Financial Institutions?
These institutions
are heavily
regulated by
governments to
protect
consumers and
ensure that the
banking system is
stable.
Types of Banking
Financial
Institutions
There are two
types of banking
financial
institutions:
depository and
non-depository.
Depository
institutions
include banks,
savings and loans
associations,
credit unions,
and mutual
savings banks
Non-depository
institutions
include finance
companies,
insurance
companies, and
pension funds

4. What are Non-Banking Financial Institutions?
Non-banking financial
institutions (NBFCs)
are companies that
provide financial
services such as
lending, insurance,
and investment
banking but that are
not regulated as
banks.
This means that they
have a different set of
rules and regulations
to follow.

6. Comparative Table
Criteria Meaning Public Sector Bank Private Sector Bank
Status of Control
Controlling
Authority
These banks are under control of the
Government
These banks are under the control of a
private individual.
Structure
Shareholding
Pattern
Public Sector Banks are the banks whose
more than 50% shareholding lies with the
central or state government.
Private Sector Banks are the banks whose
majority of stake is held by private
corporations or individuals.
Registration
Governing
Act or law
Public Sector Banks are formed by passing
acts in the parliament. For e,g: State Bank of
India (Subsidiary Banks) Act, 1959 & Bank
nationalization Act (1970, 1980)
Private Sector Banks are registered under
the Indian Companies Act
Regulatory Control
Regulatory
Body
The Reserve Bank of India Act, 1934 (RBI Act)
gives power to Reserve Bank of India (RBI) to
issue rules, regulations, directions, and
guidelines
Reserve Bank of India (RBI) issues rules,
regulations, directions, and guidelines

7. Criteria Meaning Public Sector Bank Private Sector Bank
FDI
Foreign
Direct
Investment
20% of Foreign Investment is allowed in
Public Sector Bank
Private banks have a higher FDI cap at 74 percent,
provided there should be no change of control and
management.
RBI regulations do not permit a single organization
or individual to invest for more than 10 percent of
stake in a bank.
Manage
ment
Selection of
Management
Bank Board Bureau (BBB) gives
recommendations for the appointment of
full-time Directors as well as non-Executive
Chairman of PSBs.
Private Banks have their own selection process like
any other private entity but have to fulfil RBI
guidelines.

8. Ease
of
Banki
ng
new
technology
and
innovative
products
Public banks are slow in
adopting new technologies
and still follow old processes
Private Banks always look forward to
using innovative technology which
can speed up their processes and
increase reliability.
Custo
mer
Servic
es
Consumer
Grievances
or query
redressal
Public sector bank employees
are not urged enough to
resolve customer requests or
handle customer complaints.
Private sector bank employees are
more agile and proactive in catering to
customer requests.
Criteria Meaning Public Sector Bank Private Sector Bank

9. Accessibility
Number of
Branches
Public sector banks have a wider branch
network and higher tier 2 cities and rural
coverage.
Despite technology-based banking Private banks
are mainly catering services to tier 1 cities and few
tier 2 cities and have limited access for the rural
population.
Services
Facilities provided
by Banks to their
consumers
Banking Services and products are common
in both public and private sector banks.
But Public sector banks are way ahead in
providing services to the marginalized
section of society.
The Private Sector also provides similar
services as in public sector banks but the only
difference is that they focus on higher
consumer satisfaction and services at a high
premium, their rural outreach is very less in
comparison to private sector banks.
Loan Disbursal
Speed of
Disbursing the
loan
Usually, Loan Disbursal in a Public Sector bank
involves a lot of paperwork and takes more time
as compared to the private sector. In public
sector bank employees are driven by old
processes hence reduce the turnaround time
Public Sector Bank Loan Disbursal is attached to the
performance of the employees and that too is driven
by innovative and technology-driven processes that
reduce the turnaround time.
Criteria Meaning Public Sector Bank Private Sector Bank

10. Number of customers
to whom they cater
the services
Public Sector banks have a
high Consumer base because
of high geographical coverage
and people also find
government banks are more
trustworthy than private ones.
They have a lesser consumer base
and private banks need more time
to gain trust from people.
Process of Promotion of
Bank Employees
In Public Sector Banks Employees
are promoted on the basis of their
seniority, performance is not the
major criteria for the promotion.
In Private Sector Bank promotion is done
on the basis of merits. Only performing
employees will get growth.

17. What Is Bank Capital?
Meaning - Bank capital is the difference between a bank's assets and
its liabilities, and it represents the net worth of the bank or its
equity value to investors.
The asset portion of a bank's capital includes cash, government
securities, and interest-earning loans (e.g., mortgages, letters of
credit, and inter-bank loans).
The liabilities section of a bank's capital includes loan-loss reserves
and any debt it owes.

18. BANKING INNOVATION
Digitalization has now allowed
everyone to experience
paperless banking.

19. There are many types of banking
facilities that the banks have
started in recent years. These
are the following types of
innovative banking used by the
banks these days:

24. Offshore banking
An offshore, or overseas, bank account is one that
you have in a country you don't reside in.
They allow you to make and receive payments, hold
money and set up savings and investment accounts
in multiple currencies.

25. Reasons to open an offshore account include:
you're already
living or working
abroad
you're planning to
move abroad, for
work, or to retire
for example
you're an
international
assignee and
move countries
regularly for work
you make
frequent trips
between
countries for
business
you get paid in a
foreign currency,
for example, for
freelance work
you own assets
abroad such as
investments, or
property
you have family
members abroad
who you support
financially, for
example, for a
child's school fees

26. Narrow Banking
A “Narrow Bank” is a type of banking where a bank invests its
money in risk-free assets with maturities that match its liability
maturity profile.
Narrow Banking means Narrow in the sense of engagement of
funds and not in activity.
So, simply, Narrow Banking involves mobilizing the large part of
the deposits in Risk Free assets such as Government Securities

33. Assets Under
Management (AUM) of
Indian Mutual Fund
Industry as on January
31, 2023 stood at ₹
39,62,406 crore.
The AUM of the Indian
MF Industry has grown
from ₹ 8.26 trillion as
on January 31, 2013 to
₹39.62 trillion as on
January 31, 2023
around 5 fold increase
in a span of 10 years.

35. What does AMFI mean?
AMFI - Association
of Mutual Funds in
India.
This body is the
association of SEBI
registered mutual
fund houses
& was incorporated
on 22nd August
1995.
Currently, there are
44 members of this
association that are
SEBI registered Asset
Management
Companies (AMCs).
Non-profit
government
organization
The prime regulator
of the mutual fund
industry under the
guidelines of SEBI.

38. What is the role of AMFI?
1. It takes directions from SEBI and ensures smooth implementation
of the rules and regulations
maintaining a balance between the progress in the industry as well
as safeguarding each participant’s interests.
With the mutual fund industry being heavily dependent on online
platforms, AMFI also ensures that these platforms provide ease of
access and investment as well as safety and security of the
identity as well as the investment of every investor.
AMFI ensures transparency in each step of the transactions in the
industry thereby bringing in accountability.

39. Through the issue of ARN and increasing investor awareness,
the AMFI ensures that the chances of fraud are reduced and
the mutual fund industry functions by maintaining the
highest standards set by SEBI and AMFI together.
It is given the responsibility of ensuring that best business
practices are followed by all the parties involved in a trade
after a thorough review and discussion of various rules and
regulations that need to be updated from time to time.

41. ????
• a company that provides and sells insurance.

43. Meaning
The Insurance
Regulatory and
Development
Authority (IRDA)
is an autonomous
regulatory unit that
protects the
interests of the
policyholder.
They supervise the
growth of the
insurance sector in
India as well as
maintain a speedy
expansion.
The IRDA has been
formed under
the IRDA Act in
1999 with many
purposes and
responsibilities
conferred upon
them.

44. Important Role of IRDA in the Insurance Sector in India:
The insurance industry in India dates back to the early 1800s and has
grown over the years with better transparency and focus on protecting
the interest of the policyholder. The IRDA plays an integral role in
emphasizing the importance of policyholders and their interest while
framing rules and regulations. Here are the important roles of the IRDA:
• To protect the policyholder’s interests.
• To help speed up the growth of the insurance industry in an orderly fashion, for the benefit of
the common man.
• To provide long-term funds to speed up the nation’s economy.
• To promote, set, enforce and monitor high standards of integrity, fair dealing, financial
soundness and competence of the insurance providers.

45. To ensure genuine
claims are settled
faster and efficiently.
To prevent
malpractices and
fraud, the IRDA has
set up a grievance
redress forum to
ensure the
policyholder is
protected.
To promote
transparency, fairness
and systematic
conduct of insurance
in the financial
markets.
To build a dependable
management system
to make sure high
standards of financial
stability are followed
by insurers.
To take adequate
action where such
high standards are not
maintained.
To ensure the
optimum amount of
self-regulation of the
industry.