The document provides an overview of the history and evolution of banking in India from ancient times through modern eras. It discusses the establishment of early banks during British rule and post-independence periods, as well as the nationalization of banks in 1969. The types of banks in India are classified which include public sector, private sector, foreign, small finance banks, payment banks, cooperative banks, and regional rural banks. Banking regulations and acts governing the sector such as the Banking Regulation Act of 1949 are also outlined.

1. Introduction to Banking
Industry & Regulation
Dr. Prachi Beriwala
Associate Professor
School of Management
Presidency University

2. Contents:
• History of Banking
• Evolution of Commercial Banking in India
• Goals & functions of Bank Regulation
• Trends in federal Legislation and Regulation
• General Classification of Banks.

3. Meaning of commercial banks
• A commercial bank is a financial institution which performs the functions of
accepting deposits from the general public and giving loans for investment with
the aim of earning profit.
• In fact, commercial banks, as their name suggests, axe profit-seeking institutions,
i.e., they do banking business to earn profit.
Accepting
deposits by
paying less
rate of
interest
Giving loans
for investment
by Charging
High rate of
Interest
Earning profit
(Difference
between both
the interests)

4. Types of commercial banks in India
Commercial
Banks
Public Sector
banks
Private Sector
banks
Foreign banks

6. Pre Independence Period (1786-1947)
• The first bank of India was the “Bank of Hindustan”, established in 1770 and
located in the then, Indian capital, Calcutta. However, this bank failed to
work and ceased operations in 1832.
1770
•The General Bank of India (1786-1791)
•Oudh Commercial Bank (1881-1958)
•Bank of Bengal (1809)
•Bank of Bombay (1840)
•Bank of Madras (1843)
Various Banks
established in India
• During the British rule in India, The East India Company had established
three banks: Bank of Bengal, Bank of Bombay and Bank of Madras and
called them the Presidential Banks. These three banks were later merged
into one single bank in 1921, which was called the “Imperial Bank of India.”
1921
1955= The Imperial Bank of India was later nationalised and was named
The State Bank of India, which is currently the largest Public sector Bank.

7. Pre independence Banks in India
Bank Name Year of Establishment
Allahabad Bank 1865
Punjab National Bank 1894
Bank of India 1906
Central Bank of India 1911
Canara Bank 1906
Bank of Baroda 1908

8. Reason for failure of Banks during pre-
Independence Era
Indian account
holders had
become fraud-
prone
Lack of machines
and technology
Human errors &
time-consuming
Fewer facilities
Lack of proper
management skills

9. Pre Nationalised Period (1947-1969)
• At the time, when India got independence, all the major banks of the
country were led privately which was a cause of concern as the
people belonging to rural areas were still dependent on money
lenders for financial assistance.
• With an aim to solve this problem, the then Government decided to
nationalise the Banks. These banks were nationalised under the
Banking Regulation Act, 1949. Whereas, the Reserve Bank of India
was nationalised in 1949.

10. Post Nationalisation period (1969-1991)
After State Bank of India was formed in
1955
14 banks whose national
deposits were more than 50
crores were nationalised
between this time duration.
Allahabad Bank
Bank of India
Bank of Baroda
Bank of Maharashtra
Central Bank of India
Canara Bank
Dena Bank
Indian Overseas Bank
Indian Bank
Punjab National
Bank
Syndicate Bank
Union Bank of India
United Bank
UCO Bank

11. Post Nationalisation period (1969-1991)
In the year 1980, another 6 banks
were nationalised
Andhra Bank
Vijaya Bank
Corporation Bank
Punjab & Sind Bank
New Bank of India
Oriental Bank of Comm
seven subsidiaries of
SBI which were nationalised in
1959
State Bank of Patiala
State Bank of Hyderabad
State Bank of Bikaner & Jaipur
State Bank of Mysore
State Bank of Travancore
State Bank of Saurashtra
State Bank of Indore

12. Impact of Nationalisation
increase in funds =increasing the
economic condition of the country
Increased
Efficiency
evolution of
the banking
sector
Better
employment
opportunity
Helped in
boosting the
rural and
agricultural
sector
work
efficiency
had
increased

13. Regional Rural Banks
• On the recommendation of M.Narsimhan committee, RRBs (Regional Rural
Banks) were formed on Oct 2, 1975. The objective behind the formation of
RRBs was to serve large unserved population of rural areas and promoting
financial inclusion. With a view to meet the specific requirement from the
different sector (i.e. agriculture, housing, foreign trade, industry) some
apex level banking institutions were also setup like
• → NABARD (est. 1982)
• → EXIM (est. 1982)
• → NHB (est. 1988)
• → SIDBI (est. 1990)

14. Recommendations of Naramsiham Report-I
• 1. Establishment of a four-tier hierarchy for the banking structure
consisting of three to four large banks with SBI at the top.
• 2. The private sector banks should be treated equally with the public sector
banks and govt. should contemplate to nationalize any such banks.
• 3. The ban on setting new banks in private sector should be lifted and the
licensing policy in the branch expansion must be abolished.
• 4. The govt. has to be more liberal in the expansion of foreign bank
branches and also foreign operations of Indian banks should be
rationalized.
• 5. The Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR) should
be progressively brought down from 1991-92.

15. 6. The directed credit program should be re-examined and the priority sector
should be redefined to comprise small and marginal farmers, the tiny industrial
sector, small business operators and weaker sections.
7. Banking industry should follow BIS/Basel norms for capital adequacy within
three years.
8. Interest rates should be deregulated to suit the market conditions.
9. The govt. should tighten the prudential norms for the commercial banks.
10. The competition in lending between DFIs and banks should be increased and a
shift from consortium lending to syndicated lending should be made.
11. In respect of doubtful debts, provisions should be created to the extent of 100
percent of the security shortfall.
12. The govt. share of public sector banks should be disinvested to a certain
percentage like in case of any other PSU.
13. Each public sector banks should set up at least one rural banking subsidiary
and they should be treated at par with RRBs.

16. Banking from 1991- till date

17. In 1990, due to
liberlisation
licenses to a
small number of
private banks
were given,
which came to
be known as
New Generation
tech-savvy
banks like
Global Trust
Bank, Axis bank
(UTI
then),ICICI
Bank and HDFC
Bank
In 1991,on the
recommendation
of the
Narsimhan
committee RBI
gave license to
10 private
entities, of
which 6 are
survived like
ICICI, HDFC,
Axis Bank,
IDBI, Indus,
DCB
In 1998,on the
recommendation
of the
Narsimhan
committee,RBI
gave license to
Kotak Mahindra
Bank (2003)
&Yes Bank
(2004)
In 2013-14, 3rd
round of bank
licensing took
place. And in
2014 IDFC bank
and Bandhan
Bank emerged
In order to
further financial
inclusion, RBI
also proposed to
set up 2 kind of
banks i.e.
Payment Banks
and Small Banks

18. Recommendations of Naramsiham Report-II
• 1. The committee favored the merger of strong public sector banks
and closure of some weaker banks if their rehabilitation was not
possible.
• 2. It recommended corrective measures like recapitalization is
undertaken for weak banks and if required such banks should be
closed down.
• 3. The committee had also suggested an amicable golden handshake
scheme for surplus banking sector staff.
• 4. Suggesting a possible short term solution to weak banks, the
report observed that the narrow banks could be allowed as a mean of
facilitating their rehabilitation.

19. • 5. Expressing concern over rising non-performing assets, the committee
provided the idea of setting up an asset reconstruction fund to tackle the
problem of huge nonperforming assets (NPAs) of banks under public sector
• 6. The report emphasized the need of enhancement of capital adequacy
norms from the present level of 8 percent but did not specify the amount
to which it should be raised.
• 7. The Banking Sector Reform Committee further suggested that existence
of a healthy competition between public sector banks and private sector
banks was essential.
• 8. The report envisaged flow of capital to meet higher and unspecified
levels of capital adequacy and reduction of targeted credit.

20. PRESENT SCENARIO OF BANKING INDUSTRY
Improved management &
control
Healthy Competition
Decrease in
non
performing
loans
Implement
ation of
latest
technology
Increased
profitability
of Banks
Reward linked
performance
Excellence
provision of
service to
General public

21. Evolution of banking
‘Bank’ word is derived from the
words ‘ Bancus ’ or ‘ Banque ’
which means a bench. A simple
form of banking was practiced by
the ancient temples of Egypt,
Babylonia, the ancient temples of
Egypt, Babylonia, and Greece,
which loaned at high rates of
interest for the gold and silver
deposited for safekeeping

22. Evolution of banking

23. How banking system emerged in India?
• Kautilya, in 330 B.C. recognised the
importance of accounting methods in
economic enterprises. He developed
Book-keeping rules to record and
classify economic data. He also linked
the successful enforcement of rules
and regulations to their clarity,
consistency and completeness. He also
emphasised the role of ethics in the
economic activities.

24. Banking Regulations
The Banking Regulation Act 1949 contains various provisions’ governing
the Commercial Banks in India. The Act was initially known as Banking
Companies Act, 1949. It was passed in 1949 to consolidate and amend
the laws relating to banking companies. The act was changed to
Banking Regulation Act, 1949 from 1st March, 1966.
Right from the definition of the word banking, its licensing,
functioning, capital and reserve requirements, banking operations and
management structure, liquidity provisions and profit distribution and
bank inspection down to the take-overs and amalgamation of the
banks and their liquidation have all been extensively covered under the
Act.

25. Objectives of Banking Regulation Act, 1949
The objective of Banking Regulation Act, 1949 is to:
• Provide specific legislation containing comprehensive provisions, particularly to
the business of banking in India
• Prevent such bank failures by prescribing minimum capital requirements
• Ensure the balanced development of banking companies
• Give powers to RBI to approve the appointment, reappointment, and removal
of the chairman, directors, and officers of the banks
• Safeguard the Interests of Depositors
• facilitate strengthening the banking system of the country

26. Importance of Banking regulation act, 1949
Gives power to RBI to
license banks & also
regulation of
shareholding
Gives power to RBI to
conduct appointment
of boards and
management members
of Banks
RBIU issues directives
on banking policy in
the interest of public
good and can impose
penalties, if required
It lays down directions
for audits to be
managed by RBI, and
control merging &
regulation
Co-operative banks
were incorporated
under this act in the
amendment of 1965

27. Functions of Bank regulation
• Monetary policy
• Regulation and supervision of the banking and non-banking financial institutions, including
credit information companies
• Regulation of money, forex and government securities markets as also certain financial
derivatives
• Debt and cash management for Central and State Governments
• Management of foreign exchange reserves
• Foreign exchange management—current and capital account management
• Banker to banks
• Banker to the Central and State Governments
• Oversight of the payment and settlement systems
• Currency management
• Developmental role
• Research and statistics

28. Classification of banks in India

29. Public sector banks
• These are the nationalised banks and account for more than 75 per cent of the
total banking business in the country. Majority of stakes in these banks are held
by the government. In terms of volume, SBI is the largest public sector bank in
India and after its merger with its 5 associate banks (as on 1st April 2017) it has
got a position among the top 50 banks of the world

30. Private sector banks
• These include banks in which major stake or equity is held by private
shareholders. All the banking rules and regulations laid down by the RBI will be
applicable on private sector banks as well.

31. Foreign Bank
• A foreign bank is one that has its headquarters in a foreign country but operates
in India as a private entity. These banks are under the obligation to follow the
regulations of its home country as well as the country in which they opearte
• Citi Bank.
• HSBC India
• Deutsche Bank
• Royal Bank of Scotland
• DBS Bank
• Barclays Bank
• Bank of America
• Bank of Bahrain and Kuwait
• ANZ Bank

32. Number of Banks in India, as on 2020
Number of Public sector Banks in India are 12
Number of Private sector Banks in India are 22
Number of Foreign Banks in India are 45

33. Small Finance Banks
• This is a niche banking segment in the country and is aimed to provide
financial inclusion to sections of the society that are not served by other
banks. The main customers of small finance banks include micro industries,
small and marginal farmers, unorganized sector entities and small business
units. These are licensed under Section 22 of the Banking Regulation Act,
1949 and are governed by the provisions of RBI Act, 1934 and FEMA
Au Small Finance Bank Ltd
Capital Small Finance Bank Ltd.
Fincare Small Finance Bank Ltd. Equitas Small Finance Bank Ltd.
ESAF Small Finance Bank Ltd. Suryoday Small Finance Bank Ltd.
Ujjivan Small Finance Bank Ltd. Utkarsh Small Finance Bank Ltd.
North East Small Finance Bank Ltd. Jana Small Finance Bank Ltd.

34. Regional rural Banks
• These are also scheduled commercial banks but they are established with
the main objective of providing credit to weaker sections of the society like
agricultural laborers, marginal farmers and small enterprises. They usually
operate at regional levels in different states of India and may have branches
in selected urban areas as well. Other important functions carried out by
RRBs include-
• Providing banking and financial services to rural and semi-urban areas
• Government operations like disbursement of wages of MGNREGA workers,
distribution of pensions, etc.
• Para-Banking facilities like debit cards, credit cards and locker facilities

35. Payment Banks
• This is a relatively new model of bank in the Indian Banking industry. It was
conceptualised by the RBI and is allowed to accept a restricted deposit. The
amount is currently limited to Rs. 1 Lakh per customer. They also offer services
like ATM cards, debit cards, net-banking and mobile-banking. “Banking at the
doorstep” is the phrase. Six payment banks in India as on 2020 are:
• Airtel Payment Bank
• Indian Post Payments Bank
• Fino Payments Bank
• Paytm Payments Bank
• Jio Payments Bank
• NSDL Payments Bank(yet to start their operations)

36. Co-operative banks
• Co-operative banks are registered under the Cooperative Societies Act,
1912 and they are run by an elected managing committee. These work on
no-profit no-loss basis and mainly serve entrepreneurs, small businesses,
industries and self-employment in urban areas. In rural areas, they mainly
finance agriculture-based activities like farming, livestock and hatcheries.
Two types of banks operating under this head are:
• Urban Co-operative banks
• Rural Co-operative banks

37. Scheduled banks
• Scheduled banks are covered under
the 2nd Schedule of the Reserve Bank
of India Act, 1934, to be called as
Schedule bank:
• A bank that has a paid-up capital of
Rs. 5 Lakh and above qualifies for the
schedule bank category
• A bank requires to satisfy the central
bank that its affairs are not carried out
in a way that causes harm to the
interest of the depositors
• A bank should be a corporation rather
than a sole-proprietorship or
partnership firm
Non-scheduled banks
• Non-scheduled banks refer to
the local area banks which are
not listed in the Second
Schedule of Reserve Bank of
India. Non-Scheduled Banks are
also required to maintain the
cash reserve requirement, not
with the RBI, but with them.

38. LAWS RELATED TO BANKING SECTOR
Companies
Act, 1956
Banking
Companies act
Negotiable
instruments,
1881
SARFAESI Act,
2002
Banker’s Book
evidence act,
1891
Regional Rural
Bank, 1976
SBI Act, 1955