1)BANKING STRUCTURE.pptx

7/25/2019 1)BANKING STRUCTURE.pptx

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BANKING STRUCTURE

R.BRASWALKAR

MMS-PG-FT


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Banking Structure

The i!er"it# $% Inian Banking "#"te& '

i)PSBs,

ii)private sector old and new,

iii)regional rural banks (RRBs),

iv)local area banks (LABs),

v)rural cooperative banks,

vi)urban cooperative banks (UCBs),

vii)Sall !ndustries "evelopent Bank o# !ndia (S!"B!),viii)$ational Bank #or Agriculture and Rural "evelopent($ABAR") and

i%) &icro Units "evelopent and Re'nance Agenc (&U"RA),

%) te proposed Paent Banks, *te sall savings banks is

a

callenge #or re#ors+

Besides tere are outliers te icro'nance institutions(&!s) and te $BCs+


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-

SC(E)ULE) BANKING STRUCTURE IN IN)IA

C$n"tituent" $% theInian BankingS#"te&


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Cooperative credit institutions &arc ./0-

4


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C1&&2RC!AL BA$3!$4 S5S62& &arc ./0-

At present, te banking structure in !ndia

coprises 07/ banks (.8 public sector banks, 9new private sector banks, 0- old private sectorbanks, :- #oreign banks, : local area banks(LAB) and 79 Regional Rural Banks (RRB)+

Public sector banks ;.8>F Under 1rder o# &oratoriu

Bank o# Baroda BareillCorporation Bank

0>>> Under 1rder o# &oratoriu

Union Bank o# !ndia Sikki Bank 0>>> Keak bank

I"C Bank 6ies Bank ./// AcEuire a new age private sectorbank, a#ter licenses were issued in

0>>-

!C!C! Bank Bank o# &adura .//0 4eograpic e%pansion in Sout!ndia, priaril in 6ail $adu,were !C!C! Bank ad inialpresence

1riental Bank o#

Coerce

4lobal 6rust Bank .//: Under 1rder o# &oratoriu

Centurion Bank=CB Bank o# Pun?ab=BoP

.//7 Copleentar businesses CBpresent priaril in Sout andKest vs+BoP in nort,CB #ocused on retail vs+ BoP inS&2 and agri sector

Cobined entit would avenationwide presence wit

& * A i iti * C lid ti i B k


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&ergers * AcEuisitions * Consolidation in Banks

Merger" an Ac2ui"iti$n"- Inian c$ntet Na&e $% Ac2uirer Target ear Re&ark"

ederal Bank 4anes Bank o#3urundwad .//8 6ap agriculture and retail port#olio

!"B! United KesternBank

.//9 Under 1rder o# &oratoriu

!ndian 1verseas Bank Barat 1verseasBank .//9

.//9 Consolidation wit te largestsareolderBank

!C!C! Bank Sangli Bank .//F Branc network and custoer basein rural and sei=urban locationsallow !C!C! to roll=out rural and S&2banking operations

Standard CarteredBank

Aerican 2%pressBank

.//F 1utcoe o# global acEuisition, toenance presence in 'nancial

institutionsCartered Bank and private bankingbusiness

State Bank o# !ndia State Bank o#Saurastra

.//> Consolidation erger wit one o#te associate banks

State Bank o# !ndia State Bank o# !ndore .//> Consolidation erger wit one o#

te associate banks


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&ergers * AcEuisitions * Consolidation in Banks

Merger" an Ac2ui"iti$n"- Inian c$ntet

Na&e $%Ac2uirer

Targetear

Re&ark"

3otak&aindra

!$4 MsaBank

./0:

Copleentarbusiness enancingsout presence wereits presenceBank was inial,acEuire a strong S&2

product were it wasnot present,get &$C clientele andtrader counitcustoer base and

e%pertisein digital banking


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Large an S&a++ Bank"

An issue related to te debate on consolidation inbanking sector is te erits and deerits o# large and

sall banks+

-In "u00$rt $% +arge *ank"

= Large banks can e%ploit econoies o# scale and scopeleading to econoic eHcienc+

=Large banks will ave te capacit, resilience andinnovative Deal to pursue 'nancial inclusion+ 6e willbring diverse e%perience to bear on local initiatives+

=Large banks can potentiall becoe signi'cant globalplaers and tereb give a global reac to !ndiancorporates+

= Large banks wit uge capital base can better eet

te uge #unding reEuireents o# te in#rastructuresectors+


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Large an S&a++ Bank"Again"t +arge *ank"

= Large banks can becoet$$-*ig-t$ %ai+/ +eaing t$

&$ra+ ha?ar 0r$*+e&".;!n econoic teor, a oral aDardis a situation were a part will ave a tendenc to take risksbecause te costs tat could result will not be #elt b te parttaking te risk+ !n oter words, it is a tendenc to be ore willing totake a risk, knowing tat te potential costs or burdens o# taking

suc risk will be borne, in wole or in part, b oters+97 b an ordinance+6e

ordinance was later replaced b Regional Rural BanksAct 0>98+

Section - o# te Act autoriDes te Central 4ovt+ toestablis Regional Rural Banks b noti'cation in teoHcial gaDetteat te reEuest o# a sponsor bank tooperate witin speci'ed local liits+

2ac RRB sponsored b a public sector bank+

Sponsor Bank is a bank b wic a Regional Rural Bankis sponsored and it olds -7@ o# te issued Capital o#te RRB, wile te Central 4ovt+ olds 7/@ * te State4ovt+ olds reaining 07@ o# te issued capital+

Set up to develop rural areas b providing credit andoter #acilities+

Carved out a nice but caracteriDed b lowproductivit and ig $PAs+

RRBs will now be erged wit sponsor banks+

As on -0/-./0- tere were 79 RRBs wit Asset siDe o#

Rs+ .97F+// bn+ (.+7@)


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Regional Rural Banks (RRBs)

E"ta*+i"h&ent $% RRB"== 2volution and

4rowt+ 6e $arasia Korking 4roup (0>97)

conceptualiDed te creation o# RRBs in 0>97as anew set o# regionall oriented rural

banks,hich $u+ c$&*ine the i> +$ca+%ee+ an %a&i+iarit# $% rura+ 0r$*+e&" /

ii> characteri"tic $% c$$0erati!e" iththe 0r$%e""i$na+i"& an

iii> +arge re"$urce *a"e $% c$&&ercia+*ank".

RRBs were establised under te Regional

Rural Banks Act, 0>98 to create an alternative


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E"ta*+i"h&ent $% RRB"== 2volution and 4rowt+

RRBs are ?ointl owned b te 4overnent o# !ndia,te concerned State governent and sponsorbanks, wit te issued capital sared in teproportion o# 7/ percent, 07 percent and -7percent, respectivel+ As per te provisions o# teRegional Rural Banks Act, 0>98 te autoriDedcapital o# eac RRB is Rs+ 7 crore and te issuedcapital is a a%iu o# Rs+ 0 crore+

RRBs were establised in te ear 0>98 as a+$c$"t nancia+ inter&eiati$n "tructure in therura+ area" t$ en"ure "uHcient $ $%in"tituti$na+ creit %$r agricu+ture an $therrura+ "ect$r".

RRB" ere e0ecte t$ ha!e the +$ca+ %ee+


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E"ta*+i"h&ent $% RRB"== 2volution and 4rowt+

In 0ractice the# *$rr$e the 0$+itici?ati$n in +ening/ra&0ant in c$$0erati!e Bank"/ ith the $r"t %$r& $%

uni$ni"& re0+icate %r$& the c$&&ercia+ *ank". The +$c$"t "tructure a" a+"$ a"he aa# a%ter the :*u+Re# re0$rt hich *r$ught 0arit# $% 0a# "ca+e" ithC$&&ercia+ Bank".

ro a odest beginning o# 8 RRBs wit 09 brances covering

0. districts in "eceber, 0>97 te nuber o# RRBs increasedto 0>8 RRBs wit 0:,::8 brances in 0>>0 operating in 70Fdistricts across te countr+

A#ter a pase o# consolidation starting #ro Septeber, .//7,te nuber o# RRBs was reduced #ro 0>8 to F.+

!n te current pase o# consolidation wic began in 1ctober,./0. b aalgaation o# RRBs across sponsor banks witin aState, te nuber o# RRBs as #urter reduced to 80 RRBs ason une ./0- wit over 0F/// brances in 8-F districts+;latestnuber is 79 RRBs@+

!n $oveber, ./0/ te branc licensing polic was

liberaliDed wic allowed RRBs to open brances in 6ier -to 6ier 8 centres (wit population o# up to :>,>>> as per.//0 Census) witout prior approval #ro te ReserveBank, sub?ect to certain conditions+ 6is polic was #urterliberaliDed in August, ./0- to also include 6ier . centres+

6e ne%t pase o# consolidation coenced #ro1ctober, ./0. wit aalgaation o# RRBs across sponsorbanks witin a State+

R i l R l B k (RRB )


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Per%$r&ance $% RRB" P$"t A&a+ga&ati$n 09F89

Net 0r$t 1cr3 809 .-F:

Pr$t@+$"" &aking RRB" 000.. 8-0

)e0$"it" 1cr3 90-.> .00:79

L$an" A!ance" 1cr3 -F7./ 0--/>F

C) rati$ 193 77+9 88+0-

Share $% CASA ine0$"it" @

7>+0: 79

Share $% PSA in t$ta+@

F0 F8

Share $% agri a! t$ 7:+. 8-

Regi$na+ Rura+ Bank" 1RRB"3


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Regi$na+ Rura+ Bank" 1RRB"3

Per%$r&ance $% RRB" P$"t A&a+ga&ati$nJc$nt.

Post aalgaation, in ters o# total business . RRBs are larger

tan soe private sector coercial banks as can be seen#ro te grap below


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C$$0erati!e Bank"


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C$$0erati!e Bank"

C$$0erati!e" are *a"e $n the 0rinci0+e"$% c$&&unit# ca&araerie/ - &utua+ he+0/e&$cratic eci"i$n &aking an $0en&e&*er"hi0.

C$$0erati!e" re0re"ent a ne ana+ternati!e a00r$ach t$ $rgani?ati$n a"

again"t 0r$0rietar# r&"/ 0artner"hi0 r&"an ;$int "t$ck c$&0anie"/ hich re0re"entthe $&inant %$r& $% c$&&ercia+$rgani?ati$n.

The 0rinci0+e" c$!er !ari$u" a"0ect" $%c$$0erati!e" *eginning %r$& it"&e&*er"hi0 t$ c$ncern $n c$&&unit#.


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C$$0erati!e Bank"

Intr$ucti$n

Co=operative banks pla an iportant role in eetingte credit reEuireents o# bot te urban and rural

!ndia+6oug in te bank doinated 'nancial sste,tese institutions account #or a sall sare in te totalcredit te old a signi'cant position in credit deliver

as te cater to diGerent geograpic locations anddeograpic categories+

6e wide network o# co=operative banks, bot rural andurban,suppleents te coercial banking network #ordeepening 'nancial interediation b bringing a largenuber o# depositorsborrowers under te #oralbanking network+

)e&$gra0hica++#/ the"e in"tituti$n" ha!e ena*+eacce"" t$ nancia+ "er!ice" t$ +$ an &i+e-

inc$&e gr$u0" in *$th rura+ an ur*an area".

i di i i i


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Cooperative credit institutions &arc ./0-

50


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Rura+ C$$0erati!eBank"

Co op Banks


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Co op Banks

Cooperative Banks cae into e%istence wit teenactent o# te Cooperative Credit Societies Act o#

0>/: wic provided #or te #oration o# cooperativecredit societies+

SubseEuentl, in 0>0., a new act was passed wicprovided #or te establisent o# cooperative central

Banks+ Cooperative Banking coprises

i) Urban cooperative Banks

ii) Rural Cooperative Banks

) Cooperative Banks 'll in te gaps o# Banking needs o#sall and ediu incoe groups not adeEuatel ettroug b te Public sector and Private sector Banks+

) A C$$0erati!e Bank i" a &e&*er 0r$&$te anha" t$ *e regi"tere ith the "tate *a"e

Regi"trar $% C$$0erati!e S$cietie".

Rura+ C$$0erati!e Bank"


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Rura+ C$$0erati!e Bank" 0+a# an i&0$rtant r$+e inthe rura+ creit e+i!er# "#"te& a" the# acc$unt %$rar$un 59 $% Rura+ )e0$"it" an 889 $% the creit

$% the *anking "#"te& %$r Agri. an Rura+e!e+$0&ent.

Sh$rt- ter& "tructure $% Rura+ C$$0erati!e Bank"c$&0ri"e"-

i3 State C$$0erati!e *ank"1StCB"3- the u00er tier.=,>

ii3 )i"trict Centra+ C$$0erati!e *ank"1)CCB"3-the&i+e tier.=45>

iii3Pri&ar# Agri+. Creit S$cietie"1D8D3-the +$ertier.=D/8D>

) L$ng- ter& "tructure $% Rura+ C$$0erati!e Bank"c$&0ri"e"-

i3 State C$$0erati!e Agricu+ture an Rura+)e!e+$0&ent *ank" SCAR)B- the u00er tier.=D5>

II3 Pri&ar# C$$0erati!e Agricu+ture an Rura+

)e!e+$0&ent *ank"1PCAR)B"3- the +$er tier.=74>



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Pro'le o# Rura+ C$$0erati!e Bank"- a" $n ,@5@,D A&nt. in R". *n.Sh$rt Ter& L$ng -Ter&

StCB" )CCB"

PACs SCAR)B

PCAR)B

$o o#Cooperatives

-0 -9/ >.:-. ./ 8>9

1wned unds 0:7 -7> 08/ 8: :F"eposits F89 098F 7/- 00 /7

Advances 978 0::F >0. 0>: 0./

!nstitutions inpro't

.F -0F :7:-- 0/ -7F

Ant+ 1# Pro't /9 09 0: /0 /.

$PA=@ 8+F >+9 .8+F --+0 -F+8

Recover o#Loans to"eand ratio=@

>8 9F 9- :0+- :9+-



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0

Pr$*+e&" $% c$$0erati!e"

"espite te penoenal outreac and volue o#operations, te ealt o# a ver large proportion o# rural

credit cooperatives as deteriorated signi'cantl+

6e institutions are beset wit probles like

i< poor governance,

!i< in#rastructural weaknesses,

!ii< operational ineHciencies and!v


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0


6ere is an urgent need to 'nd was #or

strengtening te cooperative oveent toeet te credit needs o# rural !ndia, especiallte resource=poor and resource=less poor#arers+ 6e revitaliDation and strengtening o#

cooperative institutions at all levels souldtere#ore be considered not onl desirable bute%pedient+

6e trust as to be #our=#old, 'nancial,

operational, organiDational and ssteic+



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Rura+ C$$0erati!e Bank"Pr$*+e&" $% c$$0erati!e"

P$$r g$!ernance

Cooperatives operate witin te legal #raework #orulated b

state governents+ Iowever, copliance wit te legalprovisions o# te State Cooperative Societies Acts as not beenensured+ 4overnance, connected lending, transparenc in granto# loans, audit, internal cecks and control, recover o# dues,recruitent o# Euali'ed persons are issues aGecting teeHcient #unctioning o# cooperatives+

As doinant sare olders, state governents inter#ere in teanageent o# cooperatives+Supervision and guidance b teelected Boards is la%+"ela in conduct o# elections, #reEuentsupersession o# te Boards, lack o# participation b ebers inte anageent and decision=aking process ave ipaired

#unctioning o# cooperatives on sound business lines+ !n teabsence o# pro#essional anageent, accountabilit anduncertain tenures, te Board ebers are not able to providednaic leadersip to te organiDation+ Restoring andstrengtening autono, utual elp and sel# governance are

te cornerstone o# te cooperatives+



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0


Lack $% &e&*er 0artici0ati$n

6e cooperative structure sould be eber=driven+ Iowever, ebers

aving a voting rigt do not take active part or sow interest in te aGairso# te cooperatives since te control and anageent is vested in a #ewebers +Besides, depositors, wose one is interediated b tecooperatives, ave no voting rigt or an sa in te anageent+

)ua+it# $% c$ntr$+

Under te Constitution, TCooperationQ is a statesub?ect governed b te

respective State Cooperative Societies Acts+ Registration, incorporation,anageent, election, and audit are governed b te State Acts+ Soeaspects relating to banking activities are regulated and supervised b teReserve Bank o# !ndia $ABAR" under te Banking Regulation Act, 0>:>(As Applicable to Cooperative Societies)+ 6ere is an urgent need to reovete overlapping controls and endowing #unctional autono andoperational #reedo to cooperatives+ Banking #unctions sould be brougtcopletel under te Banking Regulation Act+ 6e provisions o# te BankingRegulation Act sould override te provisions o# te State Actsbe=lawsrules wic run counter to it+ 6is will lead to clear dearcation o# teareas o# activities o# cooperative banks+


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RURAL BANKING

Rura+ Area-India lives in its villages"

- Mahatma Gandhi


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Rura+ Banking

C1$62$6+

Particulars0 Current State o# Rural Banking in !ndia

. 3e "rivers o# inancial 2%clusion o# RuralBanking in !ndia

- Reasons #or Unpro'table Rural Banking in !ndia

: &arket 1pportunit o# Rural Banking in !ndia

7 Usage issues #or Rural Custoers

8 !proving Access o# Rural Banking in !ndia9 Conclusion


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Rura+ Banking

Rura+ Area-India lives in its villages" - MahatmaGandhi

What i" rura+ "ect$r $r hich 0+ace can *e

ene a" rura+ area6e rural sector eans an place as per te latestcensus wic eets te #ollowing criteria,

0)A population o# less tan 7,///

.)"ensit o# population less tan :// per sE k and-)ore tan .7 per cent o# te ale workingpopulation is engaged in agricultural pursuits+

+ ki


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Rura+ Banking

Rura+ Inia

Rural !ndia constitutes 8>@ o# !ndiaQs population+

F8@ o# Rural population earns less tan . perda (ost o# !ndian BoP ;6e Base o# Praid per cent o# te ale population asreaced te graduation level (/+/:@ #or woen)and 8+@ o# te rural ales are educated up tote iddle level+

Connectivit !n .//8 0-@ in rural !ndia ad to

travel -/ inutesV ./00 ?ust .@+ Ken it coesto connectivit, Rural !ndian B1P segent ;6eBase o# Praid< as grown ore tan urban inlast ear+

6e rural econo contributes nearl al# o# teQ

R + B ki


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Rura+ Banking

Rura+ Inia

&ore tan 7/ percent o# te sales &C4 and"urable copanies coe #ro te rural areas+

According to estiates,

- appro%iatel .:7 illion adults (.:@) in rural!ndia do not ave a bank account,

- 8/ illion out o# .:7 illion a not needbanking services because te are below tepovert line appro%iatel

- 0F7 illion Wpotentiall bankableX people do not

use #oral banking services because o# reasonslike poor access or usage


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Rura+ Banking

)#na&ic" $% Rura+ Ec$n$-

0)6e integration between rural and urban areas asincreasedsigni'cantl, wit te result, obilit o#labour, capital, products and even credit between tetwo is increasing+

.) CoercialiDation o# agriculture,particularl te

increasing role o# cas crops like cotton as resulted insubstantial role #or suppliers * and buers credit+6us,#ertiliDer and pesticide are supplied to #arers on credit,o#ten on de#erred paent basis+ !n suc de#erredpaent arrangeents, credit ters are built into price

and ence it is diHcult to isolate ters+Siilarl, te coission agents advance onetowards purcase o# output #ro #arers, wicaounts to providing credit and includes an eleent o##orward trading+6ese arrangeents are o#ten enteredinto on a voluntar basis+

Rura+ Banking


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Rura+ Banking


-) Copared to cereal production, oter #ood ites, including

poultr and 's are growing at a #aster pace+ !n oter words,rural agriculture is getting increa"ing+# i!er"ie inter&" $% 0r$uct" an 0r$ce""e".

:) !n areas were coercialiDation o# agriculture asreaced signi'cant levels, the traiti$na+ +an+$r *a"e

tenanc# i" re0+ace ith c$&&ercia+ *a"e tenanc#.Kere intensive cultivation o# cas crops suc as cotton iscalled #or, tis as becoe Euite coon+ Iowever, tepresent credit and banking procedures do not cater to teworking capital needs o# suc coercial based tenancrelationsip+

7) 4iven te diversi'ed activities, and large work #orce inrural areas, tere is increa"ing rec$ur"e t$ &u+ti0+e$ccu0ati$n"to earn a decent liveliood+ or e%aple, asall #arer is also a pett trader and a also be a satellitebased cable television operator in te village+

Rura+ Banking


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Rura+ Banking


8)6o te e%tent eploent and indeedinc$&e" c$u+

*e "ea"$na+/especiall #or agricultural labour,tere isreason to seek and obtain c$n"u&0ti$n +$an".Presentarrangeents in #oral credit arkets are inadeEuate toeet suc reEuireents+

9) Kile tere is signi'cant coercialiDation and

diversi'cation o# rural econoies,0r$gre"" i" !er#une!en in ierent 0art" $% the c$untr#.So, tereare still an areas, were e0+$itati$n $% tri*a+ *#&$ne# +ener"or o# agricultural labourers b landlordone lenders, still persists+ $ors and procedures o#credit, tere#ore, need to be diGerent to eet varingcircustances+

F) Credit "eposit ratio o# Rural, Sei Urban, Urban *&etro sector indicate $et trans#er o# Savings #ro Rural

to $on=Rural sectors+


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Rura+ Banking

What I" Rura+ Banking It i" a %$r& $% "er!ice" that 0r$!ie "$+uti$n t$ thenancia+ nee" $% the c$n"u&er" in Rura+ area".

Financia+ Ser!ice" re2uire %$r Rura+ "ect$r-

0)Savings,

.)Loans,

-)Reittances,

:)!nsurance,

7)Credit Cards,

8)Pension,

9)PensionSocial securit+

Rura+ Banking


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Rura+ Banking

In"tituti$na+ "tructure $% Rura+Banking-

C$&&ercia+ Bank"

Three TierC$-$0

Bank"

Pri&ar#C$-$0 Agri+

Rura+)e!e+$0&ent Bank"

Regi$na+Rura+

Bank"

0)PublicSector

.)Privatesector

-)oreignBanks

0)State Co=op Banks

.)"istCentralCo=opBanks

-)Priar

R + B ki


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Rura+ Banking

)e0ening u0$n the re2uire&ent an 0ur0$"e/ the%un" neee *# Inian %ar&er" can *ecateg$ri?e int$ three t#0e"-

0)Sort ter loan = 0. to07 ontsSI1R6 62R& L1A$are issued to te #arer #or te purpose o# cultivation ordoestics e%penses suc buing seeds, anure and#odder #or cattle, etc+

.) &ediu ter loan=- to 7 ears &2"!U& 62R& L1A$are given to #arer to purcase cattle, agricultureipleent and to ake iproveent on land+

-) Long ter loan =7 to ./ earsL1$4 62R& L1A$ are

given to te #arer to purcase land, pa o# old debt andpurcase use#ul aciner #or long ter usage+ 6eseloans are #or coparative long period since te #arerscan repa te graduall over a nuber o# ears+


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Rura+ Banking

S$urce" $% Rura+ Finance-

In"tituti$na+ Creit-Financia+ In"tituti$n"

0)Coer

cialBanks

.)Regional

RuralBanks

-) Co=opBanks

Pri!ate Creit

0)&oneLenders

.)Landlords

-)6raders *CoissionAgents

T#0e" $% Financia+ In"tituti$n"

A)oral=Banks B)!n#oral=$on=Banks

0)$ationaliDedBanks

.)PrivateBanks

-)RRBs &icro inance !nstitutions = &icroCredit to &icro 2ntrepreneur

$on=pro'torg,Public 6rust

&utualBene't orglike Sel#

Ielp

or Pro'torg=$on=

Banking

Rura+ Banking


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Rura+ Banking

:*;ecti!e" :% Banking Ser!ice" In Rura+ Area

0)P$!ert# A++e!iati$n :*;ecti!e"


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Rura+ Banking

inancial $eeds * Service

reEuireents=Financia+Nee" Ser!ice

Critica+Nee"

)e"cri0ti$n CurrentA!ai+a*i+it#!ia F$r&a+Banking

Rati$na+e

Saving &icro Saving "ailreEuentsurplus Saving

Low Banks do not oGerdail sall saving

deposit sceereEuentKitdrawals

6o eetcontingencies,Social#unctions,KorkingCapital

Low Bank Branc cannelis cost ineGective inRural areas+

Credit &icro Credit orConsuption,2ducation, oreergencpurposes

Low Rural Banks generalldo not give Loans #orConsuption,2ducation, oreergenc purposes

&ediu 6oug Banks give

icro credit #or

&icro

2nterpriseCredit

Korking Capital

or Sall Capital!nvestent

Rura+ Banking


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Rura+ Banking

inancial $eeds * Service

reEuireents=Financia+Nee" Ser!ice

Critica+Nee"

)e"cri0ti$n

CurrentA!ai+a*i+it#!ia F$r&a+Banking

Rati$na+e

!nsurance*Reittance

&icro!nsurance

Assetprotection,Iealt,Li#e *Saving

Protection

Low !nsurancesservices #orRural poor aree%treel Low

Reittances *6rans#ers

6o access#undsreittedbrelatives

Iig Kit coreBanking to *#ro Ruralareareittancesave becoe


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Rura+ Banking

I""ue" Cha++enge" in Rura+Banking-

Augenting credit Now to various

sectors o# econo Priorit sector lending

Credit "eposit Ratio

inancial !nclusion inancial literac

Rura+ Banking


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Rura+ Banking

I""ue" Cha++enge" in Rura+ Banking-

Pri$rit# "ect$r +ening-

Pri$rit# "ect$r re%er" t$ th$"e "ect$r" $% theec$n$ hich &a# n$t get ti&e+# an ae2uatecreit in the a*"ence $% thi" "0ecia+i"0en"ati$n.

6picall, tese are sall value loans to #arers #oragriculture and allied activities, icro and sallenterprises, poor people #or ousing, students #oreducation and oter low incoe groups and weakersections+6ose sectors wic are able to get tiel

and adeEuate credit would not Euali# #or status o#priorit sector

Categ$rie" uner Pri$rit# "ect$r


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Rura+ Banking

I""ue" Cha++enge" in Rura+ Banking- Priorit sector lending= Categories=

(i) Agriculture

(ii) &icro, Sall and &ediu 2nterprises(iii) 2%port Credit

(iv) 2ducation

(v) Iousing

(vi) Social !n#rastructure

(vii) Renewable 2nerg

Rura+ Banking


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Rura+ Banking

!ssues * Callenges in Rural Banking= Priorit sectorlending=6argets=

Categ$rie"

)$&e"tic "cheu+ec$&&ercia+ *ank" anF$reign *ank" ith D5*ranche" an a*$!e

F$reign *ank"ith +e"" than D5*ranche"

T$ta+Pri$rit#Sect$r

:/ percent o# Ad?usted $etBank Credit;A$BC< or Credit2Euivalent Aount o# 1G=Balance Seet 2%posure,wicever is iger+oreign banks wit ./

brances and above ave toacieve te 6otal PrioritSector 6arget witin aa%iu period o# 've earsstarting #ro April 0, ./0- and

ending on &arc -0, ./0F as

:/ percent o#Ad?usted $et BankCredit ;A$BC de'nedin sub paragrap(iii)< or Credit2Euivalent Aount

o# 1G=Balance Seet2%posure, wiceveris iger to beacieved in a pasedanner b ././ as

indicated in sub

Rura+ Banking


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Rura+ Banking

!ssues * Callenges in Rural Banking= Priorit sectorlending=6argets=

Categ$rie"

)$&e"tic "cheu+e c$&&ercia+ *ank" anF$reign *ank" ith D5 *ranche" an a*$!e

F$reign*ank"ith +e""than D5*ranche"

Agricu+ture

0F percent o# A$BC or Credit 2Euivalent Aount o#1G=Balance Seet 2%posure, wicever is iger+Kitin te 0F percent target #or agriculture, a targeto# F percent o# A$BC or Credit 2Euivalent Aount o#1G=Balance Seet 2%posure, wicever is iger is

prescribed #or Sall and &arginal arers, to beacieved in a pased anner i.e., 4 0er cent *#March D5,7 an 6 0er cent *# March D5,4.

oreign banks wit ./ brances and above ave toacieve te Agriculture 6arget witin a a%iu

period o# 've ears starting #ro April 0, ./0- and

$otapplicable

Rura+ Banking


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!ssues * Callenges in Rural Banking=

Priorit sector lending=6argets=

Categ$rie"

)$&e"tic "cheu+e c$&&ercia+*ank" an F$reign *ank" ith D5*ranche" an a*$!e

F$reign*ank" ith+e"" than D5*ranche"

Micr$Enter0ri"e"

9+7 percent o# A$BC or Credit2Euivalent Aount o# 1G=Balance Seet2%posure, wicever is iger to beacieved in a pased anner i+e+ 4 0er

cent *# March D5,7 an 4. 0ercent *# March D5,4.6e sub=target #or &icro 2nterprises #or#oreign banks wit ./ brances andabove would be ade applicable post./0F a#ter a review in ./09+

$ot Applicable

A!anc 0/ percent o# A$BC or Credit 2Euivalent $ot Applicable


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Rura+ Banking

!ssues * Callenges in Rural Banking=Priorit sector lending=Status=(Aount in Rs+ Crore)igures in brackets percentageo# A$BC

Particulars 0>8> D5,

Agril 08.(7+:)

7-/-9/(07+-)

&S2 .79+/(F+7)

F:7>.(0-+9)

6otalPrioritSector

::0(0:+8)

0.F..0.(-8+>)

A$BC -/08(0//)

-:9:99.( 0//)

Rura+ Banking


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g

I""ue" Cha++enge" in Rura+ Banking-

G$!ern&ent S0$n"$re Sche&e"-

Reserve Bank o# !ndia onitors te Now o# credit under te#ollowingcredit linked 4overnent Sponsored Sceesipleented b various &inistries o# te 4overnent o# !ndia+

RB! issues guidelines instructions to banks periodicall onproper !pleentation o# Centrall Sponsored Scees and

collates bank KiseState wise data on acieveents ade bte banks on tese Scees+

0+Nati$na+ Rura+ Li!e+ih$$ Mi""i$n 1NRLM3


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Rura+ Banking

!ssues * Callenges in Rural Banking=G$!ern&ent S0$n"$re Sche&e"-

-)Sel# 2ploent Scee #or Reabilitation o#&anual Scavangers (SR&S) ipleented b te

&inistr o# Social ustice and 2powerent, 41!troug Public Sector Banks

:)"iGerential Rate o# !nterest ("R!) Sceeipleented b te &inistr o# inance, 41! troug!ndian Sceduled Coercial banks Bank credit

given to te bene'ciaries (weaker sections) under teabove Scees coes under Priorit Sector lending

Rura+ Banking


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Rura+ Banking


Creit )e0$"it Rati$-C" Ratio is te ratio o# outstanding credit tooutstanding deposit at a particular point o# tie+

!t is a #unction o# credit absorption capacitwic is

dependent on te developent level o# te Statesin te #or o# availabilit o# necessarin#rastructure #acilities reEuired #or developent o#industries, agriculture * service sector etc+

6is is a regular ite o# agenda in SLBC * "CCeetings and tese #ora identi# easures toenance C" ratio and to increase credit absorptioncapacities in te region+

!n 0>F/, RB! advised Public Sector Banks to

acieve a C" Ratio (C"R) o# 8/ in respect o# teir


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Rura+ Banking

I""ue" Cha++enge" in Rura+ Banking-Creit )e0$"it Rati$-

!n .//7, banks are advised to set up Special Sub=Coittee (SSC) o# "istrict Consultative Coittee

("CC) in districts wit C"R Y :/ in order to onitorand draw up &onitorable Action Plans (&APs) #or

iproving C"R on a sel# set graduated basis+


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Rura+ Banking

!ssues * Callenges in Rural Banking=Creit )e0$"it Rati$-

Area Kise Creit )e0$"it Rati$ a"

$% Oune D5,-in ters o# @

Se&iUr*an

Ur*an Rura+ Metr$

77+8F@ 79+F8@ 8F+0F@ >/+7F@


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Rura+ Banking

!ssues * Callenges in Rural Banking=Creit )e0$"it Rati$-Regi$n Wi"e-in ters o# @

une./0-

N$rthea"t

Centra+

Ea"t We"t N$rth S$uth

--+F:@

:7+88@

:9+0.@

F:+.>@ F7+:.@

>:+.0@

Rura+ Banking


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Rura+ Banking


6oug several eGorts were ade toincrease te Now o# institutional credit #oragricultural and rural lending, tere were&i"&atche" in creit an 0r$ucti$n.

ield studies conducted to deterine tereason, revealed tat it was due to absenceo# eGective local level planning=4rass=rootlevel planning

!t was #elt tat wit te establisent o#large network o# brances, a sste couldbe adopted to assign speci'c areas to eac

bank branc in wic it can concentrate on

Rura+ Banking


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Rura+ Banking


6e cooperative banks ave diGerent laersand an o# te ave signi'cantl largenonper#oring assets($PAs)+ &ancooperatives are undercapitaliDed+

6e public sector banking sste alsoe%ibits $PAs, and soe o# te ave so #arbeen provided wit recapitaliDed #unds+ 6e

RRBs also e%ibit $PAs and tese ave beenrecapitaliDed #ro te 4overnent o# !ndiaso #ar, wic would ipl a totalrecapitaliDation o# double te aount

provided b 4overnent o# !ndia+

Rura+ Banking


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g

I""ue" Cha++enge" in Rura+Banking- C$ncern" regaringcurrent a00r$ach-

$on Per#oring Assets Cost o# unds * Rate o# !nterest on

Advances in deregulated arket+

!nstitutional credit is ore likel to beavailable #or well to do aong te ruralcounit+

Relativel backward regions ave less

access to institutional credittan oters

Rura+ Banking


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I""ue" Cha++enge" in Rura+Banking- C$ncern" regaringcurrent a00r$ach-

$on=availabilit o# tiel creditand tecubersoe procedures #or obtainingcredit+

&ultiple 'nancing, over 'nancing and

under 'nancing+ "iGerent agencies o#ten #ail to #orulate

and develop eaning#ul agriculture

progras in given blocks and districts+

Rura+ Banking


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g

I""ue" Cha++enge" in Rura+

Banking- C$ncern" regaringcurrent a00r$ach- Probles in te recover o# loans lent to

sae person b diGerent agencies+

low o# #oral credit to agriculturalldeveloped regions and to relativel larger#arers leaving te backward regions and

sall #arers+6e transaction costs var wit tpe o#

credit agenc involved, te tpe o#borrower and #ar siDe+

2Gective cost o# borrowin s #or saller


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Rura+ Banking

Wa# F$rar 2%pand Reac 6ie up wit !ndia Post to

penetrate te rural arket+ Partner wit $41 &! to act as Business acilitators Business

Correspondent+ ocus on &icro inance

Banks currentl ave to invest :/@ in prioritsector lending (Agriculture, S&2 * 4overnent

Securities)+ &icro inance lending provides 0/=0.@ return as

against 8=9@ in 4overnent instruents+ Riskscould be itigated #urter b partnering wit &!

in speci'c arkets and wile dealing wit SI4


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Rura+ Banking

Wa# F$rar Wtecnolog Z1Ger Convenience+

"evelop innovative products in Agri businessinstead o# routine products like crop loan * tractor

loans 6e !nnovative products are=i) Kareouseconstruction 'nancing ii)Kareouse receipt'nancing iii) Cold cain 'nancing iv) "air'nancing v) Contract #aring+

Rura+ Banking


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!ssues * Callenges in Rural Banking=Financia+ Inc+u"i$n-

inancial !nclusion is te process o# ensuring

access to appropriate 'nancial products and

services needed b all sections o# te societ ingeneral and vulnerable groups suc as weaker

sections and low incoe groups in particular at

an aordable cost in a fair and transparent

manner b ainstrea institutional plaers+


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Ur*an C$$0erati!eBank"

Ur*an C$$0erati!e Bank"


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Ur*an C$$0erati!e Bank" Cooperatives are based on te principles o# counit

caaraderie, = utual elp, deocratic decision akingand open ebersip+

Cooperatives represent a new and alternative approacto organiDation as against proprietar 'rs, partnersip'rs and ?oint stock copanies, wic represent te

doinant #or o# coercial organiDation+ Cooperatives around te world generall operate

according to te seven core principles and values,adopted b te !nternational Co=operative Alliance (!CA)in 0>>7+ Cooperatives trace te roots o# tese principles

to te 'rst odern cooperative #ounded in Rocdale,2ngland in 0F::+

6e principles cover various aspects o# cooperativesbeginning #ro its ebersip to concern oncounit+



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Ur*an C$$0erati!e Bank"UCBs #or an iportant !ehic+e %$r nancia+ inc+u"i$n an%aci+itate 0a#&ent an "ett+e&ent.

UCBs are set=up as sall banks$ering *anking "er!ice" t$0e$0+e $% "&a++ &ean" *e+$nging t$ the +$er an&i+e c+a""e".

UCBs are at te base level o# te banking sste in !ndia0r$!iing *a"ic *anking %aci+itie" t$ 0e$0+e $% "&a++&ean" 0articu+ar+# ur*an 0$$r.

6e UCB sector is uniEue in te sense tat tere is a signi'cantdegree o# heter$geneit# a&$ng the *ank"in tis sector inters o# siDe, geograpical distribution, per#orance and'nancial strengt+ 6e sector as unit banks, ulti=brancUCBs operating witin a state and ulti=state UCBs wit tearea o# operation in ore tan one state+

A" $n ,@5@,8 There ere ,757 Ur*an C$-$0erati!e*ank" 1UCB"3 ith A""et "i?e $% R". 4D.55 *n.1.,9



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Ur*an C$$0erati!e Bank"E!$+uti$n $% the Ur*an Bank Sect$r

Urban Cooperative Banks (UCBs) started in !ndia back in0FF> in 4u?aratand !ndia as one o# te oldest counit=banking oveent in te world+ Iowever, te real growtand proli#eration began a#ter tis sector was brougt underte purview o# Banking Regulation Act in 0>88+ 6e evolution

terea#ter a be broadl divided into tree pases, 4rowtpase, crisis pase and Consolidation pase+

0< Gr$th Pha"e 1,77-D553-!n te ear 0>>-, be#ore teliberaliDation o# bank licensing polic, tere were,,, UCB"aving deposits and advances aounting to Rs+ 000+/F billionand Rs+F9+0- billion, respectivel, wic increased to,D7UCB"wit deposits and advances o# Rs+0/./+9: billion andRs+8:>+9: billion, respectivel b end=&arc, .//:+ 6is isbecause a#ter te liberaliDation o# licensing nors in &a0>>-, up to une .//0, F.- bank licenses were issued+


E + ti % th U * B k S t t


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E!$+uti$n $% the Ur*an Bank Sect$r 'c$nt

.< Cri"i" Pha"e 1D55-D5563 Iowever, it was

observed tat nearl one=tird o# tese newl licensedUCBs becae 'nanciall unsound witin a sort period+RB!, tere#ore, constituted a screening coitteeconsisting o# outside e%perts in une .//0 to e%ainete applications #or licenses+ 6e Coittee

recoended tat it sould be ade andator #or allnewl proposed UCBs to coe troug a process o#graduation #ro a co=operative credit societ on testrengt o# deonstrated and veri'able track record+

Iowever, in te ligt o# te e%perience and teprevailing 'nancial ealt o# te UCB sector a#ter te&adavpura &ercantile Cooperative Bank episode,itwas announced in te Annual Polic Stateent #or teear .//:=/7 tat te Reserve Bank would consider

issuance o# #res licenses onl a#ter a copreensive



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Ur*an C$$0erati!e Bank"E!$+uti$n $% the Ur*an Bank Sect$r 'c$nt

.< Cri"i" Pha"e 1D55-D5563-c$ntReserve Bank took several steps to strengten te sectorduring tis period+ &ost iportant aong te is te&eoranda o# Understanding (&oU) wit all State4overnents and te Central 4overnent+ !n order to

iprove te 'nancial soundness o# te UCB sector,Reserve Bank o# !ndia entered into&eoranda o#Understanding (&oU) wit all State 4overnents and teCentral 4overnent since .//7+6e &1Us #acilitatedcoordination o# regulator policies and actions troug acopreensive set o# capacit building initiatives andeasures to bring in eHcienc troug adoption o#tecnolog+ 6is pase also usered involuntarconsolidationin te sector b erger o# non=viable UCBswit 'nanciall sound and well=anaged UCBs+



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E!$+uti$n $% the Ur*an Bank Sect$r 'c$nt

-< C$n"$+iati$n Pha"e 1D556 $nar"3 -As a result o#

te new initiatives and sustained eGorts b RB!, te nubero# 'nanciall weak banks in te UCB sector declined andconseEuentl te total nuber o# UCBs declined #ro 099/as end=&arc .//F to 08/8 b end=&arc ./0-+

Iowever, te deposits and advances o# urban banks

increased #ro Rs+0->F+90 billion and Rs+>/:+:: billion toRs+.98>+:0 billion and Rs+ 0F/>+8/ billion, respectivel,during te sae period+ 6us, tere was an average annualgrowt o# ./ percent in deposits and in advances, wic isore tan double o# te previous pase growt+ urter, te

nuber o# 'nanciall sound banks also increased #ro .:Fas on &arc -0, ./0/ to 8F: as on &arc -0, ./0-+!ncidentall, ergers o# as an as 008 UCBs ave beeneGected till date a#ter .//7+

As on -0/-0: 6ere were 08/8 Urban Co=operative banks

(UCBs) wit Asset siDe o# Rs+--9.+// bn+(-+0@[

Local Area Banks=


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L$ca+ Area Bank"-

6ese Banks are set up in Private sector tocater to te creditneeds o# te local people and to provide eHcient andcopetitive 'nancial interediation services in teir area o#operation+

RB! issued guidelines #or setting up o# LABs in August 0>>8+

LABs are registered as a public liited Copanunder te

Copanies Act and are issued Licenses under te BankingRegulation Act0>:>+

6e are eligible #or inclusion in te second Scedule o# teRB! act 0>-:+

6e iniu paid up Capital #or suc a Bank is Rs+ 7 Crs+

and ProoterQs contribution is at least Rs+ . Crs+ 6ese Banks are set up in "istrict places and ence teir

#ocus o# Lending is on Agril and allied sector, SS!, Agro basedindustries, 6rading activities wit a view to ensuring tieland adeEuate Credit to Local cliantle in te area o# operation+

:!era++ E0erience ith LAB" @UCB" @RRB"


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=1ut o# si% LABs licensed b RB!, . were closed down, inter alia,due to isanageent and $n+# 8 are %uncti$ning.6eoverall per#orance o# #unctioning LABs is less tan satis#actor

as te ave becoe ig cost structures+ !n ters o# AssetsLABS A""et" c$n"titute 5.5D9 $% T$ta+ A""et" $% SCB"

=6e LAB odel as inerent weaknesses owing to its sall siDeand concentration risk resulting in unviable and uncopetitivecost structures, adverse selection, constraints in attracting and

retaining pro#essional staG anageent due to locationaldisadvantage+

= UCBs suGer #ro isanageent, growing $PAs, stateintervention, politiciDation and poor resource base+ 6ere avebeen 000 ergers and aalgaations aong te UCBs wit

te nuber o# UBCs placed at 0,80F as at end &arc ./0.+;now 08088 to 8.+ ;now 79>0, te !ndian econo asundergone signi'cant trans#oration in ters o# itssiDe and coposition+

6e econoic structure as diversi'ed substantialland te econo as been opening up in its Euestto #urter integrate wit te global econo+ !# tereal econo is dnaic, te banking ssteneeds

to be Ne%ible and copetitive in te eergingilieu+

Miewed #ro tis perspective, there i" a nee an"c$0e %$r %urther gr$th in the "i?e an

"trength $% the ei"ting *anking "tructure t$105

Banking Structure in !ndia 6e Kaorward=contd


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orward contd 6e case #or trans#oring te e%isting banking

structure into a ore dnaic banking

structure stes#ro several considerations+

- 6ere is scope #or increasing te siDe andcapacit o# te banking structure+

- 6ere is also an iperativeneed #or increasingte outreac o# te banking structure+

- Kit te siDe o# te econo increasing, banksreEuire a large international presence+

- Several ga0" ei"t in 0r$!iing Banking"er!ice" 0articu+ar+# Creit t$ certain"ect$r".

106

Banking Structure in !ndia 6e Kaorward=contd


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orward contd=As te real econo is dnaic, it is iperative tat tebanking sste is Ne%ible and copetitive to cope wit

ultiple ob?ectives and deands ade on it b variousconstituents o# te econo+6e critical segents arein#rastructure, Sall and &icro industr and businesses,agriculture and allied activities +

="uring te period since 0>>0, 0. new coercial banks

licenses ave been issued wile none o# te !ndian banks asacEuired te siDe and reac on a global scale+

=6e percentage o# population witout access to #oral'nancial services is still signi'cant+ !t is, tere#ore, iperativetat the e0an"i$n in the *anking "ect$r kee0" 0ace

ith the #na&i"& an c$&0etiti!e nature $% the rea+ec$n$.

=6ese gaps need to be 'lled and tere is alsoa need #or tepresence o# specialiDed and nice banking entities to cater tote speci'c needs o# a growing and dnaic econo+

107

Banking Structure in !ndia 6e Ka orward=contd

Kit a view to oving towards adnaic banking


108/141

structure tat caters to tese ultiple #unctions,teRB! as suggested te #ollowing basic building

blocksin te reorientation e%ercise-:n ta0 +icen"ingas copared to a block licensingapproac to enance copetition and bring in newideas and variet into te sste+

= !pleenting a$&e"tic "#"te&ica++# i&0$rtant*ank=)ISB> %ra&e$rkto deal wit negativee%ternalities o# large banks+

=Creating tree or #our global siDed banks to ave a

global presence troug consolidation aong largepublic * private sector banks(on a voluntar basis),keeping in view te need #or copetition witin tedoestic banking sector and avoiding cople%structures+

=108

Banking Structure in !ndia 6e Ka orward=contd

=2ncouraging inclusion to reac out to te e%cluded


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2ncouraging inclusion to reac out to te e%cludedand under=banked regions+Sall banks at te bottoo# te tiered structure a be te pre#erred veicle #ortese ob?ectives to #acilitate 'nancial inclusion+

= 2nancing te regulator and supervisor regieswit increased intensit o# supervision #or tessteicall iportant banks+

=2volving an eHcient deposit insurance and resolutionecanis to support te envisaged tiered structure+

- Converting urban co=operative banks wic eette necessar criteria into coercial banks or

local area bankssall banks+=2nancing te presence o# #oreign banks to stiulatecopetition and teir subsidiarisation #ro teperspective o# 'nancial stabilit+

=2%panding te siDe and capacit o# banking structure109

Banking Structure in !ndia )e!e+$0&ent Financia+ In"tituti$n"@Bank" Uni!er"a+


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0Banking )ierentiate Bank"

-)e!e+$0&ent Financia+ In"tituti$n"J

"evelopent inancial !nstitutions ("!s) do not reEuire abanking licence+

Post=!ndependence, "!s were establised&ain+# t$&eet the e&an %$r +$ng-ter& nance *# the

inu"tria+ "ect$r. 6e ad te bene't o# low=cost #unds troug Long 6er1peration (L61) #unds #ro RB! at concessional rates, #unds#ro ultilateral and bilateral agencies dul guaranteed bte 4overnent+ 6e were also allowed to issue bonds,

wic Euali'ed #or SLR status+ or deploent o# #unds,te #aced little copetition as te banking ssteconcentrated largel on working capital 'nance and alosttotall ielded te ter 'nance space to "!s+

110

Banking Structure in !ndia )e!e+$0&ent Financia+ In"tituti$n"@Bank"


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)e!e+$0&ent Financia+ In"tituti$n"@Bank"Uni!er"a+ Banking )ierentiate Bank"

-)e!e+$0&ent Financia+ In"tituti$n"J

Post='nancial sector re#ors in te 0>>/s, teprivileged access to low=cost #unds was witdrawn#orcing "!s to raise resources at arket=related

rates+ 1n te oter and, te ad to #acecopetition in te ter 'nance space #ro banksoGering lower rates+ 6e cange in operatingenvironent, cobined wit ig accuulation o#non=per#oring assets, due to a cobination o##actors put 'nancial stress on "!s+ 6oda, "!sare ver arginal plaers in te 'nancial sector+

Pursuant to te recoendations o# te Khan

W$rking Gr$u0 on IaroniDing te Role and111

Banking Structure in !ndia


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)e!e+$0&ent Financia+ In"tituti$n"@Bank"Uni!er"a+ Banking )ierentiate

Bank")e!e+$0&ent Financia+ In"tituti$n"J

A broad polic #raework was outlined in te&id=6er Review o# &onetar and Credit Polic

o# 0>>>=./// o# RB! indicating tat te desiredpat was towards universal banking+ "!s weregiven te option to trans#or into a bank+ 6eoperational guidelines #or enabling a "! to

convert to a universal bank were issued in.//0+

112

BANKING STRUCTURE


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=Kat is te diGerentiating #actor in tese BanksO=Kat is te siilarit in tese BanksO

Ur*an C$-$0

Bank

P!t. Sect

Bank

Pu*+ic

Sect.Bank

RRB"

Sarswat Co=op Bank

!C!C! Bank State Banko# !ndia

RegionalRuralBanks

AbudaaCo=op Bank

5es Bank Bank o#Baroda

Banking Structure in !ndia

)e!e+$0&ent Financia+ In"tituti$n"@Bank"


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Uni!er"a+ Banking )ierentiate Bank"

=Uni!er"a+ Banking

Under TUniversal BankingQ banks will also e%tend oter'nancial services including trading in #oreign e%cange,derivatives and all kinds o# securities, securitiesunderwriting, one broking, asset anageent,settleent and clearing service, provision and trans#er o#

'nancial in#oration and advisor and oter au%iliar'nancial services apart #ro providing traditional bankingservices wic includes acceptance o# deposits, lendingo# all tpes and paent and one transissionservices+

!t is a :ne "t$0 "u00+ier %$r a++ Financia+ 0r$uct"an acti!itie".6us it is a cobination o# !nvestentBanking and Coercial Banking+

114

UNIERSAL BANKING 1UB3

0>>F RB! t k d i i t t i l


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0>>F RB! took a decision tat universalbanking is a desirable goal and initiated steps

to evolve a polic+ !n te international banking a new

penoena was eerging i+e+JUniversalBankingQ in ters o# wic distinction

between coercial banking, investentbanking and developent banking weregetting blurred+

!n !ndia too operating environent #or banks

and "evelopent inancial !nstitutions ("!)was canging as a result o# re#ors andderegulation o# interest rates+

6e banks were participating increasingl in



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6ill 0>>0 "!s ad low cost resources #ro Long6er operations, und #ro RB!+ "ring up o#

tese sources "!s were #orced to go botdoestic and international arkets #or raisingresources at arket deterined rates+ "!sstarted copeting #or te sae ouseold

segent #or obiliDing resources+ 6ere was tere#ore greater need #or

anoeuvrabilit and level plaing 'eld in resourceobiliDation as banks were sub?ect to

aintenance o# CRRSLR on teir liabilities, and"!s ad no suc restrictions e%cept overallceiling to raise resources b wa o# ter deposits,ter one borrowings, Certi'cate o# "epositsand !nter Corporate deposits+ +



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6e concept o# UB was discussed intwo coitteesappointed b 4ovt+viD

0)Coittee on Banking SectorRe#ors=$arasian Coittee=!!wic recoended creation o#&ulttier Banking and one stop

'nancial superarkets+.)S+I+3an Coittee recoendedhar&$ni"ati$n $% the r$+e an

$ erati$n" $% )e!e+$ &ent

Universal Banking


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g

UNIERSAL BANKING c$nt

As per RB! guidelines, a 'nancial !nstitution can


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p g ,trans#or intoU$!M2RSAL BA$3!$4 sub?ect toeeting reserve reEuireents+ !n te ear .///,!C!C! took te initiative to ipleent te concept o#UB and !C!C! got erged wit !C!C! Bank in .//.and !"B! wit !"B! Bank in .//:+

Under TUniversal BankingQ banks will also e%tend

oter 'nancial services including trading in #oreigne%cange, derivatives and all kinds o# securities,securities underwriting, one broking, assetanageent, settleent and clearing service,

provision and trans#er o# 'nancial in#oration andadvisor and oter au%iliar 'nancial services apart#ro providing traditional banking services wicincludes acceptance o# deposits, lending o# all tpesand paent and one transission services+!t is

T


Iowever, UB does not eanthat e!er#


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, #In"tituti$n c$nuct" e!er# t#0e $% *u"ine""ith e!er# t#0e $% cu"t$&er.

UB enables Banks to leverage #ro econoies o#scaleand scope+ !t as got te bene't o#diversi'cationi+e+ it can use its e%isting e%pertiseand in#rastructure in one tpe o# 'nancial service to

provide te oter tpes o# services+


!n !ndia, te universal banking odel is #ollowed+ As


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gregards te structure o# universal banks, tec$ng+$&erate "tructure is *ank-+e/i+e+, banks

teselves are olding copanies wic operatecertain businesses troug Subsidiaries, oint Menturesand AHliates+;!C!C! Bank, State Bank o# !ndia ad e%ained terelevance o# sall banks in te !ndian conte%t+

6is was reiterated in te polic discussion paper onBanking Structure in !ndia 6e Ka orward, ./0-+

Coittee on Copreensive inancial Services #orSall Businesses and Low !ncoe Iouseolds alsodiscussed Role o# $on=Banking inancial Copanies

and teir Potential 6ransition to Banks+

inance &inister announced creation o# Sall banksin Budget speec ./0:=07+

Sall inance Banks


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1b?ective6o #urter 'nancial inclusion b(a)provision o# savings veicles, and

(b)suppl o# credit to

=sall business units

=sall and arginal #arers

=icro and sall industries

=oter unorganised sector entities+

Sall inance Banks


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Sall inance Banks

Licences granted=0+Au inanciers (!ndia) Ltd+, aipur = $BC

.+Capital Local Area Bank Ltd+, alandar = Largest LAB 07 rs old

-+"isa &icro'n Private Ltd+, Aedabad = $BC &!

:+2Euitas Ioldings P Liited, Cennai = &!

7+2SA &icro'nance and !nvestents Private Ltd+, Cennai = &!6ricur

8+analaksi inancial Services Private Liited, Bengaluru = $BC

9+R4M$ ($ort 2ast) &icro'nance Liited, 4uwaati = &! nort2ASt

F+Suroda &icro inance Private Ltd+, $avi &ubai = &!>+U??ivan inancial Services Private Ltd+, Bengaluru = &!

0/+Utkars &icro inance Private Ltd+, Maranasi = &!

Sall inance Banks

Sall banks ave a sall capital base and tere#ore lend to


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Sall banks ave a sall capital base and tere#ore lend tosall borrowers+Banks wit liited area o# operation would reEuire lessin#rastructure and staG and, ence, te operational e%penseswould be low+Sall banks would elp iprove penetration o# banking sectorto unbanked areas and obiliDe resources+Suc banks are e%pected to e%tend basic banking services and,

tere#ore, would attract people o# sall eans wo wouldreEuire basic banking services+6eir operations are con'ned to a district or #ew contiguousdistricts and ence te would be in a better position tounderstand te needs and priorities in teir area o# operation+

6e would be able to e%plore business potential ore tailoredto te socio econoic background in te area o# operation ande%tend banking services to te people in tat area+ orinstance, counit banks in te US trans#or local depositsinto loans to counities were depositors live and work

("aniel 6arullo, ./0/)+

Sall inance Banks Scope o#

Activities


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Activities

Sall inance BanksAdvantages


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Advantages

Sall inance Banks Ma;$r Regu+at$r# N$r&"


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!t will be sub?ect to all prudential nors andregulations o# RB! as applicable to e%istingcoercial banks+

At least .7@ o# its brances in unbanked rural

centres+6e a%iu loan siDe and investent liite%posure to single and group borrowers would berestricted to 0/@ and 07@ respectivel o# its

capital #unds+At least 7/@ o# its loan port#olio sould constituteloans and advances o# siDe up to Rs+ .7 lak+

6raditional Banks Ms+ Sallinance Banks


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Documents

1)BANKING STRUCTURE.pptx