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7/25/2019 7. Indian Banking System
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Structure of Indian Bankingsystem
Central Bank (R.B.I)
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Origin OF RBI The origin of the Reserve Bank can e traced to !"#$%
&hen the Royal Commission on Indian Currency andFinance'also kno&n as the ilton*oung Commission'recommended the creation of a central ank tose+arate the control of currency and credit from thegovernment and to augment anking facilitiesthroughout the country.
The Reserve Bank of India ,ct of !"- estalished the
Reserve Bank as the anker to the central governmentand set in motion a series of actions culminating in thestart of o+erations in !"-/.
Since then% the Reserve Bank0s role and functionshave undergone numerous changes'as the nature of
the Indian economy has changed.
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RBI ORGANISATIONSTRUCTURE
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Management and structure
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1hat do they do 2
3onetary ,uthority
Issuer of Currency
Banker and 4et 3anager to5overnment
Banker to Banks Regulator of the Banking System
3anager of Foreign 67change
3aintaining Financial Staility
Regulator and Su+ervisor of the8ayment and SettlementSystems
4evelo+mental Role
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Reserve Bank of India 9 legal
Regulations
Reserve Bank of India &as estalished in!"-/% after the enactment of the ReserveBank of India ,ct !"- (RBI ,ct).
Banking Regulation ,ct%!"" (BR ,ct) gave&ide +o&ers to RBI as regards toestalishment of ne& anks:mergers andamalgamation of anks% o+ening of ne&
ranches% etc BR ,ct%!"" gave RBI +o&ers to regulate%
su+ervise and develo+ the anking systemin India
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Reserve Bank of India
CENTRAL BANKRBI
REGULATOR SUPERVISOR FACILITATOR
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CO336RCI,; B,
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DEFINITION OF COMMERCIAL BANK >
Commercial Banking has een de?ned as@,cce+ting for the +ur+ose of lending Ainvestment% of de+osit of money from the
+ulic% re+ayale on demand order orother&ise and &ithdra& ale y cheue%draft or other&ise.
The Banking Companies (Regulation) Act,1949
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!) , ank is a commercial estalishment
a dealer in dets &hich
#) aims at earning +ro?ts
-) y acce+ting de+osits from +ulic% &hich
) are re+ayale on demand or other&ise Dthrough
/) cheues% draft or other&ise D and
$) &hich are used for lending or investment
CO
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CO336RCI,; B,
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8EB;IC S6CTOR B,
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8EB;IC S6CTOR B,
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8RI,T6 S6CTOR B,
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8RI,T6 S6CTOR B,
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Foregn Ban! In Inda
foreign ank is a "an!that is oligated to follo& the regulations of oth thehome and host countries. ,t +resent some foreign anks in India are in thefollo&ing >
!) ,B Bank ;td.
#) ,B
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Other Banks
Regona# rura# "an!s > Regional RuralBanks (also RRBs) are locallevel anking organiLations o+erating in dierentStates of India. They have een created &ith a vie&
to serve +rimarily the rural areas of India &ith asicanking and ?nancial services. o&ever% RRBs mayhave ranches set u+ for uran o+erations and theirarea of o+eration may include uran areas too.
The area of o+eration of RRBs is limited to the areaas noti?ed y 5overnment of India covering one ormore districts in the State. The numer of Regional
rural anks in India is around MJ.
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The main functions of anks are acce+ting de+osit and lendingloans>
A ACCE$TING DE$OSITS%
,cce+ting de+osits is the main function of commercial anks. Banksoer dierent ty+es of Bank accounts to suit the reuirements andneeds of dierent customers. 4ierent ty+es of Bank accounts areas follo&s >
&' F(ed de)osts>
3oney is de+osited in the account for a ?7ed +eriod. ,fter e7+iry ofs+eci?ed +eriod +erson can claim his money from the ank. Esuallythe rate of interest is ma7imum in this account. The longer the+eriod of de+osit% the higher &ill e the rate of interest on de+osit.
8RI3,R* FE
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Current A*C de)ost>
This is also called o+en account. The s+ecial feature
of this account is that amount can e de+osited or&ithdra&n any numer of time &ithout giving anynotice to the ank.
These are mainly maintain y usiness communityto facilitate freuent transaction &ith ig amounts.5enerally no rate of interest or very lo& rate ofinterest is +aid on this account.
,s the de+osit is re+ayale on demand% it is alsokno&n as demand de+osit 1ithdra&als are al&aysmade y cheue.
+ Sa,ngs "an! A*C -
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+' Sa,ngs "an! A*C -%
It is kind of demand de+osits &hich isgenerally ke+t y the +eo+le for the sake
of safety. This facility is given for smallsaver and normally a small rate of interestis +aid. There is no restriction on thenumer of de+osits ut the numer of&ithdra&als are restricted (it may erestricted to once or t&ice a &eek)
.' Recurrng de)ost A*C >
In case of recurring de+osit the ?7edamount is de+osited in a ank every monthfor a ?7ed +eriod of time. The amount of
interest charged is also more in case of R4a c as com ared to savin s ank a c.
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B %LENDING LOANS
!. Ca## #oans >
These loan are called ack at any time(given for !to ! days).
These are sanctioned for a +eriod u+ to ! year.
+'Medum term #oans>
These are sanctioned for the +eriod varyinget&een ! and / years.
.' Long term #oans -
These loan are sanctioned for a +eriod of more than/ years
Other ty+es of loans >
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Other ty+es of loans >
&' Ban! O,erdra0t> The customer &ho maintains a currentaccount &ith the ank% takes +ermission from the ank to&ithdra& more money than de+osited in his acc 7ount. The e7tra
amount &ithdra&n is called overdraft. This facility is availale totrust&orthy customers for a small +eriod. This facility is usuallygiven against the security of some assets or on the +ersonalsecurity of the customer (negotiale security).Bank overdraftfacility is availale for a short +eriod.Interest is charged on theactual amount overdra&n y the customer.
1' Cas/ credt>
Ender this arrangement% the ank advances cash loan u+ to as+eci?ed limit against current assets and other securities. Theank o+ens an account in the name of the orro&er and allo&s
him to &ithdra& the orro&ed money from time to time suect tothe sanctioned limit. Interest is charged on the amount actually&ithdra&n.
+' B##s o0 E(c/ange>
The ank +rovide funds to their customers y +urchasing or
discounting ills of e7change. The ank charges commission u+to the maturity +eriod of ills.
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,+art from the main functions% the anks also +rovide ?nancial servicesto the cor+orate sector and usiness and society. They are as follo&s>
A9 AGENC2 FUNCTIONS -%
1here ank act as agent of its customer are called agency functions.
Funds Transfer
Cheues collection
8eriodic +ayments:collection
S6CO
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8eriodic +ayments:collection
8ortfolio management
Other functions
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B9 GENERAL UTILIT2 FUNCTIONS
Issue of demand drafts
;ocker facility.
Ender&riting of shares.
4ealing in foreign e7change. 8roect re+orts.
4eit card A Credit card
Other utility functions.
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466;O836
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Coo+erative Banks
Co o+erative Banks in India areregistered under the Coo+erativeSocieties ,ct. The coo+erative ank
is also regulated y the RBI. Theyare governed y the BankingRegulations ,ct !"" and Banking
;a&s (Coo+erative Societies) ,ct%!"$/.
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;egal regulatory frame&ork
Legal frame workofBanks
Banking Regla!ionA"!#$%&%
Reser'e Bank of In(iaA"!#$%)&
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Banking in India
Banking in India is governed y BR,ct%!"" and RBI ,ct%!"-
Banking in India iscontrolled:monitored
y RBI and 5ovt. of India
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Banking Regulation ,ct%!""(BR ,ct)!
BR ,ct covers anking com+aniesand coo+erative anks% &ith certain
modi?cations. BR ,ct is not a++licale to
a) +rimary agricultural credit societies
) land develo+ment anksBR ,ct allo&s RBI (Sec ##) to issuelicense for anks
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Banking Regulation ,ct%!"" (BR,ct)#
Regla!ion
Con!rol o'ermanagemen!
Penali!ies
Ss*ension+,in(ing *
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Reserve Bank of India,ct%!"-(RBI ,ct)!
RBI ,ct &as enacted to constitute the
Reserve Bank of India RBI ,ct has een amended from time
to time
RBI ,ct deals &ith the constitution%+o&ers and functions of RBI
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Reserve Bank of India ,ct%!"-(RBI,ct)#
RBI ,ct deals &ith>
incor+oration% ca+ital management and
usiness of anks
central anking functions
?nancial su+ervision of anks and
?nancial institutionsmanagement of fore7:reserves
control functions > ank rate%audit%accounts
+enalities for violation
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Indian Banking Signi?cant events !
Three +residency anks &ere estalished in Calcutta (!NJ$) inBomay (!NJ) and in 3adras (!N-)
In the early +art of !"0S% on account of the S&adeshi
movement a numer of oin stock anks &ere estalished yIndians like Bank of India% Bank of Baroda and Central Bank of
India. In !"#! the three +residency anks &ere merged and the
Im+erial Bank of India &as created.
4uring the +eriod !"JJ to !"#/ many anks failed% and the
5overnment a++ointed in !"#" a Central Banking 6nuiryCommittee to trace the reasons for the failure of anks.
The Reserve Bank of India ,ct &as +assed in !"- and the RBIcame into e7istence in !"-/ and RBI &as nationalised in !""
The Banking Regulation ,ct%!"" gave &ide +o&ers to RBI toact as the regulator for anks in India
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Indian Banking Signi?cant events #
In !"//% State Bank of India ecame thesuccessor to the Im+erial Bank of India %under theState Bank of India ,ct%!"//.
In !"/"% State Bank of India (Susidiary Banks),ct &as +assed to enale SBI to take over State,ssociated anks as SBI0s susidiaries
In !"$"% the 5overnment of India nationalised !maor commercial anks having de+osits of Rs./Jcrore or more
In !"M/ Regional Rural Banks &ere estalishedunder RRB ,ct !"M$% &hich &as +receded y RRBOrdinance in !"M/
In !"NJ% si7 more commercial anks &erenationalised% &ith a de+osit of Rs.#JJ crore ormore
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8rogress of anking in India
In the lieralised% +rivatised andgloalised environment% ankso+eating in India have diversi?ed
their anking activities y oering8ara Banking facilities like 3erchant anking:3utual funds
,T3s:Credit Cards:Internet anking
enture ca+ital funds Factoring
( )
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=no& *our Customer (=*C)! =*C> =no& *our Customer
=no& your customer (=*C) norms area++licale to all ty+es of customera:cs.
It deals &ith not only to identify thecustomer ut also to understand the
activities of the customer% and toensure that the o+erations in thecustomer account:s is:are for
genuine +ur+ose
C ( C)
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=no& *our Customer (=*C)# ,++lication of =*C norms have
ecome
im+ortant due to various reasons.
In vie& of many issues on account ofdrugs smuggling% money laundering%terrorist activities% arms dealing%etc.%
anks need to e careful in dealing&ith their clients.
= * C (=*C)
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=no& *our Customer (=*C)-
Cs!omerA""e*!an"ePoli"-
.oni!oring ofTransa"!ions
Risk .anagemen!
Cs!omerI(en!ifi"a!ionPro"e(re
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Bank Customers !
Power ofA!!orne-
/ol(ers
E0e"!ors1Trs!ees
Illi!era!ePerons
.inors
2oin! a""on!
3o(ers
In(i'i(als
Bank Cs!omers
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Bank Customers #
SolePro*rie!or
Cl4s1So"i!ies
Cor*ora!es
/in(Un(i'i(e(Famil-
Par!ners3i*
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B,