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INDIAN BANKING SYSTEM

By-SWAPNIL CHAVAN

SHREYASH PIMPARKAR

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A bank is a financial institution and a financial intermediary that accepts deposits and channels those deposits into lending activities, either directly by loaning or indirectly through capital markets. A bank links together customers that have capital deficits and customers with capital surpluses

Functions of Bank

•Receipt of Deposits

•Lending of money

•Agency services 1) Dividend payment

2) Insurance premium payment

•General services eg deposit valves

What is Bank ????

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•Factors that influence organisations to change their performance and the responses as perthe demands made on them

Institutional

•Amount of land, labor, capital, and entrepreneurship that a country possesses and can exploit for manufacturing at each stage of development

Factor endowment

•Financial structures may be better suited to growth at certain stages of development but they may be less well suited in other

Growth at certain stages

Banking Structure

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Banking StructuresRather than the nature of financial structure, it is the financialsystem’s level of development that matters for growth

•In developing countries where economic development is hampered by insufficient and inadequate access to financial services in rural areas, local banks could improve financing opportunities to small and medium size enterprises and encourage entrepreneurship.

•Economies at different stages of development require different blends of financial services to operate effectively.

•Depending upon the structure and needs of an economy, the country’s banking system should be dynamic and competitive to cater to the diverse needs of the economy.

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Financial inclusion is the delivery of financial services at affordable costs to sections of disadvantaged and low-income segments of society, in contrast to financial exclusion where those services are not available or affordable

In other words, whether we need small number of large banks or large number of small banks to promote financial inclusion ?

PROS

• Attract people of small means

• Penetration to unbanked areas

• Require less infrastructure due to limited area of operation

• Relationship banking

Small Banks & Financial Inclusion

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Small banks as a vehicle for Financial Inclusion

CONS

• Vulnerable to shocks from the local economy

• Cannot finance big-ticket investments

• Small banks are prone to capture by big bank’s

• Lack economies of scale and scope

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Types of BANK’S

RBI

Scheduled

CommercialCo-operative

Un-scheduled

Public Private Foreign Urban Rural

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Legal Framework of Regulation of Banks in India

RBI Guidelines

•Deposits Withdrawal by Check

•Acceptance of Deposits by Non- Banking Entities

•Banking License

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Cross border banking

This term refers to any financing arrangement that crosses national borders. Cross border financing could include cross border loans, letters of credit or bankers acceptances

Cross border financing within corporations can become very complex, mostly because almost every inter-company loan that crosses national borders has tax consequences, even when the loans or credit are extended by a third party such as a bank

United Kingdom, Hong Kong, Singapore, United States of America, UAE and Bahrain in Middle East account for a sizeable share (83.81%) in the total assets of Indian banks deployed in overseas centers.

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Ownership of Indian banks

Until nationalization, all major banks were controlled by one or major houses. These houses used resources given by common people for their personal benefits.

Private ownership of banks resulted in concentration of income and wealth in few hands.

Since publicly owned banks still perform poorly, privatisation seems to be an effective policy in improving the performance of Indian banks.

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Re orientation of banking structure in India

The Reserve Bank of India (RBI) has suggested reorienting the banking structure in four tiers and encouraging entry of only well-qualified entities to improve the quality of the banking system and promote competition.

The first tier may consist of three or four large Indian banks with domestic and international presence along with branches of foreign banks in India

The second tier is likely to comprise several midsized banking institutions including niche banks with economy-wide presence.

The third tier may encompass old private sector banks, regional rural banks, and multi state urban cooperative banks. 

The fourth tier may embrace many small privately owned local banks and cooperative banks

Lesser number of banks would help in better monitory policy transmission.”

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Nationalization of banks Nationalization is the process of

taking a private industry or private assets into public ownership by a national government or state.

The government decided to nationalize 14 major commercial banks on 19th July, 1969

All commercial banks with a deposit base over Rs.50 crores were nationalized

The second dose of nationalisation came in April 1980 when banks were nationalized.

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List of Nationalized Banks in India

Bank of Maharashtra Bank of India Vijaya Banka Punjab National Bank Bank of Baroda

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Emergence of pvt sector banks During 1921, the private banks like B

ank of Bengal, Bank of Bombay and Bank of Madras were in service, which all together formed Imperial Bank of India.

There are two categories of the private-sector banks: "old" and "new".

Not nationalized at the time of nationalization that took place during 1969 and 1980 are known to be the old private-sector banks

The banks, which came in operation after 1991, with the introduction of economic reforms and financial sector reforms are called "new private-sector banks"

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List of the old private-sector banks in India

 City Union Bank established in1904  Dhanlaxmi Bank established in 1927  ING Vysya Bank established in1930 Jammu and Kashmir Bank established

in1938

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List of the new private-sector banks in India

 Axis Bank (earlier UTI Bank) established in 1994

HDFC Bank established in1994  Kotak Mahindra Bank established 2003  Yes Bank established in 2005

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Thank You