Banking basics for undergraduate students

Banking basics for undergraduate students

1. Banki n g

2. Ban k ing Banking Regulation Act of India, 1949 defines Banking as “accepting, for the purpose of lending or of investment of deposits of money from the public, repayable on demand or otherwise or withdrawable by cheque, draft order or otherwise.” The Reserve Bank of India Act, 1934 and the Banking Regulation Act, 1949, govern the banking operations in India .

3. Banking Structure in India A well-regulated banking system is a key comfort for local and foreign stake-holders in any country. Prudent banking regulation is recognized as one of the reasons why India was less affected by the global financial crisis. Banks can be broadly categorized as Commercial Banks or Co-operative Banks. Banks which meet specific criteria are included in the second schedule of the RBI Act, 1934. These are called scheduled banks. They may be commercial banks or co- operative banks . Scheduled banks are considered to be safer, and are entitled to special facilities like re-finance from RBI. Inclusion in the schedule also comes with its responsibilities of reporting to RBI and maintaining a percentage of its demand and time liabilities as Cash Reserve Ratio (CRR) with RBI.

4. Importance /Role of Banks in Business Capital formation Habit of thrift(Savings) Safety and security Convenient means of saving Convenient means of transfer of funds Help in movement of fund Help trade and commerce Serve as best financial Intermediary Acquire control over the supply of money

5. Structure of Banks in India

6. Classification on the basis of function, ownership, domicile, etc... Commercial Banks Industrial banks Co-operative banks Agricultural banks Regional Rural Banks Forex Banks Savings Banks Central Banks Development Banks Public Sector Banks Private Sector Banks World Bank New Generation Banks

7. 7 Commercial Banks Commercial banks comprising public sector banks, foreign banks, and private sector banks represent the most important financial intermediary in the Indian financial system. The changes in banking structure and control have resul t e d due to w i der geog r aphical s p r e a d and deeper penet r at i on o f r u r al are a s, h i gher mobilization of deposits, reallocation of bank credit to priority activities, and lower operational autonomy for a bank management. Public sector com m e r cial ban k s, do m i n ate t h e banking scene in the country. com m e r cial The la r gest commercial Banks in India is SBI

8. function of commercial banks PRIMARY FUNCTIONS A ) Acceptance of deposits Fixed deposit Current deposit Recurring deposit Savings deposit Endowment deposit Miscellaneous deposit B ) Advancing of loan Cash credit L oans and advances Over draft Bills discounting Credit Creation SECONDARY FUNCTION Agency function Payment and collection Purchase and sale of Securities Acting as executor, administrator and trustee Acting as attorney Acting as Correspondents and Representatives Collection of information Remittance of Funds General Utility Functions Safe custody of valuables Letter of credit Travellers cheque Remittance of Funds Merchant Banking Dealing in Forex Lease Financing/Factoring/Underwriting of securities Gift Cheques Teller System Credit/Debit Cards Consultancy services

9. Liquidity Management Banks  are often evaluated on their  liquidity , or their ability to meet cash and collateral obligations without incurring substantial losses. liquidity management  describes the effort of investors or  managers  to reduce  liquidity  risk exposure.

10. Principles of L iquidity Management Structure Measurement of fund Market accessibility Contingency plans Currency management Internal control system Disclosure of information

11. Major Public S ector B ank s Punjab & Sind Bank Bank of Maharashtra Punjab National Bank Canara Bank Syndicate Bank Central Bank of India Union Bank of India Corporation Bank United Bank of India UCO Bank State Bank of India Dena Bank Allahabad Bank Indian Bank Andhra Bank Indian Overseas Bank Bank of Baroda Oriental Bank of Commerce Bank of India IDBI Bank Vijaya Bank

12. Indian Private Banks * IndusInd Bank *ING Vysya Bank *Jammu & Kashmir Bank *Karnataka Bank Limited *Karur Vysya Bank *Kotak Mahindra Bank *Lakshmi Vilas Bank *Nainital Bank *Ratnakar Bank *SBI Commercial and International Bank *South Indian Bank *Tamilnad Mercantile Bank Ltd . *Axis Bank *Bank of Rajasthan *Bharat Overseas Bank *Catholic Syrian Bank *Centurion Bank of Punjab *City Union Bank *Development Credit Bank *Dhanalakshmi Bank *Federal Bank * HDFC Bank *ICICI Bank *YES Bank

13. List of Foreign banks in India ABN-AMRO Bank Abu Dhabi Commercial Bank Ltd American Express Bank Ltd Citibank DBS Bank Ltd Deutsche Bank HSBC Ltd Standard Chartered Bank Royal Bank of Scotland

14. CORE Banking Solutions Core banking  is a  banking  service provided by a group of networked  bank  branches where customers may access their  bank  account and perform  basic  transactions from any of the member branch offices . Features Centralized database Easy access to database Access to any branch Easy transfer of fund

15. Merits T ransactions from any place No need to visit the bank Improves efficiency

16. Retail banking Retail banking  is a way for individual consumers to manage their money, have access to credit, and deposit their money in a secure manner. Services offered by  retail banks  include checking and savings accounts, mortgages, personal loans, credit cards, and certificates of deposit (CDs ). Services Deposits Loans Payment services

17. Mergers in Banking Combination of two or more banks to single bank

18. Advantages Reduce cost Financial inclusion:- Availability and equality of opportunities to access financial services like banking ,loans, insurance, etc... wider area NPA Risk Management Double expertise Reduces wage conflict Advanced services conditions Wider capital Better liquidity Abolish unwanted employment posts

19. Disadvantages Lose local customers More affected by global crisis Higher pressure Not a permanent solution for bad debts, governance, etc.. Dissatisfied employees

20. Central bank A financial institution given privileged control over the production and distribution of money and credit for a nation or a group of nations. In modern economies, the central bank is usually responsible for the formulation of  monetary policy  and the regulation of member banks.

21. Definitions “Every Central Bank has one function. It operates to control economy, supply of money and credit.” Samuelson “The primary definition of Central Bank is the banking system in which a single bank has either a complete or residuary monopoly of note issue.” Vera Smith “A Central Bank is the bank in any country to which has been entrusted the duty of regulating the volume of currency and credit in that country.” Bank of International Settlement

22. Objectives Serve national interest Stabilize monetary and fiscal activities Promote economic development

23. Functions of Central Bank Monopoly rights of Note Issue- Currency and banking principle Banker to the Government Banker to Bank Lender of last Resort Clearing operation Public debt and Foreign debt Custodian of gold and forex reserve Controller of credit Developmental functions of a central bank

24. Objectives of credit control Internal price stability Economic stability Full employment Economic growth Money market stability Forex rate stability International economic equilibrium

25. Methods of Credit control Quantitative 1. Bank Rate policy Bank Rate Repo Revere REPO 2. Open Market Operations 3. Cash Reserve Ratio

26. Qualitative/Selective Credit Control 1.Rationing of Credit a. Variable portfolio ceiling b. Variable Capital Asset Ratio 2.Direct Action 3. Margin Requirements 4.Regulation of Consumer Credit 5. Moral Suasion 6.Publicity 7.control of Bank Advances through directives