Banking structure in india

Banking structure in india

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BANKING STRUCTURE IN INDIA
INDEX
1. Introduction
2. Central bank and supreme monetary authority
(RBI)
3. Organisation:
4. Governor
5. Organogram
6. Banking structure in India
7. Types of Banking
8. Objectives:
9. Concern:
10. Conclusion

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BANKING STRUCTURE IN INDIA
Introduction:
A bank is a financial institution that provides banking and other financial services to their
customers. A bank is generally understood as an institution which provides fundamental
banking services such as accepting deposits and providing loans. There are also nonbanking
institutions that provide certain banking services without meeting the legal definition of a
bank. Banks are a subset of the financial services industry. A banking system also referred as
a system provided by the bank which offers cash management services for customers,
reporting the transactions of their accounts and portfolios, throughout the day. The banking
system in India should not only be hassle free but it should be able to meet the new
challenges posed by the technology and any other external and internal factors. For the past
three decades, India’s banking system has several outstanding achievements to its credit.
The Banks are the main participants of the financial system in India. The Banking sector
offers several facilities and opportunities to their customers. All the banks safeguards the
money and valuables and provide loans, credit, and payment services, such as checking
accounts, money orders, and cashier’s cheques. The banks also offer investment and
insurance products. As a variety of models for cooperation and integration among finance
industries have emerged, some of the traditional distinctions between banks, insurance
companies, and securities firms have diminished. In spite of these changes, banks continue
to maintain and perform their primary role—accepting deposits and lending funds from
these deposits.
CENTRAL BANK AND SUPREME MONETARY AUTHORITY (RBI) :

Reserve Bank of India (RBI) is the central bank of the country which was nationalised in the
year 1949. It is an apex institution which has been guiding, monitoring, regulating,
controlling and promoting the destiny of IFS since its inception. It is oldest among the
central banks in the developing countries.
The Central Bank differs from other financial institutions. First, it differs in that it is
controlled by the people who are more or less closely connected with other organs of
government. Second, it does not exist to secure the maximum profit, which is the principal
aim of a commercial bank. Third, the central bank must have a special relation with the
commercial banks whereby it may influence the operations of these institutions in the
implementation of the government’s economic policy.
The Reserve Bank of India Act, 1934 was commenced on April 1, 1935. The Act, 1934 (II of
1934) provides the statutory basis of the functioning of the Bank.
The Bank was constituted for the need of following:
To regulate the issue of banknotes
To maintain reserves with a view to securing monetary stability and
To operate the credit and currency system of the country to its advantage.

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Organisation:

The affairs of the RBI are controlled by the Central Board of Directors, consisting of the
following members:
1) One Governor and not more than four Deputy Governors appointed by the Central
Government for 5 years.
2) Four Directors nominated by the Central Government. One each from local boards. The
term of their office is related to their membership in the local boards.
3) Three other directors, nominated by the central government. These directors hold office
for four years and there is a provision in the Act for their retirement by rotation.
4) One government official besides the control board there are local boards for four
regional areas of the country with headquarters at Mumbai, Kolkata, Chennai and New
Delhi. Local Board consists of 5 members. These members are appointed for period of 4
years. They must represent as far as 18 possible territorial and economic interests of co-
operative and indigenous banks.
GOVERN0R:
Dr. Raghuram Rajan
Dr. Raghuram Rajan assumed charge as the 23rd Governor of the Reserve Bank of India
on September 4, 2013. Prior to this, he was the Chief Economic Advisor, Ministry of Finance,
Government of India and the Eric J. Gleacher Distinguished Service Professor of Finance at
the University of Chicago's Booth School.

ORGANOGRAM :

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BANKING STRUCTURE IN INDIA :
An outline of the Indian Banking structure may be presented as follows:-
1. Reserve banks of India.
2. Indian Scheduled Commercial Banks.
a) State Bank of India and its associate banks.
b) Twenty nationalized banks.
c) Regional rural banks.
d) Other scheduled commercial banks.
3. Foreign Banks
4. Non-scheduled banks.
5. Co-operative banks.
Reserve bank of India:
The reserve bank of India is a central bank and was established
in April 1, 1935 in accordance with the provisions of reserve
bank of India act 1934. The central office of
RBI is located at Mumbai since inception. Though originally
the reserve bank of India was privately owned, since
nationalization in 1949, RBI is fully owned by the Government
of India. It was inaugurated with share capital of Rs. 5 Crores
divided into shares of Rs. 100 each fully paid up.
RBI is governed by a central board (headed by a governor) appointed by the central
government of India. RBI has 22 regional offices across India. The reserve bank of India was
nationalized in the year 1949. The general superintendence and direction of the bank is
entrusted to central board of directors of 20 members, the Governor and four deputy
Governors, one Governmental official from the ministry of Finance, ten nominated directors
by the government to give representation to important elements in the economic life of the
country, and the four nominated director by the Central Government to represent the four
local boards with the headquarters at Mumbai, Kolkata, Chennai and New Delhi. Local Board
consists of five members each central government appointed for a term of four years to
represent territorial and economic interests and the interests of cooperative and indigenous
banks.
The RBI Act 1934 was commenced on April 1, 1935. The Act, 1934 provides the statutory
basis of the functioning of the bank.

Objectives of RBI:
The following were the objectives of RBI when it was set up:
To manage adequate money and credit in the country
To maintain the stability of rupee internally and externally
Balanced and well managed banking development in the country
To develop well organized money market
To provide adequate agriculture credit
To manage public debt
To seek international monetary co-operation
Centralization of cash reserves of commercial banks

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To set up Government banks
To set up Government banks
Publication of data
Functions of RBI:
As a central banking authority RBI carries on the following functions:
1. RBI regulates issue of bank notes above one rupee denomination
2. Undertakes distribution of all currency notes and coins on behalf of the government
3. Acts as the banker to the Government of India and the State governments, Commercial
and
Cooperative banks
4. Formulates and administers the monetary policy
5. Maintain exchange value of rupee
6. Represent India at the International Monetary Fund (IMF)
7. RBI acts as a banker for all the commercial banks. All scheduled banks come under the
direct control of RBI. All commercial as well as schedule bank has to keep a minimum
reserve with the RBI. They have to submit weekly reports to RBI about their transactions. By
performing 3 functions, the RBI helps the member banks significantly. They are given below
such as:
It acts as the lender of the last resort.
It is the custodian of cash reserves of commercial banks.
It clears, transfers the transaction. It acts as the central clearing house.
8. Regulation of banking system
9. Credit Control

Indian Scheduled Commercial Banks:
The commercial banking structure in India consists of scheduled commercial banks, and
unscheduled banks. Scheduled Banks in India constitute those banks which have been
included in the second schedule of RBI act 1934. RBI in turn includes only those banks in
this schedule which satisfy the criteria laid down vide section 42(6a) of the Act.
“Scheduled banks in India” means the State Bank of India constituted under the State
Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the s State Bank of
India (subsidiary banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under
section 3 of the Banking companies (Acquisition and Transfer of Undertakings)
Act, 1980 (40 of 1980), or any other bank being a bank included in the Second Schedule to
the Reserve bank of India Act, 1934 (2 of 1934), but does not include a co-operative bank”.
For the purpose of assessment of performance of banks, the Reserve Bank of India categories
those banks as public sector banks, old private sector banks, new private sector banks and
foreign banks, i.e. private sector, public sector, and foreign banks come under the umbrella of
scheduled commercial banks.

PUBLIC SECTOR:

1. State Bank of India (SBI):
State Bank of India is the largest banking and financial
services company in India. In addition to the banking
services, the Bank through their subsidiaries, provides a
range of financial services, which include life insurance,

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merchant banking, mutual funds, credit card, factoring, security trading, pension fund
management and primary dealership in the money market. The State Bank Group, with over
16,000 branches, has the largest banking branch network in India. The bank has 131
overseas offices spread over 32 countries. The bank offers convenience of over 21000 ATMs
in India.


2. Punjab National Bank (PNB):
Punjab National Bank is one of the big four banks of India. PNB is
ranked as the 2nd largest bank in the country after SBI in terms of
branch network, business and many other parameters. They are
recognized as the bank offering highest levels of customer
satisfaction in Delhi and Chennai. The bank has a wide network of
5189 branches which comprise of 2047 Rural, 1154 Semi Urban,
1111 Urban and 877 Metropolitan branches at the end of March
2011.
3. Canara Bank:
Canara Bank with headquarter in Bangalore operates in four
segments, namely treasury operations, retail banking operations,
wholesale banking operations and other banking operations. The
bank has a branch network of 3257 including 4 overseas branches
as on March 31, 2011.

PRIVATE SECTOR:
1. ICICI Bank:
ICICI Bank Ltd is the second largest private sector bank in India by market
capitalization. They are a publicly held banking company engaged in providing
a wide range of banking and financial services including commercial banking
and treasury operations. The Bank has a network of 2,752 branches and 8,003
ATMs in India, and has a presence in 19 countries, including India.
2. HDFC Bank:
HDFC Bank Ltd is a major Indian financial services company based in Mumbai.
The Bank has an enviable network of 1986 branches in 996 Indian cities and
5471 ATMs during the year 2010-11. The company has recorded an increase of
33% in net profit for FY 2011 of Rs. 3926 crore over the previous year. The
Capital Adequacy Ratio (CAR) stood at 16.2% as against the regulatory
minimum of 9.0%. Of this, Tier I CAR was 12.2% as on March 31, 2011.
3. Axis Bank:
AXIS Bank is one of the fastest growing banks in private sector. The bank
operates in four segments, namely treasury, retail banking, corporate/
wholesale banking and other banking business. The bank has a very wide
network of around 1390 branches and 6,270 ATMs.

Foreign Banks:
Till the 1950s they were called Exchange Banks because they alone transacted most of the
import and export financing business of India. The foreign banks are branches of joint stock
companies incorporated abroad, but operating in India. They are foreign in origin, and have
their head office located in their parent country.

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1. CITI BANK
Citibank is the consumer division of financial
services multinational Citigroup. Citibank was founded in 1812 as the City
Bank of New York, later First National City Bank of New York.

2. HSBC:
HSBC Holdings plc is a British multinational banking and financial
services company headquartered in London, United Kingdom. It is
the world's third largest bank by assets. It was established in its
present form in London in 1991 by the Hongkong and Shanghai Banking Corporation
Limited to act as a new group holding company.
3. Standard Chartered bank:
Standard Chartered PLC is a British multinational banking
and financial services company headquartered in London.
It operates a network of more than 1,700 branches and
outlets (including subsidiaries, associates and joint
ventures) across more than 70 countries and employs
around 87,000 people. It is a universal bank with operations in consumer, corporate and
institutional banking, and treasury services. Despite its UK base, it does not conduct retail
banking in the UK, and around 90% of its profits come from Asia, Africa and the Middle East.
Non Scheduled banks:
Non scheduled bank are those commercial banks, which are not included in the second
schedule of RBI Act 1934.

Co-operative credit institute:

Cooperative banking is retail and commercial banking organized on a cooperative basis.
Cooperative banking institutions take deposits and lend money in most parts of the world.

Regional Rural Bank (RRBs)
The government of India set up Regional Rural Banks (RRBs) on October 2, 1975. The banks
provide credit to the weaker sections of the rural areas, particularly the small and marginal
farmers, agricultural labourers, and small entrepreneurs. The RRBs are under the control of
NABARD. NABARD has the responsibility of laying down the policies for the RRBs, to
oversee their operations, provide refinance facilities, to monitor their performance and to
attend their problems.

NABARD:

NABARD is an apex development bank with an authorization
for facilitating credit flow for promotion and development of
agriculture, small-scale industries, cottage and village
industries, handicrafts and other rural crafts. It also has the
mandate to support all other allied economic activities in
rural areas, promote integrated and sustainable rural
development and secure prosperity of rural areas. In
discharging its role as a facilitator for rural prosperity, NABARD is entrusted with:

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1. Providing refinance to lending institutions in rural areas
2. Bringing about or promoting institutions development and
3. Evaluating, monitoring and inspecting the client banks
Besides this fundamental role, NABARD also:
• Act as a coordinator in the operations of rural credit institutions
• To help sectors of the economy that they have special credit needs for eg.
Housing, small business and agricultural loans etc.



Organisation and Management of NABARD

Urban Cooperative Banks:
The term Urban Co-operative Banks (UCBs), though not formally defined, refers to primary
cooperative banks located in urban and semi-urban areas. These banks, till 1996, were
allowed to lend money only for non-agricultural purposes. This distinction does not hold
today. These banks were traditionally centred on communities, localities work place groups.
They essentially lent to small borrowers and businesses. Today, their scope of operations
has widened considerably.

Three tier structures exist in the cooperative banking:
I. State cooperative bank at the apex level.
ii. Central cooperative banks at the district level.
iii. Primary cooperative banks and the base or local level.

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Development banks and other financial institutions:
A development bank is a financial institution, which provides a long term funds to the
industries for development purpose. This organisation includes banks like IDBI, ICICI, and
IFCI etc. State level institutions like SFC’s SIDC’s etc. It also includes investment institutions
like UTI, LIC, and GIC etc

Types of Banking:
Banking is described as the business carried on by an individual at a bank. Today, several
forms of banking exist, giving consumers a choice in the way they manage their money most
people do a combination of at least two banking types. However, the type of banking a
consumer uses normally based on convenience.
These are different types of banking through which consumer can attach to it-

(A)Walk-in-Banking
It is still a popular type of banking. As, in the past, it still involves bank tellers and specialized
bank officers. Consumers must walk into a bank to use this service normally, in order to
withdraw money or deposit it; a person must fill out a slip of paper with the account and
specific monetary amount and show a form of identification to a bank letter. The advantage
of walk in Banking is the face to face connection between the banker and a letter. Also
unlike drive thru and ATM banking, a person can apply for a loan and invest money during a
walk in.

(B) Drive thru Banking
It is probably the least popular form of banking today, but is still used enough by consumers
to create a need for it. It allows consumers to stay in their while and drive up to a machine
equipped with container, chute and intercom. This machine is connected to a bank and is
run by one or two bank letters. A person can withdraw or deposit money at a drive thru. He
must fill out a slip with his account and specific monetary amount and put it in the
container. The container travels through the chute to the bank letter, which will complete
the banker’s request. This is where the intercom comes into play. The bank teller and
banker use it to communicate and discuss the specific banking request.

(C) ATM Banking
It is very popular because it gives a person 24 hour access to his
bank account. Walk in and drive thru banking does not offer this
perk. In order to use an ATM, a person must have an ATM card
with personal identification number (PIN) and access to an ATM
machine. Any ATM machine can be used, but charges apply if the
ATM machine is not affiliated with the bank listed on the ATM
card. By sliding an ATM card into an ATM machine, it is activated and then through touching
buttons on the machine, a consumer is able to withdraw or
deposit money.

(D)Online Banking
It allows a person to get on the internet and sign into their bank.
This process is achieved with the use of a PIN, different from the
one used for the ATM card. By going website of a bank and

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entering it, a consumer can get into his account, withdraw money, deposit money, pay bills,
request loans and invest money. Online banking is growing in popularity because of its
convenience. These different types of banking give a consumer the power of choice and also
give them a comfortable banking system that gives them a convenient choice.

Objectives:

Understand the structure of the banking system in India
Understand the recent developments taking place in Indian banking industry
Describe the role and functions of Reserve Bank of India
Describe the Scheduled, Non-scheduled and Licensed bank
Understand the components that took place in Indian Banking Sector
To provide the security to the savings of customers.
To control the supply of money and credit
To encourage public confidence in the working of the financial system, increase
savings speedily and efficiently.
To avoid focus of financial powers in the hands of a few individuals and institutions.
To set equal norms and conditions (i.e. rate of interest, period of lending etc) to all
types of customers.

CONCERN:

Indian economy is one of the fastest growing economies of the world. The economy with its
varied geography and demography has specific requirements in order to traverse to the
next orbit and attain its full potential. Banks enable to cope with finance requirement for
few industries such as Infrastructure, Housing, and Real Estate etc. India’s infrastructural
financing needs are not only huge but also vital. Traditionally banks have been the major
source of infrastructure financing and their exposure to infrastructure is already high at 17
per cent. There are several major concerns which are noted below-

Intensifying competition:
Indian banking industry has undergone qualitative changes due to banking sector reforms.
Indian banking sector, which is dominated by state-controlled banks, has been facing
formidable challenges. Due to this new emerging competition, Indian banks, especially PSBs,
are trying their best to improve their performance and preparing to compete in the
emerging global market. New private sector banks and foreign banks have more customer-
centric policies, high quality services, new attractive schemes and computerized branches.
All these services attracted more and more customers to their banks.


Increasing NPA:
The asset quality of banks is one of the most important indicators of their financial health. It
also reflects the efficacy of banks’ credit risk management and the recovery environment.
The Indian banks have shown very good performance as far as the financial operations are
concerned. But Non-performing Assets (NPA) has caused some concerns. Despite write-offs,
gross NPAs have continued to rise significantly. The new accretion to NPAs has been much
faster than the reduction in existing NPAs due to lower levels of up gradation and
recoveries.

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CONCLUSION:

The financial sector reforms have brought about significant improvements in the financial
strength and the competitiveness of the Indian banking system. The prudential norms,
accounting and disclosure standards, risk management practices, etc are keeping pace with
global standards, making the banking system resilient to global shocks.
In the recent past, the Indian banking sector has undergone significant developments and
investments. In this sector, there are huge opportunities and numerous challenges. Money
laundering is a growing menace and it not only poses serious threat to the stability and
integrity of the financial system but also to the sovereignty and safety of nations worldwide.
In the coming days, challenges before banks would primarily lie in saving themselves from
the growing threat of money laundering.


THANK YOU...........




Submitted by:

KARTIK MONDAL
FS-10/13
B.F.Sc 2
nd yr 2nd SEM