INTRODUCTION TO BANKING.pptx

Banking

1. INTRODUCTION TO BANKING PRESENTED BY: GAGANDEEP KAUR (6) M.COM (HONS.) 4

2. ORIGIN OF TERM BANKING The term ‘ Bank ’ seems to have originated and/or derived from different sources like- Germanic word ‘ banck ’ French word ‘ banque ’ and Italian word ‘ banco ’ Germanic word ‘ banck ’ which means a joint stock fund or heap. Italian word ‘ banco ’ refers to a bench at which the money changers used to change one kind of money into another and transact their banking business.

3. DEFINITION OF A BANK According to Banking Regulation Act ,” Banking means accepting for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise and withdrawable by cheque,draft , order or otherwise”.

4. WHAT IS BANK ? A bank is a financial institution which deals with deposits and advances and other related services. It receives money from those who wants to save in the form of deposits and it lends money to those who need it.

5. WHAT IS BANKING? Banking can be defined as the business activity of accepting and safeguarding money deposits from individuals and entities called savers , and then lending out the same money to borrowers in order to earn a profit.

6. NEED OF THE BANKS Following functions of banks explain the need of bank and its importance: 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.

7. HISTORY OF BANKING IN INDIA Banking in India has evolved through five distinct phases. Each phase could be separated from the other by a landmark development in the sphere of Banking Sector. Phase I –Pre-independence Phase (up to 1947) Phase II -Pre-nationalization Phase (1947-1969) Phase III -Expansion Phase (1969-84) Phase IV -Consolidation Phase (1985-91) Phase V -Restructuring Phase (1992 onwards)

8. Phase I –Pre-independence Phase (up to 1947) Banking began with the foundation of the Agency houses in Calcutta and Bombay in 18 century . The Bank of Hindustan was established in 1770 and due to the financial crisis, it was closed in 1832 . The most significant achievement of this period was emergence of three Presidency Banks : Bank of Bengal (1809), Bank of Bombay (1840) with a capital of Rs.52 lakhs , and Bank of Madras (1843) with a capital of Rs. 30 lakhs . Establishment of Joint Stock Banks like, Allahabad Bank of India 1865, Alliance Bank of Simala 1894, and other Banks started gaining grounds by 1900.

9. Phase I –Pre-independence Phase (up to 1947) Emergence of new Banks like, Bank of India 1906, Bank of Baroda 1909, Union Bank of India 1911 and Central Bank of India 1911 came into existence. Amalgamation of three Presidency Banks into Imperial Banks also known as State Bank of India was formed in 1921 . Establishment of Reserve Bank of India took place in 1935 under the Reserve Bank of India Act, in 1934 . The Reserve Bank of India (RBI) was established with a view to manage the currency and credit of the country by acting as a banker to Commercial Banks and Government.

10. Phase II-Pre-nationalization Phase (1947-1969) At the time of independence, there were 648 Banks in the Indian Union with a total of 4820 Branch Offices. In January 1949 , the Reserve Bank of India was nationalized. The State Bank of India and its subsidiaries increased their rural base substantially during the decade 1960 ‟s. At the end of 1961, 2944 Banking Offices were located in 222 towns having a population of less than 50,000 and above, and 2,024 offices in 1,060 places having a population of less than 50,000.

11. In July 1969 , the Government of India Nationalized the 14 biggest Commercial Banks with deposit base of not less than Rs. 500 million. Phase II-Pre-nationalization Phase (1947-1969) Central bank of India Punjab national bank Bank of Maharashtra Sindh bank Indian overseas bank United bank of india Bank of baroda UCO bank Dena bank Bank of india Union bank Canara bank Allahabad bank Indian bank

12. Phase III-Expansion Phase (1969-84) Particularly during this period, a strong-minded effort was made to take Banks to the interior of villages to rural people. During this period, Banks provided extensive publicity about various services provided by them especially to the customers in the rural areas. A new Banking policy with a view to geographical diversification of Banking facilities under the name of Lead Bank Scheme was announced in 1969 . According to this scheme, entire country was divided into districts and each Nationalized Bank was allotted a district where it was supposed to play a leading role in extending branches.

13. In the first decade after nationalization of the 14 Commercial Banks, 21,000 new Bank Offices were opened raising the total number of functioning offices from 8,262 in June 1969 to 30,202 by the end of June 1979. Regional Rural Banks were set up in September 1975 , as third component of the multi- agency credit system for agriculture and rural development. Another important development during the year 1978-79 was the formulation of a new branch licensing policy for the three year period (1979-81). Phase III-Expansion Phase (1969-84)

14. The overall objective of the expansion phase was to expand the Banking facilities in deficit areas and to reduce the inter-state and inter-district disparities in order to support development activities. The expansion phase was marked by geographical and numerical increase of Bank branches. This phase developed some weaknesses in the areas like poor customer services, low profitability, overstaffing and growing non-performing assets . Phase III-Expansion Phase (1969-84)

15. Phase IV-Consolidation Phase (1985-91) In 1985, a series of policy measures were introduced by Reserve Bank of India to strengthen Public Sectors Banks. Emphasis was made to pay special attention to internal control, customer services, credit management, staff productivity, and profitability of the Banks. From early 1990‟s Public Sector Banks stopped rural expansion and concentrated on urban and metropolitan Banking .

16. In 1990‟s, Narasimha Rao Government embarked on a policy of liberalization and licensing of a small number of Private Sector Banks. The Private Sector Banks were also known as New Generation Tech-savvy Banks . The next stage for Indian Banking Sector proposed relaxation in the norms related to the Foreign Direct Investment, in which foreign investors in Banks were given voting rights with some restrictions. Phase IV-Consolidation Phase (1985-91)

17. Particularly this phase witnessed the liberal entry of Private and Foreign Banks, operational freedom, deregulation of the interest rates, reduction in the statutory reserve requirements of Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR). Another significant instance of this phase was the entry of mass computerization to handle, the increased volumes of business effectively and to improve customer services. This will lead to Voluntary retirement in Nationalised banks. Phase IV-Consolidation Phase (1985-91)

18. Phase V-Restructuring Phase (1992 onwards) The Banking Sector reforms were undertaken in India from 1992 onwards. These reforms primarily aimed at the safety and soundness of financial system and to make the Banking Industry strong, efficient, and competitive. This called for improvement in allocation and operational efficiency of the Banks. Thus, Indian Banking Industry was categorized into Non-Scheduled Banks and Scheduled Banks .

19. In year 1998 , Banks started developing new delivery channels like- automated teller machine (ATM), phone banking, internet banking, any branch banking. Internet Banking became popular and Banks offered facilities like- account enquiry, money transfer, requests, mail alerts, railway ticketing and bill payment. Core Banking Solutions (CBS) created an environment where the entire Bank‟s operations could be controlled from a centralized hub. Phase V-Restructuring Phase (1992 onwards)