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INTERNAL FACTORS. Banking in India originated in the last decades of the 18th century.

The oldest bank in existence in India is the State Bank of India, a government-owned bank that traces its origins back to June 1806 and that is the largest commercial bank in the country. The government's regular policy for Indian bank since 1969 has paid rich dividends with the nationalisation of 14 major private banks of India following it up with the nationalization of six more banks. Not long ago, an account holder had to wait for hours at the bank counters for getting a draft or for withdrawing his own money. Today, he has a choice. Gone are the days when the most efficient bank transferred money from one branch to other in two to three days. Now it is as simple as instant messaging or dialing for a pizza. Money has become the order of the day and a highly technology driven bank will definitely reap success.

Department of Banking Supervision. The Department of Banking Supervision has its Central Office in Mumbai and 16 regional offices at various centres in the country. I worked in DBS,Office at Lucknow. Prior to 1993, the supervision and regulation of commercial banks was handled by the Department of Banking Operations and Development (DBOD).In December 1993 the Department of Supervision was carved out of the DBOD with the objective of segregating the supervisory role from the regulatory function of R.B. I. The Department of Banking Supervision at present exercises the supervisory role relating to commercial banks in the following forms: Preparing of independent inspection programmes for different institutions. Inspection evaluates financial condition and performance of the bank which includes judging asset quality, solvency and capital adequacy earning performance and liquidity of the bank. Then seeing management and pirating condition and compliance of the bank which includes Regulatory compliance and Guidance compliance and finally doing summary assessment of the bank i.e. identification of concerns and areas for corrective actions. Undertaking scheduled and special on-site inspections, off-site surveillance, ensuring follow-up and compliance. Determining the criteria for the appointment of statutory auditors and special auditors and assessing audit performance and disclosure standards.

OVERVIEW OF BANKING Banking system in India is significantly different from that of other Asian nations because of the countrys unique geographic, social, and economic characteristics. India has a large population and land size, a diverse culture, and extreme disparities in income, which are marked among its regions. There are high levels of illiteracy among a large percentage of its population but, at the same time, the country has a large reservoir of managerial and technologically advanced talents. Between about 30 and 35 percent of the population resides in metro and urban cities and the rest is spread in several semi-urban rural centers.

The countrys economic policy framework combines socialistic features with a heavy bias towards public sector investment. The banking systems international isolation was due to strict branch licensing controls on foreign banks already operating in the country as well as entry restriction facing new foreign banks. A criterion of reciprocity is required for any Indian bank to open an office abroad. These features have left the Indian banking sector with weaknesses and strengths.

A big challenge facing India banks is how, under the current ownership structure, to attain operational efficiency suitable for modem financial intermediation. On the other hand, it has been relatively easy for the public sector banks to recapitalize, given the increase in nonperforming assets NPAs0, as their government dominated ownership structure has reduced the conflicts of interest that private banks would face. BANKING IN INDIA Banking in India originated in the last decades of the 18th century. The oldest bank in existence in India is the State Bank of India, a government-owned bank that traces its origins back to June 1806 and that is the largest commercial bank in the country. Central banking is the responsibility of the Reserve Bank of India, which in 1935 formally took over these responsibilities from the then Imperial Bank of India, relegating it to commercial banking functions. After India's independence in 1947, the Reserve Bank was nationalized and given broader powers. In 1969 the government nationalized the 14 largest commercial banks; the government nationalized the six next largest in 1980. Currently, India has 88 scheduled commercial banks (SCBs) - 27 public sector banks (that is with the Government of India holding a stake), 31 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 38 foreign banks. They have a combined network of over 53,000 branches and 17,000 ATMs. According to a report by ICRA Limited, a rating agency, the public sector banks hold over 75 percent of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively. HISTORY OF BANKING IN INDIA Indian banking system, over the years has gone through various phases after establishment of Reserve Bank of India in 1935 during the British rule, to function as Central Bank of the country. Earlier to creation of RBI, the central bank functions were being looked after by the Imperial Bank of India. With the 5-year plan having acquired an important place after the independence, the Govt. felt that the private banks may not extend the kind of cooperation in providing credit support, the economy may need. In 1954 the All India Rural Credit Survey Committee submitted its report recommending creation of a strong, integrated, State-sponsored, State-partnered commercial banking institution with an effective machinery of branches spread all over the country. The recommendations of this committee led to establishment of first Public Sector Bank in the name of State Bank of India on July 01, 1955 by acquiring the substantial part of share capital by RBI, of the then Imperial Bank of India. Similarly during 1956-59, as a result of re-organisation of princely States, the associate banks came in to fold of public sector banking. Another evaluation of the banking in India was undertaken during 1966 as the private banks were still not extending the required support in the form of credit disbursal, more particularly to the unorganised sector. Each leading industrial house in the country at that time was closely associated with the promotion and control of one or more banking companies. The bulk of the deposits collected, were being deployed in organised sectors of industry and trade, while the farmers, small entrepreneurs, transporters , professionals and self-employed had to depend on money lenders who used to exploit them by charging higher interest rates. In February 1966, a Scheme of Social Control was set-up whose main function was to periodically assess the demand for bank credit from various sectors of the economy to determine the priorities for grant of loans and advances so as to ensure optimum and efficient utilisation of resources. The scheme however, did not provide any remedy. Though a no. of branches were opened in rural area but the lending activities of the private banks were not oriented towards meeting the credit requirements of the priority/weaker sectors.

On July 19, 1969, the Govt. promulgated Banking Companies (Acquisition and Transfer of Undertakings) Ordinance 1969 to acquire 14 bigger commercial bank with paid up capital of

Rs.28.50 cr, deposits of Rs.2629 cr, loans of Rs.1813 cr and with 4134 branches accounting for 80% of advances. Subsequently in 1980, 6 more banks were nationalised which brought 91% of the deposits and 84% of the advances in Public Sector Banking. During December 1969, RBI introduced the Lead Bank Scheme on the recommendations of FK NarimanCommittee. In the post-nationalisation period, there was substantial increase in the no. of branches opened in rural/semi-urban centres bringing down the population per bank branch to 12000 appx. During 1976, RRBs were established (on the recommendations of M. Narasimham Committee report) under the sponsorship and support of public sector banks as the 3rd component of multi-agency credit system for agriculture and rural development. While the 1970s and 1980s saw the high growth rate of branch banking net-work, the consolidation phase started in late 80s and more particularly during early 90s, with the submission of report by the Narasimham Committee on Reforms in Financial Services Sector during 1991. In these five decades since independence, banking in India has evolved through four distinct phases: Foundation phase can be considered to cover 1950s and 1960s till the nationalisation of banks in 1969. The focus during this period was to lay the foundation for a sound banking system in the country. As a result the phase witnessed the development of necessary legislative framework for facilitating re- organisation and consolidation of the banking system, for meeting the requirement of Indian economy. A major development was transformation of Imperial Bank of India into State Bank of India in 1955 and nationalisation of 14 major private banks during 1969. Expansion phase had begun in mid-60s but gained momentum after nationalisation of banks and continued till 1984. A determined effort was made to make banking facilities available to the masses. Branch network of the banks was widened at a very fast pace covering the rural and semi-urban population, which had no access to banking hitherto. Most importantly, credit flows were guided towards the priority sectors. However this weakened the lines of supervision and affected the quality of assets of banks and pressurized their profitability and brought competitive efficiency of the system. . Consolidation phase: The phase started in 1985 when a series of policy initiatives were taken by RBI which saw marked slowdown in the branch expansion. Attention was paid to improving house-keeping, customer service, credit management, staff productivity and profitability of banks. Measures were also taken to reduce the structural constraints that obstructed the growth of money market. Reforms phase: The macro-economic crisis faced by the country in 1991 paved the way for extensive financial sector reforms which brought deregulation of interest rates, more competition, technological changes,prudential guidelines on asset classification and income recognition, capital adequacy, autonomy packages etc. From World War I to Independence: The period during the First World War (1914-1918) through the end of the Second World War (1939-1945), and two years thereafter until the independence of India were challenging for Indian banking. The years of the First World War were turbulent, and it took its toll with banks simply collapsing despite the Indian economy gaining indirect boost due to warrelated economic activities. At least 94 banks in India failed between 1913 and 1918 as indicated in the following table: Years Number of banks that failed Authorized capital (Rs. Lakhs) Paid-up Capital (Rs. Lakhs)

1913 1914 1915 1916 1917 1918

12 42 11 13 9 7

274 710 56 231 76 209

35 109 5 4 25 1

Post-independence The partition of India in 1947 adversely impacted the economies of Punjab and West Bengal, paralyzing banking activities for months. India's independence marked the end of a regime of the Laissez-faire for the Indian banking. The Government of India initiated measures to play an active role in the economic life of the nation, and the Industrial Policy Resolution adopted by the government in 1948 envisaged a mixed economy. This resulted into greater involvement of the state in different segments of the economy including banking and finance. The major steps to regulate banking included: In 1948, the Reserve Bank of India, India's central banking authority, was nationalized, and it became an institution owned by the Government of India. In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of India (RBI) "to regulate, control, and inspect the banks in India." The Banking Regulation Act also provided that no new bank or branch of an existing bank could be opened without a license from the RBI, and no two banks could have common directors. However, despite these provisions, control and regulations, banks in India except the State Bank of India, continued to be owned and operated by private persons. this changed with the nationalisation of major banks in India on 19 July, 1969. BANKING REFORMS IN INDIA Nationalisation: By the 1960s, the Indian banking industry has become an important tool to facilitate the development of the Indian economy. At the same time, it has emerged as a large employer, and a debate has ensued about the possibility to nationalize the banking industry. Indira Gandhi, the-then Prime Minister of India expressed the intention of the GOI in the annual conference of the All India Congress Meeting in a paper entitled "Stray thoughts on Bank Nationalisation." The paper was received with positive enthusiasm. Thereafter, her move was swift and sudden, and the GOI issued an ordinance and nationalised the 14 largest commercial banks with effect from the midnight of July 19, 1969. Jayaprakash Narayan, a national leader of India, described the step as a "masterstroke of political sagacity." Within two weeks of the issue of the ordinance, the Parliament passed the Banking Companies (Acquition and Transfer of Undertaking) Bill, and it received the presidential approval on 9th August 1969. A second dose of nationalisation of 6 more commercial banks followed in 1980. The stated reason for the nationalisation was to give the government more control of credit delivery. With the second dose of nationalisation, the GOI controlled around 91% of the banking business of India. After this, until the 1990s, the nationalised banks grew at a pace of around 4%, closer to the average growth rate of the Indian economy.

Liberalization: In the early 1990s the then Narasimha Rao government embarked on a policy of liberalization and gave licences to a small number of private banks, which came to be known as New Generation tech-savvy banks, which included banks such as UTI Bank (now re-named as Axis Bank) (the first of such new generation banks to be set up), ICICI Bank and HDFC Bank. This move, along with the rapid growth in the economy of India, kickstarted the banking sector in India, which has seen rapid growth with strong contribution from all the three sectors of banks, namely, government banks, private banks and foreign banks. The next stage for the Indian banking has been setup with the proposed relaxation in the norms for Foreign Direct Investment, where all Foreign Investors in banks may be given voting rights which could exceed the present cap of 10%, at present it has gone up to 49% with some restrictions. The new policy shook the Banking sector in India completely. Bankers, till this time, were used to the 4-6-4 method (Borrow at 4%; Lend at 6%; Go home at 4) of functioning. The new wave ushered in a modern outlook and tech-savvy methods of working for traditional banks. All this led to the retail boom in India. People not just demanded more from their banks but also received more. Current situation Currently (2008), banking in India is generally fairly mature in terms of supply, product range and reach-even though reach in rural India still remains a challenge for the private sector and foreign banks. In terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets relative to other banks in comparable economies in its region. The Reserve Bank of India is an autonomous body, with minimal pressure from the government. The stated policy of the Bank on the Indian Rupee is to manage volatility but without any fixed exchange rate-and this has mostly been true.With the growth in the Indian economy expected to be strong for quite some timeespecially in its services sector-the demand for banking services, especially retail banking, mortgages and investment services are expected to be strong. One may also expect M&As, takeovers, and asset sales. In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an investor has been allowed to hold more than 5% in a private sector bank since the RBI announced norms in 2005 that any stake exceeding 5% in the private sector banks would need to be vetted by them. Currently, India has 88 scheduled commercial banks (SCBs) - 28 public sector banks (that is with the Government of India holding a stake), 29 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 31 foreign banks. They have a combined network of over 53,000 branches and 17,000 ATMs. According to a report by ICRA Limited, a rating agency, the public sector banks hold over 75 percent of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively.

BANKS IN INDIA In India the banks are being segregated in different groups. Each group has their own benefits and limitations in operating in India. Each has their own dedicated target market. Few of them only work in rural sector while others in both rural as well as urban. Many even are only catering in cities. Some are of Indian origin and some are foreign players. All these details and many more are discussed over here. The banks and its relation with the customers, their mode of operation, the names of banks under different groups and other such useful information are talked about. One more section has been taken note of is the upcoming foreign banks in India. The RBI has shown certain interest to involve more of foreign banks than the existing one recently. This step has paved a way for few more foreign banks to start business in India. Major Banks in India ABN-AMRO Bank Abu Dhabi Commercial Bank American Express Bank Andhra Bank Allahabad Bank Axis Bank (Earlier UTI Bank) Bank of Baroda Bank of India Bank of Maharastra Bank of Punjab Bank of Rajasthan Bank of Ceylon BNP Paribas Bank Canara Bank Catholic Syrian Bank Central Bank of India Centurion Bank China Trust Commercial Bank Citi Bank City Union Bank Corporation Bank Dena Bank Development Credit Bank Dhanalakshmi Bank Federal Bank HDFC Bank HSBC ICICI Bank IDBI Bank Indian Bank Indian Overseas Bank IndusInd Bank ING Vysya Bank Jammu & Kashmir Bank JPMorgan Chase Bank Karnataka Bank Karur Vysya Bank

Laxmi Vilas Bank Oriental Bank of Commerce Punjab National Bank Punjab & Sind Bank Scotia Bank South Indian Bank Standard Chartered Bank State Bank of India (SBI) State Bank of Bikaner & Jaipur State Bank of Hyderabad State Bank of Indore State Bank of Mysore State Bank of Saurastra State Bank of Travancore Syndicate Bank Taib Bank UCO Bank Union Bank of India United Bank of India United Western Bank Vijaya Bank

BANKING SERVICES IN INDIA:With years, banks are also adding services to their customers. The Indian banking industry is passing through a phase of customers market. The customers have more choices in choosing their banks. A competition has been established within the banks operating in India.With stiff competition and advancement of technology, the service provided by banks has become more easy and convenient. The past days are witness to an hour wait before withdrawing cash from accounts or a cheque from north of the country being cleared in one month in the south.This section of banking deals with the latest discovery in the banking instruments along with the polished version of their old systems. Functions of a Banks Functioning of a Bank is among the more complicated of corporate operations. Since Banking involves dealing directly with money, governments in most countries regulate this sector rather stringently. In India, the regulation traditionally has been very strict and in the opinion of certain quarters, responsible for the present condition of banks, where NPAs are of a very high order. The process of financial reforms, which started in 1991, has cleared the cobwebs somewhat but a lot remains to be done. The multiplicity of policy and regulations that a Bank has to work with makes its operations even more complicated, sometimes bordering on illogical. This section attempts to give an overview of the functions in as simple manner as possible. Banking Regulation Act of India, 1949 defines Banking as "accepting, for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise and withdraw able by cheques, draft, order or otherwise". Deriving from this definition and viewed solely from the point of view of the customers, Banks essentially perform the following functions:

1. 2. 3. 4. 5. 6. 7. 8. 9.

Accepting Deposits from public/others (Deposits) Lending money to public (Loans) Transferring money from one place to another (Remittances) Credit Creation Acting as trustees Keeping valuables in safe custody Investment Decisions and analysis Government business Other types of lending and transactions.

In addition to providing a safe custodian of money, banks also loan money to businesses and consumers. A large portion of a bank's business is lending. How do banks get the money they loan? The money comes from depositors who intend to save a portion of their wealth. Banks acting as intermediaries use these deposits as loans to prospective borrowers. The objective of commercial banks like any other organization is profit maximisation. This profit generally originates from the interest differential between borrowers and lenders. In the present day, however, the banking operation has extended much beyond simple lending exercise. So there are other different channels of profit ensuing from other investment programmes as well. However, it should be mentioned in this context that the entire deposit held by a bank cannot be given as loans as the Central Bank retains a portion of this money in the form of cash-reserve for unforeseen circumstances. Banks create money in the economy by making loans. The amount of money that banks can lend is directly affected by the reserve requirement set by the Federal Reserve. The reserve requirement is currently 3 percent to 10 percent of a bank's total deposits. This amount can be held either in cash on hand or in the bank's reserve account with the Fed. To see how this affects the economy, think about it like this. When a bank gets a deposit of $100, assuming a reserve requirement of 10 percent, the bank can then lend out $90. That $90 goes back into the economy, purchasing goods or services, and usually ends up deposited in another bank. That bank can then lend out $81 of that $90 deposit, and that $81 goes into the economy to purchase goods or services and ultimately is deposited into another bank that proceeds to lend out a percentage of it. In this way, money grows and flows throughout the community in a much greateramount than physically exists. That $100 makes a much larger ripple in the economy than you may realize! Other Services Offered by Banks Credit Cards Personal Loans Home and Car Loans Mutual Funds Business Loans Safe Deposit Boxes Debit Cards Trust Services Signature Guarantees and many other investment services.

RESERVE BANK OF INDIA (RBI) The central bank of the country is the Reserve Bank of India (RBI). It was established in April 1935 with a share capital of Rs. 5 crores on the basis of the recommendations of the Hilton Young Commission. The share capital was divided into shares of Rs. 100 each fully paid which was entirely owned by private shareholders in the beginning. The Government held shares of nominal value of Rs. 2, 20,000. 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 Government 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 four nominated Directors by the Central Government to represent the four local Boards with the headquarters at Mumbai, Kolkata, Chennai and New Delhi. Local Boards consist of five members each Central Government appointed for a term of four years to represent territorial and economic interests and the interests of co-operative and indigenous banks. 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. Functions of Reserve Bank of India The Reserve Bank of India Act of 1934 entrust all the important functions of a central bank the Reserve Bank of India. Bank of Issue Under Section 22 of the Reserve Bank of India Act, the Bank has the sole right to issue bank notes of all denominations. The distribution of one rupee notes and coins and small coins all over the country is undertaken by the Reserve Bank as agent of the Government. The Reserve Bank has a separate Issue Department which is entrusted with the issue of currency notes. The assets and liabilities of the Issue Department are kept separate from those of the Banking Department.Originally, the assets of the Issue Department were to consist of not less than two-fifths of gold coin, gold bullion or sterling securities provided the amount of gold was not less than Rs. 40 crores in value. The remaining three-fifths of the assets might be held in rupee coins, Government of India rupee securities, eligible bills of exchange and promissory notes payable in India. Due to the exigencies of the Second World War and the post-was period, these provisions were considerably modified. Since 1957, the Reserve Bank of India is required to maintain gold and foreign exchange reserves of Ra. 200 crores, of which at least Rs. 115 crores should be in gold. The system as it exists today is known as the minimum reserve system. Banker to Government The second important function of the Reserve Bank of India is to act as Government banker, agent and adviser. The Reserve Bank is agent of Central Government and of all State Governments in India excepting that of Jammu and Kashmir. The Reserve Bank has the obligation to transact Government business, via. to keep the cash balances as deposits free of interest, to receive and to make payments on behalf of the Government and to carry out their exchange remittances and other banking operations. The Reserve Bank of India helps the Government - both the Union and the States to float new loans and to manage public debt. The Bank makes ways and means advances to the Governments for 90 days. It makes loans and advances to the States and local authorities. It acts as adviser to the Government on all monetary and banking matters.

Bankers' Bank and Lender of the Last Resort The Reserve Bank of India acts as the bankers' bank. According to the provisions of the Banking Companies Act of 1949, every scheduled bank was required to maintain with the Reserve Bank a cash balance equivalent to 5% of its demand liabilities and 2 per cent of its time liabilities in India. By an amendment of 1962, the distinction between demand and time liabilities was abolished and banks have been asked to keep cash reserves equal to 3 per cent of their aggregate deposit liabilities. The minimum cash requirements can be changed by the Reserve Bank of India.

The scheduled banks can borrow from the Reserve Bank of India on the basis of eligible securities or get financial accommodation in times of need or stringency by rediscounting bills of exchange. Since commercial banks can always expect the Reserve Bank of India to come to their help in times of banking crisis the Reserve Bank becomes not only the banker's bank but also the lender of the last resort. Controller of Credit The Reserve Bank of India is the controller of credit i.e. it has the power to influence the volume of credit created by banks in India. It can do so through changing the Bank rate or through open market operations. According to the Banking Regulation Act of 1949, the Reserve Bank of India can ask any particular bank or the whole banking system not to lend to particular groups or persons on the basis of certain types of securities. Since 1956, selective controls of credit are increasingly being used by the Reserve Bank. The Reserve Bank of India is armed with many more powers to control the Indian money market. Every bank has to get a license from the Reserve Bank of India to do banking business within India, the license can be cancelled by the Reserve Bank of certain stipulated conditions are not fulfilled. Every bank will have to get the permission of the Reserve Bank before it can open a new branch. Each scheduled bank must send a weekly return to the Reserve Bank showing, in detail, its assets and liabilities. This power of the Bank to call for information is also intended to give it effective control of the credit system. The Reserve Bank has also the power to inspect the accounts of any commercial bank. As supreme banking authorityin the country, the Reserve Bank of India, therefore, has the following powers: (a) It holds the cash reserves of all the scheduled banks. (b) It controls the credit operations of banks through quantitative and qualitative controls. (c) It controls the banking system through the system of licensing, inspection and calling for information. (d) It acts as the lender of the last resort by providing rediscount facilities to scheduled banks. Custodian of Foreign Reserves The Reserve Bank of India has the responsibility to maintain the official rate of exchange. According to the Reserve Bank of India Act of 1934, the Bank wasrequired to buy and sell at fixed rates any amount of sterling in lots of not less than Rs. 10,000. The rate of exchange fixed was Re. 1 = sh. 6d. Since 1935 theBank was able to maintain the exchange rate fixed at lsh.6d. Though there wereperiods of extreme pressure in favor of or against the rupee. After India became a member of the International Monetary Fund in 1946, the Reserve Bank has the responsibility of maintaining fixed exchange rates with all other member countries of the I.M.F.Besides maintaining the rate of exchange of the rupee, the Reserve Bank has to act as the custodian of India's reserve of international currencies. The vast sterling balances were acquired and managed by the Bank. Further, the RBI has the responsibility of administering the exchange controls of the country.

Supervisory functions In addition to its traditional central banking functions, the Reserve bank has certain nonmonetary functions of the nature of supervision of banks and promotion of sound banking in

India. The Reserve Bank Act, 1934, and the Banking Regulation Act, 1949 have given the RBI wide powers of supervision and control overcommercial and co-operative banks, relating to licensing and establishments, branch expansion, liquidity of their assets, management and methods of working, amalgamation, reconstruction, and liquidation. The RBI is authorized to carry out periodical inspections of the banks and to call for returns and necessary information from them. The nationalization of 14 major Indian scheduled banks in July 1969 has imposed new responsibilities on the RBI for directing the growth of banking and credit policies towards more rapid development of the economy and realization of certain desired social objectives. The supervisory functions of the RBI have helped a great deal in improving the standard of banking in India to develop on sound lines and to improve the methods of their operation. Promotional functions With economic growth assuming a new urgency since Independence, the range of the Reserve Bank's functions has steadily widened. The Bank now performs variety of developmental and promotional functions, which, at one time, were regarded as outside the normal scope of central banking. The Reserve Bank was asked to promote banking habit, extend banking facilities to rural and semi-urban areas, and establish and promote new specialized financing agencies. Accordingly, the Reserve Bank has helped in the setting up of the IFCI and the SFC; it set up the Deposit Insurance Corporation in 1962, the Unit Trust of India in 1964, the Industrial Development Bank of India also in 1964, the Agricultural Refinance Corporation of India in 1963 and the Industrial ReconstructionCorporation of India in 1972. These institutions were set up directly orindirectly by the Reserve Bank to promote saving habit and to mobilize savings, and to provide industrial finance as well as agricultural finance. As far back as1935, the Reserve Bank of India set up the Agricultural Credit Department to provide agricultural credit. But only since 1951 the Bank's role in this field has become extremely important. The Bank has developed the co-operative creditmovement to encourage saving, to eliminate moneylenders from the villages and toroute its short term credit to agriculture. The RBI has set up the AgriculturalRefinance and Development Corporation to provide long-term finance to farmers.

Classification of RBIs functions The monetary functions also known as the central banking functions of the RBI are related to control and regulation of money and credit, i.e., issue of currency, control of bank credit, control of foreign exchange operations, banker to the Government and to the money market. Monetary functions of the RBI are significant as they control and regulate the volume of money and credit in the country. Equally important, however, are the non-monetary functions of the RBI in the context of India's economic backwardness. The supervisory function of the RBI may be regarded as a non-monetary function (though many consider this a monetary function). The promotion of sound banking in India is an important goal of the RBI, the RBI has been given wide and drastic powers, under the Banking Regulation Act of 1949 these powers relate to licensing of banks, branch expansion, liquidity of their assets, management and methods of working, inspection, amalgamation, reconstruction and liquidation. Under the RBI's upervision and inspection, the working of banks has greatly improved. Commercial banks have developed into financially and operationally sound and viable units. The RBI's powers of supervision have now been extended to non-banking financial intermediaries. Since independence, particularly after its nationalization 1949,the RBI has followed the promotional functions vigorously and has been responsiblefor strong financial support to industrial and agricultural development in the country

Functions of RBI

Monetary Authority: The RBI is responsible for implementing, formulating and monitoring the monetary policy of India. Objective: Keeping this authority in mind the RBI is required to maintain price stability and ensure adequate flow of credit to productive sectors. Regulator and supervisor of the financial system: The Supreme financial body sets down broad parameters of banking operations within which the country's banking and financial system operates. Objective: This reasonably helps in maintaining public confidence in the system. It in turn protects depositors' interest and provides lucrative banking services to the public. Manager of Exchange Control: The RBI is responsible for managing the Foreign Exchange Management Act, 1999. Objective: It is the nodal agency, which facilitates external trade and payment and promotes orderly development and maintenance of foreign exchange market in India. Issuer of currency: It is the only supreme body, which issues and exchanges or destroy currency and coins not fit for circulation. Objective: This facilitates in giving the public adequate quantity of currency notes and coins and in good quality. Developmental role The RBI since its inception performs a wide range of promotional functions to support national objectives and generate goodwill among the citizens of the country. Related Functions Banker to the Government: The RBI performs merchant banking function for the central and the state governments and also acts as their banker. The advises the Government of the current monetary condition in the state. RBI often

Banker to banks: maintains banking accounts of all scheduled banks. The RBI looks after the functioning of the state banks and grants them license and even cancels the same on account of fraud practice. Subsidiaries of RBI Fully owned:= National Housing Bank (NHB), National Bank for Agriculture and Rural Development (NABARD), Deposit Insurance and Credit Guarantee Corporation of India (DICGC), Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL) Majority stake: = National Bank for Agriculture and Rural Development (NABARD). The Reserve Bank of India has recently divested its Stake in State Bank of India to the Government of India. BANKS TO DISPLAY SALIENT FEATURES OF THE SCHEME FOR COMMON KNOWLEDGE OF PUBLIC. (1) The banks covered by the Scheme shall ensure that the purpose of the Schemeand the name and address of the Banking Ombudsman to whom the complaints are to be made by the aggrieved party are displayed prominently in all the offices and branches of the bank in such manner that a person visiting the office or branchhas adequate information of the Scheme. (2) The banks covered by the Scheme shall ensure that a copy of the Scheme is available the designated officer of the bank for perusal in the office premises of the bank if anyone desires to do so and notice about the availability of the Scheme with such esignated officer shall be displayed along with the notice under sub-clause (1) of this clause.

(3) The banks covered by the Scheme shall appoint Nodal Officers at their Regional/Zonal Offices and inform the respective Office of the Banking Ombudsman under whose jurisdiction the Regional/Zonal Office falls. The Nodal Officer so appointed shall be responsible for representing the bank and furnishing information to the Banking Ombudsman in respect of complaints filed against the bank.

Banking sectors in India

PUBLIC SECTOR BANKS-The public sector is the one whose working is in the hands of the government. the government holds a majority stake in public sector industries. Their activities are mostly influenced by the government. But due to privatization of public sector industries, their nimbler has reduced to a significant extent. Indian railways, nuclear power industry, electricity board, etc. are still included in the public sector. it may be defined as "an enterprise where there isno private ownership but its activities are not mainly confined to the maximization of profits and private interests of the enterprise but it is influenced by social. The term public sector bank by itselfconnotes a situation where the government holds the major/full l stake in the banks. Excepting the Reserve Bank of India, which was nationalized in 1949, there was no other bank, which had the tag of public sector bank till 1969. With the nationalization of banks brought in by Banking Companies Act, 1970, 14 Banks each of which had a level of more than Rs 50 crores in time and demand liabilities acquired the character of nationalized banks effective from 19 July 1969. This was subsequently followed by nationalization of 6 more private Sector Commercialbanks, each of which had crossed the deposit limit of Rs 200 crore in the year1980, effective from 15/4/1980. Thus, as on date there are totally 19 nationalized banks existing as on date, consequent to the merger of New Bank of India with Punjab National Bank in September 1993. Consequent to an Amendment made to the Banking Companies Acts, 1970/1980 in 1994, nationalized banks have been permitted to offer their equity shares to the public to the extent of 49% of their capital . Some public sector banks are given below State Bank of India Allahabad bank Bank of India Bank of Baroda Dena Bank Punjab National Bank United Bank of India Union Bank of India Central Bank of India

PRIVATE BANKS- are banks that are not incorporated. A private bank is owned by either an individual or a general partner(s) with limited partner(s). In any such case, the creditors can look to both the "entirety of the bank's assets" as well as the entirety of the sole-proprietor's/general-partners' assets. By private sector banks we mean those banks where private shareholders hold equity, that is to say there is no government holding of the equity shares. This category of banks also occupies a significant position in the banking scenario. Private Sector Banks have been rapidly increasing their presence in the recent times and offering a variety of newer services to the customer and posing a stiff competition to the group of public sector banks.

Some Private Sector banks are given below Axis Bank HDFC Bank ICICI Bank IDBI Bank Indusland Bank ING Vysya Bank Kotak Mahindra Bank

FOREIGN SECTOR BANKS- Foreign sector banks are those banks which have their head office in other countries outside India and branch is working in India.Foreign Banks in India always brought an explanation about the prompt services to customers. After the set up foreign banks in India, the banking sector in India also become Competitive and accurative . New rules announced by the Reserve Bank of India for the foreign banks in India in this budget has put up great hopes among foreign banks, which allows them to grow, unfettered. Now foreign banks in India are permitted to set up local subsidiaries. The policy conveys that foreign banks in India may not acquire Indian ones (except for weak banks identified by the RBI, on its terms) and their Indian subsidiaries will not be able to open branches freely. Please see the list of foreign banks in India till date. Some foreign banks are given below ABN AMRO Bank N.V. American Express Bank Bank of America Bank of Nova Scotia Bank of Tokyo Mitsubishi UFJ Barclays Bank BNP Paribas Citibank Deutsche Bank Societe Generale Standard Chartered Bank

CO-OPERATIVE SECTOR The co-operative sector is very much useful for rural people. The co-operative banking sector is divided into the following categories. a. State co-operative Banks b. Central co-operative banks c. Primary Agriculture Credit Societies

The Cooperative bank is an important constituent of the Indian Financial System, judging by the role assigned to co operative, the expectations the co operative is supposed to fulfill, their number, and the number of offices the cooperative bank operate. Though the co operative movement originated in the West, but the importance of such banks have assumed in India is rarely paralleled anywhere else in the world. The cooperative banks in India plays an important role even today in rural financing. The businesses of cooperative bank in the urban areas also has increased phenomenally in recent years due to the sharp increase in the number of primary Co-operative banks Co-operative Banks in India are registered under the Co-operative Societies Act. The RBI also regulates the cooperative bank. They are governed by the Banking Regulations Act 1949 and Banking Laws (Co- operative Societies) Act, 1965. List of some co-operative banks in India Uttar Pradesh State Co-operative bank Ltd. New India Co-operative bank Ltd. Mumbai United Mercantile Co-operative Bank Ltd. United Co-operative Commercial (UCC) Bank Ltd. Development Co-operative Bank Ltd. Co-operative Bank of Ahmedabad Ltd. The Indian Mercantile Co-operative Bank Ltd.

Regional Rural Bank A rural bank is a financial institution that helps rationalize the developing regions or developing country to finance their needs specially the projects regarding agricultural progress.Rural banking in India started since the establishment of banking sector in India. Rural Banks in those days mainly focused upon the agro sector. Regional ruralbanks in India penetrated every corner of the country and extended a helping hand in the growth process of the country. SBI has 30 Regional Rural Banks in India known as RRBs. The rural banks of SBI are spread in 13 states extending from Kashmir to Karnataka and Himachal Pradesh to North East. The total number of SBIs Regional Rural Banks in India branches is2349 (16%). Till date in rural banking in India, there are 14,475 rural banks inthe country of which 2126 91% are located in remote rural areas. Apart from SBI, there are other few banks which functions for the development of the rural areas in India. Few of them are as follows Haryana state Co-operative Apex Bank Limited NABARD Sindhanur Urban Souhadra Co-operative Bank United Bank of India Syndicate Bank

Structure of Banking in India

Scheduled banks: Scheduled Banks in India constitute those banks which have been included in the Second Schedule of Reserve Bank of India(RBI) Act, 1934. RBI in turn includes only those banks in this schedule which satisfy the criteria laid down vide section 42 (6) (a) of the Act.The banks included in this schedule list should fulfil two conditions. 1. The paid capital and collected funds of bank should not be less than Rs. 5 lac. 2.Any activity of the bank will not adversely affect the interests of depositors. Every Scheduled bank enjoys the following facilities. 1. Such bank becomes eligible for debts/loans on bank rate from the RBI 2. Such bank automatically acquire the membership of clearing house Scheduled Commercial Banks The commercial banking structure in India consists of: Scheduled Commercial Banks in India Unscheduled Banks in India Scheduled Banks in India constitute those banks which have been included in the Second Schedule of Reserve Bank of India(RBI) Act, 1934. RBI in turn includes only those banks in this schedule which satisfy the criteria laid down vide section 42 (6) (a) of the Act. As on 30th June, 1999, there were 300 scheduled banks in India having a total network of 64,918 branches. The scheduled commercial banks in India comprise of State bank of India and its associates (8), nationalisedbanks(19), foreign banks (45), private sector banks (32), co-operative banks and regional rural banks. "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 State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition andTransfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the BankingCompanies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), orany other bank being a bank included in the Second Schedule to the Reserve Bank ofIndia Act, 1934 (2 of 1934), but does not include a cooperative bank"."Non-scheduled bank in India" means a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949), which is not a scheduled bank". Public sectors bank The public sector is the one whose working is in the hands of the governments the governments holds a majority stake in public sector industries. Their activities are mostly influenced by the government. But due to privatization of public sector industries, their nimbler has reduced to a significant extent. Indian railways, nuclear power industry, electricity board, etc are still included in the public sector. It may be defined as an enterprise where there is no private ownershipbut its activities are not mainly confined to the maximization of profits and private interests of the enterprise but it is influenced by social. The following are the list of Public Sector Banks in India Allahabad Bank Andhra Bank

Bank of Baroda Bank of India Bank of Maharastra Canara Bank Central Bank of India Corporation Bank Indian Bank Indian Overseas Bank Oriental Bank of Commerce Punjab & Sind Bank Punjab National Bank Syndicate Bank UCO Bank Union Bank of India United Bank of India Vijaya Bank

Public sector banks consist of two things which are as under below: Nationalized Bank A federally chartered bank which is a member of the Federal Reserve System and the Federal Deposit Insurance Corporation. 1. A bank in a system of federally chartered privately owned banks in the United States, each required by law to be an investing member of its district Federal Reserve Bank and insured by the Federal Deposit Insurance Corporation. 2. A bank associated with national finances and usually owned or controlled by a government. SBI an its associates

Sr.No Associate Banks of SBI 1 State Bank of Bikaner & Jaipur 2 3 4 5 6 State Bank of Hyderabad State Bank of Indore State Bank of Mysore State Bank of Patiala State Bank of Travancore

Private sector bank Private banks are banks that are not incorporated. A private bank is owned by either an individual or a general partner(s) with limited partner(s). In any such case, the creditors can look to both the "entirety of the bank's assets" as well as the entirety of the sole-proprietor's/general-partners' assets. The part of an economy in which goods and services are produced and distributed by individuals and organizations that are not part of the government or state bureaucracy The part of a nation's economy which is not controlled by the government

Private sector schemes may give you the option of exchanging part of your pension for a tax-free lump sum. Private banking in India was practiced since the beginning of banking system in India. The first private bank in India to be set up in Private Sector Banks in India was IndusInd Bank. It is one of the fastest growing Bank Private Sector Banks in India. IDBI ranks the tenth largest development bank in the world as private banks. The first Private Bank in India to receive an in principle approval from the Reserve Bank of India was Housing Development Finance Corporation Limited, to set up a bank in the private sector banks in India as part of the RBI's liberalisation of the Indian Banking Industry. It was incorporated in August 1994 as HDFC Bank Limited with registered office in Mumbai and commenced operations as Scheduled Commercial Bank in January 1995. ING Vysya, yet another Private Bank of India was incorporated in the year 1930. Bangalore has a pride of place for having the first branch inception in the year 1934. With successive years of patronage and constantly setting new standards in banking, ING Vysya Bank has many credits to its account. List of Private Banks in India Bank of Punjab Bank of Rajasthan Catholic Syrian Bank Centurion Bank City Union Bank Dhanalakshmi Bank Development Credit Bank Federal Bank HDFC Bank ICICI Bank IDBI Bank IndusInd Bank ING Vysya Bank Jammu & Kashmir Bank Karnataka Bank Karur Vysya Bank Laxmi Vilas Bank South Indian Bank United Western Bank UTI Bank

Private sector banks consist of mainly two things: Old Private Sector Banks 1. Bank of Rajasthan Ltd. 2. Catholic Syrian Bank Ltd. 3. City Union Bank Ltd 4. Dhanalakshmi Bank Ltd 5 Federal Bank Ltd 6. ING Vysya Bank Ltd 7. Jammu and Kashmir Bank Ltd 8 Karnataka Bank Ltd 9. Karur Vysya Bank Ltd 10. Lakshmi Vilas Bank Ltd 11. Nainital Bank Ltd 12. Ratnakar Bank Ltd. 13. SBI Commercial and International Bank Ltd 14. South Indian Bank Ltd 15. Tamilnad Mercantile Bank Ltd. 16. United Western Bank Ltd New Private Sector Banks o Kotak Mahindra Bank Ltd o Yes

Bank Ltd Foreign sector banks Foreign sector banks are those banks which have their countries outside india and branch is working in india. The following are the Scheduled Foreign Banks in India: American Express Bank Ltd. ANZ Gridlays Bank Plc. Bank of America NT & SA Bank of Tokyo Ltd. Banquc Nationale de Paris Barclays Bank Plc Citi Bank N.C. Deutsche Bank A.G. Hongkong and Shanghai Banking Corporation Standard Chartered Bank. head office in other

The Chase Manhattan Bank Ltd. Dresdner Bank AG.

Regional Rural Banks Rural banking in India started since the establishment of banking sector in India. Rural Banks in those days mainly focussed upon the agro sector. Regional rural banks in India penetrated every corner of the country and extended a helping hand in the growth process of the country. SBI has 30 Regional Rural Banks in India known as RRBs. The rural banks of SBI is spread in 13 states extending from Kashmir to Karnataka and Himachal Pradesh to North East. The total number of SBIs Regional Rural Banks in India branches is2349 (16%). Till date in rural banking in India, there are 14,475 rural banks inthe country of which 2126 (91%) are located in remote rural areas. Apart from SBI, there are other few banks which functions for the development of the rural areas in India. Few of them are as follows.Haryana State Cooperative Apex Bank Limited The Haryana State Cooperative Apex Bank Ltd. commonly called as HARCOBANK plays avital role in rural banking in the economy of Haryana State and has been providing aids and financing farmers, rural artisans, agricultural labourers, entrepreneurs, etc. in the state and giving service to its depositors. NABARD National Bank for Agriculture and Rural Development (NABARD) is a development bank in the sector of Regional Rural Banks in India. It provides and regulates credit and gives service for the promotion and development of rural sectors mainly agriculture, small scale industries, cottage and village industries, handicrafts. It also finance rural crafts and other allied rural economic activities to promote integrated rural development. It helps in securing rural prosperity and its connected matters. Sindhanur Urban Souharda Co-operative Bank Sindhanur Urban Souharda Co-operative Bank, popularly known as SUCO BANK is the first of its kind in rural banks of India. The impressive story of its inception is interesting and inspiring for all the youth of this country. United Bank of India United Bank of India (UBI) also plays an important role in regional rural banks. It has expanded its branch network in a big way to actively participate in the developmental of the rural and semi-urban areas in conformity with the objectives of nationalisation. Syndicate Bank was firmly rooted in rural India as rural banking and have a clear vision of future India by understanding the grassroot realities. Its progress has been abreast of the phase of progressive banking in India especially in rural banks.

Scheduled Cooperative Banks: Co-operative Banks are organised and managed on the principal of co-operation, self-help, and mutual help. They function with the rule of "one member, one vote". function on "no profit, no loss" basis. Co-operative banks, as a principle, do not pursue the goal of profit maximisation.Co-operative bank performs all the main banking functions of deposit mobilisation, supply of credit and provision of remittance facilities. Co-operative Banks provide limited banking products and are functionally specialists in agriculture related products. However, co-operative banks now provide housing loans also.Meaning And Definition of Co-operative Banks According to the InternationalCo-operative AssociationA co-operative is an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through ajointly-owned and democratically-controlled enterprise. Co-operatives are based on the values of self-help, self-responsibility, democracy, equality, equity and solidarity. In the tradition of their founders, cooperative members believe inthe ethical values of honesty, openness, social responsibility and caring forothers. The 7 co-operative principles are Voluntary and open membership Democratic member control Member economic participation Autonomy and independence Education, training and information Co-operation among Co-operatives Concern for Community

Voluntary and open membership Co-operative are voluntary organizations, open to all persons able to use their services and willing to accept the responsibilities of membership, without gender, social, racial, political or religious discrimination. Democratic member control Co-operative are democratic organizations controlled by their members, who actively participate in setting their policies and making decisions, men and women serving as elected representatives are accountable to the membership. In primary co-operatives member have equal voting rights and co-operatives at other levels are also organized in a democratic manner. Member economic participation Members contributes equitability to anddemocratically controls the capital of their co-operative. At least part of the capital is usually the common property of the co-operative members usually receive limited compensation, if any, on capital subscribed as condition of membership. Members allocate surpluses for any of the following purposes: developing their co- operative, possibly by setting up reserves, part of which at least would be indivisible, benefiting members in proportion to their transactions with the co- operative, and supporting other activities approved by the membership. Autonomy and independence Co-operative are autonomous, self-helporganizations controlled by their members. If they enter into agreements withother organizations, including governments to raise capital from external sources, they do so in terms that ensure democratic control by their members and maintain their co-operative autonomy. Education, training and information Co-operative provide education and training for their members, elected representatives, managers and employees so that, they can contribute effectively to the development of their co-operatives. They inform the general public-particularly young people and opinion leaders about the nature and benefit of Cooperation. Co-operation among cooperativeness Co-operatives serve their members most effectively and strengthen the co-operative movements by workings together through local, national, regional and international structures. Concern for community Co-operatives work for the sustainable development of their

communities through policies approved by their members. A co-operative bank is a financial entity which belongs to its members, who are at the same time the owners and the customers of their bank. Co-operative banks are often created by persons belonging to the same local or professional community or sharing a common interest. Co-operative banks generally provide their members with a wide range of banking and financial services (loans, deposits, banking accounts). Co-operative banks differ from stockholder banks by theirorganization, their goals, their values and their governance. In most countries,they are supervised and controlled by banking authorities and have to respect prudential banking regulations, which put them at a level playing field with stockholder banks. Depending on countries, this control and supervision can be implemented directly by state entities or delegated to a co-operative federation or central body. Scheduled urban cooperative banks The Urban Cooperative Banks (UCBs), along with other cooperative banks, were brought Under the regulatory ambit of RBI by extending certain provisions of Banking Regulation Act, 1949, (B.R.Act) effective from March 1, 1966. Since then, the urban banking sector has witnessed phenomenal growth in terms of reach, size, volume of operations and the quantum of public deposits held by it. In the past, two Expert Committees had examined the role assigned to UCBs and the regulatory issues related to them. Report of the Committee on Urban Cooperative Banks, 1978 (Madhava Das Committee) provided a well-documented study of urban banking sector in India and set standards of viability for sustained growth of urban banks. The last Committee on UCBs (Marathe Committee) which submitted its Report in 1992, had come out with far reaching recommendations, and it had, primarily aimed at removal of fetters on UCBs freedom. RBI has accepted most of these recommendations and implemented them.RBI felt that it should take stock of the performance of urban cooperative banking sector after the introduction of a fairly deregulated regime in 1993 in the light of the recommendations of Marathe Committee Report and the more deregulated scenario of the commercial banking sector consequent to the recommendations of Narasimham Committee Report on Banking Sector Reforms. Thisreview is to particularly focus on the entry point capital prescription, proliferation of weak banks, implementation of prudential norms, inadequate legal provisions and problems created by dual control of UCBs by RBI under B.R.Act, and State Governments under the respective State Cooperative Societies Acts. While announcing the monetary policy for the year 1999-2000, the Governor, Reserve Bank of India desired to constitute a High Power Committee to address these issues. Accordingly, the present High Power Committee was constituted by the Governor, Reserve Bank of India, in May 1999 to review the performance of urban cooperative banks and suggest necessary measures to strengthen them. Non-Scheduled Banks "Non-scheduled bank in India" means a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949), which is not a scheduled bank. NATURE OF BANKING IN INDIA A banking company in India has been defined in the banking companies act, one which transacts the business of banking which means the accepting, for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise and withdraw able by cheque, draft, order or otherwise. Most of the activities a Bank performs are derived from the above definition. In addition, Banks are allowed to perform certain activities which are ancillary to this business of accepting deposits and lending. A bank's relationship with the public, therefore, revolves

around accepting deposits and lending money. Another activity which is assuming increasing importance is transfer of money - both domestic and foreign -from one place to another. This activity is generally known as "remittance business" in banking parlance.

KINDS OF BANKS Financial requirements in a modern economy are of a diverse nature, distinctive variety and large magnitude. Hence, different types of banks have been instituted to cater to the varying needs of the community. Banks in the organized sector may, however, be classified in to the following major forms: 1. Commercial banks 2. Co-operative banks 3. Specialized banks 4. Central bank -: COMMERCIAL BANKS:Commercial banks are joint stock companies dealing in money and credit. In India, however there is a mixed banking system, prior to July 1969, all the commercial banks-73 scheduled and 26 non-scheduled banks, except the state bank of India and its subsidiaries-were under the control of private sector. On July 19,1969, however, 14major commercial banks with deposits of over 50 Corers were nationalized. In April 1980, another six commercial banks of high standing were taken over by the government. At present, there are 20 nationalized banks plus the state bank of India and its 7 subsidiaries constituting public sector bankingwhich controls over 90 per cent of the banking business in the country.

:CO-OPERATIVE BANKS:Co-operative banks are a group of financial institutions organized under the provisions of the Co-operative societies Act of the states. The main objective of co-operative banks is to provide cheap credits to their members. They are based on the principle of selfreliance and mutual co-operation. Co-operative bankingsystem in India has the shape of a pyramid a three tier structure, constituted by: Primary credit societies [APEX] Central co-operative banks [District level] State co-operative banks [Villages, Towns, Cities]

-: SPECIALIZED BANKS:There are specialized forms of banks catering to some special needs with this unique nature of activities. There are thus, 1. Foreign exchange banks, 2. Industrial banks, 3. Development banks, 4. Land development banks, -: CENTRAL BANK:A central bank is the apex financial institution in the banking and financial system of a country. It is regarded as the highest monetary authority in the country. It acts as the leader of the money market. It supervises, control and regulates the activities of the commercial banks. It is a service oriented financial institution. Indias central bank is the Reserve Bank of India established in 1935. A central bank is usually state owned but it may also be a private organization. For instance, the reserve Bank of India (RBI), was started as a shareholders organization in 1935, however, it was nationalized after independence, in is free from parliamentary control. ROLE OF BANKS IN A DEVELOPING ECONOMY Banks play a very useful and dynamic role in the economic life of every modern state. A study of the economic history of western country shows that without the evolution of commercial banks in the 18th and 19th centuries, the industrial revolution would not have taken place in Europe. The economic importance of commercial banks to the developing countries may be viewed thus: 1. Promoting capital formation 2. Encouraging innovation 3. Molestation 4. Influence economic activity 5. Facilitator of monetary policy Above all view we can see in briefly, which are given below: PROMOTING CAPITAL FORMATION:A developing economy needs a high rate of capital formation to accelerate the tempo of economic development, but the rate of capital formation depends upon the rate of saving. Unfortunately, in underdeveloped countries, saving is very low. Banks afford facilities for saving and, thus encourage the habits of thrift and industry in the community. They mobilize the ideal and dormant capital of the country and make it available for productive purposes. ENCOURAGING INNOVATION:-

Innovation is another factor responsible for economic development. Theentrepreneur in innovation is largely dependent on the manner in which bank credit is allocated and utilized in the process of economic growth. Bank credit enables entrepreneurs to innovate and invest, and thus uplift economic activity and progress. MONETSATION:Banks are the manufactures of money and they allow many to play its role freely in the economy. Banks monetize debts and also assist the backward subsistence sector of the rural economy by extending their branches in to the rural areas. They must be replaced by the modern commercial banks branches. INFLUENCE ECONOMIC ACTIVITY:Banks are in a position to influence economic activity in a country by their influence on the rate interest. They can influence the rate of interest in the money market through its supply of funds. Banks may follow a cheap money policy with low interest rates which will tend to stimulate economic activity. FACILITATOR OF MONETARY POLICY:Thus monetary policy of a country should be conductive to economic development.But a welldeveloped banking system is on essential pre-condition to the effective implementation of monetary policy. Under-developed countries cannot afford to ignore this fact. A fine, an efficient and comprehensive banking system is a crucial factor of the developmental process.

PRINCIPLES OF BANK LENDING POLICIES The main business of banking company is to grant loans and advances to traders as well as commercial and industrial institutes. The most important use of banks money is lending. Yet, there are risks in lending. So the banks follow certain principles to minimize the risk: 1. 2. 3. 4. 5. Safety Liquidity Profitability Purpose of loan Principle of diversification of risks

SAFETY:Normally the banker uses the money of depositors in granting loans and advances. So first of all initially the banker while granting loans should think first of the safety of depositors money. The purpose behind the safety is to see the financial position of the borrower whether he can pay the debt as well as interest easily. LIQUIDITY:It is a legal duty of a banker to pay on demand the total deposited money to the depositor. So the banker has to keep certain percent cash of the total deposits on hand. Moreover the bank grants loan. It is also for the addition of short term or productive capital. Such type of lending is recovered on demand.

PROFITABILITY:Commercial banking is exception. They should to the depositors and business cost and can PURPOSE OF LOAN:Banks never lend or advance for any type of purpose. The banks grant loans and advances for the safety of its wealth, and certainty of recovery of loan and the bank lends only for productive purposes. For example, the bank gives such loan for the requirement for unproductive purposes. profit earning institutes. Nationalized banks are also not an have planning of deposits in a profitability way pay more interest more salary to the employees. Moreover the banker can also incur give more benefits to customer.

PRINCIPLE OF DIVERSIFICATION OF RISKS:While lending loans or advances the banks normally keep such securities and assets as a supports so that lending may be safe and secured. Suppose, any particular state is hit by disasters but the bank shall get benefits from the lending to another states units. Thus, he effect on the entire business of banking is reduced. There are proverbs that do not keep all the eggs in one basket. ---a principle of considerations of sound lending is: 1. 2. 3. 4. Safety Liquidity Shift ability Profitability. BANKING SERVICES PERTANING TO THE COMMON PERSON Bank Account Open bank account - the most common and first service of the banking sector. There are different types of bank account in Indian banking sector. The bank accountsare as follows: Bank Savings Account - Bank Savings Account can be opened for eligible person / persons and certain organisations / agencies (as advised by Reserve Bank of India (RBI) from time to time) Bank Current Account - Bank Current Account can be opened by individuals / partnership firms / Private and Public Limited Companies / HUFs / Specified Associates / Societies / Trusts, etc. Bank Term Deposits Account - Bank Term Deposits Account can be opened by individuals / partnership firms / Private and Public Limited Companies / HUFs/ Specified Associates / Societies / Trusts, etc. Bank Account Online - With the advancement of technology, the major banks in the public and private sector has facilitated their customer to open bank account online. Bank account online is registered through a PC with an Internet connection. The advent of bank account online has saved both the cost of operation for banks as well as the time taken in opening an account. Note: - A minor account can be opened but jointly with a guardian and only the guardian would is allowed to operate the account. . Internet BankingInternet banking is the latest in this series of technological wonders in the recent past involving use of Internet for delivery of banking products and services. Internet banking is changing the banking industry and is having the major effects on banking relationships. Banking is now no longer confined to the branches were one has to approach the branch in person, to withdraw cash ordeposit a cheque or request a statement of accounts. In true Internet banking, any inquiry or transaction is processed online without any reference to the branch (anywhere banking) at any time. Providing Internet banking is increasingly becoming a "need to have" than a "nice to have" service.

Core Banking Solution (CBS) Core Banking Solution (CBS) is networking of branches, which enables Customers to operate their accounts, and avail banking services from any branch of the Bank on CBS network, regardless of where he maintains his account. The customer is no more the customer of a Branch. He becomes the Banks Customer. Thus CBS is a step towards enhancing customer convenience through anywhere and anytime banking.

All CBS branches are inter-connected with each other. Therefore, Customers of CBS branches can avail various banking facilities from any other CBS branch located any where in the world. These services are: To make enquiries about the balance; debit or credit entries in the account. To obtain cash payment out of his account by tendering a cheque.To deposit a cheque for credit into his account. To deposit cash into the account.To deposit cheques / cash into account of some other person who has account in a CBS branch.To get statement of account.To transfer funds from his account to some other account his own or of third party, provided both accounts are in CBS branches.To obtain Demand Drafts or Bankers Cheques from any branch on CBS amount shall be online debited to his account.Customers can continue to use ATMs and other Delivery Channels, which are also interfaced with CBS platform. Similarly, facilities like Bill Payment, I-Bob, M-bob etc. shall also continue to be available. Bank is in the process of launching Internet-banking facility shortly. STRATEGIC ISSUES IN BANKING SERVICES Strategic Planning: is the process of analyzing the organizational external and internal environments; developing the appropriate mission, vision, and overall goals; identifying the general strategies to be pursued; and allocated resources. Vision is an Mission is an organization's current purpose or reason for existing. organization's fundamental aspirations and purpose that usuallyappeals to its member's hearts and minds.Goals are what an organization is committed to achieving.Strategies are the major courses of action that an organization takes to achieves goals.Resource Allocation is the earmarking of money, through budgets, for various purposes.Downsizing Strategy signals an organization's intent to rely on fewer resources primarily human-to accomplish its goals. Tactical Planning: is the process of making detailed decisions about what to do, which will do it, and how to do it-with a normal time and horizon of one year or less. The process generally includes: Choosing specific goals and the means of implementing the organization's strategic plan,Deciding on courses of action for improving current operations, and Developing budgets for each department, division and project.

NON-PERFORMING ASSETS OF THE BANKING SECTOR:There was a significant decline in the non-performing assets (NPAs) of SCBs in 2003-04, despite adoption of 90 day delinquency norm from March 31, 2004. The Gross NPAs of SCBs declined from 4.0 per cent of total assets in 2002-03 to 3.3 percent in 2003-04. The corresponding decline in net NPAs was from 1.9 per cent to 1.2 per cent. Both gross NPAs and net NPAs declined in absolute terms. While the gross NPAs declined from Rs. 68,717 crore in 2002-03 to Rs. 64,787 crore in 2003- 04, net NPAs declined from Rs. 32,670 crore to Rs. 24,617 crore in the same period. There was also a significant decline in the proportion of net NPAs to net advances from 4.4 per cent in 2002-03 to 2.9 per cent in 2003-04. The significant decline in the net NPAs by 24.7 percent in 2003-04 as compared to 8.1 per cent in 2002-03 was mainly on account of higher provisions (up to 40.0 per cent) for NPAs made by SCBs. The decline in NPAs in 2003-04 was witnessed across all bank groups. The decline in net NPAs as a proportion of total assets was quite significant in the case of new private sector banks, followed by PSBs. The ratio of net NPAs to net advances of SCBs declined from 4.4 per cent in 2002-03 to 2.9 per cent in 2003-04. Among the bank groups, old private sector banks had the highest ratio of net NPAs to net

advances at 3.8 per cent followed by PSBs (3.0 per cent) new private sector banks (2.4 per cent) and foreign banks (1.5 per cent) An analysis of NPAs by sectors reveals that in 2003-04, advances to non-priority sectors accounted for bulk of the outstanding NPAs in the case of PSBs (51.24 per cent of total) and for private sector banks (75.30 per cent of total). While the share of NPAs in Agriculture sector and SSIs of PSBs declined in 200304, the share of other priority sectors increased. The share of loans to other priority sectors in priority sector lending also increased. Measures taken to reduce NPAs include re schedulement, restructuring at the bank level, corporate debt restructuring, and recovery through Loc Adulates, Civil Courts, and debt recovery tribunals and compromise settlements. The recovery management received a major fillip with the enactment of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 enabling banks to realize their dues without intervention of courts and tribunals. The Supreme Court in its judgment dated April 8, 2004, while upholding the constitutional validity of the Act, struck down section 17 (2) of the Act as unconstitutional and contrary to Article 14 of the Constitution of India. The Government amended the relevant provisions of the Act to address the concerns expressed by the Supreme Court regarding a fair deal to borrowers through an ordinance dated November 11, 2004. It is expected that the momentum in the recovery of NPAs will be resumed with the amendments to the Act. The revised guidelines for compromise settlement of chronic NPAs of PSBs were Issued in January 2003 and were extended from time to time till July 31, 2004. The cases filed by SCBs in Lok Adalats for recovery of NPAs stood at 5.20 lakh involving an amount of Rs. 2,674 crore (prov.). The recoveries effected in 1.69 lakh cases amounted to Rs.352 crore (prov.) as on September 30, 2004.The number of cases filed in debt recovery tribunals stood at 64, 941 as on June 30, 2004, involving an amount of Rs.91,901 crore. Out of these, 29, 525 cases involving an amount of Rs. 27,869 crore have been adjudicated. The amount recovered was to Rs. 8,593 crore. Under the scheme of corporate debt restructuring introduced in 2001, the number of cases and value of assets restructured stood at 121 and Rs. 69,575 crore, respectively, as on December 31, 2004. Iron and steel, refinery, fertilizers and telecommunication sectors were the major beneficiaries of the scheme. These sectors accounted for more than two-third of the values of assets restructured. As credit information is crucial for the development of the financial system and for addressing the problems of NPAs, dissemination of credit information on suit-filed defaulters is being undertaken by the Credit Information Bureau of India Ltd. (CIBIL) from March 2003. In its annual policy statement for 2004-05, the RBI advised banks and financial institutions to review the measures taken for furnishing credit information in respect of all borrowers to CIBIL. In its mid-term review, the RBI again urged the banks to make persistent efforts in obtaining consent from all the borrowers, in order to establish an efficient credit information system, which would help in enhancing the quality of credit decisions, improve the asset quality, and facilitate faster credit delivery.

CAPITAL ADEQUACY RATIO:The concept of minimum capital to risk weighted assets ratio (CRAR) has been developed to ensure that banks can absorb a reasonable level of losses. Application of minimum CRAR protects the interest of depositors and promotes stability and efficiency of the financial system. At the end of March 31, 2004, CRAR of PSBs stood at 13.2 per cent, an improvement of 0.6 percentage point from the previous year. There was also an improvement in the CRAR of old private sector banks from 12.8 per cent in 2002-03 to 13.7 per cent in 2003-04. The CRAR of new private sector banks and foreign banks registered a decline in 2003-04. For the SCBs as a whole the CRAR improved from 12.7per cent in 200203 to 12.9 per cent in 2003-04. All the bank groups had CRAR above the minimum 9 per cent stipulated by the RBI. During the current year, there was further improvement in the CRAR of SCBs. The ratio in the first half of 2004-05 improved to 13.4 per cent as compared to 12.9 per cent at the end of 2003-04. Among the bank groups, a substantial improvement was witnessed in the case of new private sector banks from 10.2 per cent as at the end of 2003-04 to 13.5 per cent in the first half of 2004-05. While PSBs and old private banks maintained the CRAR at almost the same level as in the previous year, the CRAR of foreign banks declined to 14.0 per cent in the first half of 2004-05 as compared

to 15.0 per cent as at the end of 2003-04. TOTAL QUALITY MANAGEMENT:While Total Quality Management has proven to be an effective process for improving organizational functioning, its value can only be assured through a comprehensive and well thought out implementation process. The purpose of this chapter is to outline key aspects of implementation of large scale organizational change which may enable a practitioner to more thoughtfully and successfully implement TQM. First, the context will be set. TQM is, in fact, a large scale systems change, and guiding principles and considerations regarding this scale of change will be presented. Without attention to contextual factors, well intended changes may not be adequately designed. As another aspect of context, the expectations and perceptions of employees (workers and managers) will be assessed, so that the implementation plan can address them. Specifically, sources of resistance to change and ways of dealing with them will be discussed. This is important to allow a change agent to anticipate resistances and design for them, so that the process does not bog down or stall. Next, a model of implementation will be presented, including a discussion of key principles. Visionary leadership will be offered as an overriding perspective for someone instituting TQM. In recent years the has grown steadily, and applications based on research findings will be more likely to succeed. Use of tested principles will also enable the change agent to avoid reinventing the proverbial wheel. Implementation principles will be followed by a review of steps in managing the transition to the new system and ways of helping institutionalize the process as part of the organization's culture. This section, too, will be informed by current writing in transition management and institutionalization of change. Finally, some miscellaneous do's and dont will be offered. Members of any organization have stories to tell of the introduction of new programs, techniques, systems, or even, in current terminology, paradigms. Usually the employee, who can be anywhere from the line worker to the executive level, describes such an incident with a combination of cynicism and disappointment: some manager went to a conference or in some other way got a "great idea" (or did it based on threat or desperation such as an urgent need to cut costs) and came back to work to enthusiastically present it, usually mandating

its implementation. The "program" probably raised people's expectations that this time things would improve, that management would listen to their ideas. Such a program usually is introduced with fanfare, plans are made, and things slowly return to normal. The manager blames unresponsive employees, line workers blame executives interested only in looking good, and all complain about the resistant middle managers. Unfortunately, the program itself is usually seen as worthless: "we tried team building (or organization development or quality circles or what have you) and it didn't work; neither will TQM". Planned change processes often work, if conceptualized and implemented properly; but, unfortunately, every organization is different, and the processes are often adopted "off the shelf" "the 'appliance model of organizational change': buy a complete program, like a 'quality circle package,' from a dealer, plug it in, and hope that it runs by itself" (Kantar, 1983, 249). Alternatively, especially in the under funded public and not for profit sectors, partial applications are tried, and in spite of management and employee commitment do not bear fruit. This chapter will focus on ways of preventing some of these disappointments. In summary, the purpose here is to review principles of effective planned change implementation and suggest specific TQM applications. Several assumptions are proposed: 1. TQM is a viable and effective planned change method, when properly installed 2. Not all organizations are appropriate or ready for TQM 3. Preconditions (appropriateness, readiness) for successful TQM can sometimes be created 4. Leadership commitment to a large scale, long term, and cultural change is ecessary. While problems in adapting TQM in government and social service rganizations have been identified, TQM can be useful in such organizations if properly modified. For survival, banks have to make efforts to improve their quality and competitiveness by planning and taking innovative in fall areas: Increase emphasis on customer focused activities Intro a total quality program Developing differential value added services Educating employees through involvement programs Increase quality through management and system Increase effectiveness of product development Developing product with lower uses costs TQM principles _ Customer satisfaction _ Plan-do-check-act (PDCA) cycle _ Management by 'fact' -- 5Ws (what, why, who, when, and where) + 1H (how) approach _ Respect for people TQM elements _ Total employee involvement (TEI) _ Total waste elimination (TWE) _ Total quality control (TQC) TQM focus areas _ Customer satisfaction _ Product quality _ Plant reliability _ Waste elimination

Benefits achieved through TQM _ _ _ _ _ _ _ Increased focus on the customer Mindset of 'continuous improvement' Better product quality Better systems and procedures Better cross-functional teamwork Increased plant reliability Waste elimination in offices and factories. INNOVATION IN BANK Innovation drives organizations to grow, prosper and transform in sync with the changes in the environment, both internal and external. Banking is no exception to this. In fact, this sector has witnessed radical transformation of late, based on many innovations in products, processes, services, systems, business models, technology, governance and regulation. A liberalized and globalize financial infrastructure has provided an additional impetus to this gigantic effort. The pervasive influence of in formation technology has revolutionaries banking. Transaction costs have crumbled and handling of astronomical number of

transactions in no time has become a reality. Internationally, the number brick and mortar structure has been rapidly yielding ground to click and order electronic banking with a plethora of new products. Banking has become boundary less and virtual with a 24 * 7 model. Banks who strongly rely on the merits of relationship banking as a time tested way of targeting and serving clients, have readily embraced Customer Relationship Management (CRM), with sharp focus on customer centricity, facilitated by the availability of superior technology. CRM has, therefore, become the new mantra in customer service management, which is both relationship based and information intensive. Risk management is no longer a mere regulatory issue.basel-2 has accorded a primacy of place to this fascinating exercise by repositioning it as the core of banking. We now see the evolution of many novel deferral products like credit derivatives, especially the Credit Risk Transfer (CRT) mechanism, as a consequence. CRT, characterized by significant product innovation, is a very useful credit risk management tool that enhances liquidity and market efficiency. Securitization is yet another example in this regard, whose strategic use has been rapidly rising globally. So is outsourcing. SOME RECENT INNOVATIONS IN INDIAN BANKING:Tandon can, however, usefully cast an eye at one way of shopping without revealing his credit card number. HDFC Banks Net Safe card is a one-time use card with a limit thats specified, taken from Tendons credit or debit card. Even if Tandon fails to utilize the full amount within 24 hours of creating the card, the card simply dies and the unspent amount in the temporary card reverts to his original credit or debit card. Welcome to one of the myriad ways in which bankers have been trying to innovate. Theyre bringing ATMs, cash and even foreign exchange to their customers doorsteps. Indeed, innovation has become the hottest banking game in town. Want to buy a house but dont want to go through the hassles of haggling with brokers and the mounds of paperwork? Not to worry. Your bank will tackle all this. Its ready to come every step of the way for you to buy a house. Standard Chartered, for instance, has property advisors to guide a customer through the entire process of selecting and buying a house. They also lend a hand with the cumbersome documentation formalities and the registration. Dont fret if youve already bought your house or car you can do other things with both. You can leverage your new house or car these days with banks like ICICI Bank and Stanchart ready to extend loans against either, till its about five years old. Loans are available to all car owners for almost all brands of cars manufactured in India that are up to five years old. Still, innovation is more evident in retail banking. True, all banks offer pretty much the same suite of asset and liability products. But its the small tweaking here and there that makes all the difference. Take, for example, the once staid deposits. Some bank accounts combine a savings deposit account with a fixed deposit. A sweep-in account, as it is called, works like this: the account will have a cut-off, say, Rs 25,000; any amount over and above that gets automatically transferred to a fixed deposit which will earn the customer a clean 2 per cent more than the returns that a savings account gives. Last month, Kotak Mahindra

Bank introduced a variant of the sweep-in account. If the balance tops Rs 1.5 lakh, the excess runs into Kotaks liquid mutual fund. Even if the money is there only for the weekend, a liquid fund can earn you a clean 4.5 per cent per annum, points out Shashi Arora, vice president, marketing, Kotak Mahindra Bank. Thats not a small gain considering that your current account does not pay you any interest. And if, meanwhile, you want to buy a big-ticket home theatre system, the minute you swipe your card the invested sum will return to your account. Theres plenty of innovation on home loans. ABN Amro sent the home mortgage market a fire with its 6 per cent home loan offering last year. The product offers a 6 per cent interest rate for two years after which the interest rate is reset in tune with the prevailing market rate. All the other big home loan players slashed their rates after this was announced. Look too at the home saver product and its variants from itibank, HSBC and Stanchart. The interest rate on the loan is determined by the balance you maintain in the savings account with the bank. The home builder can maintain a higher balance in his or her savings account and bring down the interest rate on the home loan. The rate is calculated on a daily basis on the net loan amount. Stanchart claims that since the launch of its home saver product in April 2002, close to 40 per cent of its customers have chosen it. Says Vishnu Ramachandran, regional head, consumer banking, Standard Chartered: We believe that there are several ways to innovate and create value in the process, even in developed product areas. Banks are also attempting to reach out to residents of metropolitan cities where people are pressed for time (what with long commuting hours, traffic jams and both spouses working), beyond conventional banking hours. ICICI Bank, for example, introduced eight to eight banking hours, seven days of the week, in major cities. Not to be outdone, some of the other private banks have also done this too. HDFC Bank even has a 24-hour branch at Mumbais international airport. Several banks are even bringing ATMs to customer doorsteps. ICICI Bank, State Bank of India and Bank of India now have mobile ATMs or vans that go along a particular route in a city and are stationed at strategic locations for a few hours every day. This saves the bank infrastructure costs since it has one mobile ATM instead of multiple stationary ones. Thats not all. Even money is delivered to customers at home. Kotak Mahindra Bank, a late entrant into private banking, delivers cash at the doorstep. A customer can withdraw a minimum of Rs 5,000 and up to a maximum of Rs 2 lakh and get the money at home. And, mind you, Kotak is not alone. The list of banks offering a similar service includes Citibank, Stanchart, ABN Amro and HDFC Bank. HDFC Bank brings even foreign exchange, whether travellers cheques or cash, to your doorstep courtesy its tie-up with Travelex India. All one has to do is call up the branch or HDFC Banks phone banking number. The banks country head, retail, Neeraj Swaroop, believes that continuous innovation will always make a difference, with customer needs changing day by day. Innovation will never become less important for us, he says. HDFC Bank has pioneered other innovations. Take point of sale (POS) terminals, a prerequisite in any store or restaurant worth its name in the country. Earlier this year, it tied up with Reliance Infocomm to offer mobile POS terminals. Although this might sound a tad too fancy today, there could soon be a day when you can swipe your card to pay your cabby, the pizza home delivery boy and even for the groceries from the local kirana

store. But internet banking and shopping have been slow starters, given the low computer penetration in the country but banks are going all out to get the customer online. Not only is electronic fund transfer between banks across cities possible through internet banking today but banks also offer other features that benefit the customer. HDFC Bank, for instance, has an option called One View on its internet banking site which provides customers a comprehensive view of their investments and fund movements. Customers can look at their accounts in six different banks on one screen. These include HDFC Bank accounts and demat accounts, ICICI Bank, Citibank, HSBC and Standard Chartered Bank accounts, apart from details of Citibank credit card dues and so on. Banks are also innovating on the company and treasury operations fronts. In corporate loans, plain loans are passe. Mumbai inter-bank offered rate (MIBOR)- linked and commercial paper-linked interest rates on loans are common. MIBOR is a reference rate arrived at every day at 4 pm by Reuters. It is the weighted average rate of call money business transacted by 22 institutions, including banks, primary dealers and financial institutions. The State Bank of India was the first to usher in MIBOR-linked loans for top companies. Soon enough, other banks followed. ICICI Bank carried out the worlds first ever securitization of a micro finance portfolio last year. The bank securitized Rs 4.2 crore for Bharatiya Samruddhi Finance Ltd for crop production. Banks, of course, realize that innovation gives them only a first mover advantage until their rivals catch up. But then, they can console themselves. Isnt imitation the best form of flattery

TECHNOLOGY IN BANKING Nobel Laureate Robert Solow had once remarked that computers are seen everywhere excepting in productivity statistics. More recent developments have shown how far this state of affairs has changed. Innovation in technology and worldwide revolution in information and communication technology (ICT) have emerged as dynamic sources of productivity growth. The relationship between IT and banking is fundamentally symbiotic. In the banking sector, IT can reduce costs, increase volumes, and facilitate customized products; similarly, IT requires banking and financial services to facilitate its growth. As far as the banking system is concerned, the payment system is perhaps the most important mechanism through which such interactive dynamics gets manifested. Recognizing the importance of payments and settlement systems in the economy, we have embarked on technology based solutions for the improvement of the payment and settlement system infrastructure, coupled with the introduction of new payment products such as the computerized settlement of clearing transactions, use of Magnetic Ink Character Recognition (MICR) technology for cheque clearing which currently accounts for 65 per cent of the value of cheques processed in the country, the computerization of Government Accounts and Currency Chest transactions, operationalisation of Delivery versus Payment (DvP) for Government securities transactions. Two-way inter-city cheque collection and imaging have been operationalised at the four metros. The coverage of Electronic Clearing Service (Debit and Credit) has been significantly expanded to encourage non-paper based funds movement and develop the provision of a centralized facility for effecting payments. The scheme for Electronic Funds Transfer operated by the Reserve Bank has been significantly augmented and is now available across thirteen major cities. The scheme, which was originally intended for small value transactions, is processing high value (up to Rs.2 crore) from October 1, 2001. The Centralized Funds Management System (CFMS), which would enable banks to obtain consolidated account-wise and centre-wise positions of their balances with all 17 offices of the Deposits Accounts Departments of the Reserve Bank, has begun to be implemented in a phased manner from November 2001.A holistic approach has been adopted towards designing and development of a modern, robust, efficient, secure and integrated payment and settlement system taking into account certain aspects relating to potential risks, legal framework and the impact on the operational framework of monetary policy. The approach to the modernization of the payment and settlement system in India has been three-pronged: (a) consolidation, (b) development, and (c) integration. The consolidation of the existing payment systems revolves around strengthening Computerized Cheque clearing, expanding the

reach of Electronic Clearing Services and Electronic Funds Transfer by providing for systems with the latest levels of technology. The critical elements in the developmental strategy are the opening of new clearing houses, interconnection of clearing houses through the INFINET; optimizing the deployment of resources by banks through Real Time Gross Settlement System, Centralized Funds Management System (CFMS); Negotiated Dealing System (NDS) and the Structured Financial Messaging Solution (SFMS). While integration of the various payment products with the systems of individual banks is the thrust area, it requires a high degree of standardization within a bank and seamless interfaces across banks. The setting up of the apex-level National Payments Council in May 1999 and the operationalisation of the INFINET by the Institute for Development and Research in Banking Technology (IDRBT), Hyderabad have been some important developments in the direction of providing a communication network for the exclusive use of banks and financial institutions. Membership in the INFINET has been opened up to all banks in addition to those in the public sector. At the base of all inter-bank message transfers using the INFINET is the Structured Financial Messaging System (SFMS). It would serve as a secure communication carrier with templates for intra- and inter-bank messages in fixed message formats that will facilitate straight through processing. All inter-bank transactions would be stored and switched at the central hub at Hyderabad while intrabank messages will be switched and stored by the bank gateway. Security features of the SFMS would match international standards. In order to maximize the benefits of such efforts, banks have to take proactive measures to: _ further strengthen their infrastructure in respect of standardization, high levels of security and communication and networking; _ achieve inter-branch connectivity early; _ popularize the usage of the scheme of electronic funds transfer (EFT); and _ Institute arrangements for an RTGS environment online with a view to. integrating into a secure and consolidated payment system. Information technology has immense untapped potential in banking. Strengthening of information technology in banks could improve the effectiveness of asset-liability management in banks. Building up of a related data-base on a real time basis would enhance the forecasting of liquidity greatly even at the branch level. This could contribute to enhancing the risk management capabilities of banks.

Conclusion The face of banking is changing rapidly competition is going to be tough and with financial liberalization under the WTO, banks in India will have to benchmark themselves against the best in the world. For a strong and resilient banking and financial system, therefore, banks need to go beyond peripheral issues and tackle significant issues like improvements in profitability, efficiency and technology, while achieving economies of scale through consolidation and exploring available cost effective solutions. These are the some of the issues that need to be addressed, not just survive, in the changing milieu. The banking system in India is significantly different from that of other Asian nations because of the countrys unique geographic, social and economic characteristics. India has a large population and land size, a diverse culture, and extreme disparities in income, which are marked among its regions. The countrys economic policy framework combine socialistic and capitalistic features with a heavy bias towards public sector investment. India has followed the path of growth-led exports rather than the exported growth of other Asian economies, with emphasis on self reliance through import substitution.


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