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PROJECT ASSIGNMENT
ON ROLE OF BANKING INSTITUITONS IN INDIA
(BANKING LAW)
Submitted to: DR. AJAY FACULTY BANKING LAW Submitted by: MANASI AGARWAL Roll No- 428 7TH SEMESTER, 4TH YEAR
Secondly, I would like to extend my sincere acknowledgement towards the Librarian of CNLU, for making all the reading materials available relevant for my Research Paper, within such short notice. Infact the CNLU Library came up as an excellent source for all the requisite data.
Thirdly, I would like to thank the Managing staff of CNLU, for providing me with the facility of 24 hours/ 7 days a week Internet connection, since the search engines namely, www.google.com, www.bing.com, where an indispensable need to facilitate data access within fractions of seconds.
Method of Research: The researcher has adopted a doctrinal as well as non doctrinal method of research. The researcher has made extensive use of the library at the Chanakya National Law University and also the internet sources as well as interacted with the general mass of society. Scope and Limitations The project offers a comprehensive study of the ROLE OF BANKING INSTITUTIONS IN INDIA. The research paper does not provide a complete understanding of the all the provisions of banking institutions in the country. Chapterisation I have divided the project into various chapters. Each dealing with different aspects of the topic. In the initial chapters, I have discussed elaborately, the meaning of banking institutions. Further, I have elaborate different functions of the bank and lastly; I have concluded the topic by summarising the highlighting aspects of the banks of the country. Sources of Information The researcher has relied on secondary sources for the purposes of this project such as books, articles. Style of writing The researcher has adopted a descriptive and analytical style of writing for the purposes of this research paper. Mode of citation A uniform mode of citation has been followed throughout the course of this project.
TABLE OF CONTENTS
___________________________________________________________________________ 1. Introduction .01 2. Meaning and definition of Bank ....02-04 3. Utility of Banks .......................................................04 4. Role of banks in socio-economic development ................04-06 5. Classification of banking system in India .....................................06-07 6. Central Bank ..07-10 7. Advances to priority sectors and credit guarantee schemes10-13
8. Commercial Banks .13-15 9. Development Banks....16-22
As per The Banking Act, 1987 The Banking Act, 1987 of England defined a bank as a body corporate or a non-corporate that was recognised by the bank of England to accept deposits as defined by that act. Besides
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1. 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.
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. 3. MONETISATION 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. 4. 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. 5. FACILITATOR OF MONETARY POLICY Thus monetary policy of a country should be conductive to economic development. But a well-developed banking system is on essential pre condition to the effective implementation of monetary policy. Under-developed countries cannot afford to ignore this fact. 6. PROMOTE GROWTH WITH STABILITY Banks regulate the rate of investment by influencing the rate of interest. The primary function of RBI was to regulate the issue of banks notes and keep adequate reserve to ensure monetary stability. 7. PROMOTE BALANCED RESIOANL DEVELOPMENT By opening branches in backward areas the bank make credit facilities available here. Also, the funds collected in developed regions through deposits may be channelized for investment in the underdeveloped regions of the country. 8. FINANCING THE PRIORITY SECTORS The banks and financial institutions operate in a manner as to confirm the priorities of development and not in terms of return their capital. The banks now play a more positive role.
An outline of the Indian Banking structure may be presented as follows:1. Central Bank (Reserve banks of India). 2. Indian commercial banks. A. Scheduled Commercial Banks a. State Bank of India and its Associates2 b. Nationalised Banks c. Foreign Banks d. Regional Rural Banks e. Other Scheduled Commercial Banks. B. Non-Scheduled Commercial Banks 3. Development banks NABARD IDBI SIDBI EXIM
4. Co-operative banks.
The subsidiaries to State Bank of India are: (i) The State Bank of Bikaner & Jaipur; (ii) The State Bank of Hyderabad; (iii) The State Bank of Indore; (iv) The State Bank of Mysore; (v) The State Bank of Mysore; (v) The State Bank of Patiala; (vi) The State Bank of Saurashtra; and (vii) The State Bank of Travancore.
Reserve Bank of India The Reserve Bank of India is a Central Bank and was established in April 1, 1935 in accordance with the provisions of reserve bank of India act 1934. The central office of RBI is located at Mumbai since inception. Though originally the reserve bank of India was privately owned, since nationalization in 1949, RBI is fully owned by the Government of India. It was inaugurated with share capital of Rs. 5 Crores divided into shares of Rs. 100 each fully paid up. RBI is governed by a central board (headed by a governor) appointed by the central government of India. RBI has 22 regional offices across India. The reserve bank of India was nationalized in the year 1949. The general superintendence and direction of the bank is entrusted to central board of directors of 20 members, the Governor and four deputy Governors, one Governmental official from the ministry of Finance, ten nominated directors by the government to give representation to important elements in the economic life of the country, and the four nominated director by the Central Government to represent the four local boards with the headquarters at Mumbai, Kolkata, Chennai and New Delhi. Local Board consists of five members each central government appointed for a term of four years to represent territorial and economic interests and the interests of cooperative and indigenous banks.
The RBI Act 1934 was commenced on April 1, 1935. The Act, 1934 provides the statutory basis of the functioning of the bank. The bank was constituted for the need of following: To regulate the issues of banknotes. To maintain reserves with a view to securing monetary stability
Functions of RBI as a central bank of India are explained briefly as follows: Bank of Issue: The RBI formulates, implements, and monitors the monitory policy. Its main objective is maintaining price stability and ensuring adequate flow of credit to productive sector. Regulator-Supervisor of the financial system: RBI prescribes broad parameters of banking operations within which the countrys banking and financial system functions. Their main objective is to maintain public confidence in the system, protect depositors interest and provide cost effective banking services to the public. Manager of exchange control: The manager of exchange control department manages the foreign exchange, according to the foreign exchange management act, 1999. The managers main objective is to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India. Issuer of currency: A person who works as an issuer, issues and exchanges or destroys the currency and coins that are not fit for circulation. His main objective is to give the public adequate quantity of supplies of currency notes and coins and in good quality. Developmental role: The RBI performs the wide range of promotional functions to support national objectives such as contests, coupons maintaining good public relations and many more. Related functions: There are also some of the related functions to the above mentioned main functions. They are such as, banker to the government, banker to banks etc. Banker to government performs merchant banking function for the central and the state governments; also acts as their banker. Banker to banks maintains banking accounts to all scheduled banks. Controller of Credit: RBI performs the following tasks: It holds the cash reserves of all the scheduled banks. It controls the credit operations of banks through quantitative and qualitative controls. It controls the banking system through the system of licensing, inspection and calling for information.
Supervisory Functions: In addition to its traditional central banking functions, the Reserve Bank performs certain non-monetary 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 over commercial 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 nationalisation 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 realisation 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 Banks functions has steadily widened. The bank now performs a 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.
The commercial banks in India play a major role in the development of the country itself. These banks are primarily concerned with providing loans and accepting deposits. Several ot her facilities are also provided by the commercial banks in India. At the same time, the commercial banks in India have the opportunity to develop manifold in the future because the economy of India is developing at a good pace and thus the financial institutions of the country are bound to develop with this growth. The name commercial banking may suggest a number of things, but the term is used to differentiate the other forms of banking from this particular form. The commercial banks in India generate funds for the purpose of financing their various financial requirements through a definite process. The commercial banks in India accept deposits from different sources like businesses and individuals. A wide range of financial products have been developed by these banks to encourage the savings habit of the clients. There are savings deposits, term deposits and many more to attract the investors. These deposits are recycled in the economy through the loans and other credit products. Commercial banks are divided into: (a) Scheduled Commercial Banks are grouped under following categories: i. ii. iii. iv. v. State Bank of India and its Associates Nationalised Banks Foreign Banks Regional Rural Banks Other Scheduled Commercial Banks.
The role and functions of the Scheduled Financial institutional banks are discussed below: 1. They constitute an important source of long term finance to industry. Over a period of time, there has been a steady growth in the number of industrial units assisted, and in the amount of loan sanctioned and distributed by Scheduled Financial Institutions. 2. Scheduled Financial Institutions have played an important role in the development of (a) Small scale industry, and (b) Projects in backward areas. 3. They have helped new and small entrepreneurs in setting up industry. 4. Through their operations involving underwriting of and direct subscription to the issue of shares and debentures, they have been important players in the capital market. These operations have a favourable impact on the ability of industrial concerns to raise funds from capital market.
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NABARD (National Bank for Agriculture and Rural Development) NABARD is an apex institution accredited with all matters concerning policy, planning and operations in the field of credit for agriculture and other economic activities in rural areas. It is an apex refinancing agency for the institutions providing investment and production credit for promoting the various developmental activities in rural areas It takes measures towards institution building for improving absorptive capacity of the credit delivery system, including monitoring, formulation of rehabilitation schemes, restructuring of credit institutions, training of personnel, etc. It co-ordinates the rural financing activities of all the institutions engaged in developmental work at the field level and maintains liaison with Government of India, State Governments, Reserve Bank of India and other national level institutions concerned with policy formulation. It prepares, on annual basis, rural credit plans for all districts in the country; these plans form the base for annual credit plans of all rural financial institutions. It undertakes monitoring and evaluation of projects refinanced by it. It promotes research in the fields of rural banking, agriculture and rural Development NABARD also offers various credit facilities like: 1. Short-term/ Medium term/ Long-term refinance for various types of
development, infrastructure, training, etc., internalized for more than two decades.
SIDBI (Small Scale Industrial Development Bank of India) The SIDBI was set up in October 1989 under the Act of parliament as a wholly owned subsidiary of the IDBI. It is the central or apex or principal institution which oversees coordinates and further strengthens various arrangements for providing financial and nonfinancial assistance to small-scale, tiny, and cottage industries. SIDBI objectives are: To initiate steps for technological up gradation and modernization of existing units To expand channels for marketing of SSI sector products in India and abroad To promote employment-oriented industries in semi-urban areas and to check migration of population to big cities. It operates two funds: a) Small Industries Development Fund and b) Small Industries Development Assistance Fund.
The operation of the former and of National Equity Fund which were earlier looked by IDBI is now handled by the SIDBI. Its financial assistance is channeled through the existing credit delivery system comprising NSIC, SFCs, SIDCs, SSIDCs, commercial banks, co-operative banks and RRBs. The total number of institutions are eligible for assistance from SIDBI is
IDBI (Industrial Development Bank of India) The IDBI was set up as a wholly-owned subsidiary of the RBI on July 1, 1964 under the Act of parliament, and by merging the Industrial Refinance Corporation (IRC) which, in turn, was setup by the government earlier in June 1958. In February 1976, the IDBI was delinked from the RBI and since then, it has become a separate and independent entity wholly owned by the government. It is now the central or apex institution in the field of industrial finance. Its main objective is to provide credit, term finance and financial services for the establishment of new projects as well as expansion, diversification, modernization and technology up gradation of the existing industrial enterprise in order to bring about industrial development in the country. It also provides several diversified financial products of nonproject nature such as equipment finance, asset credit and equipment leasing, merchant banking, debenture trusteeship and Forex services to corporate.
EXPORT-IMPORT BANK OF INDIA (EXIM BANK) The EXIM bank was set up in January 1982 as a statutory corporation wholly owned by central government. Its paid up capital in 1988-89 was Rs 220.50 crores. Activities performed by EXIM Bank: 1. It grants direct loans in India and outside for the purpose of imports and exports 2. Refinances loans to banks and other notified financial institutions for the purpose of international trade ; 3. Rediscounts usance export bills for banks;
The Export-Import Bank also provides non-funded facility in the form of guarantees to the Indian exporters Various Stages of Exports Covered by EXIM BankDevelopment of export makers Expansion of export production capacity Production for exports Financing post-shipment activities Export of manufactured goods Export of projects Export of technology and software
A. Cooperative banks in India finance rural areas under: Farming Cattle Milk Hatchery Personal finance
B. Cooperative banks in India finance urban areas under: Self-employment Small scale units Home finance Consumer finance Personal finance
Some facts about Cooperative banks in India: Some cooperative banks in India are more forward than many of the state and private sector banks. According to NAFCUB the total deposits & lending of Cooperative Banks in India is much more than Old Private Sector Banks & also the New Private Sector Banks. This exponential growth of Co operative Banks in India is attributed mainly to their much better local reach, personal interaction with customers, and their ability to catch the nerve of the local clientele.
BOOKS 1. Tannan, M.L. and Datta, C.R. Tannan's Banking Law and Practice in India, Indian Law House, New Delhi, 1997. 2. Vasudevan, S.V. Theory of Banking, S. Chand &Company Ltd, New Delhi, 1984. 3. Sundharanl, K.P. Varshney, P.N. Banking Theory Law and Practice, Sultan Chand & Sons, New Delhi, 1987. 4. Panicker, K.K. Banking theory and systems, S. Chand and Co. Ltd. New Delhi 2010. 5. Davar, S.R. Law and Practice of Banking, Progressive Corporation Private Ltd, Bombay, 1986.
WEBSITE:
http://www.scribd.com/doc/9669980/Indian-Banking-and-Economy http://www.scribd.com/doc/21923483/ROLE-OF-BANKS-IN-INDIAN-ECONOMY http://download.nos.org/srsec319/319-20.pdf http://shodhganga.inflibnet.ac.in/bitstream/10603/2031/10/10_chapter%201.pdf