HIDAYATULLAH NATIONAL LAW UNIVERSITY, RAIPUR

BANKING STRUCTURE JUNE 30

IN INDIA AND 2020
ITS RECENT TREND

A Dissertation Submitted In Partial Fulfiliment Of The

Requirement For The Degree Of Master Of Laws To Be Awarded
By Hidayatullah National Law University, Raipur 2019-2020

SUBMITTED BY: SRUTI BANSAL

LLM
ROLL NO.-42
PG/13/2019/439
SUBMITTED TO: DR. KIRAN KORI
ASSISTANT PROFESSOR
H.N.L.U.
 CERTIFICATE

This is to certify that the Dissertation entitled "Banking structure in India and its recent trends"

is a bonafide record of independent research work done by Sruti Bansal, under my supervision

and submitted to Hidayatullah National Law University, Raipur, C.G., in the partial fulfillment

for the award of the Degree of Master of Law.

Date: 30.06.2020 Dr. Kiran Kori

Assistant Professor of Law

Place: Raipur Hidayatullah National Law

University, Raipur
 DECLARATION

1, Sruti Bansal, a bonafide student of LLM in Hidayatullah National Law University. Raipur,

C.G., would like to declare that the dissertation entitled, " Banking structure in India and its

recent trends" submitted by me in the partial fulfillment of the requirements for the award of the

Degree of Master of Law in Corporate Law, is my own work and that all sources I have used or

quoted have been indicated or acknowledge by means of completed references.

Place: Raipur

Signature of Candidate
Sruti Bansal
Date: 30.06.2020
 ACKNOWLEDGEMENT

The writing of this dissertation has been one of the most significant academic challenges I have

ever had to face. Without the support, patience and guidance of the following people, this study

would not have been completed. It is to them that I owe my deepest gratitude.

 I am grateful to Dr. Kiran Kori who under took to act as my mentor despite her many

other academic and professional commitment. Her wisdom, knowledge and commitment

to the highest standards inspired and motivated me.

 I thank to my parents and who have always supported encouraged and believed in me, in
all my endeavours and who so lovingly and unselfishly cared for me.

 I thank to Prof. VC Vivekanandan , Vice-Chancellor of the University. His criticism and

suggestions made this work a reality.

 I am grateful to all the members of Library and IT Departments of Hidayatullah National

Law University for providing me such a valuable sources during my research period.

 I thank to my entire near and dear one who supported me during completing this

dissertation. Especially thanks to Dr. Kiran Kori for providing me such a valuable

knowledge about Banking Sector.

 Last but not the least a sincere thanks to the almighty that had been there with me through

this journey so as to give me enough strength and understanding to go about with this

dissertation successful.

Sruti Bansal
 LIST OF CASES

 New Bank of India v. Union of India (1981), 51, Company Case, p.378
 Sir Mohammed Akhbar Khan v. Attar Singh, 63 IA 279
 Hirabai v. Dhugnibai, 29 Bom. L.R. 427-429.
 Konakalla Venkata Satyanarayana & others v. State Bank of India, AIR 1975, AP I13
 Bengal Nagpur Railway Co. Ltd. v. Tara Prasad Matty, (1926) 48 CLJ 45
 Foley vs. Hill, (1848), 2 HLC
 Hedly Byrene & Co. Ltd v. Heller & Partners Itd., 1964 Appeal Case 465: (1964) 34
Com
 Vikram Sharma v. State Bank of India, (2002) 3 BC 208 (MP)
 M. Nagendra Rao v. State of Andhra Pradesh, (1994) 6 SCC 205: AIR 1994 SC 2663
 Canara Bank v. Canara Sales Corporation, (1987) 2 SCC 666: (1987) 62 Com Cas 280:
 Woods v. Martins Bank Ltd. (1958) 3 All ER 166: (1959) I QB 55.
 Capt. Atul Kumar Singh v. Jalveen Roshan, AIR 2000 Del 38
 Krishanan v. S.P. Kumar, (2002) I Bank J 47
 LIST OF ACRONYMS

AFC Asset Financing Companies

ATM Automated Teller machine
ALB Asset Liability Management
CBDT Central Board of Direct Taxes
CBEC Central Board of Excise and Customs
CCI Competition Commission of India
CFMS Centralized Fund management System
CSGL Constituent's Subsidiary General Ledger
CSR Corporate Social Responsibility
CRR Cash Reserve Ratio
DAD Deposite Account Department
DNPD Depository NBFCS Prudential Directions
EXIM Export-Import bank of India
ECS Electronic Clearing Services
EDI Electronic Data Interchange
EFT Electronic Fund Transfer
FD Fixed Deposit
FII Foreign Institutional Investments
FIPB Foreign Investment Promotion Board
FDI Foreign Direct Investment
FDIC Federal Deposit Insurance Corporation
GIC General Insurance Corporation of India
GDP Gross Domestic Product
HUDCP Housing and Urban Development Corporation Ltd
IC Investment Company
IT Information Technology
IDBI Industrial Development Bank of India
IFCI Industrial Finance Corporation of India
IRBI Industrial Reconstruction Bank of India
IRDA Insurance Regulatory and Development Authority
LC Loan Company
LIC Life Insurance Corporation of India
MF Micro Finance
MNBC Miscellaneous Non-Banking Companies
NAFCUB National Federation of Urban Cooperative Banks
NBFC Non-Banking Finance Companies
NHB National Housing Bank
NSDL National Securities Depository Ltd
PPP Public Private Partnerships
RBI Reserve Bank of India
RRB Regional Rural Bank
RNBC Residuary Non-Banking Companies
RTGS Real Time Gross Settlement System
SFC State Financial Corporation
SHCIL Stock Holding Corporation of India Ltd
SCICI Shipping Credit and Investment Company of India
SEBI Securities and Exchange Board of India
SIDBI Small Industries Development Bank of India
SLR Statutory Liquidity Ratio
STCI Securities Trading Corporation of India Ltd
UTI Unit Trust of India
 CONTENTS

CERTIFICATE………………………………………………………………………….………
DECLARATION……………………………………………………………………………….i
ACKNOWLEDGEMENT…………………………………………………………………… .ii
LIST OF CASES.........................................................................................................................iii
LIST OF ACRONYMS…………………………….…………………………….………..……iv
CONTENTS……………………………………………………………………………………..v
PREFACE……………………………….………………………………………………………1

CHAPTER 1-

INTRODUCTION……………………………………………………………………..02-08
1.1.- INTRODUCTION
1.2- RESEARCH METHODOLOGY
 Problem
 Objective
 Hypothesis
 Scope
 Research methodology
 Chapterization
 Mode of citation
 Time Duration
 Limitation

CHAPTER 2-
MEANING CONCEPT AND SIGNIFICANCE OF BANKS & BANKING ……….08-17

2.1 MEANING, CONCEPT AND SIGNIFICANCE

• Definition of Bank
• Significance of Bank and Banking

2.2 KINDS OF BANKING SYSTEM

 Unit Banking
 Chain Banking
 Group Banking
 Mixed Banking
 Branch Banking

2.3 TYPES OF BANKS

 Central banks
 Commercial Banks
 Industrial Banks
 Agricultural Banks
 Foreign exchange Banks
 Indigenous Banks

2.4 ROLE OF BANKS:

 Capital formation
 Monetization
 Provision for medium & long term finance
 Cheap money policy
 Need for a sound banking system

2.5 SIGNIFICANCE OF BANKS IN GLOBAL ECONOMY

Importance of well functioning financial system
2.6 SINGNIFICANCE OF BANKS IN INDIAN ECONOMY
 CHAPTER 3-

EVOLUTION OF BANKING SYSTEM……………………………………………….18-39

3.1- HISTORY OF BANKING SYSTEM IN INDIA

 Phase I
 Phase II
 Phase III

3.2- NATIONALIZATION OF BANKS IN INDIA

 Object of nationalization
 Advantages of nationalization

3.3- NARSIMHAN COMMITTEE BANKING REFORMS

 Restructuring of Banking System
 Enhancement of capital base of Bank
 Deregulation of interest rates
 Abolition of Licensing
 Reduction in SLR, CRR
 Priority Sector Lending
 Computerization of bank operations needs to be stepped up

3.4- DEVELOPMENT OF BANKING SYSTEM IN INDIA

 Commercial Banks
 Public Sector Banks
 New Private Banks
 Local Area Banks
 Regional rural Banks
 The cooperative Banks
 Industrial Development Bank of India
 Life Insurance Corporation of India (LIC)
 General Insurance Corporation of India (GIC)
  Unit Trust of India
 Export Import Bank of India (EXIM Bank)
 NABARD
 National Housing Bank (NHB)

CHAPTER 4-

FUNCTIONS OF BANKS………………………………………………………………....40-68
4.1 Working of Banks
 Acceptance of Deposites
 Deposite should be done from public
 The amount repayable on demand or otherwise
 Payment to be withdrawal by cheque or otherwise
 Main objective of accepting deposite

4.2 STRUCTURE OF VARIOUS BANKS IN INDIA

1. Co-operative Bank
2. Commercial Bank
4.3.RESERVE BANK OF INDIA
Function of RBI
 Bank of issuc
 Bankers to government
 RBI as Banker's bank and lender’s last resort
 RBI as Controller of credit
 RBI as Custodian of foreign reserves
 Supervisory function
 Promotional function of RBI

4.3 BANKERS AND CUSTOMER RELATIONSHIP

 General relationship
  Secondary relationship
 Special relationship

4.4 RIGHTS OF BANKER

4.5 BANKERS AS A BORROWER
Forms of borrowing
4.6 LENDING

Types of Lending:

 Saving
 Liquidity
 Profitability

CHAPTER 5-

RECENT TRENDS IN BANKING SYSTEM…………………………………………69-87

5.1 Emerging Role of Information Technology in Banking Institution

 ATM (Automatic Teller Machine)
 Electronic Payment services- E Cheques
 Real time Gross Settlement (RTGS)
 Electronic Funds Transfer (EFT)
 NEFT
 Electronic Clearing Services (ECS)
 Point of Sale Terminal
 Tele Banking
 Electronic Data Interchange (EDI)

5.2 Foreign Direct Investment (FD) in India

5.3 I-Banking
5.4 Credit cards

5.5 Debit cards

5.6 Corporate social responsibilities in Banks

5.7 Shadow Banking

CHAPTER 6-

ANALYSIS OF LEGAL FRAMEWORK…………………………………………….88-124

6.1 Negotiable instrument Act, 1881

6.2 The Reserve Bank of India Act, 1934

6.3 The Banking Regulation Act, 1949

CHAPTER 7-

OPERATIONAL RESPONSIBLITIES, NEGLIGENCE AND FRAUDS IN

BANK……………………………………………………………………………….125-1356.

7.1 Negligence of banks and its employees

 Meaning of negligence
 Bank's certificate of loss of cheque
 General liabilities
 Wrong entry in pass-books
 Opinion regarding customer
 Advice as to investment
 Banks act as agent

7.2 FRAUDS IN BANK

 Meaning
 Concept
  Reason
 Detection
 Prevention

CONCLUSION AND SUGGESTION……………………………………………...136-140

BIBLIOGRAPHY……………………………………………………………………XII-XIX
 PREFACE

Bank plays a very vital role in Indian economy, there went many changes after Liberalization.

The new economic reforms have totally changed the banking structure. Reserve Bank of India

has permitted new banks to get established in the private sector as mentioned in the guidelines of

the Narsimhan committee. Previously the Indian banking structure was dominated by the Public

sector but now things have changed. Now new technologies are there and professional

management has earned a reasonable position in the Banking Sector. In fact to raise the economy

of the country it is required to develop the banks. The development of the country is based on the

economy and the bank takes the money from the public and provides to the business men which

use them for productive works and raise the economy of the country. Due to development now

banks are providing credit for the purpose of agriculture and small scale industries also by which

they adopt new methods of production.

Today our economy is also based on expansion of trade especially exports .therefore the policies

are made by the banks which helps in the economic development of the country. In this

dissertation there are all type of bank , kinds of banking the role of RBI and the reforms. The

phrases of development after independence which helps to make an overview about the history

of the Banking System. In this Dissertation we discussed about the irregularities done by the

banking structure and provides some suggestions to overcome these irregularities so that it can

help in the development in the development of the banking sector which eventually plays the

major role in the development of the Indian Economy.

 CHAPTER I-
INTRODUCTION
Oh, East is east and West is west,
And never the twain shall meet,
Till earth and sky meet presently.
At God's great Judgment seat.1
- Rudyard Kipling
The well know said lines by Sir Rudyard Kipling is going true day by day. After the world war

and the nationalization it played the significant role in the development of the nation. The spread

of science and the progress in technologies and communication has helped a lot in the develop

ment of the banking sector. It is found that the interest of nation and the well being of the

nation are the concern of all. The difference that is there between the east and the west is very

fast disappearing and they have found a common platform.2

Few years ago we found that the world economy was facing problems like Bankruptcy of

financial and banking institution , debt crisis , causing recession in major countries like USA

and Europe which evolves the major question about the growth of the sustainable development.3

However , after all this Indian banking structure has been remarkable over past few years. In

accordance with the observation and reports in past few years there was high pace of credit

expansion , profitability and high productivity is akin to the developed markets . now banks

have started to review their growth and evaluate to keep the economy raising.4

1
M. L. Tannan, "Tannan's Bankig law and practices in Indiu". 1, LexisNexis Butterworths wadhwa, Nagpur, 23 rd edition., 2012
2
Ibid
3
Ibid

4
Dr.K.L. Goyal and Vijay Joshi “Indian Banking Industry : challenges and opportunities “, available at
http://www.escjournals,org/esc/manuscript/Journals/IJBRM/volume3/Issue1/IJBRM-64.pdf,last visited on March 18 2020
The Indian Banking has transformed from socialistic raj business to technology oriented

business. Banking industry is the backbone of the development and raising the economy of the

country. Banks deals with many services at the same time i.e. multitasking institution. Banks

receives money from those who want to save money and lends to those who need it. For a

businessman it is an institution who provides finance and on the other hand for the labor the

medium of saving money. Banking system is the main organ of the Indian Economy. Oxford

Dictionary defines bank as "an establishment for the custody of money, which it pays out only on

the customer's order". In this way bank increases the savings of the people for investment

purposes. If there would be no banks then a large portion of capital would remained operative.

Finance is the main medium for every business and activity.5 The banks provide loans to the

customers and provides payment very easily and with facilities of Cheque or drafts and brings

money in circulation.

Now also after so many development we found that there are many people who doesn’t avail the

services of the banking system but when have a look m upon the people who avail the service of

the banking system then the ratio is quite high their expectations are raising for the level of

services due to the competition and the trend of Information Technology. Now Foreign

companies are also availing the services of the banks and the banks are taking the proper care of

the needs and the emergence of the new technologies in the banking system.6 There are many

5
Rajaci-Baghsiyaei, Mohammad, "The Contribution of Islamic Banking to Eeonomic Development" (The Case of
The Islamic Republic of Iran), Durham University, Availahle at-
http://etheses.dur.ac.uk/913/1/Final complete thesis for_uploading.pdf?DDD35+, Last visited on March 18 2020
6
Dr.K. Ratna Manikyam , Ïndian Banking Sector – Challenges and Opportunities “, IOSR Journals of Business and management
(IOSR-JBM)
e-ISSN : 2278-487X, p-IISN: 2319-7668, Volume 16,Issue 2. Ver.1 (Feb.2014). PP 52-61, available at http://www.iosrjournals
.org/iosr-jbm/papers/Vol 16-issue2/Version-1/G016215261.pdf.last visited on March 20 2020
challenges in front of the banking system but to encounter the scenario of banking system we

need to understand the challenges and opportunities with banking sector in India.

‘’A good bank is not only the financial heart of the

commumity, but also one with an obligation of helping in

every possible manner to improve the economic

conditions of the common people"

-A. Subba Rao Pai -

Founder of Canara bank

1.2 RESEARCH METHODOLOGY

RESEARCH PROBLEM:

1. What is the position of the Banking system in India ?

2. What are the reforms took place in the banking system and helped in the development in the

banking system?

3. What are the functions of the banking system in India?

4. What are the legal reforms for the enforcement of the banking system?

5. What are the recent trends in the banking system?

OBJECTIVE OF STUDY:

The critical study motivates to make a sincere study on the evolution of banking structure in

India and its recent trends. It tells about the reforms that took place for the efficiency of the

Indian Banks and its progress.

The objectives of the study are as follows:

1. To define an overview of the banking structure of India.

2. To analyze the growth of the banking structure.

3. To observe the needs of the reforms in the banking structure.

4. to provide the remedial measures that can be taken for the development of the banking
structure.

5. To access the performance of the recent trends and its relevancy in the Banking structure in
India.

6. to study the legal framework of the banking structure.

7. To examine the frauds and negligence done by the bank employees in the banks in India .
HYPOTHESES:

The main objective of this dissertation is to study the history and evolution of the banking system

in India and its development which took place after the Independence along with the recent

trends which played an important role in the development of the baking sector. The study is

testing the following hypothesis with the help of Doctrinal Research.

The hypotheses of this dissertation are as follows:

1.The Nationalization of banks gave a new and fresh direction in the development of the banking

structure in India.

2.The recommendation of the Narsimham committee acted as a golden rule useful for the

guidance to the banks in recruitment and training practices. The committee recommended

appointment of skilled manpower for the market including experts.

3. The recent trends like Information Technology and FDI play an important role now a days

For the development of the banking structure in India . The partnership and relationship between

IT and banking industries is resulting in a strong financial system as comparable to the world.

The limits of the FDI has been increased up to maximum limit of paid up capital of the bank.

SCOPE

The scope of this dissertation is to study the history and the evolution of banking sector ,

examining the developments that took place after the independence and to analyze the recent

trends in the banking sector.

RESEARCH METHODOLOGY

The research is based purely on the doctrinal method followed with the analytical approach.

This present study is furnished with the qualitative as well as quantitative analyses and it needed

both types of data i.e. primary as well as secondary data. The researcher has used the
comprehensive study of both the data. Primary information collected through primary sources as

from Bare acts and the secondary information is collected from secondary sources as books ,

articles, journals, websites etc.

CHAPTERIZATION

The researcher has mentioned the followings chapters in her dissertation:

Chapter 1 talks about the introduction and research methodology.

Chapter 2 talks about the meaning, concepts and significance of bank and banking in India. And

it discuss about the types and role of banking system.

Chapters 3 talks about the evolution of banking system in India and discuss about the

historical outlook and certain reforms in bank which is based on the Narshimhan

committee and also study the development of banking system.

Chapter 4 talks about the function of the bank in India, it discusses the structure of banks

and how they perform.

Chapter 5 talk about the performance of recent trend in banking sector in India and how

they help in development of banks.

Chapter 6 talk about the analysis of the legal frame work.

Chapter 7 talks about the operational responsibility, negligence and frauds in banking sector and
how to prevent from these things.

TIME DURATION

The dissertation has been completed within a period of 3 months.

LIMITATION

The Limitation that was faced during working on this dissertation was the broadness of the topic

due to which it became quite difficult to include everything and cover everything
MODE OF CITATION

ILI mode of footing is followed as a uniform mode of citation throughout the making of the
dissertation.
 CHAPTER-2

MEANING, CONCEPT AND SIGNIFICANCE OF BANKS

2.1-BANKING

In the present scenario , banking is very essential for the economy of the nation. Modern trading

would be impossible without the accessibility of banking systems. The primary work of bank is it

promotes savings and it is the basis for the from the ordinary laborers to the rich businessman,

they also keep money in the banks as safe deposit. Secondly bank promotes investments also by

investing money in agriculture and trade . they invest directly or through loans. And thirdly it

helps in foreign trade in export and import of money from one country to another .7

DEFINITION OF BANK:

"A bank is simply what a bank does". This definition is simple but quite vague.

Dr. Samuel Johnson defined bank as, "A bank is a place where money is said up to be named for

occasionally",8

KINLEY defines bank as , "A bank is an institution which provides to individuals such

advances of money which may be required and safely made, and to which individuals trust

money when not required by them for use",9

Banking system is all about the belief or trust. We actually believe that bank will provide us

money when we will go for it. Generally a people handovers the money to the bank and the same

bank lends the money even more than that on the same day on demand. The relationship of the

bank and its customers are based on trust , a fiduciary relationship between both.10
7
Ibid
8
"S. R. Myneni, "Law of banking". 19, (Asia law House, Hyderabad, 1" cdition, 2012)

9
Ibid
10
* "Working of Banks ", Availabie at http://theunjustmedia.com/Banking%20&%20Federal%20Reserve/How%20Banks
%20Work.htm, Last visited on 21march 2020
SIGNIFICANCE OF BANKS AND BANKING:

Banking system plays an important role in the nation’s economy. It serves the needs of the credit

of all the sections of the society. In ancient times also there were methods of money lending

through Sahukars and zamindars and now also lending of money is done in one or other form.11

By the beginning of the 20th century and with the beginning of modern industry the requirement

of banks were felt by the government. The British government payed attention towards the

requirement of an organized banking sector so the RBI was established to regulate the banking

system. After the nationalization the banks played important role in the economy of the nation.

They have acted as custodian of credit and also protects the social and economic development

many of which were capable of making reproductive energies.

The important issue to regularize the banking is capital formation and can be easily performed by

the banks. They can regulate the rural population and increase savings. The capital available in

India is quite high its we need to exploit the idle capital. And the bank is having the capacity to

exploit it. If bank provide larger amount of interest then people will be interested in saving rather

than wasting in celebrations.

India is the country with largest independent democracy and also having ana emerging

economy.12

From the past view decades India is having extraordinary achievements towards its credit. It is

11
http://www.ccm srinagar.com/2013/03/role-of-banking-in-indian-ecnomy.html, Last visited on March 22 2020

12
" Jasvir, "An Essay on Role of Banking in India 's Developing Economy", Available at-
http://www.preservearticles.com, Last visited on March 26 2020
not only confined to the metropolitans but also has reached to the remote areas of the nation.13

Agriculture in India is having outstanding history and it plays a vital role for the overall

Development in India. The government took an initiative to provide the finance to NABARD for

refinancing Regional Rural Banks to provide short term loans to farmers. The schemes offers

credit to the farmers at 7% interest rate. India is a rural based country and it can grow if the

credit is provided to them at low interest rate and the farmers get loans for boring wells ,

machineries , electric motor with pump etc.14

The leading bank in India is Industrial Development Bank Of India for the financial support to

the projects. The special side of the IDBI is the creation of the Development Assistance Fund.

The fund is basically to provide assistance to the industries which can avail fund by smaller

amount of investment and low rate of returns.

Now a days banks also perform new functions as it is the largest service sector in India and now

bank is more focused on customer retention rather than customer acquisition.15 This concept

played an important role in the development of the economy of the nation by the banks which is

the main source of the economy.

2.2 KINDS OF BANKING

UNIT BANKING

A unit bank is a corporation that is having only one office and operates only one office and is
13
Mckinsey Global Institute, April 2010, "India 's urban awakening: Building Inclusive Citles, Sustaining economic
growth", Available at- www.mckinsey.com/mgi, last visited on March 26 2020

14
"Role of banks in Indian Econony", Available at- http://www.sbank.in/2013/02/role-of-banks-in-indian-
economy.html, last visited on March 26 2020

15
Sambasivan Srinivasan, "Role of Banks in Indiam Economy", Avallable at- http://www.sbank.in, last visited on
March 27 2020
not related to the other banks neither through ownership nor through control.

Advantages of Unit Banking:

1.the working, management and control of the unit banks is easy as well as effective due to its

smaller in size and operation of the banks. Due to small size and to keep the eyes only one office

there are less chances of fraud and irregularities are quite less in the financial status of the unit

banks.

2.It is localised in the nature and has the knowledge about the local issues and work for local

public in the best way in comparison to branch banking.

3. The biggest advantage of this type of banking is that there is no hold of any kind of decision

taking on problems related with the unit bank.

4. It is generally of smaller size so there is no monopolistic tendencies in this banking system.

5. In this banking system there is no departing of resources to any rural and backward areas to

the large commercial centres which makes regional balance.

Disadvantages of the Unit Banking:

1.The scope is very limited in this type of banking because the size is limited. They does not deal

with the large scale operations.

2. In the unit banking, the operations of the bank is local in nature that is it has a single office so

there is low possibilities of risk and irregularities.

3.Due to the small scale office people don’t have to face the difficulties standing in a queue

while withdrawal.

4.In Unit banks , due to its smaller size they are not able to take advantages of the labor and

bank cannot afford extraordinary training and the staff.

5. In Unit banks , due to the limited resources they cannot open banks in small towns and rural

Areas because of having less scope.

CHAIN BANKING

Chain banking is termed as the bank in which there are three banks that are connected in chain

and small number of group of individuals and the banks are chartered independently. The

individuals should keep stocks with them to earn interest in the corporations involved.

Management of the bank to be made by the making of majority votes of the corporate board of

directors for the supervision of the banking institutions. Chain banking started from U.S. in

1920s and by 1925, there were total of 33 chains of banks which took the control over 900 banks.

The main objective behind this was to improve goodwill in the market and to maximize the

profits.

Advantages of Chain Banking :

1.It restricts the risk for a particular community by spreading the risk between various other

small banks instead of one bank liable for the risk and by this it became easier to lend products

and offer credits to the communities.

2.This type of banking makes possible to avail the banking facilities even when there are limited

resources. Chain banking creates a centralized structure having common management and risk

handling tendencies. By the chain banking many people can avail the banking facilities as

compared to the Unit Banking.

3.It is beneficial in the sense that it restricts the number of executive decision s of management

which are made at the local level dur to centralized tendency and the same guidelines are given

for all the multiple banks. It makes decisions for the benefit of all and creates better financial
controls and provides an extraordinary system of management.

4.the motive behind the formation of chain banking is to avoid risks. They are having chain of

banks so the they are useful to individuals without the threat of losses. The process restricts all

the profitability and also provides a safer and protected place for the people for keeping their

money.

5. Due to the minimized tendency of risk individuals feel free to transact more with the bank and

have more use of credit which allows them to start the business expand more in it . it is an

example to lead good decisions of how the finance to be managed.

Disadvantages of Chain Banking

1.Generally the profit comes when people take risks in the Financial sector and similarly chain

banking cannot afford risks. So the bank managed a very conservative approach in cases of risks

incurred. And to overcome this it is necessary to find a key to have investments more than rate of

inflation.

2.In the process of chain banking there is low availability of the profits so it must be used in such

a way to recover the needs of the local communities.

3. In the chain banking the decision is made on the centralized tendency so it is quite difficult to

meet the needs of the local banks and to make the guidelines for the benefit of all because at the

different level bank faces different problems. Many chain banking systems create a centralized

structure where one entity, pulls the strings

4. the objective of chain banking is to accelerate the opportunities for the prudent person or the

average person to use the facilities provided by the bank. And when the banks are calculated by

the common stakeholders the point is who is in control of credit authorization. And the

stakeholders are only answerable to their profitability and to themselves.

5. these banks are technically independent in nature and still calculated by the same stakeholders.

And the case in which there is no opposition then it’s a drawback for the customers because they

can’t negotiate hence has to follow the same guidelines provided even if they are getting loss in

it.

GROUP BANKING

Group banking is termed as the banking system in which there is a head i.e. Holding banking

company and the other banks are subsidiary to it. In few cases both the holding banking

company and the subsidiary company carry out the banking. The best example for this is State

Bank of India (SBI) which has many subsidiaries which too carry out the banking and work like

lease , merchant banking etc.

Merits of Group Banking: 

1.The holding company conspires the effectiveness of the group banking or the subsidiary banks.

The subsidiary banks work under the overall control of the Holding Company.

2. There is high level of fluidity because the banks are governed and controlled by the one

parent bank. The member bank has to maintain the level of liquidity.

3. Basically it is an economic system of Banking because many things are done collectively

under the guidance and custody of the Holding Company.

4.In the process of group banking the diverse subsidiaries need to specify the different levels of

banking. It increase and promotes the efficiency of the group banking.

Disadvantage of Group Banking: 

1.The control is rigid in nature due to the lack of elasticity it often leads to corruption.

2.The finds are less movable in the process of group banking in comparison to the process of

branch banking.
3. The group banking has in fact very less branches as compared to the branch banking due to

which it becomes quite difficult for the general public to avail the services due to huge crowd.

MIXED BANKING

The mixed banking is the mixture of Deposit and Investment and the German banking system is

the best example for it. The German banking provides a disparity in respect to the functions as

they are stated as “Universal banks”. In this process banks provides finance for the long time

necessities and also caters to short term loans trade and commerce. The Shroff committee was

also made in 1954 in this regard which suggested the Indian banks to gain industrial finance aid.

The RBI has further taken steps to improve and furnish the resources of the banking system. Due

to merger, many banks were rejected and in India advance type of banking is developed and the

remaining commercial banks have limited themselves to the short term lendings.

Advantages of Mixed Banking System

1.The industrial components which get financed by the banks have the advantage of receiving

the expert guidance from the bank on various issues. The bank helps the concerns of the

industrial units by marketing their stocks and publishing shares to the public at large.

2. In the process of the mixed banking process the bank may give better investments so that the

rights of the investors are protected and promoted by better investment facilities.

3. The mixed banking can provide full credit and fulfill all the requirements of the industries.

They are not required to go to other banks for the loans facility.

4. In the case , when bank delivers long term fiancé to the public then it usually appoints its

officials from the board of directors of the company which results in closing the familiarity with

the bank.

5. In the areas where industrial banks are not developed mixed banking helps and encourages the
rapid industrialization which lead to speedy development of industries in Germany.

Disadvantages of Mixed Banking System

1.This system makes a threat to the determination of banks because if the industries suffer losses

then it will obviously attack on the productivity of the banks due to which banks would not be

able to improve their condition of loans.

2.During the successful years the value of shares will be going up. Banks which are indulged in

mixed banking and can be involved in hypothetical business like selling in company shares so it

may amount to loss if the stock market gets disturbed.

3. Generally bank offers long and short term finance to the industrial units which may take a step

of over lending.

4. It is not safe to keep lock the short term deposits under long term loans because it may amount

to the dander in its liquidity.

BRANCH BANKING

Branch banking is named as one of the most efficient and significant method of banking and is

the most prefered and valuable from the customers point of view. In this banking person or the

customer can visit the branch and can communicate with the branch officials personally and can

utilize the services provided by the bank in fact. The branch officials deals with both sales and

services of the bank. The appropriate example for this is the deposit accounts : fixed account ,

saving account , recurring account and current accounts . the communication is made

appropriate in these banks like in granting loans bank officials requires full details of the

customer like address , contact details and their financial status and keep as a record with the

bank for the follow up action. Sometimes these works are done by the agents like Direct Sales

Agent or Direct Marketing Agent and they be in touch with the customers with their
requirements.

Services Provided At The Bank Branches

Several services are presented to customers by the bank branches. Some of them are as follows:

1.Account Opening

2.Cash reciept

3.Cash payments

4.cheque book transactions

5.Safe deposit lockers

6.Foreign Exchange services

7. Issue of DD and bank cheque’s

8. Demat services

9.Acceptance of queries and complaints.

10.Delivery of things such as Debit cards, PINs , Passwords etc.

11.Online services to transact residing at anywhere in the world

12.Acceptance of clearing cheques

13.Investment product.

There are various other facilities also that are provided by the Branch Banking. The customers

can go to their nearby branch and do the transactions which will sav the time of the customers

and limits the risk in the case of carrying amount of money to deposit in cash from theft and

forgery. The branch banking is accompanied with the various necessities of the customer which

is beneficial for the customers.

2.3- TYPES OF BANKS:

Central Bank
A Central bank i.e. Reserve bank or known as Monetary Bank is completely accountable for the

funding policy of the nation. The main responsibility of the Central bank is to manage the

consistency of the money supply and the currency and other additional duties. It provides the

guiding provisions to the banks to work efficiently and not to perform fraudulently.

Commercial Bank

The commercial bank provides the facilities such as accepting deposites , crediting loans and

other functions . they generally give short term loans to their customer but sometimes give

medium term loans as well.16

Industrial Banks

The Industrial banks acts as the acceptor of the long term deposites because they accept the long

term deposites instead of short term loans from the public. The banks need to meet the

necessities of the people of the various companies such as purchasing land for the construction of

buildings and purchasing of heavy machineries. The Industrial bank also advices the customers

to invest money in shares and purchase the debentures/.

Agricultural Banks

India is largely based on the agriculture so there is need of bank which can fulfill the needs of the

farmers by providing them loans or finance for the agriculture purpose. In lieu of this concern

Agricultural bank came in presence. Generally farmers needs short term loans to purchase seeds ,

ploughs , fertilizers , machinery equipments and many other things as well as they also need long

term loans for irrigation and to procure lands for agriculture.

Foreign Exchange Banks

16
"M. L. Tannan, "Taanan's Banking law and practicer in india", LexisNexis Butterworths wadhwa, Nagpur, 23rd
edition, 2012
The primary function of these banks is to make the international payments by the purchase and

sale of the bills. As the different countries are in favor to receive funds in their own currency so

their arises the problem of converting of currencies of one country to the other. The foreign bank

is meant for this purpose only.17

Indigenous Bank

The indigenous bank acts like a firm which deals with the advancing of loans and receiving

deposites from the public and manages business in hundis.18

2.6- ROLE OF BANKS

The economy of the nation is based on the finances as it is the backbone of the economy.

The commercial banks which leads the financial sector must be organize with the efficient

working for the economy. The important tools for the sound system of the Commercial Banking

are as follows:

Capital formation

In India , as developing country the rate of saving is low as compared to the other developed

countries and to improve this and provide capital to the entrepreneurs for the raising of economy

there is need of a sound capital formation in the developing country.19 There is a need of the

sound banking system in the country for the capital formation with certain provisions and

guidelines.

Monetization

17
Saurabh Kumar Shaha, "Role of Banks in Indian Economy", Calcutta Business School, West Bengal, Available
Report, Last visited on March 28 2020

18
M. L. Tannan, "Tannan's Bunking law and practices in Inaia", 23rd edition, 2012).

19
M. L. Tannan, "Tannon's Banking law and practices in India", (Lexis Nexis Butterworths wadhwa, Nagpur, 23rd
edition, 2012).
A developing economy is considered by the large non monetized sector and the existence of non-

monetization creates an interruption in the development of the economy. To improve the non-

monetization it is necessary to promote and take risk in providing the credit facilities to the

priority areas such as small scale indsutries and agriculture.

The provisions for the medium and long term Finance

Generally , in developing countries like India the commercial banks provide loans for a short

span of time . They feel unsecured while giving medium and long term loans to the businessmen.

So the banks needs to change their provisions regarding the availability of medium and long term

Loans to industries and businessmen.

Cheap money Policy

The commercial banks generally use Cheap money policy i.e. lending money at low interests to

overcome the threat of business recession .20 And now the policy is working in raising the

economy of the country .

2.7- SIGNIFICANCE OF BANKS IN THE GLOBALISED WORLD

The declining economic conditions combined with the global growth and the growing risks in the

banking sector. Many policies are taken in action to handle these risks. The movement towards

the risk based strategies and its supervision stepped into better ,management and cooperation.

In dealing with the short term loans the assets quality of the banks left the task. The banks wants

to capitalize and play an important role in the completion of economic necessities of all the

20
Dr. Ajay Jain, "Am overview of econoric develapment through benking system in current scenario" Available at-
http://www.curoasi apub.org/IJRIM/mar2013/6.pdf, Last visited on march 28 2020
people at large.21 The stepping of globalization has provided a way to new task with upcoming

responsibilities .

.2.8. SIGNIFICANCE OF THE INDIAN ECONOMY

In the Developing country like India , the commercial banks plays a leading role in the financial

system of the nation .it has performed various functions but the important function among all is

to provide liquidity and the payment methods and services to the banking sector and is

accountable for the financial processes. The banking sector is the backbone of the economy of

the nation. And in accordance to this catering the credit is the essential element to small scale

industries , agriculture , government and businessmen.22

A landmark developments laid down in the banking sector was initiated by the Narsimhan

committee. The committee rendered several measures to be taken to transform the Indian

Banking System and it played an important role and effective in increasingly

Globalized environment.23

CHAPTER 3

EVOLUTION OF BANKING SYSTEM

Many of us at any point of time in our life require a mortgage or any form of credit to make

some amount of purchases. Many people use credit in the system of credit cards to pay for

everyday things. The world wouldn't nun smoothly without credit and banks to issue them.

Thus, this requirement arises to know from where the banks came into existence.
21
"M. L. Tannan, "Tannan's Banking law and practices in ladia" 1, (LexisNexis Butterworths wadhwa, Nagpur,
23" edition, 2012).

22
Role of banks in Indian Econony", Available at- http://www.sbank.in/2013/02/role-of-banks-in-indian-
cconomy.html, Last visited on March 28 2020

23
Swadesh, "Project union of India", Union Bank of India, Available at-
http://www.scribd.com/doc/46204922/Project-Union-Bank-of-India, Last visited on Mach 28 2020
3.1- ORIGIN AND DEVELOPMENT OF BANKING SYSTEM IN INDIA

India has a well developed and established banking system. Many banks in India were founded

by Indian entrepreneurs and visionaries in the pre-independence period to deliver financial

assistance to traders, agriculturists and budding Indian industrialists.24 The origin of banking

can be traced from the last decades of the 18th century. In 1986 The General Bank of India and

the Bank of Hindustan, were and were the first banks in India. Both the banks are now not in

function. The oldest bank in existence in at this moment is the State Bank of India.25 The State

Bank of India came into presence in 1806. At that time it was called as the Bank of Calcutta.

Presently SBI is the largest commercial bank in India. The work of central banking in India is

watched by the Reserve Bank of India, which in 1935 took over the responsibilities from the

Imperial Bank of India at that time.26 In 1947 Reserve Bank was nationalized and was given

many powers. 14 largest commercial banks were nationalized In 1969, followed by six

largest banks in 1980. Then, with adoption of economic liberalization in 1991, privatization of

banks was again allowed. 27

The commercial banking construction in India consists of: Scheduled Commercial Banks and

Unscheduled Banks. Scheduled commercial Banks establish those banks, which have been

involved in the Second Schedule of Reserve Bank of India (RBI) Act, 1934. RBI includes only

those banks in this schedule, which gratify the Criteria laid down in section 42 (6) (a) of the

Government of India, private banks and foreign banks.

24
“Banks in India”available at http://business.tm-India.com /Banks/, Last visited on March 30 2020
25
Dr. Simran Walia, "Comparative Analysis of Indian Banks Performance", 2011, Available at-
http://www.studymode.com/essays/Comparative-Analysis-Of-Indian-Banks%27-Performance-827659.html, Last
visited on 30 March 2020
26
Chatali, "Central Bank of India", Available at- http://www.scribd.com/doc/30775008/Central-Bank-of-India,
Last visited on March 30 2020
27
"Current state of Indian Banking finance system", Available at-
http://www.ukessays.com/essays/finance/current-state-of-indian-banking-finance-essay.php, Last visited on March 30 2020
3.2-HISTORY OF BANKING SYSTEM IN INDIA:

Deprived of a sound and effective banking system in India it cannot have a healthy economy.

The banking system should not only be disturbance free but it should be capable of meeting of

New challenges postured by the technology and by any other external and internal factors. From

past three decades India's banking has several excellent attainments to its credit. The most

outstanding is its widespread reach. It is not confined to only metropolitans in India. In reality,

Indian banking system has reached even to the remote areas of the country. This is among one of

the main reasons of India's growth.28

Since 1969 The government's unvarying policy for Indian bank has paid enough dividends with

the nationalization of 14 major banks of India. Previously people used to wait for one transaction

but today, they have a choice. Those days are gone when the most effectual bank transferred

money from one branch to another in two- three days. Now, money has become the order of the

day.The first bank in India, though traditional, was established in 1786. From 1786 till today, the

journey of Indian Banking can be separated into three distinct phases.

• Early phase from 1786 to 1969 of Banks

• Nationalization of Banks and up to 1991 prior to Indian banking Reforms.

• New phase of Indian Banking structure with the start of Indian Financial &Banking Sector

Reforms after 1991.

PHASE I
The General Bank of India was established in the year 1786. Next came the Bank of Hindustan

28
Manish Khanna and Saurabh Kaushal, "Growth of Banking Sector in India: A Collective Study of History and
is Operations ", Asian J. of Adv. Basic Sei.: 2(1), 36-4, Available at-
http://ajabs.org/ajabs/5%20Manish%20Khanna.pdf, Last visited on Mach 30 2020
And the Bengal Bank. The East India Company recognized Bank of Bengal (1809), Bank of
Bombay (1840) and Bank of Madras (1843) as self-governing components and called it
Presidency Banks. The three banks were combined in 1920 and Imperial Bank of India was
set up which begun as private shareholders banks, generally Europeans shareholders.29
In 1865 Allahabad Bank was set up and the very first time only by Indians, Punjab National
Bank Ltd. was established in 1894 with its headquarter at Lahore. Between 1906 and 1913,
Bank Of India, Central Bank of India, Indian Bank , Bank of Baroda, Canara Bank and Bank
of Mysore were established by Reserve Bank of India originated in 1935.
In the first phase the growth was slow and banks also faced periodic failures between 1913 and
1948. There were around 1100 banks, mostly small banks. To update the functioning of
commercial banks, the Government of India arose up with The Banking Companies Act, 1949
which was later altered into Banking Regulation Act 1949 by amending Act of 1965. Reserve
Bank of India was bestowed with extensive powers for the management of banking as the
Central Banking Authority.30 During those day's public had low confidence in the banks because
mobilization was slow.
PHRASE II

Government took important steps in the Indian Banking Reform after independence. In 1955,

it nationalized Imperial Bank of India with wide-ranging banking amenities on a large scale

in rural and semi-urban areas. It designed State Bank of India to act as the principal agent of RBI

and to deal with the banking transactions of the Union and State Governments .Seven banks

29
"Banking & Credit :: Banking - An Overview", Available at-
http://agritech.tnau.ac.in/banking/erbank overview.htmlm, Last visited on March 30 2020

30
Biju Mathew, "Kerala Tradition & Fascinating Destinations" Eight Edition, Info Kerala Communication Pvt.
Ltd. 2012, Avallable at-
http://books.google.co.in/books?id-(jWPiQyOwGkC&pg PA384&lpg PA384&dq-During+the+first+ ph ase theig
rowth+was+very+slow+and+banksalsotexperienced +periodic+ failurestbetween+1913+and+1948.+Theretweret
approximately+1100+ banks, mostlytamall.+Totstreamline+the+functioningtand+activitiestoftcommercial- bank
s, the Government of India came uptwith+The-Banking+Companies+Act,+1949+which+wastlatert changed-
%20Central%20Banking%20Authority.&f-false, Last vivited on March 30 2020
started subsidiary of State Bank of India which was nationalized on 19th July. 1969, on which

major process of nationalization was carried out. Then ,14 major commercial banks were

nationalized.31

Second phase of nationalization Indian Banking Sector Reform was accepted in 1980 with

seven more banks. This major step brought 80% of the banking section in India under

Government ownership. The steps taken by the Government of India to Regulate Banking
Institutions –

1949: Enactment of Banking Regulation Act.

1955: Nationalization of State Bank of India.

1959: Nationalization of SBI subsidiaries.

1961: Insurance cover extended to deposits.

1969: Nationalization of 14 major banks.

1971: Creation of credit guarantee corporation.

1975: Creation of regional rural banks.

1980: Nationalization of seven banks with deposits over 200 crore.

After nationalization of banks, the undergrowth of the public sector bank India increased to

approximately 800% in deposits and advances took a large jump by 11,000. Banking in the

brightness of Government ownership gave the public to have faith and confidence about the

existence of these institutions.

PHASE III

This phase has familiarized many more products and services in the banking structure in its

31
"Retail Banking And Investment Services Of Standard Chartered Bank Report Transcript", Available at-
http://www.studygalaxy.com/ordinaryview2.php?rep-117, Last visited on March 30 2020
Reforms measure. In 1991, under the chairmanship of M. Narasimham, a committee formed by

his name which functioned for the liberalization of banking practices. Efforts are being put to

give a satisfactory service to customers. Phone banking and net banking is introduced now. The

entire system became more suitable and swift. Time is given extra importance than money.32

The financial system of India has exposed a great deal of flexibility. It is privileged from any

crisis triggered by any of the external macroeconomics shock as other East Asian Countries

suffered. This is all happened due to a elastic exchange rate regime, the foreign reserves are

quite high, the capital account not fully convertible, and banks and the customers have partial

foreign exchange exposure.

3.3- NATIONALIZATION OF BANKS IN INDIA

The nationalization of banks in India took place in 1969 by IN Mrs. Indira Gandhi government.

It then nationalized 14 banks and the banks were mostly owned by businessmen and even

managed by themselves. The list of banks are as follows:

1. Central Bank of India

2. Indian Bank

3. Dena Bank

4. Punjab National Bank

5. Allahabad Bank

6. Canara Bank

7. Bank of Maharashtra

8. Indian Overseas Bank

32
Sree Laxmi,"Financial or banking sector reforms or phase III"Available at-
http://allexamsguideguru.blogspot.in/2012/08/financial-or-banking-sector-reforms-or.html, Last visited on- March 30
2020
9. Bank of India

10. Union Bank

11. Syndicate Bank

12. United Bank of India

13. UCO Bank

14. Bank of Baroda

Objective of nationalization

In nationalizing ,Government was pushing into effect its program for attaining socialistic

outline of society and it was also hoped that nationalization would efficiently decentralize

credits with the effect that the priority sector such as small-scale industries, agriculture ,

exports, self-employed etc., would be given generous banking facilities and that banking units

would be prolonged to rural areas.33

Advantages of nationalization

Nationalized banks are likely to give priority to the schemes of the abandoned section and

exports, to meet few demands of the public sectors undertaking and to utilise the balance of

the existing sources for organized industries on the root that new enterprises and those in

backwards areas will be favored to the big business houses.34

Before the process of nationalization of Indian banks, only State Bank of India (SBI) was made

Nationalized in July 1955 under the SBI Act of 1955. Nationalization of Seven State Banks of

India took place on 19th July, 1960. The State Bank of India is largest commercial bank of India

and is among one of the top five banks in world. It deals with 90 million customers with network
33
"M. L. Tannan, "Tannan's Banking law and proctices In India", 306, LexisNexis Butterworths wadhwa, Nagpur,
23rd edition, 2012.

34
Ibid
of 9,000 branches and it suggests either directly or indirectly wide choice of banking services.

The second phase of nationalization of Indian banks took birth in the year 1980. Seven extra

banks were nationalized with deposits that was over 200 crores. Till this time , approximately

80% of the banking structure in India was under Government ownership. After nationaization

of banks, the branches of the public sector banks increased to approximately 800% in deposits

and advances took a high jump by 11,000%.

3.5-NARASIMHAM COMMITTEE REFORMS

Prior to 1969, all banks, excluding State Bank of India and its seven branches were privately

owned. However there was a observation among policy makers that under private ownership,

many rural and semi urban-areas continued un-served by banks, whereas the banking industry

has to be advanced to "touch the lives of millions". As India became an growing planned

economy, policy makers realized that, it would be problematic to undertake credit planning

without the link control of industry and banks in the same banks is broken by nationalization

of banks.35 These considerations made Nationalization Act of 1969 which caused 14 largest

private domestic banks to be nationalized, In 1980, the Government of India attained ownership

of 6 more private banks, bringing the number of nationalized banks to 20.NPS’s were on high

level, and customer service was below the expectation. These circumstances led to increase in

liberalization of banking operations since the mid 1950 and accepted as key recommendations

of the Narasimham Committee. Few reforms recommended by the Committee were:-

Reorganization of the Banking system

The committee recommended 4-tier structure of the banking sector consist of: (a): 3-4 Large

banks (b): 8-10 national banks with branches in the country (c): Local banks confined to a

35
Hazari Report, 1967
specific region (d): Rural Banks confined to rural areas agricultural and allied activities.

Improvement of capital base of bank

The committee suggested that the banks should be permitted to raise new capital from the public.

Mutual Funds, profitable public sector units and employees can subscribe to these problems.

Elimination of licensing

The committee planned no further nationalization of banks. It projected elimination of branch

licensing. It explained that the banks should be permitted to decide for themselves. The foreign

private banks should be permitted to open branches in India.

Decrease in SLR and CRR

The committee suggested fetching down the SLR of banks in a phased way period of few

years. It also suggested reducing of CRR from its present level.36

Computerization of bank functions

The committee planned that its directed credited program must be phased out. The priority

sector must be redefined to cover small and marginal farmers, the small sector of the industry,

village and cottage industries and other weak sections. A different tribunal should be formed to

speedy process of recovery of overdue loans. A strength reconstruction fund must be formed to

speed up the procedure of recovery of overdue loans.

Priority Sector Lending

The Narasimham Committee decided that priority sector advances were a main component of

the losses in the state owned banks. The reference of the committee was to decrease priority

sector lending from 40% to 10% of net bank credit. Reference was not occupied into account

36
" M. L. Tannan, "Tannan's Banking law and practices in India", 2204, LexisNexis Butterworths wadhwa, Nagpur,
23rd edition, 2012.
and the goals were not reduced; however the incline of industries included in priority sectors

has been prolonged.37 After these reforms enacted, the Narasimham Committee acquiesced a

second report for additional set of reforms in 1998. These reforms can be considered into four

main groups:

(1) Strengthening the banking sector:

(2) Structure of banks,

(3) Banking regulation and supervision,

(4) Improving asset quality.

3.4- DEVELOPMENT OF BANKING SYSTEM IN INDIA:

The scheme of indigenous banking, as is very well known, dates back to ancient times in India.

Throughout the history of Indian history, moneylenders who were called bankers or seths are noted to

have existed and agreed on the business of money lending on large scale. 38 Banking structure occupies an
significant place in a nation's economy. A banking organization is

essential in a modern society. It plays a essential role in the economic development of a

nation and arranges the principal of the money market in an advanced country. 39

In India, although the money market is considered by the presence of both the organized

and the unorganized sections, organizations in the planned money market have grown

meaningfully and are playing an progressively important role." The unorganized sector,

covering the moneylenders and indigenous bankers, supplies to the credit needs of a large

number of people.

Commercial Banks
37
Saumya Lohia, "Performance of Indian Banking Industry over the last 10 years", 2011,Available at-
http://scholarship.clarenont.edu/egi/vieweantent.cgi?article 1247&context-cme_theses, Lat visted on March 30 2020

38
H.R. Suneja, "Practice and law of Banking", 1-2, 1990

39
Ibid
In the organized sector, commercial banks are the oldest organizations having a widespread

Network of branches, imposing utmost public assurance. Commercial banks were recognized

as corporate bodies with share-holdings by individuals, but next there been a relation towards

State ownership and control. Previously, they were involved in financing organized trade,

commerce and industry, but now they are energetically participating in financing agriculture,

small business and small borrowers also, 40

Public Sector Banks

Public sector in banking structure reached its present position in three phases – first, the Conver

sion of the present Imperical bank of India into State Bank of India in 1955 with the formation

of its seven subsidiary banks; secondly, the nationalization of 14 commercial banks on July 19,

1969 and thirdly, the nationalization of 6 more commercial banks on April 15, 1980.

New Private Banks

After the nationalization, new banks in the private sector could not be arranged, although there
was no legal stop to that effect. The Narasimham Committee on Financial Sector suggested the
establishment of such banks in India. The RBI has issued guidelines for the formation of new
private sector banks in the India in January, 1993. These banks can be classified into two broad
categories: 41
1.Indian banks- These are the banks owned and controlled by the Indian entrepreneurs other

than the nationalized banks .

2. Foreign banks- These are the banks having a place of business in India but are incorporated

outside India .

Local Area Banks

40
Dr. B.R. Sharma & Dr, R. P. Nainta, " Banking Companies (Acquisition and Transfer of Undertaking) Aet".1970

41
Ibid
These are small private banks considered as low cost structures which would deliver organized

and good financial intermediation services in a restricted area of operation that is mostly in rural

and semi urban areas comprising three contiguous districts. In 1996, Indian Government decided

to permit new local area banks with the succeeding objectives:

1.To Providing an institutional instrument for encouraging rural and semi- urban savings;

2.To provide credit for feasible economic happenings in the local areas.

These banks are promoted by individuals, companies, trusts, and societies with a lowest paid up

capital of Rs.5 crore with promoter's involvement of at least Rs. 2 crore.42

Regional Rural Banks

The main objective oI establishing such banks is to develop rural economy by providing credit

and other amenities to small farmers, agriculturists, artisans and small entrepreneurs. The capital

and issued capital of each Regional Rural Bank have been static at Rs. 5 crores respectively. The

bank have been recognized under the Regional Rural Banks Act, 1976. The capital allotted by

the Regional Rural Bank, 50 per cent shall be pledged by the Central government; 15 percent by

the state government and 35 percent by the sponsor bank.

The Cooperative Banks

The cooperative bank is a voluntary group of members for self-help and provides to their finan

cial needs on a joint basis. Generally farmers need three types of credit; short term, medium term

and long term. The short term and medium term needs are met by the cooperative banking organ

izations like primary they are district central cooperative banks, agricultural credit societies and

state cooperative banks. The long term credit requirements are provided by land development

banks and now known as State Agriculture and Rural Development Bank.43
42
Ibid
43
Ibid
Industrial Development bank of India

The industrial development bank of India(IDBI) is the peak banking institution in the field of

long term industrial finance. It was formed in 1964 as fully owned subsidiary of the reserve bank

of India. But it was later not linked from the reserve bank of India on February 16, 1976, when

its whole share capital was moved to the central government. Consequently, its role was also

engorged to enable it to function as the main financial institution for organizing the functions of

all India term-lending institutions.

Life Insurance Corporation of India (LIC)

The LIC of India is the largest established investor in the country. The investments of LIC are

controlled by section 27-A of the insurance act, 1938. Consequently, a larger share of investible

resources is contributed in government securities and share of its investible resources is financed

in government. However, the LIC offers support to the corporate sector in the following ways.

1.Subscribing to the bonds and shares allotted by the development banks like IDBI,IFCI, ICICI,

and SFCS etc.

2,Directly subscribing to, or under writing the portions, bonds and debentures of the corporate

sector. It also procures corporate securities in the market.

3.Providing long term loans to companies, singly or in involvement with banks44

General Insurance Corporation of India (GIC)

The general insurance corporation of India was recognized in 1973 after nationalization of

insurance companies in the country. The GIC, with its three subsidiaries that is Oriental Fire and

General Insurance Company Ltd. National Insurance Company Ltd., new India assurance co

ltd., functions a number of insurance schemes to offer to the needs of society in accord with the

44
Ibid
strategies issued by the government, till April 1, 1995, 70 percent of the deposits to the fund of

GIC were mandatory to be invested in the socially-oriented sectors, which comprises central and

state government securities and loans to public bodies engaged in housing.

Unit Trust of India (UTI)

The Unit Trust of India came into life on February I, 1964 under the Unit Trust of India act,1963.

It activates the savings of the community by the sale of its units under the various unit schemes.

The resources thus organized the investment by the UTI mostly in the shares and debentures of

the companies. Income acknowledged from these investments, after consulting the expenses of

the trust, is spread to the unit holders yearly as dividend. The unit trust of India is usually ready

to purchase back shares the units from the holders at prices fixed.

Export Import Bank of India (EXIM BANK)

The EXIM Bank came into life on January 1, 1982; the Export Import Bank of India is the top

banking organization in the arena of financing foreign trade of India. The EXIM Bank offers

financial assistance to exporters and importers and roles as the principal financial institution for

directing the working of other organizations engaged in financing of exports and imports of

goods and services. It offers refinance amenities also to the commercial institutions contrary to

their export-import financing activities.

National Bank for Agriculture and Rural Development (NABARD)

The National Bank for Agriculture and Rural Development is the peak development bank for

agriculture and rural development. It enforced on July 12, 1982 by amalgamation of Agriculture

Credit Department and Rural Planning and Credit Cell of Reserve Bank of India and the whole

undertaking of Agricultural Refinance and Development Corporation. The NABARD has been
trusted with three types of function, namely:45

1- Credit Function

It aids as -refinancing agency for institutions offering investment and productive credit for the

encouraging the numerous development activities in the rural areas.

2- Development Function

The NABARD manages the working of rural credit agencies, develops expertise to deal with

agricultural and rural issues, assists government, RBI and other institutions in rural development

issues, acts as representative to government and RBI in relevant areas. It offers amenities for

training and research, supports the State Governments to allow to donate to the share capital of

eligible institutions.

3- Regulatory Function

NABARD has been powered by the Banking Regulation Act, 1949, to undertake examination of

Regional Rural Banks and Cooperative. In case any of such banks pursues permission of the RBI

for opening of branches, it will have to attain the approval of the NABARD to that effect.

National Housing Bank (NHB)

The National Housing Bank was formed as an top organization under the National Housing Bank

Act, 1987 on July 9, 1988. The bank is fully owned subsidiary of the RBI. The bank is to work as

an apex organization to encourage housing finance both at the local and regional levels, and offer

financial and other type of support to such institutions. The NHB has been delegated with the

following functions:46

1.To promote and advance specialized housing finance institutions for activating resources and

spreading credit for housing.

45
Ibid
46
R.P. Nainta, "Banking system, frauds and legal control", 25,Deep & Deep Publication Pvt. Ltd. New Delhi, 2005
2.To spread refinance facilities to housing finance organizations and to scheduled banks.

CHAPTER 4

FUNCTIONS OF BANKS

"Undertake something is difficult,

It will do you good,
Unless you try to do something,
Beyond what you have already mastered,
You will never grow”
-RONALDE OSBORN

Generally the banks are required to continue a part of their demand and time required liabilities

as cash reserve with the RBI. The main function of banks is to accept deposits and give loans.

There are people who deal with different banks in order to deal with transactions between them

and their customers by maintaining accounts with different banks.

4.1.THE WORKING OF BANKS47

Banking Regulation Act 1949 defines banking in section 5(b) as follows-

"The accepting for the purpose of lending or investment of deposits of money from the public,

repayable on demand or otherwise, and withdrawal by cheque, draft or otherwise." So, the

47
"Dr. R. K. Bangia, "Banking Lane & Negotiable Instrument Act", Allahabad Law Agency, 5" edition, Haryana,
2013
definition under Banking Regulation Act defines definition in following points :

1.Recieving or acceptance of deposits

2.Investing or lending them.

The explanation defined under section 5(e) makes it clear that the institution who engages itself

in the receiving or accepting the deposits from the public and does the manufacturing of goods or

carries on any trade is deemed to be the banking institution.

In the procedure of accepting deposits can be repayed either on demand on the completion of the

time period. And the banks are not bound to accept any of the deposit they can refuse to accept it

in case of any default in furnishing or checking information of the customer.

The characteristics of the banking institutions are:

1.Acceptance of deposits

The banks accepts the deposits of the customer and repays them when any demand is made or

when the deposit is made for the certain time period then on the expiration of that certain period.

There is huge difference between loan and deposits when the amounts are borrowed on certain

condition then they should be repaid on expiry of term they are regarded as loans and in case of

deposit repayment is done on demand.In prominent case of Sir Mohammed Akhtar Khan v.

Avtar Singh Sir, Lord Atkin observed,48 It was stated that loans and deposits are exclusive to

each other in every manner. In another Case , Hirabai v. Dhugnibai,49 it was stated that there is

difference between deposit and loan because in both cases money is lent by customer to the bank

hence bank is the receiver.

2. Deposit should be done from public

48
63 LA 279, Quoted in S.N. Maheshwari, "Banking Law and Practice", (1994), p.112.

49
26 Bom . L.R. 427-429
The “mutual benefit societies” and “nidhis” which collect deposits from their own members are

not banks. According to Banking Commission (1961) has clearly mentioned that acceptance of

deposite from the people who are known does not define working of banks. It must be open to

public at large.

3. The amount repayable on demand or otherwise

It includes the repayment of amount deposited by the public on demand made by the customer or

on the expiration of the period defined.

4. Payment to be withdrawal by Cheque or otherwise

It explains that the withdrawal of deposited money can not only be done by cheque there are

other means too for example a request can be made to the transfer of funds from one account to

other of same or two different persons.

5.Main Objective Of Accepting Deposites

The objective of accepting or receiving deposites is lending and investing the same and the

companies which accepts money for financing their trading does not comes under it.

THE STRUCTURE OF BANKS IN INDIA

Banks work under the guardianship of Reserve Bank of India and RBI regulates all the banks in

India . so, RBI is the supreme body and all other banks work under it.50

The structure of banks in India can be divided into:-

1.Cooperative Banks

2.Commercial banks

COOPERATIVE BANKS
50
"Jasvir, "Essay on the Role of Banking in India's Developing Economy", Available at-
http://www.preservearticles.com/201103254723/role-of-banking-in-indias-developing-economy.html, last visited
on March 26 2014
These banks are an important elements or organization of Banking structure. They are more

important in India in comparison to the world. It has got its importance by its working itself.

their working in rural areas play an important role which makes it significant in every means..51

It deals with providing finance to agricultural based industries and small scale industries. Due to

their working they area able to challenge state and private sector banks. They are regulated by

RBI although they are registered under Co-operative societies Act 1965 of respective states.

Cooperative banks can be divided into:

1.The Short term-lending banks - This includes three categories:

A)The State Co-operative banks,

B)The District Co-operative banks and

C)The Primary Agricultural Co-operative societies.

2.The long term lending banks - This includes three categories:

A) At the state level,

B)At the district level,

C)At the village level.

Cooperative Banks are again divided into five main categories:

i)The Primary Urban Co-operative Banks.

ii)The Primary Agricultural Credit Societies.

iii)The District Central Co-operative Banks.

iv)The State Co-operative Banks.

v)The Land Development Banks.

So the cooperative banks are very important for the bright future of India. Hence without this

51
Ibid
people may face many problems.

COMMERCIAL BANKS

These are the banks which provides interests in all type of deposites and the public feels good

and safe in depositing money in the form of fixed deposites, saving accounts, current accounts ,

recurring accounts. Few other functions are also there like purchasing and selling of shares,

providing safety lockers to secure valuable ornaments, to provide educational loans and other

type of loans too etc. Commercial banks are divide into two categories:52

1.Scheduled Commercial Banks

It include those banks which are included in the second schedule of RBI Act, 1934.

2.Unscheduled Commercial Banks

These banks are include by the RBI in the schedule which satisfies the eligibility of section 42(6)

And are not defined under schedule second of the RBI Act,1934. In case of the assessment of

performance of banks, the RBI puts them under the category of public sector banks, private

sector banks and foreign banks.

It can be further classified into:

i)Public sector

ii) Private sector

iii) Foreign banks

to make the smooth functioning of banks the arrangement is made through mechanism of a

clearing house where bank presents cheques and other negotiable instruments for clearing it by

transfer of money from one bank to another. For better functioning to make payments and to

52
E Dr. R. K. Bangia, "Banking and Negotiable Instruments ". (lncluding Banker-Customer and Banker customer
Relationship), Allahabad Law Agency, Haryana, 2013
receive funds banks need a common banker between them.53

4.2.RESERVE BANK OF INDIA

RBI acts as the guardian and custodian of other banks . RBI is known as the ” Banker to banks”

and the function is to deliver through Deposit Accounts Department at the regional offices. The

government department of bank accounts looks into this function of RBI and formulates few

policies and grant operational instructions to DAD. For this RBI opens current accounts of banks

with itself promoting these banks to maintain their cash reserves and carry their inter bank

transactions by these accounts. These transfer of money can be done by electronic fund transfer

like RTGS.54

For the protection from defaults RBI continuously monitors and examines operations of these

accounts. In order to settle funds at various places in India they are allowed to open accounts

with different regional branches or offices of Reserve Bank of India. RBI through computerized

system facilitates remittance of funds from banks account at one location to other..55The Reserve

Bank of India is the main constituent of the banking structure which controls the policy of Indian

rupee. It was formed on 1 April 1935 during the british rule in accordance with the rules initiated

in Reserve Bank of India Act, 1934 .56 after Indian independence in 1947 the RBI was national

ized in year1949.The RBI plays as the backbone in the development of Government of India.

The direction that is given by RBI is holding 21 members Central Board Of Directors:

1. The governor(currently Shaktikanta Das)

53
"Reserve Bank of India- "Function and Working", Available at-
http://rbidocs.rbi.org.inirdoes Content/PDFs/FUNCWWE080910.pdf

54
Ibid
55
Ibid
56
Ibid
2. 4 Deputy Governors

3. 2 Finance Ministry Representative

4. 10 Government nominated Directors to represent important elements from India’s Economy

5. 4 Directors to represent local headquarters (Mumbai, Kolkata, Chennai and New Delhi)

Theses local boards consist of 5 members who regional , co-operative and indigenous Banks.

FUNCTIONS OF RBI:57

The functions of RBI are as follows:

Bank of issue:

Section 22 of the Reserve Bank of India Act states that the Bank has the sole right to issue bank

notes in all denominations. RBI undertake the responsibility of one rupee notes and coins all over

the country as agent of the Government. There is a separate department of RBI which deals with

the issue of currency notes. previously there was issue department to consist of not less than 2/3

of gold coins provide the amount of gold was not less than Rs. 40 crore in value and the remain

ing might be held with rupees. After II World War things got modified after 1957 the RBI is to

maintain gold foreign exchanges of RS. 200 crores out of which 115 crore of gold hence it is

known as minimum reverse system..58

Banker to Government

The second most important feature is to act as an agent and advice to the central government and

state government except the state of Jammu and Kashmir. It aids & advice the government in all

the financial matters and regarding the economy of the country.

57
Reserve Bank of India- "Function and Working", Available at-
http://rbidocs.rbi.org.in/rdocs/Content/PDFS/FUNCWWE080910.pdf, last visited on 01 April 2020

58
"Dr. R. K. Bangia, "Banking and Negotiable Instruments", (Including Banker-Customer and Banker customer
Relationship), Allahabad Law Agency, Haryana, 2013
RBI as Banker of Banks and the Lender’s Last Resort

The Scheduled banks can borrow the money from RBI in stringency matters by discounting the

bill of exchange and in case of Commercial Banks RBI is always ready to help in out in case of

crisis and is always there as Lenders of Last Resort. According to the provisions mentioned in

the Banking Companies Act 1949 Scheduled Banks are required to maintain cash reserves equal

to 3% of their aggregate deposit liabilities and the minimum cash requirements can be changed

by RBI.

RBI as Controller of credit

RBI has the capacity to influence the credit created by banks and can be done through changing

the bank rate or through open the market operations. Every bank needs to get a license from RBI

to do banking business within India and same can be cancelled by RBI too on certain conditions

not fulfilled. Each scheduled bank must send weekly return to RBI in details. Hence, it can also

inspect in the accounts of any Commercial banks..59

RBI as Custodian of Foreign Reserve

Reserve Bank of India act , 1934 clearly states that the bank was required to sell at fixed amount

of sterlings in not less than Rs. 10, 000. After becoming the member of IMF the RBI has the

responsibility of maintain fixed exchange rates with other members of IMF. In spite of all this

RBI act as the custodian of Indian reserve of International currencies and administer the

exchange control of the country.

Supervisory Functions

RBI inspite of all these functions have some non monetary functions also in the nature of

supervision of banks and making sound banking system in the Reserve Bank of India Act 1934

59
Ibid
and Banking Regulation Act, 1949 has given the RBI broad powers of control and supervision

over commercial as well as cooperative banks relating to its establishments, assets, management

in its method of working and amalgamation and liquidation. RBI has played major role in the

development of India and to improve the methods of the operation of banks.60

Promotional functions of RBI

With respect to the economic growth after Independence the working of RBI has automatically

widened. Now RBI performs many functions which were previously regarded as out of the scope

of the central bank. RBI now set up Deposit Insurance Corporation in 1962, the Unit Trust of

India 1964, The Industrial development Bank of India in 1964 , The Reconstruction Corporation

of India 1972 and The Agricultural Refinance Corporation of India 1963. All the institutions

were set up either directly or indirectly by RBI itself to provide industrial as well as agricultural

finance. RBI has established Agricultural Refinance and Development Corporation to provide

long term help or finance to farmers,61

4.3.BANKER CUSTOMER RELATIONSHIP

The relationship comes out of the contract that is entered into by both the parties and the contract

is by the consent of both the parties. The contract between both is on the basis of loan like if the

customer account is in credit then the bank owes him some money and vice versa if account is

withdrawn and this relation is regulated by Negotiable Instruments Act 1881 and Indian Contract

act 1872. This relation is described in two types:

1. General relationship

2. Special relationship

60
"S.R. Myneni, "Law of house", Kamal law house, Hyderabad, 1" edition, 2012

61
Ibid
General Relationship

The primary relationship between bank and its customer is debtor-credit respectively because

the essential relationship is to receive money from a customer and lend part of it to another.62

Customers deposits money in the bank and in return bank provides mainly of their resources and

they carry on activities. The bank can use money in his own discretion wherever he wants and is

obligated to pay money to customer on demand. It also acts as a trustee or agent of his customer

in case of confidential information. Many times it acts as trustee,agent and debtor simultaneously

in relation to specified working. This relationship was first described in the case of Foley vs. hills

by Lord Cottenham in 184863 which states that money paid to the bank becomes the money of

bank who is bound to return an equivalent by paying sum of money when asked by customer. In

the decision of various cases of high court it is clearly stated that the relationship of banker and

customer ion case of money deposited is of banker and customer.

Secondary Relationship

The secondary relationship is defined in many forms :

Relationship of Trustee and Beneficiary

Bank acts as a trustee because trustee is a person to whom property is entrusted to deal with it

according to the direction of the creator of trust. Bank takes care of the trust property as a reason

able man who would take care of his own property and must make a profit out of it. Acting as a

beneficiary, banker acts as a trustee for holding money, maintaining confidential information and

many other works which would benefit his customer. Banker cannot treat the trusted money as

his own and is not available for distribution among other customers in case of liquidation of the

62
H.R. Suneja, "Practice and Law of Banking".145,1990
63
(1848), 2 HLC, p.28
bank. For cheques also bank acts as the trustee for those cheques.

In New bank of India vs. Union of India 64 in this the banker was entitled to dispose the shares

and utilize the amount for the adjusting the loans. The bankers obligation to transfer back the

shares was only then when the debtor clears the dues. So, here banker was not the trustee. The

Supreme court held that bank is not entitled to dispose the property for his own use.

Relationship of Agent and Principal

A banker acts as an agent for his customer in many ways like he buys & sell securities on behalf

of customer or collects cheque on his behalf and makes payment for the convenience of his

customer. The duties of ana agent is defined under sec 211 of Indian Contract Act 1872 which

states that an agent is bound to conduct the business as said by the Principal and in absence of

him according to the customs provided and is bound to conduct the business . In case of any loss

results in case if banker acts otherwise then he must procure it to the Principal. In section 212 of

the same act as agent and is bound to act with skill which he has because in case any of the loss

happens the bank will presume that the banker was having such skills.

Relationship of Bailee and Bailor

It happens when the customer deposits his securities with bank for the safe custody then a

contract of Bailment arises between banker and customer in which banker acts as a Bailee and

customer acts as a Bailor. In English law bailee is divided into two parts as gratuitous bailee to

whom fees is not paid and bailee for reward to whom fees is paid for the safe keeping of the

securities and the main difference between both of them of possible extra care and safeguard

reflecting that he is paid for his services. Whereas in Indian law section 151 of Indian Contract

Act ,1872 clearly states a fix standard of care in all cases and the bailee is bound to take care of
64
New Bank of India v, Union of India (1981), 51, Company Case, p.37
goods as if it is of his own.

Relationship of Mortgagee and Mortgagor

This relationship is established when customer executes a mortgage deed in case of immovable

property in favor of bank or deposit the title deeds with bank to create an equitable mortgage as

security for advance.

Relationship of Lessee and Lessor

This relationship arises when customer hires a locker in a bank for safety valuable security. The

bank needs to take necessary precautions for the safety of articles that are kept in locker by the

customer. The customer is known as lessor and the bank is known as lessee in respect of locker

taken on hire.

Special relationship

The relationship becomes special when the customer takes the form of rights which the bank has

obligation to exercise which he owes to its customers.

4.4.RIGHTS OF BANKER

1.Banker's Lien

Under section 171 of Indian Contract Act 1872 the banker has the right of general lien with him.

He is empowered to retain all the securities of the customer in vase if any due is there from

customer side. The ownership is with the customer itself just the possession goes with the banker

till the due is paid by the customer. A banker can pledge the securities if due not paid within

given time or is incapable of paying it.65

The Right of Appropriation

Section 59 of Indian contract act 1872 the right of appropriation lies with the debtor. This rule
65
Id, p.4.37-4.38
elaborates that if money is deposited by the customer then he may tell the banker how he may

appropriate this fund and what purpose it is given. The most important rule in this is “first credits

in are appropriated to meet first credits out”.

The Right to Set off

This rule is defined as the legal right which the bank is entitled to take into account the debt due

to bank by the customer. Before the application of this right three conditions must be fulfilled:

1.The amount of debts must be certain

2.The debts must be due by the same parties in the same right.

3.There should not be any type of agreement either express or implied to the contrary.

Incidental Charge

The bank has a right to charge incidental charges as commission for the services rendered to the

customers & banking services like enquiry and customer is entitled to pay charges to the bank.66

Closing an Account

A banker has compete right to close the account of the customer but proper notice must be given

to the customer. There is a contractual relation between banker and customer and there is no here

any provision in the contract that it must continue for an indefinite period of time. So both the

parties are free at any time to terminate the contract but by giving prior notice.

4.5.BANKS FUNCTION AS BORROWERS

The relation of a banker and the customer is of basically of creditor and debtor. But there are two

most important functions of banker are borrowing and lending. In case of borrowing now a days

there is hardly any business which is on a large scale carried on entirely on funds of owner. And

in case of banking borrowing is essential because to gain profit in form of interest then they need
66
Id, p.157
to borrow funds on less amount.67

Forms of borrowing

Bank used to borrow money by the deposit made through customers to banks i.e. receiving of

deposits , issuing of notes, bonds , debentures etc. but basically the main form of borrowing

money is in receiving deposits.68

Banks can borrow in different forms but some are as follows:

1.Discounting of bills

When there is peak season then the demand is high from the customer‘s side them bank expands

their necessities by short term loans by re discounting bills of customer. It is short term in nature

lasts maximum for 90 days because the interest rate by the banker is very high n and is retained

back in the account of the customer on maturity.69

2.Bnak Deposits

It is of three types:

a)Fixed Deposits

fixed deposits are defined a s deposits that are payable after expiry of certain period which varies

from three months to five years. They can also be received for shorter than three months but

generally greater than one month. The time period of fixed deposit is decided at the time of

deposit itself. It enables the banker to invest money or use in his business because time period is

fixed and will be matured after certain time.70

67
M. L. Tannan, "Tannan's Banking law and practices in India", 245, LexisNexis Butterwarths wadhwa, Nagpur,
23rd edition, 2002.

68
Ibid
69
Id, p.247

70
1d, p.259-60
b)Saving deposit

It is not much important to banker in comparison to fixed deposit and current deposit. It was

quite relevant in history because at that time limited withdrawals were there but now people can

withdrawal money whenever they want according to their needs. Now interest is applied on

monthly balances not on daily balances.so it is substancial previously.71

c)Current deposits

Generally, current deposits do not contribute to the capital of banks in comparison to large

amounts in fixed deposits. Banks taking current deposits undertakes to honor his customer ‘s

cheque as long as his credit in his account. Banker can suffer loss if he pays a forged cheque or

if he does anything in contrary to his customer. Customer need to pay the stamp duty on the

cheque if it is so but banker gives passbook and cheque book free of cost to his customer. It is

the responsibility of banker to keep sufficient funds in the bank to need the meets of their

customers having current accounts.72

4.6.LENDING

Lending means to either give or allow the use of money temporarily on conditions that the same

will be provided or equivalent to it. Lending is a type of debt or loan by the borrower(customer)

from the lender(bank). The loan once taken is paid back in regular installments or partial

payments annually containing the same amount. In a loan, interest is also there and is paid

positively by the customer. The major part of bank’s income is from interests that are paid by the

customers in respect of loan taken from the bank. It involves risk also but the business of lending

is not without risks . while lending funds banks takes proper precaution and enquires about the

71
Id,p.260
72
2 10, p.260
customer to minimize the risk.73

TYPES OF LENDING

There are various types of lending:

Savings

The bank entrusts money to customers only by the funds of depositors only so it is the basic

responsibility of the bank to ensure the safety of funds lent. The capacity to pay the amount

depends upon his assets and profits in the business. The willingness to pay is based upon the

intention and honesty of the borrower.so the banker must take proper care while giving loan to

the customer.74

Liquidity

The banks lend funds for short term periods and basically for capital purposes. So they are

mostly payable on demand. The bankers ensure the borrower to repay loan within short period

itself . the banker has to take care while giving loan that the borrower is able to repay the loan

within period.75

Profitability

The bank earn profits and earn sufficient income out of which bank pays interest to depositors

salaries of their staff and various other works. The bank gives advances to parties that are

financially sound in nature following the concept of three “C” i.e. Capital, Capacity and

Character which should be kept in mind. It is the basic aim to maintain commercial capability

through earning profit to meet the needs of others and to take care of new provisions of loans

classification and reduction of investment in governmental securities.

73
FN. Varshney, "Banking Laws & Practice",4-15 1997

74
Id, p.4.16
75
Ibid
 CHAPTER 5-
RECENT TREND OF BANKING SYSTEM IN INDIA

The important need in the banking structure is the human resource development. After nation’s

independence the opportunities for employment was limited. In the banking system the seniority

is given priority which is not the best thing for attracting the talent from young.76

Certain improvements ca be made in this sector in recruitment practices and in further training

and giving incentives. There is a urgent need to develop work practices so that it may increase

efficiency. For this proper strategies to be taken by the government for the efficient working of
76
M. L. Tannan, "Tannan's Banking law and practices in India", LexisNexis Butterworths wadhwa, Nagpur, 23rd
edition, 2012.
the institution.77

The outcome of the Narsimham committee also provide useful guidance in the improvement of

training facilities.it recommended a system of recruiting real skill from the open market with

experts.so that this strategy may work for the upliftment of banking sector.78

The banking institution has been massively benefitted by the superior technology used during the

past years. Information Technology has also improved the effective working of the business in

banking sector. Its infrastructure has become an inseparable part of the reform process in

banking sector. It has helped in the gradual development of instruments and inventions in the

market . So Information Technology has taken banking structure in the new era of development

by internet banking etc.

5.1.EMERGING ROLE OF INTERNET TECHNOLOGY IN BANKING INSTITUTION

Now a days, IT revolution has changed banking system completely as it is the era of Information

Technology. It offers the bank to build new system which addresses a wide range of customer

needs which helps in the productivity increase. The bank by this technology gained a competitive

edge by supplying timely information and will amount to increase in productivity.

There are various innovative services provided by the industry in the past:

Automatic Teller Machine(ATM)

Due to the development of technology it has changed the payment systems all over the world

during past years.it has given the facilities to the customers for banking after banking hours too.

It can be located on or off the bank premises which is used to receive cash by the customers and

dispense cash for the customers. They can also use ATM for obtaining balance, obtaining mini
77
Ibid
78
Ibid
statements of few last transactions and debiting money from the account on need and for

transferring the funds from one account to another. From last year the ATM has been changed

now it require the chip in the ATM cards to avoid the frauds dealing with the ATM cards.Any

customer who wishes to use the ATM can access to it by an ATM card only. It contains the four

digits Personal Identification Number(PIN) which is only given to the customer because it is

secret in nature. To do the transaction through ATM customer have to place card in the slot

provided in the machine before starting its operation and then the customer will be able to

interact with the display unit and the keyboard provided in the machine.

The two types of ATM are:

1.Exterior ATM- They are located in various places like shopping malls, railway stations, petrol

pumps etc. but outside the premises of the banks.

2.Interior ATM- They are located in the bank premises which are directly interactive with the

bank’s computers and better known as On- line ATMs.

In few foreign banks atm conversion of currency is also possible. At many places voice

recognizer ATM are also established for better interaction in multi languages.

Electronic Payment Services – E cheques

Nowadays the era is of e governance , e-mails , e-commerce etc. so in the same manner a new

technology is developed in US is of E-cheques which is eventually replacing the paper cheque.

In the introduction of e- cheques , Negotiable Instruments Act has already introduced truncated

cheques and E-cheque instruments.

Real Time Gross Settlement (RTGS)

It was introduced in India since March 2004, it is a system by which electronic instructions can

be given the one bank account to transfer funds to another bank account . it is maintained and
operated by the Reserve Bank of India and is a means of fast transfer among banks providing

financial operations. The fund transfer between banks takes real time basis. Due to this money

transfers immediately to the beneficiary’s bank and the responsibility of bank is to credit it into

the beneficiary’s account.

Electronic Fund Transfer(EFT)

It is a system where anyone who wants to make payment to any person or company etc. may

approach his bank and give cash with instructions to transfer the given amount immediately from

bank’s account to bank’s account of the receiver RBI is the service provider of this method of

transfer also. There are various details to be given to the bank like Reciever’s name, Reciever’s

bank name, bank’s account number , bank account type( current or saving) , IFSC code etc.

Electronic Clearing Service(ECS)

It is a retail payment method i.e. to make bulk payments of same nature mainly where each

individual payment is of on going nature again and again and of smaller amount. It is made for

government departments and companies to either make or receive lar4rge amount of payments

other than fund transfers.

Point Of Sale Terminal

It is a computer terminal which is linked online to the computerized system of customer’s

information in a bank and magnetically encoded plastic transaction card is there which identifies

the customer to the computer. While transaction the customer account is debited and the receiver

account is credited by the computer.

Tele Banking

It facilitates the customer for doing entire cash related banking on telephone. There is automated

voice recorder which is used for simpler queries and transactions for complicated issues manned
phone terminals are used.

Electronic Data Interchange(EDI)

It is the electronic exchange of the business documents i.e. invoices, purchase order, shipping

notices etc. Which is in a standard , computerized form and universally accepted format between

business trading partners. It is also used to transfer payments and transmit financial information

too.

5.2.FORIGN DIRECT INVESTMENT IN INDIA

Indian Banking Sector has created the greatest path in generating wealth and developing the

Indian Economy. Due to decision of then Prime Minister and the Congress government about the

advancement of liberalization by allowing FDI in banking sector which led to strike by the

banking employees.

Few guidelines for investing in the banking sector

1.The limit has increased by 74% of paid up capital in the banking sector.

2.FDI is allowed under the automatic route in India.

3.Port folio investment and FDI investment to nationalized banks are subject to 20% totally.

5.The main objective behind this to increase competition.

6.Thses matters are governed by the Reserve Bank of India.

Benefits of FDI

The various benefits are as follows:

1.The transfer of technology to the domestic market from overseas countries.

2.To ensure better risk management in Banking sector.

3.to assure improved capitalization.

4.it offers the financial stability in the banking sector.

Voting Rights of the Foreign Investors:

1.Private Banks: Not exceeding 10% of total voting rights among all the shareholders.

2.Public Banks: Not exceeding 1% of the total voting rights of all the shareholders among the

public banks.

5.3.I- BANKING

I – BANKING better known as Internet Banking which means that any user in any part of the

country can access or perform any of the virtual banking functions by his/ her personal computer

and browser connected with the website of the Bank which has centralized database which is

web enabled. The services that are provided by the bank area provided on the menu page of the

website of the bank.by selecting the service by the customer and interaction can be done with

website of the bank. It is so helpful providing services any place and any time. The network

which makes it centralized and connects you direct to the central office is Intranet.

Features of Internet Banking

RBI comprises a working group on Internet Banking. This group is divide into three types on the

level of working and the access granted:

1)System for information: General information is provided on the bank’s website like branch

name, interest rates, branch location , loan and deposit calculations etc. The conversation is to be

done through e- mails and there is no identification made of the customer and there is no

possibility that any unauthorized per son will get the information about the bank.

2)System for transferring electronic information: in this system specific information is

provided of the customer like account balance, transaction details , account statement etc. This

information is fetched by the bank’s application system and cannot directly access from internet.

3)System for fully electronic transfer: this system is meant for high security and control and
allows bi-directional capabilities and the transaction can be submitted by the customer for online

update. It includes inter- bank payment gateway and the legal infrastructure and the technology

comprising computerization.

Services provided through I-Banking

1)Bill Payment Service: With the help of internet banking we can pay the electricity bills ,

mobile phone bills and insurance premium companies across the nation.to complete the payment

of bill the customer needs to complete the one-time registration.

2) Fund Transfer: people can transfer any amount from one account to other of the same bank

or any other bank. After login to the account people needs to give the payee’s account number,

bank and the branch name. The transfer can be made successful in a day or two.

3)Credit Card Customers: With the help of this customer can avail various services like credit

card bills and can also get a loan on their cards.

4)Investment through Internet Banking: With the help of this now people through Demat

account can trade in the share markets and the amount will be automatically deducted from their

bank account and can open FD through online fund transfer. Few banks give the opportunity to

purchase mutual funds directly from the online banking. It is very convenient to the customers

and is not time bound and there are not barriers.by this one can check one’s transactions details

at any time and make any time.

5.4.CREDIT CARDS

There is an agreement and the bank issues credit card to its customers. The credit card is small

plastic card containing details like the name of the holder and the account number of the holder

which is embossed on it.it also mentions the date of card up to which it is valid and la specimen

signature on the contrary side. A credit card holder is provided the name of shops and malls in
the city where that card will be accepted instead of cash. The limit of the card for using in a

month is particularly informed to the customer initially. When the holder buys something then he

gives card to ME and ME verifies the same and then checks in the “Hot List Bulletin” . it contain

the list of credit card which are either lost or stolen or surrendered or invalidated bu7 the issuer

and if the card details doesn’t comes under this list then the payment is accepted.

After the authorization made along with code the ME makes the credit card voucher better

known as charge slip which is also called the detailed bill of the purchases done by the holder.

The voucher has to be positively signed by the holder. After the signature taken the ME will

restore the card with him just to avoid fraud and after the signature taken then matched with the

ME and then credit card is given back to the holder . the credit card holder should keep an eye

that the ME should not take multiple print copies so that can be use later and fraud can be done

in this context also.

The ME after collect5ing all the slips may give it t the bank which issued credit card to the

various holders and then verify it and credit in the ME’s account or make cash payment to the

ME. The bank which issued will also keep the copy for the safety which is signed with the

customer.so in this way it is very helpful on daily requirements.

5.5.DEBIT CARDS

It is also a plastic card which also provides a method of payment instead of cash while making

purchases or buying anything. Basically it can be called as electronic cheque because the funds

are either drawn from the bank account directly or from the balance which is remaining in the

card. Its use has become widespread in most of the countries and has overtaken the value of

cheque. They are used mostly for the phone and internet purchases like credit card.

The difference between the ”credit card” and the “debit card”is the former allows the costumer to
spend money on credit by the issuing bank while the latter deducts the amount from the deposit

account like a checking account. And the second difference is the former use the money which

the consumer don’t have but in the case of the latter consumer use the money which is his own.

The debit card system requires a personal identification number(PIN) whereas ,in case of credit

card system only signature / picture ID is required by the consumer.

Nowadays debit card system is used in three ways:

1.Online Debit which is also known as PIN debit.

2.Offline Debit also known as Signature debit.

3.Electronic Purse Card system.

The most important thing is that one physical card can include all the three system i.e. Online

Debit, Offline Debit and Electronic Purse card system. There are many debit cards like Visa,

MasterCard and Maestro (previously known as Switch). It allows the user to package their
products more efficiently. Online debit card require the authentication of every online payment.

5.6.CORPORATE SOCIAL RESPONSIBILITY

In India banks thinks that is the best way to contribute towards the lives of various stakeholders

like employees, communities, customers , shareholders and environment in the best and positive

manner by serving the society at large. The bank needs to step with new thought of performing

on the basis of social impact, economic impact and environmental impact towards the

development of nation.

Basically the aim behind this is that every individual should be free from malnutrition, hunger

and must possess all the necessities required to afford education , healthcare and helping

environment in reducing disparity between social and economic nature. Bank of India is having a

policy to give back what has received from environment and is participating and contributing in
activities and .projects too.

Few CSR initiatives taken by banks are as follows:

 Hand pumps and solar street lights establishes in rural areas.

 Providing agriculture equipments , drinking water , harvesting equipments and
development.
 Providing ultra modern medical equipments to hospitals.
 Providing support and completing the requirement of orphaned and blind students .
 Providing equipments to cancer hospitals.
 Providing vehicles to institution that provide food or mid day meal to schools.

5.7.SHADOW BANKING

It refers to a system where financial units take credit activities parallel to the bank. These

financial units includes private equity funds, money market entities, securitization markets,

investment vehicles etc. this term mainly refers to the US based non bank finance institutions

which is engaged in maturing short term deposits into long term deposits.

The functioning of shadow banking lacks transparency, ownership and its leverage position

which leaves it less working to regulatory framework. In this banking magnitude of risk is high

because firstly there is interconnection between shadow banking and regular banking systems

which has expanded the magnitude of risk. Secondly without the regulation in working shadow

banking has ignored the true cost of the risk and thirdly it basically deals with the short term

deposits like funds which do not have insurance and there is high risk on loss.
 CHAPTER VI

ANALYSIS OF LEGAL FRAMEWORK

6.1. NEGOTIABLE INSTRUMENT ACT , 1881:

The Negotiable Instrument Act was enacted on 9 December,1881 and came into force on 01

March 1882. Few provisions of the act has become terminated due to development in business

world , change in technology and passage of time. This act extends to the whole of India. This

act is made to regularize commercial transactions and was made to fulfill requirements of the

business conditions.

The Negotiable instrument is an Instrument which entitles a sum of money and can be easily

transferred from one person to other by the way of endorsement or by way of delivery. This act

does not affect any local usage which is related to any instrument which shows ana intention that

the provisions will be governed by the Negotiable Instrument Act 1881 but local usage prevails
if given in regional language (Section 1).

Impact of Information Technology on Negotiable Instruments

The Act has been made effective from 6 feb 2003.The section 1(4)(a) of Information Technology

Act 2000 provides that it will include only Cheques and can be send through electronic means

but IT Act will not apply to Promissory Notes and Bill of Exchange. Thus these two cannot be

made or send through electronic means.

Changes that are made by the amendment in 2002

The changes are as follows:

1. Initially Negotiable Instrument Act 1882 consist of 142 sections but 143- 147 sections are
added by the amendment in 2002 regarding the Bouncing of Cheques which is a
compoundable Offence.
2. The punishment for Bouncing of Cheque has been increased from one year to two years
and double the amount of Cheque bounced which is to be paid.
3. The period of issuing notice to the drawer has been increased from 15 days to 30 days
and the court has to take cognizance of the complaint even if filed after beyond pone
month also.
4. During the summary trial procedure the punishment is imposed up to one year with the
fine of Rs. 5,000.
5. The summon can be issued and sent by the courier service or speed post.
6. The bank slip is the prima facie evidence for the customer for claiming the bouncing of
cheque unless proved wrong by the contrary.

Better title of transferee than transferor

There is a universal and unbiased provision that transferor cannot transfer the better title to

transferee because if the transferor has stolen something and further sold to the transferee then

obviously the transferee will not have the good title of the purchased goods from the transferor

because the real owner from which it is stolen can anytime ask the thing from the transferee even
if the transferee has bought such thing in good faith and doesn’t know that it is stolen but still

owner can take such thing. But this doesn’t happens in the Negotiable Instrument because it is

difficult to find and verify the transferor in many of the cases. So in NI Act it is provided that if

the transferee acquires the negotiable instrument in good faith or free from defects of title then

the transferee can better title than the transferor even if the title of the transferor is not in good

faith or with defects.

Negotiation vs. Transfer/Assignment

The major difference between the two terms is that in former part the transferee can get better

title than transferor but in latter part it can never take place in case of Assignment or Transfer.

Definition of Negotiable Instrument:

The Definition of Negotiable Instrument is defined in section 13 of Negotiable Instrument Act

1881. Negotiable instrument is defined as a piece of paper or document of money in the form of

Cheque, promissory note or Bill of exchange which is either payable to bearer or order on

delivery or endorsement It is freely transferable in nature respectively. Hundi also represents

Negotiable Instrument but is not enforceable in Negotiable Instrument.

Negotiable Instrument is made payable either to two or more payees jointly or can be

payable to any one or some of the several payees.(Section 13(2)).

Promissory note

A “Promissory note” is defined as a document or a piece of paper other than any bank statement

or a currency note which contains an unconditional undertaking which is signed by the maker in

which it is written to pay a certain amount of money due to the certain person or to the bearer of

the instrument(Section 4). The validity of a promissory note is 30 days after insightment.of that

note.
Bill of Exchange

A bill of exchange is defined as an instrument in writing which is having a conditional order in it

directed to the certain person by the maker to pay the certain amount of money to the order or to

the bearer on demand (Section5). The validity of the bill of exchange is expired on maturity and

3 days grace period i.e. extra 3 days are given after demand which is known as grace period.

Cheque

A Cheque is bank’s instrument which is printed by a bank that can be drawn by the drawer to the

drawee i.e. bank to pay certain sum of money written in the Cheque and signs it and that certain

sum of money is paid by the bank either to the drawer himself or to the other party whose details

are written in the cheque and the money is debited from the account of the drawer who is having

the account in the bank (Section 6). The validity of the cheque expires after 3 months when it is

drawn.

Drawer , drawee and payee

Drawer is defined as the maker of the Negotiable Instrument i.e. Cheque and Bill of exchange

and the person to whom the certain amount is paid by the maker is called the drawee whereas the

payee is defined as the person whose name is written in the instrument other than the drawee to

pay the amount of money. Hence the drawer and the drawee can be the same i.e. in case of

cheques the drawer can write the cheque on “Yourself” and can be paid to himself .

At sight , on presentment , after sight

“At sight” or “on presentment” means on demand in case of bill of exchange and promissory

note . The word after sight means that presentment is done for sight and in case of bill of

exchange it is after acceptance or noting or potest. (Section 21)

Stamp duty on Negotiable Instrument

Stamp duty comes under the Union Subject and a negotiable instrument is required to be

stamped. So, stamp duty is same all over India.

Hundi

Hundi is recognized in Negotiable Instrument but is not enforceable by Negotiable Instrument

Act 1881 . Hundi got its origin from Sanskrit word “Hund” which means “to collect”. It is

governed by the local custom, language and usage.

CROSSING OF CHEQUES

The provisions regarding crossing of the cheque are as follows:

1.Generally crossed cheque:

When a cheques contains addition of words across the cheque” and company” or any other

Abbreviation in between two transverse parallel lines with or without the words “Not

Negotiable” it is deemed to be cheque crossed generally.

2.Specifically crossed Cheque

When a Cheque contains addition of the name of the banker either with the words “not

negotiable” the name of the banker added is deemed to be cheque crossed specifically.

3.Cheque bearing Not Negotiable

A person taking the cheque either crossed generally or specifically does not gets a better title

than the person from whom he took. And the words written not negotiable doesn’t means it will

not be transferable . it is transferable in nature but can not have better title than maker or

transferor had.

4.Electronic Cheque

The provision of electronic cheque is mentioned under Section 10A Information Technology Act

2000. It came in Negotiable Instrument Act 1881 from the amendment made in 2002. A cheque
in electronic form is defined as the cheque which contains the mirror image of paper cheque and

is signed , generated and written in electronic and the most secured form with the use of digital

signature and asymmetric cryptosystem (Section 6(1)(a)).

5.Penalty in case of insufficiency of funds or dishonor of cheques

If the cheque is presented before the expiry of 6 months then if it is dishonored then the maker or

payee must inform by giving notice to the bank within 15 days to 30 days. The bank should

make payment within 15 days of receipt of notice and if the bank doesn’t takes any action then

the complaint can be lodged to the Judicial Magistrate first class from the day from which the

payment was to be paid within one month. The penalty cane be given for this is of 2 years or

twice the amount of cheque or both. The summary procedure is followed in dishonor of cheques

foe which notice can be send by speed post . This offence is of compoundable nature.

6.Cheques must be returned due to insufficiency of funds

Cheques are offence when returned for the insufficiency of funds where the amount exceeds the

availability in account. This is better described in section 146 of Negotiable Instrument Act 1881

which states that if the bank slip is with the complainant which is stamped by the bank then will

make a presumption that there is dishonor of cheque.

Date of maturity for Bill of Exchange

The instrument needs to be payable on demand and if not paid then he gets 3 days grace period

on which it gets matured.

Acceptance and payment for honour

It is made where the Negotiable Instrument is dishonoured. Bill of honour is made when it is

dishonored on presentment of the instrument. While payment of dishonor is made when when

presented for payment is made.

Negotiation of Instrument

The most important advantage of negotiable instruments are that they are negotiable , it can be

negotiable number of times and it is different from transfer. When the negotiation is made of the

instrument then the holder in due course gets a better title even if transfer was defective. In the

case of negotiation, if it is “to order” than can be done by endorsement and if “to bearer” then

can be done by mere delivery.

Section 118(d) clearly states that the negotiation is done prior its maturity unless wrong proved

by the party. Section 118(e) states that the negotiation should be made as it appears to be made

unless wrong proved by the other party.

Presumptions regarding Negotiable Instruments :

1.Consideration: Every negotiable instrument required to have consideration with it when it is

accepted, endorsed , transferred or negotiated.

2.Date: There must be a date written and must be drawn or made on certain date mentioned.

3.Time of acceptance: The bill of exchange must be accepted within a reasonable period after
its date and before its maturity.

4.Order of endorsements: the endorsement must be made in the same as it is provided in the
instrument.

5.Stamps: Stamps is a union subject and the negotiable instrument must be duly stamped.

6.Holder is a holder in due course: in the case if the instrument is acquired by the holder in due
course from the holder then will be having the good title even if it is it is taken by the holder by
fraud or forgery. It doesn’t matters that the title was fraudulent of the instrument because holder
in due course took it in good faith without knowing that it is fraud hence becomes the holder.

6.2.THE RESERVE BANK OF INDIA,1934

It is the central bank of the country and the custodian of all the banks. Many of the central banks

are established nearly twentieth century . The Act was set up on the recommendation of the

Hilton Young Commission. It provides the statutory basis for the functioning of banks which

operated on April 1,1935.

The objectives of bank were:

 Regulation of issue of bank notes.

 Maintaining reserves to secure monetary security.
 To work on the credit and the currency system.

The bank started functioning by taking control from the government performed by the controller

of currency and from Imperical Bank of India. Its important feature is that it plays an important

role in development and agriculture. The bank helped to set up the Deposit Insurance and Credit

Guarantee Corporation of India , the Industrial Development Bank of India, the National bank of

Agriculture and rural development etc. to build the financial stability of the country. Due to

liberalization banks interested shifted towards central banking system and its functions.

NATIONALISATION OF RESERVE BANK OF INDIA

The nationalisation of bank was done immediately after the independence in the Reserve Bank

Act 1948 the whole share capital was acquired by the Central government then from 1 january

1949 the reserve bank began to act on his own and function as state controlled and state owned

Central bank. This act comprises of five chapters and 58 sections.

STRUCTURE OF THE RESERVE BANK OF INDIA

The reserve bank of India made as shareholders bank of Rs 5 lakh with fully paid up share of Rs.

100 each. The whole share capital was owned by the private individual with the nominal value of
share as Rs.2,20,000 that were allotted to the Central government for the issuance to the directors

of the Central bank.

According to the Reserve Bank of India Act 1934 the organizational structure of the Reserve

Bank of India is as follows:

1.Central Board

2.Local Boards

1.Central Board: the directors of the Central Board are the leading governing body of the bank.

It is furnished with the responsibilities of the direction of the affairs , the superintendence and the

business of the Reserve Bank.

It includes one Governor and four Deputy Governors(section8(i)(a))

The appointment is done by the Government of India and the tenure is fixed for 5 years. The

salaries and allowance are granted by the Central Board of Directors with the consultation taken

from Government of India.

It includes four directors nominated from the local boards(section8(i)(b))

There are four more directors nominated other than Central Board of Directors and the each is

located at Mumbai , Kolkata , Chennai and New Delhi each member is elected from each areas .

The tenure of these directors are also for 5 years.

It includes ten other directors(Section 8(i)(c))

They are also nominated by the Central Government of India and the tenure for the same is for

four years.

It includes one Government Official(section 8(i)(d))

The one Government official is appointed to attend the meetings of the Central Board of

Directors and is appointed by the Central government. There is no tenure fixed for official it can
continue to any number of years with the consent of the government but the official doesn’t

enjoy the voting rights in the meetings of the board.

The Central board meets atleast six times in an year and atleast once in three month. It keeps

meeting generally in the month of march every year at New Delhi to discuss the budget with the

Finance Minister after presenting it in the Parliament. It exercises all the powers of the bank.

2.Local Boards

The RBI is classified in for regions: the eastern, the western , the northern and the southern. So

for these regions there is requirement of local boards which is having headquarters as: Kolkata ,

Mumbai , New Delhi and Chennai respectively.

The local board comprises of five members which are appointed for the tenure of four years by

the Central Government. In each board the chairman is elected among the members only.

(Section 9) .They administer territorial, economic interests and they deals with indigenous and

cooperative banks in their own areas. They advice the central government on the matters of local

areas as may be referred to them and perform duties assigned to them.

THE BUSINESS ALLOWED BY THE RESERVE BANK

The RBI is allowed to perform various business as mentioned in section 17 are as follows:

1.The collection of money from the Central government , State Government , the local bodies

and the banks without any interest specified.

2.The purchase and sale of rediscounted promissory notes and bill of exchange which are

payable in India and issued for the use of financial functions like production of cottage and small

scale industries and which gets mature after twelve months of rediscount or purchased.

3. The purchase and sale of rediscounted promissory notes and bill of exchange which are

payable in India and drawn for the bona fide trade purposes and commercial activities which gets
matured after 90 days after purchases made.

4. The purchase and sale of rediscounted promissory notes and bill of exchange which are

payable in India drawn for the purpose of agricultural institutions bearing two or more good

signatures of banks which gets matured after fifteen months of its purchase made.

5. The purchase and sale of rediscounted promissory notes and bill of exchange which are

payable in India for holding of securities by the central and state government which gets matured

after 90 days of purchased.

6.The making of loans and advances to the scheduled and cooperative banks which made

payable on demand but should not exceed 180 days.

7.The making of loans and advances to the state and local bodies .

8. The making of way and means to the Central and State Governments.

9.The sale and purchase of securities of the Central and State Government.

10.The borrowings of money from the Central bank in other countries and Scheduled bank in

India.

11.the opening of account with the Central bank of foreign countries and working as their agents

and investing funds there.

12.The sale and purchase of bullion and gold.

13.all the other functions which may be consequential and incidental to the exercise of powers by

the RBI.

RESERVE BANK PERFORMS AS BANKER TO GOVERNMENT

The statutory basis for these functions are based under section 20, 21 , 21A of this act. The RBI

has the obligation to perform the Banking business of the Central Government by which

government is required to entrust the business to the bank. Accordingly the bank accepts money
for account of Central Government and make payments on its behalf. The central bank is entitled

to deposit free of interest of all its cash balances to the bank and entrust all other functions. The

same functions are performed by the bank for the State Government also.

CURRENCY ISSUE AS MONOPOLY

Under the section 22 of this act the RBI has the sole right to issue the currency other than one

rupee , notes and subsidiary coins. Under section 23 of this act the issue of notes is done by the

issue department which is completely separate from the banking department and the assets of the

issue department shall not be liable anywhere except the issue department . Under section 33 of

the act the assets of the issue department consist of bullions., Gold coins , rupee securities,

foreign coins and rupee coins. Under section 42 it is provided that the amount of cash reserves of

scheduled banks to be kept with the Bank.

6.3.THE BANKING REGULTION ACT , 1949

This act was passed to consolidate and amend the law that is related to banking companies. The

main objective of this act was to check the abuse of power used by the manager of banks and

also to protect the interest of depositors. From 1949 this act is amended several times and the

amended ones are there which suits the need of changing circumstances.

In 1969 in the history of baking system there were two things which took place:

1.Nationalisation of 14 major banks.

2.social control on banking companies.

It maintains all the banking institutions in case if any bank has to start the business then the

license must be there which will be obtains by the provisions under this Act only and in case of

winding up also the provisions are given under this Act only. The act came into effect from

march 16, 1949 and is applied to whole of India.

Banking (Section 5(b)):

It means the purpose of lending or investment , accepting or deposit of money from the public

repayable on demand or otherwise and cam be withdrawn by cheque. draft or otherwise.

Business permitted for Banking Company

There are two types of business according to the definition provided i.e. accepting deposits and

lending money. But in Section 6 of this act there are other functions also they are as follows:

1.The receiving of all kinds of bonds , scrips or valuables for the safe custody. The borrowing ,

the lending and raising of money either with or without security the dealings in the bill of

exchange , hundis, promissory notes ,coupons , drafts railway receipts and other instruments.

2.Banks acting as agents for the government and the local authorities or any other person the

carrying of business including the description and clearing or forwarding of goods giving

receipts and acting as attorney on the behalf of its customers.

3.Banks contracting of the public and private loans and issuing and negotiating the same .

4.Banks undertaking loans and executing it.

5.Banks supporting and aiding in the establishment of institutions , funds , trusts etc. and

subscribing and guaranteeing money to the charitable objects and purposes.

6.Banks carrying out every type of indemnity issues.

7. Banks deal with the selling , managing, developing , exchanging , leasing etc. dealing with all

or any part of the property and rights of the company.

8.The undertaking and administration of the estates as trustees and executors respectively.

9.All the other things as are incidental or consequential in relation to the above functions

mentioned.

10.Banks maintains any other forms of business if provide by the Central government by
notification in the Official Gazette , specify as a form of business which is lawful in nature to

engage in business.

11.The acquisition , maintenance and alteration of works necessary for the objectives of the

company.

The Business Not Allowed By The Banking Regulation Act,1949

Section 8 of this act provides the business that are prohibited by the Banking institution to

perform by engaging either in directly or indirectly in undertaking risks and trading activities.

Bartering of goods (movable property) is prohibited by the banking institution to perform.

Under section 9 of this act banks are prohibited to perform functions relating to immovable

property also which is however acquired not for a period exceeding seven years and five years

can be increased by the RBI if it feels satisfied with the provision of exceeding the years then the

bank has to dispose the property within period of 12 years . the banking institution can acquire

the property for their own use but after that if any portion is left then this section provides for

letting out.

The prohibitions and restrictions of the Banking System

Section 10 provides the three restriction to the banking institution:

i)The banking company should not be employed by the managing director.

ii)The banking company should not includes such persons in employment:

 Who is adjudicated as insolvent at any time and who has been convicted by the criminal
court for the offence including moral turpitude.
 Whose renumeration takes the form of commission of the company excluding bonus paid
to employees and the commission paid to brokers etc.
 Whose renumeration is excessive in accordance too the Reserve Bank of India.

iii)The banking company shall not be managed by the person who is already the director of any
other company or engaged in any other business.

Constitution of Board of Directors

Section 10 A defines the commission of the board of directors and lays down the certain

qualification for them. According to this section , at least 51% of the directors are required to

represent the specialized areas such as accountancy , finance, law and any other area as

prescribed. The 2 directors must at least should represent agriculture ,small scale industry or co-

operative banks .the tenure of their office can be more than 8 years and this is confined to them

only.

Section 10 B provides that there must be 1 chairman on full time or part time basis. In case of

full time chairman he must be expert in management of the affairs of the bank whereas in case of

part time he is appointed by the RBI . the chairman will work under the direct control of Board

of Directors. They hold the office for 5 years and can be re-appointed also.

The requirement as to reserves and minimum paid up capital

Section 11 defines the requirements to carry and commence business in India :

Banking institution incorporated in India –

The minimum paid up capital should be not less than 15 lakhs and if having its place of business

in Kolkata and Bombay then it must be 20 Lakhs rupees. If it has place in more than one states

than then 5 lakh of rupees and if it is having office in Bombay and Calcutta then 10 lakh rupees.

If it has place of business in the state in which Delhi and Bombay is not there then 1 lakh rupees

in case of business and Rs. 10,000 extra in the case of extra offices in the same district. After the

commencement in the Banking Companies (Amendment) Act, 1962 first time the value of paid

up capital came to 5 lakhs rupees.

The control over Management

In Section 36 AA the RBI enjoys many powers with respect to day to day supervision and

control of Banking Institutions. The RBI ha the power to remove from office in writing through

order any chairman or any director if found inconsistent in work or against public interest or

being detrimental for the interest of depositors and the reasons must be recorded in the order

provided and shall be effective.

The RBI should give the equal opportunity of making representation and hearing them . the

person against whom this order is made may within 30 days make an appeal to the Central

government and the decision of the Central government would be final and shall not be called in

question by any court. The person against whom the order is passed cease to act in the

management for the exceeding 5 years as per the order. In case if any person contravenes than

the penalty must be imposed of Rs. 250 per day as per contravention.

The person enjoys the chairmanship under the pleasure of the RBI and the tenure not exceeding 3

years at a time.

The Accounts and Audit of the Banks

Under section 30 of this Act that the balance sheet and profit and loss account must be prepared

in accordance with the section 29 and shall be duly cross checked by the auditors of the

companies and these balance sheets must be provided to the RBI in the end of the calendar year .

the appointment or removal of the auditor is done with the consent of the RBI. The duties of the

auditor is mentioned under Section 227 of the Companies Act 1956 in the case of Banking

companies.

Inspection

Section 35 states the RBI has the power rendered by the Central Government to investigate the
book and audits of the banks and must send report of its investigation to the banking company.

The RBI has also the power to scrutinize the affairs of the Banking system by one or more

officers and handover the copy of the scrutiny to the banking institution .

It is the duty of the directors to provide all the books , accounts and audits for the scrutiny to the

RBI. The RBI when authorized by the Central Government then the reports must be send to the

Central government and he must decide whether it was detrimental to the interest of the public at

large.

Powers of RBI to give directions to the Banking Institutions

Section 35 A of this act deals with the directions that are given by the RBI for the better

functioning of the Banking Institutions and the RBI may issue directions to the Banking

Company as it deems fit and the banking institutions are under an obligation to comply with it.

The RBI can do any cancellation or modification if not found fit for the interest of public.

Suspension of Business

Section 37 provides that in case banking company is not able to comply with the conditions for

any certain period of time dur to insufficiency then may request the High Court to grant the

relief but the High court requires the report of RBI attached to it and there are some

circumstances when the High Court grant the relief even if banking company comes without the

report of RBI but in such case the High Court will request RBI to send the report of such

banking institution.

After the application is made then the officer is appointed by the High Court who takes all the

assets. Liabilities , actionable claim and all the property of the banking institution and the

banking institution shall work according to the guidelines given by the High Court. If RBI

founds that the activities of the Banking Institution are against the public good then may make an
application to the High Court for the winding up of the Company.

Winding up of the Company Institution

Section 38 of this act provides the Winding up of this Act by the High Court and the banking

institution can be wound up by the following reasons:

 Its inability to pay its debts

 If the application has been made by the Reserve Bank of India regarding the winding up
under Section 37 of this Act.

The RBI can make the application to the High Court if:

 The bank has failed to comply with the conditions provided under section 11 of this Act.
 If it has become entitled in conducting business in India under section 22 of this Act.
 If it has been prohibit from receiving the fresh deposit form the RBI under section 35 of
this Act.

Or if RBI founds:

 The returns, information or statements furnished discloses that the banking company is
unable to pay its debts.
 The working of the Banking institution is prejudicial to the interest of public at large.
 A compromise that is sanctioned by the High Court cannot work efficiently.

Then the Reserve Bank of India may request the High Court to wind up the banking Company.

Section 38 A states about the appointment of the Court liquidator by the Central Government for

the purpose of conducting all the proceedings of the Winding up Procedure of the Banking

Company .
 CHAPTER VII

OPERATIONAL RESPONSIBILITIES , FRAUD AND NEGLIGENCE IN

BANKS

7.1.NEGLIGENCE OF BANKS AND ITS EMPLOYEES

Meaning of Negligence

Negligence is defined as the breach of duty which is caused by the omission to do something

which ordinarily regulate the conduct of human affairs and would do the things which a

reasonable man would not do so.

There must be the duty of every individual to take care of the customer and breach of which raise

to consequential damages which results into breach of contract or breach of warranty.

Bank’s certificate of loss of cheque

A civil suit is filed by the claimant for the recovery of amount because it got encashed by the
bank’s employee. The certificate is issued by the bank regarding the nature of the employee that

he was previously also engaged in these type of works and the development took action against

the employee. For this bank need to issue a certificate to the claimant so that he can claim money

from the employee.

General Liability

For the negligence both the state and its officers may be held liable for the suit filed by the

aggrieved Party and likewise the same principle is applicable to the bank and its employees also.

Wrong entry in the pass-books:

The passbooks of the customers are updated from time to time and there should be no negligence

on the part of the bank and cannot take the plea that the customer didn’t cross checked the

passbook. The court will held bank liable for it.

Advice as to investment:

The bank is having the responsibility to give proper advice to the customer for investment and by

following the guidance given by the bank if the customer suffers loss after having the proof that

there was negligence on the part of the bank then bank will be liable for it.

Bank as an agent:

The bank acts as an agent of the customer and is expected to perform its responsibilities and

work given to the bank in bonafide nature without negligence.

NEGLIGENCE IN DISHONOR OF CHEQUE

The compliant made by the manager of the company regarding the dishonor of the cheque with

the help of registered power of attorney is allowed and maintainable.

7.2. FRAUDS IN THE BANKS

After the nationalization in 1969 the banks have also emerged by the social change in the country
to meet the needs of the people. After independence they firstly transformed into character based

lending then to ideology based lending and then lastly to competitiveness based lending in

today’s Context. But due to its efficient working this occupation is hard also. Banks always deals

with money so sometimes frauds also take place.

Fraud is basically defined as the behavior by which the person intends to gain a dishonest

advantage from another. Section 421 of Indian Penal Code ,1860 also defines fraud as the

dishonest intention of the person to do something without adequate consideration which is

opposed to law and shall be punished with the imprisonment of either term of two years or with

fine or both.

The word Fraud in case of banks generally refers to the manipulation in the accounts, pass books

, unauthorized handling of securities and security pledged or hypothecated to the bank. There is

no such list to cover all the types of frauds. it involves all the types of act , omission or

commission which includes the branch of trust or any type of misrepresentation.

There is unauthorized used of credit for the illegal gratification such as pledge of goods,

hypothecation against bills. The fraudulent removal of goods with the help of the bank staff ,

pledging of goods of third party all amounts to fraud. Large frauds are committed by the bank

through demand drafts , mail transfers and telegraphic transfers.

The four major elements that are liable for the commission of fraud are as follows:

1.The active involvement of staff either clerical or supervisory in the bank by directly or

indirectly through outsiders help in committing fraud.

2.The failure that is on the part of the staff to blindely follow the provisions ad guidelines given.

3.Some other external management perpetrating frauds on banks either through forging of

cheques or manipulations.
4.Ther is collusion going on between top bank executives , politicians and businessmen just to

flour the reputation of the bank through frauds.

The Reasons for the occurrence of Frauds

The crime of forgery is as old as writing itself. The organization which deals with money is

completely vulnerable to frauds and this is in the caser of financial institutions like banks etc. the

main reason behind this is post nationalization period due to the widespread network , lacking of

trained staff and shifting towards the development oriental approach.

The intention to commit fraud and the opportunities that are available to them plays the vital

role in the detection of the fraud being committed. They are the points by which new can detect

the reason behind the fraud although they are not complete in judging it.

So, basically fraud occurs due to :

i)Ignorance by the staff members by this issue,

ii)Malafides and irregular functioning of bank employees.

So the staff members should take preventive measures to secure the banking system from frauds

and proper steps to be taken for the protection of the banks interest as well as protect the interest

of the customers.

Detection of Frauds

Frauds in the deposit accounts

This type of fraud generally committed by the employees of the banks itself or by the person

who is having access to the information of the banks as well as customers.

The various types of fraud are included by the staff members:

i)Accepting the money from the customer to deposit in the account and misappropriating it to its

own use and making false entry in the passbook.

ii)The issuance of the forged deposit receipts and misappropriating the same money.

iii)Making false entries in the saving accounts an of the customer and withdrawing it with the

forged signatures.

iv)Withdrawing the amount from the inoperative accounts.

The fraud committed by the outsider can be done in the various ways:

i)Opening of pretended true accounts which are actually fraud with forged documents.

ii)The collection of forged documents.

iii)Alteration of cheques

iv)Withdrawal the money from the account of the customer with forged documents.

The steps taken to detect and prevent the frauds are as follows:

i)The procedure that is provided must be followed strictly.

ii)The accounts of the customers should be opened with proper information about that customer.

iii)Effective control should be there in the issuance of the cheque books .

iv)The withdrawals done from the inoperative accounts should be investigated properly.

Frauds in the cash department

This department is generally dealt with the employees and the staff of the bank so to avoid this

proper surprise inspection should be made towards the working in regular intervals and the duties

of the staff should be rotated and other precaution should be taken.

Frauds in Inter-Branch accounts

The frauds are also committed by the staff by debiting the amount from the branches and

crediting to the personal accounts for the personal use and these amounts comes after the span

of time in the account and the people disown the entry and is reversed by the staff by raising

debit on another branch. To prevent these frauds the accounts should be reconciled and the
reversal of entries should be allowed with the permission of the branch manager.

Frauds in advances
The frauds in advance are very common in the banking institutions and are as follows:

i)the frauds are generally committed by grudging the account in security like making a hollow

square in the middle of the stocks, dumping obsolete stocks etc. in this case the party not only

remove the goods also files the suit against the bank for the loss suffered.

ii)the bill limit advances secured against the kite bills accommodation.

iii)in terms of the loans there may be the situation of over invoicing.

In order to overcome with these type of frauds it is required to the party’s limits periodically , to

receive the balance audit sheets regularly and verify the stocks with the help of the staff. There

are many other ways also but in order to overcome with this fraud there is the necessity to

supervise the accounts properly and regularly.

Other Areas

There are many other ways by which the fraud can be committed like by sending fake MTs, TTs

etc. and then withdrawing the money doing fraudulent entries in the accounts , overstating the

expenses etc.

Prevention of frauds

the prevention of frauds can be done by the suggestions provided below:

 Recruitment and Selection

The Recruitment and Selection criteria should be done by acquiring of necessary qualifications

and the aptitude by the applicant which is required for the post. The selection of the officers

should be made very carefully and must be based solely on qualification , experience ,

performance , reputation and efficiency of the applicant. The adequate training should be
provided to the staff on regular intervals.

 Rotation of duties

There should be made periodical rotation of the duties of the employees working especially in

the area which are prone to frauds.

 Private lives of staff

There must be watch on the private life of the employees like in daily life they used to borrow

money which may obviously let the reputation of bank down.

 No undue Reliance

There should be no undue belief on the banks staff . the explanations given by the employees for

anything should not be too easily accepted . Hence, inquiry should be made towards the

explanation too. And the agents, clerical staff and officers should be shifted or transferred from

one branch to the other.

 Routine

The banks routine , procedure and system should be undoubtedly followed completely. The

manuals of the circulars and the instructions are the result of men and matters which the head

office has acquired over a long period.

 Honesty

The bank officials are not allowed to accept bribes and gifts from the borrowers for the proper

completion of any work because it is their duty to complete it. the bank officials these activities

are clearly watched and noticed because it may affect the reputation of the bank and may

affect the position of the employee also.

 Supervision and audit

The cross checking of the books and the account register and entries should be checked on

regular basis by the authorizing officer.

 Unscrupulous Parties

The bank must take reasonable care in accepting the deposites from the borrowers . the

customers which have already notice to do some illegal things may not be rendered the money ,

or is known to have committed fraud should be avoided. It is good for the reputation of the bank

to keep a check on it .

 Danger signals

There should be particular attention given to the accounts in which the debt balance generally

remains with very near to the drawing limit. In the case where there is poor turnover in the

securities then the bank must be watchful in such case.

 Vigilance

It means alertness and watchful and is an integral part of the managerial functions. The Vigilance

should ensure that :

i)The business is planned and conducted in the proper manner and procedure.

ii)The transactions are authorized.

iii)The assets and liabilities are controlled and minimizes the risk of losses arising out of fraud

etc.

iv)There must be accountability of records s that it may provide timely and accurate information.

v)The bank officers must look everywhere and hear everything while working. They should not

be negligent in their work.

The guidelines issued by the Reserve Bank of India in 1983 regarding this are as follows:
i)There should be investigation beyond doubt about the borrowers and their credit requirements.

ii)The advances to the customer should not be provided beyond their powers except few

exceptions in which it must require post facto confirmation .

iii)There should be surprise inspection regarding the working of the employees and the internal

inspection and audit machinery should be strengthened properly.

iv)The officials to be transferred at reasonable periods from one branch to the other.

Now , to conclude this the ban and customers should be educated and well known with the

provision of the bank and must work accordingly while dealing with money because the

negligence may become disastrous. Therefore, the procedures provide must be followed

completely.

CONCLUSION AND SUGGESTIONS

CONCLUSION

Banks are very useful and indispensable in the modern progressing community. The bank does

multiple functions at the same time like accepting the deposites , borrowing money and lending

the money to the people at large .

The bank has played vital role in the growth of Indian economy. Since 1860 the banks have

played major role and have come a long way. Now In India there are 20 Nationalized banks ,

State Bank of India and its seven Associate banks ( i.e. State bank of Bikaner, State bank of

Jaipur, State bank of Patiala, State bank of Travancore , State bank of Hyderabad , State bank of

Saurashtra, State bank of Indore ), 21 Old Private banks and 8 new Private banks. There are more

than 30 foreign banks by operating themselves or having branches in India.

India has the highest number of branches in India. According to the latest ratio and observation

made by the RBI there are more than 1.3 lakh branches in India . the total deposit in India has

been noted down as 1897822 crores in March , 2020 .

The customers has become more demanding due to the Information Technology Act 2000 which

plays a vital role in it. Banks are investing strongly in IT so the foreign banks demands are

raising high and high. The Indian banks have progressed a lot and trying to meet the needs of the

generation by establishing ATMs both offsite and onsite. Internet services are also provided to

the people so that they can do the transactions easily anywhere sitting in the world. Banks

also provide the facility of mail messaging, electronic fund transfer etc. as governed by the RBI .

banking system is making a huge change in the skeleton of the bank by mergers and takeovers.

The services are not only provided to the citizens of India but also for NRIs in the form of

different accounts and procedures and is taking the banking structure of India to another level.

The economic growth is the main reason for the development and progressing of the bank’s

structure. The Indian economy growth projects the growth of the banking structure. The burden

fir this progress lies on the RBI as central regulatory authority and helping the banks to make

high risk investments.

The competition in India is very strong and is dominated by the government banks the entry of

market at the country level seems tough for new players who come in this field due to the

consolidated nature of the industry and there is extremely high competition. The vital option for

the industry to reduce NPAs and increase in level of financial inculsion and raise capital.

So it can be concluded by saying that the developments in banks is an ongoing process. Seeing

now scenario bank has provided many facilities to the customers and the public at large with

latest technology banking services and coming years will also be beneficial for the public and in
the development of India.

I would like to add that the there must be proper compliance system with proper documentary

system and for this there must be the Compliance Department which should be guided and

trained properly with specific responsibilities to avoid fraud and forgery and risk in the Banking

Structure . there is a requirement of healthy compliance made and provided to the lowest

functionaries as well. If we follow these basic things regarding compliance then the risk can be

reduced in the banking system and compliance failure would not be there.

SUGGESTION

The key to the development in the banking structure is to understand the customers and their

needs the more bank will understand the customers the more successful will be in meeting the

needs of the customers which will lead to the development of the banking structure.

i)The bank must reduce the cost of their services which they provide to the customers so that
they can actively participate and avail the banking services.

ii)The Indian banks must adopt some product innovation apart from traditional banking so that
they can complete the range of competition.

iii)Now a days people are more curious and awareness is higher in comparison to all the previous
years. So there must be more development in technology and new things and provision must
emerge to meet the needs of people by technology.

iv)The branches must be increased according to the development and the population and
according the competition at the global level. Banks are trust worthy in nature so they must
maintain their significance and Brand equity as it is valuable for them.
v)The important target for the banks is to increase the efficiency while operating by technologies
and communicating up with foreign banks. During this research the main aim was to find out the
reasons for the development in the banking sector like the public sector can be improved by
increasing productivity and efficient human resource management .

vi)Banks needs to employ people with high skills and knowledge and know how to deal with the
customers. And finally the bank needs to increase the time and of working and level of working
with the help of special tools and knowledge about the field. Government support and evaluation
of business will help the Indian banks to grow more and more at the global level.

vii) The strategies should be formed for the proper functioning and for the proper growth and
maintaining the competition at the global level.