Banks: Section 5(c) of Banking Regulation Act, (BR Act), 1949: 'a banking company is a company which transacts the business of banking

in India.‘ Section 5(b) of the BR Act defines banking as, 'accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable, by cheque, draft, order or otherwise.‘ Three primary activities of a commercial banks are: (i) maintaining deposit accounts including current accounts (ii) issue and pay cheques, and (iii) collect cheques for the bank‘s customers Banking Regulator

The Reserve Bank of India (RBI) is the central banking and monetary
authority of India, and also acts as the regulator and supervisor of commercial banks.

Scheduled Banks in India: Scheduled banks in India are those that are listed in the Second Schedule of the Reserve Bank of India Act, 1934. RBI includes only those banks in this schedule which satisfy the criteria as laid down vide section 42 (6) (a) of the Act: (i) has a paid- up capital and reserves of an aggregate value of not less than Rs. 5 lakhs (ii) satisfies the Bank that its affairs are not being conducted in a manner detrimental to the interest of its depositors, and (iii) is a State co- operative bank or a company or an institution notified by the Central Government in this behalf

SCBs are present throughout India and their branches, having grown
more than four-fold in the last 40 years now number more than 80,500 across the country

Scheduled Banks comprise:

Scheduled Commercial Banks and Scheduled Co-operative Banks

Scheduled Commercial Banks in India are categorized into 5 different groups according to their ownership and / or nature of operation.

(i) State Bank of India and its Associates, (ii) Nationalised Banks, (iii)
Regional Rural Banks, (iv) Foreign Banks and (v) Other Indian Scheduled Commercial Banks (in the private sector).

Scheduled Co-operative Banks consist of Scheduled State Co-operative
Banks and Scheduled Urban Co-operative Banks. Every Scheduled bank enjoys the following facilities. 1. Such bank becomes eligible for debts/loans on bank rate from the RBI 2. Such bank automatically acquire the membership of clearing house

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84% respectively .Present scenario of banking industry in India (on 31-03-2011) Scheduled Commercial Banks (SCBs) Public sector banks Private banks Foreign banks Regional Rural banks Total branches ATMs = 165 = 26 (6SBI+19N+1IDBI) = 21(7 new and 14 old) = 36 = 82 = 85.393 = 74. Private and foreign banks holding 19.69% of total assets of the banking industry.505 According to a report by ICRA Limited.46% and 6. Public sector banks hold over 73.

State Bank of Bikaner and Jaipur etc)  State Bank of Bikaner & Jaipur State Bank of Hyderabad   State Bank of Indore State Bank of Mysore State Bank of Patiala State Bank of Travancore    . There are currently 26 public sector banks in India. Public sector banks together make up the largest category in the Indian banking system.Public Sector Banks: Public sector banks are those in which the majority stake is held by the Government of India. They include the SBI and its 5 associate banks (such as State Bank of Indore.

19 nationalised banks Allahabad Bank Andhra Bank Bank of Baroda Bank of India Bank of Maharashtra Canara Bank Central Bank of India Corporation Bank Dena Bank Indian Bank .

• Public sector banks account for bulk of the branches in India (83% in 2011).Indian Overseas Bank Oriental Bank of Commerce Punjab and Sind Bank Punjab National Bank Syndicate Bank UCO Bank Union Bank of India United Bank of India Vijaya Bank IDBI Bank Ltd. the presence of the public sector banks is overwhelming. . • In the rural areas. in 2011. 94 percent of the rural bank branches belonged to the public sector.

• Amalgamation of the RRBs of the same sponsored bank within a State to improve viability and profitability of RRBs. as compared to 196 at the end of March 2005. concerned State Government and a sponsoring public sector commercial bank. RRBs provide credit to small farmers.Regional Rural Banks • Regional Rural Banks (RRBs) were established during 1976-1987 with a view to develop the rural economy. • Each RRB is owned jointly by the Central Government. artisans. • Steep decline in the total number of RRBs to 82 as on March 31. . small entrepreneurs and agricultural labourers. 2011.

Entry of private sector banks was however prohibited during the postnationalisation period.Private Sector Banks Majority of share capital is held by private individuals and corporates.. This resulted in the creation of a new set of private sector banks. RBI permitted the private sector to enter into the banking system. which are collectively known as the new private sector banks. Lord Krishna Bank Ltd etc. There are 7 new private sector banks and 14 old private sector banks operating in India. and 1980 are collectively known as the old private sector banks and include banks such as The Jammu and Kashmir Bank Ltd. The private banks which were not nationalized in 1969. . In July 1993. as part of the banking reform process and as a measure to induce competition in the banking sector.

or through wholly-owned subsidiaries. home loans. • The RBI permits these banks to operate either through branches. • Foreign banks in India are required to adhere to all banking regulations. including priority-sector lending norms as applicable to domestic banks. credit cards. These banks offer products such as automobile finance. However. . • The primary activity of most foreign banks in India has been in the corporate segment.Foreign Banks • Foreign banks have their registered and head offices in a foreign country but operate their branches in India. some of the larger foreign banks have also made consumer financing a significant part of their portfolios. household consumer finance etc.

RBI allows a minimum 12 branches of all foreign banks to be opened in a year . At the end of March 2011.In addition to the entry of the new private banks in the mid-90s. there were 36 foreign banks with 317 branches operating in India. the increased presence of foreign banks in India has also contributed to boosting competition in the banking sector. Under the World Trade Organisation (WTO) Agreement. 43 foreign banks were operating in India through representative offices. Besides.

The RBI and the National Agriculture and Rural Development Bank (NABARD) have taken a number of measures in recent years to improve financial soundness of co-operative banks. SCARDBs and PCARDBs ) Primary Cooperative Agriculture and Rural Development Banks). . across states and loan maturities. retail trade. semi-urban and rural areas of India. The rural co-operative banks comprise State co-operative banks.Co-operative Banks Cater to the financing needs of agriculture. The structure differs across urban and rural areas. The network of UCBs in India consisted of 1645 banks as at end-March 2010. small industry and self-employed businessmen in urban. co-operative credit structure in India is its heterogeneity. Oldest segment of the Indian banking system. district central cooperative banks. Urban areas are served by urban cooperative banks (UCBs). while the number of state rural co-operative banks are 31 as at end-March 2010. whose operations are either limited to one state or stretch across states.

Loans and Advances Commercial Loans Segment Personal Loans Segment Working capital • • • • Term Loans • • Personal loans Housing loans Educational loans Cash credit Overdraft Bills purchase Bills Discounting Capital expenditure Equipment finance Project finance Acquisition finance • • • • • .

Investments Capital market instruments Debt market instruments .

Fee based functions Funds remittance Establishment of LC/LG • Issue of Demand draft Issue of Telegraphic transfer Electronic Funds transfer • Letter of Credit Letter of Guarantee • • • • Any where/ Any branch banking On-line Banking Collection of bills/cheques • • .

undertaking Project appraisal/ counseling • • Syndication of loans Venture Capital finance Issue management Bankers to issue Underwriting of issues Portfolio management Forex Advisory services • • • • • • • • • Investment Advisory services . Local authority..Fee Based Agency function • Merchant Banking • Draft drawing arrangements Selling of insurance products Selling of Mutual funds Acting as agent for Govt.

Demand Liabilities include all liabilities which are payable on demand and they include current deposits. demand liabilities portion of savings bank deposits. unclaimed deposits. an average cash balance. margins held against letters of credit/ guarantees. outstanding Telegraphic Transfers (TTs). balances in overdue fixed deposits. Mail Transfer (MTs). cash certificates and cumulative/recurring deposits. the amount of which shall not be less than --% of the total of the Net Demand and Time Liabilities (NDTL) in India. credit balances in the Cash Credit account and deposits held as security for advances which are payable on demand .Banking and the Economy Cash Reserve Ratio (CRR) Scheduled Commercial Banks are required to maintain with RBI. Demand Drafts (DDs).

deposits held as securities for advances which are not payable on demand. The CRR is calculated on the basis of average of the daily balance maintained with RBI during the reporting fortnight. margin held against letters of credit if not payable on demand. . cash certificates. Scheduled Commercial Banks are required to maintain minimum CRR balances up to 70% of the total CRR requirement on all days of the fortnight. cumulative and recurring deposits. If RBI wants to tighten the monetary policy. time liabilities portion of savings bank deposits.Time Liabilities: are those which are payable otherwise than on demand and they include fixed deposits. Changes in CRR tend to have an immediate impact on the market. it will raise the CRR. Lowering the CRR releases more liquidity into the market. staff security deposits.

.Statutory Liquidity Ratio (SLR) All Scheduled Commercial Banks. Lowering the SLR means that banks can sell some of their SLR securities to raise funds. an amount which shall not. at the close of the business on any day. or b) in gold valued at a price not exceeding the current market price. a) in cash. if banks’ holding of SLR is higher than the statutory SLR rate. are required to maintain in India. If RBI wants to tighten the monetary policy. Such a measure would not be effective. or c) in unencumbered approved securities valued at a price as specified by the RBI from time to time. be less than 23% of the total of its demand and time liabilities in India as on the last Friday of the second preceding fortnight. in addition to CRR. it will raise the SLR. It therefore tends to soften interest rates.

• In the second leg. . the bank buys back the same securities. is the borrowing cost for the borrowing bank. The transaction.Repo rate Banks facing a shortage of funds can borrow from RBI through a repo transaction. A repo transaction is meant to meet only the short term (single day to a few days) requirements of banks. The price for buying them back (higher than the price for the first leg) is pre-decided. RBI will release funds to the bank against this transaction. has two legs: • In the first leg. the bank sells the required value of approved securities to RBI. when the repo transaction is agreed upon. The difference between the prices for the two legs thus. Current repo rate is --------%. backed by approved securities.

The reverse repo rate will always be lower than the repo rate. This measure is adopted when there is too much liquidity in the market. banks will increase their deposit rates or lending rates. the call money rate (which is determined by the market. not RBI) is expected to be between the repo rate and reverse repo rate . as reflected in the inter-bank call money market or short term funds. since the borrowing cost from RBI is up. A reduction in reverse repo rate makes it less interesting for banks to park their funds with RBI. until RBI chooses to change it. In general.Reverse Repo Rate A reverse repo is the opposite of a repo. If the overall liquidity position is tight. The current reverse repo rate is -----%. RBI announces the repo rate and reverse repo rate. They tend to remain steady for several weeks. If RBI wants to signal tight monetary policy. it will increase the repo rate.

In countries where debt markets are well developed. • If a central bank wants to increase liquidity in the market. When the market buys these assets. they will sell securities (or gold.) from the market. foreign exchange etc.) to the market. liquidity is transferred from the market to the coffers of the central bank.Open Market Operations Changes in CRR and SLR are mandatory. . foreign exchange etc. They affect all the scheduled commercial banks. the central banks can influence liquidity through open market operations. When it pays for the assets acquired. • If they want to suck liquidity from the market. liquidity is released in the market. it will buy back securities (or gold. These are very important tools of central banks in countries where the debt market is not so developed.

Wholesale and Retail banking .

to refer to the wide range of financial services that are provided by financial institutions to various corporations and businesses as well as to government entities. institutional customers (such as pension funds and government entities/agencies). The term is often used. mid-sized companies. real estate developers and investors. In essence. Wholesale banking is commonly defined as banking services that are provided between merchant banks and other types of financial institutions.Wholesale banking: is the provision of services by banks to the likes of large corporate clients. international trade finance businesses. wholesale banking services usually involve high value transactions. and services offered to other banks or other financial institutions. . however.

and retail banking focuses on providing financial services to individual consumers. Wholesale Banking products: • Lending Foreign Exchange (Spot & Forward) Derivatives (Forex & Commodities) Deposits Government Securities (T-bills & bonds) • • • • .Wholesale banking is different from retail banking because wholesale banking focuses more on corporate-style entities and high-value transactions.

vehicle. It not only means lending but also involves whole of the banking services provided to individuals and house-hold sector. . loans for enjoying vacations etc.Retail banking The retail banking means products and services offered to individuals and households sector for personal use and consumption like loans for housing. The retail banking concept has been expanded to include services provided to small and medium sized business and also high net worth individuals . for consumer durable. The products to tap their savings and other services are included in retail banking.

The products to tap their savings and other services are included in retail banking.Retail banking The retail banking means products and services offered to individuals and households sector for personal use and consumption like loans for housing. loans for enjoying vacations etc. The retail banking concept has been expanded to include services provided to small and medium sized business and also high net worth individuals . for consumer durable. . It not only means lending but also involves whole of the banking services provided to individuals and house-hold sector. vehicle.

• Loan against salary/pension • Loans for consumer durable. insurance premium payment. Tele banking. • Loans for vacations. gold loans. school fees. • Educational loans. debit cards. . telephone bills. electricity bill collection. • Services like. • Credit cards. 365 days banking . • Loans against rent receivable.Retail banking products: • Housing loans. • Auto loans. • ATM. • Loans to doctors for setting up clinic. • Global cards • Deposit products like flexi deposits etc. Internet banking. to chartered accountants etc. • Personal loans for consumption. filing of Income tax returns etc. depository services etc. festival loans etc.

products with differential rate structure and utilities.Impact of retail banking • Customers have become king and banking revolves round him. as the banks are outbidding each other to provide new services. . • Banks have become a financial super market. You want to buy a plot of land. Customer has got wide choice in terms of banks and services. you want to apply for an IPO. • • Even products are tailor-made to suit a class of customers. you can approach a willing bank to lend you and create money for you.

. They can range from stand-by letters of credit to complex derivatives. such as swap-options. which generate income for a bank but do not appear as assets or liabilities on the traditional bank balance sheet.Off-Balance Sheet Banking Off-Balance Sheet (OBS) instruments are contingent commitments or contracts.

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