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Commercial Banking in India

Dr G D Sharma USMS GGSIP University, New Delhi

History of Banking in India
• There were three oldest Banks
• Bank of Bengal • Bank of Bombay • Bank of Madras • These banks were called Presidency Banks.

• They merged in 1925 to form the Imperial Bank of India, which after
independence became State Bank of India. • Reserve Bank of India came into existence in 1935 which took the responsibility of regulating Banking sector as Central Bank in India.




the Banking Regulation Act was enacted which empowered the Reserve Bank of India (RBI) "to regulate. and it became an institution owned by the Government of India. and inspect the banks in India. • In 1949. control." GDS 4/5/2014 3 .Banking Scenario after independence • In 1948. the Reserve Bank of India was nationalized.

• With the nationalization. • On April 15.Nationalization of Banks • On July 19. 1969. 1980 another 6 banks were nationalized. the banking in India shifted from ‘Class’ banking to ‘Mass’ Banking GDS 4/5/2014 4 . 14 major banks were nationalized.

Housing loans.Banking Services • Deposit Products: Savings Account. letter of credit etc. • Other facilities: Bank Guarantees. Recurring Deposit Schemes etc. Drafts. Vehicle loans. • Bill Discounting and Merchant Banking GDS 4/5/2014 5 . Corporate loans. • Remittance facilities: Cheques. • Loan Facilities: Personal loans. Current Account. Consumer loans. RTGS/NEFT etc. Farm Credit. Term Deposit schemes. CC/OD etc.

Breakthroughs in Banking sector • • • • • Innovation in Product Development Internet Banking Credit Cards Electronic Banking Debit Cards GDS 4/5/2014 6 .

GDS 4/5/2014 7 .Internet Banking • The Nottingham Building Society launched the first Internet banking service in United Kingdom in 1983. account aggregation and mobile banking and Passmark authentication system in 2005. • Further improvised to Online BillPay . • The first online banking service in United States was introduced in October 1994 by Stanford Federal Credit Union. • Nottingham Building Society derived from a system known as Prestel that is deployed by the postal service department of United Kingdom.

Biggins invented the "Charge-It" program between bank customers and local merchants. • In 1946. Bank of America issued the BankAmericard (now Visa) bank credit card later in 1958. • Merchants could deposit sales slips into the bank and the bank billed the customer who used the card.Credit Cards • Use of credit cards originated in the United States during the 1920s offered by oil companies and hotel chains • The first bank issued credit card was invented by John Biggins of the Flatbush National Bank of Brooklyn in New York. GDS 4/5/2014 8 . • American Express issued their first credit card in 1958.

• ERMA computerized the manual processing of checks and account management and automatically updated and posted checking accounts.E-banking • During 1950s. researchers at the Stanford Research Institute invented "ERMA” • ERMA is a project for the Bank of America to computerize the banking industry. GDS 4/5/2014 9 .

Debit Cards • First National Bank of Seattle offered to Business Executives in 1978 • Customers required a large savings account be kept at the bank to cover the funds • Landmark created the first nationwide debit system in 1984 • This allowed the smaller banking systems within states to connect with banks systems outside of states GDS 4/5/2014 10 .

Front End Distribution Branches Internet banking Telephone banking • Retail outlets of banks • Electronic method of banking • Transactions through the phone Mobile banking Card system • Mobile apps that allow banking • Credit cards / Debit cards • The medium to interact with customers Employees .

Front End Distribution Customer Care Courier Services Call centers • Toll free numbers • For delivery for various bank documents • Tele marketers • Advertisements about various products / schemes • ATM network for convenient cash • To Keep check on employees and their knowledge about financial products and procedures Promotion ATM Mystery Shoppers .

• The Clearing Corporation of India • Company that assigns credit ratings for issuers of certain types of debt obligations as well as the debt instruments . .Back End Distribution RBI Government SEBI Indian bank Association CCIL Credit Rating Agencies • Regulatory Authority for banks • Policy makers and licenses • Shareholding and ESOS • To render assistance and to provide various services to Members and to the banking industry.

Back End Distribution Income tax Department Investors Technology Outsourcing Suppliers Safety and Security • Check on Banks Income Tax Payments • Major source of cash inflow. Also Venture Capitalists • For software development and Maintenance /Support • Cheque books .pass books .Cyber Security Internet Service Providers • Setup and enablement of Inter and Intra-network . lockers etc • Digital Signature . printers .Digital Certificates .

1956 State Bank of India Act. 1999 • Prevention of money laundering Act. 1934. 1959 Banking Companies (Acquisition and Transfer of Undertaking) Acts of 1970 and 1980 • FEMA Act . 2002 GDS 4/5/2014 15 . governs the RBI functions Banking Regulation Act.Banking legislations in India • • • • • Reserve Bank of India Act. 1949 The Companies Act.

RBI has to inspect the books of the company or be satisfied with the functioning of the company GDS 4/5/2014 16 .Licensing of Banks in India Licensing .License from the Reserve Bank is required Opening of new branches by banks and change in the location of existing branches are also regulated License not required where population is below 50.00  If the company is incorporated outside India.

non-performing assets • Loans . operational risk and other risks. Banks are required to maintain adequate capital for market risk.RBI guidelines • • • • • CRR/SLR .Maintain a certain Cash Reserve Ratio and Statutory Liquidity Ratio The Reserve Bank also monitors compliance with these requirements Interest rates – RBI regulates interest rates on savings account and NRI deposits Capital Adequacy .Reserve Bank requires banks to classify their loan assets as performing and GDS 4/5/2014 17 .Banks to maintain adequate capital on a continuous basis.

The Reserve Bank has permitted banks to undertake diversified activities like asset management.To prevent money laundering through the banking system.Disclosures in their annual report about capital adequacy. merchant banking. mutual funds. venture capital GDS 4/5/2014 18 . earnings • Know Your Customer Norms .RBI guidelines (contd) • Disclosure norms .Establish identity and report suspicious transactions to authorities. assets. • Para-banking . liquidity. insurance. RBI has issued ‘Know Your Customer’ • KYC .

capital. funding and liquidity. which fosters cooperation among central banks with a common goal of financial stability and common standards of banking risk Basel II -2004 .Bureau of International Settlement (BIS). Basel I -1988 .Basel Norms • Basel Norms.Capital Adequacy Requirements Basel III -2010 Basel III-The guidelines aim to promote a more resilient banking system by focusing on four vital banking parameters viz. leverage. GDS 4/5/2014 19 . GDS 4/5/2014 20 .sharma@gmail.