BANKING SYSTEM

 History of Banking in India.

 Nationalization of Banks in India.

 Scheduled Commercial Banks in India.

 History of Banking in India

Without a sound and effective Banking System In

India. It can not have healthy economy. For the
past three decades India’s banking system has
Several outstanding achievements to its credits.
The most striking is its extensive reach. Indian
Banking System has reached even to the remote
corners of the country.
Phase - I

 General Bank of India setup in 1786.

 Bank of Bengal (std by East India Co.) setup in 1809.
 Bank of Bombay (std by East India Co.) setup in 1840.
 Bank of Madras (std by East India Co.) setup in 1809.
These banks are known as presidency banks.
Amalgamated in 1920 and Imperial Bank of India was
established which started as private shareholders
banks, mostly European shareholders.
Phase – I (Continued…)

 In 1885 Allahabad Bank was established.

 In 1894 Punjab National Bank Ltd was established –
Exclusively by Indians.
 Between 1906 – 1913 Bank of India, Central Bank of
India, Bank of Baroda, Cenara Bank, Indian Bank and
Bank of Mysore were setup.
 In 1935 reserve Bank of India came up.
Phase – I (Continued…)

 There were approx 1100 banks, Mostly small.

 To streamline the functioning & activities of commercial
Banks, the Government of India came up with Banking
Companies Act 1949 which was later changed to
Banking Regulation Act 1949.
 RBI was vested with extensive powers for the
supervision of banking in India as the Central Bank
Authority.
Phase – II
 Government took major steps in Indian Banking sector
reforms after Independence.
 In 1955 Imperial Bank of India was nationalised.
 SBI 1ST JUL 1955 was formed to act as a principal agent of
RBI.
 Seven banks forming subsidiary of State Bank of India was
nationalised in 1960.
 In 1961 Insurance cover extended to deposits.
 On 19th July 1969 major process of nationalisation was
carried out. Due to the efforts of the then Prime Minister, 14
major Commercial Banks in the country were nationalised.
Phase – II (Continued…)

 Second Phase of the nationalisation – in 1980 seven

more banks were nationalised.
 1971 – Creation of Credit Guarantee Corporation.
 1975 – Creation of regional rural banks give public the
implicit faith and immense confidence about
sustainability of these institutions.
 The branches of public sector banks rose by 800%
 DEeposit and advances took a huge jump by 11,000%.
Phase - III

 Introduction of many more products and facilities in the

Banking Sector in its reform measure.
 Under the chairmanship of M. Narasimham, a
committee was setup by his name which worked for the
liberalization of banking practices.
 The country is flooded with foreign banks and their
ATM stations.
 Efforts to give a satisfactory service to customer.
 Phone banking & net banking is introduced
 Time is given more importance than money.
 Phase – III (Continued…)

The Financial system in India has shown a great deal of

resilience. It is sheltered from any crisis triggered by an
external macroeconomics shocks as other East Asian
Countries Suffered. This is due to a –
 Flexible exchange rate regime.
 The foreign reserves are high.
 The capital account is not yet fully convertible.
 Banks and their customers have a limited foreign
exposure.
 Scheduled Commercial Banks
In India

The Commercial banking structure in India consist of

 Scheduled Commercial Banks in India.
 Unscheduled Commercial Banks in India.

“Scheduled Commercial Banks in India” constitute those

Banks which have been included in the second schedule
of RBI act 1934. Only hose banks which satisfy the
criteria laid down UIS 45 (6)(a) of the act are included in
the schedule.
Scheduled Commercial Banks
In India (Continued…)

“Non scheduled Bank in India” in India means banking

co. as defined in clause (c) of Section 5 of the B R Act
1949. Which is not a scheduled bank.
List of Scheduled banks
 (Public Sectors)
 (Private Sectors)
 (Foreign Banks)
Banks in India

 Public Sector Banks

 Private Sector Banks
 Co-operative Banks
 Regional Banks
 Foreign Banks
Banking Services

 Bank Accounts
 Plastic Money
 Loans
 Money Transfer
 Visa Money Transfer
Financial institution in India

 Central Bank
 Commercial Banks
 Credit Rating Agencies
 Credit Reporting and Debt collection
 Financial Authorities
– CBDT
– CBEC
– RBI
– SEBI
Financial institution in India
(Continued…)

 Insurance Companies
– GIC
– LIC
– New India Assurance Co.
– United India Assurance Co.
 Merchant Banks
 Mutual Funds
 Venture Capitalists
Financial institution in India
(Continued…)

 Specialized Financial Institutions

•ECGC •NSIC
•EXIM •NBFC
•GIC •NEDFC
•ICICI •RTEC
•IDBI •SIDBI
•IFCI •SFC
•UTI •SIDC
•IIBI •TFCI
•IDFC •NHB
•NABARD
Function of a Bank
 Transaction Services
 Intermediation
-Channalising the savings of surplus sectors to deficit sectors
- Brokerage and asset transformation
 Transformation Services
- Liability, asset and size transformation
- Maturity Transformation
- Risk transformation
 Payment and settlement system
 Real –Time Gross Settlement (RTGS)
 Other Financial Services
- Depository services
- PMS-Non discretionary services viz. Advisory services, Transaction
support and Custodial services
-
Challenges and Trend in Banking
 Technological revolution
 Disintermediation and securitization
 Service proliferation
 Rising competition
 Deregulation
 Rising funding costs and shrinking spreads
 Consolidation and geographic expansion
 Globalization of banking
 Increased risk of failure and the weakness of government
deposit insurance system
 FIs
Money market intuitions Capital market intuitions 

Caters to the notions of the savers

Of high liquidity and safety along
with Profitability  
 Provides WC to trade and industry 

In the form of loans and advances

 
Reservoir of short- term funds
 
 FIs

Money market intuitions Capital market institutions

 

Medium & long term financial trends

 
 
Investing Institutions Development Banks
 

  Garner the savings of people provides Capital

 
enterprise and KNOW- HOW to
business Enterprises

  By offering their own shares and To foster the Industrial

stocks provides Long term funds in Growth
the form of direct investment in
securities and underwriting capital
issues of business Enterprises

 
These include merchant banks
investment companies, Mutual
Funds & insurance companies
In the post liberalization era banking and
finance sector is witnessing a complete
metamorphosis-

 Deregulation measures-Freeing up the direct controls over

ownership
 Liberalizing interest rates and credit allocation
 Deregulation of foreign exchange transaction controls
 Freeing up the entry of new firms
 Expanding and broadening the base of banking system,both
at national and international level
 Developed NBFIs,Securities markets and Money markets to
mobilize and allocate savings
Narrow Banking V/S Universal Banking

Benefits of Narrow banking- 100% reserve banking

 Locks bank assets in high-quality instruments thereby minimizing

liquidity and credit risk
 Prohibited from supplying risky loans would collateralize deposits
with high quality assets
 Payment-system access restricted payments would be fully
secured
Universal Banking

 One-stop financial supermarket offering broad

range of services
 It denotes combination of banking, insurance
and investment activities
 ICICI’s decision to turn itself into a universal
bank ushered a new era in the banking
scenario.
CONTD-
 Volume of on-line business transactions is
increasing at exponential rate
 Internet revolutions-most dramatic impact on
financial services and banking industry.Banks with
large physical branch network will gradually lose
their competitive edge.
 Traditional businesses forced to innovate and re-
think the way they conduct business