Banking Structure

in
India
 Definition of Bank
• A financial institution engaged in
accepting deposit of money from
public, repayable on demand or
otherwise, for the purpose of lending or
investment and its withdrawal by cheque,
draft or otherwise
-- sec 5(b) of Bkg. Reg. Act
• Bank needs a license from RBI to start
 Bank
• Financial Institution
• Accepting Deposits
• Deposit repayable on Demand or Time
• From Public
• Withdrawal of Deposits
• Purpose - For lending and Investment
 Regulating Laws
• Banking Regulation Act, 1949
• Reserve Bank of India Act, 1934
• Banking Companies (Acquisition and
Transfer of Undertakings) Act,1970,
1980
• Negotiable Instruments Act, 1881
• DRT Act, Securitisation Act
 Bank Regulator
• Reserve Bank of India – issues licenses,
instructions to banks, policy ratios, credit
control, monetary policy, lender of last
resort
• Maintaining stability of financial system
• USA - Federal Reserve
• UK – Bank of England
• China – Peoples Bank of China
Commercial Banks-categories

• Body corporates constituted under

special Acts – Statutory bodies
• Companies registered under Companies
Act
• Foreign Companies
• Cooperative Banks
 Body corporates constituted
under special Acts
• SBI

• PSBs- 11 (PNB, Canara, Union, BOB,

Indian) – 10 banks merged in 2019

• Regional Rural Banks (RRBs)

 Companies registered under
Companies Act
• New private sector banks – 11
(Axis, ICICI, HDFC, Yes, Kotak, IndusInd,

DCB, IDFC Bank, Bandhan Bank )

• Old private sector banks -11

(Karnataka, City Union, J&K, Federal,
Dhanlakshmi )
Commercial Banks-categories
• Foreign Companies- ABN Amro, City
Bank, HSBC, Standard Chartered Bank
(44 Banks with 334 branches)

• Cooperative Banks registered under

Coop. Societies Acts (Central/State)
 DFIs
• Development Financing Institutions
(DFIs)
• Specialised Financial Institutions set up
to provide long term finance for acquiring
capital assets
• IDBI, IFCI, SFCs, World Bank, ADB
 Public Financial Institutions (PFIs)

• Defined in Sec 2(72) of Companies Act,

2013
• ICICI Bank, IDBI Bank, LIC, UTI, IDFC,
IFCI
• CG has power to notify any other instn. as
PFI in c/w with RBI, : NW - Rs.1000 cr
- set up by Act, engaged in ind /infra
financing, 51 % capital held by CG/SG
 Universal Banking
• Provision of all banking and financial
services under one roof

• Advantages- reduces cost, increases

efficiency, wide range of products ,
customer friendly
 Schedule Banks
• Which are included in second schedule
of RBI Act
• Includes PSBs, Private Banks ,Foreign
Banks, Cooperative Banks, RRBs
• Min. capital – Rs. 5 lacs
• RBI can add or delete from list
• Business conducted in the interest of
depositors
 Schedule Banks
• They are entitled to borrowing and
rediscounting facilities from RBI
• Also come under credit control measures
of RBI- CRR, SLR
• Total 151 Schedule Banks

s. 2(e) ,46 RBI Act

 Bank Branches in India
• Nationalised Banks – 68,356
• SBI group -- 25,698
• Private sector -- 25,247
• Foreign Banks -- 301
• Total -- 1,19,602

• 80% branches are of PSBs

 Cooperative Banks
• State Coop. Bank / Central Coop. Bank
• Business is regulated by Banking
Regulation Act
• Min paid up capital – Rs. 1 lakh
• Require license from RBI to carry on
business
 Regional Rural Banks
• Set up under RRB Act,1976
• Each RRB set up by a Sponsor Bank
• Body corporate, board managed
• Capital provided by CG(50%),
SG(15%),and sponsor bank (35%)
• Provide credit and other facilities for
development of allotted rural areas
• Large NPAs and mismanagement
 Business of banking
• Acceptance of deposits
• Borrowing of money
• Lending – secured or unsecured
• Investments in all kinds of securities
• Dealing with bills of exchange, p- notes
• Dealing in forex, bullion, stocks, bonds
• Letters of credit
 Business of banking
• Safe deposit vaults
• Public/ private issue of Govt, corporate
securities
• Guarantees and indemnities
• All other business conducive /incidental to
above
• Any other business notified by Central
Govt.
 Top 50 Banks in World
1. Ind & Comm Bank of China ($4.3 Tn)
2. China Construction Bank Cor (3.8 Tn)
3. Agriculture Bank of China (3.7Tn )
4. Bank of China (3.4 Tn)
5. JP Morgan Chase - USA (3.1Tn)
6. HSBC, UK (2.9 Tn)
7. Mitsubishi UJF Fin, Japan (2.9Tn)
•15 Chinese Banks, SBI-55
Growth of Banking in India
 Evolution Phase (till1947)
• Banks catered to needs of British
industry and trade
• Allahabad Bank, BOB,PNB,BOI existed
• RBI Act passed in 1935
• Imperial Bank of India formed
• Bank failures common
 Foundation Phase(1948-68)
• Emphasis on sound banking practices
• Imperial Bank transferred to SBI
• Banking Regulation Act, 1949 passed
• DICGC formed in 1962
• Consolidation and closure of banks
 Expansion Phase(1968-84)
• Bank nationalisation in 1969,1980
• Massive branch expansion
• Banks became agents of socio-economic
change
• RRBs in 1975, NABARD in 1982
• Priority sector lending and concessional
finance started
Consolidation Phase(1985-90)
• Emphasis on house keeping , customer
service, staff productivity , credit
management
• Autonomy was lacking
 Reforms Phase(1991 onwards)
• Narasimhan Committee- I
- SLR-25%, CRR-7.5%
- Capital Adequacy and Prudential norms
- Balance sheet format modified
- DRTs started
- Assets Reconstruction Cos started
- Entry of private banks
 Narasimhan Committee I
• Bank consolidation
• Freedom to fix PLR
• RBI supervision and internal audit
strengthened
Narasimhan Committee II(1998)
• Merger of stronger banks
• More autonomy to PSBs
• Stress on Asset Liability Management-
ALM
• Greater focus on non-fund based activities
• Larger financial intermediation
• Better Risk management
 Narasimhan II
• Professionalisation of Bank boards
• Tightening of prudential norms
• Special focus on weak banks