BANKING & INSURANCE MGT

MODULE – I

Types of Bank
Commercial bank
Reserve Bank of India
Private bank
Foreign bank
Cooperative bank
 INDIAN BANKING SYSTEM

RBI

COMMERCI INVESTMENT
IDBI NABARD NHB EXIM
AL BANK INSTITUTION

INDIAN
FOREIGN LIC GIC UTI
COMMERCIAL
BANK
BANK

SCHEDULED
PRIVATE PUBLIC
(HUDCO) (SHB) COMMERCIAL
SECTOR SECTOR
BANK
Commercial Bank
Acceptance of Deposits
- Current account Deposits
- Fixed account Deposits
- Saving account Deposits
Advancing Loans
- Cash Credit
- Term Loans
- Overdrafts
Discounting Bills of Exchange
Investment of funds
•Agency Function

- Transfer of funds
- Collection of funds
- Purchase and sale of shares on behalf of the
customer
- Collection of dividends and interests
- Payment of bills and insurance premiums

• Miscellaneous Functions

- Sale & purchase of foreign exchange

- Issuing travelers cheque and gift cheque
- Providing locker facility
Reserve Bank of India
Monopoly of note issue
As a Banker, an Advisor, an Agent to the
Government
Bankers Bank and lender of the last resort
Controller of money supply and credit

- Quantitative
- Bank Rate
- Variation in CRR and SLR
- Oper market operation
- Qualitative
- Fixation of margin requirements
on secured loans
- Moralsuation
Private Bank
• In 1969 and 1980 with nationalization of major
banks, public sector banks started playing a major
role in expanding the horizon of financial services.

• The Narsimham Committee on financial

sector(1991) recommended the setting up of private
banks after reviewing the increasing financial needs
of a large population

• RBI released the guidelines for setting up such

banks with the objective of minimizing the risk of
misusing the funds in the hands of the private banks.
Requirement as per RBI (1993)
• The bank must be registered as a public limited
company under the companies Act, 1956 with an
initial paid up capital of Rs.100 crores.

•The bank should have a license from the RBI. In this

case preference is to be given to those , headquarters
of which are proposed to be set up in a centre.

• The bank should be governed by the provisions

under the banking regulation Act 1949, RBI Act 1934.

•The shares of the bank must be listed in the stock

exchange.
 The bank must observes priority sector lending
targets as applicable to other banks.
Hence emphasis must be let on lending to
agriculture, small scale industries, small businesses
where the initial cost of equipment is not more than
20 lacs, retail traders, persons belonging to SC ST
categories and to educate unemployed people for
self employment.
However the RBI may relax this for new banks.

 The bank must be technologically up-to-date by

making full use of modern infrastructure needed for
providing customer oriented financial services.
 In Jan 2001, RBI issued a set up guidelines for
establishment of new Private banks in the country.
The salient features of the guidelines are as follows,
(The NBFCs are allowed to convert themselves in
to private banks only after fulfilling the following
conditions.)
- Maintaining a net worth of 300 crores at all
the times.
- Non performing assets are less than 5% only.
- Must not be defaulter in case of public
liabilities
( The promoters minimum holding in capital of the
bank should be 40% with a lock in period of 5yrs
from the date of licensing.)
Foreign Bank
A foreign bank is given license when the
following requirements are compiled with.
Law of Govt. of their origin does not
discriminate against the Indian banks.
Their business in India will be of public interest
The bank must be in a position to fully meet the
need of funds of its present and future
depositors as their claims accrue with the same
bank.