COMMERCIAL BANKING

STRUCTURE &
ROLE OF RBI &
ROLE OF SEBI

FYBBA – 2020 – PPT - 6

 Banking structure (entire flow chart in running notes)

Commercial banks Co-operative banks

Foreign banks
Public sector Private sector (45)
Banks (12) banks

SBI
(1) New Private
Banks (9 +1)
Old Private Now IDBI
Banks (13)
Nationalized
Banks (11)
2
 Order of Consolidation of PSBs

 14 banks got nationalized in 1969 and 6 others in 1980 under the

leadership of Indira Gandhi to take banking to the masses so as to
achieve socioeconomic objectives. So total 20 Public Sector banks.
 New bank of India got merged with Punjab National Bank in 1993 -
19
 Vijaya bank and Dena bank got merged with Bank of Baroda in 2018
- no of banks is 17
 Recent announcement of 10 PSBs getting merged into 4 in 2019- 11
PSBs plus SBI which makes it 12 PSBs in India as on 2020.
 Public Sector Banks - Now 12 including SBI

1. State Bank of India (SBI)

2. Punjab National Bank (With Merger of Oriental Bank of Commerce and
United Bank of India)
3. Bank of Baroda
4. Canara Bank (With Merger of Syndicate Bank)
5. Union Bank of India (With Merger of Andhra Bank and Corporation
Bank)
6. Bank of India
7. Indian Bank (With Merger of Allahabad Bank)
8. Central Bank of India
9. Indian Overseas Bank
10. UCO Bank
11. Bank of Maharashtra
12. Punjab & Sindh Bank
Private sector banks (old) - 13

 Catholic Syrian Bank

 City Union Bank
 Dhanlaxmi Bank
 Federal Bank
 ING Vysya Bank merged with Kotak Mahindra bank
 Jammu & Kashmir Bank
 Karnataka Bank
 Karur Vysya Bank
 Lakshmi Vilas Bank
 Nainital Bank
 Ratnakar Bank (RBL)
 South Indian Bank
 Tamilnad Mercantile Bank
 Private sector banks (New) – 7 and now 10
 Axis Bank (previously UTI bank)
 HDFC Bank
 ICICI Bank
 IndusInd Bank
 Kotak Mahindra Bank
 Yes Bank
 Development Credit Bank
 Bandhan bank (2015)
 IDFC bank (2015)
 IDBI – status changes post LIC acquisition to private sector bank from
January 2019
Foreign banks
 Standard Chartered
 Abu Dhabi Commercial Bank
 American Express Banking Corp.
 Bank Internasional Indonesia
 Bank of America
 Bank of Bahrain & Kuwait
 State Bank of Mauritius
 Sumitomo Mitsui Banking Corporation
 UBS AG
 Barclays Bank
Foreign banks
 BNP Paribas
 China trust Commercial Bank
 Citibank
 Credit Suisse AG
 Deutsche Bank
 FirstRand Bank
 Hong kong & Shanghai Banking Corporation
 Rabo bank International
 Royal Bank of Scotland
Cooperative Banks - Examples
 Punjab and Maharashtra Cooperative Bank
 Abhyudaya Co-operative Bank Ltd., Mumbai
 Ahmedabad Mercantile Co-Op Bank Ltd.
 Amanath Co-operative Bank Ltd. Bangalore -
 Andhra Pradesh Mahesh Co-Op Urban Bank Ltd.
 Saraswat Co-operative Bank Ltd., Bombay
 Shamrao Vithal Co-operative Bank Ltd.
 Shikshak Sahakari Bank Ltd., Nagpur
 Public sector banks?
 Public Sector Banks (PSBs) are banks where a majority
stake (i.e. more than 50%) is held by the government. The
shares of these banks are listed on stock exchanges.
 There are now 12 Public sector banks including SBI post
announcement of PSBs mergers.
 Nationalized banks?
 Nationalization is a process whereby government or State takes over
the private industry, organization or assets into public ownership by
an Act or ordinance or some other kind of orders.  This strategy has
been frequently adopted by socialist governments for transition from
capitalism to socialism.
 All those banks which were taken over through issuance of an
ordinance by the government (Banking companies (Acquisition and
Transfer of Undertaking) Bill) are called nationalized banks.   
 In 1969 14 banks were nationalized and in 1980, GoI again
nationalized 6 more banks.  
 Commercial Banks v/s Cooperative banks
12

 In India, the Commercial Banks are required to be registered under Banking

Regulation Act, 1949. In India, the Co-operative Banks are required to be registered
under the Co-operative Societies Act, of the concerned state- dual regulation.
 The main objective of a Commercial Bank is to accept deposits from public for the
purpose of lending to industry and commerce. The main objective of a Co-operative
Bank is to accept deposits from the members and the public for the purpose of
providing loans to farmers and small businessmen with a motto of service.
 Commercial banks operate over a larger area. Some commercial banks even have
branches in foreign countries. The area of operations of Co-operative Banks is
limited and mostly confined to State. They do not operate at national level nor
international level.
 Commercial Banks v/s Cooperative banks
13

 Commercial Banks provide merchant banking services such as

advising the companies regarding the public issue of shares. Co-
operative Banks do not provide merchant banking services.
 Commercial Banks in India such as Canara Bank, Bank of India,
State Bank of India, do operate mutual funds. At present co-
operative banks in India do not operate mutual funds.
 Commercial banks operates on the commercial principles. They
operate to earn a profit. The basis of operations is on co-operative
lines, i.e. service to its members and the society.
 Multiple Responsibilities of RBI
 Monetary authority: Formulates and implements monetary
policy, maintains price stability and credit to productive sectors
 Regulator and supervisor of the banking system: Prescribes
broad parameters of banking operations within which the country's
banking system functions. Objective: to maintain public
confidence in the system, protect depositors' interest and provide
cost-effective banking services to the public.
 Issuer of currency: Issues and exchanges or destroys currency
and coins not fit for circulation. Objective: to give the public
adequate quantity of supplies of currency notes and coins and in
good quality.
 Multiple Responsibilities of RBI
 Banker to the Government: performs merchant banking
function for the central and the state governments; also acts as
their banker.
 Banker to banks: maintains banking accounts of all scheduled
banks.
 Foreign Exchange management: Following areas come under
the purview Foreign Exchange management by RBI:
 External Commercial Borrowings: Indian companies are
allowed to raise external commercial borrowings including
commercial-bank loans, Foreign Currency Convertible Bonds
(FCCBs) are also governed by the ECB guidelines.
Foreign Exchange management
 Liberalised Remittance scheme: the Reserve Bank has
permitted resident individuals to freely remit abroad up to
liberal amount per financial year for any permissible
purposes.
 Exchange Rate Policy: It maintains the stability of
external value of the rupee and when necessary, it
intervenes in the market by buying or selling foreign
currencies. The market operations are undertaken either
directly or through public sector banks.
Pros and Cons of Consolidation of Banks in India
 Advantages (Pros)

 It reduces the cost of operation

 The merger helps in financial inclusion and broadening the
geographical reach of the banking operation
 NPA and risk management are benefited
 Decisions on High Lending requirements can be taken promptly
 Merger leads to availability of a bigger scale of expertise and that
helps in minimising the scope of inefficiency which is more in
small banks
 The disparity in wages for bank staff members will get reduced.
Service conditions get uniform
 Advantages (Pros)

 Merger sees a bigger capital base and higher liquidity and that reduces
the government's burden of recapitalising the public sector banks time
and again
 Redundant posts and designations can be abolished which will lead to
financial savings
 Creation of a brand new customer base, empowering of business,
increased hold in the market share, opportunity of technology upgrade.
Thus overall it proves to be beneficial to the overall Economy 
 A larger bank can manage its short and long term liquidity better. There
will not be any need for overnight borrowings in call money market and
from RBI under Liquidity Adjustment Facility (LAF) and Marginal
Standing Facility (MSF)
 Disadvantages (Cons)
 Many banks have a regional audience to cater to and merger destroys
the idea of decentralisation.
 Larger banks might be more vulnerable to global economic crises
while the smaller ones can survive
 Merger sees the stronger banks coming under pressure because of
the weaker banks.
 Merger could only give a temporary relief but not real remedies to
problems like bad loans and bad governance in public sector banks
 Human resource and cultural issues can also impede the process of
merger.
 Is consolidation of Public sector banks- need of the hour?

 The issue of consolidation in the banking sector has assumed significance

considering the following:
 Meeting Capital Adequacy Norms
 To become Competitive: The government, which is the majority
shareholder of state-owned banks, thinks these mega bank mergers will
create next-generation banks, creating better efficiencies, better
economies of scale and improved cost of funds. they would have wider
reach, stronger lending capacity and better products and technology to
serve customers of new India.
Is consolidation of Public sector banks- need of the hour?

 To keep pace with the Economic Growth & Funding of

Infrastructure Projects : There can be no two opinions about
the fact that no Indian bank is of a global size. State Bank of
India (SBI), the country’s largest lender, is nowhere close to
the world’s largest lenders. The large size of projects India is
talking of needs larger sized banks to finance it. The need for
two or three world-sized banks in an economy that is poised to
become one among the five largest in the world is rather
obvious and clearly the only way Indian banks can expand
rapidly and reach global size is through consolidation.
 Is consolidation of Public sector banks- need of the
hour?
 The steep rise in non-performing assets (NPAs) of state-run
banks has weighed on the economic development of the country
as these banks hold more than two-thirds of deposits and
advances in India’s banking industry. Moreover public sector
banks hold about 85% of non-performing loans, which is
affecting their profitability badly. With losses mounting because
of a dodgy loan, the government wants to consolidate and
improve their performance.
 Also, since it is not feasible to reduce the government’s share to
below 51% in public sector banks (PSBs), consolidation is the
only answer to creating strong banks.
 https://pib.gov.in/PressReleasePage.aspx?PRID=1605147
 Purpose and Role of SEBI

 SEBI was set up with the main purpose of keeping a check on

malpractices and protect the interest of investors. It was set up to
meet the needs of three groups.
 Issuers: For issuers it provides a market place in which they can
raise finance fairly and easily.
 Investors: For investors it provides protection and supply of
accurate and correct information.
 Intermediaries: For intermediaries it provides a competitive
professional market.
 Role of SEBI as a market regulator WRT to Insider trading – E
topic
Thank You