COMMERCIAL AND

INVESTMENT BANKING

COURSE CODE: MBAA04B53

4 CREDITS
PROF. JOHN PRADEEP KUMAR
KJSOM
COURSE
OBJECTIVES
• To provide a basic understanding of
concept and functioning of commercial
and investment banking industry in India.
• To familiarize types of banking system
regulation and control.
• To familiarize core and support services of
investment banks.

2
 COURSE
CONTENTS
Unit 1: Introduction and Structure of Commercial
and Investment Banking
Evolution of Banking Institutions in India-Role of
Joint stock banks in India, Presidency banks,
Imperial Banks, State Bank of India, Commercial
Banks, and Nationalized Lead Banks, Regional
Rural Banks (RRBs), Banking reforms after 1990.
Introduction- Investment Banking Vs. Merchant
Banking; Evolution of American and European
Investment Banks

3
Unit 2: Credit control and Regulation in Banking
RBI and its Role, monetary and credit policy, CRR,
SLR in Banks, Banking system and Banks in India,
Banking Regulation Act 1949. IRAC Norms (i.e,
Income Recognition and Asset Classification norms),
Non-performing Assets, Securitization Act. E-
Banking, Payment system, settlement system.

Unit 3 Risk Management and Trends in Banking

Services
BASEL I, II and III, CRAR and RBI Prudential norms on
New capital Adequacy and framework. New
Technology in banking, E-Services, debit and credit
cards, Dynamic, Currency & EMI cards, Internet
Banking, ATM, MICR, NEFT, RTGS, DEMAT, Concept of
Green Banking, Green funding.

4
Unit 4 Investment Banking in India
Origin, Growth and Constraints in Investment
Banking in India; Regulatory Framework for
investment banking; Anatomy of some
leading Indian Investment Banks.

Unit 5 Core Services of Indian Investment

Banks
Role of investment banker in IPO; M &A
Advisory; Corporate Advisory;
Secondary Market Activities – Asset
Management Services, Wealth
Management Services.

5
YOUR EXPECTATIONS

6
WHAT IS A BANK?

7
WHAT IS A BANK?

Which is called a Banking company?

Why do we need banks?

How do they make money?

8
MEANING OF
BANK
A bank is a financial institution licensed to
receive deposits and make loans.
Banks may also provide financial
services such as wealth management,
currency exchange, and safe deposit
boxes.
There are several different kinds of banks
including retail banks, commercial or corporate
banks, and investment banks. In most
countries, banks are regulated by the national
government or central bank.

9
DEFINITION
OF BANKING
Banking Regulation Act of India, 1949, Sec
5(B) defines Banking as “accepting, for the
purpose of lending or investment, deposits
of money from the public, repayable on
demand or otherwise or withdrawable by
cheque, draft, order or otherwise.”

10
11
12
13
 ROLE OF BANKS IN INDIAN
ECONOMY
1. Commercial banks encourage public to save.
2.Mobilising the savings for the purpose of
investments in various sectors of the economy.
3.Through the Co-ordinating function between
savings and investments, Commercial banks
help the process of capital formation.
4.The creation of credit, if it is used for
production purposes, greatly enlarge production
and involvement and thus promotes economic
growth.

14
5.Commercial banks are of great assistance in
foreign trade.
6.Commercial banks promote balanced regional
development in the country by providing
essential financial infrastructure and funds for
backward regions.
7.By providing agricultural credit, Commercial
banks also help to promote primary sectors.
8.Commercial banks help in expanding the size of
the market (credit, payment facility, etc).
9. Commercial banks help the government to fulfil
almost every objective of planned economic
development.

15
LATEST SCAM
• I Monetary Advisory (IMA)
• Mansoor Khan - founder and Managing
Director
• Ponzi scam
- Recently - women savings account offering 7
pc interest. Which bank? (Nov 16, 2020,
06:03 PM IST)

16
LATEST NEWS !!!
According to the recommendations of
an internal working group of RBI
released on 20 Nov. 2020, non-bank
lenders (NBFCs) with asset sizes of
more than Rs.50,000 crore should
be allowed to convert into banks,
provided they have completed 10
years of operation.

17
18
CLASSIFICATION OF BANKS IN INDIA
• Scheduled banks & Non scheduled
banks
• SBI and its associates
• Urban Cooperative banks
• State Cooperative banks
• Commercial banks
• Old generation private sector banks
• New generation Private sector banks
• Foreign banks

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• Regional Rural Banks
CLASSIFICATION OF BANKS IN
INDIA
• Private Sector Banks
• Public Sector Banks
• Nationalized banks
• Payment Banks
• Small Banks
• Bharathiya Mahila Bank (Merged with
SBI)

• Indian Post payment Bank

• Local Area banks

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OLD PRIVATE BANKS
1. Catholic Syrian Bank
2. City Union Bank
3. Dhanlaxmi Bank
4. Federal Bank
5. Jammu and Kashmir Bank
6. Karnataka Bank
7. Karur Vysya Bank
8. Lakshmi Vilas Bank
9.Nainital Bank
10.Ratnakar Bank
11.South Indian Bank

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12.Tamilnad
NEW PRIVATE SECTOR BANKS IN INDIA

1. Axis Bank
2. Development Credit Bank (DCB Bank
Ltd)
3. HDFC Bank
4. ICICI Bank
5. IndusInd Bank
6. Kotak Mahindra Bank
7. Yes Bank
8. IDFC
9. Bandhan Bank of Bandhan Financial
Services.

22
 Banks

Scheduled Banks Non-Scheduled Banks

Commercial Banks Co-operative Banks

Co-operative Banks

Urban Co-op Banks

Public Banks Private Banks
State Co-op Banks
RRB
Old Private Banks
Foreign Banks

Nationalized Banks New Gen Private Banks

Payment Banks
SBI & Associates Banks
Local Area Bank
Small Banks
Bharathiya Mahila Bank

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Indian Post Payment Bank
 CHRONOLOGY OF DEVELOPMENT OF
BANKING IN INDIA

The modern banking started since 18th century

when the Bank of Hindustan was established in
1770
The General Bank of India was started in the
year 1786, failed in 1791
In 1806, the Bank of Calcutta was formed that
was renamed as Bank of Bengal
In 1840, Bank of Bombay
In 1843, The Bank of Madras

24
 CONTD
In…1921, The Imperial Bank of India
In 1935, The Reserve Bank of
India In 1955, The State Bank of
India
In 1960, Subsidiaries of SBI
In 1969, Nationalization of 14 private banks
In 1980, Nationalization of 6 private banks
1990 – 1994, Liberalization and Privatization

25
HISTORY OF BANKING
IN INDIA

I. Pre-Independence era

II. Post- Independence era

III. Era of Nationalization

IV. Era of Liberalization

V. The Recent times

26
 PRE-INDEPENDENCE
ERA
The modern banking started since 18 century when the Bank of
th

Hindustan was established in 1770 and liquidated in 1829 - 32

The General Bank of India was started in the year 1786, failed in

1791 In 1806, the Bank of Calcutta was formed with royal charter by

East
India Company that was renamed as Bank of Bengal

Indian Merchants started a bank in the name Union Bank in 1839 and
it failed within a decade

In 1840, Bank of Bombay, by East India Company

In 1843, The Bank of Madras, by East India company

All three banks that were started by East India company were

27
called as Presidency Banks
 PRE-INDEPENDENCE ERA
CONTD…
In 1853, the Chartered bank, first foreign bank
was formed
In 1860, the limited liability was introduced
In 1863, Bank of Upper India, the first Joint stock
bank of India was formed and that failed in 1913
In 1865 Allahabad Bank, the oldest public sector
bank and a joint stock bank was formed
In 1869 HSBC Bank was established in Calcutta
In 1881 Oudh Commercial Bank, the first limited
liability bank that was completely managed by
Indian board was formed. It failed in 1958

28
 PRE-INDEPENDENCE ERA
CONTD…

In 1895, Punjab National Bank, the oldest limited liability,

public sector bank, with a complete Indian board and that
is surviving till date was formed
In 1911 Central Bank of India, wholly owned and managed
by Indians was formed (India’s first truly swadeshi bank)
Later on many banks were formed in the country including
Bank of India, Corporation Bank, Indian Bank, Bank of
Baroda and Canara Bank
Between 1913 to 1918 many banks got closed due to the
economic crisis after the world war I

29
 PRE-INDEPENDENCE ERA
CONTD…
In 1921, all the three presidency banks
were amalgamated and the Imperial bank of India was
formed
Apart from performing the normal banking operations it
also performed some of the functions of a central bank
In 1924, the first branch of Imperial Bank of India
was opened in Mumbai
In 1933, an Indian by the name Sir Badridas Goenka was
appointed as its chairman
In 1934, the RBI act was enacted
On April 1, 1935 the RBI was formed at Calcutta (Present
HQ – Mumbai)
Initially owned entirely by private share holders and was

30
nationalized in the year 1949
 WHAT DID REALLY HAPPEN?
•Many banks were formed
•Many closed
•Not regulated
•Currency issuance was done by the Imperial bank of
India and then later on took over by GOI
•The objective of banks were like a typical business to
make profits
•The banks operated such a way that they supported
big corporates and business with credit
•The credit facilities, poorly reached the rural, agri,
small business, etc.

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 POST INDEPENDENCE
ERA
•Nationalization of RBI in 1 January, 1949
st

•In 1949, the Banking Regulations act was enacted

•The Banking Regulation Act also provided that no new
bank or branch of an existing bank could be opened
without a license from the RBI
•RBI took 60% stake in Imperial Bank of India in 1955 that
was sold to GOI in 2008
•To ensure better coverage of banking needs of larger
parts of economy and the rural constituencies, the
Government of India nationalized the Imperial bank of
India and transformed it into the State Bank of India with
effect from 1st of July 1955

32
 WHAT DID REALLY HAPPEN?
•Post Independence there was a tremendous need
to develop the nation
•After the formation of RBI in 1935 and the
introduction of Banking Regulations act in 1949,
there was better control in the banking sector
•Huge credit was required to
development
accelerate
•But, still there was a huge sector and population
of the country that remained unbanked
•The first five year plan had a vision to develop the
economy and that needed to be support by the
banking sector’s role in the form of credit reach
•Developing a trust in the minds of the people on
the banking system was a great challenge

33
 THE ERA OF NATIONALIZATION
•This period saw that the banking services became the privilege of
big business firms and wealthy individuals
• Masses were denied easy credit and banking services.
• Agriculture and rural small scale industries did not have access to
credit facilities and banking services
•They depended on village money lenders and other private
financiers to fund their activities
•Private financiers exploited the people with enormous
interest and
with harsh repayment conditions
•The then Indian Prime Minister Indira Gandhi wrote a new chapter in
Indian Banking history by introducing nationalization
•Nationalization is the process of converting the privately owned
banks into government owned banks

34
•Nationalization of banks in India took place in 2 phases
THE FIRST PHASE OF NATIONALIZATION
The first phase of nationalization started in 1955 when the
Imperial Bank of India became State Bank of India with
an Act of parliament. (The SBI act, 1955)
In 1959, the government passed the State Bank of India
(Subsidiary Banks) Act.
1.State Bank of Bikaner
2.State Bank of Jaipur
3.State Bank of Hyderabad
4.State Bank of Indore
5.State Bank of Mysore
6.State Bank of Patiala
7.State Bank of Saurashtra
8.State Bank of

35
Travancore
 THE FIRST PHASE OF
NATIONALIZATION CONTD….
Both the State Bank of Jaipur and the State bank of Bikaner
were merged together in 1963 to form the State bank of
Bikaner & Jaipur
So, the number of subsidiaries became 7
In 2008, State Bank of Saurashtra was merged with
SBI In 2009, State bank of Indore was merged with
SBI This reduced the number of subsidiaries to 5
In August 2016, SBI board approved the merger of
Bharatiya
Mahila Bank Ltd with SBI
The SBI board in August 2016 has also approved the merger
of its 5 other subsidiaries with SBI
On August 10, 2017, Lok Sabha passes a bill approving the
merger

36
SECOND PHASE OF NATIONALIZATION
The second phase of nationalization started in 1969 with
the nationalization of 14 major commercial banks in India.
1. Allahabad Bank
2. Bank of
3. Baroda Bank
4. of India
5. Bank of Maharashtra
6. Canara Bank
7. Central Bank of India
8. Dena Bank
9. Indian Bank
10. Indian Overseas Bank
11. Punjab National Bank
12. Syndicate Bank
13. UCO Bank

37
14. Union Bank of India
SECOND PHASE OF
NATIONALIZATION CONTD…
In 1980, 6 more commercial banks were nationalized
and became public sector banks.
1. Andhra Bank
2. Corporation Bank
3. New Bank of India (PNB acquired it in 1993)
4. Oriental Bank of Commerce
5. Punjab & Sindh Bank
6. Vijaya Bank

After this era the Public Sector Undertaking banks

expanded their reach and grew in leaps and bounds.

38
 ERA OF LIBERALIZATION
• Following the 1991 balance of payment crisis, structural reforms
were initiated that fundamentals changed the prevailing economic
policy in which the state was supposed to take the commanding
heights of the economy.
• The banking industry was highly regulated.
• The major problems were unprofitability, inefficiency and financial
unsoundness.
• Through the CRR and the SLR, more than 50% of the savings had
either to be deposited with the RBI or used to buy government
security.
• Of the remaining savings, 40% had to be directed to priority
sectors that were defined by the government.
• Besides these restrictions on the use of funds, the government had
also controlled over the prices of the funds, that is, the interest
rates on saving and loans.

39
ERA OF LIBERALIZATION
CONTD…
• A high level committee was under
constituted the
progress
chairmanship
and working
of Shri.of the
M. Indian
Narasimham
financialtosector
review
and the
to
suggest measures to reform it.
• The year 1991 marked a decisive changing point in India’s
economic policy since independence in 1947
• The committee submitted their report after studying the
banking system and the economic factors
• There were many reforms that took place based on the
recommendations of this committee
• This was a very comprehensive study that was undertaken
• These reforms strengthened the Indian economy and
provided a conducive environment for the development of
the banking sector

40
ERA OF LIBERALIZATION
CONTD…
• Reducing the CRR & SLR

• Reducing the priority sector lending

• Deregulating the interest rates

• Lowering the entry barriers

• Seven new private banks entered the market

between 1994 and 2000.

• In addition, over 20 foreign banks started

operations in India since 1994.

41
BANKING REFORMS AFTER
1990

Banking sector reforms

Narsimham Committee I Narsimham Committee II –

– 1991 – Committee on 1998 – Committee on
the Financial System Banking sector reforms

42
1. Phased reduction of statutory pre-emption:

The committee recommended that SLR to be

reduced from 38.5% to 25% and CRR from 15% to
10% over a period of time so that funds of banks
are deployed by them in more productive loan
assets.
This recommendation was accepted and SLR
was brought down from 38.5% to 25% and CRR
was reduced from 15% to 10% and then to 5%.

43
2. Phasing out of directed credit program:

The committee recommended that priority sector

to be redefined to comprise the small and
marginal farmers, the tiny sector of industry,
small business and transport operators, village
and cottage industries, rural artisans and other
weaker sections.
The committee recommended that target for the
priority sector should be fixed from 40% to 10%
of aggregate credit. But this recommendation
was not accepted.

44
3. Transparency:
The committee recommended that the format
of bank balance sheet and profit and loss
account should be modified in such a manner
that bank’s balance sheet disclose more
information.
This recommendation was accepted.
4. Loan recovery:
The committee recommended that government
should take steps to ensure recovery of
dues by creating some special recovery
bank
tribunals and provide quick recovery
for process.

45
5. Interest rate deregulation:

The committee suggested that existing interest

structure on loans and deposits is very complex
and hence suggested that they should be
market driven.

 This recommendation was very well accepted.

46
6. Restructuring of banks:

The committee recommended that the banks be

restructured by creating 3-4 large banks of
international character, 8-10 national banks with
network of branches throughout the country,
local and rural banks.
No progress in this regard was made except
that in 1993 a loss making bank, New Bank of
India was merged with Punjab National Bank.

47
7. Asset classification:
The committee recommended that the assets
of the banks should be classified into 4
categories:

Assets

Sub-
Standard Doubtful Loss assets
standard

10% Secured Unsecured - 100%

No
portion - 20- 100 %
provision provision provision
50% provision

48
8. Entry of Private Banks:
The committee that the
should
proposedindicate that there government
would be no further
nationalization of banks.
Entry of private banks should be encouraged. There
should be no difference in treatment between public
sector and private sector banks. It was implemented.

9. Branch Licensing:
The committee recommended that branch licensing
be abolished and matter of operating and closing of
branches be left to commercial judgement of
individual banks.

49
10. Capital Adequacy Ratio:

The committee recommended that the banks

and financial institutions should achieve a
minimum 4% CAR by March, 1993 and 8% by
March, 1996. RBI implemented the committee’s
recommendation on capital adequacy norms.
 Now the CAR is 9%.
Some of the banks are even maintaining more
than this ratio.

50
11. Income recognition:
The committee recommended that the
banks should adopt uniform accounting
practices in regard to income recognition
and provisioning against doubtful debts.

12. Foreign Banks:

The committee recommended that foreign
banks be allowed to open offices in India.

However, they should be subjected to

same requirements as applicable to
domestic banks. It was implemented.

51
13. Supervision of banks:
The committee stressed on Internal audit and
internal inspection system of banks based on
reports. Audit and inspection machinery should
be adequate and conform to well laid down
norms. It was implemented.
14. Control:
The committee was of the opinion that there
should be end of duality of control over banking
system between RBI and Ministry of finance and
only RBI should control the banking system.

52
BANKS DURING THE ERA OF LIBERALIZATION

1. Axis Bank 1994

2. HDFC Bank 1994
3. Centurion Bank Ltd – 1994 (Merged with Bank of
Punjab to become the Centurion Bank of
Punjab, which was acquired by HDFC Bank Ltd,
2008)
4. IndusInd Bank – 1994
5. Global Trust Bank – 1994 (Later on Merged with
Oriental Bank of Commerce in 2004)
6. Development Credit Bank, 1995 (Converted from
a co-operative bank and now called as DCB bank
ltd)

53
 THE ERA OF RECENT
–TIMES
AFTER 2000
In 2003, Kotak Mahindra Bank
In 2005, Yes Bank
In 2015, Bandhan Bank and IDFC Bank
In 2015, 10 small banks
In 2015, 11 Payment banks (Including Indian Post
Payment Bank)

54
 10 SMALL
1.BANKS
AU Small Finance Bank Limited, Jaipur (ET 12.11.2020
AU Small Finance Bank starts operations in eastern
India)
2. Capital Local Area Bank Ltd, Jalandhar
3. Disha Microfin P Ltd, Ahmedabad
4. Equitas Holdings P Ltd, Chennai
5. ESAF Microfinance & investments p ltd, Chennai
6. Janalakshmi Financial services P Ltd, Bangalore
7. RGVN (North East) Micro Finance, Guwahati
8. Suryoday Micro Finance P Ltd, Mumbai
9. Ujjivan Financial Services P Ltd, Bengaluru
10. Utkarsh Micro Finance P Ltd, Varanasi

55
11 PAYMENT BANKS
1. Aditya Birla Nuvo
2. Airtel M Commerce Services
3. Cholamandalam Distribution Services
4. Department of Posts
5. Fino Pay tech
6. National Securities Depository
7. Reliance Industries
8. Dilip Shanghvi, Sun Pharmaceuticals
9. Vijay Shekhar Sharma, Paytm
10. Tech Mahindra
11. Vodafone M-pesa

56
 TECHNOLOGICAL CHANGES AND
DEVELOPMENT OF THE
BANKING SECTOR POST 2000
• Implementation of CBS
• Introduction of National Financial Switch
• Launch of INFINET
• Rupay
• Launch IMPS
• Introduction of CTS
• Aadhaar Enabled Payment System

57
 CBS
• Implementation CORE Banking System
of (CBS)
• CORE – Centralized Online Real time
Exchange
• CBS is a networking of branches, which
enables customers to operate their accounts
and avail banking services from any branch of
the bank on CBS network
• The customer is no more a customer of a
branch but a customer of the Bank

58
 NATIONAL FINANCIAL
SWITCH

• NFS is the largest network of shared ATMs in

India
• It was designed, developed and deployed by
the Institute for Development & research in
Banking Technology (IDRBT) in 2004
• NFS is being managed by National Payments
Corporation of India (NPCI)

59
INFINET
(1999)
• INFINET is Indian Financial Network used
communication between banks
for
• All PSU, Private, cooperative banks, etc. in India can
become a member
• It is a Closed user group (CUG) network for the
exclusive use in communication between member
banks
• It uses a blend of communication technologies such
as VSAT (Very Small Aperture terminals)
and Terrestrial leased lines

60
 RUPA
• Y
RuPay is a electronic payment network like VISA and
Master card
• This network was indigenously build in India by
NPCI
in partnership with Discover Financials
• It was dedicated to the nation in the year 2014 by our
President, Mr. Pranab Mukherjee
• RuPay cards are now available in all banks
• Even EMV chip RuPay cards are also available
• RuPay has now almost 25% of Market share and
almost 20% of transactions are being done in RuPay
• It is accepted in 1,45,270 ATMs, 8,75,000 POS

61
machines and 10,000 e-commerce websites
 REGIONAL RURAL BANKS
• (RRB) Rural Banks are popularly known
Regional as
Gramin
Banks
• The development of RRBs started with the promulgation
of an ordinance in the year 1975 that was replaced with
RRB act 1976
• The main Objective of RRBs is to meet the requirement
of small and marginal farmers, landless labour and
artisans,
on small business
agriculture and to of rural India
mobilize with major
deposits from focus
rural
households.
• RRB were expected to have the local feel and familiarity
of the cooperative banks with the managerial expertise
of the commercial banks

62
CREDIT DELIVERY SYSTEM
IN RRB

• Grant of at cheap and

credit

• concessional rates
Lending to individuals belonging to
weaker sections without checking the
viability of the activity proposed to
be undertaken

63
 AREA OF OPERATION OF
RRB
The area of operation of RRB is limited to the area
as notified by GOI covering one or more districts in
the state
Structure of RRB
 Share holding pattern is as below:
 GOI : 50%
 Sponsor Bank : 35%
 State Government : 15%

64
 OTHER FACTS
• NABARD is the regulatory authority of RRB
• RRB plays a major role in expanding banking in rural
area
• But village politics affected RRBs and poor
farmers
and agriculturists were ignored
• In 2009, GOI conducted a review on RRB. The CRAR
(Capital Risk weighted Assets Ratio) of RRB were very
low and many RRBs were unprofitable
• A period of amalgamation started and the total number
of RRBs came down to 56 in the year 2014 from 196

65
 FOREIGN
BANKS
• Foreign Bank is a bank with a head office outside the
country in which it is located.

• It is obligated to follow the regulations of both the

home and host countries.

• Eg:If ICICI Bank opens its branch in America.The

Branch would be legally obligated to follow both
Indian and American banking regulations.

66
There are 46 foreign banks in India operating
in 325 Branches. (as on September 30’ 2015)

Another 39 foreign banks having

their representative offices in India

67
 MAJOR FOREIGN BANKS IN
INDIA
• In 1853, the Chartered bank, first
foreign bank was formed
• In 1860, Comptoire d’Escompte de
Paris, a French based bank was
formed in Calcutta that was later
named as BNP Paribas after a
series of mergers
• Followed By HSBC in 1867, which
operates in nearly 51 branches.
• Later CitiBank came to India.
• Followed By ABN AMRO

68
 ROLE OF FOREIGN BANKS IN
INDIA
• Enhance competition in Banking sector.
• Technology and skill transfer
• Both foreign and local Banks have
been investing on financial Innovation.
• Modern Banking services are expanded.
• Enhanced Customer satisfaction.
• Enhanced provision of foreign currency.
• Foreign Banks Participation in Foreign
Exchange and money market contribute for
deepening of financial system.

69
 LEAD BANK
• SCHEME
Study Group – Chairman – Dr. D.R.Gadgil
appointed under the National Credit Council

•Report submitted in October 1969

Observations:

• Nationalized banks provide 83%

of total credit

• Banking facilities not available to

617 of 2700 towns

• 5000 villages were not covered by

70
 RECOMMENDATIONS OF PROF.
GADGIL
• Banks should provide integrated
banking facilities in unbanked areas

• Adoption of ‘Area Approach’ –in

unbanked areas- each bank should adopt
an area

• Help agriculture and SSI

• ‘District’ identified as the smallest

geographical unit for the scheme

71
 RECOMMENDATIONS OF
NARASIMHAN
COMMITTEE
• Nationalized banks should act as a ‘Lead Bank’

• Lead Bank should develop a district

• 336 Districts to be distributed between nationalized

banks ( 14 + SBI + 7 Subsidiaries Of SBI)

• Scheme applicable to all districts except the Metro.

Cities of Mumbai, Kolkata, Chennai, and Union
Territory of Delhi, Pondicherry & Goa.

72
 FUNCTIONS OF LEAD
• BANK resources and development
Survey
banking
of in the area
• Survey the dependence on money lenders
by industrial units, farms, etc.
• Survey the facilities for storing
&
(fertilizers
agricultural inputs), marketing, credit
facilities for marketing
• Offer training to staff for advice to
small borrowers & farmers in priority
sectors
• Assist other agencies and involve

73
co-op banks, RRB’s, SFC’s, KVIB,
Banks were allotted Districts on the basis of :

1.The capacity of the Bank – popularity of the bank in the

area

2. Geographical continuity of the Districts forming

clusters

3. If possible each Bank to operate in more than 1 State

4. If possible to have more than 1 Branch in one State

Lead Banks were to first undertake an impression survey of

whole District.

Then to do a detailed survey regarding saving potential,

credit requirement, credit gap or surplus

74
 ADVANTAGES FROM THE
SCHEME
• Spread the availability of banking facilities all over the
country

• Inter link the Commercial and Co-operative banks

• More effective Branch Expansion

• Better relationship between Government and Banks

• Integration of credit activities of banks

• Bottlenecks in the development of a District can be located

and removed

75
• It would assist in implementation of the District Plan
 DISTRICT
CREDIT PLANS
(DCP’S)
First implemented in 1974
DCP –consists of technically & economically
viable schemes which can be taken up for financing
It is a plan of bankable schemes in agriculture,
industry and services sectors of the District
The schemes can be taken up by different
financial institutions in the district
Implement the programme in collaboration with
other institutions
Monitor progress & evaluate progress in achieving
targets

76
 PROGRESS OF LEAD BANK
SCHEME
• By 1974 – 90% of geographical areas in
Assam, Bihar, West Bengal, Orissa, M.P., U.P
covered
• 2 Study Groups appointed by RBI in Gujurat
• &
Maharashtra concluded:

• A) Lead Banks were successful in

identifying potential areas for new branches
• TheyB)Formulation & implementation
suggested preparation of Annual of
DCP’s
Action was slow
Plans followed by Annual Credit Plans
(ACP’s)
• By mid nineties the Lead Bank Scheme
covered 493 Districts

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SERVICE AREA APPROACH
(SAA)
• 1980’s shortcomings of LBS identified
• SAA introduced in 1989
• Every branch and RRB allotted 15 to 25
districts i.e Service Area
• Survey of villages, then village-wise
credit plans prepared
• Credit plan to be monitored by Lead
Bank

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ADVANTAGES OF SERVICE AREA
APPROACH (SAA)

• Branch can concentrate on

development of a village
• Duplication can be
avoided
• Lending can be organized
and planned
• End use of loan is better

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controlled