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Banking and Non-banking Institutions

MS. MEERA MODY

OVERVIEW :
Introduction  Core Function  Types Of Banking Inst.  PSBs  Private Banks  Foreign Banks  RRBs  Banking Sector Reforms

banking sector is the lifeline of any modern BANKING INSTITUTIONS economy. • which plays a vital role in the success/failure of an economy. •They plan an important role in the mobilization of deposits and disbursement of credit to various sectors of the economy. •- acceptance of deposits from the public •- for the purpose of lending or investment •- repayable on demand or otherwise •- withdraw able by means cheque or otherwise •Two important functions of commercial banks emerge : acceptance of deposits and lending of funds

•The

FUNCTION OF BANKS Deposits  Credit creation  Lending of funds  Ancillary functions  .

Deposits Deposits are the main source of funds for commercial banks.  Which is then lent in the form of advances  The higher is the amount of funds lent.FUNCTION OF BANKS 1.  Economic growth = Savings Capital formation  Banks accepts deposits : (1)demand deposits (2) time deposits  .

demand deposits  Demand deposits are deposits which can be withdrawn without notice and can be repaid on demand. Credit creation  Banks are creators of credit. . 2. . the creation of credit Is an important function of a bank and this function distinguishes banks from the non-banking institutions. time deposits  Time deposits are deposits which are repayable after a fixed date or after a period of notice .

Ancillary functions  transfer of funds.foreign exchange. safe depositlocker.and merchant banking. Lending of funds  Commercial banks mobilize savings from the surplus spending sector and lend these funds to the deficit spending sector 4.3. . gift cheques.collection.

LENDING OF FUNDS BY BANKS Lending to agriculture  Lending to priority sector  Lending to industry  Infrastructure financing  Lending to sensitive sectors  Financing of NBFCs  Financing to factoring companies  .

BROAD SECTORS FOR PRIORITY SECTOR LENDING Agriculture  Small enterprises  Retail trade  Micro trade  Education loans  Housing loans  .

BANKING STRUCTURE IN INDIA .

these can be classified into two groups … (1)the state bank of India (2) nationalized banks  .SCHEDULED COMMERCIAL BANKS Commercial banks can be public sector banks .private sector banks. foreign banks and regional rural banks # Public sector banks Public sector banks are banks in which the government has a major holding.

the bank of Bombay and the bank of madras . Imperial bank was formed in 1921 by the amalgamation of three presidency banks-the bank of bengal. The imperial bank acted as a banker to the government until the establishment of the RBI in 1935. The main objective of nationalization was extending banking facilities in a large scale. The imperial bank was nationalized under the state bank of India act. They were taken over by the imperial bank of India as going concerns under a special legislation in 1920. The state bank of India came into existence on July 1.(A)STATE BANK OF INDIA        The state bank of India was initially known as the imperial bank.1955.1955. particularly in the rural and semi- . This marked the beginning of the first phase of nationalization of banks.

OBJECTIVES To promote agricultural finance  To help the reserve bank in its credit policies  To help the government to pursue the broad economic policies.  .

(B)NATIONALIZED BANKS In 1969.1980.  six commercial banks in the private sector with deposits over rs. the third phase of nationalization  At present .200 core were nationalized on august 15. this was the. second phase of nationalization. fourteen big Indian joint stock banks in the private sector were nationalized.there are 27 nationalized banks: the state bank of India and its six associates and 19 nationalized banks(new India bank was merged with Punjab national bank)  .

 . especially the weaker section and in the rural areas.The nationalized banks are a dominant segment in commercial banking.  Public sector banks have expanded their branch network and catered to the socioeconomic needs of a large mass of the population.

 Today.  But Narasimham Committee. Sys.  . no banks were allowed to set up in the private Sector. For private Players. there are 21 private sector banks in the banking sector.PRIVATE SECTOR BANKS After nationalization. recommended freedom to entry in the Fina. 14 old private sector banks and 7 new private sector banks.

 .NEW PRIVATE SECTOR BANKS Superior financial services  Designed innovative products  Tapped new markets  Accessed low-cost NRI funds  Greater efficiency The banks which have been setup in the 1990s under the guidelines of the narasimham committee are referred to as new private sector banks .

NEW PRIVATE SECTOR BANKS Axis Bank  Development Credit Bank  HDFC Bank  ICICI Bank  Indus Ind Bank  Kotak Mahindra Bank  Yes Bank  .

international and home country ranking. transfer of technology and specialized skills resulting in higher efficiency and greater customer satisfaction New foreign banks are allowed to conduct business in India after taking into consideration the financial soundness of the bank.FOREIGN BANKS IN INDIA     Foreign banks have been operating in India since decades ANZ grind lays had been in India for more than 100 years.rating. and economic and political relations between the two countries .international presence. while standard chartered bank has been around since 1858. The presence of foreign banks in India has benefitted the financial system by enhancing competition.

ADVANTAGES : Enhanced Competition  State.Of–Art Technology  Strong Retail presence  Active Players in Money Market & Forex Market  .

 Standard Chartered  .FOREIGN BANKS IN INDIA ABN Amro Bank  American Express Banking Corporation  Bank Of America  Bank Of Bahrain Kuwait  HSBC Ltd.

new set up of Banks.  .REGIONAL RURAL BANKS Although co-operative and commercial banks achieved a high reach and disbursement of Credit. there is a vast GAP in the area of Rural Credit.  In order to fill up this gap.  RRBs combines both the local feel and familiarity of co-operative and modern outlook of Commercial banks.RRBs came in existance.

 . laborers and small entrepreneurs.OBJECTIVES: Development of Agriculture.  Provide credit to small & marginal farmers. Trade. commerce Industry etc.  Each RRBs are sponsored by PSB.

Organization Structure of Cooperative Credit Institutions .

UCBs  Mobilize savings from middle and low income urban groups  Cater to small borrowers in non agricultural sector and rural areas  Mostly engaged in retail banking  Grew in 70s and 80s  Supervised by RBI while rural cooperative credit societies by NABARD  .

Rural Cooperative Banks  Form almost 70 % of the rural credit outlets  Receive refinance facility from NABARD  State Cooperative Banks (StCBs) form the upper tier. Central Cooperative Banks (CCBs) the middle tier and the Primary Agricultural Credit Societies (PACS) the lower tier of the short-term structure  StCBs – apex institutions – coordinating CCBs  CCBs channelise funds from StCBs to PACs  PACs deal directly with individual farmers  State Cooperative Agriculture and Rural Development .

(MNBC)  Residuary Non-banking company (RNBC)  Housing Finance Companies  Insurance companies  Stock broking companies  Merchant banking companies  Primary Dealers .NBFCs  Supplement the role of banks  More flexible structure than banks  Provide a range of services Types  Hire purchase finance company  Investment company  Mutual Benefit Financial Company (MBFC)  Equipment Leasing Company  Miscellaneous Non banking Co.

REFORMS IN THE BANKING SECTOR     Banking sector reforms were initiated to upgrade the operating standards.and financial soundness of banks to internationally accepted levels in an increasingly globalized market The government of India setup the narasimham committee(1991)to examine all aspects relating to structure. which was constituted by the RBI in December 1997 to examine the harmonization of the role and operations of development financial institution(DFIs)and .health.organizationg and functioning of the Indian banking system The recommendations of the committee aimed at creating a competitive and efficient banking system Another committee which deserves mention is the khan committee.

restructuring of weak banks but not merging them with strong banks.recommended the need for greater use of information technology (IT)even in the weak public sector banks.    The major recommendations of the committee were a gradual move towards universal banking. developing a function-specific regulatory framework and a risk based supervisory frame work The versa committee . encompassing both strong and weak entities or two strong ones. Closure of subsidiaries of weak public sector banks. exploring the possibility of gainful mergers between banks.which had been the most controversial of committes. . and voluntary retirement scheme(VRS)for at least 25 percent of the staff. banks and financial institutions.

 The first phase of the banking reforms is complete and the second generation reforms are under way. financial health and institutional infrastructure.The banking sector reforms were aimed at improving the policy framework.  .