7. Indian Banking System

7/25/2019 7. Indian Banking System

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Structure of Indian Bankingsystem

Central Bank (R.B.I)


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Origin OF RBI The origin of the Reserve Bank can e traced to !"#$%

&hen the Royal Commission on Indian Currency andFinance'also kno&n as the ilton*oung Commission'recommended the creation of a central ank tose+arate the control of currency and credit from thegovernment and to augment anking facilitiesthroughout the country.

The Reserve Bank of India ,ct of !"- estalished the

Reserve Bank as the anker to the central governmentand set in motion a series of actions culminating in thestart of o+erations in !"-/.

Since then% the Reserve Bank0s role and functionshave undergone numerous changes'as the nature of

the Indian economy has changed.


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RBI ORGANISATIONSTRUCTURE


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Management and structure


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1hat do they do 2

3onetary ,uthority

Issuer of Currency

Banker and 4et 3anager to5overnment

Banker to Banks Regulator of the Banking System

3anager of Foreign 67change

3aintaining Financial Staility

Regulator and Su+ervisor of the8ayment and SettlementSystems

4evelo+mental Role


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Reserve Bank of India 9 legal

Regulations

Reserve Bank of India &as estalished in!"-/% after the enactment of the ReserveBank of India ,ct !"- (RBI ,ct).

Banking Regulation ,ct%!"" (BR ,ct) gave&ide +o&ers to RBI as regards toestalishment of ne& anks:mergers andamalgamation of anks% o+ening of ne&

ranches% etc BR ,ct%!"" gave RBI +o&ers to regulate%

su+ervise and develo+ the anking systemin India


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Reserve Bank of India

CENTRAL BANKRBI

REGULATOR SUPERVISOR FACILITATOR


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CO336RCI,; B,


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DEFINITION OF COMMERCIAL BANK >

Commercial Banking has een de?ned as@,cce+ting for the +ur+ose of lending Ainvestment% of de+osit of money from the

+ulic% re+ayale on demand order orother&ise and &ithdra& ale y cheue%draft or other&ise.

The Banking Companies (Regulation) Act,1949


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!) , ank is a commercial estalishment

a dealer in dets &hich

#) aims at earning +ro?ts

-) y acce+ting de+osits from +ulic% &hich

) are re+ayale on demand or other&ise Dthrough

/) cheues% draft or other&ise D and

$) &hich are used for lending or investment

CO


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CO336RCI,; B,


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8EB;IC S6CTOR B,


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8EB;IC S6CTOR B,


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8RI,T6 S6CTOR B,


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8RI,T6 S6CTOR B,


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Foregn Ban! In Inda

foreign ank is a "an!that is oligated to follo& the regulations of oth thehome and host countries. ,t +resent some foreign anks in India are in thefollo&ing >

!) ,B Bank ;td.

#) ,B


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Other Banks

Regona# rura# "an!s > Regional RuralBanks (also RRBs) are locallevel anking organiLations o+erating in dierentStates of India. They have een created &ith a vie&

to serve +rimarily the rural areas of India &ith asicanking and ?nancial services. o&ever% RRBs mayhave ranches set u+ for uran o+erations and theirarea of o+eration may include uran areas too.

The area of o+eration of RRBs is limited to the areaas noti?ed y 5overnment of India covering one ormore districts in the State. The numer of Regional

rural anks in India is around MJ.


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The main functions of anks are acce+ting de+osit and lendingloans>

A ACCE$TING DE$OSITS%

,cce+ting de+osits is the main function of commercial anks. Banksoer dierent ty+es of Bank accounts to suit the reuirements andneeds of dierent customers. 4ierent ty+es of Bank accounts areas follo&s >

&' F(ed de)osts>

3oney is de+osited in the account for a ?7ed +eriod. ,fter e7+iry ofs+eci?ed +eriod +erson can claim his money from the ank. Esuallythe rate of interest is ma7imum in this account. The longer the+eriod of de+osit% the higher &ill e the rate of interest on de+osit.

8RI3,R* FE


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Current A*C de)ost>

This is also called o+en account. The s+ecial feature

of this account is that amount can e de+osited or&ithdra&n any numer of time &ithout giving anynotice to the ank.

These are mainly maintain y usiness communityto facilitate freuent transaction &ith ig amounts.5enerally no rate of interest or very lo& rate ofinterest is +aid on this account.

,s the de+osit is re+ayale on demand% it is alsokno&n as demand de+osit 1ithdra&als are al&aysmade y cheue.

+ Sa,ngs "an! A*C -


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+' Sa,ngs "an! A*C -%

It is kind of demand de+osits &hich isgenerally ke+t y the +eo+le for the sake

of safety. This facility is given for smallsaver and normally a small rate of interestis +aid. There is no restriction on thenumer of de+osits ut the numer of&ithdra&als are restricted (it may erestricted to once or t&ice a &eek)

.' Recurrng de)ost A*C >

In case of recurring de+osit the ?7edamount is de+osited in a ank every monthfor a ?7ed +eriod of time. The amount of

interest charged is also more in case of R4a c as com ared to savin s ank a c.


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B %LENDING LOANS

!. Ca## #oans >

These loan are called ack at any time(given for !to ! days).

These are sanctioned for a +eriod u+ to ! year.

+'Medum term #oans>

These are sanctioned for the +eriod varyinget&een ! and / years.

.' Long term #oans -

These loan are sanctioned for a +eriod of more than/ years

Other ty+es of loans >


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Other ty+es of loans >

&' Ban! O,erdra0t> The customer &ho maintains a currentaccount &ith the ank% takes +ermission from the ank to&ithdra& more money than de+osited in his acc 7ount. The e7tra

amount &ithdra&n is called overdraft. This facility is availale totrust&orthy customers for a small +eriod. This facility is usuallygiven against the security of some assets or on the +ersonalsecurity of the customer (negotiale security).Bank overdraftfacility is availale for a short +eriod.Interest is charged on theactual amount overdra&n y the customer.

1' Cas/ credt>

Ender this arrangement% the ank advances cash loan u+ to as+eci?ed limit against current assets and other securities. Theank o+ens an account in the name of the orro&er and allo&s

him to &ithdra& the orro&ed money from time to time suect tothe sanctioned limit. Interest is charged on the amount actually&ithdra&n.

+' B##s o0 E(c/ange>

The ank +rovide funds to their customers y +urchasing or

discounting ills of e7change. The ank charges commission u+to the maturity +eriod of ills.


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,+art from the main functions% the anks also +rovide ?nancial servicesto the cor+orate sector and usiness and society. They are as follo&s>

A9 AGENC2 FUNCTIONS -%

1here ank act as agent of its customer are called agency functions.

Funds Transfer

Cheues collection

8eriodic +ayments:collection

S6CO


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8eriodic +ayments:collection

8ortfolio management

Other functions


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B9 GENERAL UTILIT2 FUNCTIONS

Issue of demand drafts

;ocker facility.

Ender&riting of shares.

4ealing in foreign e7change. 8roect re+orts.

4eit card A Credit card

Other utility functions.


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Coo+erative Banks

Co o+erative Banks in India areregistered under the Coo+erativeSocieties ,ct. The coo+erative ank

is also regulated y the RBI. Theyare governed y the BankingRegulations ,ct !"" and Banking

;a&s (Coo+erative Societies) ,ct%!"$/.


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;egal regulatory frame&ork

Legal frame workofBanks

Banking Regla!ionA"!#$%&%

Reser'e Bank of In(iaA"!#$%)&


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Banking in India

Banking in India is governed y BR,ct%!"" and RBI ,ct%!"-

Banking in India iscontrolled:monitored

y RBI and 5ovt. of India


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Banking Regulation ,ct%!""(BR ,ct)!

BR ,ct covers anking com+aniesand coo+erative anks% &ith certain

modi?cations. BR ,ct is not a++licale to

a) +rimary agricultural credit societies

) land develo+ment anksBR ,ct allo&s RBI (Sec ##) to issuelicense for anks


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Banking Regulation ,ct%!"" (BR,ct)#

Regla!ion

Con!rol o'ermanagemen!

Penali!ies

Ss*ension+,in(ing *


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Reserve Bank of India,ct%!"-(RBI ,ct)!

RBI ,ct &as enacted to constitute the

Reserve Bank of India RBI ,ct has een amended from time

to time

RBI ,ct deals &ith the constitution%+o&ers and functions of RBI


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Reserve Bank of India ,ct%!"-(RBI,ct)#

RBI ,ct deals &ith>

incor+oration% ca+ital management and

usiness of anks

central anking functions

?nancial su+ervision of anks and

?nancial institutionsmanagement of fore7:reserves

control functions > ank rate%audit%accounts

+enalities for violation


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Indian Banking Signi?cant events !

Three +residency anks &ere estalished in Calcutta (!NJ$) inBomay (!NJ) and in 3adras (!N-)

In the early +art of !"0S% on account of the S&adeshi

movement a numer of oin stock anks &ere estalished yIndians like Bank of India% Bank of Baroda and Central Bank of

India. In !"#! the three +residency anks &ere merged and the

Im+erial Bank of India &as created.

4uring the +eriod !"JJ to !"#/ many anks failed% and the

5overnment a++ointed in !"#" a Central Banking 6nuiryCommittee to trace the reasons for the failure of anks.

The Reserve Bank of India ,ct &as +assed in !"- and the RBIcame into e7istence in !"-/ and RBI &as nationalised in !""

The Banking Regulation ,ct%!"" gave &ide +o&ers to RBI toact as the regulator for anks in India


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Indian Banking Signi?cant events #

In !"//% State Bank of India ecame thesuccessor to the Im+erial Bank of India %under theState Bank of India ,ct%!"//.

In !"/"% State Bank of India (Susidiary Banks),ct &as +assed to enale SBI to take over State,ssociated anks as SBI0s susidiaries

In !"$"% the 5overnment of India nationalised !maor commercial anks having de+osits of Rs./Jcrore or more

In !"M/ Regional Rural Banks &ere estalishedunder RRB ,ct !"M$% &hich &as +receded y RRBOrdinance in !"M/

In !"NJ% si7 more commercial anks &erenationalised% &ith a de+osit of Rs.#JJ crore ormore


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8rogress of anking in India

In the lieralised% +rivatised andgloalised environment% ankso+eating in India have diversi?ed

their anking activities y oering8ara Banking facilities like 3erchant anking:3utual funds

,T3s:Credit Cards:Internet anking

enture ca+ital funds Factoring

( )


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=no& *our Customer (=*C)! =*C> =no& *our Customer

=no& your customer (=*C) norms area++licale to all ty+es of customera:cs.

It deals &ith not only to identify thecustomer ut also to understand the

activities of the customer% and toensure that the o+erations in thecustomer account:s is:are for

genuine +ur+ose

C ( C)


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=no& *our Customer (=*C)# ,++lication of =*C norms have

ecome

im+ortant due to various reasons.

In vie& of many issues on account ofdrugs smuggling% money laundering%terrorist activities% arms dealing%etc.%

anks need to e careful in dealing&ith their clients.

= * C (=*C)


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=no& *our Customer (=*C)-

Cs!omerA""e*!an"ePoli"-

.oni!oring ofTransa"!ions

Risk .anagemen!

Cs!omerI(en!ifi"a!ionPro"e(re


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Bank Customers !

Power ofA!!orne-

/ol(ers

E0e"!ors1Trs!ees

Illi!era!ePerons

.inors

2oin! a""on!

3o(ers

In(i'i(als

Bank Cs!omers


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Bank Customers #

SolePro*rie!or

Cl4s1So"i!ies

Cor*ora!es

/in(Un(i'i(e(Famil-

Par!ners3i*


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B,

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7. Indian Banking System

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