Management of financial service

and institutions

Unit 1

Prepared by:

Pushpendra Nauhwar GLA University, Mathura

Bank

• Bank is a lawful organization, which accepts

deposits that can be withdrawn on demand. It

also lends money to individuals and business

houses that need it.

• Primary service:- excepting deposits, Grauting

loan .

• Secondary:- Debit card, Home loan, Credit

Card, Car loans etc

Banking industries in india

• Bank of Hindustan was established in 1770 and liquidated in 1829-32

• The General Bank of India coming into existence in 1786.

• Bank of Bengal obtains charter in 1809, Bank of Bombay and the Bank of Madras were established in 1840 and 1843, were merged into the Imperial Bank of India (IBI) under the Imperial Bank of India Act, 1920 which is now known as the State Bank of India.

Accounts of Bank

• CASA= Current Account Saving Account

• Current Account:- Use o l usi ess holder’s overdrafts facilities only for current A/c

• Saving Account:- Minimum amount maintain, Int. provide mini. age 10 years

• RAFA= Recurring Account, Fixed Account

• Recurring Account:- Fixed time period 5years, Mini time – 3 months, Max time – 10 years

• Fixed Accounting:- Maximum interest in this account mini time – 7 days maximum time – 10 years

Nationalization of Banks

• All banks were nationalized in 19 july 1969.

• A statement passed all bank under the SBI

• 14 Banks Nationalized in 1969

- Allahabad Bank - Syndicate Bank

- Central Bank - union bank of India

- Bank of Maharashtra – United bank of India

- Punjab National Bank - Indian Bank

- Bank of Baroda - Indian oversees bank

- Bank of India - UCO Bank

- Dena Bank - Canara Bank

Indian Banking Structure

• RBI:- The RBI is the supreme monetary and banking authority

in the country and controls the banking system in India.

• Commercial Bank:-Commercial banks in India are largely

Indian-public sector and private sector with a few foreign

banks & available to large and small industrial and trading

units mainly for working capital requirements.

• Scheduled and Non-Scheduled Banks: The scheduled banks

are those which are enshrined in the second schedule of the

RBI Act, 1934.

• Regional Rural Banks: The emphasis is on providing such

facilities to small and marginal farmers, agricultural laborers,

rural artisans and other small entrepreneurs in rural areas.

• Cooperative Banks: Cooperative banks are so-called because they are organized under the provisions of the Cooperative Credit Societies Act of the states. The cooperative credit institutions operating in the country are mainly of two kinds: agricultural (dominant) and non-agricultural.

• Public sector Bank:- National bank and state bank of India

• Private Bank:- ICICI, HDFC, Exis Bank

• Foreign Bank:- HSBC, Royal Bank of Scotland

• Development bank:- IFCI (Indian financial corporation of India)

SFC (State Financial Corporation)

Function of bank

A. Pri ary Fu ctio s of Ba ks ↓

1. Accepting Deposits(Saving Deposits, Fixed Deposits, Current Deposits, Recurring Deposits)

2.Granting of Loans and Advances(Overdraft, Cash Credits, Loans, Discounting of Bill of Exchange)

B. Seco dary Fu ctio s of Ba ks ↓

• 1. Agency Functions (Transfer of Funds, Collection of Cheques, Periodic Payments, Portfolio Management, Periodic Collections, Other Agency Functions

• 2. General Utility Functions (Issue of Drafts, Letter of Credits, etc.,Locker Facility, Underwriting of Shares, Dealing in Foreign Exchange, Project Reports, Social Welfare Programmers, Other Utility Functions

Intermediates

• Company of land Scope of India.

• Term landing institutions

• Non – Banking financial companies

• Insurance company

• Mutual funds

Based III norms

• Based committee on banking and supervision to avoid 100 polis in its capital rules.

• According to new Basel-III norms, which kick in from March 2019, Indian banks need to maintain a minimum capital adequacy ratio (CAR) of nine per cent, in addition to a capital conservation buffer, which would be in the form of common equity at 2.5 per cent of the risk weighted assets.

• The government estimates that state-run lenders would require Rs 1.8 lakh crore over the next four years. Banks would have the onus to raise the balance Rs 1.1 lakh crore from the market. This is because the finance ministry has promised to pump into PSBs Rs 25,000 crore each in FY16 and FY17 and Rs 10,000 crore ea h i FY1 a d FY1 . RBI’s move on Tuesday will serve in meeting the capital requirements.

• What are the objectives:-

→ i prove the a ki g se tor's a ilit to a sor sho ks arisi g from financial and economic stress, whatever the source

→ improve risk management and governance

→ strengthen banks' transparency and disclosures.

• How Does Basel III Requirements Will Affect Indian Banks :-

The Basel III which is to be implemented by banks in India as per

the guidelines issued by RBI from time to time, will be

challenging task not only for the banks but also for GOI. It is

estimated that Indian banks will be required to raise Rs 6,00,000

crores in external capital in next nine years or so i.e. by 2020

(The estimates vary from organization to

organization). Expansion of capital to this extent will affect the

returns on the equity of these banks specially public sector

banks. However, only consolation for Indian banks is the fact

that historically they have maintained their core and overall

capital well in excess of the regulatory minimum.

• Relaxation of branch authorization policy:-

• Section 23 of the Banking Regulation Act, 1949.

• In line with this rationalization, and in order to allow banks greater operational

• freedom, the instructions regarding merger, closure, shifting, part shifting, opening of extension counters and reporting requirements have been reviewed.

• Merger/Closure/ Shifting of branches:-Banks may shift, merge or close all branches except rural branches and sole semi urban branches at their discretion.

• Opening of Extension Counters:-Presently banks can open Extension Counters in the premises of institutions where they are the principal bankers, or obtain a NOC from the principal banker.

• Relaxation in KYC Norms:-Even for a opening a savings bank account, our banks require detailed information about the account holder including a recent photograph, address proof, identity proof and the account opening form. Some banks also require introduction for any account holder with the same bank before opening a new account.

• Users need not submit two dedicated documents for address and identity proof and a single document would be acceptable by all banks.

• Single Document Proof to Suffice.

• Small Accounts Permissible without KYC Documents.

• Non Frills accounts:-A no-frills account is a bank

account that can be opened and maintained with a

zero balance, levies zero or nominal charges and does

away with the unnecessary services or frills. The

downside of such an account is that most of the

facilities offered are limited. Once this limit is exceeded,

the bank charges for these services.

• A no-frills account is a real zero balance account in that

there is no need to keep any minimum balance in the

account and non-maintenance charges are not levied.

Zero balance accounts, on the other hand, do allow you

to open the account without any minimum balance, but

you may need to subsequently fulfill the minimum

balance requirements of the bank or you are charged

non-maintenance penalties.

• CBS = Core Banking Solutions:-Core Banking Solution (CBS) is networking of branches, which enables Customers to operate their accounts, and avail banking services from any branch of the Bank on CBS network, regardless of where he maintains his account. The customer is no more the customer of a Branch. He becomes the Bank's Customer.

• CBS Softwares

• Finacle (by Infosys)

• TCS BaNCS (by Tata Consultancy Services (TCS))

• HCL BancMate (by HCL Info systems)

• FinnOne (by Nucleus Software), etc.

• RBI= Reserve Bank of India:-The Reserve Bank of India is India's central banking institution, which controls the monetary policy of the Indian rupees.

• Address: Central Office Building, Shahid Bhagat Singh Road, Fort, Mumbai, Maharashtra 400001

• President: Urjit Patel

• Founded: April 1, 1935, Kolkata

• Reserve: 363 billion USD

• Branches and support bodies:-The Reserve Bank of India has four zonal offices at Chennai, Delhi, Kolkata and Mumbai.[35] It has 19 regional offices and 10 sub-offices. Regional offices are located in Ahmedabad, Bangalore, Bhopal, Bhubaneswar, Chandigarh, Chennai, Delhi, Guwahati, Hyderabad, Jaipur, Jammu, Kanpur, Kochi, Kolkata, Lucknow, Mumbai, Nagpur, Patna and Thiruvananthapuram. It also has 9 sub-offices located in Agartala, Dehradun, Gangtok, Panaji, Raipur, Ranchi, Shillong, Shimla and Srinagar. Recently the RBI has opened two more sub-offices at Aizawal and Imphal.

• The bank has also two training colleges for its

officers, viz. Reserve Bank Staff College,

Chennai and College of Agricultural Banking,

Pune. There are three autonomous

institutions run by RBI namely National

Institute of Bank Management (NIBM), Indira

Gandhi Institute of Development Research

(IGIDR), Institute for Development and

Research in Banking Technology (IDRBT).[38]

There are also four Zonal Training Centres at

Mumbai, Chennai, Kolkata and New Delhi.

• Main functions:-

• Monetary Authority:-Monetary authority or monetary policy refers to the use of instruments under RBI control to regulate availability, cost and use of money and credit and providing the citizens the appropriate available monetary facilities. Central bank does this to maintain pricing stability, low & stable inflation as well as promoting economic growth of country.

• Issuer of Currency:-Reserve bank of India is the sole body who is authorized to issue currency in India. While coins are minted by GoI, the RBI works as an agent of GoI for distributing and handling of coins. For printing currency, RBI has four facilities at Dewas, Nasik, Mysore and Salboni. New notes of Rupees 500 and 2000 have been issued on 8th Nov 2016

• Banker and Debt Manager to Government:-Just like individuals need a bank to carry out their financial transactions effectively & efficiently, Governments also need a bank to carry out their financial transactions. RBI serves this purpose for the Government of India (GoI). As a banker to the GoI, RBI maintains its accounts, receive payments into & make payments out of these accounts. RBI also helps GoI to raise money from public via issuing bonds and government approved securities.

• Banker's bank and supervisor:-RBI also works as banker to all the scheduled commercial banks. All the banks in India maintain accounts with RBI which helps them in clearing & settling inter bank transactions and customer transactions smoothly & swiftly. Maintaining accounts with RBI help banks to maintain statutory reserve requirements. RBI also acts as lender of last resort for all the banks.

• Regulator of the Banking System:-RBI has the responsibility of regulating the nation's financial system. As a regulator and supervisor of the Indian banking system it ensures financial stability & public confidence in the banking system. RBI uses methods like On-site inspections, off-site surveillance, scrutiny & periodic meetings to supervise new bank licenses, setting capital requirements and regulating interest rates in specific areas. RBI is currently focused on implementing Basel III norms.

• Manager of Foreign Exchange:-With increasing integration of the Indian economy with the global economy arising from greater trade and capital flows, the foreign exchange market has evolved as a key segment of the Indian financial market and RBI has an important role to play in regulating & managing this segment. RBI manages forex and gold reserves of the nation. On a given day, the foreign exchange rate reflects the demand for and supply of foreign e ha ge arisi g fro trade a d apital tra sa tio s. The RBI’s Financial Markets Department (FMD) participates in the foreign exchange market by undertaking sales / purchases of foreign currency to ease volatility in periods of excess demand for/supply of foreign currency.

• Regulator and Supervisor of the Payment and Settlement Systems:-Payment and settlement systems play an important role in improving overall economic efficiency. The Payment and Settlement Systems Act of 2007 (PSS Act) gives the Reserve Bank oversight authority, including regulation and supervision, for the payment and settlement systems in the country. In this role, the RBI focuses on the development and functioning of safe, secure and efficient payment and settlement mechanisms. Two payment systems National Electronic Fund Transfer (NEFT) and Real Time Gross Settlement (RTGS) allow individuals, companies and firms to transfer funds from one bank to another. These facilities can only be used for transferring money within the country.

• NEFT operates on a deferred net settlement (DNS) basis and settles transactions in batches. The settlement takes place for all transactions received till a particular cut-off time. It operates in hourly batches — there are 12 settlements from 8 am to 7 pm on weekdays and SIX between 8 am and 1 pm on Saturdays. Any transaction initiated after the designated time would have to wait till the next settlement time. In RTGS, transactions are processed o ti uousl , all through the usi ess hours. RBI’s settle e t ti e

is 9 am to 4:30 pm on weekdays and 9 am to 2:00 pm on Saturdays

• Developmental Role:-This is one of the most

critical role RBI plays in building the country's

financial structure. Key tools in this effort

include Priority Sector Lending such as

agriculture, micro and small enterprises

(MSE), housing and education. RBI work

towards strengthening and supporting small

local banks and encourage banks to open

branches in rural areas to include large section

of society in banking net.

Internet banking and mobile banking