Banking in India
- The origin of modern banking in India dates back to 1770, named Hindustan Bank was started by the English agency house of Alexander & co in Kolkata. The bank was however closed up in 1832
➡Presidency banks
- These three presidency banks continued till 1920
- In 1921 they were amalgamated into the Imperial Bank of India
Note: the combination of 1 hour companies into a new entity is called as amalgamation
- Allahabad Bank 1865 Allahabad Bank was established in 1865 and working even today it is the oldest public sector bank in India
- Oudh commercial bank (1881): the first limited liability Bank managed by Indians was oudh commercial Bank. It was liquidated in 1958
Note: limited liability is a corporate structure where by the members of the company cannot be held personally liable for the companies debts or liabilities
- Punjab National Bank: Punjab National Bank was established at Lahore (presently in Pakistan) in 1894. It was first bank purely managed by Indians
➡Definition of a BANK
- Section 5(B) of the banking regulation act 1949, defined the term "banking" is as follows: accepting, for the purpose of landing or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order of otherwise
➡Reserve Bank of India (RBI)
- Reserve Bank of India is India's Central banking institution, which controls the monetary policy of the Indian rupee
- It was established under the recommendations of Hilton - young commission (Royal commission) on Indian currency and finance
- It was established on 1st April 1935 in accordance with the provisions of The Reserve Bank of India act 1934
- The headquarters of RBI was initially established in Calcutta (West Bengal) was permanently mode to Mumbai (Maharashtra) in 1937
- RBI was nationalized on 1st January 1947
- The banking regulation act 1949, provides the legal framework for regulation of the banking system in India
➡MILESTONES BANKING IN INDIAN INDUSTRY
- Major steps taken by government of India to regulate banking sector in the country after independence
➡ROLL OF BANKING IN INDIA
- It encourages savings habit amongst people and thereby makes funds available for productive use
- It acts as intermediatory but when people having surplus money and those requiring money for various business activities
- It helps in national development by providing credit to formers, small scale industries and self-employed people as well as to large business houses which leads to balance economic development in the country
- It helps in raising the standards of living of people in general by providing loans for purchase consumer durables, houses, automobiles etc
➡BANKS IN INDIA
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| Banking in India |
- SBI Group(SBI & 5 Associates)
- Nationalized Banks(1969-14banks+1980-5banks)
- Other Public Sector Bank(BMB+IDBI Bank)
- Old Private Sector Bank
- New Private Sector Bank
➡Scheduled Commercial Bank (SCB)
- All banks which are mentioned in the 2nd schedule of RBI Act, 1934 are known as scheduled banks
➡Public sector banks(12)
- Finance Minister Nirmala Sitharaman announced on 30th August 2019 to merge multiple series of government banks of India. Thus, after this announcement, many banks joined, and now India consists of 12 public sector banks.
The “strategic disinvestment” of the government stake in IDBI Bank is a long-standing issue. The government had announced its plan to privatise the bank in February 2021.
➡STATE BANK OF INDIA (SBI) GROUP
- SBI was established on 1st July 1955
- It was set up under the recommendations of "All India Rural Credit Survey Committee" also known as Gorwala Committee
- State Bank of India was nationalised on 2nd June 1956
- It is the largest bank in India
- State Bank of India was previously called imperial Bank of India in 1921 which was created by amalgamation of 3 presidency banks Bank Of Bengal, Bank of Bombay and Bank of Madras
- Logo: Logo of the State Bank of India is a blue circle with a small cut in the bottom that depicts perfection and the small man. The common man being the centre of the bank's business
- SBI headquarters located at Mumbai (Maharashtra)
- SBI acts as an agent of RBI in those places were RBI has no branch office
➡Tagline / slogans of State Bank of India (SBI):
➡ASSOCIATES OF SBI
- SBI group consist of 5 associate banks
- Number of associates down from the 8 that it originally acquired in 1959
- State Bank of Bikaner and Jaipur (SBBJ) came into existence in 1963 went to banks namely State Bank of Bikaner 1944 and State Bank of Jaipur 1943 were merged
- In 2008 State Bank of Saurashtra got merged with State Bank of India
- In 2010 State Bank of indoor also merged with State Bank of India
- Note: combining of two or more companies in to single entity is called merger. This decision is usually mutual between both firms.
➡MAJOR SUBSIDIARIES OF SBI
1. SBI Capital Markets Limited
2. SBI Cards
3. SBI Life Insurance
4. SBI General Insurance
5. SBI Mutual Fund
6. SBI DFHI Ltd.
1.SBI Capital Markets Limited
- SBI capital markets limited was established in 1986
- It is India's largest domestic investment bank offering the entire range of investment banking and corporate advisory services
2.SBI Cards
- SBI cards was established in 1998
- It deals with State Bank of India credit card space
- SBI cards is a joint venture between "SBI and GE Capital" (US)
- Tagline / slogan of SBI cards is "make life simple"
3.SBI Life Insurance
- SBI Life Insurance was established in 2001
- SBI Life Insurance is a joint venture between "SBI and BNP Paribas Cardiff" (France)
4.SBI General Insurance
- SBI General Insurance is a joint venture between the "SBI and insurance Australia group" (IAG)
5.SBI Mutual Fund
- SBI Mutual Fund is a joint venture between "SBI and amundi asset management" (France)
- Tagline / slogan of SBI Mutual Fund is "a partner for life"
6.SBI DFHI Limited
- SBI DFHI Limited is a primary dealer. An institution created by RBI to support primary auctions of government securities and provide necessary depth and liquidity to secondary market in government securities
NATIONALISED BANKS
- Nationalization of banks in India was done in two phases
➡1st phase of nationalization
- On 19th July 1969, the banking companies (acquisition and transfer of undertaking) ordinance resulted in the ownership of 14 banks being transferred to the Government of India
- 14 major banks having deposits of more than 50 crore were nationalised in first phase
➡2nd phase of nationalization
- On 15th August 1980 6 more banks having Net Demand And Time Liabilities (NDTL) of more than 200 crore were nationalized
➡List of nationalized Bank 1st phase(14)
➡List of nationalised banks 2nd phase (5)
- In 1993 the Government of India merged new Bank of India with Punjab National Bank (PNB). It was the only major between nationalised banks and resulted in the reduction of the number of nationalised Bank from 20 to 19
➡Objective of banks nationalization
- To raise public confidence in banking system
- Expansion of banking activities in rural and semi urban areas
- To reduce / break the Monopoly of large industrial houses on the banking system
- To increase credit flow to the priority sectors like agriculture, small scale industries and small traders
➡MUTUAL FUND JOINT VENTURES OF NATIONALISED BANKS
➡OTHER PUBLIC SECTOR BANKS
➡PRIVATE SECTOR BANKS
- Those banks having greater part of states or equity held by the private shareholders are called Private Sector banks. In 1993 RBI started issuing new private sector banks
- HDFC Bank got the first new private sector banking licence from RBI in the year 1993.
➡IN INDIA PRIVATE SECTOR BANKS
- As per RBI norms, minimum Capital requirement to set up a private sector bank is 500 crore
➡Foreign banks
- A foreign bank is one whose head office is located outside the geographical boundaries of India in another country. They are governed by the rules and regulations prevalent in their parent country. However their branch operating in India would be mandatorily required to follow the rule of RBI
- These are mainly concerned with financing foreign trade
- Foreign banks are allowed to operate in India through branches and representative offices
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| 5 Major Foreign Banks |
➡Functions
- Following are the various functions of foreign banks:
- Remitting money from one country to another country
- Discounting of foreign bills
- Helping import and export trade
➡Numbers about foreign banks
- An international bank is a financial institution that provides financial services to international consumers from outside of its native country. There are now 46 foreign banks in India, according to the Reserve Bank of India (As of July 14, 2020).
- Standard chartered Bank (United Kingdom) is one of the oldest foreign banks that comes to India i.e. 150 years ago, now operates the maximum number of branches in India
➡REGIONAL RURAL BANKS
- The Narasimham committee on rural credit recommended the establishment of regional rural banks to meet the needs of rural areas
- The equity of RRB is contributed by the central government concerned state government and the sponsor Bank in the proportion of 50:15:35 respectively
- The area of operations of the RRB is limited to a specified region relating to one or more districts in the concerned state
- Authorized capital of RRB is 2000 crore
- Prathama Bank is the first RRB of India's sponsored by Syndicate bank established on 2nd October 1975 with its head office at Moradabad, Uttar Pradesh
- Sikkim and Goa States have not at established RRB's
- Regulatory authority for regional rural banks is NABARD. For opening a new branch a RRB requires RBI licence
- RRB are managed by a board of directors. This banks are refined at 2% below bank rate
- At present total number of regional rural banks stands at 56
➡Objective
- The objective of the RRB's is to develop the rural economy by providing credit and other facilities for the purpose of development of agriculture, trade, commerce, industry and other productive activities in the rural areas
➡Resources
➡SHAREHOLDING PATTERN OF RRB
➡CO-OPERATIVE BANKS
- People who come together to jointly serve their common interest often from a Co-operative society under the co-operative society act
- Rural co-operative banks primarily meet financial needs of agriculture and allied activities in the rural areas; whereas urban Co-operative banks made financial needs of small size trade and commerce activities operating in the urban areas
- The size of assets / liabilities of co-operative banks are much smaller in comparison to commercial banks
- Cooperative Bank operator on "no-profit no-loss" participle
➡State Co-operative Banks
- State Co-operative Bank means the principal cooperative society in a state the primary objective of which is the financing of other co-operative societies in the state
➡Urban Cooperative Banks
- Urban cooperative banks are registered under the cooperative societies act of the respective state governments. Urban Cooperative Banks having multi-state presents are resisted under multi-state cooperative societies act and regulated by the central government
➡LOCAL AREA BANKS
- Local area banks were introduced in 1996 to setting up new private local banks with jurisdiction over three contiguous districts
- Total for local area banks are functioning at present
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| Local Area Banks |
➡SMALL AND PAYMENT BANKS
- The reserve Bank of India is your guidelines for small and payment banks that aim to take banking services to more people and small business. RBA community headed by three nachiket mor, If Armor executed director at ICICI Bank that started ways to promote financial inclusion
➡PAYMENT BANKS
- The central bank defines a payment bank as one that will be allowed to take deposits, issue debit cards, offer a remittances up to a small limit (1 lack) and distribute financial products such as insurance and mutual funds to its customers but cannot lend money
- In case of payments banks, entities ranking from telecom companies prepaid payment instrument (PPI) is yours supermarket chains and non-banking finance companies NVFCs Etc. can apply
- Payments banks can accept deposits current and savings bank from individuals small business and other entities. However, they cannot accept non-resident Indian deposits
- If prompter can also choose to have a giant adventure with an existing scheduled commercial bank to set up a payments bank
- The minimum paid up equity capital for these banks will be 100 crore
- The prompter contribution has been set at a minimum of 40% at the start
- Famous bank will initially be respected to holding a maximum balance 1,00,000 per individual customer
- They can offer payments and remittance services and issues ATM cards, but not credit cards
- It can contract outside liabilities (deposits) but not exceeding 33.33 times its net worth
- As per final guidelines, apart from amounts maintained as cash with the central bank (define it by the cash reserve ratio or CRR), payments banks will be required to invest at least 75% of their demand deposits in statutory liquidity ratio (SLR)-eligible government securities or treasury bills with maturity up to 1 year
- The remaining 25% of their fixed deposits can be parked with other scheduled commercial banks for operational purposes and liquidity management
➡SMALL BANKS
- Is small finance bank will operate in similar fashion to a normal bank (by taking deposits offering withdrawals as well as offering loans) but with a focus on small un-servered and under-served areas of the country
- The small banks are intended to provide savings products and credit to small businesses and small and marginal farmers
- Small banks will be required to maintain a minimum capital adequacy ratio (CAR) off 15% of loans on a continuous basis
- RBA has Saturday 75% of loans must be to the so called priority sector which includes agriculture and small businesses
- Individual with 10 years of experience in banking and finance and companies and societies controlled by Indian residence together with NBFCs microphones institutions and local area banks (LABs) can op t for conversion into small banks
- The minimum paid up equity capital for small banks is 100 crore lower than the 500 crore far new full-fledged private banks
- Foreign shareholding in these banks has been capital at 74% just like in existing private banks
- The validity of the in principle approval issued by the Reserve Bank will be 18 months
- On 19th April 2015 RBI grants in principles approval to 11 companies for payment banks
- RV had received 51 applications for payment bank licenses, out of which 11 have been accepted
The following is the list of those who surrendered their license:
1.Cholamandalam Distribution Services
2.Sun Pharmaceuticals
3.Tech Mahindra
The following is the list of Active Payments Banks:
1.Airtel Payments Bank
2.India Post Payments Bank
3.Fino Payments Bank
4.Jio Payments Bank
5.Paytm Payments Bank
6.NSDL Payments Bank
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| Active Payments Banks |
The following is the list of defunct payments banks:
1. Aditya Birla Payments Bank(26 July 2019)
2.Vodafone m-pesa Limited
- RBI grants Small Finance Banks licenses to 10 entities. Total 72 entities are applied for a small finance bank license.10 granted approval by RBI are micro finance institutions
.png "Small Finance Banks") |
| Small Banks |
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| Small and payment banks comparison |
➡LEAD BANK SCHEME
- After the nationalization of 14 banks in 1969, government initiated steps to extend banks reach to the rural areas
- "National Credit council" study group headed by prof. D.R. Gadgil first recommended "Area" approach
- The committee of bankers (Nariman committee) appointed by RBI accepted the "Area" approach and gave the name Lead Bank Scheme
- Under the Lead Bank scheme, each district had been assigned to different commercial banks to act as a consortium leader
➡POINTS TO REMEMBER
- 20% is the maximum ceiling on foreign direct investment (FDI) in the equity of public sector banks. 74% is the maximum ceiling on FDI in equity of private sector bank
- The 7th schedule of the India's constitution deals with banking
- The definition of term "Bank" is given in the banking regulation Act 1949
- In banking sector the 15th day of a month is known as "customer day"
- Central Government shareholding in equity of nationalized banks does not fall below 51%
- Indian banks have the maximum foreign branches in United Kingdom (UK)
➡What is the difference between Bank and NBFC
- Banks are incorporated under banking regulation Act 1949, while non banking Finance company incorporated under companies Act 1956
- In India both are regulated by RBI 500 core is the minimum capital required for set up a new private sector bank in India, while 2 core is the minimum capital required for set up a NBFC
- NBFC's cannot accept demand deposits (CASA deposits). They can accept public deposits for a minimum period of 12 months and maximum period of 60 months
- The deposits with NBFC's are not insurance while Bank deposits are insured by deposit insurance credit guarantee corporation of India (DICGC)
- NBFC's cannot issue checks drawn on itself
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