1.BBA-III SEMESTERIndian Banking System- UNIT- 1Structure and Organization of Banks , Reservebank of India, Apex banking institutions,Commercial banks , Regional rural banks , Co-operative banks , Development banks.STRUCTURE & ORGANISATION OF BANKS :Indian banking structure can be broadlyclassified in to two categories :(i) ORGANISED SECTOR(ii) UNORGANISED SECTOR

2. ORGANISED SECTOR BANKSMain constituents of organized sectorbanks are: 1. RESERVE BANK OF INDIA 2. COMMERCIAL BANKS 3. CO-OPERATIVE BANKS 4. SPECIALISED BANKS 3. Reserve Bank of IndiaReserve Bank of India is the apex monetaryInstitution of India which is responsible for theregulation of currency, printing of banknotesand minting coins. It is also called as thecentral bank of the country. The bank wasestablished on April1, 1935 in Kolkataaccording to the Reserve Bank of India act1934 but was later shifted to Mumbai in 1937.RBI was initially privately owned but sincenationalization in 1949, the Reserve Bank isowned by the Government of India. 4. COMMERCIAL BANKSCommercial Banking Systemconsists of :(i) Scheduled Banks(ii) Non scheduled BanksScheduled Banks : Scheduled banksare included in the second Scheduleof the Reserve Bank of India underAct, 1934. Every scheduled bankmust have a paid up capital &reserves of an aggregate value of atleast Rs.5 lakhs. 5. CLASSIFICATION OF SCHEDULEDBANKS(I) PUBLIC SECTOR BANKS: Thesebanks are owned & controlled by thegovernment . The public sectorcommercial banking in India started withsetting up of State Bank of India in 1955. Atpresent 8 state banks & associate banksare in the group of S.B.I. i.e. State bank ofHyderabad, State Bank of Indore etc. aswell as 20 nationalized banks i.e. Bank ofBaroda , Allahabad Bank etc. RegionalRural Banks are also the scheduled bankswhich are governed by R.R.B. ACT,1976. 6. (II) Private Sector Banks : Private sectorbanks continued to operate in the bankingsector after nationalization of 20 banks in 1969&1980. According to new policy framed inJanuary1993 by R. B. I. new banks wereformed in private sector . Such as :The U.T.I. Bank Ltd., HDFC Bank Ltd., etc. 7. (III)Foreign Banks : Foreign banks are working inIndia from British days. ANG Grindlays Bank has56 branches, The Standard Chartered Bank has 21branches. New foreign banks are : Barclays bank,Bank of Ceylon, Fuji bank etc.CO-OPERATIVE BANKS: It mainly meets thecredit needs of rural areas & agriculture. Co-operative banks has three tier functioning . StateCo-operative bank acts as an apex body at thestate level , District co-operative banks areoperating at the district level and co-operativesociety (banks) are operating at villages & town 8. SPECIALISED BANKSThese institutions look after differentsectors of economy . For example:IDBI,NABARD ,EXIM BANK ETC. 9. Unorganized Banking SectorThe unorganized sector of banking inIndia consists of money lenders andindigenous bankers known asshroffs, sahukars, mahajans, chettis,etc. These are individuals doingbanking business, along with tradingand commission business in manycases. Their activities are notorganized. They follow rules of theirown. The rate of interest charged bythem is very high. 10. Organizational structure ofbanks 11. Definition of organizationalstructure of banksAccording to G.Dessler, An organizationalset up consists of people who carry outdifferentiated tasks which are co-ordinatedto contribute to organizations goals.Types of organizational structure of banks:The organizational set up of a bank ismainly based on departmentalization :Departmentalization:- It is the process ofdividing the total activities of the bank in tovarious departments, unit or sections. Thesimilar nature of bank activities aregrouped in one department. 12. Types of departmentalizationIn banking system these two types ofdepartmentalization is followed:-1. Departmentalization by territory:- Theorganizational set up of a commercial bank onthe basis of territory is of following type :(i)Central office: central office is maincontrolling authority of a particular bank.it issupreme body that determines the objectives ,policies & frame rule & regulation.(ii) Regional office: The regional office co-ordinate the functions of the branches located ina particular region. It is charged withresponsibilities of implementing the objectives& policies of top management to the branches. 13. (iii)Branch Office: The branch offices are thecenters that do the actual bankingbusiness. They are in direct contact withcustomers & cater to their needs.2. Departmentalization by Function:Functions include such activities aslending, investing, trust services,international banking, acceptingdeposits etc. Line managers areresponsible for the direct functions of acommercial bank. 14. Management of banksAccording to George R. Terry, managementis a distinct process consisting of planning,organizing ,activating & controllingperformance to determine & accomplish theobjective by the use of people & resources.Objectives of bank management:1.Maximisation of profit2.Meet challenges of competitors3.Improve the customer services4.Introduction of new schemes5. Manpower planning 15. Fundamental functions of bank management1.Planning2.Organising3.Staffing4.Directing5.Communication6.Controlling 16. Functional areas of bank management1.Deposit mobilization2.Financial management3.Credit management4. Profit evaluation5.Liquidity management(CRR,SLR)6.Marketing Management7.Portfolio(Asset) Management 17. Commercial banks According to the Banking Companies(Regulation)Act of India ,1949, Bankingmeans the accepting ,for the purpose oflending or investment , of deposits of moneyfrom the public, repayable on demand orotherwise , and withdraw able by cheese ,draft or otherwise.Features of commercial banks:1.Commercial establishment2.Accept deposits3.Repayment of accepted deposits4.Advancing loans to public5.Earning profit 18. The role of commercialbanksCommercial banks engage in thefollowing activities:1. processing of payments by way oftelegraphic transfer, internet banking, orother means2. issuing bank drafts and bank cheques3. accepting money on term deposit 19. ---------4. lending money by overdraft, installmentloan, or other means5. providing documentary and standbyletter of credit, guarantees, performancebonds, securities underwritingcommitments and other forms of offbalance sheet exposures6. safekeeping of documents and otheritems in safe deposit boxes7. sales, distribution or brokerage, with orwithout advice, of: insurance, unit trustsand similar financial products as a 20. Functions of CommercialBanksThe functions of a commercial banksare divided into two categories:(i) Primary functions, and(ii) Secondary functions includingagency functions.(iii) Modern Functions(i) Primary functions:The primary functions of a commercialbank include:(a) accepting deposits; and(b) granting loans and advances; 21. (a) Accepting depositsThe most important activity of acommercial bank is to mobilise depositsfrom the public. People who have surplusincome and savings find it convenient todeposit the amounts with banks .Depending upon the nature of deposits,funds deposited with bank also earninterest. Thus, deposits with the bank growalong with the interest earned. If the rate ofinterest is higher, public are motivated todeposit more funds with the bank. There isalso safety of funds deposited with the 22. Different Modes of Accepting DepositsDifferent modes of Acceptance of DepositsBanks receive money from the public by way of deposits. Thefollowingtypes of deposits are usually received by banks:i) Current depositii) Saving depositiii) Fixed depositiv) Recurring depositv) Miscellaneous deposits 23. ------i) Current DepositAlso called demand deposit, current deposit can be withdrawn bythe depositor at any time by cheques. Businessmen generally opencurrentaccounts with banks. Current accounts do not carry anyinterest as theamount deposited in these accounts is repayable ondemand withoutany restriction.The Reserve bank of India prohibits payment of interest on currentaccounts or on deposits upto 14 Days or less except where priorsanctionhas been obtained. Banks usually charge a small amountknown asincidental charges on current deposit accounts dependingon the numberof transaction 24. Savings deposit/Savings BankAccountsSavings deposit account is meant forindividuals who wish to deposit smallamounts out of their current income. Ithelps in safe guarding their future and alsoearning interest on the savings. A savingaccount can be opened with or withoutcheque book facility. There are restrictionson the withdrawls from this account. Toopen a savings account, it is necessary forthe depositor to be introduced by a personhaving a current or savings account withthe same bank. 25. Fixed depositThe term Fixed deposit means depositrepayable after the expiry of a specifiedperiod. Since it is repayable only after afixed period of time, which is to bedetermined at the time of opening ofthe account it is also known as timedeposit. The rate of interest on fixeddeposits depends upon the period ofdeposits. The longer the period, thehigher is the rate of interest offered 26. Recurring DepositsRecurring Deposits are gaining widepopularity these days. Under this type ofdeposit, the depositor is required to deposita fixed amount of money every month for aspecific period of time. Each instalmentmay vary from Rs.5/- to Rs.500/- or more permonth and the period of account may varyfrom 12 months to 10 years. After thecompletion of the specified period, thecustomer gets back all his deposits alongwith the cumulative interest accrued on thedeposits. 27. Miscellaneous DepositsBanks have introduced severaldeposit schemes to attract depositsfrom different types of people, likeHome Construction deposit scheme ,Sickness Benefit deposit scheme,Children Gift plan, Old age pensionscheme, Mini deposit scheme, etc. 28. -----b) Grant of loans and advancesThe second important function of a commercial bank is to grantloans and advances. Such loans and advances are given tomembers of the public and to the business community at a higherrate of interest than allowed by banks on various deposit accounts.The rate of interest charged on loans and advances variesdepending upon the purpose, period and the mode of repayment.The difference between the rate of interest allowed on depositsand the rate charged on the Loans is the main source of a banksincome. 29. (I)LOANA loan is granted for a specific time period. Generally,commercial banks grant short-term loans. But term loans,that is, loan for more than a year, may also be granted.The borrower may withdraw the entire amount in lumpsumor in instalments. However, interest is charged on the fullamount of loan. Loans are generally granted against thesecurity of certain assets. A loan may be repaid either inlumpsum or in instalments 30. Different methods of Granting Loans by BankThe basic function of a commercial bank is to make loans andadvancesout of the money which is received from the public by wayof deposits.The loans are particularly granted to businessmen andmembers of thepublic against personal security, gold and silver andother movable andimmovable assets. Commercial bank generally lendmoney in thefollowing form:i) Cash creditii) Loansiii) Bank overdraft, andiv) Discounting of Bills 31. ------i) Cash Credit :A cash credit is an arrangement whereby the bank agrees to lendmoney to the borrower up to a certain limit. The bank puts thisamount of money to the credit of the borrower. The borrower drawsthe money as and when he needs. Interest is charged only on theamount actually drawn and not on the amount placed to the credit ofborrowers account. Cash credit is generally granted on a bond ofcredit or certain other securities. This a very popular method oflending in our country 32. -------ii) Loans :A specified amount sanctioned by a bank to the customer is called aloan. It is granted for a fixed period, say six months, or a year. Thespecified amount is put on the credit of the borrowers account. Hecanwithdraw this amount in lump sum or can draw cheques againstthissum for any amount. Interest is charged on the full amount even iftheborrower does not utilise it. The rate of interest is lower on loansincomparison to cash credit. A loan is generally granted against thesecurity of property or personal security. The loan may be repaid inlump sum or in instalments. Every bank has its own procedure ofgranting loans. Hence a bank is at liberty to grant loan depending onits own resources.The loan can be granted as:a) Demand loan, orb) Term loan 33. a) Demand loanDemand loan is repayable on demand.In other words it is repayable at shortnotice. The entire amount of demandloan is disbursed at one time and theborrower has to pay interest on it. Theborrower can repay the loan either inlump sum (one time)or as agreed withthe bank. Loans are normally grantedby the bank against tangible securitiesincluding securities like N.S.C., KisanVikas Patra Life Insurance policiesand U.T.I. certificates. 34. b) Term loansMedium and long term loans are called Termloans. These loans are repayable over a periodof 5 years and maximum up to 15 years. Termloan is required for the purpose of setting up ofnew business activity, renovation,modernization, purchase of plant and machinery, vehicles,landor purchase of other immovable assets. Theseloans are generally secured against themortgage of land, plant and machinery, buildingand other securities. The normal rate of interestcharged for such loans is generally quite high. 35. ii) AdvancesAn advance is a credit facility provided bythe bank to its customers. It differs fromloan in the sense that loans maybegranted for longer period, but advancesare normally granted for a short period oftime. Further the purpose of grantingadvances is to meet the day to dayrequirements of business. The rate ofinterest charged on advances variesfrom bank to bank. Interest is chargedonly on the amount withdrawn and not onthe sanctioned amount. 36. Modes of short-term financialassistanceBanks grant short-term financial assistance byway of cash credit, overdraft and bill discounting.a)Cash CreditCash credit is an arrangement whereby the bankallows the borrower to draw amounts up to aspecified limit. The amount is credited to theaccount of the customer. The customer canwithdraw this amount as and when he requires.Interest is charged on the amount actuallywithdrawn. Cash Credit is granted as per agreedterms and conditions with the customers. 37. (b)Bank OverdraftOverdraft is also a credit facilitygranted by bank. A customer who has acurrent account with the bank isallowed to withdraw more than theamount of credit balance in hisaccount. It is a temporary arrangement.Overdraft facility with a specified limitis allowed either on the security ofassets, or on personal security , orboth. 38. (c) Discounting of BillsBanks provide short-term finance bydiscounting bills, that is , makingpayment of the amount before the duedate of the bills after deducting acertain rate of discount. The party getsthe funds without waiting for the dateof maturity of the bills. Incase any bill isdishonoured on the due date, the bankcan recover the amount from thecustomer 39. Secondary functionsThese are as follows -1) Issuing letters of credit, travellers cheques,circular notes etc.2) Undertaking safe custody of valuables,important documents, andsecurities by providing safe deposit vaults orlockers;3) Providing customers with facilities of foreignexchange.4) Transferring money from one place toanother; and from onebranch to another branch of the bank. 40. --5) Standing guarantee on behalf ofits customers, for makingpayments for purchase of goods,machinery, vehicles etc.6 Collecting and supplying businessinformation;7) Issuing demand drafts and payorders; and,8) Providing reports on the creditworthiness of customers. 41. AGENCY & GENERAL UTILITY SERVICES(i) Agency ServicesAgency services are those services whichare rendered by commercialbanks as agents of their customers. Theyinclude :a) Collection and payment of cheques andbills on behalf of the customers;b) Collection of dividends, interest andrent, etc. on behalf of customers, if soinstructed by them;c)Purchase and sale of shares and securitieson behalf of customers; 42. ---d) Payment of rent, interest,insurance premium, subscriptionsetc. on behalf of customers, if soinstructed;e) Acting as a trustee or executor;f) Acting as agents orcorrespondents on behalf ofcustomers for other banks andfinancial institutions at home andabroad. 43. ii) General utility servicesThese are available to the public onpayment of a fee or charge:-a)Issuing letters of credit and travellerscheques;b) Underwriting of shares, debentures,etc.;c) Safe-keeping of valuables in safedeposit locker;d) Underwriting loans floated bygovernment and public bodies. 44. --e) Supplying trade information andstatistical data useful to customers;f) Acting as a referee regarding thefinancial status of customers;g) Undertaking foreign exchangebusiness. 45. (iii)Modern functions1. Automatic teller machines (ATM)2. Credit Cards3. Mail Transfer & Telegrafic Transfer4. Tele Banking5. Internate Banking6.Round the clock Banking 46. Different Types of Banks -These are various kinds of Banks :Type 1. Saving BanksSaving banks are established to createsaving habit among the people. Thesebanks are helpful for salaried people andlow income groups. The deposits collectedfrom customers are invested in bonds,securities, etc. At present most of thecommercial banks carry the functions ofsavings banks. Postal department alsoperforms the functions of saving bank 47. Type 2. Commercial BanksCommercial banks are established with an objectiveto help businessmen. These banks collect moneyfrom general public and give short-term loans tobusinessmen by way of cash credits, overdrafts, etc.Commercial banks provide various services likecollecting cheques, bill of exchange, remittancemoney from one place to another place.In India, commercial banks are established underCompanies Act, 1956. In 1969, 14 commercial bankswere nationalised by Government of India. Thepolicies regarding deposits, loans, rate of interest,etc. of these banks are controlled by the CentralBank. 48. Type 3. Industrial Banks /Development Banks Industrial / Development banks collectcash by issuing shares & debentures andproviding long-term loans to industries.The main objective of these banks is toprovide long-term loans for expansionand modernisation of industries. In India such banks are established on alarge scale after independence. They areIndustrial Finance Corporation of India(IFCI), Industrial Credit and InvestmentCorporation of India (ICICI) and IndustrialDevelopment Bank of India (IDBI). 49. Type 4. Land Mortgage / LandDevelopment BanksLand Mortgage or Land Development banksare also known as Agricultural Banksbecause these are formed to financeagricultural sector. They also help in landdevelopment.In India, Government has come forward toassist these banks. The Government hasguaranteed the debentures issued bysuch banks. There is a great risk involvedin the financing of agriculture andgenerally commercial banks do not takemuch interest in financing agriculturalsector. 50. Type 5. Indigenous BanksIndigenous banks means Money Lendersand Sahukars. They collect deposits fromgeneral public and grant loans to theneedy persons out of their own funds aswell as from deposits. These indigenousbanks are popular in villages and smalltowns. They perform combined functionsof trading and banking activities. Certainwell-known indian communities likeMarwaries and Multani even today runspecialised indigenous banks. 51. Type 6. Central / Federal /National Bank Every country of the world has a central bank.In India, Reserve Bank of India, in U.S.A,Federal Reserve and in U.K, Bank of England.These central banks are the bankers of theother banks. They provide specialisedfunctions i.e. issue of paper currency,working as bankers of government,supervising and controlling foreignexchange. A central bank is a non-profitmaking institution. It does not deal with thepublic but it deals with other banks. Theprincipal responsibility of Central Bank isthorough control on currency of a country. 52. Type 7. Co-operative BanksIn India, Co-operative banks are registered under the Co-operative Societies Act, 1912. They generally give credit facilities to small farmers, salaried employees, small-scale industries, etc. Co-operative Banks are available in rural as well as in urban areas. The functions of these banks are just similar to commercial banks. 53. Type8. Exchange BanksHong Kong Bank, Bank of Tokyo, Bank ofAmerica are the examples of Foreign Banksworking in India. These banks are mainlyconcerned with financing foreign trade.Following are the various functions ofExchange Banks :-1.Remitting money from one country to anothercountry,2.Discounting of foreign bills,3.Buying and Selling Gold and Silver, and4.Helping Import and Export Trade 54. Type 9. Consumers Bank Consumers bank is a new addition to the existing type of banks. Such banks are usually found only in advanced countries like U.S.A. and Germany. The main objective of this bank is to give loans to consumers for purchase of the durables like Motor car, television set, washing machine, furniture, etc. The consumers have to repay the loans in easy installments. 55. Features of organizationalstructure of banks1. High degree of Departmentation2. Regional or zonal office3. Hierarchal managementA- Top managementB- Middle managementC- Branch management 56. BOARD OF DIRECTORSThe Board of Directors is the apex managementof a commercial bank. The board of Directorsframe policies ,concentrate more on importantissues & take strategic decisions .Functions of Boards of Directors :-Following are the important functions-1. Setting bank purpose & mission- Directors of abank is to determine the goals and objectives ofthe banks business . The boards of directors hasto decide in the light of capital position, size ofdeposits , demand for loan& investment . 57. ---2. Formulating Bank Policies :- Boardhas to formulate specific policies forthe successful attainment of theobjectives. The realization of objectivesis made easy with the help of policies .3. Selection of bank executives :-Banking activities require trainedexecutives with knowledge. Executivesmust have knowledge of investments,credits operations , people & machines. 58. --4. Determination of Duty & Authority of Executive:- The executives must be given sufficienttraining to enable them to cope withadministrative details & follow the policies.5. Standing Committee:- Standingcommittee is constituted by boards. It ensuresbetter co-ordination between variousdepartments .6.Delegation of authorities :- Boards determineauthority and duties of executives to performtheir functions properly and efficiently. 59. Duties & liabilities of directorsStatutory Duties of Directors :- 1.Not to pay commission , brokerage , discount on shares in excess of the aggregate 2.5% the of paid up value of shares.2.Not to create any charge upon the unpaid capital of the bank.3.Not to pay dividends unless all the capitalized expenses are completely written off .4.To maintain not less than 20% of the total time & demand liabilities of the bank in form of cash , gold or securities. 60. ---5. To ensure that the annual accountsof the bank are prepared on lastworking day of every calendar year asgiven in the third schedule of the act.6.To seek prior approval of ReserveBank before appointing or removingany auditors of the bank.7. To furnish three copies of accountand balance sheet and auditorsreport with in three months of the ofthe period they refer. 61. General duties of directors of abank1. To supervise the general affairs of of the bank2. To direct and control its subordinates3. To attend board meetings4. To examine reports and audit records5. To make best efforts to collect slow & doubt full debts6. To investigate credit worthy ness of the applicant granting loan. 62. Liabilities of bank directorsa. Liable to outsiders for ultra-vires actb. Liability for mis-statement in prospectusc. Liability for breach of trust- (i)liability for making secret profit (ii)liability for loss caused by his negligence 63. Organizational set up ofcentral office1. Board of directors :- The board ofdirectors is the highest authority ofa commercial bank The board ofdirectors shall consist of not morethan two whole time directors&three directors to represent theinterest of farmers , workers &artisans . One directors have torepresent the depositors. 64. 2. Chairman cum-managingdirectorThe chairman cum managing director isthe chief executive of the bank . Hepresides over the meeting of board ofdirectors.3. Executive director: He is theexecutive head of the bank . He co-ordinates & supervises all operationalresponsibilities .4. General managers of variousdepartments :- a- loans & advancesdepartment b-investment department 65. --c. Foreign exchange department :- (issue of letter of credit ,rediscounting ,foreign securities.)d. Audit departmente. Public relation departmentf. Legal departmentg. Organizational set up of zonaloffices 66. Regional Rural BankEstablishment & Growth1. Initially, five RRBs were set up on October 2, 1975 which were sponsored by Syndicate Bank, State Bank of India, Punjab National Bank, United Commercial Bank & United Bank of India . Capital share being 50% by the central government, 15% by the state government and 35% by the scheduled bank.2. Earlier Reserve Bank of India had laid down ceilings on the rate of interest to be charged by these RRBs. However from August 1996 the RRBs have been granted freedom to fix rates of interest,which is usually in the range of 14-18% for advances.There are 84 RRB banks at present. 67. --- 3. Each RRB is sponsored by a public sector bank which provides assistance in several ways viz., subscription to its share capital provision of such managerial and financial assistance as may be mutually agreed upon and help the recruitment and training of personnel during the initial period of its functioning. 68. Objectives of RRBsRRBs was established with the following objective :-1. Bridging the credit gap in rural areas2. Check the outflow of rural deposits to urban areas3. Reduce regional imbalances and increase rural employment , 4.provide credit and other facilities especially to the small and marginal farmers agricultural laborers, artisans etc. 69. ---5.will operate within the local limitsspecified by notification. 6.establishing branches oragencies at places notified by theGovernment. 70. Functions of RRBs1.Every RRB is authorized to carry onto transact the business of banking asdefined in the Banking RegulationAct:-(a) granting loans and advances tosmall and marginal farmers andagricultural laborers includingagricultural marketing societiesagricultural processing societiescooperative farming societies &primary agricultural credit societies. 71. ---(b) granting loans and advances to artisanssmall entrepreneurs and persons of smallmeans engaged in trade commerceindustry or other productive activitieswithin its area of operation. (c)The Reserve Bank of India has broughtRRBs under the ambit of priority sectorlending on par with the commercial banks.They have to ensure that forty percent oftheir advances are accounted for thepriority sector. Within the 40% prioritytarget, 25% should go to weaker sectionor 10% of their total advances to go toweaker section. 72. Regional Rural Banks in India1.The State Bank of India is one of themajor commercial banks havingregional rural banks. There are 30Regional Rural Banks in India, underthe State Bank of India and it isspread in 13 states across India. Thenumber of branches the SBI RegionalRural Banks is more than 2000. 73. 2. Haryana State CooperativeApex Bank Limited The main purpose of the Haryana State Cooperative Apex Bank Limited is to financially assist the artisans in the rural areas, farmers and agrarian unskilled labor, and the small rural entrepreneurs of Haryana. Haryana State Cooperative Apex Bank Limited also referred as the HARCOBANK, is one of the apex organizations in the state of Haryana. 74. 3. National Bank for Agricultureand Rural DevelopmentThe main purpose of the National Bank for Agriculture and Rural Development is to provide credit for the development and publicity of small scaled industries, handicrafts, rural crafts, village industries, cottage industries, agriculture, etc. 75. 4. United Bank of IndiaThe role played by the United Bank of India (UBI) as one of the regional rural banks is phenomenal. The UBI has propagated the network of branches in order to actively take part in the rural improvement and development.5. Syndicate BankThe development of the Syndicate Bank was in accordance to the development of the rural banking sector in India . The Syndicate Bank has performed actively in the development of the rural sector . 76. 6. Regional Rural Banks inTamil NaduIndian Bank has sponsored twoRegional Rural Banks (RRBs) viz.,Saptagiri Grameena Bank andPallavan GramaBank.Pallavan Grama Bank with HeadQuarters at Salem is operating in 14districts . 77. 7. Regional Rural Banks in UttarPradesh: 1.Allahabad UP Gramin Bank 2.Aryavart Gramin Bank 3.Ballia Etawah Gramin Bank 4.Baroda Uttar Pradesh Gramin Bank 5.Kashi Gomti Samyut Gramin Bank 6.Kshetriya Kisan Gramin Bank 7.Prathama Bank 8.Sarva UP Gramin Bank 9.Shreyas Gramin Bank 10.Purvanchal Gramin Bank 78. ----Regional rural banks allowed to start branches in Tier 2 cities without RBI nod;-The Reserve Bank of India allowed regional rural banks (RRBs) to open branches in Tier ii cities without taking its permission on August 2, 2012. It has been decided to allow RRBs to open branches without having the need to take permission from Reserve Bank of India . 79. Organizational structureof Regional Rural Banks1. A Regional Rural Bank is sponsored bya commercial bank. The sponsored bankrequests the Central Government for thispurpose which issues a notification afterconsulting the concerned stategovernment.2. Generally , regional rural bank coversone district & maximum coverage of aRRB has been eight district.3. Only the Manipur RRB covers the entirestate of Manipur. 80. Board of DirectorsThe RRB is governed by a Board ofdirectors who exercises all thepowers and discharges all thefunctions of RRB. It consists of :-i- a chairman appointed by the Centralgovernment for five years,ii- three directors nominated by thecentral governmentiii- two directors nominated by theconcerned stateiv- three directors nominated by thesponsor bankV- NABARD is vested with powers ofinspection of RRBs. 81. Functions /objectives of RRBs1. Provide loans to Rural population :- RRB provides loans & advances to weaker section of the society.2. Grant loans to co-operative societies:- RRBs also provides loans & advances to co-operative societies including marketing societies , co-operative farming society etc.3. Banking services:- RRB has to take the banking services to the doorsteps of the rural masses . 82. ---4. Mobilize Rural saving:- RRB mobilizethe rural savings by acceptingdeposits & channelise them forproductive activities in the ruralareas.5. Arrangement of credit :- RRB providecredit to rural areas throughrefinance.6. Cheap supply of credit :- RRB is tobring down the cost of supplyingcredit in rural areas.7. Generate Employment opportunities:- RRB is major employment providerin rural areas. 83. Recent position(achievements)In recent years RRBs performance is asfollows:-1. Extend advances for purchase ofdurable consumer goods.2. Issue travellers cheques as agents oftheir sponsor bank & provides lockerfacility,3. There are now 195 RRB in 23 stateswith 14500 branches ,4. Over 95% loans are provided toweaker section of society. 84. Performance of RRBS byMarch 2011The following programmes were included in the performance of RRB- Credit Flow to Agriculture; Current Viability; Non-Performing Assets (NPA) position; Capital-To-Risk-Weighted Assets Ratio (CRAR) position; Core Banking Solutions (CBS) IN RRBs; Branch Expansion of RRBs, etc. 85. ---As on 31 March 2010, there were 82 RRBs with a networkof 15475 branches spread over 619 districts in 26 Statesand 1 Union Territory. The following measures havebeen initiated to expand the outreach of the RRBs:1.The RRBs were given a target in 2007 to open 2000branches by March, 2011;2.RRBs are required to migrate to Core BankingSolution (CBS) by September 2011 (As on date, 21 RRBshave already achieved 100% CBS status);3. The Sponsor Banks would provide the requiredsupport to the RRBs sponsored by them for this purpose; 86. ---- 4. For up gradation of Technology for Financial Inclusion, the RRBs are being provided funds from Financial Inclusion Fund (FIF) and Financial Inclusion Technology Fund (FITF) by NABARD.5.As on 31.03.2010, 3 RRBs out of 82 RRBswere incurring losses. (Manipur Rural BankRs. 2.98 crore, Puduval Bharthiar GramaBank Rs. 0.22 crore and MahakaushallGramin Bank- Rs. 2.45 crore)6.The profitability of RRBs, as a segment,has been improving. 87. Factors responsible for losses some of the factors responsible for losses in RRBs are identified as : 1.low recovery, 2.High NPA, 3.low business level, 4.low productivity per branch and per staff, 5. high cost structure, 6.poor financial management, 7.limited area of operation, 8.non-viable level of operation in branches located in resource-poor areas etc. 9.one of the RRBs, namely Puduval Bharthiar Grama Bank, which was set up in March 2008, has not yet reached a breakeven point; 88. What is co-operative bank :-According to the International Co-operative Alliance Statement of co-operative identity, a co-operative isan autonomous association ofpersons united voluntarily to meettheir common economic, social, andcultural needs and aspirationsthrough a jointly-owned anddemocratically-controlled enterprise.Co-operatives are based on thevalues of self-help, self-responsibility,democracy, equality, equity andsolidarity. 89. Principles (functions)of co-operative bankThe 7 co-operative principles are :1. Voluntary and open membership2. Democratic member control3. Member economic participation4. Autonomy and independence5. Education, training andinformation6. Co-operation among Co-operatives7. Concern for Community 90. features : 1. Customers owned entities : In a co- operative bank, the needs of the customers meet the needs of the owners, as co-operative bank members are both. As a consequence, the first aim of a co-operative bank is not to maximize profit but to provide the best possible products and services to its members. Some co-operative banks only operate with their members but most of them also admit non-member clients to benefit from their banking and financial services. 91. ----2. Democratic member control : co-operative banks are owned andcontrolled by their members, whodemocratically elect the board ofdirectors. Members usually have equalvoting rights, according to the co-operative principle of "one person, onevote".3.Profit allocation : In a co-operativebank, a significant part of the yearlyprofit/surplus is usually allocated toconstitute reserves. A part of this profitcan also be distributed to the co-operative members. 92. --4. Co-operative banks are deeply rootedinside local areas and communities. Theyare involved in local development andcontribute to the sustainable developmentof their communities, as their membersand management board usually belong tothe communities in which they exercisetheir activities. By increasing bankingaccess in areas or markets where otherbanks are less present - farmers in ruralareas, middle or low income householdsin urban areas - co-operative banksreduce banking exclusion and foster theeconomic ability of millions of people. 93. Organizational structure of co-operative BankThe structure of commercial banking is ofbranch-banking type; while the co-operativebanking structure is a three tier federalone.- A State Co-operative Bank works at theapex level (i.e. works at state level).- The Central Co-operative Bank works atthe Intermediate Level (i.e. District Co-operative Banks ltd. works at districtlevel)- Primary co-operative credit societies atbase level (At village level) 94. Difference between Co-operative banks &Commercial bankThey differ from commercial banks in thefollowing respects1. Commercial banks are joint-stock companiesunder the companies act of 1956 whereas co-operative banks were established under theco-operative societys acts of different states.2. Commercial bank structure is branchbanking structure whereas co-operativebanks have a three tier setup, with state co-operative bank at apex level, central /districtco-operative bank at district level, andprimary co-operative societies at rural level. 95. ---3. Only some of the sections ofbanking regulation act of 1949 (fullyapplicable to commercial banks),are applicable to co-operativebanks, resulting only in partialcontrol by RBI of co-operativebanks and4.Co-operative banks function on theprinciple of cooperation and notentirely on commercial parameters. 96. RBI Policies for co-operativebanksThe RBI appointed a high power committee inMay 1999 under the chairmanship of Shri. K.Madhava Rao, Ex-Chief Secretary,Government of Andhra Pradesh to review theperformance of Urban Co-operative Banks(UCBs) and to suggest necessary measuresto strengthen this sector. With reference tothe terms given to the committee, thecommittee identified five broad objectives:1. To preserve the co-operative character ofUCBs2. To protect the depositors interest3. To reduce financial risk 97. Types of Co-operative BanksThe co-operative banks are small-sized units which operate both in urban and non-urban centers. They finance small borrowers in industrial and trade sectors besides professional and salary classes. Regulated by the Reserve Bank of India, they are governed by the Banking Regulations Act 1949 and banking laws (co-operative societies) act, 1965. The co-operative banking structure in India is divided into following 5 components: 98. 1. Primary Co-operative CreditSociety The primary co-operative credit society is an association of borrowers and non-borrowers residing in a particular locality. The funds of the society are derived from the share capital and deposits of members and loans from central co-operative banks. The loans are given to members for the purchase of cattle, fodder, fertilizers, pesticides, etc. 99. 2. Central co-operative banks These are the federations of primary credit societies in a district and are of two types those having a membership of primary societies only and those having a membership of societies as well as individuals. The funds of the bank consist of share capital, deposits, loans and overdrafts from state co-operative banks and joint stocks. These banks provide finance to member societies within the limits of the borrowing capacity of societies. They also conduct all the business of a joint stock bank. 100. 3.State co-operative banks The state co-operative bank is a federation of central co-operative bank and acts as a watchdog of the co-operative banking structure in the state. Its funds are obtained from share capital, deposits, loans and overdrafts from the Reserve Bank of India. The state cooperative banks lend money to central co-operative banks and primary societies and not directly to the farmers. 101. 4. Land development banksThe Land development banks are organized in 3 tiers namely:- state, central, and primary level. They meet the long term credit requirements of the farmers for developmental purposes. They are governed both by the state government and Reserve Bank of India. Recently, the supervision of land development banks has been assumed by NABARD. The sources of funds for these banks are the debentures subscribed by both central and state government. These banks do not accept deposits from the general public. 102. 5.Urban Co-operative Banks The term Urban Co-operative Banks (UCBs) refers to primary co-operative banks located in urban and semi-urban areas.. They mainly rely upon deposits from members and non-members and in case of need, they get finance from either the district central co-operative bank to which they are affiliated or from the apex co-operative bank if they work in big cities where the apex bank has its Head Office. They provide credit to small scale industrialists, salaried employees, and other urban and semi-urban residents. 103. What are the functions of CooperativeBanks in India?1.Cooperative banks in India financerural areas under:1.Farming2.Cattle3.Milk4.Hatchery5.Personal finance 104. 11. Cooperative banks in Indiafinance urban areas under:- 1.Self-employment 2.Industries 3.Small scale units 4Home finance 5.Consumer finance 6.Personal finance 105. Meaning of DevelopmentBanks Development banks are thosefinancial institutions engaged in thepromotion and development ofindustry, agriculture and other keysectors.In the words of A.G. Kheradjou :- Adevelopment bank is like a livingorganism that reacts to the social-economic environment and itssuccess depends on reacting mostaptly to that environment. 106. Definition D.M. Mithani states that A development bank may be defined as a financial institution concerned with providing all types of financial assistance i.e. medium as well as long-term ,to business units in the form of loans, underwriting, investment and guarantee operations and development in general and industrial. 107. Features of a developmentbankA development bank has the following features orcharacteristics: 1. A development bank does not accept deposits fromthe public like commercial banks and other financialinstitutions who entirely depend upon savingmobilization. 2. It is a specialized financial institution which provides medium term and long-term lending facilities. 3. It is a multipurpose financial institution. Besides providing financial help it undertakes promotional activities also. 4. It helps an enterprises from planning to operational level. 108. -----5. It provides financial assistance to bothprivate as well as public sectorinstitutions.6. The role of a development bank is of gapfiller. When assistance from other sourcesis not sufficient then this channel helps.7. Development banks primarily aim toaccelerate the rate of growth. It helpsindustrialization specific and economicdevelopment in general.8. The objective of these banks is to servepublic interest rather than earning profits.9. Development banks react to the socio-economic needs of development. 109. Small Industries DevelopmentBank of India (SIDBI)SIDBI was established as wholly ownedsubsidiary of Industrial DevelopmentBank of India (IDBI) under the smallIndustries Development of India Act1989. It is the principal institution forpromotion, financing and developmentof industries in the small-scale sector.Capital:- SIDBI started its operationsfrom April 1990 with an initialauthorised capital of Rs. 250 crore, whichcould be increased to Rs. 1000 crore. 110. What are the objectives ofSIDBI? In the setting up of SIDBI, the main purpose of the government was to ensure larger flow of assistance to the small-scale units. To meet this objective, the immediate thrust of the SIDBI was on the following measures:(i) initiating steps for technological upgradation and modernisation of existing units;(ii) expanding the channels for marketing the products of the small scale sector; and(iii) promotion of employment-oriented industries, especially in semi- urban areas to create more employ-ment opportunities and thereby checking migration of population to urban areas. 111. What are the functions ofSIDBI?The major functions of SIDBI are given below:(i) It refinances loans and advances provided by the existing lending institutions to the small-scale units.(ii) It discounts and rediscounts bills arising from sale of machinery to and manufactured by small-scale industrial units.(iii) It extends seed capital/soft loan assistance under National Equity Fund, Mahila Udyam Nidhi and Mahila Vikas Nidhi and seed capital schemes. 112. ----(iv) It grants direct assistance and refinance loans extended by primary lending institutions for financing exports of products manufactured by small-scale units.(v) It provides services like factoring, leasing, etc. to small units.(vi) It extends financial support to State Small Industries Corporations for providing scarce raw materials to and marketing the products of the small-scale units.(vii) It provides financial support to National Small Industries Corporation for providing; leasing, hire pur-chase and marketing help to the small-scale units. 113. Development Banks in India Development banking was startedafter the World War II. It providedfinance to reconstruct the buildingsand industries which were destroyedin the war. In India, development banking wasstarted immediately afterindependence. The arrangement of development 114. Types of development bank 115. Development banks in India areclassified into following five groups:1.Industrial Development Banks : It includes, forexample, Industrial Finance Corporation of India (IFCI),Industrial Development Bank of India (IDBI), and SmallIndustries Development Bank of India (SIDBI). 2.Agricultural Development Banks : It includes, forexample, National Bank for Agriculture & RuralDevelopment (NABARD). 3. Export-Import Development Banks : It includes, forexample, Export-Import Bank of India (EXIM Bank). 4. Housing Development Banks : It includes, forexample, National Housing Bank (NHB). 5.Industrial Finance Corporation of India (IFCI) is thefirst development bank in India. It started in 1948 toprovide finance to medium and large-scale industries inIndia. 116. NABARDNABARD is set up as an apex DevelopmentBank with a mandate for facilitating creditflow for promotion and development ofagriculture, small-scale industries, cottageand village industries, handicrafts and otherrural crafts. It also has the mandate tosupport all other allied economic activities inrural areas, promote integrated andsustainable rural development and secureprosperity of rural areas. NABARD was setup in the year 1982. The AgriculturalRefinance & Development Corporation(ARDC) which was set up to look in to thecredit requirements in 1963 has also beenmerged with NABARD. 117. Role of NABARDNABARD is entrusted with the following role :- 1.Providing refinance to lending institutions in rural areas. 2.Bringing about or promoting institutional development. 3.Evaluating, monitoring and inspecting the client banks . 4.Acts as a coordinator in the operations of rural credit institutions . 118. ----5.Extends assistance to the government,the Reserve Bank of India and otherorganizations in matters relating to ruraldevelopment6.Offers training and research facilities forbanks, cooperatives and organizationsworking in the field of rural development7.Helps the state governments in reachingtheir targets of providing assistance toeligible institutions in agriculture andrural development8. Acts as regulator for cooperative banksand RRBs. 119. Some of the milestones inNABARDs activities are:1. NABARD has been pursuing a policy of promoting agricultural credit. NABARD provides 70% of loans through co- operatives & 30% through commercial banks.2. About 67% of the total disbursement of the NABARD have been for minor irrigation.3. NABARD has created Rural Infrastructural Development Fund to accelerate the agricultural development. 120. -----4. NABARD also provides financial help to small scale & cottage industry.5. NABARD has set up Research & Development Fund for granting assistance to various institution involved in rural credit. 121. Core banking Core banking is a general term used to describe the services provided by a group of networked bank branches. Bank customers may access their funds and other simple transactions from any of the member branch offices. 122. Core banking definitionCORE stands for "centralized online real-time environment".Core Banking is normally defined as the business conducted by a banking institution with its retail and small business customers. Many banks treat the retail customers as their core banking customers, and have a separate line of business to manage small businesses. Larger businesses are managed via the corporate banking division of the institution. Core banking basically includes deposit accounts, loans, mortgages and payments. Banks make these services available across multiple channels like ATMs, Internet banking, and branches. 123. ----- A few decades ago it used to take at least a day for a transaction to reflect in the account because each branch had their local servers, and the data from the server in each branch was sent in a batch to the servers in the datacenter only at the end of the day (E o D). 124. Core banking solutionsMEANING:- Core banking solutions are banking applications on a platform enabling a phased, strategic approach that is intended to allow banks to improve operations, reduce costs, and be prepared for growth. Core banking solutions are new terminology frequently used in banking circles. The advancement in technology, especially Internet and information technology has led to new ways of doing business in banking. These technologies have also cut down time, working simultaneously on different issues and increasing efficiency. 125. DEFINITIONGartner defines a core banking system asa back-end system that processes dailybanking transactions, and posts updatesto accounts and other financial records.Core banking systems typically includedeposit, loan and credit-processingcapabilities, with interfaces to generalledger systems and reporting tools.Strategic spending on these systems isbased on a combination of service-oriented architecture and supportingtechnologies that create extensible, agilearchitectures.