INDIAN BANKING SYSTEM

Contents:-Introduction.Indian Banking History Backbone Of Commerce Nationalization of Indian banking system.Types of banks.Function of banks.Globalization of Indian banking system.E-Banking.Branch banking.ECS (electronic clearing system)EFT (electronic fund transfer)INFINET.Indian Banking Now.World Top Banks

What is Bank ?Many of us share a fairly basic view of banks. They are places to store money, make basic investments like term deposits, sign up for a credit card or get a loan. Behind this mundane view, however, is a highly regulated system that ties our day-to-day banking back into the wider financial system. In this article, well look at commercial banks, how they are created and what their larger purpose is in the overall economy.

INTRODUCTION OF A BANKThe Banking Companies Act of 1949, define Banking Company as a company which transacts the business of banking in India. It defines banking as, accepting for the purpose of lending or investment of deposit money from the public, repayable on demand or otherwise and withdraw able by cheque draft , order or otherwise A bank as an institution dealing in money and credit. It safeguard of the savings of the public and gives loans and advances.

The word of Bank is said to be of Germanic origin , cognate with the French word Banque and the. Italian word Banca , both meaning bench.

Indian Banking History First Modern bank 1688 Madras (Agency House ) by Britishers Bank Of Hindustan 1770 Calcutta General Bank Of India 1786The Three Presidency Banks Bank Of Bengal (1806)Bank Of Bombay (1840)Bank Of Madras(1843)

Backbone of Commerce Facilitates the development of trade and industry Facilitates the development of agriculture sector Facilitates the development of service sector Contributes for the balanced growth Encouragement of international trade Implement of Monetary policy Social Service

Contd..

The banking system in India is significantly different from that of other Asian nations because of the countrys unique geographic, social, and economic characteristics. India has a large population and land size, a diverse culture, and extreme disparities in income, which are marked among its regions. There are high levels of illiteracy among a large percentage of its population but, at the same time, the country has a large reservoir of managerial and technologically advanced talents.Between about 30 and 35 percent of the population resides in metro and urban cities and the rest is spread in several semi-urban and rural centers.The countrys economic policy framework combines socialistic and capitalistic features with a heavy bias towards public sector investment. India has followed the path of growth-led exports rather than the export led growth of other Asian economies, with emphasis on self-reliance through import substitution.Contd..

These features are reflected in the structure, size, and diversity of the countrys banking and financial sector. The banking system has had to serve the goals of economic policies enunciated in successive five year development plans, particularly concerning equitable income distribution, balanced regional economic growth, and the reduction and elimination of private sector monopolies in trade and industry.The banking systems international isolation was also due to strict branch licensing controls on foreign banks already operating in the country as well as entry restrictions facing new foreign banks. A criterion of reciprocity is required for any Indian bank to open an office abroad.

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These features have left the Indian banking sector with weaknesses and strengths. A big challenge facing Indian banks is how, under the current ownership structure, to attain operational efficiency suitable for modern financial intermediation.

On the other hand, it has been relatively easy for the public sector banks to recapitalize, given the increases in nonperforming assets (NPAs), as their Government dominated ownership structure has reduced the conflicts of interest that private banks would face.

The other remarkable developments to enhance competition in banking sector reforms: 1) It abolished administered interest rate regime by allowing banks to determine lending and deposit rates. 2) Competition has infused by allowing the operation of new private sector banks and more liberal entry of foreign banks. 3) Measures to broaden the ownership base of PSBs have also taken. 4) The system has also observed greater levels of transparency and standards of disclosure.

Different Uses Industrialist Employee Housewife Students Agriculturalist

Nationalization of Indian banking system Indian marched towards the establishment of public sector banking through the progressive nationalisation of commercial banks. There were three phases of bank nationalisation:Nationalistion of Imperial Bank of India in1955 and its seven associate banks in 1959-60.Nationlisation of the 14 major commercial banks in 1969.Nationlisation of 6 more commercial banks in 1980.

On July 1, 1955 the government of India nationlised the Imperial Bank of India and converted it into the State Bank of India.. Later on in 1959-60, seven subsidiary State Banks were also nationalised to form the SBI Group.

For a short period during December 1967 to June 1969, the Government of India pursued the banking of policy control of banks, aiming at an equitable and purposeful distribution of credit towards developmental needs. A such over 90 percent of the banking activity in the country is brought under into the public sector.

Structure Of Banking Sector In India

Unorganized Organized

( Indigenous Banking ,Money lenders, traders etc ) (RBI)

Commercial BankCo-op Bank Development Bank RRB

Types of Banks Central Bank Reserve bank of India is a bank which is entrusted with the functions of guiding and regulating the banking system of a country is known as its Central bank. Following are the functions of central banks.

Bank of IssueBankers' Bank and Lender of the Last ResortController of CreditCustodian of Foreign Reserves

Commercial Banks Commercial banks are of FOUR types:- Public Sector Banks Private Sectors Banks Foreign BanksRegional & Rural Banks

State Bank Of India Largest Bank 13000 around Branches21000 ATMs 5 Associates Banks 34 Foreign Locations 180 Branches 60th Position in the World

SBI Net Profit Sbi.co.in

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117349166

106828265

1534311707

1791614105

7.11

-8.94

43.59

16.77

0.48

-9.84

41.66

20.48

Net Profit Consolidated

Net Profit Solo

Sheet1

Net Profit ConsolidatedNet Profit Solo

FY10117349166

FY11106828265

FY121534311707

FY131791614105

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Indias Largest Private Sector Bank Largest Private Sector Bank 3351 Branches 10486 ATMs 19 Foreign Locations 288th Rank in the World icicibank.com

Co-operative Banks

Cooperative banks were introduced in 1904

Customer's owned entities

Democratic member control

The cooperative bank works on the principle of no profit ,no loss

Three Tier StructurePrimary Cooperative Banks

Central (District) Cooperative Banks

State Cooperative Banks

Regional Rural Bank (RRB) Established in 1975 Develop the rural Economy Sponsored by large commercial banks

Specialised Banks There are some banks, which cater to the requirements and provide overall support for setting are examples of such banks. They engage themselves in some specific area or activity and thus, are called Specialised banks. Let us know about them. Industrial Finance Corporation of India (IFCI 1948)

Industrial Development Bank Of India (IDBI 1964)

Export Import Bank of India (EXIM Bank 1982)

National Bank for Agricultural and Rural Development (NABARD - 1982)

National Housing Board (NHB 1988)

Small Industries Development Bank of India (SIDBI - 1990)

Lets say that you put $1.00 in your savings account in the bank. The bank will loan your dollar (along with lots of other peoples dollars) to people who want to buy a house, car, boat, or start a new business and dont have enough money to do it on their own. When those people start to pay the money back, they PAY interest that is higher than what you will EARN on your dollar. Lets say they pay the bank $1.10 for every dollar they borrowed. When this comes to the bank, they use five cents of the interest on every dollar to pay their employees as well as for office supplies, etc. That leaves your dollar plus five cents ($1.05). The bank puts that five cents into your account and loans out your dollar again. They do this over and over so money goes in and goes out of the bank every day. This flow of money makes it possible for you towithdrawmoney when you need it without the bank goingbroke.How Bank Functions

Function of bankAccepting deposits:-Saving bank depositCurrent accountFixed depositRecurring deposit

Giving loans

OverdraftLoanRediscounting of billCredit card

Globalization Of Indian Banking System Banking sector in India is expanding at an incredibly faster pace, with more andmore banks realizing the benefits offered by globalization. Publicly owned bankshandle more than 80% of the banking business in . India and the rest is in thehands of private sector banks. However, banking in both the government andprivate sector is being revolutionized by this latest phenomenon calledglobalization.

There are about 87 players in the banking sector in India.

Public (26) Private

Indian(21) Foreign(40)

Electronic BankingATMsHead OfficeBranch BankingBranch 1Branch 2Branch 3Branch 4Branch 5Branch 6Branch n

E-bankingThe Reserve Bank of India constituted a workinggroup on Internet Banking. The group divided theinternet banking products in India into 3 types basedon the levels of access granted. They are:-

Information Only System:Electronic Information Transfer System Fully Electronic Transactional System

E Banking Services.Automated Teller Machine (ATM):Credit Cards/Debit Cards:Smart CardBill payment serviceFund transfer

ECSElectronic Clearing Scheme (ECS) operated by the RBI since 1996-97Utilises BANKNET and INFINETFacilitates payment from a single account at a bank branch to any number of accounts maintained with the branches of the same or other banks Eg., Payment of dividendsRBI has also launched ECS Debit for payment to utility companies like Telephones, Electricity etc..

Branch Banking.Branch banking is the act of doing one's banking business at a location that is separate from the bank's central business location. Many large and small banks use branch banking in order to extend the reach of their services to different locations in a community, state, or country. Smaller branches are also less expensive to operate, and often easier for customers to access, while providing all of the features of a larger bank.

Electronic Funds Transfer (EFT)Hosted and operated by the RBI.Permits fund transfer up to Rs 5 lacs from any account at any branch of any member bank in any city to any other account at any branch of any member bank in any other city.RBI acts as the service provider as well as regulator.

INFINETIndian Financial Network Set up by RBI in June 1999 Satellite based WAN using VSAT (Very Small Aperture Terminal) technology.The hub and Network Management System of INFINET are located in the Institute for Development and Research in Banking Technology.Major applications: E-mail, Electronic Clearing Service - Credit and Debit, Electronic Funds Transfer.

Indian Banking-Now...Transparency in Banking.Narrow Banking.Relationship Banking.Retail / Personal / Private Banking.Hi-tech Banking.Virtual Banking .Universal Banking.

World Top Banks Relbanks.com

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2652.54

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World Top BanksTotal Assets (b$)

ICBC2811.34

HSBC2652.54

Deutsche Bank2665.4

SBI261

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ConclusionThe structure is integrated, stable and efficient.Although the reform has made considerably progress in India, much need to be done with regard to legal and constitutional reform including bankruptcy procedures. It is hoped that the necessary legislative action in this area shall be initiated soon.

I have become my own version of an optimist. If I can't make it through one door, I'll go through another door - or I'll make a door. Something terrific will come no matter how dark the present. Rabindranath Tagore

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