BANKS - INTRODUCTION

Origin of banks

Italian banca, banc, or banque

which means a bench.
German back which means a joint
stock fund. Italianised into banco

Origin of Modern Banks

Merchants of 17th century kept gold at Tower

of London
In 1640 King Charles I seized such gold
People began gold with Goldsmiths
Goldsmiths receipt later become bank notes
(currency)
Goldsmith accepting orders from depositors
to pay money cheques
Goldsmith began lending gold not all
depositros withdraw Modern banking
functions

Banking in India

Indegenous banking is ageold

Modern banking efforts of English
Agency Houses
1770 Bank of Hindoostan
(Alexander & Co)
1784 Bengal Bank
1786 General Bank of India
All these banks failed

Banking in India contd

Govt set up three banks

1809

Bank of Bengal
1940 Bank of Bombay
1843 Bank of Madras

These were Presidency Banks with

note issue power
1833 1920 emergence of other
commercial banks

Banking in India contd

1921 Presidency banks amalgamated

into Imperial Bank of India
Imperial Bank banker to Govt.
Function took over by RBI in 1935
Imperial Bank took over by SBI in 1956
Nationalisation of banks in 1969 and
1981
We have public sector banks, private
sector banks and foreign banks

Classification of Banks

Commercial banks
Investment banks
Cooperative banks
Land mortgage banks
Exchange banks
Off-shore banks
Savings banks
Private banks
Central banks

Move towards Universal Banking

Mixed Banking
Combining

deposit taking and

investment banking

Universal Banking
A

supermarket for financial services

Trend in India

Traditionally, Indian banking was for

deposit taking
Move towards Universal Banking on
the recommendations of
Narasimham Committee II on
Finance sector reforms and Khan
Working Group on Harmonising the
Role and Operations of Development
Financial Institutions and Banks

Bank Systems

Branch Banking
Unit Bankig
Group Banking
Chain Banking

Branch Banking

A single bank having many

branches over a vast area
Originated in England and followed
in most other countries

Advantages of Branch Banking

Economies of
scale.
Economy in
reserves.
Easy transfer of
funds.
Diversion of risks.
Uniformity of
interest rates.
Optimal use of
funds.

Diversification of
portfolio.
Efficient
management.
Resilience
Better customer
care
Effective
regulation

Demerits of Branch Banking

Inefficient
management.
High cost of
operations
Red tapism.
Unremunerative
branches
Monopoly power
Unjust
competition

Contagion effect
Local needs
neglected
Impersonal
banking
Imbalanced branch
growth
Neglect of small
places

Unit Banking

Banks are monoliths with one office

or few branches spread over a small
area of operation
Popular in USA
Merits and Demerits opposite to
that of Branch Banking

Banking Structure in India

Scheduled and Non-scheduled Banks

Scheduled banks
State Bank Group
Nationalised banks
Other nationalised bank (IDBI)
Old private sector banks
New private sector banks
Foreign banks
Regional Rural Banks
Coopertive bnks
Local Area Banks