BANKING STRUCTURE

IN INDIA
SUBMITTED TO: SUBMITTED BY:
Ms. RAMNEEK KAUR RITIKA NARANG
MCOM 3RD SEM
ROLL NO: 5803
WHAT IS A BANK?

According to businessdictionary.com, bank is defined as:

“An establishment authorized by a government to accept deposits, pay interest, clear

cheques, grants loans, act as an intermediary in financial transactions, and provide
other financial services to its customers.”
 INDIAN BANKING STRUCTURE

ORGANISED SECTOR UNORGANISED SECTOR

RESERVE BANK OF INDIA
INDIGENOUS MONEY
COMMERCIAL SPECIALISED CO-OPERATIVE BANKERS LENDERS
BANKS BANKS BANKS
STATE MODERN CONCEPTS:
SCHEDULED NON-SCHEDULED CO-OPERATIVE -Small Finance Bank
BANKS BANKS BANKS -Payment Bank
DISTRICT
PRIVATE FOREIGN PUBLIC
CO-OPERATIVE
BANKS BANKS SECTOR
BANKS
BANKS
PRIMARY CO-OPERATIVE
SBI NATIONALISED REGIONAL BANKS & SOCIETIES
BANKS RURAL BANKS
 UNORGANISED SECTOR
• The indigenous bankers lend money; act as money changers and finance internal trade of India by
means of hundis or internal bills of exchange.

• Includes shroffs, seths, mahajans, chettis, etc.

• Despite the fast growth of modern commercial banks, the indigenous banks continue to hold a
prominent
position in the Indian market, even in the present times.
DEFECTS
• Do not have any contact with other sections of the banking world.
• Have introduced trade risks into their banking business.

• They do not distinguish between short term and long term finance and also between the purpose
of finance.
• They follow vernacular methods of keeping accounts.

Therefore, the unorganised sector needs to be regulated & upgraded.

 ORGANISED SECTOR
RESERVE BANK OF INDIA (RBI)
• It was established on 1st April 1935 under the RBI Act of 1934.

• The country had no central bank prior to the establishment of the RBI.

• The RBI is the supreme monetary and banking authority in the country controls the banking system
in India.

• It is called the ‘Reserve Bank’ as it keeps the reserves of all commercial banks.
• They have the authority to formulate and implement monetary and credit policies.

• It is owned by the government of a country and has the monopoly power of issuing notes.

• Current governor of RBI- Mr. Urjit Patel

 FUNCTIONS OF RBI
TRADITIONAL FUNCTIONS
A. CENTRAL BANKING FUNCTIONS
-Issue of paper currency
-credit regulation
-banker’s bank
-bank to government
-regulation of foreign exchange
-other functions: export assistance, clearing house facilities, change & transfer of currency, publication of
information, training in banking

B. GENERAL BANKING FUNCTIONS

-accepting deposits
-discounting of bills
-advancing loans
-dealing in foreign securities
-dealing with foreign countries’ banks
C. PROHIBITORY FUNCTIONS
-cannot participate in trade, commerce or industrial activities
-cannot purchase its own shares or of other banks or companies
-cannot give loan against security of immovable property
-cannot pay interest on deposits
-cannot advance loan without securities

DEVELOPMENTAL FUNCTIONS

-PROMOTING AGRICULTURAL FINANCE

-PROMOTING INDUSTRIAL FINANCE
-PROMOTION OF FINANCE OF EXPORTS
-FRAMING OF MONETARY POLICY
-PROMOTION OF BANKING -strengthening of banking structure
-extension of banking facilities
-improvement of functional coverage
-development of bill market
-insurance of deposits
COMMERCIAL BANKS
A bank that offers services to the general public and to companies.

SCHEDULED BANKS
Bank listed in the SECOND SCHEDULE of RBI Act,1934

It must satisfy the following criteria:

-must be in the business of banking in India
-paid up capital & reserves > 5 lakh, presently, the limit is set at a minimum of INR 200 crore
for starting a new commercial bank
-it must satisfy RBI that its affairs are conducted in a manner, not detrimental to the interest of its depositors
-it is either a company defined under Indian Companies Act or is a corporation or company incorporated by or under
any law in any place outside India or institution notified by Central Government as a scheduled bank.

State co-operative banks are also eligible to be considered as scheduled banks.

 NATIONALISED BANKS
• Before 1969, all banks were private sector banks. But after 19th July 1969, 14 banks were nationalized and
transformed as a public asset under the government’s ownership.

• 6 private sector banks were nationalised in March 1980.

• Public sector banks are those in which the government has majority stake, i.e. greater than 50%. In other
words, all the nationalised banks are public sector banks but all public sectors may not be nationalised banks.

• Nationalized banks came into existence because the government took few banks through an act or ordinance
whereas public sector banks are those in which government has a majority stake from the beginning.

• In 1993, New Bank of India & PNB were merged, reducing the number to 19
The objectives behind nationalisation were:
-To break the ownership and control of banks by a few business families,
-To prevent the concentration of wealth and economic power,
-To mobilize savings from masses from all parts of the country,
-To cater to the needs of the priority sectors......

Following are the nationalised banks in India:

1. Allahabad Bank 11. Indian Overseas Bank
2. Andhra Bank 12. Oriental Bank of Commerce
3. Bank of Baroda 13. Punjab & Sind Bank
4. Bank of India 14. Punjab National Bank
5. Bank of Maharashtra 15. Syndicate Bank
6. Canara Bank 16. UCO Bank
7. Central Bank of India 17. Union Bank of India
8. Corporation Bank 18. United Bank of India
9. Dena Bank 19. Vijaya Bank
10. Indian Bank
PUBLIC SECTOR BANKS
• Public Sector Banks (PSBs) are banks where a majority stake (i.e. more than 50%) is held by a government.
• The shares of these banks are listed on stock exchanges. There are a total of 21 PSBs in India.
• The Central Government entered the banking business with the nationalization of the Imperial Bank Of
India in 1955.
• A 60% stake was taken by the Reserve Bank of India and the new bank was named as the State Bank of
India.

• Scheduled public sector banks- 27 including SBI & its 5 subsidiaries

• Two scheduled commercial banks in India, which have been classified as “other Public Sector
Banks”. These are:
1. IDBI
2. Bhartiya Mahila Bank.
SCHEDULED PUBLIC SECTOR BANKS (INDIA)

State Bank of India (& Its 5 subsidiaries, now merged in SBI itself along with Bharatiya Mahila Bank)
Allahabad Bank
Andhra Bank Oriental Bank of Commerce
Bank of Baroda Punjab National Bank
State Bank of India Punjab and Sind Bank
Bank of Maharashtra Syndicate Bank
Canara Bank Union Bank of India.
Central Bank of India United Bank of India
Corporation Bank UCO Bank
Dena Bank Vijaya Bank
Indian Bank IDBI Bank
Indian Overseas Bank
 PRIVATE SECTOR BANKS
• The "private-sector banks" are banks where greater parts of share or equity are not held by the government
but by private share holders.

• Banking in India has been dominated by public sector banks since the 1969 when all major banks were
nationalised by the Indian government.

• However, since liberalisation in government banking policy in the 1990s, old and new private sector banks
have re-emerged. They have grown faster & bigger over the two decades since liberalisation using the latest
technology, providing contemporary innovations and monetary tools and techniques.

• The private sector banks are split into two groups by financial regulators in India, old and new.

• The old private sector banks existed prior to the nationalisation in 1969 and kept their independence
because they were either too small or specialist to be included in nationalisation.

• The new private sector banks are those that have gained their banking license since the liberalisation in the
1990s.
SCHEDULED PRIVATE SECTOR BANKS (INDIA)

13 old private sector banks as follows: Seven new private sector banks as follows:
1. Catholic Syrian Bank 1. Axis Bank
2. City Union Bank 2. Development Credit Bank (DCB Bank Ltd)
3. Dhanlaxmi Bank 3. HDFC Bank
4. Federal Bank 4. ICICI Bank
5. ING Vysya Bank 5. IndusInd Bank
6. Jammu and Kashmir Bank 6. Kotak Mahindra Bank
7. Karnataka Bank 7. Yes Bank
8. Karur Vysya Bank
9. Lakshmi Vilas Bank
10. Nainital Bank There are two banks which are yet to commence operation.
11. Ratnakar Bank These have obtained ‘in-principle’ licenses from RBI. They are:
12. South Indian Bank 1. IDFC
13. Tamilnad Mercantile Bank 2. Bandhan Bank of Bandhan Financial Services.(already in operation)
 STATE BANK OF INDIA (SBI)
• State Bank of India (SBI) is an Indian multinational, public sector banking and financial services company.
• It is a government-owned corporation with its headquarters in Mumbai, Maharashtra.
• Chairperson- Arundhati Bhattacharya
• The State Bank of India(subsidiary banks) Act was passed in 1959.
• According to this, all these 5 banks were declared as the subsidiaries of SBI.

On 1st April, 2017, State Bank of India, which is India's largest Bank merged with five of its Associate Banks :
-State Bank of Bikaner & Jaipur,
-State Bank of Hyderabad,
-State Bank of Mysore,
-State Bank of Patiala and
-State Bank of Travancore and
-Bharatiya Mahila Bank, with itself.
• The Central Government entered the banking business with the nationalization of the Imperial Bank Of India
in 1955.
• A 60% stake was taken by the Reserve Bank of India and the new bank was named as the State Bank of India.
REGIONAL RURAL BANKS
•Regional Rural Banks are local level banking organizations operating in different States of India.

• They have been created with a view to serve primarily the rural areas of India with basic banking and financial
services. However, RRBs may have branches set up for urban operations and their area of operation may include urban
areas too.

• The area of operation of RRBs is limited to the area as notified by Government of India covering atleast one or
more districts in the State.

• RRBs perform a variety of different functions. :

-Providing banking facilities to rural and semi-urban areas.
-Carrying out government operations like disbursement of wages of MGNREGA workers, distribution of
pensions etc.
-Providing Para-Banking facilities like locker facilities, debit and credit cards.
• Regional Rural Banks were started in 1970s due to the fact that even after nationalization, there were cultural
issues which made it difficult for commercial banks, even under government ownership, to lend to farmers.

• Each RRB is owned by three entities with their respective shares as follows:
Central Government → 50%
State government → 15%
Sponsor bank → 35%
• They are regulated by NABARD.

Some of the RRB’s in india are:

-Allahabad UP Gramin Bank
-Bihar Gramin Bank
-Sutlej Gramin Bank,
-Telangana Grameena Bank
-Meghalaya Rural Bank,
-Mizoram Rural Bank,
-Nagaland Rural Bank,
-Narmada Jhabua Gramin Bank
-Odisha Gramya Bank
 CO-OPERATIVE BANKS
• Cooperative banks serve an important role in the Indian economy, especially in rural areas. In urban areas, they
mainly serve small industry and self-employed workers.
• Co-operative bank do banking business mainly in the agriculture and rural sector. However, UCBs,
SCBs, and CCBs operate in semi urban, urban, and metropolitan areas also.
• They are registered under the Cooperative Societies Act, 1912.
• They are regulated by the Reserve Bank of India under the Banking Regulation Act, 1949 and Banking Laws
(Application to Co-operative Societies) Act, 1965.
• Anyonya Sahakari Mandali, established in 1889 in the province of Baroda, is the earliest known cooperative credit
union in India.[8]
• The co-operative Bank involves autonomous association of persons united voluntarily to meet their common
economic, social and cultural needs through a jointly owned and democratically controlled enterprise.
• The co-operative structure is designed on the principles of mutual help, democratic decision making and open
membership, in view of the fact that their ownership and control are directly vested in the hands of the
members.
• These function on "no profit, no loss" basis. Co-operative banks, as a principle, do not pursue the goal of
profit maximization.
URBAN COOPERATIVES
• Urban Cooperatives can be further divided into scheduled and non-scheduled. Both the categories are further
divided into multi-state and single-state. Majority of these banks fall in the non-scheduled and single-state
category.
• UCBs provide working capital loans and term loan as well.
• Banking activities of Urban Cooperative Banks are monitored by RBI.
• Registration and Management activities are managed by Registrar of Cooperative Societies (RCS). These RCS
operate in single-state and Central RCS (CRCS) operate in multiple state.

RURAL COOPERATIVES
• The rural cooperatives are further divided into short-term and long-term structures. The short-term cooperative
banks are three tiered operating in different states. These are-
1. State Cooperative Banks- They operate at the apex level in states
2. District Central Cooperative Banks-They operate at the district levels
3. Primary Agricultural Credit Societies-They operate at the village or grass-root level.
FOREIGN BANKS
• Foreign banks are those banks whose branch offices are in India but they are incorporated outside India, and
have their head office in a foreign country.
• These banks were allowed to set up their subsidiaries in India from the year 2002.
• They have to operate their business by following all the rules and regulations laid down by the RBI
• The banks should also get permission from their home country to set up branches in India.
• Other factors that are considered while approving the application of setting up the presence of foreign banks
in India are as follows:
 Financial soundness of the foreign banks
 Economic and political relations between the home country of the foreign banks and India.
 International ranking of the bank
 Home country ranking of the bank
 International presence of the bank
 Rating given to the bank by international rating agencies
Some of the policy guidelines of RBI towards foreign banks are as follows:

1.Banks have to adhere to mandated Capital Adequacy requirements as per Basel Standard.
2.They should have to meet minimum capital requirement of Rs. 5 billion.
3.They should need to maintain minimum CRAR at 10%
4.Priority sector targets for foreign banks in India is 40%.
There are 43 foreign banks from 26 countries operating as branches in India and
46 banks from 22 countries operating as representative offices in India.

Some of these are listed below:

-American Express Bank Ltd.
-ANZ Gridlays Bank Plc.
-Bank of America NT & SA
-Bank of Tokyo Ltd.
-Banquc Nationale de Paris
-Barclays Bank Plc
-Citi Bank N.C.
-Deutsche Bank A.G.
-Hongkong and Shanghai Banking Corporation
-Standard Chartered Bank.
-The Chase Manhattan Bank Ltd.
-Dresdner Bank AG.
 SPECIALISED BANKS
• A specialised bank is a bank with specialised areas of activity, as opposed to a universal bank.

• These are:
1. Industrial Development Bank of India:
-The Industrial bank of India popularly known as IDBI was established as wholly owned subsidiary of RBI.
-It was set up under the Act of Parliament in July 1964 to serve the purpose of providing credit and other facilities
to the Industry.

2. Housing Finance Bank:

-Housing Finance in India had been core issue for general public to obtain a Housing Loan either from
Nationalised Banks or from other Financial institutions
-The RBI recommended setting up of National Housing Bank. The Government accepted the proposal and
National Housing Bank was set up on 9th July, 1988 under the National Housing Bank Act 1887 as an apex level
institution for housing.
3. EXIM Bank:
-The Export and Import Bank of India popularly known as EXIM Banks was established in 1982 under the
Export-Import Bank of India Act 1981 mainly for the purpose of enhancing export trade of the country.

-In addition to this the bank is required to integrate the country’s foreign trade and investment with overall
economic growth Like other Export Credit Agencies the Exim bank has been engaged in providing services
like Export Credit, Import Credit, Project financing and credit to export units etc.

4. Rural Credit Bank:

-The rural credit has been managed in many ways.
-The system of providing credit for rural development had been looked after by RBI, NABARD,
Commercial banks, State Co-operative banks, District co-operative banks and Primary Agricultural Credit societies.
-Most important role of Rural Credit is being played by the Co-operative banks which provide loans for
farming, Cattle, hatchery and also for personal needs.
 SMALL FINANCE BANKS
• Small finance banks are a type of niche banks in India.
• Banks with a small finance bank license can provide basic banking service of acceptance
of deposits and lending. The aim behind these to provide financial inclusion to sections of the economy not
being served by other banks, such as small business units, small and marginal farmers, micro and small
industries and unorganised sector entities.
• They are high technology and low cost businesses.

• The promoters should have 10 years experience in banking and finance. The promoters stake in the paid-
up equity capital will be 40% initially which must be brought down to 26% in 12 years.
• Joint ventures are not permitted. Foreign share holding will be allowed in these banks as per the rules
for FDI in private banks in India.
• The banks will not be restricted to any region. 75% of its net credits should be in priority sector
lending and 50% of the loans in its portfolio must in 25 lakh range.
Small Finance Bank in operating in India are:

1. AU Small Finance Bank

2. Equitas Small Finance Bank
3. Ujjivan Small Finance Bank
4. Utkarsh Small Finance Bank
5. Janalakshmi Small Finance Bank
6. Capital Lab Small Finance Bank
7. Disha Small Finance Bank
8. ESAF Small Finance Bank
9. RGVN Small Finance Bank
10. Suryoday Small Finance Bank
 PAYMENT BANKS
• Payment banks can offer limited services out of those a bank can offer.

• Their primary role is offering payment and remittance service, and deposit service. The guidelines for
payment banks have been released by RBI.

• The new payment banks that may come up can offer payment service (cash taken in at one end and
withdrawn at another), remittance service (demand draft, pay order, etc), and demand deposits (saving
and current account) with max deposit upto Rs 1 lakh per customer.

• They cannot take term deposit (fixed deposits) nor can give loans.
• On 19 August 2015, the Reserve Bank of India gave "in-principle" licences to eleven entities to launch
payments banks:
Aditya Birla Nuvo
Airtel M Commerce Services
Cholamandalam Distribution Services
Department of Posts
FINO PayTech
National Securities Depository
Reliance Industries
Sun Pharmaceuticals
Paytm
Tech Mahindra
Vodafone M-Pesa
• Out of these, three have surrendered their licenses. First one being "Cholamandalam Distribution
Services", then "Sun Pharmaceuticals" and the latest, "Tech Mahindra".
• The "in-principle" license is valid for 18 months within which the entities must fulfil the requirements.
They are not allowed to engage in banking activities within the period.
Payments Bank operating in India
are:

1. Airtel Payments Bank

2. India Post Payments Bank
3. Fino Payment Bank
4. Jio Payments Bank
5. Aman cafe payment Bank
6. Paytm Payments Bank

Number Bank Name Interest on Deposits Maximum Deposit

1 Airtel Payments Bank 7.25% 1,00,000
2 Paytm Payments Bank 4% 1,00,000
3 India Post Payments Bank 5.5% 1,00,000
4 FINO payment bank 4% 1,00,000