Annex III

Existing Banking Structure in India*

Commercial Banks Public Sector Banks State Bank of India

(26)
Associate Banks(5)

Nationalized Banks(19)

Other Public Sector Bank(1)

Private Sector Banks Old Private Sector Banks(13)

(20)
New Private Sector Banks(7)

Foreign Banks (43) Branch mode of presence (331 branches)

Regional Rural Banks Limited area of operation

(64)

Local Area Banks (4) Limited area of operation

*Position as on March 31, 2013 : http://rbi.org.in/Scripts/PublicationReportDetails.aspx?ID=713

COMPARISION OF BANKS

 Structure of Banking System

At present, the organized banking system in India can be broadly divided

into three categories:
i) The Central Bank of the country, the Reserve Bank of India
ii) The Commercial Banks
iii) The Cooperative Banks.
The RBI is the apex monetary and banking authority in the country
and has the responsibility to control the banking system in India.
 Commercial banks play a major role in the growth and development
of the country. They mobilize savings and make them available to large and
small industrial enterprise and traders for working capital requirements.
After 1969, commercial banks are broadly classified into nationalized or
public sector banks and private sector banks. The SBI and its associate
banks along with another 20 banks are the public sector banks. The private
sector banks include Indian scheduled banks which have not been
nationalized and branches of foreign banks operating in India. The Regional
Rural Banks came into existence since the middle of 1970s with the specific
objective of providing credit and deposits facilities to the small and marginal
farmers, agricultural labourers and artisans and small entrepreneurs.
 Banking in India
Banking in India act as a connected link between the borrowers and lenders
of money. The banks main activity should be to do the business of banking
which should not be subsidiary to any other business. Thus, a bank should
always add the word “Bank” to its name to enable people to know that it is a
bank and is dealing in money.
Meaning of CB- commercial banking refers to that banking which is concerned with the
acceptance of deposits from the public repayable on demand or after the expiry of a
short period and the granting of mainly short term credit to trade, commerce and industry
through wide networking of branches throughout the country.

Functions of commercial banks- the functions of CB are numerous. They can be

broadly divided into two categories. They are-

1) Primary or basic functions

a) Receiving of deposits- deposits constitute the main source of funds for

commercial banks. CBs receive deposits from the public on various accounts.
The main types of accounts are- fixed, current, savings, recurring (explain lil).

b) Issuing notes/cheques- this function once considered to be the most

paying part of banker’s business is in modern times performed generally by
the central bank. Its importance has dwindles to a large extent in some
developed countries where cheque currency has replaced bank notes to a
large extent.

c) Lending of funds- it is the main business of CB. Advances form the chief
source of profit for CB. Banks lend funds by way of loans, over-drafts, cash
credit, discounting of bills.

(i) Loan- it is a financial arrangement under which an advance is

granted by a bank to a borrower on a separate account called the loan
account. A loan may short, medium or long term. It is granted either
against collateral securities or against personal security of the
borrower.

(ii) Over-draft- it is a financial arrangement where a current account

holder is permitted by a bank to overdraw his account that is to draw
more than the amount standing to his credit upon an agreed limit.

(iii) Cash credit- it is a financial arrangement under which a borrower

is allowed an advance under a separate account called cash credit
limit. Here the borrower can withdraw the amount in installments as
and when he needs.

(iv) Discounting of bills of exchange- here the bank takes a BOE

maturing from an approved customer and pays him and credits his
account immediately with the present value of the bill.

d) Investment of funds on security- it is one of the imp functions of comm.

Banks. They invest a considerable amount of their funds in govt and industrial
 securities. In India it is required by statute for CB to invest a considerable
amount of their funds in securities.

e) Creation of money- the various ways of creation of money are-

(i) By advancing loans

(ii) By allowing over draft

(iii) By providing cash credit

(iv) By discounting BOE

(v) By purchasing securities

(vi) By purchasing fixed assets

The commercial banks are prominent in today’s world because they manufacture or
create money. The bank deposits are regarded as money coz they perform the same
function as money that is they increase the purchasing power of the community and
serve as medium f exchange in purchase of goods and services and settlement of debts.

2) Secondary or subsidiary functions- apart from performing the main function the
comm. banks also perform a num of secondary functions which may be divided into
the following two heads-

a) Agency services- the services rendered by a bank as the agent of his

customer are called agency services. The imp agency services are-

(i) Collection of money on behalf of customers.

(ii) Making payments on behalf of customers.

(iii) Purchase and sale of securities on behalf of customers.

(iv) Advising customers regarding investments.

(v) Acting as trustee, executor, and administrator of customers.

(vi) Rendering of merchant banking services.

b) Miscellaneous or general utility services- services rendered by banker is

not confined only to his customers but also to general public called such as-

(i) Safe custody of valuables

(ii) Dealing in foreign exchange business

 (iii) Issuing of traveler’s cheque, traveler’s letter of credit and circular
notes.

(iv) Collecting information bout other businessmen for customers.

(v) Collection of statistics and data.

(vi) Lease financing.

 • General Bank of India1786 • Estb in Kolkatta • 3 Presidency Banks

established1809-1843 • Banks of: Bengal, Bombay, Madras • 3 Presidency Banks
amalgamated1921 • Imperial Bank of India – European control.
 • Allahabad Bank1865 • Estb purely by Indians • Punjab National Bank1894 •
Estb in Lahore • BOI, CBI, BOB, Can Bank, Indian Bank1906- established1913
 • RBI established1935 • Banking Companies Act : changed to Banking Reg1949
Act • SBI formed1955- • SBI Act passed enabling SBI takeover 81959
subsidiaries
 • 14 banks nationalized1969 • 6 more banks nationalized • Objective: Social &
rural impetus better control1980 • Narasimhan Committee Reforms1990’s • Entry
of new Pvt sector, Foreign banks
 Financial System Capital Markets Insurance and Central Banking Regulatory
Pension Authority Authority Regulators RBI SEBI IRDA
 RBI Small National IDBI Industries Dev NABARD Exim Bank Housing Bank
Bank of India
 RBI Co-Operative Commercial Banks Banks Schld Non State Foreign Public
Private RRB’s District Sector Banks Sector Primary Credit Soc Nationalized SBI
& Other PSU Old Age New Age Banks AssocScheduled Banks : Those listed in
2nd Schedule of RBI Act 1934.Banks need to fulfill Sec 42 (6)(a) to be incld in
schedule
  PSU Banks: GOI is the majority stakeholder 27 PSU banks (19 + SBI & 6
subsidiaries) Have taken a lead role in branch expansion – rural areas SBI :
“Banker to every Indian”
  Regional Rural Banks(RRB’s): Established 1976-1987: Develop rural
economy. Jointly owned by Central Govt + State Govt +sponsor PSU Target
customers : Farmers, artisans etc Decline in numbers : 196 in March 2005 81 as
on date. Examples: Maharashra Gramin Bank, Saptagiri Grameena Bank
  Private Sector Banks Majority share capital is held by corporates/pvt parties
Banks not nationalized 1969/1980 : “Old age-Pvt sector” Post 1992-93 reforms
(Narasimhan Committee) entry permitted 7 “New age” banks & 15 “Old age”
banks : March 2009 Examples: Yes Bank, Jammu &Kashmir Bank
  Foreign Banks: HO: outside India but operate through branches or rep
offices As on June 30 2009: 28 foreign banks operating in India. Target
customers : Corporates, HNI’s, urban middle class Examples : Standard
Chartered,HSBC