Introduction to

Banking
UNIT 1
Banking

 Banking Regulation Act of India, 1949 defines Banking

as “accepting, for the purpose of lending or of
investment of deposits of money from the public,
repayable on demand or otherwise or withdrawable
by cheque, draft order or otherwise.” The Reserve
Bank of India Act, 1934 and the Banking Regulation
Act, 1949, govern the banking operations in India.
Banking Structure in India
 A well-regulated banking system is a key comfort for local and foreign stake-
holders in any country. Prudent banking regulation is recognized as one of the
reasons why India was less affected by the global financial crisis. ]
 Banks can be broadly categorized as Commercial Banks or Co-operative Banks.
 Banks which meet specific criteria are included in the second schedule of the
RBI Act, 1934. These are called scheduled banks. They may be commercial
banks or co- operative banks. Scheduled banks are considered to be safer, and
are entitled to special facilities like re-finance from RBI. Inclusion in the
schedule also comes with its responsibilities of reporting to RBI and
maintaining a percentage of its demand and time liabilities as Cash Reserve
Ratio (CRR) with RBI.
Structure of Banks in India
Broad Classification of Banks in India
 The RBI: The RBI is the supreme monetary and banking authority in the
country and has the responsibility to control the banking system in the
country. It keeps the reserves of all scheduled banks and hence is known
as the “Reserve Bank”.
 Public Sector Banks:
 State Bank of India and its Associates (8)
 Nationalized Banks (19)
 Regional Rural Banks Sponsored by Public Sector Banks (196)
 Private Sector Banks:
 Old Generation Private Banks (22)
 Foreign New Generation Private Banks (8)
 Banks in India (40)
 4) Co-operative Sector Banks:
 State Co-operative Banks
 Central Co-operative Banks
 Primary Agricultural Credit Societies
 Land Development Banks
 State Land Development Banks
 5) Development Banks: Development Banks mostly provide long term finance for setting
up industries. They also provide short-term finance (for export and import activities)
 Industrial Finance Co-operation of India (IFCI)
 Industrial Development of India (IDBI)
 Industrial Investment Bank of India (IIBI)
 Small Industries Development Bank of India (SIDBI)
 National Bank for Agriculture and Rural Development (NABARD)
 Export-Import Bank of India
 Evaluation phase
1. Evolutionary phase (Prior to 1947)
2. Foundation phase (1947-1969)
3. Expansion phase (1969-1990)
4. Consolidation and Liberalization phase (1990 to till)

Presentation Title 10
 The Pre-independence Phase (1770-1947)
 The organized banking sector in India dates back to more than a
century before independence when the Bank of Hindustan–the first
bank of India was established in 1770 in the then Indian capital,
Calcutta. It failed in due course and was liquidated in 1832.
 The Bank of Bengal, Bank of Bombay, and Bank of Madras established
by the East India Company during the early to mid-1800s–together
known as the Presidential Banks were later merged in 1921 to form the
Imperial Bank of India.
 It was later nationalised in 1955 and named the State Bank of India
(SBI).
 The Post-independence Phase (1947-1991)
 Post-independence, the evolution of the Indian banking system
continued when the Government of India (GOI) adopted the approach
of a mixed economy in 1948 with an extensive intervention into
markets to strengthen the economy.
 The Reserve Bank of India (est. 1935) was nationalised in 1949 and it
was empowered to regulate, control, and inspect the banks in India.
 Nationalization in 1969
 In the 1960s the RBI had become a large employer and the Indian banking industry had begun
playing an important role in supporting economic development.
 except for SBI, most banks continued to be run by private entities.
 The Government of India issued the Banking Companies (Acquisition and Transfer of
Undertakings) Ordinance, 1969 and nationalized the 14 largest commercial banks at that time.
 Nationalization in 1980
 The second wave of Nationalization followed in 1980 with 6 more commercial banks.
 Liberalization in 1991
In 1991, the GOI adopted economic liberalization that brought about a massive
change in its economic policies to enhance the participation of private and
international investments. The RBI approved 10 private banks:
Commercial Banks
 Commercial banks comprising public sector banks, foreign
banks, and private sector banks represent the most important
financial intermediary in the Indian financial system.
 The changes in banking structure and control have resulted due to
wider geographical spread and deeper penetration of rural areas,
higher mobilization of deposits, reallocation of bank credit to priority
activities, and lower operational autonomy for a bank management.
Public sector commercial banks, dominate the commercial banking
scene in the country. The largest commercial Banks in India is SBI
Main function of commercial banks
 A ) Acceptance of deposits  C) Agency function
 Fixed deposit account  Collecting receipts
 Saving bank account  Making payments
 Current account  Buy and sell securities
 B ) Advancing of loan  Trustee and executor
 Cash credit  D ) General utility function
 Call loans  Issuing letters of credit, travelers cheques
 Over draft  Underwriting share and debentures
 Bills discounting  Safe custody of valuables
 Providing ATM and credit card facilities
 Providing credit information
Private Sector Bank

 Private sector banks are those in which private

individuals or private corporations own a
significant portion of the bank's equity. Even
though these banks adhere to the guidelines of
the country's central bank, they are free to
develop their financial strategies for their
customers.
What is a Private Sector Bank?
 Private Sector Banks are the banks in which private individuals own and maintain the
majority of the shares or equity.
 Initially, public sector banks dominated the Indian banking sector, but after the 1990s,
private sector banks emerged and expanded rapidly.
 Their rapid growth was due to their use of cutting-edge technology, new financial
tools, and cutting-edge innovations.
 In India, private sector banks are divided into two types.
 Old Private Sector Banks (emerged before 1968)
 New Private Sector Banks (emerged after the 1990s)
 Old Private Sector Banks are those private sector banks that existed at the time of
nationalization.
 The Reserve Bank of India issued guidelines for the establishment of new private sector
banks in India in 1993.
 Currently, there are 21 private sector banks in India.
Private Sector Banks – Advantages
 Customers are offered quick service by private sector banks.
 These banks also provide tailored services based on the customer's financial
requirements.
 Banks in the private sector have a streamlined management system.
 Private sector banks can make quick financial decisions.

Private Sector Banks – Disadvantages

 Private sector banks charge additional fees for all financial services.
 These banks only operate in cities, making them inaccessible to the rural population.
 Employees in private sector banks have no job security.
List of Private Sector Bank
Axis Bank IndusInd Bank
Bandhan Bank Jammu and Kashmir Bank
City Union Bank Karnataka Bank
Dhanlaxmi Bank Kotak Mahindra Bank
DCB Bank Karur Vysya Bank
Federal Bank Lakshmi Vilas Bank
HDFC Bank Nainital Bank
ICICI Bank RBL Bank
IDFC Bank South Indian Bank
IDBI Bank Tamilnad Mercantile Bank
YES Bank
Public Sector Bank

 Public sector banks (PSBs) are those in which the government

owns more than 50% of the stock. The government regulates
the financial guidelines for these banks. Most depositors
believe that their money is safer in public sector banks
because they are owned by the government. As a result, the
majority of public sector banks have a sizable customer
base. The State Bank of India (SBI), for example, is India's
largest public sector bank.
 What is a Public Sector Bank?
Public sector banks account for the majority of the banking business in India and are divided into two
types:
• State Bank of India
• Nationalized Banks
 State Bank of India
• This group includes the State Bank of India, India's largest commercial bank.
• The State Bank of India Act, 1955, established the State Bank of India by converting the then-
existing Imperial Bank of India into the State Bank of India.
• Following the formation of the State Bank of India in 1955, another 14 banks were nationalized
between 1969 and 1991. These were the banks with more than 50 crores in national deposits.
• The formation of the State Bank Group was intended to accelerate the expansion of banking facilities
in rural areas.
Nationalised Banks
• After about a decade, the Banking Companies (Acquisition and Transfer of Undertakings)
Act 1970, enacted in July 1969, nationalized 14 major commercial banks in India.
• Six more commercial banks were nationalized a decade later, in 1980.
• The decision to nationalize the major commercial banks was made with the goal of opening a
large number of branches throughout the country, particularly in rural areas and mobilizing
large amounts of deposits for the purpose of lending to productive purposes.
• Agriculture, small industries and small businesses, weaker sections, and so on were among
the projects that had previously gone unnoticed.
• Initially, the Government of India held 100 percent ownership of nationalized banks.
• Following the amendment to the Act, private shareholding is now permitted, with the condition
that the Government's share does not fall below 51 percent.
• Since then, a few banks have issued public shares, reducing the government's shareholding
percentage.
• Currently, there are a total of 12 Nationalized Banks in India.
Criteria Meaning Public Sector Bank Private Sector Bank
These banks are under control of the These banks are under the control of a
Status of Control Controlling Authority
Government private individual.

Public Sector Banks are the banks whose Private Sector Banks are the banks
Structure Shareholding Pattern more than 50% shareholding lies with whose majority of stake is held by
the central or state government. private corporations or individuals.

Public Sector Banks are formed by

passing acts in the parliament. For e,g:
Private Sector Banks are registered
Registration Governing Act or law State Bank of India (Subsidiary Banks)
under the Indian Companies Act
Act, 1959 & Bank nationalization Act
(1970, 1980)

The Reserve Bank of India Act, 1934 (RBI

Act) gives power to Reserve Bank of Reserve Bank of India (RBI) issues rules,
Regulatory Control Regulatory Body
India (RBI) to issue rules, regulations, regulations, directions, and guidelines
directions, and guidelines
Private banks have a higher FDI cap at
74 percent, provided there should be
no change of control and management.
Foreign Direct 20% of Foreign Investment is allowed in
FDI RBI regulations do not permit a single
Investment Public Sector Bank
organization or individual to invest for
more than 10 percent of stake in a
bank.
Criteria Meaning Public Sector Bank Private Sector Bank
Bank Board Bureau (BBB) gives
Private Banks have their own selection
Selection of recommendations for the appointment
Management process like any other private entity
Management of full-time Directors as well as non-
but have to fulfill RBI guidelines.
Executive Chairman of PSBs.

Private Banks always look forward to

Public banks are slow in adopting new
new technology and using innovative technology which can
Ease of Banking technologies and still follow old
innovative products speed up their processes and increase
processes
reliability.
Public sector bank employees are not
Private sector bank employees are
Consumer Grievances urged enough to resolve customer
Customer Services more agile and proactive in catering to
or query redressal requests or handle customer
customer requests.
complaints.
Despite technology-based banking
Public sector banks have a wider branch Private banks are mainly catering
Accessibility Number of Branches network and higher tier 2 cities and services to tier 1 cities and few tier 2
rural coverage. cities and have limited access for the
rural population.
The Private Sector also provides similar
Banking Services and products are services as in public sector banks but
Facilities provided by common in both public and private the only difference is that they focus
Services Banks to their sector banks. But Public sector banks on higher consumer satisfaction and
consumers are way ahead in providing services to services at a high premium, their rural
the marginalized section of society. outreach is very less in comparison to
private sector banks.
Criteria Meaning Public Sector Bank Private Sector Bank

Usually, Loan Disbursal in a Public Public Sector Bank Loan Disbursal is

Sector bank involves a lot of paperwork attached to the performance of the
Speed of Disbursing and takes more time as compared to employees and that too is driven by
Loan Disbursal
the loan the private sector. In public sector bank innovative and technology-driven
employees are driven by old processes processes that reduce the turnaround
hence reduce the turnaround time time.

Public Sector banks have a high

Number of customers Consumer base because of high They have a lesser consumer base and
Customer Base to whom they cater geographical coverage and people also private banks need more time to gain
the services find government banks are more trust from people.
trustworthy than private ones.

In Public Sector Banks Employees are

In Private Sector Bank promotion is
Employee Promotion Process of Promotion promoted on the basis of their seniority,
done on the basis of merits. Only
Status of Bank Employees performance is not the major criteria
performing employees will get growth.
for the promotion.
What Is a Foreign Bank Branch?
 A foreign bank branch is a type of foreign bank that is
obligated to follow the regulations of both the home and
host countries. Because the foreign bank branch has loan
limits based on the total bank capital, they can provide
more loans than subsidiary banks. That is because the
foreign bank branch, while possibly small in one market, is
technically part of a larger bank. Hence, it enjoys the
capital base of the larger entity.
Foreign Banks – Historical Perspective
 Today's foreign banks in India, such as Standard Chartered Bank and HSBC, have
their roots in financing Asia's growing trade with the rest of the world.
 The Chartered Bank of India, Standard Chartered Bank's forerunner, opened an
office in Calcutta in 1858 after receiving a Royal Charter from Queen Victoria.
 The Hongkong and Shanghai Banking Corporation (HSBC), which had branches in
pre-independence India, took a significant inorganic step in 1959 when it
acquired the erstwhile Mercantile Bank in India.
 Major American banks were prohibited by law from operating outside the United
States at the time. The relaxation of these laws paved the way for American banks
to expand globally in the early twentieth century.
 Citibank, or The National City Bank of New York as it was known at the time,
entered India in 1902, and JP Morgan, which had ambitions to enter India as early
as 1902, did so in 1922 through an ownership stake in the Calcutta merchant
banking firm Andrew Yule and Co. Ltd.
 These banks are registered and have their headquarters in another country, but they have branches in our
country.
 Foreign banks account for less than 1% of the country's total branch network. They do, however, account
for approximately 7% of total banking sector assets and approximately 11% of profits.
 Other policy guidelines issued by the RBI to foreign banks include the following:
 They must meet the INR 500 crore minimum capital requirement.
 They should keep the CRAR at a minimum of 10%.
 Foreign banks' priority sector targets in India are 40%.
 Furthermore, foreign banks must adhere to other norms issued by the Reserve Bank of India.
 Foreign banks may also open representative offices in India. Representative offices have fewer authority
than branches or agencies.
 These offices act as a point of contact between the parent bank and its clients and correspondent banks
in India.
 They can build relationships with potential clients, but they cannot conduct banking transactions on their
own.
 Foreign bank branches are also more likely to operate in areas where regulatory barriers to entry are
lower.
 Currently, there are 45 foreign banks operating in the form of foreign bank branches and 34 foreign banks
operating in the form of representative offices.
S. No Name of Bank Country of Incorporation No. of Banking Branches

1) AB Bank Ltd. Bangladesh 1

2) Abu Dhabi Commercial Bank Ltd. UAE 1

3) American Express Banking Corporation USA 1

4) Australia and New Zealand Banking Group Ltd. Australia 3

5) Barclays Bank Plc. United Kingdom 3

6) Bank of America USA 4
7) Bank of Bahrain & Kuwait BSC Bahrain 4

8) Bank of Ceylon Sri Lanka 1

9) Bank of China China 1
10) Bank of Nova Scotia Canada 2
11) BNP Paribas France 8
12) Citibank N.A. USA 35
13) Cooperative Rabobank U.A. Netherlands 1

14) Credit Agricole Corporate & Investment Bank France 5

15) Credit Suisse A.G Switzerland 1

16) CTBC Bank Co., Ltd. Taiwan 2

17) DBS Bank India Limited* Singapore

Many more
Foreign banks in India – Representative Office form of presence
Sr. No. Name of the representative office Country of Incorporation Centre

1) Access Bank Nigeria Mumbai

2) Banco Bilbao Vizcaya Argentaria Spain Mumbai

3) Banco BPM S.P.A Italy Mumbai

4) Banco de Sabadell SA Spain New Delhi

5) Bank for Development and Foreign Economic Affairs Russia Mumbai

(Vnesheconombank)

6) Bank of Montreal Canada Mumbai

7) Bank of Taiwan Taiwan Mumbai
8) Busan Bank South Korea Mumbai
9) CaixaBank S.A. Spain New Delhi
10) Caixa Geral de Depositos Portugal Mumbai
11) Commerzbank Germany Mumbai
12) Credit Industriel et Commercial France New Delhi

Many more
Foreign Banks – Advantages
 Foreign banks have a greater ability to invest in more sectors than domestic banks in the
host country because they have a larger economic scale and risk diversification
techniques.
 Foreign banks enter host countries with new technology that contributes to the country's
technological development.
 The entry of foreign banks has a positive impact on the regulatory and supervisory
regimes of the host country because they will be able to learn about the regulatory and
supervisory regimes of foreign banks' home countries.
 The presence of a foreign bank in a developing country also contributes to the
transmission of best practices in the banking industry.
 The entry of a foreign bank increases competition, which has an automatic positive
impact on the development of the country's banking sector.
 Over the years, foreign banks have made significant contributions to the banking sector
by bringing capital and global best practices, as well as grooming talent.
Foreign Banks – Disadvantages
 While foreign banks bring a large amount of capital to the host country,
they also bring the potential to transfer financial shocks from their home
country.
 Since foreign banks are profit-driven, they focus primarily on large cities
with high business potential,and in such a case, foreign banks would be
ineffective in achieving government policy to make banking services
available throughout the country.
 During an economic or political crisis, foreign bank branches may face
various challenges.
 They will be harmed by events in that foreign country because they are
operating there during a crisis.
 A crisis-stricken government is more likely to use its limited resources to
assist domestic banks. Foreign banks may be forced to bail out their own
subsidiaries.
Regional Rural Banks or RRBs
 The Regional Rural Banks or RRBs are commercial banks in
India. These banks are empowered to conduct financial
transactions to promote growth and development in rural areas.
These are commercial scheduled banks. These banks operate on a
regional level and cater to the underprivileged masses. The RRB
and its functions are crucial to understanding every aspect of the
banking system and spreading awareness about the different types
of banks operating in the country. The Regional Rural Bank Act
passed in 1976. Injecting credit into the rural system and
providing financial aid to small and region-based artisans,
labourers, farmers, or businessmen.
RRB and its Functions
 The Regional Rural Banks or RRBs are commercial banks in India. RRB as a mix of cooperative
and commercial banks has certain features:
 Provide easy and accessible banking
 Support and promote local artisans, MSMEs (Medium-Small Sized Businesses), and agricultural
farmers
 Mobilise regional financial resources
 Operate on the district as well as state-level
 RRB and its functions include:
 Accepting savings and other forms of deposits
 Distributional and disbursement of pension and wages
 Providing internet banking
 UPI services
 Provide credit facility in the agricultural department, renewable energy sources, and cultural
initiatives
 The RRBs are owned by the state, central governments, and sponsoring banks. The RRBs are
often subjected to amalgamations which cause a fluctuation in their number over the country.
Regional Rural Bank Act

 The Regional Rural Bank Act passed in 1976. The

establishment of RRBs however was sanctioned a
year prior on September 26th. Initially, 5 RRBs
were inaugurated but then gradually the number
increased. Within a year of passing, 25 banks
were established. A Regional Rural Bank definition
includes a commercial bank that carries out
financial transactions in rural areas for its
financial development.
Cooperative Bank
 These banks play a vital role in mobilizing savings and
stimulating agricultural investment. Co-operative credit
institutions account for the second largest proportion of
44.6% of total institutional credit. The co-operative sector is
very much useful for rural people.
 The co-operative banking sector is divided into the following
categories.
 State co-operative Banks
 Central co-operative banks
 Primary Agriculture Credit Societies
Advantages:
 Easy to Form- A cooperative society is a voluntary association and may be formed with a
minimum of ten adult members. Its registration is very simple and can be done without
much legal formalities.
 Open Membership- Membership in a cooperative organisation is open to all people
having a common interest. A person can become a member at any time he likes and can
leave the society at any time by returning his shares, without affecting its continuity.
 Democratic Management- A cooperative society is managed in a democratic manner. It
is based on the principle of ‘one man one vote’. All members have equal rights and can
have a voice in its management.
 Limited Liability- The liability of the members of a co-operative society is limited to the
extent of capital contributed by them. They do not have to bear personal liability for
the debts of the society.
 Stability- A co-operative society has a separate legal existence. It is not affected by the
death, insolvency, lunacy or permanent incapacity of any of its members. It has a fairly
stable life and continues to exist for a long period.
 Economical Operations- The operation of a cooperative society is quite economical due to
elimination of middlemen and the voluntary services provided by its members.
 Government Patronage- Government gives all kinds of help to co-operatives, such as loans
at lower rates of interest and relief in taxation.
 Low Management Cost- Some of the expenses of the management are saved by the
voluntary services rendered by the members. They take active interest in the working of the
society. So, the society is not required to spend large amount on managerial personnel.
 Mutual Co-Operation- Cooperative societies promote the spirit of mutual understanding,
self-help and self-government. They save weaker sections of the society from exploitation by
the rich. The underlying principle of co-operation is “self-help through mutual help.”
 No Speculation- The share is always open to new members. The shares of co­operative
society are not sold at the rates higher than their par values. Hence, it is free from evils of
speculation in share values.
 Economic Advantages- Cooperative societies provide loans for productive purposes and
financial assistance to farmers and other lower income earning people.
 Other Benefits- Cooperative societies are exempted from paying registration fees and stamp
duties in some states. These societies have priority over other creditors in realising its dues
from the debtors and their shares cannot be decreed for the realisation of debts.
Disadvantages:
 Limited Capital- Cooperatives are usually at a disadvantage in raising capital because of the
low rate of return on capital invested by the members.
 Inefficient Management- The management of a co-operative society is generally inefficient
because the managing committee consists of part-time and inexperienced people. Qualified
managers are not attracted towards a cooperative on account of its limited capacity to pay
adequate remuneration.
 Absence of Motivation- A cooperative society is formed for mutual benefit and the interest
of individual members is not fully satisfied. There is no direct link between effort and
reward. Hence, members are not inclined to put their best efforts in a co­operative society.
 Differences and Factionalism among Members- Once the initial enthusiasm about the co-
operative ideal is exhausted, differences and group conflicts arise among members. Then, it
becomes difficult to get full co-operation from the members. The selfish motives of
members begin to dominate and service motive is sometimes forgotten.
 Rigid Rules and Regulations- Excessive Government regulation and control over co-operatives
affect their functioning. For example, a co-operative society is required to get its accounts
audited by the auditors of the co-operative department and to submit its accounts regularly
to the Registrar. These regulations and control may adversely affect the flexibility of
operations and the efficiency of management in a co-operative society.
 Lack of Competition- Cooperatives, generally, do not face any stiff competition. Markets for
their goods and services are more or less ready and assured. Hence, there is possibility of
slackening of efforts.
 Cash Trading- The members of the societies are generally from poor sections of the society.
These persons need credit facilities. On the other hand, private traders extend credit
facilities to the consumers. Though the societies sell goods at lower prices but absence of
credit facilities compel them to go to private traders for meeting their requirements.
 Lack of Secrecy- The affairs of a co-operative society are openly discussed in the meetings of
the members. Every member is free to inspect the books and records of the society.
Therefore, it becomes difficult to keep the secrets of business.
 Weightage to Personal Gains- Mutual co-operation erodes away over a period of time and the
members start giving weightage to their personal gains.
 Lack of Incentive and Initiative- In a cooperative society form of organisation everybody is
the owner of the society and over a period of time it becomes lifeless due to a lack of
incentive and initiative as everybody is the owner, but business does not belong to any one of
them.
 Corruption- It is the worst demerit from which co-operative societies suffer, it is the biggest
hindrance in the development and growth of business.
Development Banks
 A development bank may be defined as a financial institution
concerned with providing all types of financial assistance to business
units in the form of loans, underwriting, investment and guarantee
operations and promotional activities-economic development in
general and industrial development in particular
 A development bank is basically a term lending institution. It is a
multipurpose financial institution with a broad development
outlook.
 The industrial finance corporation of India, the first development
bank was established in 1948. Subsequently many other institutions
were set-up. Ex. IDBI, IFCI, SIDBI etc.
Functions of Development Banks

 Fostering industrial growth

 Providing Long term assistant
 Balanced development
 Providing Promotional services
 Infrastructure building
 Entrepreneur Development
 Fulfilling Socio economic objectives
Investment Banks
 Meaning: Financial intermediaries that acquire the savings of
people and direct these funds into the business enterprises
seeking capital for the acquisition of plant and equipment and
for holding inventories are called ‘investment banks’.
 Features: Long term financing, Security, merchandiser,
Security middlemen, Insurer, Underwriter
 Functions: Capital formation, Underwriting, Purchase of
securities, Selling of securities, Advisory services, Acting as
dealer.
The Role of Reserve Bank of India (RBI)
 Banker’s Bank
 The Reserve Bank of India (RBI) is the central bank of India, and was
established on April 1, 1935 in accordance with the provisions of the
Reserve Bank of India Act, 1934. Headquartered in Mumbai.
 RBI has been fully owned by the Government of India since
nationalization in 1949.
 RBI is governed by a central board (headed by a Governor) appointed
by the Central Government . RBI has 22 regional offices across India.
 The Reserve Bank of India was set up on the recommendations of the
Hilton Young Commission.
Functions of RBI
 Monetary Authority
 Formulates, implements and monitors the monetary policy.
 Objective: maintaining price stability and ensuring adequate flow of credit to productive
sectors
 Regulator and supervisor of the financial system
 Prescribes broad parameters of banking operations within which the country’s banking
and financial system functions.
 Objective: Maintain public confidence in the system, protect depositors’ interest and
provide cost-effective banking services to the public.
 The Banking Ombudsman Scheme has been formulated by the Reserve Bank of India (RBI)
for effective redressal of complaints by bank customers
 Manager of Foreign Exchange and Control
 Manages the foreign exchange through Foreign Exchange Management Act, 1999
Objective: to facilitate external trade and payment and promote orderly development and
maintenance of foreign exchange market in India.
Issuer of currency
Issues and exchanges or destroys currency and coins not fit for circulation.
Objective: to give the public adequate quantity of supplies of currency notes and coins and in good
quality.
Developmental role
Performs a wide range of promotional functions to support national objectives
Related Functions
Banker to the Government: performs merchant banking function for the central and the state
governments; also acts as their banker.
Banker to banks: maintains banking accounts of all scheduled banks.
Owner and operator of the depository (SGL) and exchange (NDS) for government bonds
Supervisory Functions: In addition to its traditional central functions, the Reserve bank has certain
non-monetary functions of the nature of supervision of banks and promotion of sound banking in
India.
The Reserve Bank Act, 1934, and the Banking Regulation Act, 1949 have given the RBI wide powers of
supervision and control over commercial and cooperative banks, relating to licensing and
establishments, branch expansion, liquidity of their assets, management and methods of working,
amalgamation, reconstruction and liquidation.
The supervisory functions of the RBI have helped a great deal in improving the standard of banking in
India to develop on sound lines and to improve the methods of their operation.
Promotional Functions: The Reserve Bank now performs a variety of developmental and promotional
functions.
The Reserve Bank promotes banking habit, extend banking facilities to rural and semi-urban areas, and
establish and promote new specialized financing agencies.
These institutions were set up directly or indirectly by the Reserve Bank to promote saving habit and to
mobilize savings, and to provide industrial finance as well as agricultural finance.
The RBI set up the Agricultural Credit Department in 1935 to provide agricultural credit.
The Bank has developed the co-operative credit movement to encourage saving, to eliminate money-
lenders from the villages and to route its short term credit to agriculture.
The RBI has set up the Agricultural Refinance and Development Corporation to provide long-term
finance to farmers
Products and Services offered by Banks

 The different products in a bank can be broadly classified into:

 Retail Banking
 Trade Finance
 Treasury Operations.
 Retail Banking and Trade finance operations are conducted at
the branch level while the wholesale banking operations, which
cover treasury operations, are at the hand office or a
designated branch.
Retail Banking:
 Deposits
 Loans, Cash Credit and Overdraft
 Negotiating for Loans and advances
 Remittances
 Book-Keeping (maintaining all accounting records)
 Receiving all kinds of bonds valuable for safe keeping
Trade Finance:
 Issuing and confirming of letter of credit.
 Drawing, accepting, discounting, buying, selling, collecting of bills of exchange,
promissory notes, drafts, bill of lading and other securities.
Treasury Operations:
 Buying and selling of bullion. Foreign exchange
 Acquiring, holding, underwriting and dealing in shares, debentures, etc.
 Purchasing and selling of bonds and securities on behalf of constituents.
 The banks can also act as an agent of the Government or local authority.
 They insure, guarantee, underwrite, participate in managing and carrying out issue of shares,
debentures, etc.
 Apart from the above-mentioned functions of the bank, the bank provides a whole lot of other
services like investment counseling for individuals, short-term funds management and
portfolio management for individuals and companies.
 It undertakes the inward and outward remittances with reference to foreign exchange and
collection of varied types for the Government
Common Banking Products Available:
 Credit Card: Credit Card is “post paid” or “pay later” card that draws from a credit line-
money made available by the card issuer (bank) and gives one a grace period to pay. If
the amount is not paid full by the end of the period, one is charged interest.
 Debit Cards: Debit Card is a “prepaid” or “pay now” card with some stored value. Debit
Cards quickly debit or subtract money from one’s savings account, or if one were
taking out cash.
 Every time a person uses the card, the merchant who in turn can get the money
transferred to his account from the bank of the buyers, by debiting an exact amount of
purchase from the card. To get a debit card along with a Personal Identification
Number (PIN).
Automatic Teller Machine:
 The ATM’s are used by banks for making the customers dealing easier.
 ATM card is a device that allows customer who has an ATM card to perform
routine banking transaction at any time without interacting with human teller.
It provides exchange services.
 This service helps the customer to withdraw money even when the banks ate
closed.
 This can be done by inserting the card in the ATM and entering the Personal
Identification Number and secret Password.
 To transfer money to and from accounts.
 To view account information.
 To order cash.
 To receive cash.
Electronic Funds Transfer (EFT):
 The system called electronic fund transfer (EFT) automatically transfers money
from one account to another.
 This system facilitates speedier transfer of funds electronically from any branch to
any other branch.
 In this system the sender and the receiver of funds may be located in different
cities and may even bank with different banks.
 Funds transfer within the same city is also permitted. The scheme has been in
operation since February 7, 1996, in India.
 Telebanking: Telebanking refers to banking on phone services.
 A customer can access information about his/her account through a telephone call
and by giving the coded Personal Identification Number (PIN) to the bank.
 Telebanking is extensively user friendly and effective in nature.
Mobile Banking:
 A new revolution in the realm of e-banking is the emergence of mobile banking.
 On-line banking is now moving to the mobile world, giving everybody with a
mobile phone access to real-time banking services, regardless of their location.
 It provides a new way to pick up information and interact with the banks to carry
out the relevant banking business.
 The potential of mobile banking is limitless and is expected to be a big success.
 Booking and paying for travel and even tickets is also expected to be a growth
area.
 This is a very flexible way of transacting banking business.
Internet Banking:
 Internet banking involves use of internet for delivery of banking products and services.
 Banking is no longer confined to the branches where one has to approach the branch in
person, to withdraw cash or deposits a cheque or request a statement of accounts. In
internet banking, any inquiry or transaction is processed online without any reference to
the branch (anywhere banking) at any time.
 Benefits of Internet Banking:
 Reduce the transaction costs of offering several banking services and diminishes the need
for longer numbers of expensive brick and mortar branches and staff.
 Increase convenience for customers, since they can conduct many banking transaction 24
hours a day.
 Increase customer loyalty.
 Improve customer access.
 Attract new customers.
 Easy online application for all accounts, including personal loans and mortgages
Banking Services
 Banking covers many services, these basic services have always been
recognized as the hallmark of the genuine banker.
 The receipt of the customer’s deposits
 The collection of cheques drawn on other banks
 The payment of the customer’s cheques drawn on himself
 There are other various types of banking services like: – Advances –
Overdraft, Cash Credit, etc. – Deposits – Saving Account, Current
Account, etc. – Financial Services – Bill discounting etc. – Foreign
Services – Providing foreign currency, travelers cheques, etc. – Money
Transmission – Funds transfer etc. – Savings – Fixed deposits, etc. –
Services of place or time – ATM Services. – Status – Debit Cards, Credit
Cards, etc.