INDIAN BANKING INDUSTRY- structure and business model

INTRODUCTION OF A BANK  The 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”.

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.

Nationalization of Indian banking system Indian marched towards the establishment of public sector banking through the progressive nationalization of commercial banks. There were three phases of bank nationalization:  Nationalization of Imperial Bank of India in 1955 and its seven associate banks in  Nationalization of the 14 major commercial banks in  Nationalization of 6 more commercial banks in On July 1, 1955 the government of India nationalized the Imperial Bank of India and converted it into the State Bank of India.. Later on in , seven subsidiary State Banks were also nationalized 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.

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. a. Bank of Issue b. Bankers' Bank and Lender of the Last Resort c. Controller of Credit d. Custodian of Foreign Reserves

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

Co-operative Banks Co-operative Banks  Customer's owned entities  Democratic member control  Profit allocation

Specialized 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 Specialized banks. Let us know about them.  Export Import Bank of India (EXIM Bank)  Small Industries Development Bank of India (SIDBI)  National Bank for Agricultural and Rural Development (NABARD)

Function of Bank Accepting deposits:-  Saving bank deposit  Current account  Fixed deposit  Recurring deposit

Giving loans  Overdraft  Loan  Rediscounting of bill  Credit card

Globalization Of Indian Banking System Banking sector in India is expanding at an incredibly faster pace, with more and more banks realizing the benefits offered by globalization. Publicly owned banks handle more than 80% of the banking business in India and the rest is in the hands of private sector banks. However, banking in both the government and private sector is being revolutionized by this latest phenomenon called “Globalization”. There are about 90 players in the banking sector in India, with 30 competitors from each of the public, private and foreign sectors. With so many players present in the banking sector in India, a few of them will emerge as global competitors in the near future”.

Structure of Organized Banking Industry

Organizational Structure The entire organized banking system comprises of scheduled and non-scheduled banks. Largely, this segment comprises of the scheduled banks, with the unscheduled ones forming a very small component. Banking needs of the financially excluded population is catered to by other unorganized entities distinct from banks, such as, moneylenders, pawnbrokers and indigenous bankers.

Scheduled Banks Scheduled Banks in India are those banks which have been included in the Second Schedule of Reserve Bank of India (RBI) Act, RBI in turn includes only those banks in this schedule which satisfy the criteria laid down vide section 42 (6) (a) of the Act. In order to be included under this schedule of the RBI Act, banks have to fulfill certain conditions such as having a paid up capital and reserves of at least 0.5 million and satisfying the Reserve Bank that its affairs are not being conducted in a manner prejudicial to the interests of its depositors.

Scheduled Commercial Banks (SCBs) Scheduled commercial banks (SCBs) account for a major proportion of the business of the scheduled banks. 80 SCBs were operational in India. SCBs are classified into two main divisions:  Public Sector Banks  Private Sector Banks SCBs in India are categorized into the five groups based on their ownership and/or their nature of operations.  SBI & Associates  Nationalized Banks  Foreign Banks  Regional Rural Banks  Other Scheduled Commercial Banks

Public Sector Banks Public Sector Banks are comprises of:  SBI & Associates  Nationalized Banks  Regional Rural Banks

SBI & Associates State Bank of India and its six associates (excluding State Bank of Saurashtra, which has been merged with the SBI with effect from August 13, 2008) are recognized as a separate category of SCBs, because of the distinct statutes (SBI Act, 1955 and SBI Subsidiary Banks Act, 1959) that govern them. Six Associates are:  State Bank of Bikaner and Jaipur  State Bank of Hyderabad  State Bank of Mysore  State Bank of Patiala  State Bank of Travancore  State Bank of India

Nationalized Banks Nationalized banks (20) and SBI and associates, together form the public sector banks group and control around 70% of the total credit and deposits businesses in India. IDBI ltd. has been included in the Nationalized Banks group since December 2004.

Nationalized Banks Allahabad Bank Andhra Bank Bank of Baroda Bank of India Bank of Maharashtra Canara Bank Central Bank of India Corporation Bank Dena Bank IDBI Bank Ltd. Indian Bank Indian Overseas Bank Oriental Bank of Commerce

Nationalized Banks Punjab and Sind Bank Punjab National Bank Syndicate Bank UCO Bank Union Bank of India United Bank of India Vijaya Bank

Regional Rural Banks Regional Rural Banks (RRBs) were set up in September 1975 in order to develop the rural economy by providing banking services in such areas by combining the cooperative specialty of local orientation and the sound resource base which is the characteristic of commercial banks. RRBs have a unique structure, in the sense that their equity holding is jointly held by the central government, the concerned state government and the sponsor bank (in the ratio 50:15:35), which is responsible for assisting the RRB by providing financial, managerial and training aid and also subscribing to its share capital.

Regional Rural Banks Between 1975 and 1987, 196 RRBs were established. RRBs have grown in geographical coverage, reaching out to increasing number of rural clientele. At the end of June 2008, they covered 585 out of the 622 districts of the country. Despite growing in geographical coverage, the number of RRBs operational in the country has been declining over the past five years due to rapid consolidation among them. As a result of state wise amalgamation of RRBs sponsored by the same sponsor bank, the number of RRBs fell to 86 by end March 2009.

Private Sector Banks Private Sector Banks are comprises of:  Indian Private Banks  Foreign Banks

Private Sector Banks Private sector banks include the old private sector banks and the new generation private sector banks- which were incorporated according to the revised guidelines issued by the RBI regarding the entry of private sector banks in As at end-March 2009, there were 15 old and 7 new generation private sector banks operating in India.

Old Private Sector Banks Catholic Syrian Bank Ltd. City Union Bank Ltd. Dhanalakshmi Bank Ltd. Federal Bank Ltd. ING Vysya Bank Ltd. Jammu and Kashmir Bank Ltd. Karnataka Bank Ltd. Karur Vysya Bank Ltd. Lakshmi Vilas Bank Ltd. Nainital Bank Ltd. Ratnakar Bank Ltd. SBI Commercial & International Bank Ltd. South Indian Bank Ltd. Tamilnadu Mercantile Bank Ltd.

NEW Private Sector Banks Axis Bank Ltd. Development Credit Bank Ltd. HDFC Bank Ltd. ICICI Bank Ltd. IndusInd Bank Ltd. Kotak Mahindra Bank Ltd. Yes Bank Ltd.

Foreign Banks Foreign banks are present in the country either through complete branch/subsidiary route presence or through their representative offices. At end-June 2009, 32 foreign banks were operating in India with 293 branches. Besides, 43 foreign banks were also operating in India through representative offices.

Scheduled Cooperative Banks Scheduled cooperative banks in India can be broadly classified into  Urban credit cooperative institutions  Rural cooperative credit institutions. Rural cooperative banks undertake long term as well as short term lending. Credit cooperatives in most states have a three tier structure (primary, district and state level).

Unscheduled Banks Non-scheduled banks also function in the Indian banking space, in the form of Local Area Banks (LAB). As at end- March 2009 there were only 4 LABs operating in India. Local area banks are banks that are set up under the scheme announced by the government of India in 1996, for the establishment of new private banks of a local nature; with jurisdiction over a maximum of three contiguous districts. LABs aid in the mobilization of funds of rural and semi urban districts. Six LABs were originally licensed, but the license of one of them was cancelled due to irregularities in operations, and the other was amalgamated with Bank of Baroda in 2004 due to its weak financial position.

Major Player in the Indian Banking Industry

How does the Industry Work?

Business Segments in Banking

Regulatory Requirements

Important Rates in Banking Industry

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.

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

Conclusion... The 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.

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