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Bba Elective 3-Unit 1

The document discusses the evolution of commercial banking in India from its origins to modern reforms. It covers the establishment of early banks, key committees and their recommendations that shaped the banking sector, and challenges faced by Indian banks like global financial crises.

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Pridhvi Raj Reddy
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42 views22 pages

Bba Elective 3-Unit 1

The document discusses the evolution of commercial banking in India from its origins to modern reforms. It covers the establishment of early banks, key committees and their recommendations that shaped the banking sector, and challenges faced by Indian banks like global financial crises.

Uploaded by

Pridhvi Raj Reddy
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Unit – I

Introduction to Banking
Chapter – I
Evolution of Commercial Banking in India

Commercial Banks are the oldest, biggest and


fastest growing financial intermediaries in India.
Commercial Banking Meaning :
❑ A Commercial bank is an institution that offers services such as accepting deposits, providing loans and
offering basic investment products.
❑ A commercial bank can also refer to a bank, or a division of a large bank which more specifically deals
with deposit and loan services.

Definition :
“Banking” means the accepting, for the purpose of lending or investment, of deposits of money
from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or
otherwise”. -Banking Companies (Regulation) Act of India, 1949
Dealing in Money

Individual or Firm or
Company

Acceptance of Deposits

Provide safety to Money

Features of CB Advancing Loans

Payment and Withdrawal

Agency and Utility Services

Banking Business

Profit and service orientation


Evolution of Commercial banking in India
1. Origin of Banks in India
2. English Agency Houses
3. Presidency Banks---
4. Banks during ‘Swadeshi Movement’
5. The Imperial Bank of India
6. Reserve Bank of India
7. Nationalised of Reserve Bank of India
8. Banking Regulation Act, 1949
9. State Bank of India Act, 1955
10. Nationalisation of Indian Commercial Banks
Functions of Commercial Bank

(III)
(I) (II)
Developmental Modern
Primary Secondary Functions Services
Functions
Functions

(B) GENERAL UTILITY SERVICES


A) AGENCY SERVICES 1. Lockers Facility
1. Accepting
Deposits 1. Collection & Payment of 2. Acting as a Referee
Credit
2. Advancing 3. Issuing letters of Credit
Loans 2. Sale & Purchase of
Securities 4. Acting as Underwriters
3. Creation of 5. Acting as Information Banks
Credit 3. Trusteeship & Executor
4. Remittance of Money 6. Issuing of Traveller’s Cheque
4. Cheque 7. Issuing of Gift Cheques
System of 5. Representation and
Payment Correspondence 8. Dealing in Foreign Exchange
Funds 6. Bullion Trading 9. Merchant Banking Services
(III) Modern Services
Developmental Functions

1. ATM
1. Mobilisation of Saving
2. Smart Cards
2. Extension of Financial
3. Tele- Banking
Services to Rural Areas
4. Internet Banking
3. Making Loans to weaker
Sections of Society 5. Round the Clock Banking
EMERGING ROLE OF BANKER
ROLE OF BANKS IN ECONOMIC DEVELOPMENT
HELPFUL IN MOBILISATION OF SAVINGS

ASSIST IN INNOVATIONS

IMPLEMENTATION OF MONETARY POLICIES

BANKS INFLUENCE THE INTEREST RATES

HELPFUL IN DEVELOPMENT OF PRIORITY SECTORS

DIRECTING FUNDS INTO DESIRED CHANNELS

HELPFUL IN PRODUCTIVE ACTIVITIES AND EXPORT

IMPLEMENTATION OF POLICIES OF THE GOVERNMENT


REFORMS IN BANKING
SECTOR
Different Phases of Indian Banking
In the post- independence period, the Indian Banking has evolved
four phases.
These phases are :
1. Foundation Phase
2. Expansion Phase
3. Consolidation Phase
4. Reform Phase
COMMITTEES ON REFORMS IN INDIAN BANKING

It was in response to the growing inefficiencies of the banking system that


the Government of India set up two committees:

(I) Narasimham Committee- I on Financial System in 1991


(II) Narasimham Committee – II on the Banking Sector Reforms in 1998.
Recommendations of (NARASIMHAM COMMITTEE-I)-1991
REDUCTION IN SLR AND CRR

INTEREST RATE ON SLR AND CRR

ABOLITION OF DIRECTED CREDIT

FREE DETERMINATION OF INTEREST RATE

ADOPTION OF UNIFORM ACCOUNTING PRACTICES

INCOME RECOGNITION

PROVISIONING

TRANSPARENCY
ESTABLISHMENT OF SPECIAL TRIBUNALS

RECONSTITUTION OF BANKING SYSTEM

ABOLITION OF BRANCH LICENSING

COMPUTERISATION

ENDING OF DUAL CONTROL

CONTROL

FINANCIAL INSTITUTIONS
IMPLEMENTATION OF NARASIMHAM COMMITTEE – I
RECOMMENDATIONS

Interest rate Deregulation Supervision

Reduced CRR and SLR Customer Services

Capital Adequacy Ratio Merger of Banks

Prudential Accounting Standards Recovery Tribunals

Private and Foreign Banks Computerisation

Branch Licensing Public issues


Recommendations of (NARASIMHAM COMMITTEE-II)-1998
The Government of India has issued a Notification on 26th December 1997 for constitution
of committee on Banking Sector Reforms. The Committee submitted its report to the
Finance Minister on April 23, 1998.

The main objective of the Banking sector Reforms Committee was to establish strong,
efficient and profitable banking system of the global standard.

✔ Autonomy in Banks
✔ Reform in the role of RBI
✔ Stronger Banking System
Recommendations ✔ Non – Performing Assets
✔ Capital Adequacy and Tightening of
Provisioning norms
✔ Entry of Foreign Banks
Competition from International Banks

Changes in Product Pricing

Challenges Ahead to
Relationship Banking

Indian Banking
Self Regulation of Banks

Management of Non performing assets

Managing Technology

Competition from new Private Sector banks

Pressure on spreads
GLOBAL FINANCIAL CRISES
The global financial crisis (GFC) refers to the period of extreme stress in global
financial markets and banking systems between mid 2007 and early 2009.

During the GFC, a downturn in the US housing market was a catalyst for a financial
crisis that spread from the United States to the rest of the world through linkages in
the global financial system.
Many banks around the world incurred large losses and relied on government support
to avoid bankruptcy.
MAIN CAUSES OF FINANCIAL CRISES
1. Excessive Risk Taking
2. Increased Borrowing by banks and Investors
3. Regulation and Policy Errors
4. Failure of Central banks
Stress on banks

Cautious Lending

Redemption Pressure

Deposit Growth

Bank Credit
Impact of GFC on Indian
Banking Sector Loans and Advances growth

Profitability

CRAR

Non- performing Assets

Use of CRR and SLR


Special Action Plan

Reduction in Repo rate &


Reverse Repo rate

Reduction in CRR
Measures taken
by RBI to Control Special Refinance facility
the Financial
Crises in India
Market Stabilization Scheme

Capital Adequacy Ratio

Rupee- Dollar Swap facility

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