1.

Introduction :
“Money in the Economy is like blood in the human body”. The money also referred as finance is
important for the sustenance of economic world. The flow of money in the economy
determines a lot of characteristics of an economy. Robust money and capital markets are
essentials of a developed society. The short term and long term needs of money of individual
and institutions can be efficiently met by financial intermediaries. Commercial banks perform
large part of this efficiency. Pooling of scanty deposits into a large capital base and lending it to
the desirable sectors is the core of banking business. In a developing economy like India, the
role of banking sector becomes even more critical. In the Initial years of economic
development, were other sophisticated financial institutions were not present, banks were the
only financial intermediaries which helped in bring about the change.1 Indigenous banks and
moneylenders usually tend to exploit the conditions of the underdeveloped market. The sense
of confidence in the ethical functioning of financial intermediaries, in the minds of common
man, was brought about by well regulated commercial banks in the beginning.

2.HISTORY OF BANKING :
Early phase of Indian Banks, from 1786 to 1969

 The first bank in India, the General Bank of India, was set-up in 1786. Bank of
Hindustan and Bengal Bank followed.
 The East India Company established Bank of Bengal (1809),Bank of Bombay (1840)
and Bank of Madras (1843) as independent units and called them Presidency banks.
These three banks were amalgamated in 1920 and the Imperial Bank of India, a bank
of private shareholders, mostly Europeans, was established.
 Allahabad Banks was established, exclusively by Indians, in 1865.
 Punjab National Bank was set-up in 1894 with headquarters in Lahore.
 Between 1906 and 1913, Bank of India, Central Bank of India, Bank of Baroda, Canara
Bank, Indian Bank and Bank of Mysore were set-up.
 The Reserve Bank of India came in 1935.
  To streamline the functioning and activities of commercial banks, the Government of
India came up with the Banking Companies Act, 1949, which was later changed to
the Banking Regulation Act, 1949.

Banking sector Reforms from 1969 to 1991

 In 1955, government nationalized the Imperial Bank of India and started offering
extensive banking facilities, especially in rural and semi-urban areas.
 The government constituted the State Bank of India to act the principal agent of the
RBI and to handle banking transaction of the Union Government and State
Government all over the country.
 7 banks owned by the Princely state were nationalized in 1959 and they become
subsidiaries of the 1959 and they became subsidiaries of the State Bank of India. In
1969, 14 commercial bank in the country were nationalized.
 In the phase of banking sector reforms, 7 more banks were nationalized in 1980.
With this, 80% of the banking sector in India came under the government ownership.

New phase of Indian Banking System, Reforms after 1991

 This phase has introduced many more products and facilities in the banking sector as
part of the reforms process.
In 1991, under the chairmanship of M Narasimhan, a committee was set-up, which
worked for the liberalization of banking practices.
 In the phase, the country is flood with foreign bank and their ATM stations. Efforts
are being put to give a satisfactory service to customers.
 Phone banking and net banking are introduced. The entire system became more
convenience and swift. Time is given importance in all money transactions.

3.EVOLUTION OF BANKING IN INDIA:

Our banking system is divided into commercial banks (public and private banks), Regional Rural
Banks, Cooperative Banks, etc.

One of the key events that marked the evolution of the Indian banking sector is the
nationalization of banks. The event made way for the Indian economy to get a global position
among the top ten economies in the world.
There has been a big revolution in the banking sector over the years and it is bound to evolve
further. With various steps and new features that the banking industry is introducing, this
sector will grow further.

4.BANKING SYSTEM IN INDIA:

In India the banks and banking have been divided in different groups. Each group has their own
benefits and limitations in their operations. They have their own dedicated target market. Some
are concentrated their work in rural sector while others in both rural as well as urban. Most of
them are only catering in cities and major towns.

FINANCIAL REGULATORS IN INDIA

There are mainly three Financial regulators in India:

1. Reserve Bank of India (RBI) - Banking Sector

2. Securities Exchange Board of India (SEBI) - Capital Markets /Mutual Funds

3. Insurance Regulatory and Development Authority (IRDA) - Insurance Companies

STRUCTURE OF BANKING SYSTEM IN INDIA

Banks can generally be classified into various sub-categories as follows:

 PUBLIC SECTOR BANKS IN INDIA

o The State Bank Group and Nationalized banks: Is a group of 27 banks

o Has the largest number of branches in metro/ urban/rural areas throughout the
country

o Contributes to about 75% of the total deposits

 o Contributes about 70% of total advances of all commercial banks in India.

o Most have a very large branch network spread over all parts of the country

o Have a Large deposits and assets base

o Perform all kinds of core and modern banking functions

 SCHEDULED BANKS:
o These are banks which are listed in the second schedule of the Reserve Bank of
India Act, 1934

o These banks are required to maintain certain amounts with RBI and, in return,
they enjoy the facility of financial accommodation and remittance facilities at
concessionary rates from RBI

o State Co-operative Banks

o Commercial Banks

The banking system plays an important role in promoting economic growth not only by to
economic growth more by improving the allocative efficiency of resources than by channeling
of resources from savers to investors. An efficient banking system is now regarded as a
necessary pre-condition for growth.

The banking system of India consists of the central bank (Reserve Bank of India -
RBI), commercial banks, cooperative banks and development banks (development finance
institutions). These institutions, which provide a meeting ground for the savers and the
investors, form the core of India’s financial sector. Through mobilization of resources and their
better allocation, banks play an important role in the development process of underdeveloped
countries.
 5.ORGANISED AND UNORGANISED SECTORS ALONG
WITH THEIR CHARACTERSTICS
Organized Sector : It is a sector where the employment terms are fixed and regular, and the
employees get assured work. Unorganized sector is one where the employment terms are
not fixed and regular, as well as the enterprises, are not registered with the government.

Characteristics of organized sector :

(i) Organized sector covers those enterprises or places of work where the terms of
employment are regular and therefore people have assured work.
(ii) They are registered by the government.
(iii) They have to follow rules and regulations set-up by the government under various
laws such as the Factory Act, Minimum Wages Act, Shops and Establishment Act etc.
(iv) It is called organized because it has some formal processes and procedures.
(v) Some of these people may not be employed by anyone but may work on their own
but they too have to register themselves with the government.

Unorganized sector: It is defined as that set of economic activities characterized by

relative ease of entry, reliance on indigenous resources, small scale of operations, labor
intensive operations, reliance on skills acquired outside the formal educational system and
unregulated competitive market .

Characteristics of unorganized sector:

1.There are rules and regulations but these are not followed. Jobs paid here are low paid and
often not regular.

2. There is no provision for overtime, paid leave , holidays, leave due to sickness etc.
3.Employment is not secure . People can be asked to leave without any reason .

4.When there is less work , such as during some seasons , some people may be asked to leave.

5. A lot also depends on the whims of the employer.

6. DIFFERENCE BETWEEN BANK AND MONEYLENDER

Basis Bank Moneylender

1.Entity Banks are organized institutions Moneylenders are

individual institutions

2. Activity Banking activities includes Activities of

Acceptance of deposits as well moneylender may not

As lending of money. Include acceptance of

Deposits.

3.Clients Banks meet the needs of people in Moneylenders meet the

General and the business community needs of agriculturists and

In particular. Poor people.

4.Security Bank accept tangible and personal Moneylenders generally

Security against loans. Accepts gold, jewellery

Or land as security
for giving loan.

5.Process of The process of recovery The process of

recovery is flexible. Recovery is rigid and

Of loans strict.
 6.Interest Rate Interest charged by banks Rate of interest is decided

On loan is governed by RBI the moneylender and is

Normally very high.

7.Banking business:-
It means in relation to the Borrower or any of its Material Subsidiaries, any type of banking
business (including, without limitation, any factoring, consumer credit, mortgages, issuance of
banking guarantees and letters of credit (and related cash cover provision), bills of exchange
and promissory notes and payments under such guarantees, letters of credit and promissory
notes, trading of securities, fund management and professional securities market participation
business) which it conducts or may conduct pursuant to its licenses issued by the appropriate
authorities and accepted market practice and any applicable law.

8.Meaning of Bank:
The term bank has originated from the term ‘Banchi’. In olden days, the traders of Italy who
performed the job of exchanging money were known as Banchi or Bancheri because the table
which they used for making payment was called a Banchi.

According to some people, the term bank is derived from the Greek word ‘Banque.’

A bank deals in money in the same way as a businessman deals in goods. Banks are business
enterprises which deal in money, financial instruments and provide financial services for a price
called interest, discount, commission etc.

9.Definition of a Bank:
A bank is a financial institution licensed to receive deposits and make loans. Banks may also
provide financial services such as wealth management, currency exchange, and safe deposit
boxes. There are several different kinds of banks including retail banks, commercial or
corporate banks, and investment banks. In most countries, banks are regulated by the national
government or central bank.

10.Characteristics and features of bank :

 It may be an Individual/Firm/Company.
 It is a profit and service oriented institution.
 It acts as a connecting link between borrowers and lenders.
 It deals with money.
 It accepts deposits from public.
 It provides Advances/Loans/Credit to customers

#1 Deals with money

 The Main Features of a bank is that it deals with all the money-related transactions. For
example, you can deposit your money in a bank account to save it securely, and you will
also get interested in the money that you will save in the account. Therefore, it is the
easiest way to increase your money without putting it at an Moreover, if you need the
money, then you can borrow it from the bank at a certain interest. For example, you can
borrow money from the bank to pay your tuition fees as well as you can also borrow
money from the bank you want to buy a car. However, you are supposed to pay the
money back to the bank with interest.

#2 Provide loans
 Banks make extra money by providing loans for different products to the loan. The bank
makes the extra money by lending money to the eligible person at certain rates.
Nowadays, banks provide loans for various requirements such as study loan, car loan,
home loan, personal loans, etc. Different banks provide different loans at different
interest rates. You can compare the interest rate

#3 Identity
As I told you, there are various banks which provide loans at different rates.
Therefore, each bank has a different name which helps the people to identify it easily and
to differentiate with other banks.

Even though the basic services provided by all banks are the same, but each bank tries to
provide different interest rates and better services to attract more and more customers.

Therefore, each bank uses a unique bank name and unique tag line to sell their services.
#4 Withdrawal and payment facilities
A Bank provides various payment and withdrawal services to customers so that they can
receive their money hassle-free. Customers can withdraw money using cheques and drafts and
also from the ATMs installed by the banks at different locations in the city.

They can withdraw money using the debit cards provided by the bank the card is directly linked
with the bank and customers can withdraw money anywhere in the world without going to the
bank and even without carrying their passbook.

#5 Internet services
Another feature of a Bank is that modern banks are also providing internet services. The
development of the internet and its inclusion in the banking sector has made it even more easy
for people to carry out various transactions.

Banks are providing online services through their apps. You can pay bills, buy food, go shopping
without having cash with you. With the help of banking apps, you can pay for everything online.

Nowadays, more and more banks are taking their business online. It helps in making safe and
risks free transactions, and there are fewer chances of stealing taxes. There are specific terms
for these types of transactions, such as internet banking and mobile banking.

#6 Business
The only work of banking is not to provide banking services to customers. All banks are involved
in the subsidiary businesses to make more money.

Their sole responsibility to provide maximum satisfaction to their customers and to provide
them maximum interest rates so that more customers do banking with them.

The money is passed from one hand to another to make a profit.

#7 Increasing functionality
Like other industries banking sector is also focused on enhancing their functionality. Banks have
developed from just providing money lending and cash deposit and withdrawal services to
providing loans and credit to cashless bank services to internet and mobile banking.

It is one of the fields which are growing fastest. It will not be wrong to assume that banks will
be providing more services in the future in addition to internet banking and mobile banking and
people’s dependency on the cash will reduce to almost zero percent.

#8 Branches at different locations

Also, the features of a bank include services to its customers wherever they live in the whole
world. Most banks are opening their branches the rural part of the country to connect people
with the banks and to gain more profit.

People are not required to travel miles like the old times to do banking.

They can visit the nearest branch to them. Each bank is opening more and more branches with
the increase in the population so that they can satisfy their customers properly by being near to
them.

#9 Bank can be a company or an individual providing

banking services
Usually, when you hear about the word bank, you think about a large place where many people
are working and dealing with the money transactions.

But it is not wrong to say that a bank can be large organization consist of hundreds of people or
it can be a unit managed by a single person.

#10 Commercialized
All the banking services are taking place with a single AIM to make money. You might feel
perplexed how bank money by managing others money.

But this is the key. We hand over our money for a small interest on the money deposited by us.
The bank uses our money to lend it to others or by investing it in profitable businesses to make
profits. If you think your money is sitting in a banks locker, then you are wrong.

You might have digits of the money mentioned in your passbook, but you might be rotating
between one person to another to make more money to the investor.

11.Role of bank in economic development

The banking system plays an important role in the modern economic world. Banks collect the
savings of the individuals and lend them out to business- people and manufacturers. Bank loans
facilitate commerce.

Manufacturers borrow from banks the money needed for the purchase of raw materials and to
meet other requirements such as working capital. It is safe to keep money in banks. Interest is
also earned thereby. Thus, the desire to save is stimulated and the volume of savings increases.
The savings can be utilized to produce new capital assets.

Thus, the banks play an important role in the creation of new capital (or capital formation) in a
country and thus help the growth process.

Banks arrange for the sale of shares and debentures. Thus, business houses and manufacturers
can get fixed capital with the aid of banks. There are banks known as industrial banks, which
assist the formation of new companies and new industrial enterprises and give long-term loans
to manufacturers.

The banking system can create money. When business expands, more money is needed for
exchange transactions. The legal tender money of a country cannot usually be expanded
quickly. Bank money can be increased quickly and used when there is need of more money. In a
developing economy (like that of India) banks play an important part as supplier of money.

The banking system facilitates internal and international trade. A large part of trade is done on
credit. Banks provide references and guarantees, on behalf of their customers, on the basis of
which sellers can supply goods on credit. This is particularly important in international trade
when the parties reside in different countries and are Trade is also assisted by the grant of
loans by discounting bills of exchange and in other ways. Foreign exchange transactions (the
exchange of one currency for another) are also done through banks.

Finally, banks act as advisers, counsellors and agents of business and industrial organizations.
They help the development of trade and industry.

12.Principles of Banking :
Principles of Liquidity
A commercial bank offers two types of deposits

 Demand deposits which the bank has to repay on demand like a Savings Account and

 Time deposits which the bank has to repay after the expiry of a certain period
Further, on a daily basis, customers withdraw as well as deposit cash. therefore, all commercial
banks have to keep a certain amount of cash in their custody to meet the cash demands of
customers.

Principles of Profitability
Any commercial enterprise primarily tries to generate profit. A commercial bank is a commercial
enterprise as well. Hence, it tries to generate profits.

Principles of Solvency
Commercial banks must be financially sound. Further, they need to maintain a certain required
capital for running the business.

Principles of Safety
A commercial bank accepts deposits from its customers and then invests it. However, since it is
investing the investor’s money it keeps the safety of the money first.
Principles of Collection of Savings
This is one of the most important principles in the current banking scenario. Commercial banks
seek huge amounts of idle money from their clients. In fact, bank employees are given targets to
collect more savings from people.

Principles of Loans and Investment Policy

A commercial bank primarily earns money through its lending and investing activities. It also
ensures that the investor’s money is invested in viable projects. Therefore, banks need strong
loans and investment policies to earn a good profit.

Principles of Economy
Commercial banks always try to avoid any unnecessary expenditure. Therefore, they try to
manage their functions within a set budget and increase their profits.

Principles of providing services

Commercial banks are usually service-focused banks. After all, good service ensures a better
reputation and therefore, profits.

Principles of Secrecy
Commercial banks ensure that they keep the accounts of their clients secret. Also, access to the
accounts is given only to legitimized persons.

Principles of Modernization
We live in an era of technology as well as modernization. Therefore, to cope with the
advancements in the world, commercial banks adopt modern technical services like online
banking, mobile banking, etc.

Principles of Specialization
Apart from modernization, we also live in the age of specialization as well as super-specialization.
Therefore, commercial banks segment their entire functions into smaller units and place their
employees according to their efficiencies.
Principles of Location
Usually, commercial banks choose a location where they think they can find many customers.

Principles of Relation
All commercial banks try to maintain good relations with their existing clients as well as potential
customers.

Principles of Publicity
Any successful business needs good publicity. Therefore, most successful businesses advertise to
get the attention of more customers. Hence, commercial banks follow the principles of publicity.

Structure of Indian banking system:

A. Early Phase of Indian Banks, from 1786 to 1969

The first bank, namely Bank of Bombay was established in 1720 in Bombay. Later on, Bank of
Hindustan was established in Calcutta in 1770. General Bank of India was established in 1786.
Bank of Hindustan carried on the business till 1906.

First Joint Stock Bank with limited liability established in India in 1881 was Oudh
Commercial Bank Ltd.

East India Company established the three independently functioning banks, also known by the
name of “Three Presidency Banks” - The Bank of Bengal in 1806, The Bank of Bombay in 1840,
and Bank of Madras in 1843. These three banks were amalgamated in 1921 and given a new
name as Imperial Bank of India. After Independence, in 1955, the Imperial Bank of India was
given the name "State Bank of India". It was established under State Bank of India Act, 1955.

In the surcharged atmosphere of Swadeshi Movement, a number of private banks with Indian
managements had been established by the businessmen from mid of the 19th century onwards,
prominent among them being Punjab National Bank Ltd., Bank of India Ltd., Canara Bank Ltd,
and Indian Bank Ltd. The first bank with fully Indian management was Punjab National Bank
Ltd. established on 19 May 1894, in Lahore (now in Pakistan).

B. Nationalization of Banks and the Banking Sector Reforms,

from 1969 to 1991:
The number of banks in India in 1951 was the highest – 566. In 1960, RBI was empowered to
force the compulsory merger of the weak banks with the strong ones. This led to a reduction in
the number of banks to 89 in 1969.

On July 19, 1969, 14 major banks were nationalized.

On April 15, 1980, another six banks were nationalized and thus raising the number of
nationalized banks to 20.

C. New Phase of Indian Banking System, with the Reforms

After 1991:

On the suggestions of Narasimha Committee, the Banking Regulation Act was amended in
1993 and thus the gates for the new private sector banks were opened.

In 1993, New Bank of India was merged with Punjab National Bank. “Industrial Development
Bank of India (IDBI)” - was established as a Development Bank in 1964 - by an act of
Parliament. It was given the status of a scheduled bank in September 2004 by RBI.

Bharatiya Mahila Bank Ltd – all women’s bank was established in 2013. It is based in New
Delhi. Its first branch started its operations on November 19, 2013. The inauguration was done
by former Indian Prime Minister S. Manmohan Singh.

The present structure of Indian Banking System is as

follows:-
Reserve Bank of India is the central bank of the nation and all Banks in India are required to
follow the guidelines issued by RBI. The present structure includes:

1. PUBLIC SECTOR BANKS:

These include:

Currently, there are 27 Public Sector Banks in India including 19 Nationalized Banks (14+6 – 1
New Bank of India merged with PNB in 1993 + SBI which is not a nationalized bank + Five
Subsidiaries of SBI + IDBI + Bhartiya Mahila Bank – established under Parliament of India
Acts).

State Bank of India and its 5 Associate Banks, together called State Bank Group (The names of
the 5 Associate Banks are: State Bank of Travancore (SBT), State Bank of Patiala (SBP), State
Bank of Hyderabad (SBH), State Bank of Mysore (SBM) and State Bank of Bikaner and Jaipur
(SBBJ). The Union Cabinet approved the merger of the five subsidiaries; and Bhartiya Mahila
Bank Ltd with SBI on June 15, 2016, and the merger is in progress.

Regional Rural Banks (RRBs): Previously these were 196 Regional Rural Banks sponsored
by 27 State Cooperative Banks. As on 31st March 2013 due to mergers, their number has come
down from 196 to 64. The numbers of branches of RRBs are 17856 as on 31 March 2013
covering 635 districts throughout the country. Notably, currently, there are 664 districts in India.

Development Banks: These include Industrial Finance Corporation of India (IFCI) established
in 1948, Export-Import Bank of India (EXIM Bank) established in 1982, National Bank for
Agriculture & Rural Development (NABARD) established in 1982, and Small Industries
Development Bank of India (SIDBI) established on 2nd April 1990.
2. PRIVATE SECTOR BANKS:
These include:

1. Private Banks and Foreign Banks: These include Private Banks and Foreign Banks in
India. Currently, there are 23 banks operating in India in this category.
2. District Central Co-Operative Banks in India: As on 01.04.2016, there are 371 District
Central Cooperative Banks in India with the maximum number of these located in U.P. (50)
and Madhya Pradesh (38).

Difference between public sector bank and

private sector bank:

Parameter of
Public Sector Banks Private Sector Banks
Comparison

Status of They are government- They are under private

control controlled individual control

Interest rates They have higher interest They have lower interest
rates for loans and lower rates for loans and higher
interest rates for savings interest rates for savings
Parameter of
Public Sector Banks Private Sector Banks
Comparison

Shareholdings Financial institutions with a Financial institutions with

maximum of its shares a maximum of its shares
contained by the held by private
government shareholders

Customer base Most public sector or Majority of the private

government banks benefit sector banks experience
from a more extensive lesser customer base.
customer base. It is mainly People fail
because people find these
banks trustworthy

Employee Usually, the basis of The foundation of

promotion employee promotion is on employee promotion is
status seniority, or the time-length generally on the amount
experienced by the of value added by the
employee at the institution individual to the
institution

Difference between Indians banks and foreign

banks :
Difference between commercial and
cooperative bank:
Types of commercial bank:

 Scheduled Commercial Banks – Private Bank, Public Bank, Foreign

Bank
  Non – scheduled Commercial Banks - Non Scheduled commercial
banks are those banks which are not included 2 nd schedule of RBI act
1934

Those banks which are included in 2nd schedule of Reserve Bank of India Act
1934 and carry out normal business of banking are known as Scheduled
Commercial Banks. RBI include only those banks in this schedule which
satisfy the criteria laid down vide section 42 (6) (a) of Act.

Types of Scheduled Commercial Banks

Scheduled commercial banks can be classified into three types –

 Private Bank – When private individuals own the majority (more than
52 percent) of the share capital of a banking company, then it is known
as Private Sector Bank. Example of Private Banks are – HDFC Bank,
ICICI Bank, Axis Bank, Kotak Mahindra Bank, Federal Bank etc.
 Public Bank – When Government own the majority of share capital of
a banking company, then it is known as Public Sector Bank. Example of
Public Sector Banks are – SBI, PNB, Canara Bank, Bank of Baroda,
Allahabad Bank etc.
 Foreign Bank – Foreign Banks are international bank which are setup
or registered in foreign countries and are obligated to follow
regulations of both its home and host country.

RBI:
 The Reserve Bank of India (RBI) is India's central bank, which controls the issue
and supply of the Indian rupee. RBI is the regulator of the entire Banking in India. RBI plays
an important part in the Development Strategy of the Government of India.
 RBI regulates commercial banks and non-banking finance companies working in India. It
serves as the leader of the banking system and the money market. It regulates money
supply and credit in the country. The RBI carries out India's monetary policy and exercises
supervision and control over banks and non-banking finance companies in India. RBI was
set up in 1935 under the Reserve Bank of India Act,1934.
Subsidiary of RBI:
What is a Subsidiary: A subsidiary, subsidiary company or daughter company is a company
that is owned or controlled by another company, which is called the parent company, parent, or
holding company. There are four fully owned subsidiary of RBI: DICGC, BRBNMPL, ReBIT and
IFTAS.

Fully owned Subsidiaries of RBI :

1. Deposit Insurance and Credit Guarantee Corporation of India(DICGC)
2. Bharatiya Reserve Bank Note Mudran Private Limited(BRBNMPL)
3. Reserve Bank Information Technology Private Limited (ReBIT)
4. Indian Financial Technology and Allied Services (IFTAS)

Earlier National Housing Bank(NHB) was also a subsidiary of RBI. However now RBI has
divested its entire stake in NHB and hence now it is not a subsidiary of RBI.

Deposit Insurance and Credit Guarantee Corporation

of India (DICGC)

Establishment: Deposit Insurance and Credit Guarantee Corporation (DICGC) came into
existence on July 15, 1978.
DICGC was formed by merging Deposit Insurance Corporation (DIC) and Credit Guarantee
Corporation of India Ltd. (CGCI)
The functions of the DICGC are governed by the provisions of DICGC Act 1961 framed by the
Reserve Bank of India.
Role of DICGC: DICGC was established for providing insurance of deposits and guaranteeing
of credit facilities. At present, DICGC insures each depositor of a registered insured bank upto a
maximum of Rs.1 Lakh for all bank deposits, such as saving, fixed, current, recurring deposits.
The credit guarantee scheme of DICGC is presently not operative due to availability of
alternative guarantee schemes.
Authorized Capital : Rs 50 Crore.
Headquarters: Mumbai
Banks under purview of DIGCG: Deposit insurance is compulsory for all banks in the country.
Therefore, all public sector banks, private sector banks, local area banks, regional rural banks,
small finance banks, payments banks, branches of foreign banks functioning in India, all State,
Central and Primary cooperative banks (Urban Cooperative Banks) are registered and insured
by the DICGC.
Maximum deposit amount insured by the DICGC: Rs 5 lakh (Principle + Interest)
 If you have deposits with more than one bank, deposit insurance coverage limit is
applied separately to the deposits in each bank.
 DICGC has the power to cancel the registration of an insured bank if it fails to pay the
premium for three consecutive half-year periods.
When does DICGC pays:
1. If a bank goes into liquidation
2. If a bank is reconstructed or amalgamated / merged with another bank
Chairman. M.D. Patra

Bhartiya Reserve Bank Note Mudran Private

Limited(BRBNMPL)

Establishment: Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL) was
established by Reserve Bank of India (RBI) as its wholly owned subsidiary on 3rd February
1995. The BRBNMPL has been registered as a Private Limited Company under the Companies
Act 1956.
Role of BRBNMPL: To argument the production of bank notes in India to enable the RBI to
bridge the gap between the supply and demand for bank notes in the country.
Headquarters: Bengaluru
The company manages 2 Presses one at Mysore in Karnataka and the other at Salboni in
West Bengal.
 Extra Info : Apart from this, RBI has two more printing press both owned by
Government of India: Nasik (Maharashtra) and Dewas (Madhya Pradesh)
 Coins are minted in four mints owned by the Government of India. The mints are located
at Mumbai, Hyderabad, Calcutta and NOIDA.
Reserve Bank Information Technology Private
Limited (ReBIT)
Role of ReBIT: It has been set up by the Reserve Bank of India, for its IT and cybersecurity
needs and to ensure cyber resilience of Indian banking.
Deliver and manage IT projects of RBI; Assist RBI in performing risk-based supervision of
regulated entities; Safeguard RBI assets by detecting and responding to cyber-threats.
Chairman: Shri. Kiran Karnik

Indian Financial Technology and Allied

Services (IFTAS)
Function and Role of IFTAS– Financial Technology and Allied Services (IFTAS) is a wholly-
owned subsidiary of the Reserve Bank of India, mandated to design, deploy & support IT-
related services to all Banks and Financial Institutions in the country and also to the Reserve
Bank of India.
It manages & operates the Financial messaging platform (SFMS) that comprising of Real-
Time Gross Settlement and National Electronic Funds Transfer.
INFINET is also managed by IFTAS.
IFTAS operates CLOUD (Indian Banking Community Cloud), the only community cloud in the
country, hosting cloud based solutions (Platform, Core, Channel, Corporate, etc.) dedicated to
the Banking & Financial Community.
The IFTAS has taken over the Indian Financial Network (INFINET), Structured Financial
Messaging System (SFMS) and the Indian Banking Community Cloud (IBCC) from the IDRBT,
effective April 01, 2016.
The Director, IDRBT, is the Chairman of The Indian Financial Technology and Allied Services.
Chairman of IFTAS: Shri. T Rabi Sankar
National Housing Bank (NHB)

Establishment: NHB was set up on July 9, 1988 under the National Housing Bank Act, 1987.
Role of NHB: To promote a sound, healthy, viable and cost effective housing finance system to
cater to all segments of the population and to integrate the housing finance system with the
overall financial system.
Authorized Capital: ₹1,450 crore
Owned: Fully owned by Government of India (100%)
Headquarters: New Delhi
NHB RESIDEX– It is India’s first official housing price index, was an initiative of the National
Housing Bank (NHB), undertaken at the behest of the Government of India, Ministry of Finance.

Preamble of RBI :

Functions of RBI:
1.Issue of Bank Notes:
The Reserve Bank of India has the sole right to issue currency notes except one rupee
notes which are issued by the Ministry of Finance. Currency notes issued by the Reserve
Bank are declared unlimited legal tender throughout the country.

This concentration of notes issue function with the Reserve Bank has a number of
advantages: (i) it brings uniformity in notes issue; (ii) it makes possible effective state
supervision; (iii) it is easier to control and regulate credit in accordance with the
requirements in the economy; and (iv) it keeps faith of the public in the paper currency.

2. Banker to Government:

As banker to the government the Reserve Bank manages the banking needs of the

government. It has to-maintain and operate the government’s deposit accounts. It

collects receipts of funds and makes payments on behalf of the government. It

represents the Government of India as the member of the IMF and the World Bank.

3. Custodian of Cash Reserves of Commercial Banks:

The commercial banks hold deposits in the Reserve Bank and the latter has the custody
of the cash reserves of the commercial banks.

4. Custodian of Country’s Foreign Currency Reserves:

The Reserve Bank has the custody of the country’s reserves of international currency,

and this enables the Reserve Bank to deal with crisis connected with adverse balance of

payments position.

5. Lender of Last Resort:

The commercial banks approach the Reserve Bank in times of emergency to tide over

financial difficulties, and the Reserve bank comes to their rescue though it might charge
a higher rate of interest.
6. Central Clearance and Accounts Settlement:
Since commercial banks have their surplus cash reserves deposited in the Reserve Bank,

it is easier to deal with each other and settle the claim of each on the other through book

keeping entries in the books of the Reserve Bank. The clearing of accounts has now

become an essential function of the Reserve Bank.

7. Controller of Credit:
Since credit money forms the most important part of supply of money, and since the
supply of money has important implications for economic stability, the importance of

credit becomes obvious. Credit is controlled by the Reserve Bank in accordance with the

economic priorities of the government.

Functions of commercial bank :

(a) Primary functions –

 Accepts deposit – The bank takes deposits in the form of saving, current, and fixed
deposits. The surplus balances collected from the firm and individuals are lent to the
temporary required of commercial transactions.
 Provides Loan and Advances – Another critical function of this bank is to offer loans and
advances to the entrepreneurs and businesspeople and collect interest. For every bank, it is
the primary source of making profits. In this process, a bank retains a small number of
deposits as a reserve and offers (lends) the remaining amount to the borrowers in demand
loans, overdraft, cash credit, and short-run loans etc.
 Credit Cash- When a customer is provided with credit or loan, they are not provided with
liquid cash. First, a bank account is opened for the customer and then the money is
transferred to the account. This process allows a bank to create money.

(b) Secondary functions –

 Discounting bills of exchange – It is a written agreement acknowledging the amount of

money to be paid against the goods purchased at a given point of time in future. The amount
can also be cleared before the quoted time through a discounting method of a commercial
bank.
 Overdraft Facility – It is an advance given to a customer by keeping the current account to
overdraw up to the given limit.
 Purchasing and Selling of the Securities – The bank offers you with the facility of selling
and buying the securities.
  Locker Facilities – Bank provides lockers facility to the customers to keep their valuable
belonging or documents safely. Banks charge a minimum of an annual fee for this service.
 Paying and Gather the Credit – It uses different instruments like a promissory note,
cheques, and bill of exchange.
(c) Innovative Functions-
The adoption of Information and Communication technology enable banks to provide many innovative
services to the customers such as:

1.ATM services

Automated Teller Machine (ATM) is an electronic telecommunications device that enables the clients of
banks to perform financial transactions by using a plastic card. Automated Teller Machines are
established by banks to enable its customers to have anytime money. It is used to withdraw money,
check balance, transfer funds, get mini statement, make payments etc. It is available at 24 hours a day
and 7 days a week.

2.Debit card and credit card facility

Debit card is an electronic card issued by a bank which allows bank clients access to their account to
withdraw cash or pay for goods and services. It can be used in ATMs, Point of Sale terminals, e-
commerce sites etc. Debit card removes the need for cheques as it immediately transfers money from
the client's account to the business account. Credit card is a card issued by a financial institution giving
the holder an option to borrow funds, usually at point of sale. Credit cards charge interest and are
primarily used for shortterm financing.

3.Tele-banking :
Telephone banking is a service provided by a bank or other financial institution, that enables customers
to perform financial transactions over the telephone, without the need to visit a bank branch or
automated teller machine

4.Internet Banking:
Online banking (or Internet banking or E-banking) is a facility that allows customers of a financial
institution to conduct financial transactions on a secured website operated by the institution. To access
a financial institution's online banking facility, a customer must register with the institution for the
service, and set up some password for customer verification. Online banking can be used to check
balances, transfer money, shop online pay bills etc.

Role of commercial bank:

1.Mobilising Saving for Capital Formation:
The commercial banks help in mobilizing savings through network of branch banking.
People in developing countries have low incomes but the banks induce them to save by
introducing variety of deposit schemes to suit the needs of individual depositors. They

also mobilize idle savings of the few rich. By mobilizing savings, the banks channelize
them into productive investments. Thus they help in the capital formation of a
developing country.

2. Financing Industry:
The commercial banks finance the industrial sector in a number of ways. They provide

short-term, medium-term and long-term loans to industry. In India they provide short-

term loans. Income of the Latin American countries like Guatemala, they advance
medium-term loans for one to three years. But in Korea, the commercial banks also

advance long-term loans to industry. In India, the commercial banks undertake short-

term and medium-term financing of small scale industries, and also provide hire-

purchase finance. Besides, they underwrite the shares and debentures of large scale

industries. Thus they not only provide finance for industry but also help in developing

the capital market which is undeveloped in such countries.

3. Financing Trade:
The commercial banks help in financing both internal and external trade. The banks

provide loans to retailers and wholesalers to stock goods in which they deal. They also

help in the movement of goods from one place to another by providing all types of
facilities such as discounting and accepting bills of exchange, providing overdraft

facilities, issuing drafts, etc. Moreover, they finance both exports and imports of

developing countries by providing foreign exchange facilities to importers and exporters

of goods.

4. Financing Agriculture:
The commercial banks help the large agricultural sector in developing countries in a

number of ways. They provide loans to traders in agricultural commodities. They open a

network of branches in rural areas to provide agricultural credit. They provide finance
directly to agriculturists for the marketing of their produce, for the modernization and

mechanization of their farms, for providing irrigation facilities, for developing land, etc.

They also provide financial assistance for animal husbandry, dairy farming, sheep

breeding, poultry farming, pisciculture and horticulture. The small and marginal

farmers and landless agricultural workers, artisans and petty shopkeepers in rural areas

are provided financial assistance through the regional rural banks in India. These

regional rural banks operate under a commercial bank. Thus the commercial banks

meet the credit requirements of all types of rural people.

5. Financing Consumer Activities:

People in underdeveloped countries being poor and having low incomes do not possess

sufficient financial resources to buy durable consumer goods. The commercial banks

advance loans to consumers for the purchase of such items as houses, scooters, fans,

refrigerators, etc. In this way, they also help in raising the standard of living of the

people in developing countries by providing loans for consumptive activities.

6. Financing Employment Generating Activities:

The commercial banks finance employment generating activities in developing

countries. They provide loans for the education of young person’s studying in
engineering, medical and other vocational institutes of higher learning. They advance

loans to young entrepreneurs, medical and engineering graduates, and other technically

trained persons in establishing their own business. Such loan facilities are being

provided by a number of commercial banks in India. Thus the banks not only help

inhuman capital formation but also in increasing entrepreneurial activities in

developing countries.

7. Help in Monetary Policy:

The commercial banks help the economic development of a country by faithfully

following the monetary policy of the central bank. In fact, the central bank depends
upon the commercial banks for the success of its policy of monetary management in

keeping with requirements of a developing economy.

Thus the commercial banks contribute much to the growth of a developing economy by

granting loans to agriculture, trade and industry, by helping in physical and human

capital formation and by following the monetary policy of the country.

Banker and customer relationship:

Debtor and Creditor:
When a customer opens an account with a bank and if the account has a
credit balance, then the relationship is that of debtor (banker / bank) and
creditor (customer).

In case of loan / advance accounts, banker is the creditor, and the customer
is the debtor because the customer owes money to the banker. The banker
can demand the repayment of loan / advance on the due date, and the
customer has to repay the debt.

Pledger and Pledgee:

This happens when customer pledges (promises) certain assets or security
with the bank in order to get a loan. In this case, the customer becomes the
Pledger, and the bank becomes the Pledgee.

Licensor and Licensee:

When the banker gives a safe deposit locker to the customer, the banker will

become the Licensor and the customer will become the Licensee .

Bailor and Bailee:

The relationship between banker and customer can be that of Bailor and
Bailee.

1. Bailment is a contract for delivering goods by one party to another to be held in trust for a
specific period and returned when the purpose is ended.
2. Bailor is the party that delivers property to another.
3. Bailee is the party to whom the property is delivered.
So, when a customer gives a sealed box to the bank for safe keeping, the
customer became the bailor, and the bank became the bailee.

Hypothecator and Hypothecatee:

When the customer hypothecates (pledges) certain movable or non-movable
property or assets with the banker in order to get a loan, the customer
became the Hypothecator, and the Banker became the Hypothecatee.

Trustee and Beneficiary:

A trustee holds property for the beneficiary, and the profit earned from this
property belongs to the beneficiary. If the customer deposits securities or
valuables with the banker for safe custody, banker becomes a trustee of his
customer. The customer is the beneficiary so the ownership remains with the
customer.

Agent and Principal:

The banker acts as an agent of the customer (principal) by providing the
following agency services:

 Buying and selling securities on his behalf,

 Collection of cheques, dividends, bills or promissory notes on his behalf, and
 Acting as a trustee, attorney, executor, correspondent or representative of a customer.
 Banker as an agent performs many other functions such as payment of
insurance premium, electricity and gas bills, handling tax problems,

etc.

Advisor and Client:

 When a customer invests in securities, the banker acts as an advisor.
The advice can be given officially or unofficially. While giving advice
 the banker has to take maximum care and caution. Here, the banker is
an Advisor, and the customer is a Client.
 So, these were some important banker-customer relationships.