Bank:It is a financial institution which act as intermediary between those who have surplus fund and those who need it.Bank are also known as financial intermediaries.
Banking Regulation Act 1949 defines and governs the banking activities in India.As per Section 5(b) of this act,banking has been defined as “the accepting, for the purpose of lending or investment of deposit of money from the public,repayable on demand or withdrawal by cheque, draft,order etc”.
Banks are allowed to undertake several other functions like bill business,foreign exchange business,bond/debantures,bank guarantees letter of credit etc as mentioned in sec 6 of the Banking regulation Act,1949.
Banking has three unique features not available to any other organization:
a)The deposits are repayable on demand
c)Incorporate word like bank,banking,banker etc in their name.
To undertake the banking activities in India,it is compulsary, by law,to obtain licence from the Reserve Bank of India(Sec 22 of Banking Regulation Act 1949).
Minimum capital Required to start a banking company is Rs500 crore.
The Banking Regulation Act 1949,authorises the RBI to regulate and control the bank in India.As per section 35(a) of this law,the RBI is fully authorised to issue any instructions/direction to the banks.
Types of Bank:
1)Scheduled Bank & Non Scheduled Bank:
A bank whose name appears in the second schedule of the RBI Act 1934.They are also given membership to clearing house.
A bank whose name does not appear in the 2nd schedule is called a non-schedule bank.
The bank which have been constituted under a Separate Act of Parliament.
Example: RBI(RBI Act 1934), SBI(SBI Act 1955),IDBI(Transfer of Undertaking & Repeal Act 2003)
3)Public Sector Bank
All those bank where the govt share holding is 51% or more.
The banks which are nationalised in 1969 and 1980 via Banking Companies(Acquisition & Transfer of Undertaking) Act are called Nationalised Banks. In all, 14 banks were nationalised in 1969 & 6 in 1980.
The bank are registered under the Companies Act,1956.
a)Indian Bank: Bank registered in India
b)Foreign Bank:Bank registered outside India
6)Regional Rural Bank (RRB)
Regional Rural Banks were established under the provisions of an Ordinance passed on September 1975 and the RRB Act. 1976 to provide sufficient banking and credit facility for agriculture and other rural sectors. These were set up on the recommendations of The M. Narasimham Working Group during the tenure of Indira Gandhi’s government with a view to include rural areas into economic mainstream since that time about 70% of the Indian Population was of Rural Orientation. The development process of RRBs started on 2 October 1975 with the forming of the first RRB, the Prathama Bank with authorised capital of Rs. 5 crore at its starting. Also on 2 October 1976 five regional rural banks were set up with a total authorised capital Rs. 100 crore ($10 Million) which later augmented to 500 crore ($50 Million). The Regional Rural Bank were owned by the Central Government, the State Government and the Sponsor Bank(There were five commercial banks, Punjab National Bank, State Bank of India, Syndicate Bank, United Bank of India and United Commercial Bank, which sponsored the regional rural banks) who held shares in the ratios as follows Central Government-50%, State Government- 15% and Sponsor Banks- 35%.
Father of RRB is M.Swaminathan
These banks are cooperative societies registered under the respective State Cooperative Societies Act. For their organisational structure,they are governed by the State Cooperative Societies Act and for the banking function they are governed under Banking Regulation Act.
Both RRB and Cooperative Banks are supervised by NABARD
Nachiket Mor Committee constituted by a RBI proposed a Differentiated Banking system with Payment Banks for Deposits & Wholesale Banks for credit with relaxed entry point for financial inclusion.
Similarities of Payment Bank and Small Finance Bank:
1. Minimum Capital required is 100 crores. (Regular bank license requires 500 Crore).
2. FDI limits, voting rights are similar to regular commercial banks like SBI, PNB, BoB, ICICI etc.
1)They cater to deposits and loans particularly in small areas.
2)They are meant for financial inclusion of small farmers, MSMEs, and the unorganised sector. MFI, NBFC can convert themselves to differentiated small banks if a license is allotted to them.
3)25% rural branching.
4)50% loans to MSME.
5)PSL of 40% applies that they need to comply to within 3 years of their licensing.
6)Cooperative bank can’t apply for license of small banks.
7)NRI can apply for licenses.
8)Cluster preference for licensing would be for North East.
1)Only CASA, net banking and debit cards or prepaid cards are allowed.
2)(FD/Loan are not allowed so the source of their earning would be to invest in Government Securities where they would get an annual interest of around 8%.
3)Payments and remittance for poors, migrants, unorganized will be their area of concern. This was done because the commission applied if money is sent through post is a lot because of which thee poor tend to suffer. The other important reason for doing this was because remittances sent to India are the highest in the world so an initiative in this regard will help out in balancing the BoP to some extent.
4)Max balance of Rs.1lakh/customer is allowed.
9)Development Financial Institution(DFI):
These financial institutions have been set up under different acts of parliament, each for a specific purpose.They do not have banking licence & hence, cannot issue their own cheques. They have limited public dealing & generally they deal with bank & others financial institutions.
In India, there are five major DFIs as under:
a)NABARD(National Bank for Agricultural & Rural Development)
NABARD was established on the recommendations of B.Sivaraman Committee, (by Act 61, 1981 of Parliament) on 12 July 1982 to implement the National Bank for Agriculture and Rural Development Act 1981. It replaced the Agricultural Credit Department (ACD) and Rural Planning and Credit Cell (RPCC) of Reserve Bank of India, and Agricultural Refinance and Development Corporation (ARDC). It is one of the premier agencies providing developmental credit in rural areas. NABARD is India’s specialised bank for Agriculture and Rural Development in India.
Chairman:Dr. Harsh Kumar Bhanwala
It is owned by Govt. Of India(99%) and RBI(1%).
b)EXIM Bank(Export Import Bank of India)
Established by the Government of India, we commenced operations in 1982 under the Export-Import Bank of India Act, 1981 as a purveyor of export credit, mirroring global Export Credit Agencies. With our rich pedigree, today we serve as a growth engine for industries and SMEs through a wide range of products and services. This includes import of technology and export product development, export production, export marketing, pre-shipment and post-shipment and overseas investment.
Chairman: Yaduvendra Mathur
c)NHB(National Housing Bank)
Set up in 1988 under the National Housing Bank Act 1987, it is owned by the RBI & works for the development of housing finance sector & also regulates the housing finance companies.
Chairman: Sriram Kalyanaraman
d)SIDBI(Small Industries Development Bank of India)
Small Industries Development Bank of India (SIDBI), set up on April 2, 1990 under an Act of Indian Parliament, acts as the Principal Financial Institution for the Promotion, Financing and Development of the Micro, Small and Medium Enterprise (MSME) sector and for Co-ordination of the functions of the institutions engaged in similar activities.
e)IFCI(Industrial Finance Corporation Of India)
Established in 1948 under an act of parliament, it is the first DFI in the country to cater to the long term finance needs of the industrial sector. The govt holds a majority share in IFCI along with several other Financial Institutions.
The ECGC Limited (Formerly Export Credit Guarantee Corporation of India Ltd) is a company wholly owned by the Government of India based in Mumbai, Maharashtra.It provides export credit insurance support to Indian exporters and is controlled by the Ministry of Commerce. Government of India had initially set up Export Risks Insurance Corporation (ERIC) in July 1957. It was transformed into Export Credit and Guarantee Corporation Limited (ECGC) in 1964 and to Export Credit Guarantee Corporation of India in 1983.
Chairman :Geetha Muralidhar