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Co-operative Banking in India A co-operative bank is a financial entity which belongs to its members, who are at the same

e time the owners and the customers of their bank. They are often created by persons belonging to the same local or professional community or sharing a common interest. To encourage and promote thrift and mutual help for the development of persons of small means such as agriculturists, artisans and other segments of the society. It was also aimed at concentrating the efforts in releasing the exploited classes out of the clutches of the money lenders. Keeping this as one of the objectives, credit societies were formed under Co-operative Societies Act of 1904. The 1904 Act was largely based on the English Friendly Societies Act, 1896 . Under this Act, only primary credit societies were permitted to register and non-credit and federal organizations of primary co-operative credit societies were left out. This lacuna was bridged by the Co-operative Societies Act, 1912. This Act paved the way for the organization of central co-operative banks throughout the country. But the provisions of 1912 Act were inadequate to meet the requirements of those states where co-operative movement had made considerable progress. Bombay, the pioneers in this regard passed a new Act, viz., the Bombay Co-operative Societies Act, 1925 for serving the many sided development of the state. Later on, Madras, Bihar and Bengal passed their own Acts in 1932, 1935 and 1940 respectively. FEATURES Customer-owned entities

Democratic member control Profit allocation STRUCTURE OF CO-OPERATIVE BANKING IN INDIA

Structure consists of two main segments Agricultural Non-agricultural 1. Primary agricultural credit societies at the base level PACS are the foundation of the co-operative credit structure. The primary co-operative credit society is an association of borrowers and non-borrowers residing in a particular locality. The funds of the society are derived from the share capital and deposits of members and loans from central co-operative banks Borrowings constitute the most important element of their working capital. The criteria for borrowings differ from state to state according to their liability.The loans are given to members for the purchase of cattle, fodder, fertilizers, pesticides, etc. 2. Central co-operative bank at the district level These are the federations of primary credit societies in a district. The funds of the bank consist of share capital, deposits, loans and overdrafts from state co-operative banks and joint stocks. They also conduct all the business of a joint stock bank. 3. State co-operative bank at the apex level The state co-operative bank is a federation of central co-operative bank and acts as a watchdog of the co-operative banking structure in the state. Its funds are obtained from share capital, deposits, loans and overdrafts from the Reserve Bank of India. The state cooperative banks lend money to central co-operative banks and primary societies and not directly to the farmers 4. Land development banks

The Land development banks are organized in 3 tiers namely; state, central, and primary level and they meet the long term credit requirements of the farmers for developmental purposes. The state land development banks oversee, the primary land development banks situated in the districts and tehsil areas in the state. They are governed both by the state government and Reserve Bank of India. Recently, the supervision of land development banks has been assumed by National Bank for Agriculture and Rural development (NABARD). The sources of funds for these banks are the debentures 5. Urban Co-operative Banks Refers to primary co-operative banks located in urban and semi-urban areas. These banks till 1996, were allowed to lend money only for nonagricultural purposes. They essentially lend to small borrowers and businesses. Today, their scope of operations has widened considerably. Evolution of Commercial Banks in India The commercial banking industry in India started in 1786 with the establishment of the Bank of Bengal in Calcutta. The Indian Government at the time established three Presidency banks, viz., the Bank of Bengal (established in 1809), the Bank of Bombay (established in 1840) and the Bank of Madras (established in 1843). In 1921, the three Presidency banks were amalgamated to form the Imperial Bank of India, which took up the role of a commercial bank, a bankers' bank and a banker to the Government. The Imperial Bank of India was established with mainly European shareholders. It was only with the establishment of Reserve Bank of India (RBI) as the central bank of the country in 1935, that the quasi-central banking role of the Imperial Bank of India came to an end. In 1860, the concept of limited liability was introduced in Indian banking, resulting in the establishment of joint-stock banks. In 1865, the Allahabad Bank was established with purely

Indian shareholders. Punjab National Bank came into being in 1895. Between 1906 and 1913, other banks like Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore were set up. After independence, the Government of India started taking steps to encourage the spread of banking in India. In order to serve the economy in general and the rural sector in particular, the All India Rural Credit Survey Committee recommended the creation of a state-partnered and state-sponsored bank taking over the Imperial Bank of India and integrating with it, the former state-owned and state-associate banks. Accordingly, State Bank of India (SBI) was constituted in 1955. Subsequently in 1959, the State Bank of India (subsidiary bank) Act was passed, enabling the SBI to take over eight former state-associate banks as its subsidiaries. To better align the banking system to the needs of planning and economic policy, it was considered necessary to have social control over banks. In 1969, 14 of the major private sector banks were nationalized. This was an important milestone in the history of Indian banking. This was followed by the nationalisation of another six private banks in 1980. With the nationalization of these banks, the major segment of the banking sector came under the control of the Government. The nationalisation of banks imparted major impetus to branch expansion in un-banked rural and semi-urban areas, which in turn resulted in huge deposit mobilization, thereby giving boost to the overall savings rate of the economy. It also resulted in scaling up of lending to agriculture and its allied sectors. However, this arrangement also saw some weaknesses like reduced bank profitability, weak capital bases, and banks getting burdened with large non-performing assets.

To create a strong and competitive banking system, a number of reform measures were initiated in early 1990s. The thrust of the reforms was on increasing operational efficiency, strengthening supervision over banks, creating competitive conditions and developing technological and institutional infrastructure. These measures led to the improvement in the financial health, soundness and efficiency of the banking system. Commercial banks in India have traditionally focused on meeting the short-term financial needs of industry, trade and agriculture. However, given the increasing sophistication and diversification of the Indian economy, the range of services extended by commercial banks has increased significantly, leading to an overlap with the functions performed by other financial institutions. Further, the share of long-term financing (in total bank financing) to meet capital goods and project-financing needs of industry has also increased over the years. functions of a commercial bank Payment System Banks are at the core of the payments system in an economy. A payment refers to the means by which financial transactions are settled. A fundamental method by which banks help in settling the financial transaction process is by issuing and paying cheques issued on behalf of customers. Further, in modern banking, the payments system also involves electronic banking, wire transfers, settlement of credit card transactions, etc. In all such transactions, banks play a critical role. Financial Intermediation The second principal function of a bank is to take different types of deposits from customers and then lend these funds to borrowers, in other words, financial intermediation. In financial terms, bank deposits represent the banks' liabilities, while

loans disbursed, and investments made by banks are their assets. Bank deposits serve the useful purpose of addressing the needs of depositors, who want to ensure liquidity, safety as well as returns in the form of interest. On the other hand, bank loans and investments made by banks play an important function in channelling funds into profitable as well as socially productive uses. Financial Services In addition to acting as financial intermediaries, banks today are increasingly involved with offering customers a wide variety of financial services including investment banking, insurance-related services, government-related business, foreign exchange businesses, wealth management services, etc. Income from providing such services improves a bank's profitability.

Insurance Regulatory and Development Authority (IRDA) IRDA is the regulator of the insurance industry in India and was constituted by an Act of Parliament in 1997. Duties, Powers and Functions of IRDA Section 14 of the IRDA Act, 1999 Issuance of certificate of registration, renewal, modification, withdraw, suspend or cancel such registration Protection of the policyholders interest Laying down qualifications, training and code of conduct for intermediaries Laying down code of conduct for Surveyors

Control of the rates, terms etc. offered by general insurers in respect of business not controlled by Tariff Advisory Committee (TAC) Regulation of investment of funds by insurers Supervise TAC Insurance can be broadly classified as: Life Insurance The first Life Insurance Company which came into existence in India was The Oriental Life Insurance Company, established in 1818. This was a British company. The first Indian insurance company subsequently came into being in 1871 called the Bombay Mutual Life Assurance Society. Life insurance in India was nationalized on January 19, 1956

Non-Life Insurance Triton Insurance Company Ltd. (the first general insurance company) was formed in the year 1850 in Kolkata by the British.

The first Indian general insurer to commence operations was the Indian Mercantile Insurance Company in the year 1907.

Principles of Insurance and Life Insurance Utmost good faith Insurable Interest: Indemnity Subrogation Contribution

Types of Life Insurance Policies 1. Term Insurance Policies are issued for a term or a period of time If the death of the assured occurs during the term of the policy, the policy pays the sum assured. If the insured lives beyond the period stated in the policy, no payment under the policy. Pure death protection and does not have any savings element. Premium under the term policies are lower as the policies are issued for a fixed period Types of Term Life Insurance Yearly renewable term insurance Issued for one year period. If the insured dies during the policy period, the insurer settles the claim. This might be issued with a renewable term, for 5 years, 10 years and so on.

Level term life insurance Generally issued for a period of 10, 15, 20, or 30 years. The longer the term, the higher is the annual premium. For example, sum assured of Rs.10,00,000 at an annual premium of Rs. 25,000 per year for 10 years. The policy is for 20 years, the premium may be Rs. 40,000 per year

Decreasing term life insurance The premium during the years remains constant while the benefit comes down as the probability of death goes up with age. Increasing term life insurance Under this contract, the benefit goes up with passing year and the premium under this policy also goes up every year. 2. Whole Life Insurance The oldest and the purest form of life assurance is Whole Life insurance. As these policies provide for payment only in the event of death, the premium under this policy is lower than other policies. The payment under the policy is assured and this policy does not have an end date.This type of policy requires premium payment to be made indefinitely and the policy holder may find it difficult to continue the premium payment during his old age.The proceeds of the policy is useful for paying up these taxes. Limited payment whole life insurance The last premium, depending on the policy, may be paid at the age of 60 years. while the policy continues to provide coverage to the assured till his death. The premium payable shall be higher for the same sum assured as compared to Whole Life Insurance. 3. Endowment policy

it combines life assurance with investment option The sum assured is payable on the death of the assured or after a fixed period of years whichever occurs first. premium under this policy is higher as the insurer has to definitely pay out a claim either to the beneficiary in the event of the death of the assured or to the insured if he lives upto a certain age. Types of Endowment policy Joint Life Endowment Policy This policy is jointly taken by a husband and wife. The sum insured is payable under this policy either on expiry of a stated number of years or on death of one of the assured whichever is earlier. Double Endowment Policy The amount of sum assured, which is paid by the insurer on survival of the insured, is double the amount payable in the event of the insureds death. For eg. if under the policy the sum assured payable on death might be Rs. 5,00,000, whereas the amount payable on survival would be Rs. 10,00,000/-. 4. Childrens policies Fixed Term (Marriage) endowment This policy is to create a capital for any major expense such as marriage of the child or higher education of the child. Policy is taken by the parent or guardian and for the purpose of this insurance, they are regarded as the assured. During this term, premium is paid but payment of premium ceases in case of death of the assured. Educational Annuity Assurance Instead of lump sum payment of the sum assured, the benefit is disbursed in half yearly installments for 5 years.

These types of policies are taken when parents are aware that after a lapse of say 10 years, the education of the child or marriage of the child has to be provided for. Childrens deferred assurance The purpose is to provide for life assurance to a child. In case of death of the child before the agreed age when the risk commences, the premium is returned. In case the parent (the premium payer) dies, the premium must be continued to be paid by someone else till the date. 5.Annuities Annuity is the periodical payment made by the insurer to the assured, in consideration for the capital payment or lump sum payment received by them. There are two phases of an annuity; they are : The accumulation phase is the phase during which the annuitant pays premium to the insurer. The distribution phase / liquidation period is when the insurer makes annuity payment to the annuitant till his death. Types of Annuity Immediate Annuity This type of annuity should be purchased with a single premium. The benefit payment i.e. the payment made by the insurer to the insured, is made within a short period of taking the policy. The annuitant receives annuity either till his death or for a fixed period. Deferred Annuity The premium may be paid either as one lumpsum payment or it could be monthly, quarterly, half yearly or yearly payments.

In case of the death of the annuitant during the deferment period, the premium will be returned without interest. Guaranteed Annuity The insurer is required to make annuity payments for at least a certain number of years, which is called period certain, irrespective of whether the annuitant is alive or dead. 6. Group Insurance Group insurance policies are becoming increasingly popular as many employers are seeking to provide benefits to the employees, by way of taking a life policy in the employers name. The group has to be homogeneous. A master policy, in the name of the employer or any association which takes the policy, is issued. The premium rates are periodically reviewed based on the claims experience of the group. This is known as experience rating. Most of the policies offer sharing of profits based on actual claims experience. Types of groups Employer-Employee groups The premium payment may be made either by the employer fully or it might be shared with the employees in agreed ratios. However, it is insisted that the share of the employer should be at least 25% and also that all the employees in the company should be insured and there should be no adverse selection against the insurance company. Creditor-Debtor Groups The creditor takes out a master policy is favour of all its debtors. This is most common where a housing loan has been sanctioned. The housing financier may take out a policy in favour of all those who have availed housing loan from the housing financier and the claim amount can be used to repay the balance amount of the housing loan, in the event of the unfortunate death of a debtor.

Government schemes Either the central or state government often take out a group policy for the lives of a section of the people as a welfare measure.

7. Industrial Life Assurance The policy was issued for the benefit of low income workers. The agents collected premium on a weekly basis as the workers were paid weekly wages and the purpose of the insurance was to provide fund. NON-LIFE INSURANCE CAN BE FURTHER CLASSIFIED INTO 1. Property Insurance Types of Property Insurance Fire Insurance It is suitable for the owner of a property who have financial interest in the property. For example, All immovable and movable property located at a particular premises such as buildings, plant and machinery, furniture, fixtures, fittings and other contents, stocks and stock in process along with goods held in trust or in commission including stocks at suppliers/ customers premises, machinery temporarily removed from the premises for repairs can be insured.

Salient Features Along with the basic coverage against loss or damage by occasional fire, the standard fire and special perils policy provides protection from a host of other perils such as: Lightning Explosion/implosion

Aircraft and articles dropped there from, i.e. any damage to the insured property caused either due to an aircraft falling on the property or any object dropped from the aircraft damaging the insureds property. Impact damage due to rail/road or animal; other than insureds own vehicle. Riots, strike, malicious and terrorism damage. Subsidence (motion of a surface as it shifts downward) and landslides (including rockslide). Storm, cyclone, typhoon, tempest, hurricane, tornado, flood and inundation, damage caused by sprinkler leakage, overflow, leakage of water tanks, pipes etc. The policy may be extended to cover earth quake, fire and shock; deterioration of stock in the cold storages following power failure. The policy may be extended to cover earth quake, fire and shock; deterioration of stock in the cold storages following power failure. Various types of Engineering Insurance Machinery insurance policy Policy was developed to grant industry effective insurance cover for plant and machinery and mechanical equipment at work, at rest or during maintenance operations. Under machinery insurance, it is possible to insure practically all stationary and mobile machinery, mechanical and electrical equipments, machineries and apparatus used in industry. Fertilizer plants have many critical types of equipments. The vital equipments such as main compressors, turbine, turbo alternator sets, process and their motors blowers, transformers and boiler feed water pumps, ID fan, FD fan, etc. can be insured.

Contractors All Risk Insurance

The basic concept of CAR Insurance is to offer comprehensive and adequate protection against loss or damage in respect of the contract works, as well as for third party claims in respect of property damage or bodily injury arising in connection with the execution of a civil engineering project. Marine Insurance It is a system of financial protection against the happenings of accidental or fortuitous events, such as; During sea transportation the goods may be lost due to sinking of the vessel. During transit and whilst in storage incidental to transit, the goods may catch fire or may be stolen. The motor insurance usually covers three kinds of financial losses: 1. Loss or damage to the vehicle 2. Liability to third parties 3. Loss of use of vehicle Motor trade road risk Essentially this classification is a sub class of commercial vehicles and the road risks of vehicles belonging to motor traders, before being sold to the ultimate customers, are covered under this class. Motor trade internal risk This class covers the risk that the motor trader is exposed to while the vehicles are either brand new or belong to customers and are on premises of the motor traded for servicing or repair. 2. Personal Insurance Mediclaim Policies Personal Accident policies Mediclaim Policies

These policies offer health insurance and can be issued either as individual policies or as a group policy. Individual Mediclaim This policy seeks to reimburse the expenses incurred by the insured for hospitalization/domiciliary (residence) hospitalization arising out of an illness/accident. Hospitalisation The following expenses are reimbursed under this policy provided the illness /accident is sustained during the policy period: Room and Boarding charges in hospital/nursing home. Nursing expenses. Surgeon, anaesthesia and other specialist doctor fees. Operation theatre, diagnostic materials, blood, pacemaker requirements etc. The treatment should be taken in a nursing home/hospital which is Registered has at least 15 inpatient beds ( 10 for C class cities ) has an operation theatre which is fully equipped fully qualified nursing staff round the clock. Group Mediclaim policy Group policy is issued to a homogenous group such as employees of a company, members of credit card etc. For eg. Citibank can take a Group policy for all the credit card holders of Citibank. 3. Liability Insurance The third type of general insurance is liability insurance.

Liability insurance provides indemnity for financial consequences arising from legal liability. Insurance is concerned with the civil liability and not the criminal liability.

REGIONAL RURAL BANK The main purpose of RRB's is to mobilize financial resources from rural / semi-urban areas and grant loans and advances mostly to small and marginal farmers, agricultural laborers and rural artisans. HISTORY Regional Rural Banks were established under the provisions of an Ordinance passed on the 26th 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 Narsimhan Committee at the tenure of Indira Gandhi's government There were five commercial banks, viz. Punjab National Bank, State Bank of India, Syndicate Bank, United Bank of India and United Commercial Bank, which sponsored the regional rural banks. OWNERSHIP RRBs are jointly owned by GoI, the concerned State Government and Sponsor Banks. The issued capital of a RRB is shared by the owners in the proportion of 50%, 15% and 35% respectively. But now it has been 60:20:20 respectively. RRB's perform various functions in following heads Providing banking facilities to rural and semi-urban areas.

Carrying out government operations like disbursement of wages of MGNREGA workers, distribution of pensions etc. Providing Para-Banking facilities like locker facilities, debit and credit cards.

JEEVAN AADHAR PLAN (SEC.80DD) Deduction from total income upto Rs. 50,000/- allowable on amount deposited with LIC under Jeevan Aadhar Plan for maintenance of an handicapped dependent (Rs.1,00,000/- where handicapped dependent is suffering from severe disability)

Bank Rate Cash Reserve Ratio (CRR) Statutory Liquidity Ratio (SLR) Repo Rate Reverse Repo Rate

9.00% 4.00% 23% 7.50% 6.50%

CRR or cash reserve ratio is the minimum proportion / percentage of a bank's deposits to be held in the form of cash. Banks actually don't hold these as cash with themselves, but deposit the same with RBI , which is considered equivalent to holding cash with themselves Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. If RBI decides to increase the percent of this, the available amount with the banks comes down. RBI is using this method (increase of CRR rate), to drain out the excessive money from the banks.

SLR or statutory liquidity ratio is the minimum percentage of deposits that a bank has to maintain in form of gold, cash or other approved securities. It is the ratio of liquid assets (cash and approved securities) to the demand and term liabilities / deposits. What is a Repo Rate? Whenever the banks have any shortage of funds they can borrow it from RBI. Repo rate is the rate at which our banks borrow rupees from RBI. A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases borrowing from RBI becomes more expensive. What is a Reverse Repo Rate? Reverse Repo rate is the rate at which Reserve Bank of India (RBI) borrows money from banks. Banks are always happy to lend money to RBI since their money are in safe hands with a good interest. An increase in Reverse repo rate can cause the banks to transfer more funds to RBI due to this attractive interest rates. It can cause the money to be drawn out of the banking system.

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