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Money Market and Capital

Market Institutions & The Indian
Financial System

Money Market:
 Money market institutions refers to those financial
institutions which cater to the requirement of savers of
high liquidity and safety along with profitability and which
provides working capital to trade and industries mainly in
the form of loans and advances.
 Money market is essentially a reservoir of short
term funds and provides a mechanism by which
short term funds are lent out and borrowed.
 Money market covers money, and financial assets
which are close substitutes for money.

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Functions of Money Market

 To provide an equilibrium mechanism to even
out demand for and supply of short term
funds.
 To provide a focal point for central bank
intervention for influencing liquidity and
general level of interest rates in the economy.
 To provide reasonable access to providers
and users of short term funds to fulfill their
borrowing and investment requirements at an
efficient market clearing price.

Capital Market:
 Capital Market is a place where the medium
term and long term financial needs of
business and other undertakings are met by
financial institutions which supply medium
and long term resources to borrowers.
 These institutions may further be classified
into investing institutions and development
banks on the basis of the nature of their
activities and the financial mechanism
adopted by them.

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Structure of Indian Financial System:

The Central Bank
(RBI)

Commercial Cooperative Other Financial

Banks Societies Institutions

State Primary Gov.

Public Pvt Coop. Agriculture run Pub Pvt
Sector Sector State Agric and Rural Depart Sector Sector
& Rural Developme ments
Dev Banks nt Banks

SBI & Its Foreign Banks NSC, PO, EPF

Associates Chits, Nidhis,
Nationalised Corporate
Non-Scheduled SIDBI, IDBI, Development
Banks IIBI, IFCI, IDFC
Banks bodies, Hire
Banks
Purch Cos.,
Re-finance
RRBs NABARD, NHB
Institutions Investment
Cos,
EXIM Bank. Specialized FIs Merchant
OCBs TFCI
Banks,
Insurance Cos.
Source: (Modified Reference from): Indian Financial System and Commercial
Banking – Published by Macmillan for The Indian Institute of Bankers, Cuffe
Mutual Funds
Parade, Mumbai

CENTRAL BANK
• It is the APEX monetary institute in the
money market which acts as the monetary
authority of the country and serves as the
Government’s bank as well as the bankers’
bank.
• In brief, we may say that the central bank
is an organ of the Government which, by
reason of its operations influences the
working of the FIs of the country.

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How does the Central Bank

differ from other banks?
 Is a Government Organ
 It does not exist to secure maximum
profit
 Have a special controlling relationship
with the commercial banks

Functions of The Central

Bank:
 Issue of Currency Notes:
 Issued on the basis of minimum currency reserve system.

 Acts as Government’s Bank:

 Collection, and disbursements
 Mgt. of public debt and issue of new loans and treasury bills
 Temporary adv. to Gov. in anticipation of collection of taxes
 Government’s financial agent
 Advisor to Government

 Acts as Banker’s Bank

 Holds certain portion of deposits of commercial banks
 Extends financial facilities to CB when there is a crisis
 Acts as a bank for central clearance

 Foreign Exchange
 Monopoly power to control and regulate foreing exchange

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Commercial Banks
 Commercial banks constitute an important
segment of the money market. These banks
are concerned with accepting deposits of
money from the public at large, repayable on
demand or otherwise, and withdraw able by
cheques or drafts, and employing the
deposits so pooled in the form of loans and
investments to meet the financial needs of
business and other classes of society.

Nationalised Banks
 Nationalised banks are those set of banks whose management has
been taken under the Government’s Control.
 Before the steps of nationalisation of Indian banks, only State Bank of
India (SBI) was nationalised. It took place in July 1955 under the SBI
Act of 1955. Later nationalistion of seven subsidiaries of the State Bank
of India was nationalised in 1960.
 But on 19th July, 1969, a major process of nationalisation was initiated
by the efforts of the then Prime Minister of India, Mrs. Indira Gandhi -
and 14 major commercial banks in the country were nationalised these
were mostly owned by businessmen and even managed by them.
 The Second phase of nationalisation was carried out in 1980 with seven
more banks were nationalised. This step brought 80% of the banking
segment in India under Government ownership.

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14 banks which were

nationalised in 1969
 Central Bank of India
 Bank of Maharashtra
 Dena Bank
 Punjab National Bank
 Syndicate Bank
 Canara Bank
 Indian Bank
 Indian Overseas Bank
 Bank of Baroda
 Union Bank
 Allahabad Bank
 United Bank of India
 UCO Bank
 Bank of India

After the nationalisation of banks in India, the branches of the public sector banks rose
to approximately 800% in deposits and advances took a huge jump by 11,000%.

Scheduled & Non Scheduled Banks

• Scheduled Banks in India constitute those banks which have been included
in the Second Schedule of Reserve Bank of India(RBI) Act, 1934. RBI in
turn includes only those banks in this schedule which satisfy the criteria laid
down vide section 42 (6) (a) of the Act.

• As on 30th June, 1999, there were 300 scheduled banks in India having a
total network of 64,918 branches. The scheduled commercial banks in India
comprise of State bank of India and its associates (8), nationalised banks
(19), foreign banks (45), private sector banks (32), co-operative banks and
regional rural banks.

• "Non-scheduled bank in India" means a banking company as defined in

clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949),
which is not a scheduled bank".

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The following are the Scheduled Banks in

India (Public Sector):

14) Canara Bank

1) State Bank of India
15) Central Bank of India
2) State Bank of Bikaner and
Jaipur 16) Corporation Bank

3) State Bank of Hyderabad 17) Dena Bank

4) State Bank of Indore 18) Indian Overseas Bank

5) State Bank of Mysore 19) Indian Bank

6) State Bank of Patiala 20) Oriental Bank of

Commerce
7) State Bank of Saurashtra
21) Punjab National Bank
8) State Bank of Travancore
22) Punjab and Sind Bank
9) Andhra Bank
23) Syndicate Bank
10) Allahabad Bank
24) Union Bank of India
11) Bank of Baroda
25) United Bank of India
12) Bank of India
26) UCO Bank
13) Bank of Maharashtra
27) Vijaya Bank

The following are the Scheduled Banks in India (Private Sector):

1) Vysya Bank Ltd

2) UTI Bank Ltd
3) Indusind Bank Ltd
4) ICICI Banking Corporation Bank Ltd
5) Global Trust Bank Ltd
6) HDFC Bank Ltd
7) Centurion Bank Ltd
8) Bank of Punjab Ltd
9) IDBI Bank Ltd

The following are the Scheduled Foreign Banks in India:

1) American Express Bank Ltd.

2) ANZ Gridlays Bank Plc.
3) Bank of America NT & SA
4) Bank of Tokyo Ltd.
5) Banquc Nationale de Paris
6) Barclays Bank Plc
7) Citi Bank N.C.
8) Deutsche Bank A.G.
9) Hongkong and Shanghai Banking Corporation
10) Standard Chartered Bank.
11) The Chase Manhattan Bank Ltd.
12) Dresdner Bank AG.

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List of Public Sector Banks in

India: Public sector banks have either the Government of India or Reserve Bank of India as the majority
shareholder. This segment comprises State Bank of India (SBI)and its subsidiaries & other nationalized banks.

1. State Bank of India

1. Allahabad Bank 12. Oriental Bank of Commerce
2. State Bank of Bikaner and Jaipur
2. Andhra Bank 13. Punjab and Sind Bank
3. State Bank of Hyderabad
3. Bank of Baroda 14. Punjab National Bank -
4. State Bank of Indore
4. Bank of India 15. Syndicate Bank
5. State Bank of Mysore
5. Bank of Maharashtra 16. UCO Bank
6. State Bank of Patiala
6. Canara Bank 17. Union Bank of India
7. State Bank of Saurashtra
7. Central Bank of India 18. United Bank of India
8. State Bank of Travancore
8. Corporation Bank 19. Vijaya Bank

9. Dena Bank IDBI and IDBI Bank Ltd. have been merged to form
Industrial Development Bank of India (IDBI) Ltd.
10. Indian Bank IDBI is notified as a scheduled bank by the Reserve
Bank of India (RBI) under the Reserve Bank of
11. Indian Overseas Bank India Act, 1934. But RBI has categorized IDBI under
a new sub group "other public sector bank".

Private Sector Banks ( Majority Share

holdings are in Private hands.)

 Private banking in India was practiced since the beginning of banking system in
India. (Most banks before independence were private banks.)

 The first private bank in India to be set up in the Private Sector was IndusInd
Bank. It is one of the fastest growing Private Sector Banks in India.

 The first Private Bank in India to receive an “in principle” approval from the
Reserve Bank of India was Housing Development Finance Corporation Limited,
to set up a bank in the private sector banks in India as part of the RBI's
liberalisation of the Indian Banking Industry. It was incorporated in August 1994
as HDFC Bank Limited with registered office in Mumbai and commenced
operations as Scheduled Commercial Bank in January 1995.

 ING Vysya, yet another Private Bank of India was incorporated in the year 1930.
Bangalore and has a pride of place for having the first branch inception in the
year 1934.

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List of Private Sector Banks in

India: (Old Pvt. Sector Banks)
1. Bank of Rajasthan Ltd. 12. Laxmi Vilas Bank

2. Dhanalakshmi Bank Ltd. 13. Catholic Cyrian Bank

3. Federal Bank Ltd. 14. City Union Bank

4. ING Vysya Bank Ltd.

5. Jammu and Kashmir Bank Ltd.

6. Karnataka Bank Ltd.

7. Karur Vysya Bank Ltd.

8. Ratnakar Bank Ltd.

9. SBI Commercial and International Bank Ltd.

10. South Indian Bank Ltd.

11. United Western Bank Ltd.

List of Private Sector Banks in

India: (New Pvt. Sector Banks)
1. Bank of Punjab Ltd. (since merged with Centurian Bank)

2. Centurion Bank Ltd.(now called Centurian Bank of Punjab) (merger of Lord Krishna Bank &
Centurian Bank has received the green signal)

3. Development Credit Bank Ltd.

4. HDFC Bank Ltd.

5. ICICI Bank Ltd.

6. IndusInd Bank Ltd.

7. Kotak Mahindra Bank Ltd.

8. UTI Bank Ltd. (Now AXIS Bank Ltd.)

9. Yes Bank Ltd.

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List of Foreign Banks in India:

Banks which are incorporated outside India

ABN-AMRO Bank ANZ Gridlays Bank Plc.

Bank of America NT & SA
Abu Dhabi Commercial Bank By 2009 few more names is going to be added
Ltd. Bank of Tokyo Ltd. in the list of foreign banks in India. This is as an
aftermath of the sudden interest shown by
Bank of Ceylon Reserve Bank of India paving roadmap for
American Express Bank Ltd.
foreign banks in India with greater freedom.
Banque Nationale de Paris Among them is the world's best private bank by
BNP Paribas EuroMoney magazine, Switzerland's UBS.
Barclays Bank Plc
Deutsche Bank A.G. Others would be:
Citibank N.C.
Royal Bank of Scotland
Scotia Bank Switzerland's UBS
DBS Bank Ltd US-based GE Capital
Credit Suisse Group
The Chase Manhattan Bank Ltd. Industrial and Commercial Bank
HSBC Ltd. of China
(JP Morgan Chase Bank)
Standard Chartered Bank Merrill Lynch is having a joint venture in Indian
investment banking space -- DSP Merrill Lynch.

China Trust Commercial Bank Goldman Sachs holds stakes in Kotak Mahindra
arms.

Taib Bank
GE Capital is also having a wide presence in
consumer finance through GE Capital India.
Dresdner Bank AG.

Co-operative Banks
 The Co-operative banks has a history of almost 100 years. The Co-operative banks are an important constituent of the
Indian Financial System, judging by the role assigned to them, the expectations they are supposed to fulfil, their number,
and the number of offices they operate. The co-operative movement originated in the West, but the importance that such
banks have assumed in India is rarely paralleled anywhere else in the world. Their role in rural financing continues to be
important even today, and their business in the urban areas also has increased phenomenally in recent years mainly due
to the sharp increase in the number of primary co-operative banks.

While the co-operative banks in rural areas mainly finance agricultural based activities including farming, cattle, milk,
hatchery, personal finance etc. along with some small scale industries and self-employment driven activities, the co-
operative banks in urban areas mainly finance various categories of people for self-employment, industries, small scale
units, home finance, consumer finance, personal finance, etc. Some of the co-operative banks are quite forward looking
and have developed sufficient core competencies to challenge state and private sector banks.

According to NAFCUB the total deposits & lendings of Co-operative Banks is much more than Old Private Sector Banks &
also the New Private Sector Banks. This exponential growth of Co-operative Banks is attributed mainly to their much
better local reach, personal interaction with customers, their ability to catch the nerve of the local clientele.

Though registered under the Co-operative Societies Act of the Respective States (where formed originally) the banking
related activities of the co-operative banks are also regulated by the Reserve Bank of India. They are governed by the
Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965.

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Andhra Pradesh West Bengal

 eluri co operative bank,4th line,arundel pet,swarnalok WEst Bengal state cooperative bank Ltd
complex ist floor,guntur,andhra pradesh.
Pondicherry
Pondicherry State Cooperative Bank
Goa
 The Bicholim Urban Co-operative Bank Ltd.
 The Goa State Co-operative Bank Ltd. Data relating to Jharkhand and Other
 The Goa Urban Co-operative Bank Ltd. States are not available
 The Madgaum Urban Co-operative Bank Ltd.
 The Mapusa Urban Co-operative Bank of Goa Ltd.

Gujarat
 Valsad District Central Co-operative Banks LTD.
 Kerala
 Dist. Co-Op Bank,Kannur.
 Dist. Co-Op Bank,Alleppy.
 Pala Urban Co-Op Bank.
 Cheruthazham Service Co-Op Bank.
 Ottapalam co-op Bank, Ottapalam
 The Co-operative Service bank Limited, Parakode.
 People's Urban Co-operative Bank Ltd, Thrippunithura

 Maharashtra Areas under Cooperative banks in Rural India:

 Kodoli Urban Co-op. Bank Ltd. Kodoli.(erstwhile Nagari Sahkari
Bank Kodoli)  Farming
 Shri Balbhim Coop Bank Ltd., Kolhapur  Cattle
The Maharashtra State Co-op Bank Ltd
Milk


 Shree Warana Sahakari Bank Ltd. Warananagar
 Solapur janta Sahakari Bank, Solapur  Hatchery
 Saraswat Co-Op Bank  Personal finance
 Ichalkaranji Janata Sahakari Bank Ltd
 Vasantdada Shetkari Sahakari Bank Ltd.,Sangli
 Shamrao Vitthal Cooperative Bank Areas under Cooperative banks in Urban India:
 Samarth Sahakari Bank, Solapur
 Punjab and Maharashtra cooperative bank ltd
 Dwarkadas Mantri Nagari Sahakari Bank Ltd.,Beed  Industries
 Deogiri Nagari Sahakari Bank Limited, Aurangabad  Self-employment
Ajintha Urban Co-operative Bank Limited, Aurangabad
Small scale units


 Lokvikas Nagari Sahakari Bank Limited, Aurangabad
 The Akola Urban Co-operative Bank Limited, Akola  Home finance
 Autangabad District Central Co-operative Bank Limited,  Consumer finance
Aurangabad
 Adarsha Mahila Nagari Sahakari Bank Limited, Aurangabad  Personal finance

RRBs Rural banking in India started since the establishment of banking sector in India. Rural Banks in those days mainly focussed
upon the agro sector. Regional rural banks in India penetrated every corner of the country and extended a helping hand in the
growth process of the country.

SBI has 30 Regional Rural Banks in India known as RRBs. The rural banks of SBI is spread in 13 states extending from Kashmir
to Karnataka and Himachal Pradesh to North East. The total number of SBIs Regional Rural Banks in India branches is 2349
(16%). Till date in rural banking in India, there are 14,475 rural banks in the country of which 2126 (91%) are located in remote
rural areas.

Apart from SBI, there are other few banks which functions for the development of the rural areas in India. Few of them are as
follows.

Haryana State Cooperative Apex Bank Limited

The Haryana State Cooperative Apex Bank Ltd. commonly called as HARCOBANK plays a vital role in rural banking in the
economy of Haryana State and has been providing aids and financing farmers, rural artisans, agricultural labourers,
entrepreneurs, etc. in the state and giving service to its depositors.

NABARD

National Bank for Agriculture and Rural Development (NABARD) is a development bank in the sector of Regional Rural Banks in
India. It provides and regulates credit and gives service for the promotion and development of rural sectors mainly agriculture,
small scale industries, cottage and village industries, handicrafts. It also finance rural crafts and other allied rural economic
activities to promote integrated rural development. It helps in securing rural prosperity and its connected matters.

Sindhanur Urban Souharda Co-operative Bank

Sindhanur Urban Souharda Co-operative Bank, popularly known as SUCO BANK is the first of its kind in rural banks of India. The
impressive story of its inception is interesting and inspiring for all the youth of this country.

United Bank of India

United Bank of India (UBI) also plays an important role in regional rural banks. It has expanded its branch network in a big way
to actively participate in the developmental of the rural and semi-urban areas in conformity with the objectives of nationalisation.

Syndicate Bank

Syndicate Bank was firmly rooted in rural India as rural banking and have a clear vision of future India by understanding the
grassroot realities. Its progress has been abreast of the phase of progressive banking in India especially in rural banks.

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Development banks in India

 Asian Development Bank India Resident Mission (ADBINRM) - Provides
information about ADB and India partners in development, INRM's newsletter,
project activities in India, business opportunities, and more.
 Development Credit Bank Limited
 Economic Development Corporation of Goa, Daman, and Diu Ltd (EDC) -
Development bank set up by the government of Goa whose objective is to
promote industrial investment in the state.
 Industrial Financial Corporation of India - A development finance institute.
 Small Industries Development Bank of India - Provides financing and
development of industry in the small scale sector.

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