Presentation on

Banking System in India

Submittted to:- By:Asha mam Anuj Agarwal
Pranav Gupta
Jobin Varghese

Objectives
Show the evolution of our banking system.
Discuss the modern Indian banking system and its
structure.
Working function of bank.

Contents

Introduction.
Banking structure.
Rationale for nationalization of banks.
Reforms of banking sector.
Interest rate slabs.
Norms.
New private and local area banks.
Recovery of debts.

Introduction
A bank is a financial institution whose primary activity is
to act as a payment agent for customers and to borrow and
lend agent for customers.
An institution where one can place and borrow money and
take care of financial affairs.

Who Controls Over Banks

RBI (Central Bank)

HISTORY :-

Operational on April 1st ,1935.

Nationalized in the year 1949.

MAIN OBJECTIVES :Regulate the issue of bank note.

To operate currency system.
Manage foreign exchange.
Serves as banker to the government.
Buildup and strengthens the countrys financial structure.
Acts as banker of banks.
Supervises Bank.

Schedule and Non-Scheduled banks

In India, banks have been broadly classified into
scheduled and non-scheduled banks. A Scheduled Bank
is that which has been included in the Second Schedule
of the Reserve Bank of India Act, 1934 .

Public Sector Banks

The majority of stake held by GOI.
Total number of public sector banks are 27.

Private Sector Banks in India

where greater parts of stake or equity are held by
the private shareholders
The private sector banks are split into two groups by
financial regulators in India, old and new. The old
private sector banks existed prior to the
nationalisation in 1969 and kept their independence.
The new private sector banks are those that have
gained their banking license since the liberalisation
in the 1990s.

Foreign Banks
Foreign banks have their registered and head offices
in a foreign country but operate their branches or
fully owned subsidiaries in India.
There are 43 foreign banks in India with a network
of 334 branches, mostly in cities.
Some foreign banks
HSBC,DBS, Abu Dhabi Commercial Bank
etc.

Regional Rural Banks

They have been created to serve the rural areas with
banking and financial services. However, RRB's may have
branches set up for urban operations and there area of
operation may include urban areas too.

Co operative Bnaks

What is Nationalization of banks ?

Nationalization of Banks in India
The process of transferring ownership and operational rights of a bank
from private sector to government of the country.

Ist Phase :
14 Leading Banks were Nationalized on 18 July , 1969.

IInd Phase :
6 more Banks were Nationalized 1980.

Rationale for Nationalization of Banks

Preventing concentration of economic power.

Social control was not adequate.
Channel the bank finance to plan - priority sectors.
Greater mobilization of deposits.
Balanced Regional development.
Greater control by the Reserve Bank.

Banking Sector Reforms

1991 RBI proposed the commmitte chaired by
M.Narshimham , Past RBI Governor to review the Banking
System.
Review aspects relating to the structure , organisation ,
procedures and functioning of the financial systems.
Constituted in 1991 , the committee submitted two reports, in
1992 and 1998 , which laid significant thrust on enhancing the
efficiency and viability of the banking sectors.
The Narshimham Committee laid the foundation for the
reformation of the Indian Banking Sector.

Recommendation of Narshimam Committee

1992
Reduction of Statutory Liquidity Ratio (SLR) to 25 % over a period of
five years.
Progressive reduction in Cash Reserve Ratio to 3-5 %.
De-regulation of Interest rates on deposits and advances.
Phasing out of directed credit programmed and redefinition of the
priority sector.
Establishment of Special Tribunals to speed up the process of
debtsrecovery.
Stipulation of minimum Capital Adequacy Ratio of 8%

Recommendation of Narshimam
Committee -II 1998
Rationalization of bank branches and staff was emphasized.
Licensing policy for new private banks can be continued.
In private banks the limit for FDI has been increased from 49% to
74%.
New areas for bank financing have been opened up.
To bring down net NPAs below 5 percent by 2000 and to 3 percent
by 2002.

SLR Statutory Liquidity Ratio

Policy
Reserve
Lending/Deposits
Bank
Repo
Reverse
Marginal
Cash
Statutory
Base
Saving
Deposit
Rates
Ratios
Rate
Reserve
Rate
Rate
Repo
Standing
Liquidity
Rate
Ratio
RateFacility
Ratio Rate

PRUDENTIAL NORMS
Prudential means with wisdom. Prudential norms
are guidelines laid down by the central bank which
all banks are required to follow. Introduced in the
year 1992-93 these norms usually are amount of
cash reserves, overnight call rates, various ratios,
etc.

CAPITAL ADEQUACY NORMS

Capital provides cushion against losses. Capital adequacy norms
ensures solvency of banks against unexpected losses. Basel committee
of banking supervision (BCBS) or simply Basel committee provide
these norms worldwide and India began following these norms in the
year 1992-93 on the recommendation of NARSIMHAM committee .
Capital adequacy norms consist of Capital Adequacy Ratio (CAR)
or Capital to Risk (weighted) Assets Ratio (CRAR ).
CRAR is the ratio of banks capital to its risk weighted assets or
percentage of banks capital against its risk weighted assets i.e.
Tier I capital + Tier II capital *100
Risk weighted assets
Contd.

 C.R.A.R =
Tier I Capital + Tier II capital * 100 >
8(BASEL) , 9 (R.B.I)
risk weighted assets
=>Tier I capital- Paid-up capital + Statutory reserves + Other
disclosed free reserves + Capital reserves ( Equity investment
in subsidiaries + Intangible assets + losses )
=>Tier II capital- Undisclosed reserves, Revaluation reserves,
Investment fluctuation reserve, Subordinate debt (long term
unsecured loans) , Hybrid
debt capital
instruments (Risk
sayweighted
Bonds) .
Particulars
Weightage
Risk weighted assets :
(fixed by R.B.I)
value of assets
Cash

How
risk
weight
assets

0 % 10 * 0%

= 0

0%

= 0

10
Govt. Securities
15
Mortgage loans
20

is Other loans
55
calculated
TOTAL

15 * 0%

50% 20 * 50% = 10
100% 55* 100% = 55
TOTAL

65

NEW PRIVATE SECTOR BANKS

In July 1993 under the banking reform process private banks
were given licenses to operate in order to bring competition in
the banking sector.
All those private banks that started to operate after 1993 are
collectively known as New Private sector banks.
Such Banks are HDFC Bank, Bank of Punjab, Axis Bank,
IndusInd Bank, Kotak Mahindra Bank, Yes Bank, ICICI
Bank, Centurion Bank ltd, Development credit Bank (DCB
bank ltd.) , Global Trust Bank, UP agro Bank corporation ltd.

LOCAL AREA BANKS

Local area banks (LABs) are designed to promote rural savings
and enhance credit facility in rural area.
LABs can operate maximum in 3 districts . They primarily
finance for agricultural and allied activities.
Minimum paid-up capital is Rs. 5 crores which must be
increased to Rs. 25 crores within 5-7 years of functioning.
LAB maintains a capital adequacy ratio of 15%. SLR is
maintained at 23 % reduced from 25% w.e.f August 2012.
Priority sector lending target is 40% .
was the first

LAB in India .

RECOVERY OF DEBTS
There are various methods that are being used by Banks to recover
debts :
1) Debt restructuring The banks changes the repayment or interest
payment schedule or may waive interest if necessary. Corporate
Debt Restructuring (CDR) is the institution in place.
2) Recovery Agents They make phone calls or self visits to
recover the bad debt under the directions of the R.B.I
3) Debt recovery tribunals (DRTs) established under the Recovery
of Debts due to Banks and Financial Institutions Act, 1993 for
recovery of debts with Loan amount above Rs. 10 lakhs
4) One Time Settlement (OTS) schemes and Lok Adalats useful
for small loan defaulters such as small and marginal farmers.

Queries