Professional Documents
Culture Documents
Indian Banking
History of Banking
Ancient India
TheVedas(2000-1400 BCE) are earliest Indian texts to mention the concept
ofusury. (practice of lending money at unreasonably high rates of interest)
Sutras(700-100 BC) and theJatakas(600-400 BC) also mention usury.
VasishthaforbadeBrahminandKshatriyavarnasfrom participating in usury.
By the 2nd century usury seems to have become more acceptable.
TheManusmriticonsiders usury an acceptable means of acquiring wealth or
leading a livelihood. It also considers money lending at, different ceiling rates
for different castes
The Jatakas also mention the existence of loandeeds. These were
calledrnapatraorrnapanna. TheDharmashastrasalso supported the use of
loan deeds.
Kautilyahas also mentioned the usage of loan deeds, calledrnalekhaya.
Later during theMauryan period(321-185 BCE), an instrument calledadesha
was in use, which was an order on a banker directing him to pay the sum on
the note to a third person, which corresponds to the definition of a modern
bill of exchange.
In large towns, merchants also gaveletters of creditto one another.
Medieval era
The use of loan deeds continued into theMughal era
and were calleddastawez. Two types of loan deeds
have been recorded. Thedastawez-e-indultalabpwas
payable on demand anddastawez-e-miadiwas
Payable after a stipulated time.
The use ofpayment ordersby royal treasuries,
calledbarattes, have been also recorded.
There are also records of Indian bankers using
issuing bills of exchange on foreign countries
. The evolution ofhundis, a type of credit instrument,
also occurred during this period and remain in use.
Colonial era
During theperiod of British rulemerchants established
the Union Bank of Calcutta in 1829
TheAllahabad Bank, established in 1865 and still
functioning today
Foreign banks too started to appear, particularly inCalcutta,
in the 1860s.
TheComptoir d'Escompte de Parisopened a branch in
Calcutta in 1860, and another inBombayin 1862; Then
followed inMadrasandPondicherry,
HSBCestablished itself inBengalin 1869. Calcutta was the
most active trading port in India, mainly due to the trade of
theBritish Empire, and so became a banking centre.
Post-Independence
Thepartition of Indiain 1947 adversely impacted the economies of
PunjabandWest Bengal, paralysing banking activities
India'sindependencemarked the end of a regime of theLaissez-fairefor
the Indian banking.
TheGovernment of India initiated measures to play an active role in the
economic life of the nation, and the Industrial Policy Resolution adopted by
the government in 1948 envisaged amixed economy.
This resulted in greater involvement of the state in different segments of
the economy including banking and finance. The major steps to regulate
banking included:
TheReserve Bank of India, India's central banking authority, was
established in April 1935, but was nationalised on 1 January 1949 under
the terms of the Reserve Bank of India (Transfer to Public Ownership) Act,
1948 (RBI, 2005b).[
In 1949, theBanking Regulation Act was enacted, which empowered the
Reserve Bank of India(RBI) "...to regulate, control, and inspect the banks
in India."
Current period
The Indian banking sector is broadly classified into scheduled banks and
non-scheduled banks.
All banks included in the Second Schedule to the Reserve Bank of India Act,
1934 are Scheduled Banks. These banks comprise Scheduled Commercial
Banks and Scheduled Co-operative Banks. Scheduled Co-operative Banks
consist of Scheduled State Co-operative Banks and Scheduled Urban
Cooperative Commercial Banks in India are categorised into five different
groups according to their ownership and/or nature of operation:
State Bank of India and its Associates
Nationalised Banks
Private Sector Banks
Foreign Banks
Regional Rural Banks.
In the bank group-wise classification, IDBI Bank Ltd. is included in
Nationalised Banks.
Types of banks
Types of banks
Types of banks
The Indian banking sector is broadly classified into
scheduled banksand non-scheduled banks.
The scheduled banks are those included under the 2nd Schedule
of the Reserve Bank of India Act, 1934.
The scheduled banks are further classified into: nationalised
banks;
State Bank of Indiaand its associates;
Regional Rural Banks(RRBs);
foreign banks; and other Indian private sector banks.
The term commercial banks refers to both scheduled and nonscheduled commercial banks regulated under the
Banking Regulation Act, 1949.
Types of banks
In many countries central bank is known by different names.
Federal Reserve Bank of U.S.A, Bank of England in U.K. and
Reserve Bank of India in India.
Reserve Bank of India is the Central Bank of our country. It was
established on 1stApril 1935 under the RBI Act of 1934.
It holds the apex position
performs various developmental and promotional functions
wide powers to supervise and control the banking structure.
occupies the pivotal position in the monetary and banking
structure of the country.
authority to formulate and implement monetary and credit
policies.
owned by the government of a country and has the monopoly
power of issuing notes.
Commercial Banks
Commercial bank is an institution that accepts
deposit, makes business loans and offer related
services to various like accepting deposits and
lending loans and advances to general
customers and business man.
These institutions run to make profit.
They cater to the financial requirements of
industries and various sectors like agriculture,
rural development, etc.
it is a profit making institution owned by
government or private of both.
c. Foreign Banks:
Foreign banks are those banks, which have their head
offices abroad. CITI bank, HSBC, Standard Chartered
etc. are the examples of foreign bank in India.
D. Regional Rural Bank (RRB):
These are state sponsored regional rural oriented
banks. They provide credit for agricultural and rural
development. The main objective of RRB is to develop
rural economy. Their borrowers include small and
marginal farmers, agricultural labourers, artisans etc.
NABARD holds the apex position in the agricultural
and rural development.
Co-operative Bank:
Co-operative bank was set up by passing a co-operative act in
1904. They are organised and managed on the principal of cooperation and mutual help. The main objective of co-operative
bank is to provide rural credit.
The cooperative banks in India play an important role even
today in rural co-operative financing. The enactment of Cooperative Credit Societies Act, 1904, however, gave the real
impetus to the movement. The Cooperative Credit Societies
Act, 1904 was amended in 1912, with a view to broad basing it
to enable organisation of non-credit societies.
Three tier structures exist in the cooperative banking:
i. State cooperative bank at the apex level.
ii. Central cooperative banks at the district level.
iii. Primary cooperative banks and the base or local level.
Payment banks
The newly licensed payment banks will join Indias vast banking system, which has
several layers of banks, performing different roles and objectives
Payment banks, targetted towards people without access to the formal banking system,
will provide savings, deposit, payment and remittance services. Photo: AFP
On Wednesday, the Reserve Bank of India (RBI) gave in-principle approval to 11 entities
to open a new category of banks, payment banks as part of the governments bid to
increase financial inclusion and help expand banking services. Payment banks, targetted
towards people without access to the formal banking system, will provide savings,
deposit, payment and remittance services. Unlike conventional banks, payment banks
will not be in the business of lending. Essentially, these banks are targeted towards
financially excluded customers like migrant workers, low-income households and small
businesses. The list of 11 entites includes nine organisations, including Aditya Birla Nuvo
Ltd, Airtel M Commerce Services Ltd, Cholamandalam Distributions Ltd, Reliance
Industries Ltd, Tech Mahindra Ltd, Vodafone m-Pesa Ltd, Fino Pay Tech Ltd, Department of
Posts and National Securities Depository Ltd (NSDL). Two individuals, Dilip Shanghavi,
founder of Sun Pharmaceutical Industries Ltd, and Vijay Shekhar Sharma, founder of
One97 Communications Ltd that runs mobile payment company PayTM, were also
included in the list.
Hailed for their disruptive, almost Uber-like effect on the banking industry, the newly
licensed payment banks will join Indias vast banking system, which has several layers of
banks, performing different roles and objectives, once they full criteria laid down by RBI
in 18 months
Small Banks
The purpose of the small banks will be to provide a whole suite of basic
banking products such as deposits and supply of credit, but in a limited area of
operation.
The objective for these Small Banks is to increase financial inclusion by
provision of savings vehicles to under-served and unserved sections of the
population, supply of credit to small farmers, micro and small industries, and
other unorganised sector entities through high technology-low cost operations.
Resident individuals with 10 years of experience in banking and finance,
companies and Societies will be eligible as promoters to set up small banks.
NFBCs, micro finance institutions (MFIs), and Local Area Banks (LABs) can
convert their operations into those of a small bank. Local focus and ability to
serve smaller customers will be a key criterion in licensing such banks.
Branch expansion: For the initial three years, prior approval will be required.
The area of operations would normally be restricted to contiguous districts in a
homogenous cluster of states of union territories so that the Small Bank has a
local feel and culture. However, if necessary, it would be allowed to expand its
area of operations beyond contiguous districts in one or more states with
reasonable geographical proximity.
The bank shall primarily undertake basic banking activities of accepting deposits
and lending to small farmers, small businesses, micro and small industries, and
unorganised sector entities. It cannot set up subsidiaries to undertake non-banking
financial services activities. After the initial stabilisation period of five years, and
after a review, the RBI may liberalise the scope of activities for Small Banks.
The promoters other financial and non-financial services activities, if any, should
be distinctly ring-fenced and not co-mingled with banking business.
A robust risk management framework is required and the banks would be subject
to all prudential norms and RBI regulations that apply to existing commercial
banks, including maintenance of CRR and SLR.
In view of concentration of area of operations, the Small Bank would need a
diversified portfolio of loans, spread over it area of operations.
The maximum loan size and investment limit exposure to single/group
borrowers/issuers would be restricted to 15 per cent of capital funds.
Loans and advances of up to Rs 25 lakhs, primarily to micro enterprises, should
constitute at least 50 per cent of the loan portfolio.
For the first three years, 25 per cent of branches should be in unbanked rural
areas
Payment banks
Objective of payments banks is to increase financial inclusion by providing
small savings accounts, payment/remittance services to migrant labour,
low income households, small businesses, other unorganised sector
entities and other users by enabling high volume-low value transactions in
deposits and payments/remittance services in a secured technology-driven
environment.
Those who can promote a payments banks can be a non-bank PPIs,
NBFCs, corporates, mobile telephone companies, super market chains,
real sector cooperatives companies and public sector entities. Even banks
can take equity in Payments Banks.
Payments Banks can accept demand deposits (only current account and
savings accounts). They would initially be restricted to holding a maximum
balance of Rs 100,000 per customer. Based on performance, the RBI could
enhance this limit.
The banks can offer payments and remittance services, issuance of
prepaid payment instruments, internet banking, functioning as business
correspondent for other banks.
Payment banks