BANKING & FINANCIAL

INSTITUTIONS IN INDIA
Historical Background

 The Reserve Bank of India is the central bank of the country. Central banks
are a relatively recent innovation and most central banks, as we know them
today, were established around the early twentieth century.
 It was in 1926 that the Royal Commission on Indian Currency (Hilton
Young Commission) recommended the establishment of a central bank to be
called the 'Reserve Bank of India'.
 Later in 1931, the Indian Central Banking Enquiry Committee revived the
issue of the establishment of the Reserve Bank of India as the Central Bank
for India.
 On the basis of the recommendations of the Hilton Young Commission, it
was on March 5, 2914 the Reserve Bank of India was set up. The Reserve
Bank of India Act, 1934 (II of 1934) provides the statutory basis of the
functioning of the Bank, which commenced operations on April 1, 1935.
 On April 1, 1935 Sir Osborne Smith was the first Governor of the Bank. He
was succeeded by Sir James Briad Taylor as the next Governor of the Bank
on Jan 15, 1937. Under his governorship, RBI issued Reserver Bank Notes
in Jan 1938.
 Burma (Myanmar) seceded from the Indian Union in 1937 but the Reserve Bank continued to act as the
Central Bank for Burma till Japanese Occupation of Burma and later upto April, 1947.
 On August 11, 1943 Sir CD Deshmukh assumed office of the Governor of RBI. He was the first Indian
Governor of RBI. Under his governorship, in 1946 the high denomination bank notes of Rs. 500/-, Rs.
1000/- and Rs. 10,000/- were demonetized to curb unaccounted money.
 The Bank began its operations by taking over from the Government the functions so far being performed by
the Controller of Currency and from the Imperial Bank of India, the management of Government accounts
and public debt. The existing currency offices at Calcutta, Bombay, Madras, Rangoon, Karachi, Lahore and
Cawnpore (Kanpur) became branches of the Issue Department. Offices of the Banking Department were
established in Calcutta, Bombay, Madras, Delhi and Rangoon.
 After the partition of India, the Reserve Bank served as the central bank of Pakistan upto June 1948 when
the State Bank of Pakistan commenced operations.
 The Bank, which was originally set up as a shareholder's bank, was nationalised on Jan 1, 1949. Sir Benegal
Rama Rau assumes office as Governor of the RBI on Jul 1, 1949.
Role of the RBI
 An interesting feature of the Reserve Bank of India was that at its very inception, the Bank was seen as
playing a special role in the context of development, especially Agriculture.
 When India commenced its plan endeavours, the development role of the Bank came into focus, especially
in the sixties when the Reserve Bank, in many ways, pioneered the concept and practise of using finance to
catalyse development.
 The Bank was also instrumental in institutional development and helped set up institutions like the Deposit
Insurance and Credit Guarantee Corporation of India, the Unit Trust of India (UTI), the Industrial
Development Bank of India (IDBI), the National Bank of Agriculture and Rural Development (NABARD),
the Discount and Finance House of India etc. to build the financial infrastructure of the country.
 With liberalisation, the Bank's focus has shifted back to core central banking functions like Monetary
Policy, Bank Supervision and Regulation, and Overseeing the Payments System and onto developing the
financial markets.

Classification of Banks
Banks are the institutional bodies that accept deposits and grant credit to the entities and play a major role in
maintaining the economic stature of a country. Given their importance in the economy, banks are kept under
strict regulation in most of the countries. In India, the Reserve Bank of India (RBI) is the apex banking
institution that regulates the monetary policy in the country.
Scheduled Banks―Schedules banks are covered under the 2nd Schedule of the Reserve Bank of India Act,
1934. A bank that has a paid-up capital of Rs. 5 Lakh and above qualifies for the schedule bank category. These
banks are eligible to take loans from RBI at bank rate. There are two types of Scheduled Banks: (i) Commercial
Banks, and (ii) Co-operative Banks
Commercial Banks―Commercial Banks are regulated under the Banking Regulation Act, 1949 and their
business model is designed to make profit. Their primary function is to accept deposits and grant loans to the
general public, corporate and government. Commercial banks can be divided into:
1. Public Sector Banks:These are the nationalised banks and account for more than 75 per cent of the total
banking business in the country. Majority of stakes in these banks are held by the government. In terms of
volume, SBI is the largest public sector bank in India and after its merger with its 5 associate banks (as on
1st April 2017) it has got a position among the top 50 banks of the world.There are a total of 21 nationalised
banks in the country namely below:
State Bank of India Bank of India Allahabad Bank Bank of Canara Bank
Maharashtra

Indian Overseas IDBI Bank Oriental Bank of Central Bank of Corporation Bank
Bank Commerce India

Andhra Bank UCO Bank Bank of Baroda Union Bank of India United Bank of
India

Vijaya Bank Dena Bank Indian Bank Punjab & Sind Bank Punjab National
Bank

Syndicate Bank
2. Private Sector Banks―These include banks in which major stake or equity is held by private shareholders.
All the banking rules and regulations laid down by the RBI will be applicable on private sector banks as
well. Given below is the list of private-sector banks in India:

HDFC Bank ICICI Bank Axis Bank YES Bank IndusInd Bank

Kotak Mahindra DCB Bank Bandhan Bank IDFC Bank City Union Bank
Bank

Tamilnad Nainital Bank Catholic Syrian Federal Bank Jammu and

Mercantile Bank Bank Kashmir Bank

Karnataka Bank Dhanlaxmi Bank South Indian Bank Lakshmi Vilas Bank RBL Bank

KarurVysya Bank

3. Foreign Banks―A foreign bank is one that has its headquarters in a foreign country but operates in India
as a private entity. These banks are under the obligation to follow the regulations of its home country as
well as the country in which they are operating. Citi Bank, Standard Chartered Bank and HSBC are some
leading foreign banks in India.

4. Regional Rural Banks―These are also scheduled commercial banks but they are established with the
main objective of providing credit to weaker sections of the society like agricultural labourers, marginal
farmers and small enterprises. They usually operate at regional levels in different states of India and may
have branches in selected urban areas as well. Other important functions carried out by RRBs include-
―Providing banking and financial services to rural and semi-urban areas
―Government operations like disbursement of wages of MGNREGA workers, distribution of pensions, etc.
―Para-Banking facilities like debit cards, credit cards and locker facilities

5. Small Finance Banks―This is a niche banking segment in the country and is aimed to provide financial
inclusion to sections of the society that are not served by other banks. The main customers of small finance
banks include micro industries, small and marginal farmers, unorganized sector entities and small business
units. These are licensed under Section 22 of the Banking Regulation Act, 1949 and are governed by the
provisions of RBI Act, 1934 and FEMA.

Au Small Finance Bank Capital Small Finance Fincare Small Finance Equitas Small Finance ESAF Small Finance
Ltd. Bank Ltd. Bank Ltd. Bank Ltd. Bank Ltd.

Suryoday Small Finance Ujjivan Small Finance Utkarsh Small Finance North East Small Finance Jana Small Finance
 Bank Ltd. Bank Ltd. Bank Ltd. Bank Ltd. Bank Ltd.

6. Co-operative Banks―Co-operative banks are registered under the Cooperative Societies Act, 1912 and
they are run by an elected managing committee. These work on no-profit no-loss basis and mainly serve
entrepreneurs, small businesses, industries and self-employment in urban areas. In rural areas, they mainly
finance agriculture-based activities like farming, livestock and hatcheries.

7. Payments Bank―This is a relatively new model of bank in the Indian Banking industry. It was
conceptualised by RBI and is allowed to accept a restricted deposit. The amount is currently limited to Rs. 1
Lakh per customer. They also offer services like ATM cards, debit cards, net-banking and mobile-banking.

INSURANCE
 The insurance industry of India consists of 68 insurance companies of which 24 are in life insurance
business and 33 are non-life insurers, and 11 are re-insurers including foreign reinsure branches as Llyod’s
India.
 Of the 68 insurers presently in operation, eight are in the public sector and the remaining sixty are in the
private sector.
 Two specialized insurers, namely ECGC and AIC, one life insurer namely LIC of India (LIC), four in
general insurance and one in reinsurance namely GIC Re. are in public sector.
 23 life insurers, 21 general insurers, 6 standalone health insurers and 10 reinsurers including foreign
reinsurers’ branches and Lloyd’s India are in private sector.
 Among the life insurers, Life Insurance Corporation (LIC) is the sole public sector company. Apart from
that, among the non-life insurers there are six public sector insurers.
 In addition to these, there is sole national re-insurer, namely, General Insurance Corporation of India (GIC
Re). Other stakeholders in Indian Insurance market include agents (individual and corporate), brokers,
surveyors and third party administrators servicing health insurance claims.
 List of Life Insurance Companies in India:
Public Sector 14. Sahara India Life Insurance Co. Ltd.
1. Life Insurance Corporation of India 15. Shriram Life Insurance Co. Ltd.
16. Bharti AXA Life Insurance Co. Ltd.
Private Sector
17. Future Generali India Life Insurance Co.
2. HDFC Life Insurance Co. Ltd. Ltd.
3. Max Life Insurance Co. Ltd. 18. IDBI Federal Life Insurance Co. Ltd.
4. ICICI Prudential Life Insurance Co. Ltd. 19. Canara HSBC Oriental Bank of
5. Kotak Mahindra Life Insurance Co. Ltd. Commerce Life Insurance Co. Ltd.
6. Aditya Birla Life Insurance Co. Ltd. 20. Aegon Life Insurance Co. Ltd.
7. TATA AIG Life Insurance Co. Ltd. 21. DHFL Pramerica Life Insurance Co. Ltd.
8. SBI Life Insurance Co. Ltd. 22. Star Union Dia-Ichi Life Insurance Co.
9. Exide Life Insurance Co. Ltd. Ltd.
10. Bajaj Alliance Life Insurance Co. Ltd. 23. IndiaFirst Life Insurance Co. Ltd.
11. PNB MetLife India Insurance Co. Ltd. 24. Edelweiss Tokio Life Insurance Co. Ltd.
12. Reliance Nippon Life Insurance Co. Ltd.
13. Aviva Life Insurance Co. Ltd.

 List of General and Health Insurance Companies:

Standalone Health Insurers
1. Aditya Birla Health Insurance Co. Ltd.
2. Apollo Munich Health Insurance Co. Ltd.
3. CIGNA TTK Health Insurance Co. Ltd.
4. Max Bupa Health Insurance Co. Ltd.
5. Religare Health Insurance Co. Ltd.
6. Star Health & Allied Insurance Co. Ltd.
Private Sector Insurers
7. Acko General Insurance Ltd.
8. Bajaj Allianz General Insurance Co. Ltd.
9. Bharti AXA General Insurance Co. Ltd.
10. Cholamandalam MS General Insurance
Co. Ltd.
11. DHFL General Insurance Co. Ltd.
12. Edelweiss General Insurance Co. Ltd.
13. Future Generali India Insurance Co. Ltd.
14. Go Digit General Insurance Ltd.
15. HDFC ERGO General Insurance Co. Ltd.
 16. ICICI Lombard General Insurance Co.
Ltd.
17. IFFCO TOKIO General Insurance Co.
Ltd.
18. Kotak Mahindra General Insurance Co.
Ltd.
19. Liberty General Insurance Ltd.
20. Magma HDI General Insurance Co. Ltd.
21. Raheja QBE General Insurance Co. Ltd.
22. Reliance General Insurance Co. Ltd.
23. Reliance Health Insurance Co. Ltd.
24. Royal Sundaram General Insurance Co.
Ltd.
25. Universal Spmpo General Insurance Co.
Ltd
26. SBI General Insurance Co. Ltd.
27. Shriram General Insurance Co. Ltd.
28. Tata AIG General Insurance Co. Ltd.
Public Sector Insurers
29. National Insurance Co. Ltd.
30. The New India Assurance Co. Ltd.
31. The Oriental Insurance Co. Ltd.
32. United India Insurance Co. Ltd.
Specialized Insurers
33. Agricultural Insurance Company of India
Ltd.
34. ECGC Ltd.

 List of Reinsurers in India

1. General Insurance Corporation of India (GIC)
2. ITI Reinsurance Limited (ITI Re)

Government Initiatives for Insurance Sector

The Government of India has taken a number of initiatives to boost the insurance industry. Some of them are as
follows:
 In September 2018, National Health Protection Scheme was launched under Ayushman Bharat to provide
coverage of up to Rs 500,000 (US$ 7,723) to more than 100 million vulnerable families. The scheme is
expected to increase penetration of health insurance in India from 34 per cent to 50 per cent.
 Over 47.9 million famers were benefitted under Pradhan Mantri Fasal Bima Yojana (PMFBY) in 2017-18.
 The Insurance Regulatory and Development Authority of India (IRDAI) plans to issue redesigned initial
public offering (IPO) guidelines for insurance companies in India, which are to looking to divest equity
through the IPO route.
 IRDAI has allowed insurers to invest up to 10 per cent in additional tier 1 (AT1) bonds that are issued by
banks to augment their tier 1 capital, in order to expand the pool of eligible investors for the banks.

MAJOR FINANCIAL INSTITUTIONS

 India Infrastructure Finance Company Ltd (IIFCL)― IIFCL is a wholly-owned Government of India
company set up in 2006 to provide long term finance to viable infrastructure projects through the Scheme
for Financing Viable Infrastructure Projects through a Special Purpose Vehicle called India Infrastructure
Finance Company Ltd (IIFCL), broadly referred to as SIFTI. IIFCL has been offering its financial support
to the infrastructure sector through the following products/services.
 Export-Import Bank of India (EXIM Bank)―Export-Import Bank of India is the premier export finance
institution of the country that seeks to build value by integrating foreign trade and investment with the
economic rise of India. The Bank has been guided by expertise at the Board level, by senior policy makers,
expert bankers, leading players in industry and international trade as well as professionals in exports,
imports or financing. With offices spread across India and in select locations of the world, the bank aspires
to boost the businesses of industries and SMEs.
 Small Industries Development Bank of India(SIDBI)―Small Industries Development Bank of India
(SIDBI) set up on 2nd April 1990 under an Act of Indian Parliament, acts as the Principal Financial
Institution for Promotion,Financing and Development of the Micro, Small and Medium Enterprise (MSME)
sector as well as for co-ordination of functions of institutions engaged in similar activities.
 National Housing Bank (NHB)―National Housing Bank (NHB) was set up by an Act of Parliament in
1987. NHB is an apex financial institution for housing. It commenced its operations in 9th July 1988. NHB
has been established with an objective to operate as a principal agency to promote housing finance
institutions both at local and regional levels and to provide financial and other support incidental to such
institutions and for matters connected therewith NHB registers, regulates and supervises Housing Finance
Company (HFCs), keeps surveillance through On-site & Off-site Mechanisms and co-ordinates with other
Regulators.
 SME Rating Agency of India Ltd (SMERA)― SMERA, operational from September, 2005, is a third-
party credit rating agency exclusively set up for MSMEs. It provides ratings that are comprehensive,
 transparent and reliable and which would enable the rated units to raise bank loans at competitive rates of
interest. As on December 31, 2009, SMERA had cumulatively completed 5389 ratings, including 1945
MSMEs ratings during Apr - Dec, 2009. Risk profiling studies in respect of 13 MSME clusters have been
completed. SMERA has signed MoU with 26 banks for offering interest rate concession to the better rated
units. RBI has been requested for accreditation of SMERA.
 Industrial Finance Corporation of India (IFCI)―The primary business of IFCI is to provide medium to
long term financial assistance to the manufacturing, services and infrastructure sectors. Through its
subsidiaries and associate organizations, IFCI has diversified into a range of other businesses including
broking, venture capital, financial advisory, depository services, factoring etc. As part of its development
mandate, IFCI was one of the promoters of National Stock Exchange (NSE), Stock Holding Corporation of
India Ltd (SHCIL), Technical Consultancy Organizations (TCOs) and social sector institutions like
Rashtriya Gramin Vikas Nidhi (RGVN), Management Development Institute (MDI) and Institute of
Leadership Development (ILD).
CURRENCY SYSTEM IN INDIA
 The Currency Department in RBI attends to the core statutory function of note and coin issue and currency
management.
 This involves forecasting the demand for fresh notes and coins, placing the indent with four printing presses
and mints, receiving supplies against those indents and distributing them through the 18 offices of the Bank,
a wide network of currency chests, repositories and small coin depots.
 The Department also keeps an account of notes in circulation and also the stocks at RBI offices and
currency chests. Please click on the below links to know more on the category you choose.
 The Reserve Bank has the sole authority to issue banknotes in India. Reserve Bank, like other central banks
the world over, changes the design of banknotes from time to time.
 There is two series of notes issued by the RBI―the Bank Notes of Mahatma Gandhi (New) Series; and
Mahatma Gandhi Series.
 The Mahatma Gandhi Series bank notes are available in denomination of Rs. 100/-, Rs. 50/-, Rs. 20/-, Rs.
10/- and Rs. 5/-
 The Mahatma Gandhi (New) Series bank notes available in denomination of Rs. 2000/-, Rs. 500/-, Rs. 200/-
, Rs. 100/-, Rs. 50/-, Rs. 20/- and Rs. 10/-.
 The coins issued for circulation are: Rs. 10/-, Rs. 5/-, Rs. 2/-, Rs. 1/- and 50 paise. The rupee is subdivided
into 100 paise (singular paisa), though as of 2019, coins of denomination of 1 rupee is the lowest value in
use.
 In 2010, a new rupee symbol '₹', was officially adopted. It was designed by D. Udaya Kumar. It was
derived from the combination of the Devanagari consonant "र" (ra) and the Latin capital letter "R" without
its vertical bar (similar to the R rotunda).

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