PRESENTATION ON

COMMERCIAL BANKS, NBFCs,

COPERATIVE BANKS
Reserve Bank of India is the Central Bank and the highest monetary authority of
our country. It holds the apex position in the banking structure. RBI performs
various regulatory, developmental and promotional functions.
History of Banking in India : Milestones in development of Banking in India are :
• First joint stock Bank namely Bank of Calcutta was established on 2nd June 1806 =>
renamed as Presidency Bank of Bengal on 2nd January,1809.
• Followed by formation of Bank of Bombay on 15th April, 1840 and Bank of Madras on 1st
July, 1843.
• Amalgamating these 3 Presidency Banks, Imperial Bank of India was formed on 27th
January, 1921.
• IBI was bifurcated and RBI was established in 1935 as Central Bank.
• IBI was nationalized& transformed into State Bank of India on 1st July,1955 through SBI
Act 1955.
• Natioalisation of 7 former Princely State Banks as Associate Banks of SBI in 1960 through
SBI Subsidiary Banks Act, 1959
• Major strides towards Bank nationalisation were made in 1969 and 1980 nationalising 14
and 6 largest Banks respectively. Govt.
• More prominent roles played by private and foreign players post 1993 reforms and
liberalisation.
Structure of Indian Banking system is as follows :

SFBs

Scheduled Banks : Banks which have been included in the second schedule of the
RBI Act, 1934”. The banks included in this category should fulfil two conditions:
1. The paid-up capital and collected fund of the bank should not be less than Rs. 5
lacs.
2. Any activity of the bank will not adversely affect the interests of the depositors.
• Scheduled Commercial Banks in India are categorised in 4 different groups
according to ownership / nature of operation => Public Sector Banks, Private
Sector Banks, Foreign Banks, Regional Rural Banks and Small Finance Banks.
• Facilities enjoyed by Scheduled Banks:
• Eligible for obtaining debts / loans on bank rate from the RBI
• Automatically acquires the membership of the Clearing House.
• Get the facility of rediscounting of first-class exchange bills from RBI.
• Non-Scheduled Banks : Banks which are not included in the second schedule of
RBI Act, 1934 are called Non-Scheduled Banks.
• These Banks have to follow CRR conditions but they can have CRR funds with themselves.
• They are also not eligible for having loans from RBI for day to day activities.
• Commercial Banks : Commercial Bank is an institution that accepts deposits and
extends loans and advances to general customers and business men to make
profits. Such Bank includes Public Sector, Private Sector, Foreign Banks, Regional
Rural Banks and Small Finance Banks.
1. Public Sector Banks : These Banks are characterised by majority ownership (51%
or more ) by Govt. of India. They can further be classified as :
a) State Bank of India: Largest Bank having over 24000 branches and one fourth
market share.
• Have many Subsidiaries. After merger of Associate Banks and Bhartiya Mahila
Bank, SBI is counted among the top 50 largest Banks of the world.
• Have 191 overseas offices in 36 countries and also have several foreign
subsidiaries or affiliates.
• Ranked as 236th in the Fortune Global 500 list, 2019.
b) Nationalised Banks : Have a very large br. network spread over entire country.
• After recent mergers number of Nationalised Banks came down from 20 to 11.
c) IDBI Bank : It was a Public Sector Bank but not Nationalised Bank.
• It was set up in 1964 – wholly owned subsidiary of RBI. Later its shares were
transferred to GoI in 1976.
• Recategorised as Private Sector Bank by RBI after LICI acquired 51% in the loss
making lender in January, 2019.
2. Private Sector Banks : Major share held by Public.
• Majority of such Banks belong to Old Generation Private Banks having small
balance sheet size, regional operations traditional style of management/business
• New generation Private sector Banks were incorporated post 1993 after Banking
sector reforms and partial liberalizations.
• They are better capitalised, technology driven, aggressive and functional style
compatible to foreign banks operating in India.
3. Foreign Banks: These banks are incorporated abroad but granted license by RBI
to operate banking business in India.
• They have the obligation to follow the regulations of both its home country as
well as host country.
• There are many Foreign Banks but Branch network is smaller and mostly confined
in bigger cities.
• Operations are technology driven and business mostly comprises of Corporate
Banking, Foreign Exchange, Export / Import Finance and Merchant Banking.
4. Regional Rural Banks : Established with a focus on Agricultural & Rural
Development with NABARD at apex for supervision.
• Their Area of operation is restricted to few districts or a state.
• Their capital is provided by the Central Govt.(50%), concerned State Govt. (15%)
and Sponsor Bank(35%)
• With the initiative by the Govt. to merge the RRBs at State level, the number of
RRBs have reduced from196 to 43 as on 1st April, 2020.
5. Small Finance Banks: SFBs are Scaled down version of Commercial Banks.
• They provide basic banking services of acceptance of deposits and lending
through high technology and low-cost operation.
• The aim is to provide Financial inclusion to unserved and underserved sections of
the economy.
• They are required to provide 75% of their loans to priority sector and
• At least 50% of the loan portfolio should be below Rs.25 Lacs.
B. Co-operative Banks: Registered under State Co-operative Act with the Registrar of Co-
operative Societies.
• Their main Regulator is State Govt. and they are supervised by NABARD.
• Functioning is based on the principle of co-operation and mutual help.
• Classified into State Co-operative Banks, Urban Co-operative Banks, District Central Co-
operative Banks, Land Development Banks and Primary Co-operative Societies.
• They play an important role even today in rural co-operative financing.
• Enactment of Co-operative Credit Societies Act, 1904 followed by its amendment in
1912 gave the real impetus to the movement.
C. Payment Banks: These banks are licensed under section 22 of B. R. Act,1949
• Main objective is to ensure fin. inclusion to vulnerable and weak section of the society.
• Can accept and send remittance of funds.
• Can issue ATM Cards, Debit Cards and provide Online and Mobile Banking
• Can also undertake utility bill payment, distribute MF, Insurance and Pension products.
• Cannot accept deposit from NRI.
• Can only park money in Govt. Papers and Bank deposits
• Should invest 75% of their total demand deposits in Govt. securities (called SLR).
Non-Scheduled bank : Local Area Banks :
• They are small private Banks, conceived as low-cost structures
• Provide efficient and competitive financial intermediation services in a limited
area of operation i.e. primarily in rural and semi-urban areas, comprising
maximum 3 contiguous districts.
• Mobilisation of rural savings by local institution for investment in local areas.
• They focus lending primarily to local weak and vulnerable sections of the
economy.
• LABs are required to observe priority sector lending target of 40% of NBC of
which 25% (i.e. 10% of NBC) should be given to weaker sections.
Non-Banking Financial Company:
• A Non-Banking Financial Company (NBFC) is a company registered under the Companies
Act, 2013 of India.
• They are engaged in the business of loans and advances, acquisition of shares, stock,
bonds, securities, hire-purchase, insurance business or chit-fund business.
• They do not include any institution whose principal business is that of agriculture,
industrial activity, purchase or sale of any goods (other than securities) or providing any
services and sale/purchase/construction of immovable property.
• They are regulated by RBI under the RBI Act, 1934 (Chapter III-B)
• For debt collection they should not resort to any intimidation or harassment.
Types of NBFCs:
1. Investment and Credit Company (ICC);
2. Infrastructure Finance Company (IFC)
3. Infrastructure Debt Fund: Non-Banking Financial Company (IDF-NBFC)
4. Gold Loan NBFCs
5. NBFC Factors
6. Non-Banking Financial Company – Micro Finance Institutions (NBFC-MFI)
 7.Residuary Non-Banking Companies (RNBCs)
8.NBFC- Account Aggregators.
Difference between NBFCs & Banks :
• NBFCs perform functions similar to that of banks but there are a few differences:
• Provides Banking services to People without holding a Bank license,
• An NBFC cannot accept Demand Deposits,
• An NBFC is not a part of the payment and settlement system
• An NBFC cannot issue Cheques drawn on itself
• Deposit insurance facility of the Deposit Insurance and Credit Guarantee Corporation is
not available for NBFC depositors, unlike banks
• An NBFC is not required to maintain Reserve Ratios (CRR, SLR etc.)
• An NBFC cannot indulge Primarily in Agricultural, Industrial Activity, Sale-Purchase,
Construction of Immovable Property
• Foreign Investment allowed up to 100 %
• An NBFC accompanies working in Financial Body and Money handling.
Thank You