Professional Documents
Culture Documents
Banking Nov15
Banking Nov15
U
Understanding Indian Banking Sector
& Banking Institution’s Regulation
.S
Dr. Nandimath Omprakash V.,
.L
Professor in Law,
National Law School of India University,
N
Bangalore-560 072
Email – ovnandimath@nls.ac.in
• Banking Regulation Act, 1949
I.U
.S
.L
N
I.U
What are the functions of a bank?
.S PART II
.L
N
The functions of bank
• Acceptance of Deposits
I.U
• Advancing loans
• Investment of funds
Promote use of cheques
.S
•
• Other agency functions
.L
– Banking related agency functions
N
– Other utility agency functions
Acceptance of deposits
I.U
– Demand deposits; and
– Time deposits
• However now there are many hybrid
.S
deposits are also available
.L
N
Advancing of loans
I.U
– Advances with security
– Advances without security
.S
.L
N
Investment of funds
• Besides loans & advances – banker also
invest a part of its surplus funds in
I.U
government securities
• In India, the banks are mandated to
invest a part of their funds in government
.S
and other approved securities
.L
• Though the returns are not high – funds
are ‘near liquid’ but also ‘secure’ for risk
N
perspective
Agency functions – banking related
• Transfer of funds
I.U
• Collecting customer’s funds (cheques)
• Purchase & sale of shares and securities (for
its customers)
.S
• Collecting dividends on the shares of the
customers
.L
• Payment of premia
• Acting as trustee and executor
N
I.U
• Issuing of travelers’ cheque
• Giving information about its customers on
various issues
.S
• Collection of statistics
• Accepting bills of exchange on behalf of
.L
customers
• Underwriting of company debentures
N
.S PART III
.L
N
• British brought the modern concept of
banking to India
I.U
• But the concept of ‘banking’– was known to
us
.S
– Banking was used in synonymous with money lending
– Vedic literature records the details of banking
.L
transactions
– Manusmrithi speaks about – deposits, pledge, loans
N
and interest rates etc.,
– Sons ‘pious obligation’ – to discharge the loan of the
father
The beginning of Indian ‘modern banking’
I.U
Alexander & Co., agency house started]
• The Bank of Calcutta [ established by East
India Company in 1806]
.S
• The break-through in 1860 – introduction
.L
of limited liability to banks
N
The interim period of 1906 to 1913
• The influence of ‘swadeshi movement’ –
the following banks were started
I.U
– Peoples Bank of India Ltd.,
– The Bank of India Ltd.,
.S
– The Central Bank of India Ltd.,
– Indian Bank Ltd.,
.L
– The Bank of Baroda Ltd.,
• The period ended with the crash of 1913-
N
I.U
Bombay and Madras were merged into
Imperial Bank
• Vide the Imperial Bank of India Act, 1920
.S
• The same became State Bank of India
.L
later
N
Establishment of Reserve Bank of India
• It was given the right of note issue
I.U
• Was also to act as ‘bankers bank’ – the
function which it took-over from Imperial
Bank
.S
• However, Imperial Bank was allowed to
operate as the agent of RBI, especially in
.L
those places where RBI had no branches
N
• Initially RBI was a shareholder’s bank – but
was nationalized in 1948
Establishment of State Bank of India
I.U
overtook Imperial Bank]
– The bank which commands approximately 25% of
total banking sector business
.S
– With highest bank network in India
.L
N
SBI Subsidiaries
I.U
– The Bank of Bikaner
– The Bank of Indore
– The Bank of Jaipur
.S
– The Bank of Mysore
.L
– The Bank of Patiala
– The Bank of Travancore
N
– The Bank of Hyderabad
The banking scenario @ 60s
• Overall mismanagement of banks
I.U
• Major chunk of advances to
– Large;
– Medium; and
.S
– Big industrial houses only
• Uncovered priority sectors like
.L
– Small scale industries;
N
– Agriculture;
– Exports etc.,
The banking scenario @ 60s
I.U
– Industrialist directors
– Conflicting interests with their ventures
– Indiscriminate lending to their ‘own’ industrial
.S
establishments
.L
N
The immediate response
I.U
• Approach
– Establishment of National Credit Council (NCC)
– Legislative Control through amendment to the
.S
Banking Regulation Act, 1949
.L
N