UNIVERSITY OF MUMBAI

PROJECT REPORT
ON
“SARASWAT CO-OPERATIVE BANK LTD”

M.COM-BANKING AND FINANCE (SEMESTER III) ACADEMIC YEAR: 2022-2023

SUBMITTED By
VADHEL DIKSHITA JAYANTI
ROLL NO - 27

PROJECT GUIDE
PROF. RASHNA Z. GIARA

People’s Education Society

DR. AMBEDKAR COLLEGE OF COMMERCE AND ECONOMICS WADALA,
MUMBAI – 400 031
 UNIVERSITY OF MUMBAI

PROJECT REPORT ON

“SARASWAT CO-OPERATIVE BANK LTD”

M.COM-BANKING AND FINANCE (SEMESTER III) ACADEMIC

YEAR: 2022-2023

SUBMITTED BY
VADHEL DIKSHITA JAYANTI
ROLL NO - 27

PROJECT GUIDE
PROF. RASHNA Z. GIARA
 People’s Education Society
DR. AMBEDKAR COLLEGE OF COMMERCE AND ECONOMICS WADALA,
MUMBAI – 400 03

PROJECT- REPORT ON

“SARASWAT CO-OPERATIVE BANK LTD”

SUBMITTED
IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE
AWARD OF DEGREE OF
M.COM – BANKING AND FINANCE
BY
VADHEL DIKSHITA JAYANTI
ROLL NO - 27
M.COM – BANKING AND FINANCE
(SEMESTER III )

People’s Education Society

DR. AMBEDKAR COLLEGE OF COMMERCE AND ECONOMICS WADALA,
MUMBAI – 400 031
 People’s Education Society
DR. AMBEDKAR COLLEGE OF COMMERCE AND ECONOMICS
WADALA, MUMBAI – 400 031

CERTIFICATE

This is to certify that, VADHEL DIKSHITA JAYANTI of M.Com (Banking and Finance) Semester III

(20202021) has successfully completed the Project on “SARASWAT CO-OPERATIVE BANK LTD” under the

guidance of Prof. RASHNA Z. GIARA. It is fit to be submitted for evaluation.

M.com–Co-ordinator Principal

Project Guide External Examiner

 DECLARATION

I VADHEL DIKSHITA JAYANTI the student of Dr. Ambedkar College of Commerce and
Economics, studying in M.COM – BANKING AND FINANCE semester III
hereby declare that I have completed the project report on SARASWAT CO-OPERATIVE BANK
LTD in the academic year 2022 – 2023.

The information submitted is genuine and practical to the best of my knowledge.

Place: Mumbai DIKSHITA JAYANTI VADHEL

Date: (Roll No. 27)

 ACKNOWLEDGEMENT

Presentation and motivation have always played a key role in the success of key ventures.

I express my sincere thanks to Dr. JAYASHREE G. IYER principal Dr. Ambedkar College of commerce and
economics Wadala , Mumbai no. 400031

I deem a privilege to express my sincere gratitude to M.com Co-ordinator PROF. ROHAN GAIKWAD for his
skill full guidance throughout the writing of project report.

My grateful acknowledgement are due to my esteemed teacher & supervisor Prof. RASHNA Z. GIARA who
devoted considerable time in guiding and checking and making valuable suggestion and correction to the draft.

My special thanks to my parents. Lastly, I am thankful to department of m.com – banking and finance teaching &
non-teaching staff for encouragement. The errors and commissions that remain are mine.

Place: Mumbai VADHEL DIKSHITA JAYANTI

Date
 Index – (specimen copy-subject to changes according -Project)
Chap no TOPIC

1 STRUCTURE OF BANKING
SECTOR
2 RESEARCH DESIGN
3 LITERATURE REVIEW
4 HISTORY, MISSION, VISION
5 SERVICE PROVIDED
6 ACHIEVEMENT AWARD
7 INNOVATION
8 VISIT RESPONSE
9 CONCLUSION
10 BIBLIOGRAPHY
11 APPENDIX
 “SARASWAT CO-OPERATIVE BANK LTD”

STRUCTURE OF BANKING SECTOR

1.Introduction
Saraswat Co-operative Bank Ltd. is an urban co-operative banking institution, having its headquarters
in Mumbai, Maharashtra, India and operating as a co-operative society since 1918.[2] The Founding Members
of the society were J.K. Parulkar as chairman, N.B. Thakur as vice-chairman, P.N. Warde as Secretary, and
Shivram Gopal Rajadhyaksha as Treasurer.[3]

In 1988, the bank was conferred with the Scheduled status by the Reserve Bank of India. It is the first co-
operative bank to provide merchant banking services. The bank got a permanent license to deal in foreign
exchange in 1979. Presently, the bank has a correspondent relationship in 58 countries covering nine
currencies with over 162 banks.

The bank's total business which was around ₹4,000 crore in the year 2000, has reached to ₹63,422 crore in
2020.[4]

In the last two decades, the bank has witnessed a steady growth in business and also taken several strategic
business initiatives such as undertaking business process reengineering initiative, merging seven cooperative
banks and then consciously nurturing them. The bank tied up with VISA International for issuance of debit
cards. The bank launched RuPay EMV Debit Card in 2013–14. The bank was the first to achieve this
milestone in respect of RuPay EMV card along with the Bank of Baroda.[citation needed]

In 2011, the bank was granted permission for All India Area of Operation by the Reserve Bank of India.

The bank has a network of 284 fully computerised branches and 311 ATMs (Automated teller machine) as on
31 March 2020[4] covering six states viz. Maharashtra, Gujarat, Madhya Pradesh, Karnataka, Goa and Delhi.

From the annual report for financial year 2020–2021, the bank's business is ₹67,042 crores.[5] [6] It was
ranked second-best bank in India by The World's Best Banks 2020 survey[7][8] conducted by the Forbes, an
American business magazine.

2. RESEARCH METHODOLOGY

Research Methodology - It deals with identification of the problem related to the subject matter under
study, Limitation of the study, its objectives, hypothesis and methodology used. Chapter 3 : Review of
Literature And Theoretical Background of NPAs - This chapter cover the profile of the bank, its history,
location, management structure, and growth of the bank in the last 5 year commencing from the year
2001/02 to 2005-06. Chapter 4 : Profile of The Commercial Co-op. Bank Ltd. Kolhapur - It contained two
parts one is review of the research work in respect of the non performing assets. And second part cover
the theoretical background ofthe Non performing assets. Chapter 5 : Data Analysis And Interpretation -
The researcher divided this chapter in four parts. In first part a brief review and analysis of the NPAs
problem of co-operative sector including UCBs is taken. In the second part evaluation ofNPA problem of
the sample bank is done. In the third part causes generally applicable to all UCBs are analysed and
interpreted and remedies in general to minimize NPA is given in fourth part ofthis chapter. Chapter 6 :
Conclusion And Suggestions - The chapter summarized the findings of the study on evaluation of NPAs
of The Commercial Co-operative Bank Ltd. and also focuses on suggestions made. 17

3. LITERATURE REVIEW

A literature review is an overview of the previously published works on a topic. The term can refer to a
full scholarly paper or a section of a scholarly work such as a book, or an article. Either way, a literature
review is supposed to provide the researcher/author and the audiences with a general image of the
existing knowledge on the topic under question. A good literature review can ensure that a proper research
question has been asked and a proper theoretical framework and/or research methodology have been
chosen. To be precise, a literature review serves to situate the current study within the body of the relevant
literature and to provide context for the reader. In such case, the review usually precedes the methodology
and results sections of the work.

Producing a literature review is often a part of graduate and post-graduate student work, including in the
preparation of a thesis, dissertation, or a journal article. Literature reviews are also common in a research
proposal or prospectus (the document that is approved before a student formally begins a dissertation or
thesis).[1]
A literature review can be a type of review article. In this sense, a literature review is a scholarly
paper that presents the current knowledge including substantive findings as well as theoretical and
methodological contributions to a particular topic. Literature reviews are secondary sources and do not
report new or original experimental work. Most often associated with academic-oriented literature, such
reviews are found in academic journals and are not to be confused with book reviews, which may also
appear in the same publication. Literature r eviews are a basis for research in nearly every academic field.
Foreign Contribution Regulation (Amendment) Rules 2020 further tightens the bolts

On November 10, 2020 the Ministry of Home Affairs (MHA) Notified the much-awaited Foreign
Contribution Regulation (Amendment) Rules 2020. After the radical changes under the Foreign
Contribution Regulation (Amendment) Act 2020 (which has come into force from 29 th September
2020) the hopes and aspirations of over twenty thousand associations registered under FCRA 2020
was riding on these Rules for some reliefs and more clarity. Alas, these Rules offer no relaxations
nor further clarity. In fact, the new Rules have further tightened the existing bolts.

4. CASE STUDY FOR THE REGULATION OF FINANCIAL INSTITUTIONS

Procedure - Before Class: Students are broken into small teams of two or three and each group is
assigned one case to present during the semester. They are instructed to create a PowerPoint to help lead
the discussion and are given a maximum slide limit. To prepare this presentation, students must read the
full set of material associated with that case (a memorandum (~20 pages) and any additional files (~100
pages). Other students who are not leading the case that week are instructed to read the memorandum
only.

Procedure - During Class: During class, the students present their presentation and field questions from
their classmates. The team leads the class through a discussion on topical issues in financial law that they
could be faced with as a young lawyer in private practice, government work, or other fields of financial
law. This allows the law students to get practical exposure to a variety of types of law and qualifies as
experiential-learning credit under recently established American Bar Association requirements. After the
presentation the class votes on the course of best action.

Procedure - After Class: After the discussion and voting, Professor Jackson summarizes the key points
from the discussion. Additionally, the instructor promptly gives feedback to the students that presented
after class on both their analysis as well as their presentation/communication.

Bareboat charter
A bareboat charter, or demise charter, is an arrangement for the chartering or hiring of a ship
or boat for which no crew or provisions are included as part of the agreement. Instead, the people
who rent the vessel from the owner are responsible for taking care of such things. The act is commonly
known as bareboating or bareboat charter.
There are legal differences between a bareboat charter and other types of charter arrangements,
commonly called time or voyage charters. In a voyage or time charter, the charterer charters the ship or
part of it for a particular voyage or for a set period of time. The charterer then can direct where the ship
will go but the owner of the ship retains possession of the ship by its employment of the master and crew.
In a bare-boat or demise charter, on the other hand, the owner gives possession of the ship to the
charterer, and the charterer hires its own master and crew. The bare-boat charterer is sometimes called a
"disponent owner". The giving up of possession of the ship by the owner is the defining characteristic of a
bareboat or demise charter.

5. History of the Banking Regulation Act, 1949

The concept of banking started in India with the establishment of the Bank of Hindustan.
Before nationalisation took place in India, the banking system of India was more of a private nature.
Banks were struggling to keep their branches open. Low capital and reserves and greed for obtaining high
profits became a reason for the failure of the banking system. The banks were supervised under
the Companies Act, 1913, but this Act was not sufficient to regulate banks. The economy was not
performing well, and this started to damage the banks. Also, the concept of banks was mostly used by the
upper-class people. Frauds were also one of the reasons for the decline in the usage of banks. This gave a
need to regulate the banking system of India. As a result, the Banking Regulation Act was introduced in
1949. It was initially applicable to banking companies, but after the Amendment in 1965, the Act was
also applicable to cooperative banks.

Medieval Period

The use of loan deeds continued into the Mughal era and were called dastawez (in Urdu/Hindi). Two
types of loans deeds have been recorded. The dastawez-e-indultalab was payable on demand
and dastawez-e-miadi was payable after a stipulated time. The use of payment directives by royal
treasuries, called barattes, have been also recorded. There are also records of Indian bankers using issuing
bills of exchange on foreign countries. The evolution of hundis, a type of credit instrument, also occurred
during this period and remain in use.[15]

Colonial era

During the period of British rule merchants established the Union Bank of Calcutta in 1829, [16] first as a
private joint stock association, then partnership. Its proprietors were the owners of the earlier Commercial
Bank and the Calcutta Bank, who by mutual consent created Union Bank to replace these two banks. In
1840 it established an agency at Singapore, and closed the one at Mirzapore that it had opened in the
previous year. Also in 1840 the Bank revealed that it had been the subject of a fraud by the bank's
accountant. Union Bank was incorporated in 1845 but failed in 1848, having been insolvent for some time
and having used new money from depositors to pay its dividends.[17]

The Allahabad Bank, established in 1865 and still functioning today, is the oldest Joint Stock bank in
India, it was not the first though. That honour belongs to the Bank of Upper India, which was established
in 1863 and survived until 1913, when it failed, with some of its assets and liabilities being transferred to
the Alliance Bank of Simla.

Foreign banks too started to appear, particularly in Calcutta, in the 1860s. Grindlays Bank opened its first
branch in Calcutta in 1864.[18] The Comptoir d'Escompte de Paris opened a branch in Calcutta in 1860,
and another in Bombay in 1862; branches followed in Madras and Pondicherry, then a French
possession. HSBC established itself in Bengal in 1869. Calcutta was the most active trading port in India,
mainly due to the trade of the British Empire, and so became a banking centre.

The first entirely Indian joint stock bank was the Oudh Commercial Bank, established in 1881
in Faizabad. It failed in 1958. The next was the Punjab National Bank, established in Lahore in 1894,
which has survived to the present and is now one of the largest banks in India.

Around the turn of the 20th century, the Indian economy was passing through a relative period of
stability. Around five decades had elapsed since the Indian rebellion, and the social, industrial and other
infrastructure had improved. Indians had established small banks, most of which served particular ethnic
and religious communities.

The presidency banks dominated banking in India but there were also some exchange banks and a number
of Indian joint stock banks. All these banks operated in different segments of the economy. The exchange
banks, mostly owned by Europeans, concentrated on financing foreign trade. Indian joint stock banks
were generally under capitalised and lacked the experience and maturity to compete with the presidency
and exchange banks. This segmentation let Lord Curzon to observe, "In respect of banking it seems we
are behind the times. We are like some old fashioned sailing ship, divided by solid wooden bulkheads into
separate and cumbersome compartments."[citation needed]

The period between 1906 and 1911 saw the establishment of banks inspired by the Swadeshi movement.
The Swadeshi movement inspired local businessmen and political figures to found banks of and for the
Indian community. A number of banks established then have survived to the present such as Catholic
Syrian Bank, The South Indian Bank, Bank of India, Corporation Bank, Indian Bank, Bank of
Baroda, Canara Bank and Central Bank of India.

The fervour of Swadeshi movement led to the establishment of many private banks in Dakshina
Kannada and Udupi district, which were unified earlier and known by the name South Canara (South
Kanara) district. Four nationalised banks started in this district and also a leading private sector bank.
Hence undivided Dakshina Kannada district is known as "Cradle of Indian Banking".[citation needed]

The inaugural officeholder was the Britisher Sir Osborne Smith(1 April 1935), while C. D. Deshmukh(11
August 1943) was the first Indian governor. On 12 December 2018,Shaktikanta Das, who was the finance
secretary with the Government of India, begins his journey as the new RBI Governor, taking charge from
Urjit R Patel.

During the First World War (1914–1918) through the end of the Second World War (1939–1945), and
two years thereafter until the independence of India were challenging for Indian banking. The years of the
First World War were turbulent, and it took its toll with banks simply collapsing despite the Indian
economy gaining indirect boost due to war-related economic activities. At least 94 banks in India failed
between 1913 and 1918 as indicated in the following tab

Authorised
Number of banks Paid-up Capital
Years Capital
that failed (₹ Lakhs)
(₹ Lakhs)

1918 7 209 1

1917 9 76 25

1915 11 56 5

1913 12 274 35

1916 13 231 4

1914 42 710 109

Despite the provisions, control and regulations of the Reserve Bank of India, banks in India except
the State Bank of India (SBI), remain owned and operated by private persons. By the 1960s, the Indian
banking industry had become an important tool to facilitate the development of the Indian economy. At
the same time, it had emerged as a large employer, and a debate had ensued about the nationalization of
the banking industry.[21] Indira Gandhi, the then Prime Minister of India, expressed the intention of
the Government of India in the annual conference of the All India Congress Meeting in a paper
entitled Stray thoughts on Bank Nationalization.[22][23]

Thereafter, the Government of India issued the Banking Companies (Acquisition and Transfer of
Undertakings) Ordinance, 1969 and nationalized the 14 largest commercial banks with effect from the
midnight of 19 July 1969. These banks contained 85 percent of bank deposits in the country. [22] Within
two weeks of the issue of the ordinance, the Parliament passed the Banking Companies (Acquisition and
Transfer of Undertaking) Bill,[24] and it received presidential approval on 9 August 1969.

The following banks were nationalized in 1969:

 Allahabad Bank (now Indian Bank)

 Bank of Baroda
 Bank of India
 Bank of Maharashtra
 Central Bank of India
 Canara Bank
 Dena Bank (now Bank of Baroda)
 Indian Bank
 Indian Overseas Bank
 Punjab National Bank
 Syndicate Bank (now Canara Bank)
 UCO Bank
 Union Bank of India
 United Bank of India (now Punjab National Bank)

Nationalisation in 1980

A second round of nationalizations of six more commercial banks followed in 1980. The stated reason for
the nationalization was to give the government more control of credit delivery. With the second round of
nationalizations, the Government of India controlled around 91% of the banking business of India.

The following banks were nationalized in 1980:

 Punjab and Sind Bank

 Vijaya Bank (Now Bank of Baroda)
 Oriental Bank of Commerce (now Punjab National Bank)
 Corporation Bank (now Union Bank of India)
 Andhra Bank (now Union Bank of India)
 New Bank of India (now Punjab National Bank)
Later on, in the year 1993, the government merged New Bank of India with Punjab National Bank.[25] It
was, at that time, the only merger between nationalised banks and resulted in the reduction of their
number from 20 to 19. Until the 1990s, the nationalized banks grew at a pace of around 4%, closer to the
average growth rate of the Indian economy.[citation needed]

Liberalisation in the 1990s

In the early 1990s, the then government embarked on a policy of liberalisation,[26] licensing a small
number of private banks.[27] These came to be known as New Generation tech-savvy banks, and
included Global Trust Bank (the first of such new generation banks to be set up), which later
amalgamated with Oriental Bank of Commerce, IndusInd Bank, UTI Bank (since renamed Axis
Bank), ICICI Bank and HDFC Bank.[28] This move – along with the rapid growth in the economy of
India – revitalised the banking sector in India, which has seen rapid growth with strong contribution from
all the three sectors of banks, namely, government banks, private banks and foreign banks.

The next stage for the Indian banking has been set up, with proposed relaxation of norms for foreign
direct investment. All foreign investors in banks may be given voting rights that could exceed the present
cap of 10% at present.[29] In 2019, Bandhan bank specifically, increased the foreign investment percentage
limit to 49%.[30] It has gone up to 74% with some restrictions.[31]

The new policy shook the banking sector in India completely. Bankers, till this time, were used to the 4–
6–4 method (borrow at 4%; lend at 6%; go home at 4) of functioning. The new wave ushered in a modern
outlook and tech-savvy methods of working for traditional banks. All this led to the retail boom in India.
People demanded more from their banks and received more.

PSB Amalgamations in the 2000s and 2010s

SBI

SBI merged with its associate bank State Bank of Saurashtra in 2008 and State Bank of Indore in 2010.

Following a merger process,[32][33] the merger of the 5 remaining associate banks, (viz. State Bank of
Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala, State Bank of
Travancore); and the Bharatiya Mahila Bank) with the SBI was given an in-principle approval by the
Union Cabinet on 15 June 2016.[34] This came a month after the SBI board had, on 17 May 2016, cleared
a proposal to merge its five associate banks and Bharatiya Mahila Bank with itself.[35]

On 15 February 2017, the Union Cabinet approved the merger of five associate banks with SBI. [36] An
analyst foresaw an initial negative impact as a result of different pension liability provisions and
accounting policies for bad loans.[37][38] The merger went into effect from 1 April 2017.[39]
 State Bank of India Mumbai LHO

BOB

On 17 September 2018, the Government of India proposed the amalgamation of Dena Bank and Vijaya
Bank with erstwhile Bank of Baroda, pending (namesake) approval from the boards of the three banks.
[40]
The Union Cabinet and the boards of the banks approved with the merger on 2 January 2019. Under
the terms of the amalgamation, Dena Bank and Vijaya Bank shareholders received 110 and 402 equity
shares of the Bank of Baroda, respectively, of face value ₹2 for every 1,000 shares they held. The
amalgamation became effective from 1 April 2019.[41]

PNB

On 30 August 2019, Finance Minister announced that the Oriental Bank of Commerce and United Bank
of India would be merged with Punjab National Bank, making PNB the second largest PSB after SBI with
assets of ₹17.95 lakh crore (US$220 billion) and 11,437 branches.[42][43] MD and CEO of UBI, Ashok
Kumar Pradhan, stated that the merged entity would begin functioning from 1 April 2020. [44][45] The Union
Cabinet approved the merger on 4 March 2020. PNB announced that its board had approved the merger
ratios the next day. Shareholders of OBC and UBI will receive 1,150 shares and 121 shares of Punjab
National Bank, respectively, for every 1,000 shares they hold. [46] The merge came into effect since 1 April
2020. Post merger, Punjab National Bank has become the second largest public sector bank in India[47]

Canara Bank[

On 30 August 2019, Finance Minister announced that Syndicate Bank would be merged with Canara
Bank. The proposal would create the fourth largest PSB trailing SBI, PNB, BoB with assets of ₹15.20
lakh crore (US$190 billion) and 10,324 branches.[48][43] The Board of Directors of Canara Bank approved
the merger on 13 September 2019. [49][50] The Union Cabinet approved the merger on 4 March 2020.
Canara Bank assumed control over Syndicate Bank on 1 April 2020 with Syndicate Bank shareholders
receiving 158 equity shares in the former for every 1,000 shares they hold.[51]
Union Bank of India[edit]

On 30 August 2019, Finance Minister announced that Andhra Bank and Corporation Bank would be
merged into Union Bank of India. The proposal would make Union Bank of India the fifth largest PSB
with assets of ₹14.59 lakh crore (US$180 billion) and 9,609 branches.[52][43] The Board of Directors of
Andhra Bank approved the merger on 13 September. [53][54] The Union Cabinet approved the merger on 4
March, and it was completed on 1 April 2020.[46]

Indian Bank

On 30 August 2019, Finance Minister announced that Allahabad Bank would be merged with Indian
Bank. The proposal would create the seventh largest PSB in the country with assets of ₹8.08 lakh
crore (US$100 billion).[55][43] The Union Cabinet approved the merger on 4 March 2020. Indian Bank
assumed control of Allahabad Bank on 1 April 2020.[46]

Rescue of private and co-operative banks (2020s)

Yes bank

In April 2020, RBI enlisted SBI to rescue the troubled lender Yes Bank, in the form of investment with
assistance from other lenders viz., ICICI Bank, HDFC Bank and Kotak Mahindra Bank. SBI went on to
own 48% share capital of Yes bank, which it later diluted to 30% in an FPO in the following months.

Lakshmi Vilas Bank

In November 2020, RBI asked DBS Bank India Limited (DBIL) to take over the operations of the private
sector bank Lakshmi Vilas Bank whose net worth has turned negative, following mismanagement and
two failed merger attempts with NBFCs. DBS India's then having just 12 branches benefited by LVB's
559 branches. In a first of a kind move, Tier- II bond holders have been asked by RBI to write off their
holdings in LVB.

Punjab and Maharashtra Co-operative Bank

In January 2022, RBI asked Unity Small Finance Bank Limited (Unity SFB) to take over the operations
of the private sector bank Punjab and Maharashtra Co-operative Bank (PMC), following mismanagement
and one failed merger attempts with NBFC/SFBs. Unity SFB then was being created by Centrum Finance
and payment provider BharatPe to absorb the liabilities of the scam hit bank. In a first of a kind move,
RBI allowed an established cooperative bank to merge into a then being created SFB.
Regional Rural banks revamp

With a new policy effected in late 2010, the RRBs which served a smaller locality spanning a few
districts, were merged into a state level entity following the merger of nationalised banks and their equity
in RRBs getting sequentially higher. This eliminated the existential competition and cooperation between
RRB's and essentially making them a subsidiary bank of the promoter nationalised bank with state equity.

Current period
Main article: List of Banks in India

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 Banks.

In the bank group-wise classification, IDBI Bank Ltd. is included in the category of other public sector
bank.

Growth of Banking in India of Scheduled Commercial Banks [56]

31 March of
Ind
icat
ors
2005 2006 2007 2008 2009 2010 2011 2012 2013

Numb
er of
Com
284 218 178 169 166 163 163 169 151
merci
al
Banks

Numb
er of
70,373 72,072 74,653 78,787 82,897 88,203 94,019 102,377 109,811
Branc
hes

Popul 16 16 15 15 15 14 13 13 12
ation
per
Banks
 Growth of Banking in India of Scheduled Commercial Banks [56]

31 March of
Ind
icat
ors
2005 2006 2007 2008 2009 2010 2011 2012 2013

(in
thousa
nds)

₹67,504.
Aggre ₹17,002 ₹21,090 ₹26,119 ₹31,969 ₹38,341 ₹44,928 ₹52,078 ₹59,091
54
gate billion (U billion (U billion (U billion (U billion (U billion (U billion (U billion (U
billion (U
Depo S$210 bil S$260 bil S$330 bil S$400 bil S$480 bil S$560 bil S$650 bil S$740 bil
S$850 bil
sits lion) lion) lion) lion) lion) lion) lion) lion)
lion)

₹11,004 ₹15,071 ₹19,312 ₹23,619 ₹27,755 ₹32,448 ₹39,421 ₹46,119 ₹52,605

Bank billion (U billion (U billion (U billion (U billion (U billion (U billion (U billion (U billion (U
Credit S$140 bil S$190 bil S$240 bil S$300 bil S$350 bil S$410 bil S$490 bil S$580 bil S$660 bil
lion) lion) lion) lion) lion) lion) lion) lion) lion)

Depo
sit as
perce
ntage 62% 64% 69% 73% 77% 78% 78% 78% 79%
to GN
P (at
factor
cost)

Per
Capit
₹16,281 ₹19,130 ₹23,382 ₹28,610 ₹33,919 ₹39,107 ₹45,505 ₹50,183 ₹56,380
a
(US$200) (US$240) (US$290) (US$360) (US$420) (US$490) (US$570) (US$630) (US$710)
Depo
sit

Per
Capit ₹10,752 ₹13,869 ₹17,541 ₹21,218 ₹24,617 ₹28,431 ₹34,187 ₹38,874 ₹44,028
a (US$130) (US$170) (US$220) (US$270) (US$310) (US$360) (US$430) (US$490) (US$550)
Credit
 Growth of Banking in India of Scheduled Commercial Banks [56]

31 March of
Ind
icat
ors
2005 2006 2007 2008 2009 2010 2011 2012 2013

Credit
Depo
63% 70% 74% 75% 74% 74% 76% 79% 79%
sit
Ratio

With the growth in the Indian economy expected to be strong for quite some time-especially in its
services sector-the demand for banking services, especially retail banking, mortgages and investment
services are expected to be strong. One may also expect M&As, takeovers, and asset sales.
In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake in Kotak
Mahindra Bank (a private sector bank) to 10%. This was the first time an investor was allowed to hold
more than 5% in a private sector bank since the RBI announced norms in 2005 that any stake exceeding
5% in the private sector banks would need to be vetted by them.
In recent years critics have charged that the non-government owned banks are too aggressive in their loan
recovery efforts in connection with housing, vehicle and personal loans. There are press reports that the
banks' loan recovery efforts have driven defaulting borrowers to suicide.[57][58][59]
By 2013 the Indian Banking Industry employed 1,175,149 employees and had a total of 109,811 branches
in India and 171 branches abroad and manages an aggregate deposit of ₹67,504.54
billion (US$850 billion or €830 billion) and bank credit of ₹52,604.59 billion (US$660 billion or
€640 billion). The net profit of the banks operating in India was ₹1,027.51 billion (US$13 billion or
€13 billion) against a turnover of ₹9,148.59 billion (US$110 billion or €110 billion) for the financial
year 2012–13.[56]

Pradhan Mantri Jan Dhan Yojana (Hindi: प्रधानमंत्री जन धन योजना, English: Prime Minister's People Money
Scheme) is a scheme for comprehensive financial inclusion launched by the Prime Minister of
India, Narendra Modi, in 2014.[60] Run by Department of Financial Services, Ministry of Finance, on the
inauguration day, 1.5 Crore (15 million) bank accounts were opened under this scheme. [61][62] By 15 July
2015, 16.92 crore (169.2 million) accounts were opened, with around ₹20,288.37 crore (US$2.5 billion)
were deposited under the scheme,[63] which also has an option for opening new bank accounts with zero
balance.
6.Objectives of the Banking Regulation Act, 1949
The objectives of the Banking Regulation Act are stated below:

. To understand the need for banking regulation

. To study the supervisor role of RBI
. To understand the banking the frame work for monitoring and survelline in banking sector.

. To understand the banking regulations for commercial bank Banki

Important Banking Regulatory Bodies in India
Regulatory Body Sector Head
(As of July 2020)

Reserve Bank of India (RBI) Banking & Finance Mr. Shaktikanta Das

Securities & Exchange Board of India (SEBI) Stock & Capital Market Mr. Ajay Tyagi

Insurance Regulatory & Development Authority of Insurance Mr. Subhash Chandra Khuntia
India (IRDA)

Pension Fund Regulatory & Development Authority Pension Mr. Supratim Bandyopadhyay
(PFRDA)

National Bank for Agriculture & Rural Development Financing Rural Development Mr. Harsh Kumar Bhanwala
(NABARD)

Small Industries Development Bank of India (SIDBI) Financing Micro, Small & Medium Enterprises Mr. Mohammad Mustafa
(MSMEs)

National Housing Bank (NHB) Financing Housing Mr. Sarada Kumar Hota

Insolvency and Bankruptcy Board of India (IBBI) Insolvency Proceedings Dr. M S Sahoo
Reserve Bank of India (RBI) Banking & Finance Mr. Shaktikanta Das

Securities & Exchange Board of India (SEBI) Stock & Capital Market Mr. Ajay Tyagi

Insurance Regulatory & Development Authority of Insurance Mr. Subhash Chandra Khuntia
India (IRDA)

Pension Fund Regulatory & Development Authority Pension Mr. Supratim Bandyopadhyay
(PFRDA)

National Bank for Agriculture & Rural Development Financing Rural Development Mr. Harsh Kumar Bhanwala
(NABARD)

Small Industries Development Bank of India (SIDBI) Financing Micro, Small & Medium Enterprises Mr. Mohammad Mustafa
(MSMEs)

National Housing Bank (NHB) Financing Housing Mr. Sarada Kumar Hota

Insolvency and Bankruptcy Board of India (IBBI) Insolvency Proceedings Dr. M S Sahoo
The banking industry handles finances in a country including cash and credit. Banks are the institutional
bodies that accept deposits and grant credit to 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
countries. In India, the Reserve Bank of India (RBI) is the apex banking institution that regulates the
monetary policy in the country.
Classification of Banks in India

Banks are classified into classified into four categories –

 Commercial Banks
 Small Finance Banks
 Payments Banks
 Co-operative Banks

Commercial Banks can be further classified into public sector banks, private sector banks, foreign banks
and Regional Rural Banks (RRB). On the other hand, cooperative banks are classified into urban and
rural. Apart from these, a fairly new addition to the structure is a payments bank.
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-

Public Sector Banks Private Sector Banks

Foreign Banks Regional Rural Banks

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 1 st April 2017) it
has got a position among the top 50 banks of the world.

There are a total of 12 nationalised banks in the country namely below:

Bank of Maharashtra Indian Bank

Bank of Baroda Punjab & Sind Bank

Bank of India Punjab National Bank

Canara Bank State Bank of India

Central Bank of India Union Bank of India

Indian Overseas Bank UCO Bank

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-

Axis Bank IndusInd Bank

Bandhan Bank Jammu and Kashmir Bank

City Union Bank Karnataka Bank

Dhanlaxmi Bank Kotak Mahindra Bank

DCB Bank Karur Vysya Bank

Federal Bank CSB Bank Ltd.

HDFC Bank Nainital Bank

ICICI Bank RBL Bank

IDFC Bank South Indian Bank

IDBI Bank Tamilnad Mercantile Bank

YES Bank

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. Given below is the list of foreign banks operating in India –

List of Foreign Banks in India

Australia and New Zealand Banking Group Ltd. DBS Bank India Limited SBM Bank (India) Limited

Bank of Bahrain & Kuwait BSC AB Bank Ltd. Sonali Bank Ltd.

Industrial & Commercial Bank of

Bank of Nova Scotia BNP Paribas
China Ltd.

Credit Agricole Corporate & Investment Bank Societe Generale Deutsche Bank

HSBC Bank PT Bank Maybank Indonesia TBK Mizuho Bank Ltd.

Sumitomo Mitsui Banking Corporation MUFG Bank, Ltd. Cooperatieve Rabobank U.A.

Doha Bank Q.P.S.C Qatar National Bank (Q.P.S.C.) JSC VTB Bank

Sberbank United Overseas Bank Ltd FirstRand Bank Ltd

Shinhan Bank Woori Bank KEB Hana Bank

Industrial Bank of Korea Bank of Ceylon Credit Suisse A.G

Abu Dhabi Commercial Bank

CTBC Bank Co., Ltd. Krung Thai Bank Public Co. Ltd.
Ltd.

Mashreq Bank PSC First Abu Dhabi Bank PJSC Emirates Bank NBD

Barclays Bank Plc. Standard Chartered Bank Bank of China

American Express Banking Corporation Bank of America Citibank

 J.P. Morgan Chase Bank N.A. Kookmin Bank

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

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 Ltd. Jana Small Finance Bank Ltd.

Capital Small Finance Bank Ltd. North East Small Finance Bank Ltd.

ESAF Small Finance Bank Ltd. Suryoday Small Finance Bank Ltd.
 Equitas Small Finance Bank Ltd.
Utkarsh Small Finance Bank Ltd.

Fincare Small Finance Bank Ltd. Ujjivan Small Finance Bank Ltd.

Shivalik Small Finance Bank Ltd. Unity Small Finance Bank Ltd.

Payments Bank

This is a relatively new model of bank in the Indian Banking industry. It was conceptualised by the 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.

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.

Urban Co-operative Banks State Co-operative Banks

Urban Co-operative Banks

Urban Co-operative Banks refer to the primary cooperative banks located in urban and semi-urban areas.
These banks essentially lent to small borrowers and businesses centered around communities, localities
work place groups.

According to the RBI, on 31st March, 2003 there were 2,104 Urban Co-operative Banks of which 56
were scheduled banks. About 79% of these are located in five states, – Andhra Pradesh, Gujarat,
Karnataka, Maharashtra and Tamil Nadu.
State Co-operative Banks

A State Cooperative Bank is a federation of the central cooperative bank which acts as custodian of the
cooperative banking structure in the State.

Banks can also be classified on the basis of Scheduled and Non-Scheduled Banks. It is essential for every
individual to check if they are holding their savings or deposit account with a Scheduled Bank or Non-
Scheduled Bank. Scheduled Banks are also covered under the depositor insurance program of Deposit
Insurance and Credit Guarantee Corporation (DICGC), which is beneficial for all the account holders
holding a savings and fixed / recurring deposit account. Under DICGC, bank deposits of up to Rs 1 lakh,
including the fixed, savings, current and recurring deposits, per depositor per bank in the event
of bank failure are insured.

Scheduled Banks

Scheduled banks are covered under the 2nd Schedule of the Reserve Bank of India Act, 1934. To qualify
as a scheduled bank, the bank should conform to the following conditions:

 A bank that has a paid-up capital of Rs. 5 Lakh and above qualifies for the schedule bank category
 A bank requires to satisfy the central bank that its affairs are not carried out in a way that causes
harm to the interest of the depositors
 A bank should be a corporation rather than a sole-proprietorship or partnership firm

Non-scheduled Banks

Non-scheduled banks refer to the local area banks which are not listed in the Second Schedule of Reserve
Bank of India. Non-Scheduled Banks are also required to maintain the cash reserve requirement, not with
the RBI, but with them.

Bank Products and Services

Account Balance by Bank

 SBI Balance Check
 PNB Balance Enquiry

 Andhra Bank Balance Enquiry

 HDFC Account Balance Check

 ICICI Account Balance Check

 Bank of Baroda Account Balance Check

 Bank of India Account Balance Check

RECOVERY OF DEBTS DUE TO BANKS AND

FINANCIAL INSTITUTIONS ACT, 1993 (DRT
ACT)
Due to a large backlog of cases and the time involved, recovering loan dues from borrowers through the
courts has been a big challenge for banks and financial institutions. The Act went into effect on June 24,
1993.

Important highlights of DRT Act 1993:

1. This Act established special “Debt Recovery Tribunals” to accelerate debt recovery.

2. This Act governs the collection of debts owed to any bank or financial institution, or a group of
them, in excess of ten lakhs rupees.

3. Except for the state of Jammu and Kashmir, this Act applies to the entire country of India.

4. The term “debt” refers to the following sorts of bank and financial institution debts:

(a) any liability, whether secured or unsecured, that includes interest

(b) any liability incurred as a result of a decree or order of a Civil Court, or as a result of an arbitration
award, or otherwise

(c) any obligation owed under a mortgage that is owed on the date of application and is legally
recoverable.
The Banking Regulation (Amendment) Bill, 2020
Ministry:

Finance

 Introduced

Lok Sabha

Sep 14, 2020

 Passed

Lok Sabha

Sep 16, 2020

 Passed

Rajya Sabha

Sep 22, 2020

o 1
Highlights of the Bill

 Co-operative banks are exempted from several provisions of the Banking Regulation Act, 1949.
The Bill applies some of these provisions to them, making their regulation under the Act similar to
that of commercial banks.

 Co-operative banks may raise equity or unsecured debt capital from the public subject to prior
RBI approval.

 RBI may prescribe conditions on and qualifications for employment of Chairman of co-operative
banks. RBI may remove a Chairman not meeting ‘fit and proper’ criteria and appoint a suitable
 person. It may issue directions to reconstitute the Board of Directors in order to ensure sufficient
number of qualified members.

 RBI may supersede the Board of Directors of a co-operative bank after consultation with the state
government.

 The Bill allows RBI to undertake reconstruction or amalgamation of a bank without imposing a
moratorium.

Key Issues and Analysis

 Co-operative banks provide banking facilities to people of small means. However, absence of
regulatory oversight by RBI on par with commercial banks has contributed to the poor
performance of co-operative banks. The Bill seeks to extend RBI regulation of co-operative banks
with respect to management, capital, audit and winding up.

 ‘Banking’ is a Union List subject in the Constitution and ‘incorporation, regulation and winding
up’ of co-operative societies’ is in the State List. The question is whether regulation of
management, audit, capital and winding up of co-operative banks are essential to regulating the
activity of banking, and therefore whether the Bill falls within the legislative competence of
Parliament.

 The Bill enables co-operative banks to issue equity shares to members and to persons residing
within the banks’ area of operation. Since co-operative societies raise capital from members, it is
unclear what it means to raise equity capital from the public. Further, restrictions on redemption
of share capital by members may limit their option to exit.

PART A: HIGHLIGHTS OF THE BILL

Context

The banking sector in India consists of scheduled commercial banks, regional rural banks, small finance
banks and co-operative banks. Co-operative banks provide banking facilities to persons of small means
thereby fulfilling the objective of financial inclusion. [1]
As of 2015, nearly 90% of loans made by co-
operative banks were of less than five lakh rupees each, accounting for 33% of total lending by these
banks. Co-operative banks are those co-operative societies whose principal business is banking. These
societies are owned, promoted, controlled and managed by their members and seek to provide support to
them.

As per the Constitution, states can legislate on the incorporation, regulation and winding up of co-
operative societies. States regulate co-operative societies under their respective Co-operative Societies
[2]

Acts, through the Registrar of Co-operative Societies (RCS). In 1965, certain provisions of the Banking
Regulation Act, 1949 (BR Act) were made applicable to co-operative banks. This gave Reserve Bank of
[3]

India (RBI) some powers to regulate co-operative banks. This was done to protect the interests of
depositors and extend deposit insurance coverage to these banks.

RBI regulates state co-operative banks, district (central) co-operative banks and primary co-operative
banks (also called urban co-operative banks). It regulates banking-related activities of these banks such
as issuance of licenses for new banks/branches and investment and loan policies. RBI also prescribes
norms for capital adequacy, asset classification, liquidity requirements and exposure norms. [4] The RCS
in each state regulates incorporation, registration, management, recovery, audit, supersession of Board of
Directors and liquidation of co-operative societies registered with it.

The Banking Regulation (Amendment) Bill, 2020 amends the BR Act to expand RBI’s regulatory control
over co-operative banks in terms of management, capital, audit and liquidation. The Bill was introduced
in Lok Sabha on September 14, 2020. While introducing the Bill, the Finance Minister discussed the
need for the Bill to protect depositors’ interest, highlighting the crisis in the Punjab and Maharashtra Co-
operative (PMC) Bank. The Bill replaces the Banking Regulation (Amendment) Ordinance, 2020
promulgated on June 26, 2020.[5] A Bill, seeking to make similar changes, was introduced on March 3,
2020 and withdrawn on September 14. [6]

Key Features

The Bill makes two kinds of changes: (i) extending previously omitted provisions of the BR Act to co-
operative banks, and (ii) amendments to certain provisions of the Act that apply to all banks.

Co-operative Banks

 Prescription of qualifications for management: Co-operative banks are excluded from

provisions of the BR Act with respect to conditions on employment and qualifications for the
Chairman and Board of Directors. The Bill provides that co-operative banks cannot employ as
Chairman, someone who is insolvent or has been convicted of a crime involving moral turpitude,
 among other restrictions. It empowers RBI to remove the Chairman if he is not fit and proper and
appoint a suitable person if the bank does not do so.

 The Bill provides that the Board of Directors must have not less than 51% of members who have
special knowledge or practical experience in areas such as accountancy, banking, economics or
law among others. It allows RBI to direct a bank to reconstitute the Board if it does not conform
to the requirements. If the bank does not comply, RBI may remove individual directors and
appoint suitable persons.

 Supersession of Board of Directors: Under the BR Act, RBI is empowered to issue an order to
supersede the Board of Directors of multi-state co-operative banks for a maximum period of five
years and appoint an Administrator. Multi-state co-operative banks are co-operative banks with
operation in two or more states, and are registered under the Multi-State Co-operative Societies
Act, 2002. For other co-operative banks, RBI may approach the RCS to supersede the Board.
The Bill extends RBI’s power to supersede Board of Directors to all co-operative banks. In case
the bank is registered with a state RCS, RBI may issue the order in consultation with the
concerned state government, seeking its comments within such period as specified by RBI.

 Audit and winding up: Under the Bill, audit of co-operative banks would be conducted on par
with scheduled commercial banks. Accounts would be audited by a qualified person and RBI
approval would be required before appointing, re-appointing or removing an auditor. RBI may
order a special audit for such transactions and such periods as specified in the order. Previously,
RBI could issue an order for an additional audit for co-operative banks, in addition to the audit
required under Co-operative Societies Acts.

 The Bill makes applicable certain provisions relating to winding up and special provisions for
speedy disposal of winding up proceedings of banks will now be applicable to co-operative
banks.

 Issuance of shares and securities: Co-operative banks are excluded from the provision on
issuance of shares and securities under the BR Act. Other banks are allowed to issue equity or
preference shares and RBI is empowered to impose conditions on issue of preference shares.
Voting rights are typically allotted on the basis of one share one vote. The Act (read with RBI
Directions) imposes a ceiling of 15% on voting rights exercised by an equity shareholder.
  The Bill modifies the relevant provision of the BR Act to provide that co-operative banks may,
with prior approval of RBI, issue equity, preference or special shares at face value or at a premium
to members or other persons residing within the banks’ area of operation. Banks may also issue
unsecured debentures or bonds with maturity of not less than 10 years. Banks cannot withdraw
capital without permission from RBI. Further, members are not entitled to payment from the bank
against the surrender of shares.

Formulation of scheme for reconstruction or amalgamation without moratorium

 Under the BR Act, RBI may, after placing a bank under moratorium, prepare a scheme for
reconstruction or amalgamation of the bank. This may be done to secure proper management of
the bank, or in the interest of depositors, general public, or the banking system. Banks placed
under moratorium do not face any legal action for up to six months. Further, banks cannot make
any payment or discharge any liabilities during the moratorium. The Bill allows RBI to initiate a
scheme for reconstruction or amalgamation of a bank without imposing a moratorium.

PART B: KEY ISSUES AND ANALYSIS

Role of co-operative banks

In a discussion paper on the Banking Structure in India (2013), RBI envisioned a four-tier structure for
banks, consisting of international, national, regional and local banks. [7] The fourth tier of local area banks
and co-operative banks were envisioned to serve the credit requirements of small borrowers. Urban co-
operative banks (UCBs) cater to the financial needs of the local community, serving persons belonging to
lower income groups in urban and semi-urban areas. RBI (2013) had considered the commercialization
of UCBs by converting them into local area banks. However, they observed the importance of the
cooperative spirit in the banking sector in channelling credit to people of small means. The High
Powered Committee (HPC) on UCBs, in 2015 recommended that RBI issue fresh licenses to UCBs to
serve in unbanked/ underbanked districts, noting the role these banks play in facilitating financial
inclusion.

However, RBI (2013) had also noted that UCBs have performed poorly due to challenges such as low
capital base, lack of sources to raise capital (UCBs raise equity capital only from members), poor credit
management and lack of professional management.6 The 2013 paper had suggested that converting UCBs
into local area banks to free them from dual control (of RBI and RCS) and improve their ability to raise
capital could improve their performance. Several RBI reports have highlighted the absence of certain
regulatory and supervisory powers of RBI over UCBs as one of the reasons for their poor performance. [8],

[9]
,1

While RBI regulates licensing and loan policy, prescribes prudential norms and conducts inspection of
UCBs, it requires the assistance of RCS to act against the management, or undertake restructuring or
liquidation of these banks. For effective regulation of UCBs, the HPC (2015) had suggested that RBI be
given powers to constitute and supersede the Board of Directors, remove the Chairman, conduct audits,
and wind up UCBs. RBI exercises these powers with regard to all other banks regulated under the BR
Act. The Bill empowers RBI to exercise control over co-operative banks in terms of management,
capital, audit and winding up.

Note that such additional powers may increase pressure on the supervisory capacity of RBI. Currently,
RBI regulates and supervises 86 scheduled commercial banks, 45 regional rural banks and 10 small
finance banks. The Bill extends RBI’s regulation and supervision to 1,544 UCBs, 363 district (central)
co-operative banks and 33 state co-operative banks.

Legislative competence of Parliament

Through the Bill, Parliament extends RBI’s regulation of co-operative banks to cover matters pertaining
to the management, capital, audit and winding up of such banks. The question is whether Parliament has
the jurisdiction to legislate on these matters for co-operative banks. These entities are registered as co-
operative societies under various state Co-operative Societies Acts and perform the activity of banking.

Parliament has the power to legislate on ‘banking’ through entry 45 of the Union List in the Seventh
Schedule to the Constitution. Matters pertaining to ‘incorporation, regulation and winding up’ of co-
operative societies are covered under entry 32 of the State List. Further, entry 43 of the Union List
excludes from the purview of Parliament, matters pertaining to incorporation, regulation and winding up
of co-operative societies.

A question may be raised about whether regulation of management, capital, audit and winding up is
essential to regulating ‘banking’ and therefore falls within the purview of entry 45 of the Union List, or
whether it is primarily related to ‘incorporation, regulation and winding up’ of a co-operative society
under entry 32 of the State List. When co-operative banks were brought under the purview of the BR Act
in 1965, provisions related either directly or indirectly to the incorporation, management and winding up
of co-operative banks were omitted. [10]
The Statement of Object and Reasons of that Bill noted that these
provisions are not in pith and substance within the scope of any entry (including ‘banking’) in the Union
or Concurrent List.9

A recent judgement of a Constitution Bench of the Supreme Court may be relevant. [11] It considered
whether Parliament had the jurisdiction to allow co-operative banks to recover debt under SARFAESI
Act, 2002. It held that recovery of debt was an essential facet of ‘banking’ and therefore it is within the
purview of Parliament to enable co-operative banks to recover debt under the SARFAESI Act. The
judgement noted that a co-operative bank’s entire operation and activity of banking are governed by the
BR Act. As banking in pith and substance is covered under entry 45, incidental trenching upon a subject
reserved for states (entry 32) is permissible. It added that on matters of ‘incorporation, regulation and
winding up’ which are unrelated to entry 45 of the Union List, co-operative banks will be governed by
state legislation. Therefore, the question is whether regulation of management, audit, capital and winding
up are essential to the activity of banking and the operation of a (co-operative) bank, and thus, whether
the Bill falls within the legislative competence of Parliament.

Provisions on capital may violate principles of co-operative societies

Treatment and rights of equity capital raised from the public is unclear

The Bill enables co-operative banks to issue (with prior approval from RBI) equity, preference or special
shares, at face value or at a premium by way of public issue or private placement. Co-operative societies
are set up on the principle of member control with (equity) shares issued to members. Since co-operative
societies raise capital from members, it is unclear what it means to raise equity capital from the public,
how it will be treated and regulated. Further, issuance of equity shares may violate principles of co-
operative societies if they carry proportional voting rights. Co-operative societies grant voting rights only
to members based on the principle of ‘one member one vote’ irrespective of shareholding. Note that the
Vishwanathan Committee (2006), set up to study ways to augment capital of UCBs, recommended
issuance of preference and special shares, both of which would be non-voting. [12]

Restriction on demanding payment against the surrender of shares by members may limit exit
options
The Bill prohibits members from demanding payment against the surrender of their share capital. This
may contravene provisions contained in certain Co-operative Societies Acts. The Karnataka Co-operative
Societies Act, 1959, for example, provides for refund of shares to a member if there are no outstanding
dues. [13]
This provision of the Bill raises concerns for existing members of co-operative societies whose
option to exit by surrendering their share capital will be restricted.

Fig. 2
Provisioning
Non-performing assets (NPA) are classified in three categories: substandard, doubtful and loss. An asset
becomes non-performing if there have been no interest or principal payments for more than 90 days in
the case of a term loan.7

Provisions for NPAs

Substandard assets are those assets with NPA status for less than 12 months. After that time, they
are categorized as doubtful assets. A loss asset is one for which the bank or auditor expects
no repayment or recovery and is generally written off the books.

Substandard assets require a provision of 10% of the outstanding loan amount for secured loans and
20% of the outstanding loan amount for unsecured loans.

Doubtful assets require a provision for the secured part of the loan of:

 20% of the outstanding loan for NPAs in existence less than one year
 30% for NPAs in existence between one and three years
 100% for NPA’s with a duration of more than three years

The unsecured portion of such loans requires a provision of 100%.8

Provisions for Standard Assets

Provisioning is also required on standard assets. Provisioning for agriculture and small and medium
enterprises is 0.25% and for commercial real estate it is 1% (0.75% for housing), while it is 0.4% for the
remaining sectors.9

Provisioning for standard assets cannot be deducted from gross NPA’s to arrive at net NPA’s. Additional
provisioning over and above the standard provisioning is required for loans given to companies that have
unhedged foreign exchange exposure.

Priority Sector Lending

The priority sector broadly consists of micro- and small enterprises , and initiatives related to agriculture,
education, housing and lending to low-earning or less privileged groups (classified as "weaker
sections").
The lending target for domestic commercial banks and foreign banks with greater than 20 branches is
40% of adjusted net bank credit (ANBC).

ANBC is whichever is higher of:

 Outstanding bank credit minus certain bills and non-SLR bonds

 Or the credit equivalent amount of off-balance-sheet exposure (the sum of current credit
exposure plus potential future credit exposure that is calculated using a credit conversion factor)

The lending target for foreign banks with less than 20 branches is 40% of ANBC.10

Lending to the Ag Sector

The amount that is disbursed as loans to the agriculture sector should either be the credit equivalent of
off-balance-sheet exposure or 18% of ANBC, whichever of the two figures is higher.10

Lending to Micro- and Small Enterprises

Of the amount targeted for micro-enterprises and small businesses , 40% should be advanced to those
enterprises with equipment that has a maximum value of 200,000 rupees, and plant and machinery
valued at a maximum of half a million rupees.

Of the total amount lent, 20% should be advanced to micro-enterprises with plant and machinery ranging
in value from just above 500,000 rupees to a maximum of a million rupees and equipment with a value
above 200,000 rupees but not more than 250,000 rupees.11

Lending to Weaker Sections

The total value of loans given to weaker sections should either be 12% of ANBC (for 2023-2024) or the
credit equivalent amount of off-balance sheet exposure, whichever is higher.

Weaker sections include specific castes and tribes that have been assigned that categorization, including
small farmers.

There are no specific targets for foreign banks with less than 20 branches.10

Lack of Private Bank Lending

The private banks in India until now have been reluctant to directly lend to farmers and other weaker
sections. One of the main reasons is the disproportionately higher amount of NPA’s from priority sector
loans, with some estimates indicating it to be 60% of the total NPAs.
They achieve their targets by buying out loans and securitized portfolios from other non-banking finance
corporations (NBFC) and investing in the Rural Infrastructure Development Fund (RIDF) to meet
their quota.

New Bank License Norms

The new guidelines state that:

 Groups applying for a license should have a successful track record of at least 10 years and the
bank should be operated through a non-operative financial holding company (NOFHC) wholly
owned by the promoters.
 The minimum paid-up voting equity capital has to be five billion rupees, with the NOFHC
holding at least 40% of it and gradually bringing it down to 15% over 12 years. The shares have
to be listed within three years of the start of the bank’s operations.
 Foreign shareholding is limited to 49% for the first five years of its operation, after which RBI
approval would be needed to increase the stake to a maximum of 74%.
 The board of the bank should have a majority of independent directors and it must comply with
the priority sector lending targets discussed earlier.
 The NOFHC and the bank are prohibited from holding any securities issued by
the promoter group and the bank is prohibited from holding any financial securities held by the
NOFHC.
 The new regulations also stipulate that 25% of the branches should be opened in
previously unbanked rural areas.12

Willful Defaulters

A willful default takes place in three circumstances:

1. When a loan isn’t repaid even though resources are available

2. If the money lent is used for purposes other than the designated purpose
3. If a property secured for a loan is sold off without the bank's knowledge or approval.

In case a company within a group defaults and the other group companies that have given guarantees fail
to honor their guarantees, the entire group can be termed as a willful defaulter.

Willful defaulters (including the directors) have no access to funding, and criminal proceedings may be
initiated against them.
The RBI updated regulations to include non-group companies under the willful defaulter tag as well if
they fail to honor a guarantee given to another company outside the group.13

Who Are the Banking Regulators in India?

The Reserve Bank of India regulates the banking industry, as part of its duties as the country's central
bank.

How Does the RBI Regulate Banks?

The Reserve Bank of India regulates banks through inspections carried out at bank locations and through
off-site surveillance.14

Why Are India's Bank Regulations Important?

They're important because they reflect India's desire to protect the integrity of its financial system, to
maintain trust in its banking system, and to protect its consumers from financial fraud.

The Bottom Line

The way a country regulates its financial and banking sectors is in some sense a snapshot of its priorities,
its goals, and the type of financial landscape and society it would like to engineer.

In the case of India, the Banking Regulation Act and the regulations passed by its central bank give us a
glimpse into its approaches to financial governance. They show the degree to which the country
prioritizes stability within its banking sector, as well as economic inclusiveness.

Though the regulatory structure of India's banking system seems a bit conservative, this has to be seen in
the context of the relatively under-banked nature of the country. The excessive capital requirements are
needed to build trust in the banking sector. Priority lending targets are needed to make financial
inclusion available to those to whom the banking sector generally would not lend.

Since the private banks, in reality, do not directly lend to the priority sectors, the public banks have
taken up the slack. A case could also be made for adjusting how the priority sector is defined, in light of
the high priority given to agriculture even though its share of GDP has been going down.

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Shri P. V. Narasimha Rao

June 21, 1991- May 16, 1996 | Congress (I)

Son of Shri P. Ranga Rao, Shri P.V. Narasimha Rao was born on June 28, 1921 at Karimnagar. He
studied in Osmania University, Hyderabad, Bombay University and the Nagpur University. A widower,
Shri P.V. Narasimha Rao is the father of three sons and five daughters.
Being an agriculturist and an advocate, he joined politics and held some important portfolios. He was the
Minister of Law and Information, 1962-64; Law and Endowments, 1964-67; Health and Medicine, 1967
and Education, 1968-71, Government of Andhra Pradesh. He was the Chief Minister, Andhra Pradesh,
1971-73; General Secretary, All India Congress Committee, 1975-76; Chairman, Telugu Academy,
Andhra Pradesh, 1968-74; Vice-President, Dakshin Bharat Hindi Prachar Sabha, Madras, from 1972. He
was also Member, Andhra Pradesh Legislative Assembly, 1957-77; Member, Lok Sabha 1977-84 and
was elected to Eighth Lok Sabha from Ramtek in December, 1984. As Chairman, Public Accounts
Committee, 1978-79 he participated in a Conference on South Asia convened by the School of Asian and
African Studies, London University. Shri Rao also Chaired Bhartiya Vidya Bhavan’s Andhra Centre; he
was Minister for External Affairs from January 14, 1980 to July 18, 1984; Minister of Home Affairs from
July 19, 1984 to December 31, 1984 and the Minister of Defence from December 31, 1984 to September
25, 1985. He then assumed charge as Minister of Human Resource Development on September 25, 1985 .
A man of many interests, he likes music, cinema and theatre. His special interest lies in Indian philosophy
and culture, writing fiction and political commentary, learning languages, writing poems in Telugu and
Hindi and keeping abreast of literature in general. He has successfully published ‘SahasraPhan’, a Hindi
translation of late Shri Viswanatha Satyanarayana’s famous Telegu Novel ‘Veyi Padagalu’ published by
Jnanpith; ‘Abala Jeevitam’, Telugu translation of late Shri Hari Narayan Apte’s famous Marathi Novel,
“Pan Lakshat Kon gheto”, published by Central Sahitya Academy. He translated other famous works
from Marathi to Telugu and from Telugu to Hindi, and published many articles in different magazines
mostly under a pen name. He lectured at Universities in the U.S.A. and West Germany on political
matters and allied subjects. As Minister of External Affairs he travelled extensively to U.K., West
Germany, Switzerland, Italy and Egypt in 1974.
During the period when he was Minister of External Affairs, Shri Rao successfully brought to bear his
scholarly background and rich political and administrative experience on the field of international
diplomacy. He chaired the III Conference of UNIDO at New Delhi in January 1980, within a few days of
assuming charge. He also chaired a meeting of the Group of 77 at New York in March 1980. More
recently, his role at the Conference of Foreign Ministers of Non-aligned Countries in February 1981
earned him wide appreciation. Shri Rao has shown keen personal interest in international economic issues
and personally led the Indian delegation to the Conference of the Group of 77 on ECDC at Caracas, in
May 1981.
1982 and 1983 were eventful years for India and its foreign policy. In the shadow of the Gulf war the
Non-aligned Movement asked India to host the Seventh Summit. This also meant India assuming the
Chair of the Movement and Smt. Indira Gandhi becoming its Chairperson. Shri P.V. Narasimha Rao
presided over meetings of Foreign Ministers of Non-aligned Nations on the eve of the New Delhi Summit
and also at the United Nations both in 1982, when India was asked to host the Summit and the following
year when, at the initiative of the Movement, informal consultations amongst Heads of State and
Government from diverse nations across the world were held at New York.
Shri Rao was also the Leader of the Special Non-aligned Mission that visited countries in West Asia in
November 1983, in an effort to resolve the Palestian Liberation Organisation. Shri Rao was associated
actively with the Commonwealth Heads of Government in New Delhi and with the Action Group set up
by the meeting on the question of Cyprus.
In his capacity as Minister of External Affairs, Shri Narasimha Rao has chaired on behalf of India a
number of Joint Commissions including those with the U.S.A., U.S.S.R., Pakistan, Bangladesh, Iran,
Vietnam, Tanzania and Guyana.
Shri Narasimha Rao took over as Home Minister on July 19, 1984. He was re-appointed to this post, with
the additional charge of the Ministry of Planning, on November 5, 1984. Appointed Minister of Defence
from December 31, 1984 to September 25, 1985. On September 25,1985 he took over as Minister of
Human Resource Development.
"Trade Credit Contracts." Leora Klapper, Luc Laeven and Raghuram Rajan; Review of Financial
Studies, 2012, 25(3), pp. 838-67.

"Can Soft Power Help the Imf Make the World More Stable?" Raghuram Rajan; Review of World
Economics, 2011, 147(1), pp. 1-10.

"Fear of Fire Sales, Illiquidity Seeking, and Credit Freezes." Douglas W. Diamond and Raghuram G.
Rajan; The Quarterly Journal of Economics, 2011, 126(2), pp. 557-91.

"Land and Credit: A Study of the Political Economy of Banking in the United States in the Early
20th Century." Raghuram G. Rajan and Rodney Ramcharan; The Journal of Finance, 2011, 66(6), pp.
1895-931.

"Land for Sale." Raghuram Rajan and Rodney Ramcharan; Finance & Development, 2011, 48(4), pp.
30-33.

"The Internal Governance of Firms." Viral V. Acharya, Stewart C. Myers and Raghuram G. Rajan; The
Journal of Finance, 2011, 66(3), pp. 689-720.

"Currencies Aren't the Problem." Raghuram Rajan; Foreign Affairs, 2011, 90(2), pp. 104-16.

Conclusion

So, all the information mentioned above is described in the Banking regulation act 1949. Generally, it is a
body that is established in India. The first bank was established by Maidavolu Narasimham. The main
work of the banking regulation act is to control all the banks and capital gains. The banking sector of
India was established to control all the working procedures of all the other commercial and cooperative
banks. If you would like to know about the various things about the banking act of 1949, then you have to
follow the above-given points and describe the information in detail. Hope all the information given
above is useful for you and you can solve all your doubts with this information easily.
act is to control all the banks and capital gains. The banking sector of India was established to control all
the working procedures of all the other commercial and cooperative banks. If you would like to know
about the various things about the banking act of 1949, then you have to follow the above-given points
and describe the information in detail. Hope all the information given above is useful for you and you can
solve all your doubts with this information easily.