Banking System in India

Banking Structure in India

Development
Banks
 Reserve Bank of India

 RBI (owned & controlled by the Government)

 Monopoly of note – issue

 Act as a Banker to the Government

 Act as a friend, philosopher & guide to all banks in the country

 Regulation & Control of credit

 Does not directly deal with public

 Indirectly help Agriculture & Industry

 Formation & Functioning of RBI

 The Reserve Bank of India (RBI) is India's central banking institution, which controls the monetary
policy of the Indian rupee. It commenced its operations on 1 April 1935 during the British Rule in
accordance with the provisions of the Reserve Bank of India Actf1934 and in 1949 it was
nationalized.

 The Central Office of the Reserve Bank was initially established in Calcutta but was permanently
moved to Mumbai in 1937. Central Office is where the Governor sits and where policies are
formulated.

 Sir CD Deshmukh was the first Governor of RBI. The RBI has four Zonal offices at Chennai, Delhi,
Kolkata, Mumbai and 20 regional offices mostly located in the state capitals and 11 sub-offices.
 The Preamble of the Reserve Bank of India describes the basic functions of the Reserve Bank as:
"to regulate the issue of Bank notes and keeping of reserves with a view to securing monetary
stability in Indic' and generally to operate the currency and credit system of the country to its
advantage".

 RBI is managed by Central Board of Directors. It is the main committee of the Central Bank. The
Board consists of a Governor, and not more than four Deputy Governors, four Directors to
represent the four regional boards, two from the Ministry of Finance and 10 other directors from
various fields which accounts to 21 members in total.

 The Government of India appoints the Governor and Deputy Governors for a period of 5 years
and the directors for a 4-year term. Two of the four Deputy Governors are traditionally taken
from RBI's Executive Directors. One is nominated from among the Chairpersons of public sector
banks and the other is an economist.
 Indian Administrative Service officer can also be appointed as Deputy Governor of RBI and
later as the Governor of RBI as with the case of V. Venugopal Reddy.

 Central Board: The Reserve Bank's affairs are governed by a central board of directors. The
board is appointed by the Government of India in keeping with the Reserve Bank of India Act.
Its functions are General superintendence and direction of the Bank's affairs.

 Local Board: Local Boards consists of one each for the four regions of the country in Mumbai,
Calcutta, Chennai and New Delhi appointed by the Central Government for a term of four
years. It advises the Central Board on local matters and to represent territorial and economic
interests of local cooperative and indigenous banks; to perform such other functions as
delegated by Central Board from time to time.
 Development banks

 Development banks can be known as special industrial financial institutions. These banks were
mostly established after World War II in both developed as well as developing countries in the
world. Just like elsewhere, the development banks in India are responsible for accelerating the
economic development of the country.

 Unlike other commercial banks, the development banks do not mobilize savings. Instead, they
invest the resources in a productive and efficient manner.

 These banks are expert financial bodies that perform the dual functions of granting medium
and long-term finances to private entrepreneurs and performing promotional roles for the
economic development of the country. As well, they finance both private and public sectors.

 https://testbook.com/learn/development-banks-in-india/
 A. Industrial Development Bank of India (IDBI)

 Industrial Development Bank of India

 1964 as subsidiary bank of RBI.

 Direct assistance to large & medium Industries

 Indirect assistance to tiny & small- Scale Industries.

 1976 de-linked from RBI.

 Resulted in enlargement of its role in functioning.

 B. Small Industries Development Bank of India (SIDBI)

 Small Industries Development Bank of India

 Started in April 1990

 Subsidiary of IDBI.

 Refinancing after loans granted by other financial Industries.

 Discounting & rediscounting of bills arising out of sale of capital goods produced.

 Rediscounting of short term bills in the small scale sector.

 C. National Bank for Agriculture and Rural Development (NABARD)

 National Bank for Agricultural & Rural Development

 Established in 1982.

 Combining the agricultural credit department and rural planning and credit cell of the RBI &
the

 Agricultural Refinance & Development Corporation.

 Credit Functions.

 Developmental Functions.

 Regulatory Functions.
 D. Export-Import Bank of India (Exim Bank)

 Export Import Bank

 Established in 1982.

 Foreign Trade

 Financing of exports & imports.

 Financing of Joint ventures in foreign countries.

 Financing of export & import of machinery on lease basis.

 Assisting the Indian party to a joint venture in a foreign country.

 Raise resources through issue of bonds & Debentures in open market & RBI
 E. Industrial Investment Bank of India (IIBI Bank)

 Industrial Reconstruction Corporation of India(1971)

 Industrial Reconstruction Bank of India(IRBI) with effect from March 1985.

 March 1987 renamed as IIBI.

 Grants loans & advances to Industries.

 Underwrites stocks, shares, bonds & debentures.

 Guarantees loans & deferred payments on behalf of the industrial concerns.

 Acts as an agent of the central & state Government, RBI, SBI & other financial Institutions.
Scheduled & Non Scheduled Banks
Scheduled & Non Scheduled Banks

 Scheduled Banks in India refer to those banks which have been included in the Second
Schedule of Reserve Bank of India Act, 1934. Banks not under this Schedule are called Non-
Scheduled Banks. In other words, Banks with a reserve capital of less than 5 lakh rupees qualify
as non-scheduled banks. Unlike scheduled banks, they are not entitled to borrow from the RBI
for normal banking purposes.
 SCHEDULED BANKS NON SCHEDULED BANKS

Meaning Scheduled banks is a banking Non-scheduled banks are the banks

corporation whose minimum paid up which do not comply with the rules
capital is Rs. 25 lakhs and does not specified by the Reserve Bank of India,
harm the interest of the depositors. or say the banks which do not come
under the category of scheduled
banks.
Second Listed in the second schedule of RBI Not-listed in the second schedule
Schedule Act
Cash Maintained with RBI Maintained with themselves
Reserve
Ratio
Borrowing Allowed to borrow money from RBI for Not allowed to borrow money from RBI
regular banking purposes. for regular banking purposes.

Returns To be submitted periodically. No such provision of submitting

periodic returns
Member of It can become a member of It can not become a member of
clearing clearing house clearing house
house