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PRINCIPLES OF BANKING
INDIAN FINANCIAL SYSTEM

Financial System
The

financial system in a country refers to the

institutional framework existing to enable financial
transactions to be carried out in a smooth manner

Any Financial System has three main segments

1)

Financial institutions -banks,

insurance companies etc

mutual

funds,

2) Financial markets -money market, debt market, capital

market, forex market, derivative markets
3) Financial products -loans, deposits, bonds, equities ,
different types of financial derivatives etc

FINANCIAL SERVICES
MARKETS & REGULATORS

C A P IT A L M A R K E T

MONEY MARKET

M UTUAL FUN DS

IN S U R A N C E

SEBI

RBI

AM FI

IR D A

Reserve Bank of India - 1

Reserve Bank of India was established on 1st
April 1935, after the enactment of the Reserve
Bank of India Act 1934 (RBI Act).
The RBI was initially privately owned but was
nationalized in 1949 by the enactment of the
Banking Regulation Act.
Banking Regulation Act,1949 (BR Act)gave wide
powers to RBI as regards to establishment of
new banks/mergers and amalgamation of
banks,opening of new branches,etc
BR Act,1949 gave RBI powers to
regulate,supervise and develop the banking
system in India

RBIs Major Functions

Supervisory & Regulatory
Promotional & Developmental
Refinance Activities

RBIs Major Functions

Supervisory & Regulatory
Promotional & Developmental
Refinance Activities

RBIs Major Functions

SUPERVISORY & REGULATORY

IS S U A N C E
OF
CURRENCY
NO TES

C R E D IT
C O N TR O L

EXCHANGE
C O N TR O L

TR AN SFER
O F FUNDS

RBIs Major Functions

Supervisory & Regulatory
Promotional & Developmental
Refinance Activities

RBIs Major Functions

PROMOTIONAL & DEVELOPMENTAL

B a n k e r to
G o v e rn m e n t

B a n k e r to
B a n k e rs

F in a n c e

A g r ic u lt u r e
In d u s try
E x p o rts

T r a in in g

RBIs Major Functions

Supervisory & Regulatory
Promotional & Developmental
Refinance Activities

RBIs Major Functions

REFINANCE ACTIVITIES

LENDER O F LAST RESO RT

R E F IN A N C E O P E R A T IO N S

Securities & Exchange Board of India

(SEBI)
SEBI was constituted on April 12/1988, and
obtained the statutory powers in March,1992
SEBIs functions:
To protect the interests of investors
To recognize the business in stock exchanges
and other security markets
To supervise and regulate work of
intermediaries, such as stock brokers
merchant bankers/custodians
depositories/bankers to the issues

Association of Mutual Funds in India

(AMFI)
AMFI is an association as a non profit
organization.
AMFI represents mutual funds in
India and working for healthy growth
of the Mutual Funds.
AMFI conduct examinations for MF
executives as part of their training
activities

Insurance Regulatory & Development

Authority (IRDA)
The regulator for insurance business in
India is IRDA.
IRDA was established in 2000
IRDAs functions:
To regulate, promote and ensure orderly
growth of the insurance business and
reinsurance business in India
To protect the interests of policy holders

Banks in India
Legal frame work
of
Banks

Banking Regulation
Act,1949

Reserve Bank of India

Act,1934

Banking Regulation Act,1949 (BR Act)1

- BR Act covers banking companies and
cooperative banks, with certain
modifications.
- BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
- BR Act allows RBI (Sec 22) to issue
licence for banks

BANKING -Definition

Section 5 (b) of Banking Regulation Act 1949

defines banking as acceptance of deposits of
money from the public for the purpose of lending or
investment
Under Section 49A of the Act , no person other than
a Bank is authorised to accept deposits which can
be withdrawn by cheques except SB Schemes run
by government or a firm notified by the
government.
Section 6 (1) gives the list of permissible business
Section 8 gives details of activities that are
prohibited

Reserve Bank of India Act,1934(RBI

Act)-1
- RBI Act was enacted to constitute the
Reserve Bank of India
- RBI Act has been amended from time
to
time
- RBI Act deals with the constitution,
powers and functions of RBI

Reserve Bank of India Act,1934(RBI

Act)-2
- RBI Act deals with:
- incorporation, capital management and
business of banks
- central banking functions
- financial supervision of banks and
financial institutions
- management of forex/reserves
- control functions : bank rate,audit,accounts
- penalties for violation

Classification of Banks-1
Central
Bank
RBI

Regional
Rural
Banks

Public Sector
Banks

Co-operative
Banks

New Private
Sector
Banks

Foreign Banks

Old
Private
Sector

Classification of Banks-2
PUBLIC SECTOR
BANKS

STATE BANK OF
INDIA
SBI

SBI ASSOCIATE
BANKS

NATIONALISED
BANKS

WHOLESALE BANKING
Provision of services by banks to the like
of large
corporate clients, mid-sized
companies, real estate developers and
investors, international trade finance
businesses, institutional customers (such
as pension funds and government
entities/agencies), and services offered to
other banks or other financial institutions.
. Wholesale banking is different from
retail banking, in that the former focuses
more on corporate style entities and high
value transactions, while the latter is

THANK
YOU
Email-shanker.iyer@bankofindia.co.in

PRESENTATION BYSHANKER IYER