MODULE-4

TYPES OF
BANKSheetal Thomas
 Commercial Bank
• A commercial bank accepts
deposits from customers and in
turn makes loans, even in excess
of the deposits; a process known
as fractional-reserve banking.
• A commercial bank is usually
defined as an institution that both
accepts deposits and makes
loans; there are also financial
institutions that provide selected
banking services without meeting
the legal definition of a bank.
• Many banks offer ancillary financial
services to make additional profit;
for example, most banks also rent
safe deposit boxes in their
branches.
• Currently in most jurisdictions
commercial banks are regulated
& require permission to operate.
Operational authority is granted by
bank regulatory authorities which
provides rights to conduct the most
fundamental banking services
such as accepting deposits and
making loans.
 CATEGORY
• Public Sector Banks:
– The Govt. of India or RBI is the major
stakeholder
• Private Sector Banks:
– Major shareholders are private individuals
• Foreign Banks:
– They have headquarters and are
registered in foreign country, but have
branches in india.
 COOPERATIVE BANKS
• In the beginning of 20th century,
availability of credit in India, more
particularly in rural areas, was almost
absent. Agricultural and related activities
were starved of organised, institutional
credit. The rural folk had to depend
entirely on the money lenders, who lent
often at usurious rates of interest.
• The co-operative banks arrived in India in
the beginning of 20th Century as an
official effort to create a new type of
institution based on the principles of co-
operative organisation and management,
suitable for problems peculiar to Indian
conditions. These banks were conceived
as substitutes for money lenders, to
provide timely and adequate short-term
and long-term institutional credit at
reasonable rates of interest
• In the formative stage Co-operative Banks were
Urban Co-operative Societies run on community
basis and their lending activities were restricted
to meeting the credit requirements of their
members. The concept of Urban Co-operative
Bank was first spelt out by Mehta Bhansali
Committee in 1939 which defined on Urban Co-
operative Bank . Provisions of Section 5 (CCV) of
Banking Regulation Act, 1949 (as applicable to
Co-operative Societies) defined an Urban Co-
operative Bank as a Primary Co-operative Bank
other than a Primary Co-operative Society were
made applicable in 1966.
 Categories
There are two main categories of the co-operative banks.
(a) short term lending oriented co-operative Banks -
within this category there are three sub categories of banks
viz state co-operative banks, District co-operative banks and
Primary Agricultural co-operative societies.
(b) long term lending oriented co-operative Banks - within
the second category there are land development banks at
three levels state level, district level and village level.
• The co-operative banking structure in India
is divided into following main 5 categories :

1. Primary Urban Co-op Banks:

2. Primary Agricultural Credit Societies:

3. District Central Co-op Banks:

4, State Co-operative Banks:

5. Land Development Banks:

 PACS
• Raise resources from share capital, admission
fee, savings in the form of deposits and loans
from district central cooperative banks.
• Grant short and medium term loans to
members for agricultural purposes.
• Recover loans from borrowers out of sale
proceeds of produce.
• Arrange for the marketing
• Provide agricultural inputs
 District cooperative central
Bank
• They operate at district level and are formed in
association with the PACS in the district normally
with the head office in some important town or
city.
• Cooperative unions
• Mixed central cooperative banks.
Cooperative unions are formed only in alliance with
PACS in the district and no other member are
taken.
Mixed central cooperative banks have PACS and
individuals.
 Functions
• They raise funds from SC from PACS, savings
and state govt. or borrow from NABARD under
various schemes of RBI
• They are the link between higher institutions
and PACS
• They finance PACS
• They accept deposits and grant loans to
customers on personal or tangible security.
• They take steps for recovery of loan
• They look after the working of PACS
 SCB’s
• Every state has a SCB. The are
formed in association with the DCCBs
in their respective states.
• DCCBs serve as the link between
RBI, NABARD, the state government
and the cooperative credit institutions.
 Functions

• They raise finance from sharecapital of

DCCBs, state govts, societies and
individuals.
• The have savings in the form of deposits
from public, loans from state govt.
(SBI,IDBI,SIDBI and NABARD)
• They are intermediaries betweens DCCBs
and higher institutions
• They perform all activities as a DCCB does.
 SCARDB
• They are for development of land,
purchase of land & farming equipments
etc where long time financing is needed.
• They were registered under the
cooperative societies Act 1904 with
limited liability
• Earlier they were called central land
mortgage banks.
 PCARDBs
• They operate at the district or the local
level.
• They directly lend amount to farmers.
 Development Bank
• A Development Bank is a polygonal development
finance institution devoted to improving the social
and monetary development of its associate
nations. Its main emphasis is the welfare of the
people. For example the Asian Development
Bank's overarching goal is to decrease poverty in
Asia and the Pacific. It helps improve the value of
people's lives by providing loans and scientific
support for a broad variety of development
activities.
 The main functions of a
Development Bank:
• a) Increase loans and equity investments to its developing
associate countries (DMCs) for their monetary and social
development.
• b) Provides technical help for the planning and
implementation of development projects and programs
and for advisory services.
• c) Promotes and facilitates speculation of public and
private capital for growth and development.
• d) Responds to requests for assistance in coordinating
growth policies and plans of its increasing member
countries.
Formation of Development Banks In India
• Development banks were set up in India at various points
of time starting from the late 1940s to cater to the
medium to long term financing requirements of industry
as the capital market in India had not developed
sufficiently.
• In order to perform their role, Development Banks were
extended funds in the shape of Long Term Operations
(LTO) Fund of the Reserve bank of India and government
guaranteed bonds, which constituted main sources of
their funds. Funds from these sources were not only
available at concessional rates, but also on a long term
basis with their maturity period ranging from 10-15 years.
• Besides providing direct loans, financial
institutions also extend economic assistance
by way of underwriting and direct contribution
and by issuing guarantees. Recently, some
Development Banks have started extending
short term/working capital finance, although
long term lending continues to be their major
activity.
 IFCI
• The Industrial Finance Corporation of India
(IFCI) on July 1, 1948, as the first
Development Financial Institution in the
country to cater to the long-term finance
needs of the industrial sector.
• Until the establishment of ICICI in
1956 and IDBI in 1964, IFCI remained
solely responsible for implementation
of the government’s industrial policy
initiatives.
• Some sectors that have directly benefited
from IFCI’s disbursals include:
• Consumer goods industry (textiles, paper,
sugar);
• Service industries (hotels, hospitals);
• Basic industries (iron & steel, fertilizers,
basic chemicals,cement);
• Capital & intermediate goods industries
(electronics, synthetic fibers, synthetic
plastics, miscellaneous chemicals); and
• Infrastructure (power generation, telecom
services).
 IFCI's ECONOMIC
CONTRIBUTION
• Cumulatively, IFCI has sanctioned
financial assistance of Rs 462
billion to 5707 concerns and
disbursed Rs 444 billion since
inception.
In the process, IFCI has catalyzed
investments worth Rs 2,526 billion
in the industrial and infrastructure
sectors.
 PRODUCTS AND SERVICES
AREAS OF OPERATIONS
• The lending policies of IFCI have
evolved over the last five decades of
operations. These policies have
sought to achieve the primary
objective of providing medium and
long-term financial assistance to
mainly manufacturing concerns and to
fulfill the overall goals of industrial and
economic development in India.
The principal activities of IFCI
• Project finance
• Financial services
• Non-project specific assistance
• Corporate Advisory Services
i. Project finance involves providing credit and
other facilities to green-field industrial
projects (including infrastructure projects) as
well as to brown-field projects, viz.,
expansion, diversification and modernization
of existing industrial concerns through
various types of assistance that are tailored
to the borrowers’ needs.
ii. Non-project specific assistance is provided
mainly in the form of corporate / short-term
loans, working capital, bills discounting, etc
to meet expenditure, which is not specifically
related to any particular project.
iii. Financial services covers a wide range of
activities wherein assistance is provided to
existing concerns through various schemes for the
acquisition of assets, as part of their expansion,
diversification and modernization programs. These
schemes are also extended to equipment which
could be directly got fabricated by the actual user,
or procured from domestic suppliers, or imported.
Tailor-made schemes to suit the individual
borrower's requirements have been designed to
provide quick funds after a need-based appraisal.
The interest rate and rentals (in case of equipment
leasing) are competitive and determined on the
basis of the risk perception about individual
concerns.
Industrial Credit
and Investment
Corporation of
India

VP (ICICI)
 Incorporation
 ICICI was incorporated at the initiative of World Bank, the
Government of India and representatives of Indian
industry, with the objective of creating a development
financial institution for providing medium-term and long-
term project financing to Indian businesses, In 1955 .
 Its major shareholders are : Unit Trust of India,
Life Insurance Corporation of India and General Insurance
Corporation and its subsidiaries having approx. 50% of
the paid up share capital of ICICI.

 It is India’ 2nd largest bank, having network of 1646

branches , 4833 atms in India and is present in 18 countries
 Objectives
 To assist in the formation, expansion and
modernization of industrial units in the private
sector .
 To stimulate and promote the participation of
private capital (both Indian and foreign) in such
industrial units
 To furnish technical and managerial aid so as to
increase production and expand employment
opportunities
 To assist in the development of the capital
market through its underwriting activities
 Functions
• To provide medium and long-term loans in Indian and
foreign  currency for importing capital equipment and
technical services.
• To subscribe to new issues of shares, generally by
underwriting them.
• To guarantee loans raised from private sources
including deferred payment;
• It directly subscribes to shares and debentures
• Provides technical and managerial assistance to
industrial units.
 Functions Continued….
• Provides assets on lease to industrial concerns.
In other words, assets are owned by ICICI but
allowed to be used by industrial concerns for a
consideration called lease rent

• Provides project consultancy services to

industrial units for new projects.

• Provides merchant banking services

 SIDBI
• SIDBI is Small Industries Development Bank Of
India.

• Established in April 1990 under an Act of Indian

Parliament as the principal financial institution
for :
– Promotion
– Financing
• Development of industry in the small scale
sector
• Co-ordinating the functions of other institutions
engaged in similar activities.
 Cont.
• The business domain of SIDBI consists of
small scale industrial units, which contribute
significantly to the national economy in
terms of production, employment and
exports.

• SIDBI's assistance flows to the transport,

health care and tourism sectors and also to
the professional and self-employed persons
setting up small-sized professional
ventures.
 Cont.
• SIDBI retained its position in the top
30 Development Banks of the World in
the latest ranking of The Banker,
London.

• In its approach, SIDBI has struck a

good balance between financing and
providing other support services.
 Range of Assistance
•Setting up of new projects
•Expansion, diversification, modernisation, technology
upgradation, quality improvement, rehabilitation of existing
units
•Strengthening of marketing capabilities of SSI units.
•Development of infrastructure for SSIs and
•Export promotion.
 Direct Assistance Schemes
• Project Finance Scheme,
• Equipment Finance Scheme,
• Marketing Scheme,
• Vendor Development Scheme,
• Infrastructural Development Scheme,
• ISO-9000,
• Technology Development & Modernisation Fund,
• Venture Capital Scheme,
• Assistance for leasing to NBFCs, SFCs, SIDCs and
resource support
Indirect Assistance Schemes
• SIDBI extends refinance of loans to
small scale sector by Primary Lending
Institutions (PLIs) viz. SFCs, SIDCs
and Banks.
• At present, such refinance assistance
is extended to 892 PLIs and these PLIs
extend credit through a net work of
more than 65,000 branches all over the
country
 Channels of Assistance
SIDBI's financial assistance to small
scale sector have three major
dimensions:
• Indirect assistance to primary lending
institutions (PLIs);
• Direct assistance to small units; and
• Development and Support Services
 Development And Support
Services
• Enterprise Promotion with emphasis
on Rural Industrialisation
• Human Resource Development to suit
the SSI sector needs
• Technology Upgradation
• Quality and Environment Management
• Marketing and Promotion and
• Information Dissemination.
 SIDBI DIRECTLY
FINANCES
• SSI units for
new/expansion/diversification/modernisation projects.
• Marketing development projects which expand the
domestic and international marketability of SSI
products.
• Existing well-run SSI units and ancillaries/sub-
contracting units/ vendor units for modernisation and
technology upgradation.
• Infrastructure development agencies for developing
industrial areas.
• Leasing and hire purchase companies for offering
leasing/hire purchase facilities to SSI units.
• Existing export-oriented units to enable them to
acquire ISO-9000 Series Certification
 SIDBI HELPS:
• SSIs to obtain credit rating from accredited credit rating
agencies.

SIDBI PROVIDES FOREIGN CURRENCY LOANS TO:

• Import equipment by existing export-oriented SSIs and new
units having definite plans for entering export markets.
• Execute confirmed export orders by way of pre-shipment
credit/letter of credit and provides post-shipment facilities.

SIDBI's VENTURE CAPITAL FUND PROVIDES ASSISTANCE

TO:

• Small scale entrepreneurs using innovative indigenous

technology and expertise.
Programmes implemented for
Enterprise promotion include:
• Micro Credit Scheme
• Rural Industries Programme
• Mahila Vikas Nidhi
• Entrepreneurship Development
Programme
 A group of entrepreneurs
receiving training under STUP.

*Skill-cum-Technology Upgradation Programme (STUP)

SPECIAL PURPOSE FUNDS IN
SIDBI
• National Equity Fund
• Mahila Vikas Nidhi
• Mahila Udyam Nidhi
• Venture Capital Fund
• Technology
Development and
Modernisation Fund
• Marketing Development
Assistance Fund with
special earmarked
corpus for women.
 SIDBI's assistance to:

• (i) Tiny Units - about 89.2 per cent of the number of projects
assisted under Refinance Scheme during 1996-97 were tiny,
receiving assistance upto Rs. 5 lakh per project. The
sanctions for such projects accounted for 39.6% of the total
amount of sanctions in 1996-97 as against 36.0% during the
previous year.
(ii) Women entrepreneurs - under various schemes
assistance amounting to Rs. 19.07 crores was given to 1067
women entrepreneurs during 1996-97.
(iii) Backward areas - during 1996-97, projects enanating
from backward areas received assistance to the tune of Rs.
775 crores of sanction which accounted for 37% of total
assistance under Refinance Scheme of SIDBI.
 Main Schemes of SIDBI
• National Equity Fund Scheme
• Technology Development & Modernisation
Fund Scheme
• Single Window Scheme
• Composite Loan Scheme
• Mahila Udyam Nidhi (MUN) Scheme
• Scheme for financing activities
• Equipment Finance Scheme
• Venture Capital Scheme
• ISO 9000 Scheme
• Micro Credit Scheme
• New Schemes

(i) To enhance the export capabilities of SSI units.

(ii) Scheme for Marketing Assistance.

(iii) Infrastructure Development Scheme.

(iv) Scheme for acquisition of ISO 9000 certification.

(v) Factoring Services and

(vi) Bills Re-discounting Scheme against inland supply

bills of SSIs.
 SFC’s
• A Central Industrial Finance corporation was set up under
the industrial Finance corporations Act, 1948 in order to
provide medium and long term credit to industrial
undertakings which fall outside normal activities of
commercial banks. The State governments expressed their
desire that similar corporations be set up in states to
supplement the work of the Industrial financial corporation.
State governments also expressed that the State corporations
be established under a special statue in order to make it
possible to incorporate in the constitutions necessary
provisions in regard to majority control by the government,
guaranteed by the State government in regard to the
payment principal. In order to implement the views
Expressed by the State governments the State Financial
Corporation bill was introduced in the Parliament.
 The main features of the State
financial Corporations Act 1951:
• i. The bill provides that the state government may, by notification in the
official gazette, establish a financial corporation for the state.
• ii. The share capital shall be fixed by the State government but shall not
exceed Rs 2 crores . The issue of the shares to the public will be limited
to 25 % of the share capital and the rest will be held by the State
Governments, The Reserve Bank, Scheduled Banks, Insurance
Companies, Investment Trusts, Co- operative banks and other financial
institutions.
• iii. Shares of the corporation will be guaranteed by the Sate government
as to the re – payment of principal and the payment of a minimum
dividend to be prescribed in consultation with the central government.
• iv. The corporation will be authorized to issue bonds and debentures for
amounts which together with the contingent liabilities of the
corporations shall not exceed five – times the amount of the paid – up
share capital and the reserve fund of the corporations. These bonds and
debentures will be guaranteed as to payment of the principal and
payment of interest at such rate as may be fixed by the State
government.
• v. The corporation may accept deposits from the public repayable
after not less than
• five years, subject to the maximum not exceeding the paid up capital.
• vi. The corporation will be managed by a board consisting of a
majority of Directors nominated by the Sate governments , The
Reserve banks and the industrial Finance corporation of India
• vii. The corporation will be authorized to make long term loans to
industrial concerns which are repayable within a period not
exceeding 25 years. The Corporation will be further authorized to
underwrite the issue of stocks, shares, bonds or debentures by
industrial concerns, subject to the provision that the corporation will
be required to dispose of and shares etc. Acquired by it in fulfillment
its underwriting liability within a period of 7 years.
• viii. Until a reserve fund is created equal to the paid – up share
capital of the Corporation and until the State Governments has been
repaid all amounts paid by them, if any, in fulfillment of the
guarantee liability, the rate of dividend shall not exceed the rate
guaranteed by the state government. Under no circumstances shall
the dividend exceed 5 % p.a. and surplus profits will be re – payable
to the State governments.
• ix. The corporation will have special privileges in the matter of
enforcement of its claims against borrowers.
 Broad functions of State
Financial Corporations:
• AS a catalyst in small scale industrial growth the SFC’s provide the following
services:
• Project advisory and Finance a) Investment appraisal
• • Project conceptualization and related services, including guidance in relation to
selection of projects preparation of feasibility studies, capital structuring, techno –
economic feasibility, financial engineering, project management design etc.
• • Credit Syndication including assistance in legal documentation etc.
• Documentation of various project documents
• Placement of debt – equity including design of the structure of instruments,
placement of instruments with financial institutions, bank etc.
• Assist in organizational structural changes like :
• (1) Analysis of operational performance
• (2) Study of existing organizational structure
• (3) Study of the existing statures and rules and regulations
• (4) Market analysis with respect to products
• (5) Review of domestic and international scenario
• (6) Valuation of fixed assets and inventory
• (7) Advising on formation of new entity
• (8) Preparation of relevant agreements / legal documents.
• Industry Research / Information Services
• A dedicated research team looking at both macro – level issues as well as sector –
specific, industry research.