BANKING AND FINANCIAL

INSTITUTIONS IN INDIA

Submitted to: Submitted by:

Dr. Dolly Jabbal Sourav Agrawal
Amol Jain
LLM Corp.
2019-20
ORIGIN OF THE TERM BANK
 Italian – banco
 Latin- bancus

 Greek- banque

 French- banque

 German- banc or banck

MEANING AND DEFINITION OF
BANK
A bank is a financial institution licensed to receive
deposits and make loans. Banks may also provide
financial services, such as wealth management,
currency exchange, and safe deposit boxes.
According to section 5(1)(b) of Banking Regulation act
1949 defines the term Banking as Accepting, for the
purpose of lending or investment, of deposit of money
from the public, the paper on demand or otherwise
and withdrawable by cheque, draft, order or
otherwise.
According to section 5(1)(c) of the act defines banking
company as any company which transacts the
business of banking in India.
 EVOLUTION OF BANKING IN INDIA

 Banking in the form of money lending was in

existence during Vedic Period
 During Pre Independence period banking was
mainly carried out by Indigenous banker and
money lenders.
 Indigenous banker are individual or firms
dealing in hundies and sometimes accept
deposits.
 Moneylenders are person who lend their own
money mainly for consumption.
 Bank Of Hindustan the first bank in India
started by Britishers in 1770.
 Presidency bank of Bengal 1806.
 Presidency bank of Bombay 1840.
 Presidency bank of Madras 1846.
 The first joint stock bank in India was Oudh
commercial bank in 1881 followed by PNB 1895.
 The three Presidency banks of Bengal, Bombay
and Madras were merged in 1921 to form
the Imperial Bank of India.
 RBI was established on 1st April 1935.
 Nationalization of RBI on 1st Jan 1949.
 The Banking regulation Act 1949 was passed.
 The Imperial bank was nationalized and was
converted into State Bank of India on 11th July
1955
 14 Major banks were nationalized in the year
1969 and 6 more banks in 1980.
 Several RRB and development banks were
established.
 Today there are 12 Public sector banks.

 There are 22 Private sector Banks.

 45 Regional Rural Bank.

 33 State Cooperative Bank.

 54 Urban Cooperative Banks .

 31 Foregin Banks.
CLASSIFICATION OF BANKS

UNORGANISED ORGANISED

INDIGENIOUS COMMERCIAL BANKS

BANKS

MONEY LENDER COOPERATIVE BANKS

REGIONAL RURAL
TRADERS BANKS

AGGRICULTURAL AND
RURAL DEVELOPMENT
BANK

DEVELOPMENT BANK

NBFC’S
COMMERCIAL BANK
A commercial bank is a financial institution which
performs the functions of accepting deposits from the
general public and giving loans for investment with
the aim of earning profit.
In fact, commercial banks, as their name suggests,
axe profit-seeking institutions, i.e., they do banking
business to earn profit.
They generally finance trade and commerce with
short-term loans. They charge high rate of interest
from the borrowers but pay much less rate of Interest
to their depositors with the result that the difference
between the two rates of interest becomes the main
source of profit of the banks. Most of the Indian joint
stock Banks are Commercial Banks such as Punjab
National Bank, Allahabad Bank, Canara Bank,
Andhra Bank, Bank of Baroda, etc.
 FUNCTIONS OF
COMMERCIAL BANKS
PRIM SECO
ARY NDRY
GRAN
FUNC FUNC
ACCE AGEN UTILI
TING
TION TION
PTIN CY TY
LOAN
G FUNC FUNC
AND
DEPO TION TION
ADVA
•SAVINGS •FUND
•ISSUE OF DRAFT

SITE S S
DEPOSIT TRANSFER
•CASH CREDIT •LOCKER FECILITY
•CHEQUE
NCES
•FIXED DEPOSIT •BANK O/D •UNDERWRITING
•CURRENT COLLECTION
•LOANS OF SHARES
DEPOSIT •PORTFOLIO
•DISCOUNTING •DEALING IN
•RECURRING MANAGEMENT
BILLS FOREIGN
DEPOSIT •OTHER
EXCHANGE
FUNCTION
WORKING OF COMMERCIAL BANK
 The amount of money earned by a commercial bank is
determined by the spread between the interest it pays
on deposits and the interest it earns on loans it
issues, which is known as net interest income.
 Customers find commercial bank investments, such
as savings accounts and CDs, attractive because they
are insured by the Federal Deposit Insurance Corp.
(FDIC), and money can be easily withdrawn.
However, these investments traditionally pay very
low interest rates compared with mutual funds and
other investment products. In some cases, commercial
bank deposits pay no interest, such as checking
account deposits.
 In a fractional reserve banking system, commercial
banks are permitted to create money by allowing
multiple claims to assets on deposit. Banks create
credit that did not previously exist when they make
loans. This is sometimes called the money multiplier
effect. There is a limit to the amount of credit lending
institutions can create this way. Banks are legally
required to keep a certain minimum percentage of all
deposit claims as liquid cash. This is called the
reserve ratio. The reserve ratio in the United States is
10%. This means for every $100 the bank receives in
deposits, $10 must be retained by the bank and not
loaned out, while the other $90 can be loaned or
invested.
 STRUCTURE OF COMMERCIAL
BANK
NON-
SCHED
SCHED
ULED
ULED
COMM
COMM
ERCIAL
PUBLI PRIVAT ERCIAL
BANK
C E BANK
FOREI
SECTO SECTO GN
R R BANK
SBI BANKOTHERBANK
AND NATIO
ITS NALISE
SIGNIFICANCE OF COMMERCIAL
BANKS
 Promote savings and accelerate the rate of
capital formation
 Source of finance and credit.

 Promote balance regional development

 Accelerate the process of economic development

 Help industry to expand their field of operation

COOPERATIVE BANK
Cooperative bank is an institution established on
the cooperative basis and dealing in ordinary
banking business. Like other banks, the
cooperative banks are founded by collecting funds
through shares, accept deposits and grant loans.
EVOLUTION OF COOPERATIVE
BANK
 Cooperative movement in India was started primarily for
dealing with the problem of rural credit. The history of Indian
cooperative banking started with the passing of Cooperative
Societies Act in 1904. The objective of this Act was to establish
cooperative credit societies “to encourage thrift, self-help and
cooperation among agriculturists, artisans and persons of
limited means.”
 Many cooperative credit societies were set up under this Act.
The Cooperative Societies Act, 1912 recognised the need for
establishing new organisations for supervision, auditing and
supply of cooperative credit. These organisations were- (a) A
union, consisting of primary societies; (b) the central banks;
and (c) provincial banks.
 Although beginning has been made in the direction of
establishing cooperative societies and extending cooperative
credit, but the progress remained unsatisfactory in the pre-
independence period. Even after being in operation for half a
century, the cooperative credit formed only 3.1 per cent of the
total rural credit in 1951-52.
TYPES OF COOPERATIVE BANK
NON-
AGRI
COOPERATIVE CREDIT
LONG AGRI
CULTINSTITUTION
TERM CULT
URAL
CRED URAL
SHORCRED
IT CRED
T IT
INSTI IT
TERMINSTI
PRIM
TUTI INSTI
CREDTUTI
STAT CENT ON(LA ARYTUTI
IT ON
E RAL AGRI
ND ON
INSTI
COOP COOP DEVE CULT
TUTI
ERATI ERATI LOPMURAL
ON
FUNCTIONS OF COOPERATIVE
BANK
 They function with the rule of “one member, one vote” and
function on “no profit, no loss” basis.
 It perform all the main banking function of deposit
mobilization, the supply of credit and provision of
remittance facility.
 It provides financial assistance to the people with small
means to protect them from the debt trap of the money
lenders.
 It is engaged in the task of production, processing,
marketing, distribution, servicing and banking in India.
 It supervise and guides affiliated society.
 Mobilization of funds from there members.
 Advancing loans to the members.
 Rural financing for farming, cattle, milk, personal finance
etc.
 Urban financing for self-employment small scale unit,
consumer finance, personal finance.
 REGIONAL RURAL BANK
Regional Rural Banks (RRBs) were set up as
government-sponsored, regional based rural
lending institutions under the Regional Rural
Banks Act, 1976. RRBs were configured as hybrid
micro banking institutions, combining the local
orientation and small scale lending culture of the
cooperatives and the business culture of
commercial banks. Their mission was to fulfill
the credit needs of the relatively unserved
sections in the rural areas -small and marginal
farmers, agricultural labourers and socio-
economically weaker sections.
 HISTORY OF REGIONAL RURAL
 The Regional Rural Banks were established on the
recommendations of Narsimha Committee on Rural
Credit. The committee was of the view that RRBs
would be much better suited than the commercial
banks or Co-Operative Banks in meeting the needs of
rural areas. Considering the recommendations of the
committee the Government of India passed Regional
Rural Banks Act 1976. After passing the Act within a
year at least 25 RRBs were established in different
parts of India.
 The Regional Rural Banks were established with a
view to develop such type of banking institutions
which could function as a commercial organization in
rural areas.
FUNCTIONS OF REGIONAL RURAL
BANKS
 RRBs grant loans and advances to small farmers and
agricultural laborers so that they can start their own
farming activities including purchase of land, seeds and
manure.
 RRBs provides banking services at the doorsteps of the
rural people ,particularly in those area which are not
served by any commercial Bank
 The RRBs charges a lower rate of Interest and thus they
reduce the cost of credit in the rural areas.
 RRBs provide loan and other financial assistance to
entrepreneurs in villages, sub-urban areas and small towns
.So that they become able to enlarge their business.
 Loans to artisans to encourage them for the production of
artistic and related goods.
 Encourage the saving habit among the rural and semi-
urban population.
WORKING OF REGIONAL RURAL
BANK
RRBs have done mainly two work:

1. Grant of credit at cheap or concessional rates.

2. Lending to individuals belonging to weaker
sections without checking the viability of the
activity proposed to be undertaken.
NATIONAL BANK FOR AGRICULTURAL
AND RURAL DEVELOPMENT(NABARD)
 As the name suggests NABARD is a development bank focusing
primarily on the rural sector of the country. It is, in fact, India‘s
apex development bank. It is one of the most important
institutions in the country. NABARD is responsible for the
development of the small industries, cottage industries, and
any other such village or rural projects.
It is an institution fully owned by Government of India,
headquartered at Mumbai with regional offices all over
India. The Bank has been entrusted with "matters concerning
policy, planning and operations in the field of credit
for agriculture and other economic activities in rural areas in
India". NABARD is active in developing financial
inclusion policy.
HISTORY OF NABARD
 NABARD was established on the recommendations of
B.Sivaraman Committee, (by Act 61, 1981 of Parliament)
on 12 July 1982 to implement the National Bank for
Agriculture and Rural Development Act 1981. It replaced
the Agricultural Credit Department (ACD) and Rural
Planning and Credit Cell (RPCC) of Reserve Bank of India,
and Agricultural Refinance and Development Corporation
(ARDC). It is one of the premier agencies providing
developmental credit in rural areas. NABARD is India's
specialised bank for Agriculture and Rural Development in
India.
 The initial corpus of NABARD was Rs.100 crores.
Consequent to the revision in the composition of share
capital between Government of India and RBI, the paid up
capital as on 31 May 2017, stood at Rs.6,700 crore with
Government of India holding Rs.6,700 crore (100% share).
The authorized share capital is Rs.30,000 crore.
 International associates of NABARD
include World Bank-affiliated organisations and
global developmental agencies working in the
field of agriculture and rural development. These
organizations help NABARD by advising and
giving monetary aid for the upliftment of the
people in the rural areas and optimising the
agricultural process.
FUNCTIONS OF NABARD

RE-
FINANC
FINANC E
IAL DIRECT
DEVEL FINANC
FUNCTI E
OPMEM
ONS
TAL
SUPER
VISORY
STRUCTURE OF NABARD
BOARD OF DIRECTORS

CHAIRMAN

MANAGING DIRECTOR

DIS
DEPUTY MANAGING
DIRECTOR

SU TRI PR
B CT
EXECUTIVE DIRECTOR
OJ
OF DE
HEAD EC
TRAINING

FIC VE T
OFFICE REGIONAL
ESTABLISHM
DEPARTME OFFICE ENT
NT

E LO MO
DEVELOPMENT BANKS
Development banks are those which have been
set up mainly to provide infrastructure facilities
for the industrial growth of the country. They
provide financial assistance for both public and
private sector industries.
 DEVELOPMENT BANKS IN INDIA

STATE
COMME FINANCI
NABAR
ICICI IDBI IFCI SIDBI RCIAL AL
D BANK COOPERA
TION
OBJECTIVES OF DEVELOPMENT
BANK
 LAY FOUNDATION FOR
INDUSTRIALISATION
 MEET CAPITAL NEEDS

 NEED FOR PROMOTIONAL ACTIVITY

 HELP SMALL AND MEDIUM SECTORS

FUNCTIONS OF DEVELOPMENT
BANK
 FINANCIAL GAP FILLER
 JOINT FINANCE

 REFINANCE FACILITY

 CREDIT GUARANTEE

 UNDERWRITING OF SECURITIES
NON-BANKING FINANCIAL
COMPANIES
Non-banking financial companies (NBFCs) are
financial institutions that offer various banking
services but do not have a banking license.
Generally, these institutions are not allowed to
take traditional demand deposits readily
available funds, such as those in checking or
savings accounts—from the public. This
limitation keeps them outside the scope of
conventional oversight from federal and state
financial regulators.
NBFCs can offer banking services such as loans
and credit facilities, currency exchange,
retirement planning, money
markets, underwriting, and merger activities.
HISTORY OF NBFC
 The RBI Act 1934 was ammended on f1st
december 1964 by the Reserve Bank
Ammendment act 1963 to include provision
related to non banking institution receiving
deposits and financial institutions.
ROLE OF NBFCS
 Development of sectors like transport and
infrastructure.
 Substantial employment generation.

 Helps increase in wealth creation.

 Broad base economic development.

 Major trust on semi urban, rural area and first

time buyers/users.
 To finance economically weaker sections.
REGISTRATION
A company incorporated under the companies
act, 1956 and desirous of commencing business of
Non Banking Financial Institution as defines
under section 45(1)(a) of the RBI act 1934 should
have a minimum net owned fund of Rs. 25 Lakh
(Raised to Rs. 200 Lakh w.e.f April 21, 1999). The
company is required to submit its application for
registration in the prescribed format along with
necessary documents for bank’s consideration.
The bank issues certificate of registration after
satisfying itself that the condition as enumerated
in section 45(1)(a) of the RBI act 1934 has
satisfied.
TYPES OF NBFCS

INVESTMENT
• BAJAJ AUTO COMPANIES • MANNAPURAM
FINANCE CO. GOLD FINANCE
• STOCK
• FULLERTON BROKING • MUTHOOT
INDIA COMPANIES FINANCE
• GILT FIRMS
ASSET
LOAN
FINANCING
COMPANIES
COMPANY
THANK YOU