BANKING HISTORY WORLDWIDE

• 1656 - The first European bank to use banknotes

opened in Sweden for private clientele,
• during 1668 the institution converted to a public
bank
• 1694 – The Bank of England was set up to supply
money to the King.
• 1695 – The Parliament of Scotland creates the
Bank of Scotland
• 1782 – The Bank of North America opens.
• 1791 – The First Bank of the United States was a bank
chartered by the United States Congress. The charter was
for 20 years
• 1816 – The Second Bank of the United States was chartered
five years after the First Bank of the United States lost its
charter. This charter was also for 20 years.
• The bank was created to finance the country in the
aftermath of the War of 1812.
• 1817 - The New York Stock and Exchange Board is
established
• 1818 - the first savings bank of Paris was
established.
• 1870 - Establishment of the Deutsche Bank
• 1913 – The Federal Reserve Act created the
Federal Reserve System, the central banking
system of the United States of America, and
• granted it the legal authority to issue legal tender.
 Evolution of Banking System in India
• The oldest bank still in existence in India is the State Bank of India
, which originated in the Bank of Calcutta in June 1806, which
almost immediately became the Bank of Bengal.
• This was one of the three presidency banks, the other two being
the Bank of Bombay and the Bank of Madras, all three of which
were established under charters from the
British East India Company
• For many years the presidency banks acted as quasi-central
banks, as did their successors.
• The three banks merged in 1921 to form the
Imperial Bank of India, which, upon India's independence,
became the State Bank of India in 1955.
 Evolution of Banking System in India
Ajodha bank-1884
• Punjab national bank -1894
• Nedungadi bank-1899
• Only five banks in 19th century.
• During 1901-1914 twelve more banks came
• prominent being
• BOB-1906,Canara bank-1906,Indian bank-1907
• Bank of India-1908,Central bank of India-1911.
 Banking Structure in India
•Commercial Banks are the institutions that
ordinarily accept deposits from the people
and advances loans.
• Banks which established in accordance with
the provisions of the Banking Regulation Act,
1949 are called Commercial Banks.
•Banks are classified as Scheduled Banks or
Non Scheduled Banks.
• Scheduled commercial banks : Two main divisions;
a) Public sector banks
b) Private sector banks
c) .Development (Specialized) Banks
a)Public sector banks : Three main divisions;
1.State banks of india
2. Nationalised banks
3. Regional rural banks
b)Private sector banks : Two main divisions
1. Indian Private banks
2. Foreign banks
• We will go through each segment one by one.
• Scheduled Banks:
• Scheduled Banks are those banks which are listed in 2nd schedule of RBI
Act 1934. In other words, the banks which follow the guidelines of the
2nd schedule of RBI Act 1934.
• Scheduled banks can take loans from RBI at Repo rate or bank rate.
Some major criteria to be scheduled banks are as follows.
• Banks must deposit 500 crores to RBI as a paid-up capital.
• Banks must open 25% of its branches in rural areas.
• At least 40% of loan must be distributed to priority sectors like SC/ST,
PH, Housing, Education etc.
• Commercial Banks:
• The Commercial Banks are those financial institutions
which accept deposit and provide services like
• loans, credit, opening bank accounts, locker facilities,
foreign exchange and other
• digital services like mobile banking, Internet Banking,
NEFT, RTGS etc.
• These banks are basically profit-making and consumer-
oriented institutions.
• In other words, these banks deal with the financial
requirements of the general public.
• Public Sector Banks (PSBs):
• Those banks in which more than 50% stake is held
by Government of India
• is defined as Public Sector Banks
• The shares of Some of such banks are listed on
the stock exchange too.
• Few examples of banks are given below although
the total number of PSBs are 27.
• Eg. SBI, PNB, Syndicate Bank, Union Bank of India etc.
• Private Sector Banks:
• Private Sector banks are those banks where major stakes (51%) is of
private entities.
• The shares of private sector banks are also listed in the stock exchange.
• Few big names of private banks are below.
• HDFC Bank
• ICICI Bank
• Axis Bank
• Yes Bank
• Kotak Mahindra Bank
• IndusInd Bank
• IDFC Bank
• Foreign Banks:
• The banks which are incorporated
• or have their headquarters in a foreign country and
• open their branches in India as per RBI Act 1934
• is known as foreign banks.
• Some examples of the foreign bank are:
• City Bank
• HSBC Bank
• Standard Chartered Bank
• Regional Rural Banks (RRB):
• These banks are generally operating at the regional
area
• to facilitate backward people in society.
• The purpose of RRBs to offer the banking services at
the doorstep of rural masses especially in remote areas.
• These banks provide services like
• deposits, withdrawals, short term credit to the small
farmers, labours, small entrepreneurs to
• increase their productivity.
• Co-operative Banks:
• The cooperative banks are a small scale banking
• functioning on no profit no loss basis
• for mutual cooperation and help.
• These banks generally focus on financial help for rural
agriculture development.
• On the basis of levels of operating level,
• the cooperative banks are of three categories.
• State Cooperative Bank (working at State level)
• Central Cooperative Bank (working at District level)
• Primary Agricultural Credit Society (working at Rural level)
• Non- scheduled Banks:
• The banks which are not listed in the 2nd schedule of
RBI Act 1934
• is called Non-scheduled banks.
• These banks are not allowed to deal in foreign exchange.
• Basically, all commercial banks are in the list of
scheduled categories.
• There was a bank whose name was Bank of Jammu and
Kashmir
• was under non-scheduled category but in 2010 this also
• Non- scheduled banks are also known as Local
Area Bank although there are only four local area
• Coastal local area Bank ltd:
• Capital local area bank ltd:
• Krishana Bhima Samuriddhi Local area
bank ltd:
• Subhadra Local area bank ltd:
• Development Banks:
• The development banks were established for the purpose of
development of different sectors like agriculture, housing, small
industry and foreign trade.
• These banks don’t deal in public.
• Following are the list of development banks.
1.IFCI (Industrial Finance Corporation of India)
2.NABARD (National Bank for Agriculture and Rural Development)
3.EXIM Bank (Export-Import Bank)
4.NHB (National Housing Bank)
5.SIDBI (Small Industries Development Bank of India)
6.MUDRA Bank (Micro Unit and Development Refinance Agency Bank)
• IFCI (Industrial Finance Corporation of
India):
• This was the first Development Bank of India
• which was established in 1948 by the
Government of India.
• The headquarters of IFCI is situated in New
Delhi.
• The main purpose of this bank was to provide
• long term finance to the industrials.
• NABARD (National Bank for Agriculture and Rural
Development):
• This bank was established on 12 July 1981
• by the recommendation of B. Shivaraman Committee. The
Bank is headquartered in Mumbai.
• The initial capital of this bank was 100 crores
• later RBI sold its stakes to Government of India
• which holds 99% stakes of NABARD now.
• NABARD was established especially for the development of
agriculture and rural area and handle financial problems
mainly related to agricultural and rural development.
• EXIM BANK (Export-Import Bank):
• This bank was established to encourage foreign
trade of India.
• Its main objective is to arrange funds for the
companies
• which are dealing in export-import business.
• This is fully owned bank of Government of India
• and established under Export-Import Bank of
India Act 1982
• NHB (National Housing Bank):
• This bank was established on 9 July 1988 by the
Government of India.
• This bank is regulated under the National Housing Bank Act
1988 and also is the supreme bank of
• the housing and finance.
• The main objective behind setting up this bank was to
• make available easy and affordable housing loans
• at the regional and local level.
• NHB is also responsible for regulating activities of
• SIDBI (Small Industries Development Bank of
India):
• SIDBI was established on 2nd April 1990 under the Small
Industries Development Bank of India Act 1990
• having its headquarter in Lucknow (UP).
• SIDBI was set up for the promotion, financing and
development of small, micro, medium industry in India.
• Moreover, the objective of SIDBI is to
• strengthen and facilitates entrepreneurs
• who are facing financial problems in expanding their
businesses.
• MUDRA Bank (Micro Unit Development and
Refinance Agency Bank):-
• MUDRA Bank was established on 8 April 2015 and launched
by the Prime Minister Shri Narendra Modi
• with the initial capital of 2000 crores and a credit guarantee
fund of 3000 crores under Pradhan Mantri MUDRA scheme.
• Initially, this bank is functioning as Non- financial company
and subsidiary of SIDBI.
• Later on, this will be made a separate institution.
• The principal objective of this bank to provide loans to small
manufacturing unit, shopkeepers and street vendors at low-
interest rates under the following schemes.
 Banking in India
Legal frame work
of
Banks

Banking Regulation Reserve Bank of India

Act,1949 Act,1934
 Banking in India
Banking in India is governed by BR Act,1949 and RBI
Act,1934.
Banking in India is controlled/monitored by RBI and
Govt. of India.
The controls for different banks are different
• Based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
Classification of Banks-1
Central
Bank
RBI
Regional Public
Rural Sector
Banks Banks

New
Co-
Private
operative
Sector
Banks
Banks

Old
Foreign
Private
Banks Sector
 Classification of Banks-2

PUBLIC SECTOR
BANKS

STATE BANK OF
NATIONALISED
INDIA
BANKS
SBI
 REGULATOR OF BANKS

CENTRAL
BANK
RBI

REGULATOR SUPERVISOR FACILITATOR

 Role of Commercial Banks in India

 The commercial banks provide capital

• , technical assistance and other facilities
• to businessmen according to their need,
• which leads to development in trade.
• Supports to Agriculture Development
• Supports to Industrial Development
• Capital Formation (Capital formation means
increase in number of production units, technology,
plant and machinery)
• Development of Foreign Trade:
• Letter of credit is issued by the importer’s bank to
the exporters to ensure the payment.
• The banks also arrange foreign exchange.
• Transfer of Money
• Supports to more Production (Agriculture &
Industry)
• Development of Transport (banks financed the
transport sector)
• Accelerating the Rate of Capital Formation:
• They encourage the habit of savings among people
• and mobilize idle resources for production purpose.
• Provision of Finance and Credit:
• Banks are instruments for developing internal as well
as external trade.
• Monetisation of Economy:
• Banks are opening branches in rural areas can
• promote the process of the monetisation in the
economy.
• Innovations: Innovations are an essential prerequisite
for economic development.
These innovations are mostly financed by bank credit in
the developed countries.
• Implementation of Monetary Policy
• Encouragement to Right Type of Industries •
Regional Development
• Promote Industrial Development
• Fulfillment of Socio-economic Objectives
 Functions of Banks
•Commercial Banks-Core Banking Functions
Acceptance of deposits from public
Lending funds to public/corporates
Investing funds in various opportunities
Collecting cheques/drafts and other Negotiable
Instruments
Remitting funds
 Functions of Banks-Commercial Banks
•Providing safe deposit lockers
•Acceptance of safe custody items
•Acceptance of standing instructions
•Offering internet banking facilities
•Issuance of credit and other cards
including ATM cards
•Offering various products like Mutual
funds,insurance products, merchant banking
services
•Acting as executors and trustees
Commercial Banks DEPOSIT PRODUCTS

CURRENT

CERTIFICATE SAVINGS

DEPOSITS

FLEXI FIXED

RECURRING
Non-Resident Accounts

Rupee accounts

Non-resident Non-resident
Ordinary account External account
(NRO) (NRE)
• FCNR (B) accounts
• NRIs,PIOs,residing outside India can open FCNR (B)
accounts
• FCNR (B) accounts are maintained as fixed deposits in
certain designated currencies
• The designated currencies are:
• US$, GBP, Japanese Yen, Euro, Cad$, Aus $
• Maintained in Banks in India in the above
mentioned foreign currencies and interest is also earned
in such foreign currencies
•
Loan Products – Fund Based
CASH
CREDIT

BILLS
OVERDRAFT
FINANCE
LOANS
&
ADVANCES

RETAIL
TERM
FINANCE
FINANCE
Loan Products –Non Fund Based

Co-
Acceptance Letters of
Of Credit
Bills

Bank
Guarantee
•THANK YOU