RAJASTHAN TECHNICAL

UNIVERSITY

TOPIC – BANKING AND FINANCE

SUBMITTED TO – DR.ANKITA BIRLA
PRESENTED BY – VAISHNAVI SHREEGOUR
 List Of Content
• Introduction to banking and finance
• Evolution of bank
• Types of banks
• Role of bank
• Functions of bank
• Regulatory provisions/enactments governing banks
• Securities for bank advances
• Different forms of securities
• Precautions taken by banks in accepting these securities
 Introduction To Banking
• The banking here is a group of network of institutions
governing by laws that provide a great variety of financial
services to the society .

• An institution that deals in money and its substitutes and

provides other money-related services. In its role as a
financial intermediary, a bank accepts deposits and makes loans.

Definition Of Bank
• “Bank provides services to its client and in turn receives
perquisites in different forms.” – P.A. Samuelson
 Objectives Of Banks

• To create propensity of savings amongst the people.

• To establish as an institution for maximizing profits and to

conduct overall economic activities.

• To create money against money as an alternative for

enhancing supply of money.

• To build up capital through savings.

• To extend services to the customers.

• To maintain and control exchange rates as a central bank.

 Introduction To Finance
• Finance is defined as the management of money and

includes activities such as investing, borrowing, lending,

budgeting, saving, and forecasting.

• Thus, in modern systems, banks financial instruments,

financial markets, and services are included. Also, this

system allows for the funds invested, allocated, and moved

within a smooth process.

• There are various components of financial systems. They

are:
 Financial Institutions
• Financial institutions include banks and other nonfinance

banking institutions. It is a company that is engaged in the

business of dealing with monetary and financial transactions

like loans, deposits, and investments.

Financial Services
• The economic services that are provided by financial

institutions and covers a broader aspect of money like

managing money, banks, credit cards, debit cards are called

financial services.
 Financial Market
• Financial markets refer broadly to any marketplace where
the trading of securities occurs, including the stock market,
bond market, forex market, and derivatives market, among
others. Financial markets are vital to the smooth operation
of capitalist economies.
 Evolution Of Bank
The evolution of banks in India, the different categories and the
impact of nationalised banks.

Phase 1: The Pre-Independence Phase

• There were almost 600 banks present in India before

independence. The first bank to be established as the Bank of
Hindustan was founded in 1770 in Calcutta. It closed down in
1832. The Oudh Commercial Bank was India’s first commercial
bank in the history of the evolution of banking in India.
• A few other banks that were established in the 19th
century, such as Allahabad Bank (Est. 1865) and Punjab
National Bank (Est. 1894), have survived the test of time
and exist even today.

• Some other banks like the Bank of Bengal, Bank of

Madras, and Bank of Bombay – established in the early
to mid-1800s – were merged as one to become the
Imperial Bank, which later became the State Bank of
India.
 Phase 2: The Post-Independence Phase

• After independence, the evolution of the banking system in

India continued pretty much the same as before. In 1969,

the Government of India decided to nationalise the banks
under the Banking Regulation Act, 1949. A total of 14
banks were nationalised, including the Reserve Bank of
India (RBI).
• In 1975, the Government of India recognised that several

groups were financially excluded. Between 1982 and 1990,

it created banking institutions with specialised functions in
line with the evolution of financial services in India.
• NABARD (1982) – to support agricultural activities

• EXIM (1982) – to promote export and import

• National Housing Board – to finance housing projects

• SIDBI – to fund small-scale industries

 Phase 3: The LPG Era (1991 Till Date)
• From 1991 onwards, there was a sea change in the Indian
economy. The government invited private investors to
invest in India. Ten private banks were approved by the
RBI. A few prominent names which exist even today from
this liberalisation are HDFC, Axis Bank, ICICI, DCB and
IndusInd Bank.

• In the early to mid-2000s, two other banks, Kotak

Mahindra Bank (2001) and Yes Bank (2004), received their
licenses. IDFC and Bandhan banks were also given
licenses in 2013-14.
Other notable changes and developments during this era
were:
• Foreign banks like Citibank, HSBC and Bank of America
set up branches in India.
• The nationalisation of banks came to a standstill.
• RBI and the government treated public and private sector
banks equally.
• Payments banks came into existence.
• Small finance banks were permitted to set up their branches
throughout India.
• Banks began to digitalise transactions and various other
related banking operations.
 Reasons of Nationalised in India

To get a clearer picture of the impact of nationalisation on the

banking industry and the general population, let’s understand

why the government decided to nationalise banks:

• To Energise Priority Sectors: Banks were collapsing at a fast

rate – 361 banks failed between 1947 and 1955, which converts

to about 40 banks a year. Customers lost their deposit with no

chance of recovering them.

• A Neglected Agricultural Sector: Banks favoured large
industries and businesses and neglected the rural sector.
Nationalisation came with a pledge to support the
agricultural sector.

• Expansion of Branches: Nationalisation facilitated the

opening of new branches to ensure maximum coverage of
banks throughout the country.
• Mobilisation of Savings: Nationalising the banks would
allow people more access to banks and encourage them to
save, injecting additional revenue into a cash-strapped
economy.

• Economic and Political Factors: The two wars in 1962

and 1965 had put a tremendous burden on the economy.
The nationalisation of Indian banks would give the
economy a boost through increased deposits.
 The Positive Effects of Nationalisation

• Increased Savings: There was a sharp increase in savings

with the opening of new branches. As national income

rose in the 1970s, gross domestic savings almost doubled.

• Improved Efficiency: The efficiency of banks improved

with additional accountability. It also increased public

confidence.
• Reducing Regional Imbalance: Bank nationalisation
helped in more equitable regional growth since banking
system was concentrated in urban centres and that too
largely in the West and the North.

• Better Outreach: Banks were now no longer only

restricted to metropolitan areas. Branches were opened in
the remotest corners of the country.
• Protection of Public Interest : Unhealthy competition
among industrialists injured the interest of the public which
was measured and mitigated by state ownership.

• Centralised Management : Centralised management

made possible due to coordination in nationalised banks
helped provide uniform services throughout the country. It
thus enabled the state to solve the problems of organisation,
capital, labour operation and marketing.
 Drawbacks of Nationalisation

• Socio-Economic Challenges: The banks couldn’t provide

sufficient support to eradicate poverty or provide adequate

financing to the grassroots levels of society. This was particularly

obvious in rural India.

• Competition From Private Banks: Despite government support

and increased impetus through a rise in deposits, public sector

banks were never able to surpass private banks in performance.

• Political Pressures: The smooth work­ing of nationalised banks
has also been hampered by growing political pressures from the
Centre and the States. Nationalised banks often face lots of
difficulties due to various political pressures. Such pressures
are created in the selection of personnel and grant of loans to
particular parties without considering their creditworthiness.

• Losses in Rural Branches: Most of the rural branches are

running at a loss because of high overheads and prevalence of

the barter system in most parts of rural India.

• Failure to Achieve Financial Inclusion: Although
financial inclusion was the major objective of
nationalising banks, it was not adequately enabled. It was
only achieved to a limited extent after the launch of a
government campaign called Jan Dhan Yojana.
 Public Sector Banks

• The government holds the majority of the shares of a public

sector bank. Public sector banks are further divided into
nationalised banks and state banks and their associated
organisations.

• With nationalised banks, the government has complete

control and regulates the bank in all respects. But the
government also has the option to sell shares of these banks.
When this happens, the government’s stakes are reduced.
• Sometimes the government becomes a minority in such
banks, and then that bank gets listed on the Indian stock
market.

• A prime example is the State Bank of India, with 58.6%

of its shares allocated to the Government of India. We
could also consider Punjab National Bank, of which the
government holds a stake of 58.87%.
 Payment Banks in India

• Payment banks are a new model created by the RBI. These

banks can accept restricted deposits but are not authorized
to issue loans or credit cards. They offer both current
and savings accounts and can also issue ATM cards or debit
cards.
• An example of a payment bank in India is Airtel Payments
Bank, set up by Bharti Airtel. Such banks also have a major
role to play in the evolution of e-banking in India as they
offer online payment solutions like mobile payment apps.
 Private Sector Banks
• Private sector banks are owned by private entities. They
came into prominence in the 1990s. Due to the high-quality
service that they offer, these banks present stiff competition
to public sector banks.
 Small Finance Banks in India

• Some niche banks in India provide basic banking

services like deposits, lending, and bank transfers. These
are small finance banks and cater to the part of the
economy that isn’t being serviced by regular banks, such
as marginal farmers, small industries, and other parts of
the unorganized sector.

• Examples of these banks are Ujjivan Financial Services

Pvt Ltd in Bangalore and Equitas Holdings Pvt Ltd in
Chennai.
 • Compliance Officers
• Traders
• Sales
• Investor Analyst
• Risk Manager
Roles Of Banks • Fund Managers
• Client Advisor
• Operations Analyst
• Business Technology
Specialist
• Security and Fraud
Specialist
Functions Of Banks
 Regulatory Provisions

The banking systems in India is regulated by the Reserve

Bank of India (RBI) , through the provisions of the

Banking Regulation Act , 1949.

 Exposure Limits
• Lending to a single borrower is limited to 15% of the bank’s
capital funds , which may be extended to 20% in the case of
infrastructure projects.
• For group borrower , lending is limited to 30% of the bank’s
capital funds, with an option to extend it to 40% for
infrastructure projects.
• The lending limits can be extended by a further 5% with the
approval of the bank’s board of directors.
Cash Reserve Ratio (CRR) and Statutory Liquidity

Ratio (SLR)
• Banks in India are required to keep a minimum of 4% of
their net demand and time liabilities (NDTL) in the form of
cash with the RBI.

• A minimum of 22% and a maximum of 40% od NDTL ,

which is known as the SLR , needs to be maintained in the
form of gold , cash or certain approved securities.
 Provisioning
• Non-performing assets (NPA) are classified under three
categories

I. Substandard

II. Doubtful

III. Loss

Priority sector lending

• The priority sector broadly consists of micro and small
enterprises , and initiatives related to agriculture , education,
housing and lending to low-earning or less privileged groups
(classified as “weaker sections” ). The lending target of 40%
 New bank license norms
• The new guidelines state that the groups applying for a
license should have a successful track record of at least 10
years and the bank should be operate through a non-
operative financial holding company.

Wilful defaulters
• It takes place when a loan isn’t repaid even though resources
are available , or if the money lent is used for purposes other
than the designated purpose, or if the property secured for a
loan is sold off without the bank’s knowledge or approval.
 The Bottom Line
• The way a country regulates its financial and banking
sectors is in some senses a snapshot of its priorities, its
goal and the type of financial landscape.
 Securities for Bank Advances

• Securities in the Banking Sector is nothing but a

document certifying compliance with the prescribed form
and the mandatory information about property rights, the
exercise, or transfer shall be possible only upon its
presentation. Securities in the banking sector is a crucial
topic for banking and finance competitive exam.
• Securities in the banking sector are the safety or
guarantee that may be personal, verbal, or in the form of
any property.

• When a creditor lends a loan, it is essential for them to

secure the same through different kinds of securities.

• Thereby, security becomes the right of a creditor in the

form of property or anything that can convert the same
into cash in case the debtor fails to repay the amount
advanced with the interest.
Types of Security
 Precautions by a Banker
• The integrity of the borrower

• Purpose of the loan

• Nature of the commodity

• Knowledge of different markets

• Ascertain the title of owner

• Proper storage

• Rented go down

• Insurance up to the full market value

• Creation of charge by pledge and hypothecation

Thank you