D. P.

Srivastava 04/08/2024 1
Welcome to Training Programme
on
Inclusive Banking
through
Business Correspondents
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STRUCTURE OF INDIAN BANK
and
TYPES of BANKS
(Chapter-1)

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Objectives:

• Introduction to Banking in India

• What is Banking and a Bank
• Why Banking Services
• Types of Banks in India-Scheduled Banks
and Non Scheduled Banks
• Various Functions of Banks
• Recent Trends in Banking
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 Introduction to Banking in India
• Commercial Banks were privately owned by businessmen
previously.
• The Bank of Bengal-the first banking Institution of India
formed in 1908.
• Formation of several banks during Swadeshi movement
by Indian businessmen between 1906 to 1913
• Imperial Bank of India formed in 1921 by amalgamation of
Bank of Bengal, Bank of Bombay and Bank of Madras,
• Imperial Bank of India later on rechristened as State Bank
of India (SBI) in 1955.
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 Introduction to Banking in India
• Nationalisation of commercial Banks in two phases
=14=banks in 1969 and =6= banks in 1980
• With the introduction of financial sector reforms in 1991-92,
emergence of new generation private sector banks like ICICI
Bank, HDFC Bank, UTI Bank (now Axis bank), IDBI banks etc
with a view to inject an element of competition and improvement
in customer service in the banking industry and break the virtual
monopoly and complacency of public sector banks.
• Bandhan Bank and IDFC First Bank are the latest new generation
Private sector Banks
• Expansion of Foreign Banks after 2004

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 What is Banking and a Bank
• A Bank is a financial institution, an intermediary between savers
and investors.
• As per sec 5(b)of Banking Regulation Act 1949 “ Banking means
accepting money from the public for lending or investment of
deposits, repayable on demand and withdrawable by cheque,
draft, order or otherwise.”
• Banks are governed by Banking Regulation Act, 1949 .
• Only the Banking companies can accept money from public,
repayable by cheque or draft.
• Sec.49A prohibits any institution accepts money from public and
repayable by cheque, and such institution should not use the word
“Bank” or “Banker”.
• D. P. Srivastava
The regulator of Banks in India is RBI .
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 Why Banking Services
• Banking is one of the most essential and important
factor in one’s life right from a big industrialist to a
poor man as it deals with cash and cash transactions.
• Financial needs are equally important in life for
enjoying a comfortable status and hence banking plays
a vital role for everyone.
• Banking is an indispensable tool for growth of any
country.
• Banking sector accounts for most of the tertiary sectors
which account for 48% of the total national income
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 Why Banking Services
• No person can deny or neglect the importance of bank in
developing the country and achieving high rate of
economic growth.
• Now-a-days, banking services are not a luxury but a
necessity of life for everyone.
• The importance of online banking has increased many fold
after breakout of covid because online banking has helped
a lot to procure the basic needs like food materials, milk
etc during lockdown period of Covid.

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 Why Banking Services to Poor

• A large population of India is yet poor and deprived from

the banking facilities.
• It is the fact that unless the standard of these poor and
excluded section of the society is improved, India can never
develop.
• It is also true that that the existing branch banking and
electronic banking may not be appropriate models to reach
the excluded people keeping in view the cost factor and
considering the profitability aspects of the commercial
banks as financial inclusion involves financial education,
counselling and building up of close relationship with
people.
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 Why Banking Services to Poor

• In this background and in order to take banking services to the

people living in unbanked and under banked areas, the Business
Correspondent/Business Facilitator (BC/BF) Model has been
introduced.
• The person or institution/company appointed as BC/BF functions
as an extended arm of the bank branch in the area.
• As a result of this arrangement, the targeted population can access
various financial services and financial education from the banks
through these BC/BF Agents/arrangements at affordable cost in
very easy and smooth way without much difficulties and their
economic condition can improve.
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 FEATURES OF BANKING

• Dealing in money – Accepts deposits from public and giving

advance as loans to the needy.
• Different types of Deposit: Current account, Savings account
(Demand Deposit), a Fixed deposits and Recurring Deposits
(Term Deposit).
• Deosit other than Fixed deposit should be withdrawable by
cheque, i.e. On demand
• Dealing with credit
• Banks can create credit for lending. “Creation of credit” is the
unique feature of Banking.
• Commercial Institution : Banks have the motive of profit
making.
• Agency Services: Besides deposits, Banks act as agent for various
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 Cycling of Fund by Banks

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 Types of Banks
 Scheduled Banks
- Those Banks which are listed in the second schedule of Reserve
Bank of India Act 1934.
 NON-Scheduled Banks
- Those Banks which are not listed in the second schedule of Reserve
Bank of India Act 1934.
 Scheduled Banks
• Public Sector Banks (PSBs) :
- After series of merger, the no. of public sector banks has presently
reduced to 12 from 27 in 2017.
• ➢ SBI
• ➢ = 11=Nationalized Banks
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 Scheduled Banks
• Merger (Public Sector Banks): SBI- =7= Associate
Banks, Bhartiya Mahila Bank
• BOB- Dena Bank and Vijaya Bank.
• Canara Bank -Syndicate Bank.
• Indian Bank- Allahabad Bank
• PNB- OBC and UBI.
• Union Bank- Andhra Bank & Corporation banks

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 Scheduled Banks
 Private Sector Banks -
• Private Sector Banks- Old and New Generation Private Sector
Banks
• Foreign Banks
• Local Area Bank
• Payment Banks
• Small Finance Banks
• Regional Rural Banks – RRBs
• Co-operative Banks
-The entire above banks are scheduled banks (except Dist Co-
operative Banks and a few small urban Co-operative Banks)
which are mentioned in the second schedule of RBI
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 Scheduled Bank
- Features:
• Name mentioned in second schedule of RBI as per RBT Act 1934.
• Must have paid up capital and reserves of not less than Rs:5
lakhs
• Its affairs are not detrimental to the interest of the depositors .
• In return scheduled banks must keep obligations like keeping
cash reserves with RBI at stipulated rate (Cash Reserve Ratio)
• Submit periodical return to RBI .
• Enjoy privileges of free remittance facility through the offices of
RBI and borrowing from RBI at Bank rate .
• Membership to clearing houses .

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 Public Sector Banks

• Public Sector Banks (PSBs)

• Owns minimum 51% or more share capital by Govt of India
• About 57% of the banking business in India is performed
through these banks.
• SBI
• SBI is the largest bank in India with more than 25000
branches. Recently 7 associate banks merged with SBI,
Bharatiya Mahila Bank also merged with SBI
• SBI has financial subsidiaries like SBI Life Insurance Co, SBI
Mutual fund, SBI factors, SBI Capital market, SBI Cards etc.
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 Public Sector Banks
• Nationalised Banks
- Nationalisation in two phases- 14 Banks in 1969 (19th July 1969)
and 6 banks in 1980 (15th April 1980)
- PNB acquired New Bank of India in 1993
 After series of merger, the no. of public sector banks has presently
reduced to 12 from 27 in 2017.
• ➢ SBI
• ➢= 11= Nationalized Banks
• Merger: SBI- =7= Associate Banks: BOB- Dena Bank and Vijaya
Bank.
• Canara Bank -Syndicate Bank. Indian Bank- Allahabad Bank
• PNB- OBC and UBI. Union Bank- Andhra Bank & Corporation
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Bank
 Private Sector Banks
• Private Sector Banks (Old)
• Shares are held by public
• 12 Old Private Sector banks. Small balance sheet size, Regional
operations (for eg:Cathilic Syrian Bank ( CSB), City Union Bank
(CUB),South Indian Bank(SIB), Federal bank , Dhanlaxmi Bank
(DLB)etc).
• IDBI Bank is classified as a private sector bank now by RBI.
• New Generation Private Sector Banks
• Incorporated after 1993
• Better capitalized, technology driven, aggressive business
development, functioning comparable to Foreign Banks in India. Eg:
ICICI, HDFC, Axis, Yes Bank, Kotak Mahindra Bank, Indusind Bank
etc.
• RBI has also given licence for opening of Bandhan Bank and IDFC First
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Bank. These banks have already started functioning.
 Regional Rural Banks

• Regional Rural Banks (RRBs)

• Established under RRB Act 1976
• Focus on rural development .
• Can open branches in Govt. Notified Areas.
• They are also scheduled banks sponsored by PSBs.
RRBs function within the State Ownership/capital is
jointly by Central Govt 50%, State Govt 15% and
sponsoring Bank 35% .

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 Local Area Banks

• Set up under Private Sector

• To function in a given area (contiguous 2 to 3 districts)
 4 Local Area Banks :
• - Coastal Local Area Bank Ltd. Vijaywada (A. P.)
• -Krishna Bhima Samruddhi Local Area Bank Ltd.
Mahboobnagar (AP)
 Subhadra Local Area Bank Ltd., Kolhapur
(Maharashtra)
• -Capital local Area Bank Ltd., Jullundur (Punjab)
(Since converted into Small Finance Bank in 2016)
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 Foreign Banks
• Foreign Banks
• Incorporated abroad outside India in Foreign Countries
• Granted licence by RBI to do banking business in India
through their Indian branches.
• Most of them operate in metropolitan or State Capitals or
Big Cities.
• Net work is smaller, technology driven, do mainly corporate
banking, foreign exchange, export/import finance and
merchant banking.
• Eg: Standard Chartered Bank, Grindlays Bank, HSBC Bank,
Deutsche Bank, Citi Bank etc .
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 Payment Banks
• Payment Banks :
• Minimum Equity Paid up capital : Rs. 100 crore
• Can accept Demand Deposits i.e. Current and Savings
Deposits from individuals and small business entities with a
maximum of Rs: 2/- lakh per customer ( now raised from Rs. 1/-lac
to Rs. 2/-lakh per customer).
• Customers earn interest at SB a/c balance.
• Can accept and send remittances
• Can distribute mutual fund products, insurance and pension fund.
Can Issue ATM Card but cannot issue credit cards and lend to
customers
• Payment bank can park 75% of deposit only in Govt papers and
25% in current and Time Deposit with other Commercial banks.
• [Link]:
P. SrivastavaAt least to be 25% in rural areas. 04/08/2024 24
 Small Finance Banks
• Small Finance Banks
• Minimum Equity Paid up capital : Rs. 100 crore
• Can accept deposits and lend to customers.
• 75% of loans to be given to Priority Sector
and 50% of total loans must be below Rs.25/- lakhs
• Afford credit to small business enterprises, low income groups,
farmers and migrant labourers.
• Should fulfill the need of micro and small enterprises (MSEs)
• Contribute to employment, value addition and exports in the
Indian economy
• At least 25% branches in unbanked areas.
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 Co-operative Banks
• Co-operative Banks
• They are integral part of Indian economy – divided into 2
segments, They are :-
• Urban co-op Banks
• Divided into scheduled and non-scheduled, again divided into
multi-state and single-state.
• Majority fall in non scheduled, single state category
• Activities monitored by RBI
• Registration and management activities managed by Registrar
of Co-operative Societies (RCs).
• RCs operate in single-state and central RCs(CRCs) operate in
multiple state
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 Cooperative Banks

• Rural Co-operatives :
• Regulated by a shared arrangement between RBI and NABARD.
• Management and Registration activities managed by RCs.
• Can be broadly divided into short term and long term structure
• The short term co-op banks are three tired operating in
different states. These are:- [Link] Co-operative Banks:- operate
at the apex level in states
• [Link] Central Co-op banks:- operate at district levels
• [Link] credit societies:- operate at village or grass root
level.
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 Co-operative Banks

• Long term cooperatives Banks are divided into:

• State Co-operative Agriculture and Rural development
Banks (SCARDS)- Operate at State Level
• Primary Co-operative Agriculture and Rural
development Banks
 (PCARDS)- operate at district/ block level.

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 Role of Banks

Financial Intermediation Payment System Other Financial Services

Distribution, Collection of
Taxes, Demat Accounts
Deposits and Advances Payment Services , Safe Deposit Lockers,
Collection Services Safe Custody, Advisory
Services

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 FUNCTIONS of BANK
-Offers a number of financial services and products to its
customers
• 1. Accepts deposits in the form current accounts, savings and term
deposits
• 2. Remit money or funds transfer by DDs or money transfer,
NEFT/RTGS/IMPS etc.
• Carry out standing instructions to make payment towards loan
instalment, pay electricity bill etc.
• Tax collection on behalf of Govt
• Lends money to Agl loan, Home loan, Educational loan, Vehicle
loan, Business Loan, Industry loan etc.

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 FUNCTIONS of BANK
• Buying and selling foreign currency and do export/import
business for their clients Offer safe deposit lockers for safe
keeping of valuables of customers.
• Offers Safe deposit vault (lockers) for safe keeping of valuables of
customers.
• Internet banking, ATM, cash deposit machines, cheque
collection machine – affords round the clock service
• Offers Debit/Credit cards
• Sells mutual fund and insurance products .
• Thus deposit collection and lending and investment are the basic
functions of a bank, the other activities are treated as other
functions. So apart from the primary functions, the banks do a
numberD. [Link] subsidiary services as listed above.
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 FUNCTIONS of BANK
• Acceptance of deposits
• Banks accept money from public in current account, where
no interest is payable and in savings deposits, where a
small interest is payable.
• Business people open current accounts and individuals
open savings deposits, where commercial transactions are
not involved.
• Both current and savings accounts are demand deposits
and are payable on demand and withdrawable by cheques.
• Savings bank account holders are issued ATM cards and
they can withdraw cash from ATM machines
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 FUNCTIONS of BANK
• LOANS and ADVANCES
• Banks lend in the form of working capital such as cash
credits, overdrafts, demand loans and term loans.
• Loans can be classified as corporate loans, SME advance,
Agricultural loans, Retail loans, Foreign currency loans,
Educational loan, vehicle loans etc.
• Loans are classified as Secured loans and Unsecured
(clean) loans on the basis of security available.
• Security can be in the form of pledge of bank deposits, shares
& debentures, LIC policies, mortgage of landed property,
hypothecation of raw material, plant and machinery etc.
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 Bank as Provider of Remittance Services

 In order to perform various activities /transactions for

buying and selling of goods and services, movement of
money from one place to another place is essential.
 Movement of physical cash from one place to another
place, all the times, is very difficult and risky.
• Banks perform the role of intermediaries through their
branch network enabling customers to send money
from one place to another.
• Banks issue demand draft or now electronic transfer by
way of NEFT/RTGS/Mobile Banking/IMPS etc

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 ELECTRONIC BANKING

• Large scale computerization, information technology,

IT driven systems adopted by all banks
• IT for front-office operations for direct dealing with
customers, and for back-office operations such as
internal accounting, balancing, settlement of
transactions with other banks/branches
• Phone banking, internet banking, credit/debit cards,
ATM etc.

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 ELECTRONIC BANKING
• Banks transform into a modern outlook by
electronic/digital banking from the traditional “Brick
and Mortar” i.e. Branch banking
• IT anywhere and anytime banking, speed, accuracy,
confidentiality, cheques, clearing, bills collection
Internal house keeping.
• Customers need not go to the branches and can do
various banking activities like cash withdrawal, deposit
of cheques. Deposit of cash, Obtaining account
statement etc. through ATM, Debit/Credit cards,
Internet banking etc.
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 Recent Trends in Banking
• Recent trends in Banking
• Indian banking consists of 12 PSBs(including SBI), 22 private
banks, 46 foreign banks, 43 RRBs, 1544 Urban Co-op banks
and 96248 rural co-op banks as on December, 2020
• PSBs do 57% of market share at present.
• Operational Freedom to Banks
• RBI deregulated interest rates and bank can fix interest rates
on deposits and advances as per their Assets-Liabilities
Management (ALM) policies
• RBI expects banks to be more transparent in their base rates
and other policy matters.
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 Recent Trends in Banking
• Universal Banking :
• Offering all banking products and services(both fee
based and fund based services) under one roof.
• Lower profit margin on lending due to high
competition .
• Focus on fee based income to increase profit .
• Fee based services include investment banking
activities, advisory services, wealth management,
selling insurance and mutual funds etc.

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 Recent Trends in Banking
• --Consolidation of Banks
In the recent past banking industry in India has
witnessed a lot of mergers and acquisitions and this
phenomenon is expected to continue in coming years too
due to the main benefits as under,
• Improved Financial Stability: Larger and more
diversified bank may enable themselves to withstand
economic shocks and financial crisis.
• Increased access to Credit: Larger banks may lend
more money to businessmen, industrialist and
consumers leading to more production and better
economic growth.
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 Recent Trends in Banking

• Consolidation of Banks– (Contd…)

• Economies of Scale: Larger banks can often operate more efficiently,
reducing cost of technology, compliance and administration. This can
lead to lower cost for banking products for customers.
• Expanded Market Exposure: Mergers and acquisitions can help
banks to expand their geographic reach and enter new markets.
• Diversification: Mergers and acquisitions can lead to a more diverse
portfolio of products and services leading to availability of wider range
of products and services to consumers.
• Increased Competitive Advantages: Larger banks may have a
competitive edge regarding resources, technology and expertise
leading to availability of better products and services at cheaper to
consumers,
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 Recent Trends in Banking
• Thrust on financial inclusion
• Bringing low income and disadvantaged groups under the
coverage of banking by providing them access to banks at
affordable cost
• Pradhan Mantri Jan Dhan Yojana(PMJDY), Pradhan Mantari
Jeevan Jyoti Scheme, Pradhan Mantri Suraksha Bhima Yojana
• Business facilitators employed in implementing FI in remotest
areas, setting up of Payment Banks and Small Finance Banks
• Non banking digital companies, e-wallet and new banks
function on low cost-high tech models .

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 Recent Trends in Banking

• Increased use of technology

• Adoption of new technology, increased automation, off-site
banking through ATMs, internet banking Core banking
provides “any time” “any where” banking
• Mobile banking, fund transfer through NEFT/RTGS – a big
boost to individuals/traders Wallet banking
• Plastic money like credit/debit cards and other pre-paid
instruments at the “point of sale”
• Mobile Banking :-
• Using mobile phone, fund transfer, balance enquiry, mini
statement, request for cheque book etc can be done.
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 Summary
• Summary (Contd….):
• The main function of the banks is accepting deposit from public and lend
money to various entities for various productive purposes.
• Apart from accepting deposit and lending, banks offer various other facilities
like remittances, safe deposit lockers, advisory services, wealth management,
collection of cheques, selling of mutual funds, tax collection, demat account
etc.
• Banking is changing very fast with advancement in technology and adoption
thereof thereby providing a lot of comfort and convenience to customers to
carry out various banking transactions like deposit of cash, deposit of cheques,
withdrawal of cash, fund transfer , online purchases etc. with the help of ATMs,
Internet banking, Mobile Banking, Debit/ Credit card without visiting bank
branches.
• Operational freedom to Banks, Universal banking, consolidation of banks,
Financial inclusion are a few thrust areas of modern banking.
• During the ongoing Covid -19 pandemic, online banking has helped a lot
towards online shopping of basic necessities required for survival of human life.
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