eco report

NDIM

CONTENTS

S.NO TOPICS P.NO1 History 2

2 Primary Operations of Bank 3

3 Different Groups Of Banking Sector 4

4 Private Sector Bank with examples 5

5 Controlling of Banks by Rbi 7

6 Over View of Banking System 8

7 Bank Investment 9

8 Statutory Liquidity Ratio 10

9 Activities of Commercial Bank 11

10 Para Banking Activities 12

11 Organisational Structure 14

12 New Technology in Banking Sector 15

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HISTORY

1870 – Bank of Hindustan – First Bank

Presidency Banks - Bank of Calcutta, Bank of Bombay and Bank of Madras

1921 - All 3 banks amalgamated and became Imperial Bank of India

1934 – RBI was Constituted

1949 – RBI came under government control

1955 – Imperial Bank became State bank of India

Banking:

A Bank is a financial institution licensed by a government.

Its primary activities include borrowing and lending money.

It provides Services like Credit card, debit card , interest on deposits.

The banking activities can be classified as :

Accepting Deposits from public/others .

Lending money to public .

Transferring money from one place to another.

Acting as trustees

Acting as intermediaries

Keeping valuables in safe custody

Collection Business

Government business

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MARKETING OF FINANCIAL SERVICES:-

• Concerned with the designing of product strategies keeping in view the needs and requirements of prospects.

• It is concerned with product, place, pricing, distribution, and promotion decisions in the changing socio-economic and business environment

• It is also related with the place decision i.e. locating bank at suitable point.

Primary Operations of Banks

• Keeping money safe while also allowing withdrawals when needed

• Issuance of check books so that bills can be paid and other kinds of payments can be delivered by post

• Provide personal loans, commercial loans, and mortgage loans (typically loans to purchase a home, property or business)

• Issuance of credit cards and processing of credit card transactions and billing

• Issuance of debit cards for use as a substitute for checks

• Allow financial transactions at branches or by using Automatic Teller Machines (ATMs)

• Provide wire transfers of funds and Electronic fund transfers between banks

• Facilitation of standing orders and direct debits, so payments for bills can be made automatically

• Provide overdraft agreements for the temporary advancement of the Bank's own money to meet monthly spending commitments of a customer in their current account.

• Provide Charge card advances of the Bank's own money for customers wishing to settle credit advances monthly.

• Provide a check guaranteed by the Bank itself and prepaid by the customer, such as a cashier's check or certified check.

• Notary service for financial and other documents

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Different groups

Banks in India are categorized in five different groupsaccording to their ownership and/or nature of operation. These bank groups are

(i) State Bank of India and its associates,

(ii) Nationalised Banks,

(iii) Regional Rural Banks,

(iv) Foreign Banks and

(v) Other Indian Scheduled Commercial Banks

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Private Sector Banks

• Old generation private banks

• New generation private banks

• Foreign banks operating in India

• Scheduled co-operative banks

• Non-scheduled banks

Development Banks/Financial Institutions

• IFCI

• IDBI

• ICICI

• IIBI

• SCICI Ltd.

• NABARD

• Export-Import Bank of India

• National Housing Bank

• Small Industries Development Bank of India

• North Eastern Development Finance Corporation

Controlling the banks-

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Reserve bank of India (RBI) that was introduced in 1935 and became nationalized in 1969 has the responsibility to control all other banks performing in India. R.B.I acts as the central bank of India and it has some major objectives that are as follows

1-Regulate the issue of banknote

2-Maintain reserve with a view to secure monetary policy

3-controlling the all other bank’s activities

Tools used by RBI to control other banks-

RBI uses some tools to control the other performing banks these tools are

Cash reserve ratio (CRR)

Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with the RBI. If the central bank decides to increase the CRR, the available amount with the banks comes down. The RBI uses the CRR to drain out excessive money from the system. Commercial banks are required to maintain with the RBI an average cash balance, the amount of which shall not be less than 3% of the total of the Net Demand and Time Liabilities (NDTL), on a fortnightly basis and the RBI is empowered to increase the rate of CRR to such higher rate not exceeding 20% of the NDTL.

Repo Rate

The rate at which the RBI lends money to commercial banks is called repo rate. It is an instrument of monetary policy. Whenever banks have any shortage of funds they can borrow from the RBI.

Reverse Repo Rate

Reverse repo rate is the rate at which the RBI borrows money from commercial banks. Banks are always happy to lend money to the RBI since their money is in safe hands with a good interest.

Statutory liquidity ratio (SLR)

Every bank is required to maintain at the close of business every day, a minimum proportion of their Net Demand and Time Liabilities as liquid assets in the form of cash, gold and un-encumbered approved securities. The ratio of liquid assets to demand and time liabilities is known as Statutory Liquidity Ratio (SLR). RBI is empowered to increase this ratio up to 40%.

Bank Rate

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Bank Rate is the rate at which central bank of the country (in India it is RBI) allows finance to commercial banks. Bank Rate is a tool, which central bank uses for short-term purposes. Any upward revision in Bank Rate by central bank is an indication that banks should also increase deposit rates as well as Base Rate / Benchmark Prime Lending Rate.

Overview of Indian banking system

Phase 1

It started from 1786 to 1969 during this time the following things have taken place.

General bank of India was established in 1786 it was the first bank of India. In 1935 Reserve Bank of India RBI became operational. The company act 1949 was made. People mostly used to save in postal deposits during this period. In 1920, all three banks, Bank of Bombay, Bank of Bengal & Bank of Madras were

amalgamated and Imperial Bank of India was established. It started as private shareholders banks, mostly European shareholders. In 1865, Allahabad Bank was established exclusively by Indians. Punjab National Bank was set up in 1894.

Phase 2

During this period the following incidents happened.

Nationalization of imperial bank of India. Formation of State Bank of India (SBI) in 1955. Nationalization of SBI in 1960 Creation of Indian rural bank. In 1969, 14 major commercial banks were nationalized. In 1980 seven more banks were nationalized.

Phase 3

Entry of foreign bank. Phone banking and net banking.

BANK INVESTMENTS

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In addition to loans and advances, which were discussed in, banks deploy a part oftheir resources in the form of investment in securities/ financial instruments. The bulk of abank's assets are held either in the form of loans and advances and investments.Investments form a significant portion of a bank's assets, next only to loans and advances,and are an important source of overall income. Commercial banks' investments are of threebroad types: Government securities, other approved securities and other securities.These three are also categorised into SLR (Statutory Liquidity Ratio) investment and non-SLRinvestments. SLR investments comprise Government and other approved securities, whilenon-SLR investments consist of 'other securities' which comprise commercial papers, shares,bonds and debentures issued by the corporate sector.

Under the SLR requirement, banks are required to invest a prescribed minimum of their netdemand and time liabilities (NDTL) in Government- and other approved securities under theBR act, 1949. (Note that SLR is prescribed in terms of banks' liabilities and not assets). Thisprovision amounts to 'directed investment', as the law directs banks to invest a certain minimumpart of their NDTL in specific securities. While the SLR provision reduces a bank's flexibility todetermine its asset mix, it helps the Government finance its fiscal deficit.

STATUTORY LIQUIDITY RATIO

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Banks' investments in Central and State Government dated securities including treasury billsare governed by the RBI guidelines regarding maintenance of minimum level of SLR securitiesas well as their own approved policy.As stated earlier, under the Banking Regulation Act, 1949, the RBI prescribes the minimumSLR level for Scheduled Commercial Banks (SCBs) in India in specified assets as a percentageof the bank's NDTL. The actual percentage (that is, the value of such assets of an SCB as apercentage of its NDTL) must not be less than such stipulated percentage. The RBI maychange the stipulated percentage from time to time.Over the years, this ratio (SLR ratio) has changed a lot, but has broadly moved on a downwardtrajectory, from the of 38.5% of NDTL in the early 90's (September 1990) to 25% by October1997, with the financial sector reforms giving banks greater flexibility to determine theirrespective asset mix. The SLR was further reduced to 24 percent of NDTL in November 2008,but has been raised back to 25 percent level since October 2009. Currently, it is at 25 percentlevel.

NON SLR INVESTMENT

If there is any proposal to invest or disinvest in non-SLR securities, the concerned officialsmust refer these proposals to the Investment Committee of the bank. Upon vetting and clearanceby the Investment Committee, financial sanction should be obtained from the appropriateauthority in terms of the Scheme of Delegation of Financial Powers.

it includes :-

-Investments in Associates/ Subsidiaries and Regional Rural Banks.

-Strategic Investments.

-Venture Capital Investments.

-PSU Bonds.

-Corporate Investments.

-Mutual Funds.

ACTIVITIES OF COMMERCIAL BANK

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As a continuation of their main deposit taking and lending activities, banks pursue certainactivities to offer a number of services to customers. They can be put into two broad categories: Other basic banking activities and Para-banking activities. The former includes provisionof remittance facilities including issuance of drafts, mail transfers and telegraphic transfers,issuance of travellers' cheques & gift cheques, locker facility etc. Banks also undertake variouspara-banking activities including investment banking services, selling mutual funds, sellinginsurance products, offering depository services, wealth management services, brokerage,etc. While the services offered assist the banks to attract more depositors and borrowers, theyalso manage to increase their income in the process. Banks earn fees by offering these servicesto the customers, as opposed to interest income earned from the lending activities.

FOREIGN EXCHANGE SERVICE:-

Banks undertake foreign exchange transactions for their customers. The foreign exchangecontracts arise out of spot (current) and forward foreign exchange transactions entered intowith corporate and non-corporate customers and counter-party banks for the purpose of hedgingand trading. Banks derive income from the spread or difference between buying and sellingrates of foreign exchange.

BANK SERVICES TO GOVERNMENT:-

Banks offer various types of services to government departments including direct and indirecttax collections, remittance facilities, payments of salaries and pensions, etc. undertake other related businesses like distribution of Government and RBI bonds and handlingpublic provident fund accounts. Government departments pay fees to banks for undertakingthis business. Banks such as State of Bank of India, with a wide network of branches, are ableto earn significant income by offering these services to government departments.

PAYMENT & SETTELMENT SYSTEM :-

In any economy, banks are at the core of the payment and settlementsystems, which constitute a very important part of the commercial banks' functions. Thepayment and settlement systems, as a mechanism, facilitate transfer of value between apayer and a beneficiary by which the payer discharges the payment obligations to the beneficiary.The payment and settlement systems enable two-way flow of payments in exchange of goodsand services in the economy. This mechanism is used by individuals, banks, companies,governments, etc. to make payments to one another.

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NRI REMITTENCE:-

NRI, as an individual, can remit funds into India through normal banking channels using thefacilities provided by the overseas bank. Alternately, an NRI can also remit funds throughauthorised Money Transfer Agents (MTA). Further, a number of banks have launched theirinward remittance products which facilitate funds transfer on the same day/ next day.

CASH MANAGEMENT SERVICES:-

Many banks have branches rendering cash management services (CMS) to corporate clients,for managing their receivables and payments across the country. Under cash managementservices, banks offer their corporate clients custom-made collection, payment and remittanceservices allowing them to reduce the time period between collections and remittances, therebystreamlining their cash flows

PARA BANKING ACTIVITIES

PRIMARY DEALERSHIP BUSINESS:-

Primary Dealers can be referred to as Merchant Bankers to Government of India. In 1995, theReserve Bank of India (RBI) introduced the system of Primary Dealers (PDs) in the GovernmentSecurities Market, which comprised independent entities undertaking Primary Dealer activity.In order to broad base the Primary Dealership system, banks were permitted to undertakePrimary Dealership business in 2006-07. To do primary dealership business, it is necessary tohave a license from the RBI.

INVESTEMENT BANKING/MERCHANT BANKING:-

Investment Banking is not one specific function or service but rather an umbrella term for arange of activities. These activities include issuing securities (underwriting) for companies,managing portfolios of financial assets, trading securities (stocks and bonds), helping investorspurchase securities and providing financial advice and support services. It can be seen that allthese services are capital market related services. These services are offered to governments,companies, non-profit institutions and individuals.

MUTUAL FUND BUSINESS:-

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A number of banks, both in the private and public sectors have sponsored asset managementcompanies to undertake mutual fund business. Banks have entered the mutual fund business,sometimes on their own (by setting up a subsidiary) and sometimes in joint venture withothers. Other banks have entered into distribution agreements with mutual funds for the saleof the latter's mutual fund products, for which they receive fees. The advantage that banksenjoy in entering the mutual fund businesses is mainly on account of their wide distributionnetwork.

PENTION FUNDS MANAGEMENT:-

Consequent upon the issue of Government of India Notification dated May 24, 2007, bankshave been advised that they may now undertake Pension Funds Management (PFM) throughtheir subsidiaries set up for the purpose. This would be subject to their satisfying the eligibilitycriteria prescribed by Pensions Fund Regulatory and Development Authority (PFRDA) for Pension Fund Managers. Banks intending to undertake PFM should obtain prior approval of RBI before engaging in such business.

DEPOSITORY SERVICES:-

In the depository system, securities are held in depository accounts in dematerialized form.Transfer of securities is done through simple account transfers. The method does away withthe risks and hassles normally associated with paperwork. The enactment of the DepositoriesAct, in August 1996, paved the way for the establishment of National Securities DepositoryLimited (NSDL) and later the Central Depository Services (India) Limited (CDSL).

PORTFOLIO MANAGEMENT SERVICES:-

A number of banks and financial institutions are seeking a share in the fast-growing wealthmanagement services market. Currently, a high net worth individual can choose from amonga number of private sector and public sector banks for wealth management services.40 Inaddition to high net worth resident Indians, non-resident Indians (NRIs) form a major chunkof the customer base for personal wealth management industry in India.

Organisational Structure

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The entire organised banking system comprises of scheduled and non-scheduled banks. Largely, this segment comprises of the scheduled banks, with the unscheduled ones forming a very small component.

Scheduled commercial banks

A scheduled bank is a bank that is listed under the second schedule of the RBI Act, 1934. In order to be included under this schedule of the RBI Act, banks have to fulfill certain conditions such as having a paid up capital and reserves of at least 0.5 million and satisfying the Reserve Bank that its affairs are not being conducted in a manner prejudicial to the interests of its depositors. Scheduled banks are further classified into commercial and cooperative banks.

Scheduled Commercial Banks (SCBs):

Scheduled commercial banks (SCBs) account for a major proportion of the business of the scheduled banks. As at end-March, 2009, 80 SCBs were operational in India.

State Bank of India and its six associates (excluding State Bank of Saurashtra, which has been merged with the SBI with effect from August 13, 2008) are recognised as a separate category of SCBs, because of the distinct statutes (SBI Act, 1955 and SBI Subsidiary Banks Act, 1959) that govern them. Nationalised banks (10) and SBI and associates (7), together form the public sector banks group and control around 70% of the total credit and deposits businesses in India. IDBI ltd. has been included in the nationalised banks group since December 2004.

Foreign banks

Foreign banks are present in the country either through complete branch/subsidiary route presence or through their representative offices. At end-June 2009, 32 foreign banks were operating in India with 293 branches. Besides, 43 foreign banks were also operating in India through representative offices.

Rural banks

Regional Rural Banks (RRBs) were set up in September 1975 in order to develop the rural economy by providing banking services in such areas by combining the cooperative specialty of local orientation and the sound resource base which is the characteristic of commercial banks. RRBs have a unique structure, in the sense that their equity holding is jointly held by the central government, the concerned state government and the sponsor bank (in the ratio 50:15:35), which is responsible for assisting the RRB by providing financial, managerial and training aid and also subscribing to its share capital. The no of rural banks as on 31st march 2011 were 86.

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Scheduled Cooperative Banks:

Scheduled cooperative banks in India can be broadly classified into urban credit cooperative institutions and rural cooperative credit institutions. Rural cooperative banks undertake long term as well as short term lending. Credit cooperatives in most states have a three tier structure (primary, district and state level).

Non-Scheduled Banks:

Non-scheduled banks also function in the Indian banking space, in the form of Local Area Banks (LAB). As at end-March 2009 there were only 4 LABs operating in India. Local area banks are banks that are set up under the scheme announced by the government of India in 1996, for the establishment of new private banks of a local nature; with jurisdiction over a maximum of three contiguous districts. LABs aid in the mobilisation of funds of rural and semi urban districts. Six LABs were originally licensed, but the license of one of them was cancelled due to irregularities in operations, and the other was amalgamated with Bank of Baroda in 2004 due to its weak financial position.

New Technologies in banking sector

The Indian banking sector has seen an acceleration with the introduction of technological transformation like:

ATMs

Telephone banking,

online banking,

web based products,

E-cheques,

Credit cards,

Debit cards.

Easy Banking

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• A mobile hand set with a connection is the only instrument needed to make a gateway to your banking transaction, the latest innovation of technology.

• Mobile Banking, SMS Banking, Net Banking and ATMs are the major services by the banks in India.

Mobile Banking

With mobile banking facilities, one can bank from anywhere, at anytime and in any condition or anyhow. The system is either through SMS or through WAP.

Services offered on Mobile:

• Bill payments

• Fund transfers

• Check balances

• Any many more which is also

available in SMS Banking

SMS Banking

• Balance enquiry

• Last three transactions

• Cheque payment status

• Cheque book request

• Statement request

• Demat - Free Balance Holding

• Demat - Last two Transactions

• Bill Payment

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SMS banking is also very much safe. First, one authenticates the mobile number with the authentications key. Second, the customer uses secret Mobile Personal Identification Number (MPIN).

Internet Banking/E-Banking:

Features of Net banking:

– The banks offer only relevant information about their products and services to the mass.

– Few banks provide interaction facility between the banks and its customers.

– Banks are coming up with arrangements of utility payments, like telephone bills, electricity bills, etc.

Cost of installation of services –

– The cost for providing such services to the banks come around Rs 40 lakh to Rs 50 lakh.

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eco report

Economy & Finance