The document provides an overview of the Indian banking system. It discusses the history and evolution of banking in India from the establishment of the first bank in 1786 to the current system. It describes the key components of the current banking system including the Reserve Bank of India (RBI), scheduled commercial banks, cooperative banks, and tools used by RBI to regulate the system like cash reserve ratio, repo rate, and statutory liquidity ratio. The banking system has transitioned India to a strong economy with robust banking.

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Indian Banking System.
Indian Banking System
Presented by :
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Saurabh Bhati
9716819100

2. Roadmap for Presentation.
Introduction
Need of the Banks.
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History.
Indian Banking System
Classification of Banking industry in India.
Reserve Bank of India (RBI).
Functions of RBI.
Tools to credit control the Banks.
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3. Background : India Transformed !!
…Yesterday
 Slow rate of growth
 Poor Banking Facilities
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 Protected and slow
 Small consumer markets
 Weak infrastructure
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Indian Banking System
…Today
 Strong macro economic fundamentals
 Outsourcing destination
 Strong Baking
 Impetus on infrastructure development
India -- the largest Democracy - one of the fastest growing economies in the World!

4. Introduction.
• A bank is a financial institution that provides banking and
other financial services to their customers such as accepting
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deposits and providing loans.
• A banking system also referred as a system provided by the
bank which offers cash management services for
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customers, reporting the transactions of their accounts and
portfolios, through out the day.
• The banks safeguards the money and valuables and provide
loans, credit, and payment services, such as checking
accounts, money orders, and cashier’s cheques. The banks
also offer investment and insurance products.
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5. Need of the Banks.
• To provide the security to the savings of customers.
• To control the supply of money and credit.
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• To encourage public confidence in the working of the financial
system, increase savings speedily and efficiently.
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• To avoid focus of financial powers in the hands of a few
individuals and institutions.
• To set equal norms and conditions (i.e. rate of interest, period
of lending etc.) to all types of customers.
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6. History.
The first bank in India, called The General Bank of India was
established in the year 1786. The East India Company established The
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Bank of Bengal/Calcutta (1809), Bank of Bombay (1840) and Bank of
Madras (1843). The next bank was Bank of Hindustan which was
established in 1870. These three individual units (Bank of
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Calcutta, Bank of Bombay, and Bank of Madras) were called as
Presidency Banks. Allahabad Bank which was established in 1865, was
for the first time completely run by Indians. Punjab National Bank Ltd.
was set up in 1894 with head quarters at Lahore. Between 1906 and
1913, Bank of India, Central Bank of India, Bank of Baroda, Canara
Bank, Indian Bank, and Bank of Mysore were set up. In 1921, all
presidency banks were amalgamated to form the Imperial Bank of
India which was run by European Shareholders. After that the Reserve
Bank of India was established in April 1935. 6

7. Government policy on banking industry.
• To protect the safety of the public’s savings.
• To control the supply of money and credit in order to achieve
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a nation’s broad economic goal.
• To ensure equal opportunity and fairness in the public’s access
to credit and other vital financial services.
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• To promote public confidence in the financial system, so that
savings are made speedily and efficiently.
• To avoid concentrations of financial power in the hands of a
few individuals and institutions.
• Provide the Government with credit, tax revenues and other
services.
• To help sectors of the economy that they have special credit
needs for eg. Housing, small business and agricultural loans 7
etc.

8. Regulations for Indian Bank.
• Commercial banks are regulated by government entities and
require a special bank license to operate. Usually the
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definition of the business of banking for the purposes of
regulation is extended to include acceptance of deposits, even
if they are not repayable to the customer's order—although
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money lending.
• Central Bank regulates the banking industry. Central banks
also typically have a monopoly on the business of issuing
banknotes.
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9. Classification of Banking Industry.
• Indian banking industry has been divided into two
parts, organized and unorganized sectors. The organized
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sector consists of Reserve Bank of India, Commercial Banks
and Co-operative Banks, and Specialized Financial Institutions
(IDBI, ICICI, IFC etc.). The unorganized sector, which is not
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homogeneous, is largely made up of money lenders and
indigenous bankers.
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10. Cont.
An outline of the Indian Banking structure may be presented as
follows:-
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1. Reserve banks of India.
2. Indian Scheduled Commercial Banks.
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a) State Bank of India and its associate banks.
b) Twenty nationalized banks.
c) Regional rural banks.
d) Other scheduled commercial banks.
3. Foreign Banks
4. Non-scheduled banks.
5. Co-operative banks. 10

11. Reserve Bank of India.
• The reserve bank of India is a central bank and
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was established in April 1, 1935 in accordance
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with the provisions of reserve bank of India act
1934.
• The central office of RBI is located at Mumbai.
since nationalization in 1949, RBI is fully owned
by the Government of India. It was inaugurated
with share capital of Rs. 5 Crores divided into
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shares of Rs. 100 each fully paid up.

12. Cont.
• The RBI Act 1934 was commenced on April 1, 1935. The
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Act, 1934 provides the statutory basis of the functioning
of the bank. The bank was constituted for the need of
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following:
- To regulate the issues of banknotes.
- To maintain reserves with a view to securing monetary
stability
- To operate the credit and currency system of the country
to its advantage.
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13. Functions of RBI.
• Bank of Issue: The RBI formulates, implements, and monitors
the monetary policy. Its main objective is maintaining price
stability and ensuring adequate flow of credit to productive
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sector.
• Regulator-Supervisor of the financial system: RBI prescribes
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parameters of banking operations within which the banking
and financial system functions. Their main objective is to
maintain public confidence in the system, protect depositor’s
interest and provide cost effective banking services to the
public.
• Issuer of currency: RBI issues and exchanges or destroys the
currency and coins that are not fit for circulation. His main
objective is to give the public adequate quantity of supplies of
currency notes and coins and in good quality. 13

14. Cont.
• Developmental role: The RBI performs the wide range of
promotional functions to support national objectives such as
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contests, coupons maintaining good public relations and many
more.
• Controller of Credit: RBI performs the following tasks:
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It holds the cash reserves of all the scheduled banks.
It controls the credit operations of banks through quantitative
and qualitative controls.
It controls the banking system through the system of
licensing, inspection and calling for information.
It acts as the lender of the last resort by providing rediscount
facilities to scheduled banks. 14

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Indian Banking System
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The commercial banking structure in India

16. Indian Scheduled Commercial Banks.
• COMMERCIAL BANK- An institution which accepts
deposits, makes business loans, and offers related services.
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Commercial banks also allow for a variety of deposit
accounts, such as checking, savings, and time deposit. These
institutions are run to make a profit and owned by a group of
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individuals, yet some may be members of the Federal Reserve
System. While commercial banks offer services to
individuals, they are primarily concerned with receiving
deposits and lending to businesses.
• The commercial banking structure in India consists of
scheduled commercial banks, and unscheduled banks.
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17. Cont.
• Scheduled Banks: Scheduled Banks in India constitute those
banks which have been included in the second schedule of RBI
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act 1934.
• Scheduled bank are those banks whose minimum paid up
capital and reserves are not less than 25 lakhs.
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• Scheduled banks in India means the State Bank of India
constituted under the State Bank of India Act, 1955 a
subsidiary bank as defined in the State Bank of India Act, 1959
(38 of 1959), a corresponding new bank constituted under
section 3 of the Banking companies Act, 1980
• Private sector, Public sector, and Foreign banks come under
the umbrella of scheduled commercial banks. 17

18. Cont.
• Unscheduled Banks: “Unscheduled Bank in India” means a
banking company as defined in clause (c) of section 5 of the
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Banking Regulation Act, 1949, which is not a scheduled bank”.
• Commercial banks, which dominate this industry, offer a full
range of services for individuals, businesses, and
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governments. These banks come in a wide range of sizes, from
large global banks to regional and community banks.
• Regional Rural Banks were set up on October 2, 1975. The
banks provide credit to the weaker sections of the rural
areas, particularly the small and marginal farmers, agricultural
labourers and small entrepreneurs.
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19. Co-operative Banks.
• Co-operative Banks Role in rural financing continues to be
important even today, and their business in the urban areas
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also has increased phenomenally in recent years mainly due to
the sharp increase in the number of primary co-operative
banks. While the co-operative banks in rural areas mainly
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finance agricultural based activities including
farming, cattle, milk, hatchery, personal finance etc, along
with some small scale industries and self-employment driven
activities, the co-operative banks in urban areas mainly
finance various categories of people for self-
employment, industries, small scale units, home
finance, consumer finance, personal finance, etc. Example of
co-operative banks - Saraswat Co-operative Bank , Jankalyan 19
Sahakari Bank etc.

20. Tools to Credit Control by RBI.
• Cash Reserve Ratio- Cash reserve Ratio (CRR) is the amount of
funds that the banks have to keep with RBI. If RBI decides to
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increase the percent of this, the available amount with the
banks comes down. RBI is using this method (increase of CRR
rate), to drain out the excessive money from the banks.
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CURRENLTY CRR- 4.25%.
• Repo Rate- Whenever the banks have any shortage of funds
they can borrow it from RBI. Repo rate is the rate at which our
banks borrow money from RBI. A reduction in the repo rate
will help banks to get money at a cheaper rate. When the repo
rate increases borrowing from RBI becomes more expensive.
CURRENTLY REPO RATE -8.0%.
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21. Cont.
• Reverse Repo Rate- Reverse Repo rate is the rate at which
Reserve Bank of India (RBI) borrows money from banks. Banks
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are always happy to lend money to RBI since their money are
in safe hands with a good interest. An increase in Reverse repo
rate can cause the banks to transfer more funds to RBI due to
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this attractive interest rates. It can cause the money to be
drawn out of the banking system. Due to this fine tuning of
RBI using its tools of CRR, Bank Rate, Repo Rate and Reverse
Repo rate our banks adjust their lending or investment rates
for common man. CURRENTLY REVERSE REPO RATE -7%.
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22. Cont.
• SLR Rate- SLR (Statutory Liquidity Ratio) is the amount a
commercial bank needs to maintain in the form of cash, or
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gold or govt. approved securities (Bonds) before providing
credit to its customers. SLR rate is determined and maintained
by the RBI (Reserve Bank of India) in order to control the
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expansion of bank credit. CURRENLTY CRR RATE- 23%.
• Bank Rate-Bank rate is also called as the discount rate. It is
the rate of interest which a central bank charges on the loans
and advances provided to commercial banks. CURRENLTY
BANK RATE- 9%.
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23. Indian Banking System 12/8/2012
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