Head start educational academy

Banking in India
Done by: Anvi shah
9 blue

Acknowledgement
I would like to express my special thanks of
gratitude to my teacher Karthik sir as well as
our principle Samina aunty who gave me this
wonderful opportunity to do this project on
banking in India, which also helped me in
doing a lot of research and I came to know
about so many new things I am really thankful
to them.

Secondly I would also like to thank my parents

and friends who helped me a lot in finalizing
this project within the limited time frame.
Research methodology
 Index
1.Introduction
2.History of banking in India
3.Types of banks in India
4.Functions of commercial banks
5.Functions of central banks
6.Reserve bank of India
7.Benefits of banking
8.Conclusion
9.Bibliography
Introduction
A bank is a financial institution and a financial intermediary
that accepts deposits and channels those deposits into
lending activities, either directly by loaning or indirectly
through capital markets.
A bank may be defined as an institution that accepts
deposits, makes loans, pays checks, and provides financial
services. A bank is a financial intermediary for the
safeguarding, transferring, exchanging, or lending of money.
A primary role of banks is connecting those with funds, such
as investors and depositors, to those seeking funds, such as
individuals or businesses needing loans. A bank is the
connection between customers that have capital deficits and
customers with capital surpluses.

Banks distribute the medium of exchange. Banking is a

business. Banks sell their services to earn money, and they
must market and manage those services in a competitive
field. Banks are financial intermediaries that safeguard,
transfer, exchange, and lend money and like other businesses
that must earn a profit to survive. Understanding this
fundamental idea helps you to understand how banking
systems work, and helps you understand many modern
trends in banking and finance.

History of banking in india

Bank of Hindustan was set up in 1870; it was the earliest
Indian Bank. Later, three presidency banks under Presidency
Bank’s act 1876 i.e. Bank of Calcutta, Bank of Bombay and
Bank of Madras were set up, which laid foundation for
modern banking in India. In 1921, all presidency banks were
amalgamated to form the Imperial Bank of India. Imperial
bank carried out limited number of central banking functions
prior to establishment of RBI. It engaged in all types of
commercial banking business except dealing in foreign
exchange. Reserve Bank of India Act was passed in 1934 &
Reserve Bank of India (RBI) was constituted as an apex body
without major government ownership. Banking Regulations
Act was passed in 1949. This regulation brought RBI under
government control. Under the act, RBI got wide ranging
powers for supervision & control of banks. The Act also
vested licensing powers & the authority to conduct
inspections in RBI. In 1955, RBI acquired control of the
Imperial Bank of India, which was renamed as State Bank of
India. In 1959, SBI took over control of eight private banks
floated in the erstwhile princely states, making them as its
100% subsidiaries. It was 1960, when RBI was empowered
to force compulsory merger of weak banks with the strong
ones. It significantly reduced the total number of banks from
566 in 1951 to 85 in 1969. In July 1969, government
nationalised 14 banks having deposits of Rs. 50 crores &
above. In 1980, government acquired 6 more banks with
deposits of more than Rs.200 crores. Nationalisation of banks
was to make them play the role of catalytic agents for
economic growth. The Narasimha Committee report
suggested wide ranging reforms for the banking sector in
1992 to introduce internationally accepted banking practices.
The amendment of Banking Regulation Act in 1993 saw the
entry of new private sector banks. Banking industry is the
back bone for growth of any economy. The journey of Indian
Banking Industry has faced many waves of economic crisis.
Recently, we have seen the economic crisis of US in 2008-09
and now the European crisis. The general scenario of the
world economy is very critical. It is the banking rules and
regulation framework of India which has prevented it from
the world economic crisis. In order to understand the
challenges and opportunities of Indian Banking Industry, first
of all, we need to understand the general scenario and
structure of Indian Banking Industry.

Types of banks in india

Two main types of banks are:
Commercial banks:
Commercial banks are the most important types of banks.
The term ‘commercial’ carries the significance that banking is
a business like any other business. In other words,
commercial banks are essentially profit-making institutions.
They collect deposits from the public and lend money to
business firms (manufacturers), traders, farmers and
consumers. Commercial banks normally meet the working
capital needs of trade and industry and are a part of the
money market.
The current account deposits of commercial banks are used
as a medium of exchange, i.e., for making transactions.
Deposits of other banks are not so used. These are
specialized institutions which give loans to specific sectors of
the economy. Here we are mainly concerned with
commercial banks. So, we generally use the term ‘banks’ to
refer to commercial banks.

Central bank:
The central bank is the bankers’ bank and is also the banker
to the government. It controls the entire banking system of
the country. The Reserve Bank of India (RBI) is India’s central
bank and the Bank of England is that of England
Development banks:
Development banks are parts of a country’s capital market. In
India they are called public financial institutions. They are
specialized financial institutions which supply long-term
finance to large and medium industries. They also perform
various promotional functions for accelerating the rate of
capital formation in the country. In this way they promote
industrial development in particular and economic
development in general. IFCI, IDBI and ICICI are examples of
such banks. These institutions have assumed a crucial
importance in providing an ever-increasing proportion of
industrial finance and various types of development
assistance to business enterprises in India.

Co-operative banks:
The co-operative banks are set up under the provisions of the
co-operative society’s laws of a country. In India such banks
have been set up to provide credit to primary agricultural
credit societies at low rates of interest. However, some co-
operative banks also function in rural areas.

Land development banks:

These banks (called land mortgage banks in India) provide
long-term credit to farmers for land development. They also
give long-term loans to farmers for acquiring new land.

Investment banks:
When a corporate entity wants to issue new equity or debt
securities, an investment bank serves the role of an
intermediary. They sometimes also make investment in these
companies through purchase of equity shares.

Merchant banks:
A merchant bank helps a company to sell its new shares to
the general public. The main job of a merchant bank is to
raise money to lend to industry. They do not lend money
themselves but instead help circulate money from those who
want to lend to firms who wish to borrow.

Foreign banks:
There are many foreign banks in India like the Citi Bank, the
Hong Kong and Shanghai Bank and the Bank of America.
These are not nationalized institutions like Indian commercial
banks.
Payments Bank:
Payments bank is a new model of banks conceptualised by
the Reserve Bank of India (RBI). These banks can accept a
restricted deposit, which is currently limited to ₹1 lakh per
customer. These banks may not issue loans or credit cards,
but may offer both current and savings accounts. Payments
banks may issue ATM and debit cards, and offer net-banking
and mobile-banking. The banks will be licensed as payments
banks under Section 22 of the Banking Regulation Act, 1949,
and will be registered as public limited company under the
Companies Act, 2013.
There are six payments banks
Aditya Birla Idea Payments Bank Ltd.
Airtel Payments Banks Ltd.
Fino Payments Bank Ltd.
India Post Payments Bank Ltd.
Jio Payments Bank Ltd.
Paytm Payments Bank Ltd.

Functions of commercial banks

1. Accepting deposits:
The most significant and traditional function of commercial
bank is accepting deposits from the public. The deposits may
be of three types: Saving deposits, Current deposits and fixed
deposits. In case of current account, people can withdraw
deposits in part or in full at any time he/she likes without
notice. Usually no interest is paid on them, because the bank
cannot utilise these short-term deposits. Savings deposits are
payable on demand and money can be withdrawn by
cheques. But there are certain restrictions imposed on the
depositors of this account. Deposits in this account earn
interest at nominal rates. Fixed deposits are made for a fixed
period of time. A higher rate of interests is paid on the fixed
deposits.
2. Providing loans:
The second important function of the commercial bank is to
provide loans against suitable mortgages to the public to
fulfil their needs of money. Loans can be granted in the form
of cash credit, demand loans, short- term loan, overdraft,
discounting of bills etc. Under cash credit system, borrower is
sanctioned a credit limit up to which he can borrow from the
bank. The interest payable by the borrower is calculated on
the amount of credit limit actually drawn. Demand loans
granted by a bank are those loans which can be recalled on
demand by the bank any time. the interest is payable on the
entire sum of demand loans granted. Short-term loans (like
car loans, housing loans etc.) are given as personal loans
against some security. The interest is payable on the entire
sum of loan granted. In case of overdraft facility, an account
holder is allowed to withdraw a sum of money in excess of
the amount deposited with the bank. the borrower who has
received this facility, has to pay interest on the amount
overdrawn. Another important form of bank lending is
through discounting or purchasing the bills of exchange. A bill
of exchange is drawn by a creditor on the debtor specifying
the amount of debt and also the date when it becomes
payable. Such bills of exchange are normally issued for a
period of 90 months.

3. Credit Creation:
This is a unique function performed by the commercial
banks. A bank has sometimes been called a factory for the
manufacture of credit. In the process of acceptance of
deposits and granting of loans, commercial banks are able to
create credit.
4. Transfer of funds:
Commercial banks are able to transfer funds of a customer to
other customer’s account through the cheques, draft, mail
transfers, telegraphic transfers etc.

5. Agency functions:
In modern time, commercial banks also act as an agent of the
customer. However, banks charge fee or commission for
these functions.
Agency functions include:
(a) Collection of cheques, bills and drafts,
(b) Collection of interest, dividend etc.
(c) Payment of interest, instalments of loans, insurance
premium etc.
(d) Purchase and sale of securities
(e) Transfer of funds through demand drafts, mail transfer
etc.
6. Other functions:
Apart from the above important and most popular functions,
commercial banks also perform the following other
functions:
(a) Payment of credit letters and travellers’ cheques, gift
cheques, bank draft etc.
(b) Dealing in foreign exchange.
(c) Locker services.
(d) Provision of tax assistance and investment advice etc.

Functions of central banks

1. Issue of Currency:
The central bank is given the sole monopoly of issuing
currency in order to secure control over volume of currency
and credit. These notes circulate throughout the country as
legal tender money. It has to keep a reserve in the form of
gold and foreign securities as per statutory rules against the
notes issued by it.
It may be noted that RBI issues all currency notes in India
except one rupee note. Again, it is under the directions of RBI
that one-rupee notes and small coins are issued by
government mints. Remember, the central government of a
country is usually authorised to borrow money from the
central bank.
When the central government expenditure exceeds
government revenue and the government is unable to
reduce its expenditure, then it borrows from the RBI. This is
done by selling security bills to RBI which creates new
currency notes for the purpose. This is called monetisation of
budget deficit or deficit financing. The government spends
new currency and puts it into circulation to meet its
expenditure.

2. Banker to Government:
Central bank functions as a banker to the government—both
central and state governments. It carries out all banking
business of the government. Government keeps their cash
balances in the current account with the central bank.
Similarly, central bank accepts receipts and makes payment
on behalf of the governments.
Central bank also carries out exchange, remittance and other
banking operations on behalf of the government. Central
bank gives loans and advances to governments for temporary
periods, as and when necessary and it also manages the
public debt of the country. Remember, the central
government can borrow any amount of money from RBI by
selling its rupees securities to the latter.

3. Banker’s Bank and Supervisor:

There are usually hundreds of banks in a country. There
should be some agency to regulate and supervise their
proper functioning. This duty is discharged by the central
bank.
Central bank acts as banker’s bank in three capacities:
(i) It is the custodian of their cash reserves. Banks of
the country are required to keep a certain
percentage of their deposits with the central bank;
and in this way the central bank is the ultimate
holder of the cash reserves of commercial banks
(ii) Central bank is lender of last resort. Whenever
banks are short of funds, they can take loans from
the central bank and get their trade bills
discounted. The central bank is a source of great
strength to the banking system
(iii) It acts as a bank of central clearance, settlements
and transfers. Its moral persuasion is usually very
effective so far as commercial banks are concerned.

4. Controller of Credit and Money Supply:

Central bank controls credit and money supply through its
monetary policy which consists of two parts—currency and
credit. Central bank has monopoly of issuing notes (except
one-rupee notes, one-rupee coins and the small coins issued
by the government) and thereby can control the volume of
currency.
The main objective of credit control function of central bank
is price stability along with full employment (level of output).
It controls credit and money supply by adopting quantitative
and qualitative measures.

Reserve bank of India (RBI)

The Reserve Bank of India is India’s central bank and is wholly
owned by the Government of India. Established on April 1,
1935, the RBI’s central office is located in India’s commercial
capital of Mumbai.
Oversight of the Reserve Bank of India (RBI) is provided by
the central board of directors, which includes the bank’s
governor, a maximum of four deputy governors and a few
directors of relevant local boards. The central board
delegates specific functions through its committees and sub-
committees, including: the committee of central board,
which oversees current business of the central bank; the
board for financial supervision, which regulates and
supervises commercial banks, finance companies and
financial institutions; and the board for payment and
settlement systems.
The governor of the RBI is its chief executive. The current
governor is Shaktikanta Das, who was appointed to the office
in December 2018.

The main functions of the RBI include:

1.Monetary authority: formulates, implements and monitors
India’s monetary policy, the main objectives of which are
maintaining price stability, ensuring adequate flow of credit
to productive sectors, and financial stability.
2.Issuer of currency: issues currency and coins, and
exchanges or destroys currency notes and coins unfit for
circulation.
3.Banker and debt manager to government of India:
performs merchant banking functions for central and state
governments, and also acts as their banker; determines how
best to raise money in debt markets to help the government
finance its requirements.
4.Banker to banks: enables clearing and settlement of inter-
bank transactions, maintains banks’ accounts for statutory
reserve requirements and acts as lender of last resort.
5.Regulator and supervisor of the financial system: protects
the interests of depositors, facilitates orderly development
and conduct of banking operations, and maintains financial
stability through preventive and corrective measures.
6.Manager of foreign exchange: regulates transactions
related to the external sector, enables development of the
foreign exchange market (forex), ensures smooth functioning
of the domestic forex market, and manages India’s foreign
currency assets and gold reserves
7.Maintaining financial stability: an explicit objective of the
RBI since the early 2000s.
8.Development: ensures credit availability to productive
economic sectors, establishes institutions to develop India’s
financial infrastructure, expands access to affordable
financial services and promotes financial education and
literacy.

Benefits of banking
Safety: It’s risky to keep your money in cash as it
could be lost, stolen, or destroyed. Financial
institutions keep your funds safe.
Convenience: With banks, there's no need to
carry cash. If you need cash, you can easily access
your funds virtually anywhere.

Security: Banks follow stringent laws and

regulations and at most banks, funds are insured.

Financial Future: As individual you'll have access

to financial professionals to help you.
Knowledgeable advice of bankers is a valuable
resource to help you build a better financial
future.

Conclusion
I would like to conclude this project by saying that banks
accept deposits, make loans, provide a safe place for money
and valuables, and act as payment agents between
merchants and banks.
Banks are quite important to the economy and are involved
in such economic activities as issuing money, settling
payments, credit intermediation, maturity transformation
and money creation in the form of fractional reserve banking.
To make money, banks use deposits and whole sale deposits,
share equity and fees and interest from debt, loans and
consumer lending, such as credit cards and bank fees.
In addition to fees and loans, banks are also involved in
various other types of lending and operations including,
buy/hold securities, non-interest income, insurance and
leasing and payment treasury services.

Bibliography
 www.importantindia.com
 www.investopedia.com
 www.researchgate.net/
 www.ibef.org
 en.wikipedia.org
 www.studymode.com
 www.quora.com
 www.timesofindia.com
 www.theeconomist.comq