Ch.1.

Bank, Banker, Banking,system

Meaning of Bank
A bank is an institution that deals with money and credit different people understand the
meaning of bank in different ways. For a common man bank means a storehouse where
money is stored; for a businessman it is a financial institution and for a day to day
customer it is an institution where he can deposit his savings. In realty bank are service
organization selling banking services bank play an important role in the economy of any
country as they hold the saving of the public provides means of payment for good and
service and provide necessary finance for the development of business and trade thus
bank is a link in the flow of found form savers to the users. Hence they should render and
efficient customer service in order to retain the present customer and also to attract the
potential customer in the past the bank did not find any attractions is the Indian economy
because and little business prospects. Today we find positive change in the National
business development policy earlier the moneylenders had strong had over the rural
population. This resulted in exploitation of small and marginal savers. The private’s
sector bank failed is serving the society this resulted in the nationalization of 14
commercial bank in 1969.
Nationalization of commercial banks paved ways for the development of Indian economy
and channelized financial resources for the upliftment of weaker section of the society in
1980. The government was induced to nationalize more commercial banks there was a
basic change in the banking concept with a beginning in the Nationalization of big
commercial banks the transform
the Indian economy it was felt that the banker review their service not only as financial
intermediary but also pacesetter.

1
DEFINITION OF BANKS
Sayers defines ‘Banks are institutions whose debts – usually referred to a bank
deposits are commonly accepted in final settlement of other people service’.
According to section 5(c) of the banking regulation act 1949 a banking company
means company which transacts the business of banking.

MEANING OF Banking
Banking as social organization have to go out to the people and assist weaker sections in
achieving their aspirations. They are thus to act as catalytic agent for the development of
the counting mobilizing resources wherever these be and channelizing them towards
productive purpose. New strategies have to be evolved for industrial development, both
in the small-scale and large scale sectors and rather than confirming to the traditional way
of storage and term distribution finance of a short-term nature develop-mental finance
and term lending have to be taken commercial banks similarly opening.

DEFINITION OF BANKING
The term banking is defined as accepting for the purpose of lending on investment
of deposits of money form the public, repayable on demand on otherwise and withdraw
able by cheque, draft order on otherwise [section 5(b)]
According to section 5(c) of the banking regulation act 1949 a banking company means
company which transacts the business of banking.

BANKING SYSTEM OF INDIA

Banking system occupies and important place in a nations economy a banking
institutions is indispensable in a modern society. It plays a pivotal role in the economic
development of a country and form the core of the money market in and advanced
country. In India though the organized and the unorganized segments institutions in the
organized money market have grown significantly and are playing an increasing the
moneylenders and indigoes banker cater to the credit amongst the institution in the
organized sector of the money market commercial bank and collection-operative bank
have been in existence for the past several decades the regional rural banks came into
existence since the middle of seventies.

2
 All the banks in India are governed and control by RBI (Reserve Bank of India).
The central bank of the country the Reserve Bank of India perform both the traditional
function of central bank variety of development and promotional function the Reserve
bank of India Act 1934, confers upon it the power to act as issuing authority bankers
bank and banker to the Government’s

DEFINITION OF A BANKER
According to the Negotiable instruments Act 1881 a banker is “a body of persons
who carry on the business of banking”.
The banking regulation Act 1949 defines the term banking company “as a
company which transact the business of banking in India.” And the work banking has
been defined as accepting for the purpose of lending or investment of deposits of money
from the public repayable on demands on otherwise and withdraw able by cheque, draft
order or otherwise.
The essential function of banking company are the acceptance such deposits, and
lending or investing such deposits if the purpose of acceptance of deposit is not for
lending or investing the business cannot be called banking the phrase “deposit of money
from the public” has great significance. The banker accept deposit from public whoever
offer his or her money as deposit. However a banker can refuse to open account for
undesirable person the definition also explains the time and modes of withdrawal. The
banker does not refund the money on his own accord but he customer has demand for the
same either through on order cheque draft or otherwise.
According to six John Paget lays emphasis on the performance of the function in
regular and recognized manner. According to him “one claiming to be a banker must
profess himself to be one and the public must accept him as such; his main business must
be that banking from which he should be able to earn his living.”
DR. H.L. HART :- “A banker is one who is the ordinary course of his business, hour
our cheque drawn upon him by person from and or whom he receives the money on
current account”.

3
The Banking Sector in India

The Banking sector in India has always been one of the most preferred avenues of
employment. In the current decade, this has emerged as a resurgent sector in the Indian
economy. As per the McKinsey report ‘India Banking 2010’, the banking sector index
has grown at a compounded annual rate of over 51 per cent since the year 2001, as
compared to a 27 per cent growth in the market index during the same period. It is
projected that the sector has the potential to account for over 7.7 per cent of GDP with
over Rs.7,500 billion in market cap, and to provide over 1.5 million jobs.

Today, banks have diversified their activities and are getting into new products and
services that include opportunities in credit cards, consumer finance, wealth management,
life and general insurance, investment banking, mutual funds, pension fund regulation,
stock broking services, custodian services, private equity, etc. Further, most of the
leading Indian banks are going global, setting up offices in foreign countries, by
themselves or through their subsidiaries.

4
 Ch.2.Functions of Bank
The Banking sectors provides a mix of functions essential to run the economy at large
and thereby helps the business community and others to fulfill their day to day financial
obligations, however in today’s modern world the Bank provides varied services apart
from lending and deposit of money which are stated as Primary and Secondary functions
of Banks.

A) Primary Functions of Banks: -.The primary functions of a commercial bank

include:
a) Accepting deposits; and
b) Granting loans and advances;

a) Accepting deposits:
The most important activity of a commercial bank is to mobilize deposits from the public.
People who have surplus income and savings find it convenient to deposit the amounts
with banks Depending upon the nature of deposits, funds deposited with bank also earn
interest. Thus, deposits with the bank grow along with the interest earned. If the rate of
interest is higher, public are motivated to deposit more funds with the bank. There is also
safety of funds deposited with the bank.

b) Grant of loans and advances:-

The second important function of a commercial bank is to grant loans and advances. Such
loans and advances are given to members of the public and to the business community at
a higher rate of interest than allowed by banks on various deposit accounts. The rate of
interest charged on loans and advances varies depending upon the purpose, period and the
mode of repayment. The difference between the rate of interest allowed on deposits and
the rate charged on the Loans is the main source of a bank’s income.

5
i) Loans:- A loan is granted for a specific time period. Generally, commercial
banks grant short-term loans. But term loans, that is, loan for more than a
year, may also be granted. The borrower may withdraw the entire amount in
lump sum or in installments. However, interest is charged on the full amount
of loan. Loans are generally granted against the security of certain assets. A
loan may be repaid either in lump sum or in installments.
ii) Advances:- An advance is a credit facility provided by the bank to its
customers. It differs from loan in the sense that loans may be granted for
longer period, but advances are normally granted for a short period of time.
Further the purpose of granting advances is to meet the day to day
requirements of business. The rate of interest charged on advances varies from
bank to bank. Interest is charged only on the amount withdrawn and not on the
sanctioned amount.
iii) Modes of short-term financial assistance:- Banks grant short-term
financial assistance by way of cash credit, overdraft and bill discounting.

a) Cash Credit: - Cash credit is an arrangement whereby the bank allows the
borrower to draw amounts upto a specified limit. The amount is credited to the
account of the customer. The customer can withdraw this amount as and when he
requires. Interest is charged on the amount actually withdrawn. Cash Credit is granted
as per agreed terms and conditions with the customers.
b) Overdraft:- Overdraft is also a credit facility granted by bank. A customer who
has a current account with the bank is allowed to withdraw more than the amount of
credit balance in his account. It is a temporary arrangement. Overdraft facility with a
specified limit is allowed either on the security of assets, or on personal security, or
both.
c) Discounting of Bills:- Banks provide short-term finance by discounting bills,
that is, making payment of the amount before the due date of the bills after deducting
a certain rate of discount. The party gets the funds without waiting for the date of
maturity of the bills. In case any bill is dishonoured on the due date, the bank can
recover the amount from the customer.

6
 ii) Secondary functions: -Besides the primary functions of accepting deposits and
lending money, banks perform a number of other functions which are called secondary
functions. These are as follows –

a) Issuing letters of credit, travellers cheques, circular notes etc.

b) Undertaking safe custody of valuables, important documents, and securities by

providing safe deposit vaults or lockers;

c) Providing customers with facilities of foreign exchange.

d) Transferring money from one place to another; and from one branch to another branch
of the bank.

e) Standing guarantee on behalf of its customers, for making payments for purchase of
goods, machinery, vehicles etc.

f) Collecting and supplying business information;

g) Issuing demand drafts and pay orders; and,

h) Providing reports on the credit worthiness of customers

The Other Non Core functions as provided by today’s Banks broadly
fall under two categories:

i) Agency services, and

ii) General utility services.

i) Agency Services:- Agency services are those services which are rendered by
commercial banks as agents of their customers. They include the following
7
a) Collection and payment of cheques and bills on behalf of the customers;
b) Collection of dividends, interest and rent, etc. on behalf of customers, if so instructed
by them;
c) Purchase and sale of shares and securities on behalf of customers;
d) Payment of rent, interest, insurance premium, subscriptions etc. on behalf of
1
customers, if so instructed;
e) Acting as a trustee or executor;
f) Acting as agents or correspondents on behalf of customers for other banks and
financial institutions at home and abroad.

ii) General utility services: -General utility services are those services which are
rendered by commercial banks not only to the customers but also to the general public.
These are available to the public on payment of a fee or charge. They include the
following:

a) Issuing letters of credit and travelers’ cheques;

b) Underwriting of shares, debentures, etc.;
c) Safe-keeping of valuables in safe deposit locker;
d) Underwriting loans floated by government and public bodies.
e) Supplying trade information and statistical data useful to customers;
f) Acting as a referee regarding the financial status of customers;
g) Undertaking foreign exchange business.

3.History of Banking in India

8
Pre Independence Scenario of Banking in India: - Banking in India originated
in the last decades of the 18th century. The first banks were The General Bank of India
which started in 1786, and the Bank of Hindustan, both of which are now defunct. The
oldest bank in existence in India is the State Bank of India, which originated in the Bank
of Calcutta in June 1806, which almost immediately became the Bank of Bengal. This
was one of the three presidency banks, the other two being the Bank of Bombay and the
Bank of Madras, all three of which were established under charters from the British East
India Company. For many years the Presidency banks acted as quasi-central banks, as did
their successors. The three banks merged in 1921 to form the Imperial Bank of India,
which, upon India's independence, became the State Bank of India.Indian merchants in
Calcutta established the Union Bank in 1839, but it failed in 1848 as a consequence of the
economic crisis of 1848-49. The Allahabad Bank, established in 1865 and still
functioning today, is the oldest Joint Stock bank in India.(Joint Stock Bank). A
company that issues stock and requires shareholders to be held liable for the company's
debt) It was not the first though. That honor belongs to the Bank of Upper India, which
was established in 1863, and which survived until 1913, when it failed, with some of its
assets and liabilities being transferred to the Alliance Bank of Simla.Foreign banks too
started to arrive, particularly in Calcutta, in the 1860s. The Comptoire d'Escompte de
Paris opened a branch in Calcutta in 1860, and another in Bombay in 1862; branches in
Madras and Puducherry, then a French colony, followed. HSBC established itself in
Bengal in 1869. Calcutta was the most active trading port in India, mainly due to the
trade of the British Empire, and so became a banking center.

The Bank of Bengal, which later merged with the Bank of Bombay and the Bank of
Madras to form the Imperial Bank of India in 1921.The first entirely Indian joint stock

9
bank was the Oudh Commercial Bank, established in 1881 in Faizabad. It failed in 1958.
The next was the Punjab National Bank, established in Lahore in 1895, which has
survived to the present and is now one of the largest banks in India.Around the turn of the
20th Century, the Indian economy was passing through a relative period of stability.
Around five decades had elapsed since the Indian Mutiny, and the social, industrial and
other infrastructure had improved. Indians had established small banks, most of which
served particular ethnic and religious communities.

The presidency banks dominated banking in India but there were also some exchange
banks and a number of Indian joint stock banks. All these banks operated in different
segments of the economy. The exchange banks, mostly owned by Europeans,
concentrated on financing foreign trade. Indian joint stock banks were generally under
capitalized and lacked the experience and maturity to compete with the presidency and
exchange banks. This segmentation let Lord Curzon to observe, "In respect of banking it
seems we are behind the times. We are like some old fashioned sailing ship, divided by
solid wooden bulkheads into separate and cumbersome compartments."

The period between 1906 and 1911, saw the establishment of banks inspired by the
Swadeshi movement. The Swadeshi movement inspired local businessmen and political
figures to found banks of and for the Indian community. A number of banks established
then have survived to the present such as Bank of India, Corporation Bank, Indian Bank,
Bank of Baroda, Canara Bank and India. The fervour of Swadeshi movement lead to
establishing of many private banks in Dakshina Kannada and Udupi district which were
unified earlier and known by the name South Canara ( South Kanara ) district. Four
nationalised banks started in this district and also a leading private sector bank. Hence
undivided Dakshina Kannada district is known as "Cradle of Indian Banking".

During the First World War (1914-1918) through the end of the Second World War
(1939-1945), and two years thereafter until the independence of India were challenging

for Indian banking. The years of the First World War were turbulent, and it took its toll
with banks simply collapsing despite the Indian economy gaining indirect boost due to

10
war-related economic activities. At least 94 banks in India failed between 1913 and 1918
as indicated in the following table:

11
 Number of banks Authorized capital Paid-up Capital
that failed (Rs. Lakhs) (Rs. Lakhs)

1913 12 274 35
1914 42 710 109
1915 11 56 5

1916 13 231 4

1917 9 76 25

1918 7 209 1

12
Post Independence Scenario of Banking in India:-

The partition of India in 1947 adversely impacted the economies of Punjab and West
Bengal, paralyzing banking activities for months. India's independence marked the end of
a regime of the Laissez-faire for the Indian banking. The Government of India initiated
measures to play an active role in the economic life of the nation, and the Industrial
Policy Resolution adopted by the government in 1948 envisaged a mixed economy. This
resulted into greater involvement of the state in different segments of the economy
including banking and finance. The major steps to regulate banking included:

In 1948, the Reserve Bank of India, India's central banking authority, was nationalized,
and it became an institution owned by the Government of India.

In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of
India (RBI) "to regulate, control, and inspect the banks in India."

The Banking Regulation Act also provided that no new bank or branch of an existing
bank could be opened without a license from the RBI, and no two banks could have
common directors.

13
However, despite these provisions, control and regulations, banks in India except the
State Bank of India, continued to be owned and operated by private persons. This
changed with the nationalization of major banks in India on 19 July 1969.

Nationalization of Banks: -

The RBI was nationalized on January 1, 1949 in terms of the Reserve Bank of India
(Transfer to Public Ownership) Act, 1948 (RBI, 2005b).By the 1960s, the Indian banking
industry had become an important tool to facilitate the development of the Indian
economy. At the same time, it had emerged as a large employer, and a debate had ensued
about the possibility to nationalise the banking industry. Indira Gandhi, the-then Prime
Minister of India expressed the intention of the GOI in the annual conference of the All

India Congress Meeting in a paper entitled "Stray thoughts on Bank Nationalisation."

The paper was received with positive enthusiasm. Thereafter, her move was swift and
sudden, and the GOI issued an ordinance and nationalised the 14 largest commercial
banks with effect from the midnight of July 19, 1969. Jayaprakash Narayan, a national
leader of India, described the step as a "masterstroke of political sagacity." Within two
weeks of the issue of the ordinance, the Parliament passed the Banking Companies
(Acquisition and Transfer of Undertaking) Bill, and it received the presidential approval
on 9 August 1969.

A second dose of nationalization of 6 more commercial banks followed in 1980. The

stated reason for the nationalization was to give the government more control of credit
delivery. With the second dose of nationalization, the GOI controlled around 91% of the
banking business of India. Later on, in the year 1993, the government merged New Bank
of India with Punjab National Bank. It was the only merger between nationalized banks
and resulted in the reduction of the number of nationalised banks from 20 to 19. After
this, until the 1990s, the nationalised banks grew at a pace of around 4%, closer to the
average growth rate of the Indian economy.

Liberalisation of Banking Sector:-

14
In the early 1990s, the then Narsimha Rao government embarked on a policy of
liberalization, licensing a small number of private banks. These came to be known as
New Generation tech-savvy banks, and included Global Trust Bank (the first of such new
generation banks to be set up), which later amalgamated with Oriental Bank of
Commerce, Axis Bank(earlier as UTI Bank), ICICI Bank and HDFC Bank. This move,
along with the rapid growth in the economy of India, revitalized the banking sector in
India, which has seen rapid growth with strong contribution from all the three sectors of
banks, namely, government banks, private banks and foreign banks.

The next stage for the Indian banking has been set up with the proposed relaxation in the
norms for Foreign Direct Investment, where all Foreign Investors in banks may be given
voting rights which could exceed the present cap of 10%,at present it has gone up to 74%

with some restrictions.The new policy shook the Banking sector in India completely.
Bankers, till this time, were used to the 4-6-4 method (Borrow at 4%;Lend at 6%;Go
home at 4) of functioning. The new wave ushered in a modern outlook and tech-savvy
methods of working for traditional banks.All this led to the retail boom in India. People
not just demanded more from their banks but also received more.

Currently (2007), banking in India is generally fairly mature in terms of supply, product
range and reach-even though reach in rural India still remains a challenge for the private
sector and foreign banks. In terms of quality of assets and capital adequacy, Indian banks
are considered to have clean, strong and transparent balance sheets relative to other banks
in comparable economies in its region. The Reserve Bank of India is an autonomous
body, with minimal pressure from the government. The stated policy of the Bank on the
Indian Rupee is to manage volatility but without any fixed exchange rate-and this has
mostly been true.With the growth in the Indian economy expected to be strong for quite
some time-especially in its services sector-the demand for banking services, especially
retail banking, mortgages and investment services are expected to be strong. One may
also expect M&As, takeovers, and asset sales.

In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake
in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an investor

15
has been allowed to hold more than 5% in a private sector bank since the RBI announced
norms in 2005 that any stake exceeding 5% in the private sector banks would need to be
vetted by them.In recent years critics have charged that the non-government owned banks
are too aggressive in their loan recovery efforts in connection with housing, vehicle and
personal loans. There are press reports that the banks' loan recovery efforts have driven
defaulting borrowers to suicide.

Ch.4.REFORMS IN INDIAN BANKING SECTOR:

Strengthening Financial system has been one of the central issues facing
emerging markets and developing economies. This is because sound financial system
serve as an important channel for achieving economic growth through the mobilization of
financial savings, putting them to productive use and transforming various risks
(Beck,Levin and Loayza 1999, king and Levin 1993, Rajan and zingales 1998, Demir
guc, kunt, Asil and maksimovic 1998, Jayaratne and strahan 1996). Many countries
adopted a series of financial sector liberalization measures in the late 1980s and early
1990s that included intrest rate liberalization, entry deregulations, reduction of reserve
requirements and removal of credit allocation. Domestic banks were given acces to cheap
loans from abroad and allocated those resources to domestic production sectors.

A. MAIN ISSUES AND HYPOTHESES.

INDIA’S PRE-REFORMS PEROID AND FINANCIAL REFORMS.
Since 19991, India has been engaged in banking sector reforms aimed at
increasing the profitability and efficiency of the 27 public sector banks that controlled
about 90 percent of all deposits, assets and credit . The reforms were initiated in the
middle of a “current account” crisis that occurred in early 19991.Prior to the reforms,

16
India’s financial sector had long been characterized as highly regulated and financial
repressed. The prevence of reserve requirements, interest-rate controls, and allocation .
After independence in 1947, the government took the view that loans extended by
colonial banks were based toward working capital for trade and large firms. Moreover, it
was perceived that banks should be utilized to assist. India’s planned development
strategy by mobilizing financial resources to strategically important sectors. Reflecting
these views, all large private banks were nationalized in two stages:
1 The first in 1969
2The second in 1980. subsequently ,quantitative loan targets were imposed on these
banks to expand their networks in rural areas and they were directed to extend credit to
priority sectors. These nationalized banks were then increasingly used to finance fiscal
deficits.
The major factors that contributed to deteriorating bank
performance included. A Too stringent regulatory requirements (i.e a cash reserve
requirements and [CRR] and statutory liquidity requirement [SLR] that reqired banks
to hold a certain amount of government and eligible securities .
B. Low interest rates charged on government bonds (as compared with those on
commercial advances).
C .Directed and concessional lending.
D .Administered interest rates, and
E .Lack of competition.

While government involvement in the financial sector can be justified at the

initial stage of economic development, the prolonged presence of excessively large
public-sector banks often results in inefficient resource allocation and concentration
of power in a few banks. The CRR requires bank to hold a certain portion of deposits
in the form of cash balances with the Reserve Bank of India. In the 1960s and 1970s,
the CRR was 5 percent, but then rose steadily to its legal upper limit of 15 percent in
early 1991. The statutory liquidity requirement requires bank to hold a certain amount
of deposits in the form of government and other approved securities. It was 25
precent in 1970 and then increased to 38.5 percent in 1991. Nearly to the level of its
legal upper limit of 40 percent. With respect to direct lending, the priority sector

17
target of 33 percent of total advances was introduced in 1947, and the ratio was
gradually raised to 40 percent in 1985.
B. DRASTIC VERSUS GRADUAL PRIVATIZATION
APPROACHES:
Since this approach was introduced, some criticisms have been
expressed. First, public-sector banks continue to be dominant thanks to their better
branch coverage, customer base, and knowledge of the market compared with
newcomers. Second public-sector banks would find it more difficult to reduce
personnel expenditure because of the strong trade unions. Third, the government
would find it difficult to accept genuine competition within public-sector banks. The
1994 amendment of the banking act allowed banks to raise private equity up to 49
percent of paid up capital. Consequently, public-sector banks, which used to be fully
owned by the government prior to the reform, were now allowed to increase non
government ownership.So far, only eight public sector banks out of 27 have
diversified ownership.

18
Ch.5.Structure of Banking in India:-

19
1) ROLE OF RESERVE BANK OF INDIA IN THE
INDIAN BANKING SECTOR:-
20
Reserve Bank of India

The RBI headquarters in Mumbai

Mumbai, Maharashtra, India

Headquarters

1 April 1935
Established

Current Governor Duvvuri Subbarao

Currency Indian Rupee Symbol: `

$287.37 billion(2009)
Reserves

5.2%
Base borrowing rate

8.5% (projected for 2010-11)

Base deposit rate

The Reserve Bank of India (RBI, Hindi: भारतीय िरजवर बैक) is the central banking system
of India and controls the monetary policy of the rupee as well as 287.37 billion US-Dollar

21
(2009) currency reserves. The institution was established on 1 April 1935 during the
[1]
British-Raj in accordance with the provisions of the Reserve Bank of India Act, 1934
and plays an important part in the development strategy of the government.

History of RBI: -

1935 – 1950: -

The central bank was founded in 1935 to respond to economic troubles after the first
world war. The Reserve Bank of India was set up on the recommendations of the Hilton
Young Commission. The commission submitted its report in the year 1926, though the
bank was not set up for another nine years. The Preamble of the Reserve Bank of India
describes the basic functions of the Reserve Bank as to regulate the issue of Bank Notes,
to keep reserves with a view to securing monetary stability in India and generally to
operate the currency and credit system in the best interests of the country. The Central
Office of the Reserve Bank was initially established in Kolkata, Bengal, but was
permanently moved to Mumbai in 1937. The Reserve Bank has continued to act as the
central bank for Myanmar till Japanese occupation of Burma and later up to April 1947,
though Burma seceded from Indian Union in 1937. After the partition, the Reserve bank
served as the central bank for Pakistan up to June 1948 when the State Bank of Pakistan
commenced operations. Though originally set up as a shareholder's bank, the RBI has
been fully owned by the Government of India since its nationalization in 1949.

1950 - 1960

Between 1950 and 1960 the Indian government developed a centrally planned economic
policy and focused on the agricultural sector. The administration nationalized commercial
banks and established, based on the Banking Companies Act, 1949 (later called Banking
Regulation Act) a central bank regulation as part of the RBI. Beside that the central bank
was ordered to support the economic plan with loans.

22
1960 - 1969

As a result of bank crashes the reserve bank was requested to establish and monitor a
deposit insurance system. It should restore the trust in the national bank system and was
initialized on 7. December 1961. The Indian government founded funds to promote the
economy and used the slogan Developing Banking. The Gandhi administration and their
successors restructured the national bank market and nationalized a lot of institutes. As a
result the RBI had to play the central part of control and support of this public banking
sector.

1969–1985

Between 1969 and 1980 the Indian government nationalized 20 banks. The regulation of
the economy and especially the financial economic was reinforced by the Gandhi
administration and their successors in the 1970s and 1980s. The central bank
became the central player and increased her policies for a lot of tasks like
interests, reserve ratio and visible deposits. The measures aimed at a better
economic development and had a huge effect on the company policy of the
institutes. The banks lent money in selected sectors like agri-business and small
trade companies.

The branch was forced to establish two new offices in the country for every new founded
office in a town. The Oil crises in 1973 resulted in increasing inflation and the RBI
restricted the monetary policy to reduce the effects.

1985–1991

A lot of committees analysed the Indian economy between 1985 and 1991. Their results
had an effect on the RBI. The Board for Industrial and Financial Reconstruction, the
Indira Gandhi Institute of Development Research and Security & Exchange Board of
India investigated the national economy as a whole and the security and exchange board
proposed better methods for more effective markets and the protection of investor
interests. The Indian financial market was a leading example for - so called - "financial

23
repression" (Mackinnon uand Shaw). Discount and Finance House of India began his
operations on the monetary market in April 1988, the National Housing Bank, founded in
July 1988, was forced to invest in the propoerty market and a new financial law improved
the versatility of direct deposit by more secirity measures and liberalisation.

1991–2000

The national economy came down in July 1991 and the Indian rupee was devalued The
currency lost 18% related to the US-Dollar and the Narsimahmam Committee advised to
restructure the financial sector by a temporal reduced reserve ratio as well as the statutory
liquidity ratio. New guidelines were published in 1993 to establish a private banking
sector. This turning point should reinforce the market and was often called neo-liberal
The central bank deregulated the bank interests and some sectors of the financial market
like the trust and the property market. This first phase was a success and the central
government forced a diversity liberalisation to diversify the owner structures in 1998.[18]

The National Stock Exchange of India took the trade on in June 1994 and the RBI
allowed nationalized banks in July to interact with the capital market to reinforce their
capital base. The central bank founded a subsidiary company - the Bharatiya Reserve
Bank Note Mudran Limited - in February 1995 to produce banknotes.

Since 2000

The Foreign Exchange Management Act from 1999 came into force in June 2000. It
should improve the foreign exchange market, international investments in India and
transactions. The RBI promoted the development of the financial market in the last years,
allowed online banking in 2001 and established a new payment system in 2004 - 2005
(National Electronic Fund Transfer).[20] The Security Printing & Minting Corporation of
India Ltd., a merger of nine institutions, was founded in 2006 and produces banknotes
and coins.

The national economy's growth rate came down to 5,8% in the last quarter of 2008 - 2009
and the central bank promotes the economic development.

24
Structure of the Central Board of Directors

The Central Board of Directors is the main committee of the central bank and has not
more than 20 members. The government of the republic appoints the directors for a four
year term.

Central Board of Directors

Name Position
Duwuri Subbarao Governor
Shyamala Gopinath Deputy Governor
Usha Thorat Deputy Governor
K. C. Chakrabarty Deputy Governor
Subir Gokarn Deputy Governor
Y. H. Malegam Regional of the West
Suresh D. Tendulkar Regional of the East
U. R. Rao Regional of the North
Lakshmi Chand Regional of the South
H. P. Ranina Lawyer Supreme Court of India
Chairman Firstsource Solutions
Ashok S. Ganguly
Limited
Azim Premji Chairman WIPRO Limited
Chairman Aditya Birla Group of
Kumar Mangalam Birla
Companies
Shashi Rajagopalan Advisor
Suresh Neotia former Chairman Ambuja Cement Co.
A. Vaidyanathan Economist, Professor Madras Inst.
Chemist, Professor Mumbai
Man Mohan Sharma
University
Chairman Lakshmi Machine Works
D. Jayavarthanavelu
Limited
Sanjay Labroo CEO Asahi India Glass Ltd.
Ashok Chawla Government representative

Supportive bodies

The reserve bank of India has four regional representations: North in New Delhi, South in
Chennai, East in Kolkata and West in Mumbai. The representations are formed by five
members, appointed for four years by the central government and serve - beside the

25
advice of the Central Board of Directors - as forum for regional banks and to deal with
delegated tasks from the central board. The institution has 22 regional offices.

The Board of Financial Supervision (BFS), formed in November 1994, serves as a

CCBD committee to control the financial institutions. It has four members, appointed for
two years, and takes measures to strength the role of statutory auditors in the financial
sector, external monitoring and internal controlling systems. The Tarapore committee
was setup by the Reserve Bank of India under the chairmanship of former RBI deputy
governor S S Tarapore to "lay the road map" to capital account convertibility. The five-
member committee recommended a three-year timeframe for complete convertibility by
1999-2000.

On 1 July 2006, in an attempt to enhance the quality of customer service and strengthen
the grievance redressal mechanism, the Reserve Bank of India constituted a new
department— Customer Service Department (CSD).

Reserve Bank of India regional office, Delhi entrance with the Yakshini sculpture
depicting "Prosperity through agriculture"

26
The RBI Regional Office in Delhi.

The RBI Regional Office in Kolkata.

27
 Ch.6.Functions of Reserve Bank of
India
Monetary Authority

The Reserve Bank of India is the main monetary authority of the country and beside that
the central bank acts as the bank of the national and state governments. It formulates,
implements and monitors the monetary policy as well as it has to ensure an adequate flow
of credit to productive sectors. Objectives are maintaining price stability and ensuring
adequate flow of credit to productive sectors. The national economy depends on the
public sector and the central bank promotes an expensive monetary policy to push the
private sector since the financial market reforms of the 1990s.

The institution is also the regulator and supervisor of the financial system and prescribes
broad parameters of banking operations within which the country's banking and financial
system functions. Objectives are to maintain public confidence in the system, protect
depositors' interest and provide cost-effective banking services to the public. The
Banking Ombudsman Scheme has been formulated by the Reserve Bank of India (RBI)
for effective redressal of complaints by bank customers. The RBI controls the monetary
supply, monitors economic indicators like the gross domestic product and has to decide
the design of the rupee banknotes as well as coins.

28
Manager of exchange control

The central bank manages to reach the goals of the Foreign Exchange Management Act,
1999. Objective: to facilitate external trade and payment and promote orderly
development and maintenance of foreign exchange market in India.

Issuer of currency

The bank issues and exchanges or destroys currency and coins not fit for circulation. The
Objectives are giving the public adequate supply of currency of good quality and to
provide loans to commercial banks to maintain or improve the GDP. The basic objectives
of RBI are to issue bank notes, to maintain the currency and credit system of the country
to utilize it in its best advantage, and to maintain the reserves. RBI maintains the
economic structure of the country so that it can achieve the objective of price stability as
well as economic development, because both objectives are diverse in themselves.

Developmental role

The central bank has to perform a wide range of promotional functions to support
national objectives and industries. The RBI faces a lot of inter-sectoral and local
inflation-related problems. Some of this problems are results of the dominant part of the
public sector.

Related functions

The RBI is also a banker to the Government and performs merchant banking function for
the central and the state governments. It also acts as their banker. The National Housing
Bank (NHB) was established in 1988 to promote private real estate acquisition. The
institution maintains banking accounts of all scheduled banks, too.

There is now an international consensus about the need to focus the tasks of a central
bank upon central banking. RBI is far out of touch with such a principle, owing to the

29
 sprawling mandate described above. The recent financial turmoil world-over, has
however, vindicated the Reserve Bank's role in maintaining financial stability in India.

2) Commercial, Public, Private and Foreign Banks in

India: -

A) Commercial and PSU Banks in India

• State Bank of India

State Bank of India

Type Public (BSE: 500112, LSE: SBID)

Banking
Industry
Financial services
Founded July 1, 1955
Headquarters Mumbai, Maharashtra, India
O. P. Bhatt
Key people
(Chairman)
Investment Banking
Consumer Banking
Commercial Banking
Retail Banking
Products Private Banking
Asset Management
Pensions
Mortgages
Credit Cards
Revenue ▲ $28.212 billion (2010)[1]
Profit ▲ $2.473 billion (2010)[1]
Total assets ▲ $323.043 billion (2010)[1]
Total equity ▲ $18.519 billion (2010) [1]
Owner(s) Government of India
Employees 205,896 (2010)

30
State Bank of India (Hindi: भारतीय सटेट बैक) (SBI) is the largest state-owned banking and
financial services company in India, by almost every parameter - revenues, profits, assets,
market capitalization, etc. The bank traces its ancestry to British India, through the
Imperial Bank of India, to the founding in 1806 of the Bank of Calcutta, making it the
oldest commercial bank in the Subcontinent. The Government of India nationalized the
Imperial Bank of India in 1955, with the Reserve Bank of India taking a 60% stake, and
renamed it the State Bank of India. In 2008, the Government took over the stake held by
the Reserve Bank of India.SBI provides a range of banking products through its vast
network of branches in India and overseas, including products aimed at NRIs. The State
Bank Group, with over 16,000 branches, has the largest banking branch network in India.
With an asset base of $260 billion and $195 billion in deposits, it is a regional banking
behemoth. It has a market share among Indian commercial banks of about 20% in
deposits and advances, and SBI accounts for almost one-fifth of the nation's loansSBI has
tried to reduce over-staffing by computerizing operations and "golden handshake"
schemes that led to a flight of its best and brightest managers. These managers took the
retirement allowances and then went on to become senior managers in new private sector
banks.
The State bank of India is the 29th most reputed company in the world according to
Forbes. State Bank of India is the largest of the Big Four Banks of India, along with
ICICI Bank, Punjab National Bank and Canara Bank — its main competitors

31
State Bank of India (SBI), Mumbai Main Branch.

32
History
The roots of the State Bank of India rest in the first decade of 19th century, when the
Bank of Calcutta, later renamed the Bank of Bengal, was established on 2 June 1806. The
Bank of Bengal and two other Presidency banks, namely, the Bank of Bombay
(incorporated on 15 April 1840) and the Bank of Madras (incorporated on 1 July 1843).
All three Presidency banks were incorporated as joint stock companies, and were the
result of the royal charters. These three banks received the exclusive right to issue paper
currency in 1861 with the Paper Currency Act, a right they retained until the formation of
the Reserve Bank of India. The Presidency banks amalgamated on 27 January 1921, and
the reorganized banking entity took as its name Imperial Bank of India. The Imperial
Bank of India continued to remain a joint stock company.
Pursuant to the provisions of the State Bank of India Act (1955), the Reserve Bank of
India, which is India's central bank, acquired a controlling interest in the Imperial Bank
of India. On 30 April 1955 the Imperial Bank of India became the State Bank of India.
The Govt. of India recently acquired the Reserve Bank of India's stake in SBI so as to
remove any conflict of interest because the RBI is the country's banking regulatory
authority.

SBI has five associate banks that with SBI constitute the State Bank Group. All use the
same logo of a blue keyhole and all the associates use the "State Bank of" name followed
by the regional headquarters' name. Originally, the then seven banks that became the
33
associate banks belonged to princely states until the government nationalised them
between October, 1959 and May, 1960. In tune with the first Five Year Plan,
emphasizing the development of rural India, the government integrated these banks into
State Bank of India to expand its rural outreach. There has been a proposal to merge all
the associate banks into SBI to create a "mega bank" and streamline operations.

• National Bank for Agriculture and Rural

Development

National Bank for Agriculture and Rural Development (NABARD) is an apex

development bank in India. It has been accredited with "matters concerning policy,
planning and operations in the field of credit for agriculture and other economic activities
in rural areas in India".

History
NABARD was established on the recommendations of Shivaraman Committee, by an act
of Parliament on 12 July 1982 to implement the National Bank for Agriculture and Rural
Development Act 1981. It replaced the Agricultural Credit Department (ACD) and Rural
Planning and Credit Cell (RPCC) of Reserve Bank of India, and Agricultural Refinance
and Development Corporation (ARDC). It is one of the premiere agencies to provide
credit in rural areas.

Role of NABARD
NABARD:serves as an apex financing agency for the institutions providing investment
and production credit for promoting the various developmental activities in rural areas
takes measures towards institution building for improving absorptive capacity of the
credit delivery system, including monitoring, formulation of rehabilitation schemes,
restructuring of credit institutions, training of personnel, etc. co-ordinates the rural
financing activities of all institutions engaged in developmental work at the field level
and maintains liaison with Government of India, State Governments, Reserve Bank of
India (RBI) and other national level institutions concerned with policy formulation

34
undertakes monitoring and evaluation of projects refinanced by it. NABARD's refinance
is available to State Co-operative Agriculture and Rural Development Banks
(SCARDBs), State Co-operative Banks (SCBs), Regional Rural Banks (RRBs),
Commercial Banks (CBs) and other financial institutions approved by RBI. While the
ultimate beneficiaries of investment credit can be individuals, partnership concerns,
companies, State-owned corporations or co-operative societies, production credit is
generally given to individuals.

Rural Innovation
NABARD's role in rural development in India is phenomenon. National Bank For
Agriculture & Rural Development (NABARD) is set up as an apex Development Bank
by the Government of India with a mandate for facilitating credit flow for promotion and
development of agriculture, cottage and village industries. The credit flow to agriculture
activities sanctioned by NABARD reached Rs 1,574,800 million in 2005-2006. The
overall GDP is estimated to grow at 8.4 per cent. The Indian economy as a whole is
poised for higher growth in the coming years. Role of NABARD in overall development
of India in general and rural & agricultural in specific is highly pivotal.
Through assistance of Swiss Agency for Development and Cooperation, NABARD set up
the Rural Infrastructure Development Fund. Under the RIDF scheme Rs. 512830 million
have been sanctioned for 2,44,651 projects covering irrigation, rural roads and bridges,
healthy and education, soil conservation, water schemes etc. Rural Innovation Fund is a
fund designed to support innovative, risk friendly, unconventional experiments in these
sectors that would have the potential to promote livelihood opportunities and
employment in rural areas. The assistance is extended to Individuals, NGOs,
Cooperatives, Self Help Group, and Panchayati Raj Institutions who have the expertise
and willingness to implement innovative ideas for improving the quality of life in rural
areas. Through member base of 250 million, 600000 cooperatives are working in India at
grass root level in almost every sector of economy. There are linkages between SHG and
other type institutes with that of cooperatives.
The very purpose of RIDF is to promote innovation in rural & agricultural sector through
viable means. Effectiveness of the program depends upon many factors, but the type of
organization to which the assistance is extended is crucial one in generating, executing
ideas in optimum commercial way. Cooperative is member driven formal organization
35
for socio-economic purpose, while SHG is informal one. NGO have more of social color
while that of PRI is political one. Does the legal status of an institute influences
effectiveness of the program? How & to what an extent? Cooperative type of
organization is better (Financial efficiency & effectiveness) in functioning (agriculture &
rural sector) compared to NGO, SHG & PRIs.

Small Industries Development Bank of India

Small Industries Development Bank of India is an independent financial institution aimed

to aid the growth and development of micro, small and medium scale enterprises in India.
Set up in 1990 through an act of parliament, it was incorporated initially as a wholly
owned subsidiary of Industrial Development Bank of India. Current shareholding is
widely spread among various state owned banks, insurance companies and financial
institutions. Beginning as a refinancing agency to banks and state level financial
institutions for their credit to small industries, it has expanded it's activities, including
direct credit to the SME through 100 branches in all major industrial clusters in India.
Besides, it has been playing the development role in several ways such as support to
micro-finance institutions for capacity building and on lending. Recently it has opened 7
branches christened as Micro Finance branches, aimed especially at dispensing loans up
to Rs. 5.00 lakh.SIDBI has also floated several other entities for related activities. Credit
Guarantee Fund Trust for Micro and Small Enterprises provides guarantees to banks
for collateral free loans extended to SME. SIDBI Venture Capital Ltd is Venture
Capital company focused at SME. SME Rating Agency of India Ltd. (SMERA) provides
composite ratings to SME.

Provision Of Charter

36
SIDBI was established on April 2, 1990. The Charter establishing it, The Small Industries
Development Bank of India Act, 1989 envisaged SIDBI to be "the principal financial
institution for the promotion, financing and development of industry in the small scale
sector and to co-ordinate the functions of the institutions engaged in the promotion and
financing or developing industry in the small scale sector and for matters connected
therewith or incidental thereto.

SIDBI retained its position in the top 30 Development Banks of the World in the latest
ranking of The Banker, London. As per the May 2001 issue of The Banker, London,
SIDBI ranked 25th both in terms of Capital and Assets .

The Charter establishing it, The Small Industries Development Bank of India Act, 1989
envisaged SIDBI to be "the principal financial institution for the promotion, financing
and development of industry in the small scale sector and to co-ordinate the functions of
the institutions engaged in the promotion and financing or developing industry in the
small scale sector and for matters connected therewith or incidental thereto. Credit
Guarantee Fund Trust for Micro and Small Enterprises popularly known as CGTMSE is
widely being used by many PSU Banks and Private sector banks to fund MSME

sector.

Business Domain

The business domain of SIDBI consists of small scale industrial units, that contribute
significantly to the national economy in terms of production, employment and exports.
Small scale industries are the industrial units in which the investment in plant and
machinery does not exceed Rs.10 million . About 3.1 million such units, employing 17.2
million persons account for a share of 36 per cent of India's exports and 40 per cent of
industrial manufacture. In addition, SIDBI's assistance flows to the transport, health care
and tourism sectors and also to the professional and self-employed persons setting up
small-sized professional ventures

Functions meant to help small scale industries

37
1. Refinances loans given to small scale sector by primary lending institutions.

2. Discounts and rediscounts bills relating to the transaction of machinery of the small
scale sector.

3. Extends seed capital through specified agencies.

4. Assistance for export of products of small-scale sector.

5. Provides services like leasing and factoring.

6. Give financial support to purchase raw material and the sales of finished products.

Achievements

SIDBI retained its position in the top 30 Development Banks of the World in the latest
ranking of The Banker, London. As per the May 2001 issue of The Banker, London,
SIDBI ranked 25th both in terms of Capital and Assets. Credit Guarantee Fund Trust for
Micro and Small Enterprises popularly known as CGTMSE is widely being used by
many PSU Banks and Private sector banks to fund MSME sector.

Technology Oriented

SIDBI has developed an internal rating model called CART to assess and rate its
borrowers. CART enables an objective assessment of its borrowers.

B) Private Banks In India

• Industrial Credit And Investment

ICICI Bank

Type Public (BSE: 532174, NYSE: IBN)

38
 Banking
Industry
Financial services
Founded 1955
Headquarters Mumbai, Maharashtra, India
K.V.Kamath
(Chairman)
Chanda Kochhar
Key people
(MD & CEO)
N. S. Kannan
(CFO)
Investment Banking
Commercial Banking
Retail Banking
Products Private Banking
Asset Management
Mortgages
Credit Cards
▲ Rs 59,599.77 crore (US$ 12.69
Revenue
billion) (2009)[1]
Operating ▲ Rs 6,578.64 crore (US$ 1.4
income billion) (2010)[1]
▲ Rs 4,843.41 crore (US$ 1.03
Profit
billion) (2010)[1]
Total assets ▲ US$ 100.10 billion (2010)[2]
Employees 35,000+ (2009)
Website ICICIBank.com

ICICI Bank :( formerly Industrial Credit and Investment Corporation of India) is a major
banking and financial services organization in India. It is the 2th largest bank in India and
the largest private sector bank in India by market capitalization. The bank also has a
network of 2,016 branches (as on 31 March 2010) and about 5,219 ATMs in India and
presence in 18 countries, as well as some 24 million customers (at the end of July 2007).
ICICI Bank offers a wide range of banking products and financial services to corporate
and retail customers through a variety of delivery channels and specialization subsidiaries
and affiliates in the areas of investment banking, life and non-life insurance, venture
39
capital and asset management. (These data are dynamic.) ICICI Bank is also the largest
issuer of credit cards in India. ICICI Bank's shares are listed on the stock exchanges at
Kolkata and Vadodara, Mumbai and the National Stock Exchange of India Limited; its
ADRs trade on the New York Stock Exchange (NYSE).The Bank is expanding in
overseas markets and has the largest international balance sheet among Indian banks.
ICICI Bank now has wholly-owned subsidiaries, branches and representatives offices in
19 countries, including an offshore unit in Mumbai. This includes wholly owned
subsidiaries in Canada, Russia and the UK (the subsidiary through which the HiSAVE
savings brand is operated), offshore banking units in Bahrain and Singapore, an advisory
branch in Dubai, branches in Belgium, Hong Kong and Sri Lanka, and representative
offices in Bangladesh, China, Malaysia, Indonesia, South Africa, Thailand, the United
Arab Emirates and USA. Overseas, the Bank is targeting the NRI (Non-Resident Indian)
population in particular.
ICICI reported a 1.15% rise in net profit to Rs. 1,014.21 crore on a 1.29% increase in
total income to Rs. 9,712.31 crore in Q2 September 2008 over Q2 September 2007. The
bank's CASA ratio increased to 30% in 2008 from 25% in 2007. ICICI Bank is one of the
Big Four Banks of India, along with State Bank of India, Axis Bank and HDFC Bank —
its main competitors

History

40
 • Housing Development Finance Corporation (HDFC)
HDFC Bank Ltd.

Public
Type
(BSE: 500180, NYSE: HDB)
Banking
Industry
Financial services
Founded August 1994
Founder(s) Deepak Parekh
Headquarters Mumbai, India
Jagdish Capoor
(Chairman)
Key people
Aditya Puri
(MD)
Products Investment Banking
Commercial Banking
Retail Banking
Private Banking

41
 Asset Management
Mortgages
Credit Cards[1]
▲ Rs 20,266.99 crore (US$ 4.32
Revenue
billion) (2010)[2]
Operating ▲ Rs. 4,419.01 crore (US$ 941.25
income million) (2010)[2]
▲ Rs. 3,032.92 crore (US$ 646.01
Profit
million) (2010)[2]
Total assets ▲ US$ 39.723 billion (2009)[2]
▼ Rs 21,158.15 crore (US$ 4.51
Total equity
billion) (2010)[2]
Employees 51,888 (2010)[3]

HDFC Bank Ltd. (is a major Indian financial services company based in Mumbai,
incorporated in August 1994, after the Reserve Bank of India allowed establishing private
sector banks. The Bank was promoted by the Housing Development Finance
Corporation, a premier housing finance company (set up in 1977) of India. HDFC Bank
has 1,725 branches and over 4,232 ATMs, in 779 cities in India, and all branches of the
bank are linked on an online real-time basis. As of September 30, 2008 the bank had total
assets of INR 1006.82 billion.[4] For the fiscal year 2008-09, the bank has reported net
profit of Rs.2,244.9 crore, up 41% from the previous fiscal. Total annual earnings of the
bank increased by 58% reaching at Rs.19,622.8 crore in 2008-09

History
HDFC Bank was incorporated in the year of 1994 by Housing Development Finance
Corporation Limited (HDFC), India's premier housing finance company. It was among
the first companies to receive an 'in principle' approval from the Reserve Bank of India
(RBI) to set up a bank in the private sector.The Bank commenced its operations as a
Scheduled Commercial Bank in January 1995 with the help of RBI's liberalization
policies.In a milestone transaction in the Indian banking industry, Times Bank Limited
(promoted by Bennett, Coleman & Co. / Times Group) was merged with HDFC Bank
Ltd., in 2000. This was the first merger of two private banks in India. As per the scheme
of amalgamation approved by the shareholders of both banks and the Reserve Bank of
42
India, shareholders of Times Bank received 1 share of HDFC Bank for every 5.75 shares
of Times Bank.In 2008 HDFC Bank acquired Centurion Bank of Punjab taking its total
branches to more than 1,000. The amalgamated bank emerged with a strong deposit base
of around Rs. 1,22,000 crore and net advances of around Rs. 89,000 crore. The balance
sheet size of the combined entity is over Rs. 1,63,000 crore. The amalgamation added
significant value to HDFC Bank in terms of increased branch network, geographic reach,
and customer base, and a bigger pool of skilled manpower.

Business focus
HDFC Bank deals with three key business segments - Wholesale Banking Services,
Retail Banking Services, Treasury. It has entered the banking consortia of over 50
corporates for providing working capital finance, trade services, corporate finance and
merchant banking. It is also providing sophisticated product structures in areas of foreign
exchange and derivatives, money markets and debt trading and equity research.
Wholesale banking services.HDFC Bank was the first bank in India to launch an
International Debit Card in association with VISA (VISA Electron) and issues the
Mastercard Maestro debit card as well.

43
An HDFC Bank Branch
HDFC Bank is headquartered in Mumbai. The Bank has an network of 1,725 branches
spread in 771 cities across India. All branches are linked on an online real-time basis.
Customers in over 500 locations are also serviced through Telephone Banking. The Bank
has a presence in all major industrial and commercial centres across the country..The
Bank also has 3,898 networked ATMs across these cities. Moreover, HDFC Bank's ATM
network can be accessed by all domestic and international Visa/MasterCard, Visa
Electron/Maestro, Plus/Cirrus and American Express Credit/Charge cardholders.

44
Banking in India

Central bank Reserve Bank of India

Allahabad Bank · Andhra Bank · Bank of Baroda ·

Bank of India · Bank of Maharashtra · Canara
Bank · Central Bank of India · Corporation Bank ·
Dena Bank · IDBI Bank · Indian Bank · Indian
Nationalised banks
Overseas Bank · Oriental Bank of Commerce ·
Punjab & Sind Bank · Punjab National Bank ·
Syndicate Bank · UCO Bank · Union Bank of
India · United Bank of India · Vijaya Bank

State Bank of India · State Bank of Bikaner &

Jaipur · State Bank of Hyderabad · State Bank of
State Bank Group
Indore · State Bank of Mysore · State Bank of
Patiala · State Bank of Travancore

Private banks Axis Bank · Bank of Rajasthan · Bharat Overseas

Bank · Catholic Syrian Bank · City Union Bank ·
Development Credit Bank · Dhanalakshmi Bank ·
Federal Bank · Ganesh Bank of Kurundwad ·
HDFC Bank · ICICI Bank · IndusInd Bank · ING
Vysya Bank · Jammu & Kashmir Bank ·
Karnataka Bank Limited · Karur Vysya Bank ·
Kotak Mahindra Bank · Lakshmi Vilas Bank ·
Nainital Bank · Ratnakar Bank · Rupee Bank ·
Saraswat Bank · SBI Commercial and

45
 International Bank · South Indian Bank · Tamilnad
Mercantile Bank Limited · Yes Bank

ABN AMRO · Abu Dhabi Commercial Bank ·

Antwerp Diamond Bank · Arab Bangladesh Bank ·
Bank International Indonesia · Bank of America ·
Bank of Bahrain & Kuwait · Bank of Ceylon ·
Foreign bank
Bank of Nova Scotia · Bank of Tokyo Mitsubishi
UFJ · Barclays Bank · Citibank India · HSBC ·
Standard Chartered · Deutsche Bank · Royal Bank
of Scotland

North Malabar Gramin Bank · South Malabar

Regional Rural banks Gramin Bank · Pragathi Gramin Bank · Shreyas
Gramin Bank

Real Time Gross Settlement(RTGS) · National

Electronic Fund Transfer (NEFT) · Structured
Financial Services
Financial Messaging System (SFMS) · CashTree ·
Cashnet · Automated Teller Machine (ATM)

C) Foreign Banks In India :

Hongkong and shanghai banking corporation (HSBC)

HSBC Holdings plc

46
 Public limited company
LSE: HSBA
SEHK: 005
Type
NYSE: HBC
Euronext: HSB
BSX: 1077223879
Banking
Industry Financial services
Investment services
Founded Hong Kong (1865)
Founder(s) Thomas Sutherland
8 Canada Square
Headquarters
London, United Kingdom[1]
Number of 9,500 offices in 88 countries &
locations territories
Area served Worldwide
Stephen Green
(Group Chairman)
Key people
Michael Geoghegan
(Group CEO)
Finance and insurance
Consumer Banking
Corporate Banking
Investment Banking
Products Investment Management
Global Wealth Management
Private Equity
Mortgages
Credit Cards
Revenue ▼ $103.74 billion (2009)[2]
Operating income ▼ $7.079 billion (2009)[2]
Profit ▼ $5.834 billion (2009)[2]
Total assets ▼ $2.364 trillion (2009)[2]
Total equity ▲ $128.299 billion (2009)[2]
Employees 302,000 (2009)[2]

47
 HSBC Bank plc
HSBC GLT India
The Hongkong and Shanghai
Banking Corporation
Subsidiaries HSBC Bank USA
HSBC Bank Middle East
HSBC Mexico
HSBC Bank Brazil
HSBC Finance

HSBC Holdings plc is a global financial services company headquartered in London,

United Kingdom. As of 2010, it is both the world's largest banking and financial services
group and the world's 8th largest company according to a composite measure by Forbes
magazine. HSBC was founded as The Hongkong and Shanghai Banking Corporation and
Hong Kong served as the bank's headquarters until 1992 when it moved to London as a
condition of completing the acquisition of Midland Bank and as the handover of Hong
Kong's sovereignty approached.

History

48
Development of the bank

HSBC Tower, the international headquarters for HSBC Holdings plc in Canary Wharf,
London. For the history of the HSBC Group prior to the founding of HSBC Holdings in
1990, see The Hong Kong and Shanghai Banking Corporation.HSBC (originally "The
Hong Kong and Shanghai Banking Corporation") was founded in Hong Kong
(March) and Shanghai (one month later) in 1865. HSBC Holdings was established in
1990 and became the parent company to The Hongkong and Shanghai Banking
Corporation in preparation for its purchase of Midland Bank and a change of domicile for
the transfer of sovereignty of Hong Kong. Shares in HSBC Holdings, which gave HSBC
a substantial presence in the UK, was completed in 1992. As part of the takeover
conditions for the purchase of Midland, HSBC was required to move its world
headquarters from Hong Kong to London in 1993.

49
HSBC World Headquarters designed by Norman Foster in London, United Kingdom.

HSBC Private Bank refurbishment and extension at 78 St. James's by Squire and Partners
in London, United Kingdom.

Subprime crisis

In November 2002 HSBC expanded further in the United States. Under the chairmanship
of Sir John Bond, it spent £9bn (US$15.5bn) to acquire Household Finance Corporation
(HFC), a US credit card issuer and subprime lender. n a 2003 cover story, The Banker
noted "when banking historians look back, they may conclude that [it] was the deal of the
first decade of the 21st century".Under the new name of HSBC Finance, the division was

50
the second largest subprime lender in the US. In March 2009, HSBC announced that it
would shut down the branch network of its HSBC Finance arm in the U.S., leading to
nearly 6,000 job losses and leaving only the credit card business to continue
operatingChairman Stephen Green stated, "HSBC has a reputation for telling it as it is.
With the benefit of hindsight, this is an acquisition we wish we had not undertakenanalyst
Colin Morton said, "the takeover was an absolute disasterAlthough it was at the centre of
the subprime storm, the wider group has weathered the economic crisis better than other
global banks. According to Bloomberg, "HSBC is one of world’s strongest banks by
some measures When HM Treasury required all UK banks to increase their capital in
October 2007, the group transferred £750 million to London within hours, and announced
that it had just lent £4 billion to other UK banks. In March 2009, it announced that it had
made US$9.3bn of profit in 2008 and announced a £12.5bn (US$17.7bn; HK$138bn)
rights issue to enable it to buy other banks that were struggling to survive. However,
uncertainty over the rights' issue's implications for institutional investors caused volatility
in the Hong Kong stock market: on 9 March 2009 HSBC's share price fell 24.14%, with
12 million shares sold in the last few seconds of trading.

HSBC Private Bank

HSBC Private Bank s the group's private banking operation, providing private banking
and trustee services to wealthy individuals and their families worldwide. The Private
Bank has in excess of 60 offices worldwide, with the major centres being Miami, New
York, London, Geneva and Hong Kong.

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HSBC Premier Centre, Ikebukuro, Japan.

HSBC Bank International

HSBC Bank International is the offshore banking arm of the HSBC Group, focusing on
providing offshore solutions and cross border services to expatriates and migrants. It
provides a full range of multi-currency personal banking services to a range of customer
segments, including a full internet banking and telephone banking service. Sometimes
referred to as "HSBC Offshore", the business also offers independent financial planning,
and has representative offices all over the world, often working alongside local HSBC
operations in those regions.

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HSBC Bank International originated from the business started by Midland Bank and is
based in the Channel Islands with further operations on the Isle of Man. Its operations in
the Channel Islands are centred around its registered headquarters on the seafront in St
Helier, Jersey. Named 'HSBC House', the building comprises departments such as
Premier, Global Funds & Investments, e-Business and a 24 hour 'Direct Banking Centre'

Private banking

HSBC Private Bank

HSBC Private Bank is the marketing name for the private banking business conducted by
the principal private banking subsidiaries of the HSBC Group worldwide. HSBC Private
Bank, together with the private banking activities of HSBC Trinkaus, known collectively
as Group Private Banking, provides services to high net worth individuals and their
families through 93 locations in some 42 countries and territories in Europe, the Asia-
Pacific region, the Americas, the Middle East and Africa. As of December 2007, profits
before tax were US$1,511 million and combined client assets under management were
US$494 billion.

In September 2008, HSBC announced that it would combine its two Swiss private banks
under one brand name in 2009, with HSBC Guyerzeller and HSBC Private Bank to be
merged into one legal entity, under the newly appointed CEO of HSBC Private Bank,
Alexandre Zeller.

Standard Chartered Bank

Standard Chartered PLC

Public
LSE: STAN
Type
SEHK: 2888
OTCBB: SCBFF
Banking
Industry
Financial services

53
Area served Worldwide
John W. Peace
(Chairman of the Board)
Key people
Peter A. Sands

Finance and insurance

Consumer Banking
Corporate Banking
Investment Banking
Products Investment Management
Private Banking
Private Equity
Mortgage loans
Credit Cards
Revenue ▲ $15.184 billion (2009)[1]
Operating income ▲ $5.151 billion (2009)[1]
Net income ▲ $3.477 billion (2009)[1]
Total assets ▲ $436.653 billion (2009)[1]
Total equity ▲ $27.930 billion (2009)[1]
Employees 80,000 (2010)

Standard Chartered PLC (LSE: STAN, SEHK: 2888, OTCBB: SCBFF) is a British
financial services company headquartered in London, England with operations in more
than seventy countries. It operates a network of over 1,700 branches and outlets
(including subsidiaries, associates and joint ventures) and employs 80,000 people.

Despite its British base, it has few customers in the United Kingdom and around 90% of
its profits come from Asia, Africa, and the Middle East. Because the bank's history is
entwined with the development of the British Empire, its operations lie predominantly in
former British colonies, though over the past two decades it has expanded into countries
that have historically had little British influence. It aims to provide a safe regulatory
bridge between these developing economies.

54
It now focuses on consumer, corporate, and institutional banking, and on the provision of
treasury services—areas in which the Group had particular strength and expertise.

Standard Chartered have recently signed a four-year sponsorship deal with the football
club Liverpool F.C, which started on 1 July 2010.

Standard Chartered is listed on the London Stock Exchange, Hong Kong Stock Exchange
and the Indian Stock Exchanges and is a constituent of the FTSE 100 Index. Its largest
shareholder is Temasek Holdings

History

The early years

The name Standard Chartered comes from the two original banks from which it was
founded and which merged in 1969 — The Chartered Bank of India, Australia and China,
and The Standard Bank of British South Africa.

The Chartered Bank was founded by Scotsman James Wilson following the grant of a
Royal Charter by Queen Victoria in 1853, while The Standard Bank was founded in the
Cape Province of South Africa in 1862 by another Scotsman John Paterson. Both

companies were keen to capitalise on the huge expansion of trade and to earn the
handsome profits to be made from financing the movement of goods from the East to
Europe.

In those early years, both banks prospered. Standard Chartered Bank has a major branch
in Kolkata.Chartered opened its first branches in Mumbai, Kolkata and Shanghai in 1858,
followed by Hong Kong and Singapore in 1859. With the opening of the Suez Canal in
1869 and the extension of the telegraph to China in 1871, Chartered was well placed to
expand and develop its business. In South Africa, Standard, having established a
considerable number of branches, was prominent in financing the development of the
diamond fields of Kimberley from 1867 and later extended its network further north to
the new town of Johannesburg when gold was discovered there in 1885. Half the output

55
of the second largest gold field in the world passed through The Standard Bank on its
way to London.

Both banks – at that time still quite separate companies – survived the First World War
and the Depression, but were directly affected by the wider conflict of the Second World
War in terms of loss of business and closure of branches. There were also longer term
effects for both banks as countries in Asia and Africa gained their independence in the
‘40s till ‘60s.

Each had acquired other small banks along the way and spread their networks further. In
1969, the banks decided to merge, and to counterbalance their existing network by
expanding in Europe and the United States, while continuing their expansion in their
traditional markets in Asia and Africa.

In 1986 Lloyds Bank of the United Kingdom made a hostile takeover bid for the Group.
The bid was defeated however it spurred Standard Chartered into a period of change,
including a series of divestments notably in the United States and South Africa

Monetary Measures: On the basis of the current assessment and in line with the policy
stance as outlined in Section III, the Reserve Bank announces the following policy
measures:

Bank Rate: The Bank Rate has been retained at 6.0 per cent.

Repo Rate: It has been decided to:

• Increase the repo rate under the Liquidity Adjustment Facility (LAF) by 25 basis
points from 5.0 per cent to 5.25 per cent with immediate effect.

Reverse Repo Rate

It has been decided to

56
 • Increase the reverse repo rate under the LAF by 25 basis points from 3.5 per cent
to 3.75 per cent with immediate effect.

Cash Reserve Ratio

It has been decided to:

• Increase the cash reserve ratio (CRR) of scheduled banks by 25 basis points from
5.75 per cent to 6.0 per cent of their net demand and time liabilities (NDTL)
effective the fortnight beginning April 24, 2010.

As a result of the increase in the CRR, about Rs. 12,500 crore of excess liquidity will be
absorbed from the system.

The Reserve Bank will continue to monitor macroeconomic conditions, particularly the
price situation, closely and take further action as warranted

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 CONCLUSION:

Since the financial reforms of 1991, there have been significant favourable changes i
India’s highly regulated banking sector. It concludes that the financial reforms have had a
moderately positive impact on reducing the concentration of the banking sector and
improving performance.

The empirical estimation showed that regulation lowered the profitability and cost
efficiency of public sector banks at the initial stage of the reforms, but such a negative
impact disappeared once they adjusted to the new environment. In line profitability
turned positive in 1997-2000, cost efficiency steadily improved over the reform period,
and the gap in performance compared with foreign banks has diminished.

Moreover, allowing banks to engage in non-traditional activities has contributed to

improved profitability and cost and earnings efficiency of the whole banking sector,
including public-sector banks. By contrast, investment in government securities has
lowered the profitability and cost efficiency of the whole banking sector, including public
sector banks.

Further, foreign banks have generally performed better than other banks in terms of
profitability and income efficiency. These suggest that ownership matters and foreign
entry has a positive impact on banking sector restructuring.

58