Banking structure in India

THE STRUCTURE OF INDIAN BANKING

SYSTEM
 Commercial Bank

The Banking Regulation Act defines banking as,

'accepting, for the purpose of lending or investment,
of deposits of money from the public, repayable on
demand or otherwise, and withdrawable by cheque,
draft, order or otherwise, and 'a banking company
is a company which transacts the business of banking
in India.
Thus, it depicts the following three primary activities
of a commercial bank:-
(i) maintaining deposit accounts including current
accounts,
(ii) issue and pay cheques, and
(iii) collect cheques for the bank's customers
Functions of Commercial Bank
Importance of Commercial Banks in
economic development

1. Accelerating the Rate of Capital

Formation
2. Provision of Finance and Credit
3. Developing Entrepreneurship
4. Promoting Balanced Regional
Development
5. Help to Consumers
Growth In Deposits (06-16)
Assets Base
Assets of public
sector banks,
which account
for more than 70
per cent of the
total banking
assets, grew at a
CAGR of 12 per
cent

Private sector
expanded at an
CAGR of 13 per
cent, while
foreign banks
Interest Income

Public sector banks

account for over
72.3 per cent of
interest income in
the sector in FY15

Overall, the
interest income for
the sector has
grown at 11 per
cent CAGR during
FY09-15
Net Interest Margin

Indian banking
sector enjoys
healthy NIM
compared with
global peers,
having HDFC
leading in the
large banks
Return On Assets

Private and foreign

banks have posted
high return on
assets than
nationalized and
public banks.

This has prompted

most of the foreign
banks to start their
operations in India
Loan-to-deposit Ratio

Loan-to-Deposit
ratio for banks
across sectors
has increased
over the years.
Market Share of Bank Groups by
Deposits

Decline in market
share of public
sector banks is
largely due to the
fact that private
banks are rapidly
capturing share in
savings deposit
 Payment Banks
RBI gave nod to 11 entities for setting up of non-lending
payments banks as a part of the financial inclusion drive.

Customers can deposit only up to Rs 1,00,000

Payments bank can issue ATM/debit cards but not credit
cards
Payments and remittance services through various
channels can be done
Customers will be able to buy insurance and mutual funds
Bank would not carry out lending activities.
With this, the network of 1,54,000 post offices (including
1,30,000 rural post offices) will be offering banking
services to the masses in the country.
 Payment Banks
Targeting migrant labourers, low income households, small
businesses, and other unorganised sector entities.
Initial capital required for a Payments bank is Rs 100 crore
Eligibility: Existing pre-paid payment instrument issuers,
individuals, professionals, NBFCs, corporate business
correspondents, telecom companies, super-market chains, real
estate sector cooperatives that are owned and controlled by
residents and public sector entities may apply.
Promoters contribution initially must be 40% for the first 5 years.
For foreign holding, it is up to 74% of paid-up capital, on a par
with private banks.
The banks must maintain CRR, minimum 75% of demand
deposits in government bonds of up to one year and maximum
25% in current and fixed deposits with other scheduled
commercial banks for operational purposes and liquidity
management.
 APPLICANT GROUP PARTNER
Aditya Birla Kumar Birla Idea Cellular (49% stake)
Nuvo
Airtel M Sunil Mittal Kotak Mahindra (19.9%)
Commerce
Cholamandala Murugappa Searching
m Dist
Dept of Posts Central Govt
FinoPayTech 24 banks and
FIs
NSDL Banks and FIs To go alone
Reliance Mukesh SBI (30% stake)
Industries Ambani
DilipShanghvi Sun Pharma Yet to announce
Vijay S Sharma Paytm To go alone
Tech Mahindra Mahindra In talks with IFC
group
Vodafone m- Vodafone
 Small Finance Banks

Key objective is to perform lending activities

among weaker sections of the community and
get complete financial inclusion.
Can be operated by Individuals with 10 years of
experience in Banking, NBFCs and Micro
Finance Institutions.
The minimum Paid-Up capital is 100 Crores.
The time period for set up of a Small Bank after
getting approval is 18 Months.
Can give loan to farmers, MSMEs and any
individual etc and also accept deposits.
10 Applicants approved for Small
Finance Banks
Difference between Small Finance
Banks and Payment Banks
Basis Small Finance Payment Banks
Banks

Loans & advances Can give loans & Can't give loans &
advances advances

Rural branches 25% branches of No such limit

Small bank must be
in rural areas

Purpose Small bank mainly Payment bank

for the growth of mainly for the
agriculture and growth of
Micro, Small and individual/weaker
Medium industries. section and etc.
 Payment banks vis--vis Commercial
banks
Customers who do not have the means to maintain
minimum balance will be welcomed into payments
banks as revenue will be earned through transaction
charges and not on the spread of interest between
deposits and loans.
Payments banks cannot give loans or issue credit cards.
Money collected from depositors can be invested either
in government bonds or can be deposited with other
commercial banks.
The payments banks will also have a high-powered
customer care cell to handle customer complaints.
The minimum paid-up equity capital for payments
banks is Rs. 100 crore