Group no.

- 20
Vaishali harit( 162379)
Divita bhargava(162243)
 Content
 Introduction
 History of banking system
 Structure of banking system
 Functioning of old banking system
 Disadvantages of old banking system
 Focus aspects of new banking system
 Issues and challenges related of banking system
 Conclusion
Banking – Introduction
 Banking Regulation Act, 1949, define banking as the
acceptance of deposits of money from the public for
the purpose of lending or investment.
 Banking is commercial institution. In India first bank
was estabilished in 1779 by Britishers for availability of
funds and finance for the port to carry the goods
(stuff) from India to British countries.
History of Indian banking
system
 The bank of Hindustan was the first bank to be
established in India in 1770.
 PRESISENCY BANKS
 Bank of Bengal : 1809 ( bank of calcutta : 1806)
 Bank of Bombay : 1840
 Bank of Madras : 1843
 In 1921, Presidency banks were merged to form Imperial
bank of India, it was private entity.
 In 1955, Imperial bank of India was nationalised and
renamed as State bank of India, on the recommendation of
“ A.D. GOREWALA COMMITTEE”.
 8 banks were attached with SBI in 1959. name as the associate bank of SBI.
 They were,
I. STATE BANK OF BIKANER
II. STATE BANK OF JAIPUR
III. STATE BANK OF SAURASHTRA
IV. STATE BANK OF INDORE
V. STATE BANK OF HYFDERBAD
VI. STATE BANK OF PATIALA
VII. STATE BANK OF MYSORE
VIII. STATE BANK OF TRAVANCORE
 1st bank with limited liability was Oudh Commerical bank. This was
established in 1881 at faizabad, failed in 1958.
 The first bank purely managed by Indians was Punjab National bank
established in Lahore in 1894.
 1st Indian Commercial which was onwed and managed by Indians was Central
bank of India which was established in 1911.
 Central bank of India is called India’s first truly
swadeshi bank.
 Bank of India was the 1st Indian bank to open A
branch outside India in London in 1946.
 i) India’s oldest joint stock bank (multiple
shareholder)is Allahabad bank which is still working
established in 1865.
 ii) It is also known as India’s oldest public sector bank.
 RESERVE BANK OF INDIA

SCHEDULE BANKS NON SCHEDULE BANKS

COMMERCIAL BANKS COOPERATIVE BANKS

1. PUBLIC SECTOR BANKS 1. URBAN COOPERATIVE BANKS

PNB,SBI eg. SURAT COOPERATIVE BANKS
2. PRIVATE SECTOR BANKS
ICICI, HDFC, AXIS Bank 2. STATE COOPERATIVE BANKS
3. FOREIGN BANK eg. RAJ STATE COOPERTIVE BANKS
HSBC, CITI bank
4. REGIONAL RURAL BANK
PYRATHMA BANK IN U.P.
The RBI is india’s central and apex banking
institution, which controls the monetary
policy of Indian rupee. RBI regulates:-
 SCHEDULE BANK:- Registered in the 2 schedule of RBI
Act,1935. banks paid up capital and reserves of an aggregate value
of not less than Rs. 5 Lakhs.
 NON SCHEDULE BANK:- not registered in the 2 schedule of
RBI Act, 1935. Reserve capital less than 5 Lakhs and not governed
by RBI.
 SCHEDULE BANK HAS THESE :-
 COMMERICAL BANKING :- commerical banks are established
with an objective to help businessmen. Collects money from the
general public and give short term loans to businessmen.
 COOPERATIVE BANKING:- registered under cooperative
societies act. People who come togther to jointly serve their
common interest often from a cooperative society under the
cooperative societies act.
Commercial banking
 PUBLIC SECTORS BANKS:- banks which govt. has major
shareholding. Public sector banks comprise 19 nationalised
banks and SBI and its 7 associate banks. Eg. SBI , PNB.
 PRIVATE SCTORS BANKS :- banks which does not have a
major shareholders of govt. eg. Are ICICI, HDFC, and AXIS
BANK.
 FOREIGN BANKS:- banks which, incorporated in a
foreigh country and set up their branches in India. Like
HSBC , CITI BANK.
 REGIONAL RURAL BANKS:-For the country progress,
govt. promulgated many rural banks to liquidate rural
indebtedness by stages and to dispense institutional credit
facilities to farmers and artisans in rural areas.
Cooperative banks
 URBAN COOPERATIVE BANKS:- The URBAN
COPERATIVE BANKS (UCBS), though not formally
defined, refers to primary cooperative banks located in
urban and semi urban areas. These banks , till 1996 were,
allowed to lend money only for non-agriculture purposes.
Like Surat urban cooperative.
 STATE COOPERATIVE BANKS:- These banks are small
financial institutions which are governed by regulations
like banking regulations act, 1949 and banking laws
cooperative societies act, 1965. They operate both in urban
and rural areas under different structural organisations.
Like Raj state cooperative banks.
Some of the functions of
old banks
 Accepting deposits
 Issual of demand drafts
 Granting loans & Advances
 Undertaking safe custody of valuables, important
documents & securities by providing safe deposit
values or lockers
 Documentation is maintained through ledgers only
 Minimum balance for opening an account was more
during this interest.
 Token system for withdrawal of cash from the account.
Disadvantages of old
banking system
 Possibility of human errors
 Time constraint
 Customer relationship was limited
 Overdraft was not available
 Processsing fees was charged for all the transactions
 Passing of cheques was delayed
 Limited use of technology
Focus aspects of new
banking system
 Customer relationship management (CRM)
 Electronic fund transfer (EFT):- It is a system where make cash
payment or give instruction to transfer funds directly from his
own a/c to the bank of the receiver /beneficiary.
 Electronic clearing system (ECS):- It is meant for companies and
govt. department to make/ receive large volumes of payments
rather than of funds tranfers by individuals.
 Risk management
 ATM’s :- enables the customer to withdraw their money 24 hours
a day 7 days a week.
 Mobile banking:- Do entire non- cash related banking on
telephone, under this device automatic voice recorder is used for
simpler queries and transaction.
1. NPA (non performing asset)
The biggest risk to India's banks is the rise in bad loans.
The slowdown in the economy in the last few years led to a
rise in bad loans or non-performing assets (NPAs). These
are loans which are not repaid back by the borrower. They
are, thus, a loss for the bank. Net NPAs amount to only
2.36% of the total loans in the banking system. This may
not seem like an alarming figure. However, it does not take
into restructured assets - when a borrower is unable to pay
back and the bank makes the loan more flexible to be paid
back over a longer period of time. Restructured assets too
put pressure on a bank's profitability
Measures to reduce NPA
 One time settlement or compromise scheme
 Lok adalats (same as panchayat)
 Debt recovery tribunals
 CIBIL (2000):- Credit information company licensed by the
reverse bank of India. CIBIL collects and maintains records of an
individuals’s payments pertaining to loans and credit cards.
These records are submitted to CIBIL by banks and other
lenders, on monthly basis.
 Securitization & reconstruction of financial assests &
inforcement of security interest act 2002.
 Asset reconstruction companies:- is a specialized financial
institution buys that NPAs or bad assets from banks and
financial institutions so that the latter can clean up their balance
sheets.
3.Problem of infrastructure
In the age of computerization, although the banks have started
computerization process, this has provided little comforts to the
customers. Still the customer has to wait for some time in long
queues. Further, the operation by computer is delayed by the fact
that some operating staff is not very skilled and thus it takes
more time. The problem of breakdowns of electricity and even of
the computers is so usual that the whole work comes to a halt
and no work is performed. It takes hours to get it rectified i.e.,
even the smaller problems take time as most of the branches do
not have system specialist who can look after the system and
other operational problems. An inexperienced person means
more time and more delays in providing services of the
customers.
 3. Large over-dues
 The small branches of commercial banks are now
faced with a new problem—a large amount of overdue
advances to farmers. The decision of the former
National Front Government to waive all loans to
farmers up to the value of Rs. 10,000 crores has added
to the plight of such banks.
 Most of the rural branches are running at a loss
because of high overheads and prevalence of the barter
system in most parts of rural India.
4. POLITICAL PRESSURES
The smooth working of nationalised banks has also
been hampered by growing political pressures from
the Centre and the States. Nationalised banks often
face lots of difficulties due to various political
pressures. Such pressures are created in the selection
of personnel and grant of loans to particular parties
without considering their creditworthiness.
 5. FRAUD
 Another pressing concern for the banking regulator is the increased
number of fraudulent transactions at Indian banks. We see by the nirav
modi scam.
 It has come to light that the company, in connivance with retired
employees of PNB, got at least 150 letter of undertakings(LOUS),
allowing Nirav modi group to defraud the bank and many other banks
who gave banks to him. An Indian express report says that in addition
to the Rs. 11,450 crore, modi also defrauded 17 other banks of Rs. 3,000
crore. In this case, however, fake LOUS were recycled by the diamond
jewellery group and illegally issued to other banks for borrowing
money. Nirav modi, his family and partners have fled the country and
an exclusive report by TIMES NOW reveals that he is currently in the
united states.
 Conclusion
Indian banking system will further grow in size and
complexity while acting as important agent of
economic growth and intermingling different
segments of the financial sector. It automatically
follows that the future of indian banking depends not
only in internal dynamics unleashed by ongoing
returns but also on global trends in the financial
sectors.