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Indian Banking System

Feed by Kumar Sanu Cat- Education

In order to assume commanding heights of the economy, the Government of India nationalised 14 major commercial banks in July 1969. Another six commercial banks were nationalised in April 1980. These 19 nationalised banks along with the State Bank of India, which was nationalised in 1956, now constitute the public sector banks. The names of the public sector banks are

  • State Bank of India and its subsidiary banks Bank of India
  • Central Bank of India
  • Union Bank of India
  • Bank of Baroda
  • Bank of Maharashtra
  • liunjab National Bank
  • Indian Bank
  • Indian Overseas Bank
  • Canara Bank
  • Syndicate Bank
  • United Bank of India
  • United Commercial Bank
  • Allahabad Bank
  • Dena Bank
  • Andhra Bank
  • Corlioration Bank
  • Oriental Bank of Commerce
  • liunjab and Sind Bank
  • Vijaya Bank

The State Bank of India is the largest cornm,-Ttiral. bank orTh-e--Fciuntry and is among the 100 top-most banks in the world, outside the United States of America. The State Bank has seven subsidiary banks attached to it. These are: (i) State Bank of Bikaner and Jaipur,

Besides these public sector banks, which control over 82.4 per cent of the banking activity in the country, there are non-nationalised scheduled banks and non­scheduled banks. A bank which has capital and reserves of over Rs. 5 lakh is called a scheduled bank and those which hove capital and reserves lesser than this limit prescribed by the RBI act, are categorised as non-scheduled banks. The number of scheduled commercial banks, both nationalised and non-nationalised, stood at 272 at the end of March 1993. There are also four non­scheduled banks. Besides there were more then 18 offices of the foreign banks operating in the country. Of the scheduled commercial banks, 224 are in public sector and these account for 82.4 per cent of commercial banking system. Within public sector banking system, 196 banks are regional rural banks and 28 banks are regular commercial banks and transact all types of commercial banking business. Subsequent to the issue of guidelines in January, 1993 for the entry of new private sector banks, the RBI granted approval for the setting up of 13 new privately owned domestic banks. Out of these 10 have already started functioning. These include UTI Bank Ltd. (registered office : Ahmedabad), Indus Ind Bank Ltd. (Pune), ICICI Bank Ltd. (Baroda), Global Trust Bank Ltd. (Secunderabad), HDFC Bank Ltd. (Mumbai), Centurion Bank Ltd. (Panaji), Bank of Punjab Ltd. (Chandigarh), Times Bank Ltd. (Faridabad), IDBI Bank Ltd. (Indore) and Development Credit Bank Ltd. (Mumbai).

Number of Bank Offices/Branches: In the early years of Independence, the number of bank offices was very small. For example, in June 1951, the number of bank offices (both scheduled and non-scheduled banks) was only 5,115. The number of offices increased to 6,168 in June 1961 and even prior to nationalisation, the number stood at 8,262 in June 1969. However, after the nationalisation of major banks in July 1969, the process of expansion gathered momentum. At the end of the June 1989, there were 57,699 bank offices in India. The major thrust in branch expansion in the country has come only from the public sector banks. At the end of March 1994, State Bank of India (SBI) was the biggest unit with 8,715 branches. At the end of March 1996, there were 62,849 bank branches.

Bank  Deposits       :          

After  the nationalisation of major commercial banks in the country, there has been marked expansion in their business, both with regard to the bank deposits as well as the bank credit. In March 1969, the total deposits of the scheduled commercial banks stood at Rs. 4,384 crore, which increased to Rs. 5,609 crore in March 1971. Starting from this low base, the growth of bank deposits has indeed been phenomenal, between 1971 and 1981, deposits grew almost seven-fold, and again doubled during the next five years to a figure of Rs. 72,224 crore in March 1985. There was a further quantum jump as the bank deposits rose to Rs. 1,47,854 crore at the end of June 1989. By the end of March 1994, these increased to Rs. 2,80,908 crore. During 1996.97, the increase in aggregate deposits, upto December 24, 1996 was Rs. 39,967 crores (8.5%) as compared with Rs.16,049 crores (4.1%) in corresponding period of 1995-96.

Bank Credit : The banking sector has been keeping steady pace with the increased requirements of the economy. In March, 1969, the bank credit amounted to only Rs. 3,464 crore, which increased to Rs. 4,684 crore in March 1971. There was a six-folds increase in bank credit between 1971 and 1981. Between 1981 and 1985, there was a two-folds expansion in bank credit. Upto March, 1994, credit extended by the commercial banks stood at Rs. 1,33,314 crore. During 1996-97 the increase in non-food bank credit upto December 20, 1996, was Rs.6,169 crores (2.5%) in contrast to a rise of Rs. 21,806 crores (10.9%) in the previous year.

Regional Rural Banks

With a view to improving the flow of credit to the rural sector of the economy, a number of Regional Rural Banks have been set up in the areas where commercial and cooperative banking facilities have been lacking. These banks cater to the credit requirements of the weaker sections, small and marginal formers, landless labourers, village artisans and petty businessmen in the rural areas. In all, there are 196 regional rural banks with their 14,497 branches, covering 427 districts in 23 states with a mobilised deposit to the tune of Rs, 14187.90 crores and the credit support provided by these banks amounted to Rs. 7505.03 crores at the end of March, 1996.

National Bank For Agriculture And Rural Development (NABARD)

In the field of rural credit and agricultural development, establish-ment of NABARD is a mojor event. The National Bank of Agriculture and Rural Development was established on 12th July 1982 as an apex body with the responsibility for overall development, policy, planning and financial support for agriculture and rural development. The NABARD provides credit to rural sector through cooperative banks, commercial banks regional rural banks and other financial institutions net up to finance rural development. The Bank ensures co-ordination in operations of various institutions engaged in the field of rural credit. During 1995.96 NABARD sanctioned short term credit limits aggregating Rs. 4,700 crores to state cooperative banks.

Export-Import Bank Of India

Recognising the importance of exports in India's development programmes, the Government of India set up the Export-Import bank of India in January 1982 as a statutory corporation wholly owned by the Union Government. The main objectives of the Export-Import Bank (EXIM Bank) are to ensure an integrated and co­ordinated approach to solving the problems of exporters; providing special attention to capital goods export and export of technical services; and to tap domestic and overseas markets for resources, undertaking development and financing activities in the areas of exports. The EXIM Bank provides financial assistance to the exporters and importers and acts as the principal financial institution for co-ordinating the working of other institutions engaged in financing exports and imports. It also provides refinance facilities to commercial banks and financial institutions against their export-import financing activities.

During 1995-96, the Bank sanctioned loans worth Rs. 2466 crates as against, Rs. 2903 crores in the previous year. While disbursement increased by 37% to Rs. 2130 crores against 1994-95 (Rs. 1556 crores).

Reserve Bank of India

The Reserve Bank of India, which is the central bank of this country, was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934. It was originally started as a shareholders bank with a share capital of Rs. 5 crore divided into shares of Rs. 100 each fully paid-up. But since January 1949 the Reserve Bank has been nationalised and it is now a purely State concern. The government of India holds the entire share capital of the bank which has been acquired by payment of compensation to the shareholders. Functions and Powers The Reserve Bank of India, performs the following functions:

1. It is the bank of Issue : The bank has the sole right of issuing paper notes in India. Except one rupee notes and coins as well as subsidiary coins which are issued by the Ministry of Finance, Government of India, all other notes and coins are issued by the Reserve Bank. While issue of one rupee notes, coins and subsidiary coins is done by Ministry of Finance, Government of India, the RBI undertakes their distribution on behalf of the Government.

2. It acts as banker to the Government : It has been entrusted with the task of receiving all money on behalf of the Government as also with the task of making payments on their behalf. It performs these functions through the State bank of India, which works as its agent at places where it has no office of its own. It is responsible for buying and selling of the Government securities, remitting funds, management of public debts and raising new loans. The bank also grants temporary accommodation to the government by purchasing their treasury bills which are generally for a period of three months. In addition, the bank is the adviser to the government on all financial matters.

3. It is Banker's Bank Being the apex bank, it acts as the banker to other banks. All scheduled banks have to keep a certain percentage of their time and demand liabilities with the Reserve Bank. The scheduled banks have also to submit weekly returns of their business to the Reserve Bonk. In return they get privileges of rediscounting of bills of exchange and hundis, sale and discount Government securities, loans against approved securities, as also remittance of funds free of charge.

4. It regulates the flow of credit: The RBI formulates and administers monetary policy and regulates the volume and flow of the credit created by the commercial banks. It operates general credit control measures through changing the bank rate or through open market operations. It also uses selective credit control measures to regulate this flow of credit in some specific lines of activity.

5. Supervisory Powers of the RBI: The RBI exercises supervisory powers over the commercial banks as well as non-bank financial inter mediaries like indigenous bankers, leasing companies, etc. Every bank has to get a licence from the RBI to do banking business in India, and this licence can be suspended or cancelled if the banks fail to fulfil certain stipulated conditions. For opening new branch the banks have to seek permission of the RBI. The RBI has the power to inspect the banks and seek any information from them

6. It maintains the external value of the rupee : Since March 1947, India is a member of the International Monetary Fund. It has, therefore, to maintain its rate of exchange at the level which it has declared to this fund. The Reserve Bank takes suitable measures to maintain the value of the rupee at this declared level. The bank is now under obligation to buy and sell foreign currencies to the authorised dealers at rates determined by the Central Government from time to time.

7. It has been entrusted with the collection of financial statistics about the country's economy : It publishes a weekly statement of the working of its Issue and Banking Department. It brings out very useful reports on banking, currency, finance and cooperative movement. Besides, the Reserve Bank issues a monthly bulletin surveying the current National and International economic developments. It also submits to the Government an annual report on the trend and progress of banking in India. It is a very useful compilation.

Restriction on the Reserve Bank: As it is a central bank, certain restrictions have been imposed on the Reserve Bonk. It is not to compete with the commercial It is not to compete with the commercial banks. It is not allowed to pay interest on its deposits. It cannot engage directly or indirectly in trade. It cannot also acquire or advance loans against immovable property. It is also prohibited from purchasing its own shores or the shares of any other bank or any company or granting loans on such security.

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