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STRUCTURE
OF
BANKING

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STRUCTURE OF BANKING:

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RESERVE BANK OF INDIA

 Reserve Bank of India (RBI) is India’s apex central banking institution.

 Established: April 1, 1935.
 Legal framework: Reserve Bank of India Act, 1934.
 It was formed on the recommendation of Hilton Young Commission.
 Initial Paid up capital was 5 crores.
 Initially, it was owned entirely by private shareholders. Following India's independence
on 15 August 1947, the RBI was nationalized on 1 January 1949.
 The Central Office of the Reserve Bank was initially established in Calcutta but was per-
manently moved to Mumbai in 1937.
 Ownership: Government of India (100%)
 Headquarter: Mumbai, Maharashtra
 Current Governor (Dec 2019): Shaktikanta Das
 There are 3 Deputy Governors BP Kanungo, N. S Vishwanathan and M.K Jain.

SCHEDULED AND NON-SCHEDULED BANKS:

SCHEDULED BANKS:
They are the banks, which are accounted in the Second Schedule of the Reserve Bank of India
(RBI) Act, 1934.

1. The total minimum value of paid up capital and reserve must be of Rs. 5 lacs.
2. The bank requires satisfying the central bank that its affairs are not carried out in a way that
causes harm to the interest of the depositors.
3. The bank needs to be a corporation rather than a sole-proprietorship or partnership firm.

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NON-SCHEDULED BANKS:

 Non-Scheduled Bank refers to the banks which are not listed in the Second Schedule of Re-
serve Bank of India
 They are not bound to the rules and regulations of RBI.
 They are required to maintain CRR but not with RBI but with themselves.

COMMERCIAL BANKS:

 These banks are established to provide banking services to the individual and business.
 They are incorporated under the Banking Regulation Act, 1949.
 The borrowers of commercial banks are only account holders; they don’t have any voting
powers.

Public Sector Banks:

 In these banks the government holds the major share.

 Public Sector Banks are classified as Nationalized Banks and SBI (Nationalized by SBI Act
1955).

Private Sector Banks:

 In these majority of the share is with private shareholders.

 These are managed and controlled by controlled by private promoters.

Foreign Banks:

 A foreign bank is the bank which has the obligation of following the rules and regulations of
both host countries and its home countries.

Regional Rural Banks:

Regional Rural Banks:

 These are formed on the recommendation of Narsimha Committee in 1975.

 First RRB is Prathama Grameen Bank.

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 The Regional Rural Banks are required to function within a limited area for which they are
established
 The objectives of RRB: Bridge the credit gaps in rural areas.
The RRBs were owned by three entities with their respective shares as follows:

 Central Government 50%

 State government:15%
 Sponsor banks:35%

Regional Rural Banks are regulated by RBI and supervised by the National Bank for Agriculture and
Rural Development (NABARD).
RRBs should fulfil the following conditions, to become eligible to open new branch/es:

 No default in maintenance of SLR and CRR during the last two years;
 Operational profits are being made;
 Net worth shows improvement;
 Net NPA ratio does not exceed 8 per cent.

Co-operative Banks:

 They are banks that provide financing to agriculturists, rural industries up to a limit. Their
area of operation is limited.
 Co-operative banks are registered under the Co-operative Societies Act, 1965.
 The borrowers are members that influence the credit policy by voting power.

Urban Co-operative Bank:

 UCBs are structured as co-operatives, with their members carrying unlimited liability
 UCBs are only partly regulated by the RBI. While their banking operations are regulated by
the RBI, which lays down their capital adequacy, risk control and lending norms, their man-
agement and resolution in the case of distress is regulated by the Registrar of Co-operative
Societies either under the State or Central government.
 In the event UCBs fail, deposits with them are covered by the Deposit Insurance and Credit
Guarantee Corporation of India up to a sum of ₹1 lakh per depositor.

Rural Co-operative Banks:

 State Co-operative Banks: They operate at the state level.

 Districts Co-operative Banks: They operate at the district levels
 Primary Agricultural credit Societies: They operate at the village or grass-roots level.

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DEVELOPMENT BANKS:

Industrial Development Banks:

These are those banks which lends mainly for the development of various industries in India.

Main Industrial Development Banks are:

IDBI: Industrial and Development Bank of India:

 It was established under Industrial Development Bank of India Act, 1964.

 It is the financial institution for providing credit and other facilities for developing industries.
 Earlier, IDBI was a subsidiary bank of RBI.
 But it was separated from RBI and its ownership was transferred to Government of India.

ICICI:

 ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial institution,
and was its wholly-owned subsidiary.
 In the 1990s, ICICI transformed its business from a development financial institution offering
only project finance to a diversified financial services group offering a wide variety of prod-
ucts and services, both directly and through a number of subsidiaries and affiliates like ICICI
Bank
 In 1999, ICICI become the first Indian company and the first bank or financial institution
from non-Japan Asia to be listed on the NYSE.
 ICICI Bank is the second largest bank in India in terms of assets and market capitalization.
 Its HQ is in Mumbai.

NABARD:

 The National Bank for Agriculture and Rural Development is popularly referred to as
NABARD.
 NABARD is a development bank established under statutory provisions.
 NABARD is designated as an apex development bank in the country.
 It was formed on the recommendation of B.Sivaramman Committee.
 It was set up with an initial capital of Rs.100 crore, its’ paid up capital stood at Rs.10,580
crore as on 31 March 2018.

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 This national bank was established in 1982 by a Special Act of the Parliament, with a
mandate to uplift rural India by facilitating credit flow in agriculture, cottage and village
industries, handicrafts and small-scale industries.
 It is also required to support non-farm sector while promoting other allied economic ac-
tivities in rural areas.
 NABARD functions to promote sustainable rural development for attaining prosperity of
rural areas in India.
 It is basically concerned with “matters concerning policy, as well as planning and opera-
tions in the field of credit for agriculture and othe economic activities in rural areas
in India”.
 Government of India holds 100% stake in NABARD.

EXIM BANK:

 It is a finance institution in India, established in 1st january 1982 under Export-Import Bank
of India Act 1981.
 EXIM Bank extends Lines of Credit (LOCs) to overseas financial institutions, regional develop-
ment banks, sovereign governments and other entities overseas, to enable buyers in those
countries to import developmental and infrastructure projects, equipments, goods and ser-
vices from India, on deferred credit terms.
 It’s HQ is in Mumbai, Maharashtra.

SIDBI:

 It is a development financial institution in India, headquartered at Lucknow.

 It serves as the principal financial institution in the Micro, Small and Medium Enterprises
(MSME) sector.
 It was established on April 2, 1990, through an Act of Parliament.
 SIDBI operates under the Department of Financial Services, Government of India.
 The authorised capital of the Bank is Rs. 1000 crore and the Paid up capital is Rs. 450 crore.

SIDBI Associates

 CREDIT GUARANTEE FUND TRUST FOR MICRO AND SMALL ENTERPRISES (CGTMSE)
 INDIA SME TECHNOLOGY SERVICES LTD. (ISTSL)
 SME RATING AGENCY OF INDIA LTD. (SMERA)
 INDIA SME ASSET RECONSTRUCTION COMPANY LTD
 SIDBI TRUSTEE COMPANY LIMITED (STCL)
 RECEIVABLES EXCHANGE OF INDIA LTD (RXIL)

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SIDBI Subsidiaries

 SIDBI VENTURE CAPITAL LIMITED (SVCL)

 MICRO UNITS DEVELOPMENT & REFINANCE AGENCY LTD (MUDRA)

Functions of SIDBI

1. SIDBI refinances loans extended by the primary lending institutions to small scale industrial
units, and also provides resources support to them.
2. SIDBI discounts and rediscounts bills arising from sale of machinery to or manufactured by
industrial units in the small scale sector.
3. To expand the channels for marketing the products of Small Scale Industries (SSI) sector in
domestic and international markets.
4. It provides services like leasing, factoring etc. to industrial concerns in the small scale sector.
5. To promote employment oriented industries especially in semi-urban areas to create more
employment opportunities and thereby checking migration of people to urban areas.
6. To initiate steps for technological up-gradation and modernization of existing units.
7. SIDBI facilitates timely flow of credit for both term loans and working capital to SSI in collab-
oration with commercial banks.
8. SIDBI Co-Promotes state level venture funds in association with respective state govern-
ment.
9. It grants direct assistance and refinance loans extended by primary lending institutions for
financing exports of products manufactured by small scale units.

National Housing Bank:

 The Sub-Group on Housing Finance for the Seventh Five Year Plan (1985-90) identified the
non-availability of long-term finance to individual households on any significant scale as a
major lacuna impeding progress of the housing sector and recommended the setting up of a
national level institution.
 The Committee of Secretaries considered’ the recommendation and set up the High Level
Group under the Chairmanship of Dr. C. Rangarajan, RBI to examine the proposal and rec-
ommended the setting up of National Housing Bank as an autonomous housing finance in-
stitution.
 GOI established the National Housing Bank (NHB) as an apex level institution for housing fi-
nance.
 The National Housing Policy, 1988 envisaged the setting up of NHB as the Apex level institu-
tion for housing.
 NHB was set up on July 9, 1988 under the National Housing Bank Act, 1987.
 Reserve Bank of India contributed the entire paid-up capital.
 The general superintendence, direction and management of the affairs and business of NHB
vest, under the Act, in a Board of Directors.
 The Head Office of NHB is at New Delhi.
 Now NHB is the completely owned by Government of India.

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NHB has been established to achieve, inter alia, the following objectives-
 To promote a sound, healthy, viable and cost effective housing finance system to cater to all
segments of the population and to integrate the housing finance system with the overall fi-
nancial system.
 To promote a network of dedicated housing finance institutions to adequately serve various
regions and different income groups.
 To augment resources for the sector and channelise them for housing.
 To make housing credit more affordable.
 To regulate the activities of housing finance companies based on regulatory and supervisory
authority derived under the Act.
 To encourage augmentation of supply of buildable land and also building materials for hous-
ing and to upgrade the housing stock in the country.
 To encourage public agencies to emerge as facilitators and suppliers of serviced land, for
housing.