Unit 1 introduction

Unit 1 introduction

• 1.
  Elements of Bankingand Insurance- Introduction |F.Y. B.com (SEM-1)
• 2.
  WHAT IS BANK? •It is derived from the “Italian” word “Banco” which means “bench” over which transaction took place in ancient time. • It is the market place for the exchange of “money” & “bills”. • Bank is a chain between the people who save money and people who use these savings.
• 3.
  Definition of ‘Bank’ •As per Sec.5 (b) of the Banking Regulations Act 1949 “Bank” means accepting, for the purpose of lending or investment, of deposits of money from the public repayable on demand or otherwise and withdrawal by cheque, draft, order or otherwise.
• 4.
  Banker is onewho  Accept deposits  Use it for lending or investing purpose  Collects deposits from Public  Payable on demand or otherwise  Withdrawal of deposits by cheque, draft etc.
• 5.
  Who is a‘Customer’? • Maintains any type of A/c in bank. • Submission of a/c opening form fulfilling KYC requirements. • Customer of specific branch only. • There should be some kind of continuity. • Financial Transactions.
• 6.
  A deposit shouldbe • Deposits of money, not of goods or financial assets. • Deposits from public at large, not only from the share holders of bank. • Deposits repayable on demand and withdrawal by cheque. • Deposits for lending not for bank’s own purpose. Hence to follow the status of bank, an institution has to perform both functions simultaneously i.e. accepting deposits and lending to general public.
• 8.
  Bankers have threeAncestors • Goldsmith • Money Lenders • Merchants
• 9.
  Roleof BankinginEconomicDevelopment 1. Mobilizationof savings 2. Creation of Credit and increase in production 3. Promotion to export business 4. Social Banking 5. Reasonable price stability 6. Promotion of entrepreneurship 7. Development of Money Market and Capital Market 8. Increasing the facility of training and education
• 10.
  Rates related withbank Banking Terms Deposit Rate PLR Rate Banking Terms CRR Rate SLR Rate Bank Rate Banking Terms Repo Rate Reverse Repo Rate
• 11.
  Current Statistics S.No RatesAs on July 2017 1 Repo Rate 6.25 % 2 Reverse Repo Rate 6.00 % 3 Cash Reserve Ratio 4.00 % 4 Statutory Liquidity Ratio 20.00 % 5 Bank Rate 6.50 % 6 Deposit Rate Saving 4.00%, Fixed Deposit 6.25- 6.90 % 7 Prime Lending Rate 9.10-9.60 %
• 12.
  Structure of IndianBanking A.Reserve Bank of India B. State Bank of India and its seven associate Banks C. Commercial Banks 1. Scheduled and Non-scheduled Banks 2. Public and Private Sector Banks 3. Indian Banks and Foreign Banks D. Regional Rural Banks E. Co-operative Banks F. Development Banks 1. Industrial Development Banks 2. Agricultural Development Banks G. Import Export Bank of India (EXIM) H. National Housing Bank
• 14.
  RESERVE BANKOF INDIA •The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934. • The Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to Mumbai in 1937. The Central Office is where the Governor sits and where policies are formulated. The present Governor of RBI is “Dr. Urjit R. Patel”. • The Reserve Bank of India was originally established as a shareholders’ bank with a share capital of Rs.5 crores, divided into 5 lakhs fully paid-up shares of Rs.100 each. • When the bank was nationalized in 1949, the entire share capital was acquired by the Central Government by compensating the shareholders. • The Reserve Bank's affairs are governed by a central board of directors. The board is appointed by the Government of India in keeping with the Reserve Bank of India Act. • The Reserve Bank of India influences the management of commercial banks through its various policies, directions and regulations. Its role in bank management is quite unique.
• 15.
  Objectives of RESERVEBANK OF INDIA The Preamble to the Reserve Bank of India Act, 1934 spells out the objectives of the Reserve Bank as: To regulate the issue of Bank notes and the keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage. Besides it has other objectives, which can be listed out as below 1. Maintaining price stability while keeping in mind the objective of growth. 2. Maintain public confidence in the system, protect depositors' interest and provide cost-effective banking services to the public. 3. To facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India. 4. To give the public adequate quantity of supplies of currency notes and coins and in good quality.
• 16.
  Function of RESERVEBANK OF INDIA 1. Banker to the Government 2. Banker to banks: maintains banking accounts of all scheduled banks. 3. Agent and advisor to Government and Banks 4. Credit controller 5. Promoting Agricultural and Industrial Development 6. Formulates, implements and monitors the monetary policy. 7. Regulator and supervisor of the financial system 8. Manager of Foreign Exchange 9. Issues and exchanges or destroys currency and coins not fit for circulation. 10. Performs a wide range of promotional functions to support national objectives.
• 17.
  STATE BANK OFINDIA ANDITS SEVENASSOCIATE BANKS • It is a government-owned corporation with its headquarters in Mumbai, Maharashtra. • SBI was established on 1st July 1955. (State bank of India Act, 1955) by taking over the assets and liabilities of Imperial Bank of India, (through amalgamation of three presidency banks of Madras, Bombay and Bengal) which was established in 1921. • In 1959, seven banks were taken over as subsidiaries to SBI known as Associate banks. • On 1st April, 2017, State Bank of India, which is India's largest Bank merged with five of its Associate Banks (State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala and State Bank of Travancore) and Bharatiya Mahila Bank with itself. This is the first ever large scale consolidation in the Indian Banking Industry. • SBI is the biggest Commercial bank in Public sector banks. • Total number of branches of SBI and its associate banks are more than 24000 which is more than 20% of all branches of commercial banks in India.
• 18.
  COMMERCIALBANKS Scheduled and Non-scheduledBanks: • The scheduled commercial banks are those banks which are included in the second schedule of RBI Act 1934 and which carry out the normal business of banking such as accepting deposits, giving out loans and other banking services. • RBI in turn includes only those banks in this Schedule which satisfy the criteria laid down vide section 42(6)(a) of the said Act.
• 19.
  Schedule Banks Important IndicatorsMar-16 Mar-06 1All Scheduled Commercial Banks 149 218 of which, Regional Rural Banks 56 133 2No. of Reporting Offices i) Rural 49,902 30,572 ii) Semi-urban 35,704 15,274 iii) Urban 24,794 11,864 iv) Metropolitan 22,187 10,971 TOTAL 132,587 68681 3All Scheduled Commercial Banks-Annual Growth Rates(Per Cent) (i) Aggregate Deposits 8.6 19.4 (ii) Gross Bank Credit 9.3 31.1
• 20.
  Responsibilities of ScheduleBanks to RBI • Each scheduled bank has to open an account with RBI and has to maintain cash reserve. • Each scheduled bank should regularly send the weekly financial statement. • RBI inspects regularly the schedule banks. • Each scheduled bank has to carry out all the instruction given from time to time.
• 21.
  Advantages earned bySchedule Banks from RBI • RBI gives the facilities of making transactions of money. • Schedule bank gets necessary guidance from RBI. • Schedule bank gets advances through bill discounted by RBI. • RBI provides the facility of clearing and emergency advances. • Scheduled bank depositors are safe up to a prescribed limit under the insurance scheme. • Scheduled banks can accept the deposits from the charitable trust and local societies. • Scheduled banks are more reliable as compared to non- scheduled bank amongst the depositors.
• 22.
  NON-Schedule Banks • Non-scheduledBanks are those which are not included in the second schedule of Reserve Bank of India Act 1934 and have paid up capital of less than 25 lakhs. • It is subject to statutory cash reserve requirement which is to be kept by bank itself and not with the RBI. • Non-scheduled banks are not entitled to get any kind of loans, Advances of remittance facility from Reserve Bank of India. • Example of Non-scheduled banks in India are Akhand Anand Co-operative Bank Limited, Alavi Co-Operative Bank Limited, Amarnath Co-Operative Bank Limited, Amod Nagrik Sahakari Bank Limited.
• 23.
  Nationalized Banks inIndia There are 19 nationalized banks in India as follows: 1. Allahabad Bank 2. Andhra Bank 3. Bank of Baroda 4. Bank of India 5. Bank of Maharashtra 6. Canara Bank 7. Central Bank of India 8. Corporation Bank 9. Dena Bank 10. Indian Bank 11. Indian Overseas Bank 12. Oriental Bank of Commerce 13. Punjab & Sind Bank 14. Punjab National Bank 15. Syndicate Bank 16. UCO Bank 17. Union Bank of India 18. United Bank of India 19. Vijaya Bank
• 24.
  Public Sector Banks –These banks are government undertaking banks. – Public banks came into existence with the Nationalization of banks in India in 1st July 1955. – On 19th July 1969 14 banks were Nationalized. – On 15th April 1980 six more banks were Nationalized. – Regional Rural banks are also sponsored by Nationalized banks. – At present there are 19 nationalized banks. – Total number of public sector bank is 1. – After nationalization in 1969 and 1980, no banks were allowed to be established as private bank but as per the recommendation of Narsimha Committe the requirement of Private banks were felt.
• 25.
  Private Sector Banks –In 1993, government allowed establishment of Private banks provided they confirm to minimum start-up capital and other requirements. – Foreign investment up to 74% of paid up capital is also permitted now. – As the result of foreign participation there has been a remarkable improvement in corporate governance, risk management and administrative efficiency of these banks. – They have introduced innovative products and have provided superior services. – Due to declining profits of the public banks affected by private banks, Banking companies (Acquisition and Transfer of Undertakings) Amendment Act 1994 was passed to allow public banks to increase capital by selling shares to public and NRIs up to 49%.
• 26.
  IndianBanks and ForeignBanks –The Indian banks are those which have been incorporated in Indian and so have their head offices in India. – Foreign banks are those which have been incorporated in foreign countries and have their head offices outside India. – The bulk of Indian banking business is in the lands of the Indian commercial banks, both public sector and private sector banks. – On 31st march 2011, there were 39 foreign banks from 19 countries operating in India with 280 branches. (the standard chartered bank with highest branches-81) – Foreign banks can operate in any one of the three channels; branches, wholly owned subsidiary and subsidiary with aggregate foreign investment up to a maximum 74% in a private bank. – Foreign banks compete mainly with the Indian Private banks, not with the public sector banks, though their growth rate is not as high as that of the Indian Private banks. – As against 228 branches of foreign banks in India, Indian banks have only 112 branches overseas.
• 27.
  Unit & BranchBanking • Unit banking refers to a bank that is a single. • Unit bank is independent and does not have any connecting banks branches in other areas. • Branch banking refers to a bank that is connected to one or more other banks in an area or outside of it; to its customers, this bank provides all the usual financial services but is backed and ultimately controlled by a larger financial institution.
• 28.
  Advantages of UnitBanking • Local Development: Unit banking is localized banking. The unit bank has the specialised knowledge of the local problems and serves the requirements of the local people in a better manner than branch banking. The funds of the locality are utilised for the local development and are not transferred to other areas. • Reduces Regional Imbalance: Under unit banking system, there is no transfer of resources from rural and backward areas to the big industrial commercial centres. • Easy Management: The management and supervision of a unit bank is much easier and more effective than that under branch banking system. There are less chances of fraud and irregularities in the financial management of the unit banks. • No Inefficient Branches: Under unit banking system, weak and inefficient branches are automatically eliminated. • No diseconomies of Large Scale Operations: Unit banking is free from the diseconomies and problems of large-scale operations which are generally experienced by the branch banks.
• 29.
  Disadvantages of UnitBanking • Inability to Face Crisis: Limited resources of the unit banks also restrict their ability to face financial crisis. • No Banking Development in Backward Areas: Unit banks, because of their limits resources, cannot afford to open uneconomic banking business is smaller towns and rural area. As such, these area remain unbanked. • Lack of Specialization: Unit banks, because of their small size, are not able to introduce, and get advantages of, division of labor and specialization. Such banks cannot afford to employ highly trained and specialized staff. • Disparity in Interest Rates • Since easy and cheap movement of does not exist under the unit banking system, interest rates vary considerably at different places. • Local Pressures: Since unit banks are highly localised in their business, local pressures and interferences generally disrupt their normal functioning. • Undesirable Competition: Unit banks are independently run by different managements. This results in undesirable competition among different unit banks.
• 30.
  Advantages of BranchBanking • Economies of Large Scale Operations: Highly trained and experienced staff is appointed which increases the efficiency of management, division of labor, funds are made available liberally and at cheaper rates, large financial resources and wider geographical coverage increases public confidence in the banking system • Lesser risk and greater capacity to meet risks • Economy in Cash Reserves: Under the branch banking system, a particular branch can operate without keeping large amounts of idle reserves. In time of the need, resources can be transferred from one branch to another. • Cheap Remittance Facilities: Since bank branches are spread over the whole country, it is easier and cheaper to transfer funds from one place to another. Inter-branch indebtedness is more easily adjusted than inter-bank indebtedness. • Uniform Interest Rates: Under branch banking system, mobility of capital increases, which in turn, brings about equality in interest rates. • Proper Use of Capital: There is proper use of capital under the branch banking system. If a branch has excess reserves, but no opportunities for investment, it can transfer the resources to other branches which can make most profitable use of these resources. • Banking Facilities in Backward Areas: Under the branch banking system, the banking facilities are not restricted to big cities. They can be extended to small towns and rural as well as underdeveloped areas,. Thus, this system helps in the development of backward regions of the country.
• 31.
  Disadvantages of BranchBanking • Problem of Management: Under the branch banking system a number of difficulties as regards management, supervision and control arise. • Lack of Initiative: Branch managers generally lack initiative on all- important matters; they cannot take independent decisions and have to wait for. The clearance signal from the head office. • Regional Imbalances: Under branch banking system, the financial resources collected in the smaller and backward regions are transferred to the bigger industrial centres. This encourages regional imbalances in the country. • Adverse Linkage Effect: Under branch banking system, the losses and weaknesses of some branches also have their effect on other branches of the bank.
• 32.
  Branch Banking UnitBanking A bank that is connected to one or more other banks in an area or outside of it. Provides all the usual financial services but is backed and ultimately controlled by a larger financial institution. Single, usually small bank that provides financial services to its local community. Does not have other bank branches elsewhere. Operational Freedom less Operational freedom more Loans and advances are based on merit, irrespective of the status Loans and advances can be influenced by authority and power Larger financial resources in each branch Larger financial resources in one branch Delay in Decision-making as they have to depend on the head office Time is saved as Decision-making is in the same branch Cost of supervision is more Cost of supervision is less Division of labour is possible and hence specialisation possible Specialisation not possible due to lack of trained staff and knowledge Specialised knowledge of the local borrowers is not possible. Specialised knowledge of the local borrowers is possible and hence less chances of bad debts.
• 33.
  Functions of ModernCommercial Banks Functionsof ModernCommercialBanks TraditionalFunctions Mainand Primary Functions Accepting Deposits Giving Loans Discounting Bills SubsidiaryFunction Agency Services General Services Non-TraditionalFunctions Safe Deposit Volt Foreign Exchange Transaction Giving Credit Notes Mobile Banking Services Issuing Credit Cards
• 34.
  To receive depositsfrom the public – Commercial banks do not just protects the savings of the people but also provides a cheap and convenient method of transferring funds from one place to another through the use of cheques, bank drafts, etc. it performs an important function of mobilizing the scattered savings of the people by accepting these savings as deposits. – These deposits can be; Demand deposits – can be withdrawn by the depositor at any time, and depositors receive little or no interest on it; Fixed deposits – also known as time deposits, can be withdrawn after the expiry of certain time period only, depositors receives fairly higher amount of interest on such deposits; Saving deposits – to encourage people to save and to cultivate a habit of thrift, can be withdrawn any time and depositors get 4 to 6% of interest from banks on such deposits.
• 35.
  To make Loansand Advances – Commercial banks grants advances to traders, businessmen and industrialists. – As all the amount of deposits received by the bank will be withdrawn at any point of time but only a part of it needed to be kept in hand. Therefore, the remaining deposits are being used by the bank so as to earn profits and mobilize the savings in the economy. – Loans and advances could be granted through; – Loans against tangible securities (gold, stock and shares, immovable properties, etc.) – Facilities of discounting bills of exchange and other commercial papers. – Facility of overdraft to current account holders.
• 36.
  To provide Agencyservices – Paying cheques, bills, dividends, subscription and insurance premium. – Sell and purchase of shares and securities for their customers through the stock broker. – They provide safety vaults to the customers to keep theirs valuables safe. – Acting as trustees or executors of wills or an administrator of family trusts. – They supply information and advice to their customer as regards investment.
• 37.
  Non-Traditional Functions – Actsas an custodian of valuables of customers in lockers. – Now a days providing the facilities of Debit card, credit card and other modern services.