Structure of Banking in India

Structure of Banking in India
A bank is a financial institution that provides banking and other financial services to their
customers. A bank is generally understood as an institution which provides fundamental
banking services such as accepting deposits and providing loans. There are also nonbanking
institutions that provide certain banking services without meeting the legal definition of a
bank. Banks are a subset of the financial services industry.
Indian banking industry has been divided into two parts, organized and unorganized sectors.
The organized sector consists of Reserve Bank of India, Commercial Banks and
Cooperative Banks, and Specialized Financial Institutions (IDBI, ICICI, IFC etc).
1. Reserve banks of India.
2. Indian Scheduled Commercial Banks.
a. State Bank of India and its associate banks.

b. Twenty nationalized banks.
c. Regional rural banks.
d. Other scheduled commercial banks.
3. Foreign Banks
4. Non-scheduled banks.
5. Co-operative banks.
Origin of Banking in India

Banking in India is indeed as old as the Himalayas. But, the banking functions became an
effective force only after the first decade of 20th century. Banking is an ancient business in
India with some of oldest references in the writings of Manu. Bankers played an important
role during the Mogul period. During the early part of East India Company
era, agency houses were involved in banking. Modern banking (i.e. in the form of joint-
stock companies) may be said to have had its beginnings in India as far back as in 1786,
with the establishment of the General Bank of India.
Banking System
The structure of banking system differs from country to country depending upon their
economic conditions, political structure, and financial system. Banks can be classified on
the basis of the volume of operations, business pattern and areas of operations. They are
termed as a system of banking. The commonly identified systems are:
Unit Banking
Unit banking is originated and developed in the U.S.A. In this system, small independent
banks are functioning in a limited area or in a single town . It has its own board of directors
and stockholders. It is also called as “localized Banking”.
Branch Banking
The Banking system of England originally offered an example of the branch banking
system, where each commercial bank has a network of branches spread throughout the
country.
Correspondent Banking
The correspondent banking system is developed to remove the difficulties in the unit
banking system. The smaller banks deposit their cash reserve with bigger banks.
Therefore, correspondent banks are intermediaries through which all unit banks are linked
with bigger banks in financial centers. Through correspondent banking, a bank can carry-out
business transactions in another place where it does not have a branch.
Group Banking
Group Banking is the system in which two or more independently incorporated banks are
brought under the control of a holding company. The holding company may or may not be a
banking company. Under group banking, the individual banks may be unit banks, or banks
operating branches or a combination of the two.
Pure Banking and Mixed Banking
On the basis of lending operations of the bank, banking is classified into:

(a) Pure Banking
(b) Mixed Banking
(a) Pure Banking: Under pure Banking, the commercial banks give only short-term loans to
industry, trade, and commerce. They specialize in short-term finance only. This type Of
banking is popular in U.K.
(b) Mixed Banking: Mixed banking is that system of banking under which the commercial
ban s perform the dual function of commercial banking and investment banking.
Commercial banks usually offer both short-term as well as medium-term loans. The
German banking system is the best example of mixed Banking.
Relationship Banking
It refers to the efforts of a bank to promote personal contacts and to keep continuous touch
with customers who are very valuable to the bank. In order to retain such profitable
accounts with the bank or to attract new accounts, it is necessary for the bank to serve their
needs by maintaining a close relationship with such customers.
Narrow Banking
A bank may be concentrating only on the collection of deposits and lend or invest the
money within a particular region or certain chosen activity like investing the funds only in
Government Securities. This type of restricted minimum banking activity is referred to as
‘Narrow Banking’.
Universal Banking
As Narrow Banking refers to restricted and limited banking activity Universal Banking
refers to broad-based and comprehensive banking activities.
Regional Banking
In order to provide adequate and timely credits to small borrowers in rural and semi-urban
areas, Central Government set up Regional Banks, known as Regional Rural Banks all over
India jointly with State Governments and some Commercial Banks.
Local Area Banks
With a view to bringing about a competitive environment and to overcome the deficiencies
of Regional Banks, Government has permitted the establishment of one type of regional
banks in rural and semi-urban centers under private sector known as “Local Area Banks”.
Wholesale Banking
Wholesale or corporate banking refers to dealing with limited large-sized customers. Instead
of maintaining thousands of small accounts and incurring huge transaction costs, under
wholesale banking, the banks deal with large customers and keep only large accounts. These
are mainly corporate customer.
Private Banking
Private or Personal Banking is banking with people — rich individuals instead of banking
with corporate clients. It attends to the need of individual customers, their preferences and
the products or services needed by them. This may include all-around personal services like
maintaining accounts, loans, foreign currency requirements, investment guidance, etc.
Retail Banking
Retail banking is a major form of commercial banking but mainly targeted to consumers
rather than corporate clients. It is the method of banks’ approach to the customers for sale of
their products.
BKL]\78 QWERT90+Q GUIOP[]\-+++++
UNIT 2
Types of Advances-
Forms of advances in commercial banking are;
 Cash credit,
 Overdraft,
 Loans,
 Demand loan vs term loan,
 Secured vs unsecured loan,
 Participation loan or consortium loan,
 Purchasing and discounting bills.
Customer relationship management

UNIT 3
Functions and Powers of the IRDAI
The IRDA Act gives the authority its functions and powers. Section 14 of the Act contains
the scope of powers of the Insurance Regulatory and Development Authority of India to
regulate the insurance and reinsurance industry. Let us take a look at the powers and
functions of the IRDAI
The IRDAI has the authority to issue registration certificates to any applicant. The also may
re-issue, renew, cancel or modify these certificates as per their discretion.
 Protection of the policyholders in matters such as assigning of policy, nominating

members to the policy, insurable interest, settlement of claims, and any other such matters
 Make guidelines and provide training for the appropriate code of conduct for insurance
agents and intermediaries
 Also making the code of conduct for loss assessors and surveyors working with the
insurance companies.
 They can also conduct investigations and audits of insurance companies,
intermediaries, and any other organizations with a connection to the insurance business
 Regulation of rates, terms, and conditions, etc. that the insurers offer their customers in
the general insurance business
 The IRDAI can also dictate the manner in which the insurance companies have to
maintain their records and books of accounts. And how they prepare their final accounts
as well.
 They regulate how the insurance companies invest their funds and maintain their
margin of solvency
 The adjudication of matters and disputes of any kind involving the insurance
companies or intermediaries is also done by the IRDAI
 There is a Tariff Advisory Committee with relation to the insurance company. The
IRDAI regulates its functions as well.
What are the powers of IRDAI?
 The IRDA has set up the grievance redressal cell to take up the complaints of the policyholder.
 It specifies the requisite qualifications, code of conduct and practical training for insurance
intermediaries and agents.
 The regulator promotes efficiency in the conduct of insurance businesses.
 It promotes and regulates activities of professional organisations connected with life and general
insurance.
 It levies fees and other charges to carry out the purposes of the IRDA Act.
 It can call for information from, undertake the inspection of, conduct enquiries including the auditing
of insurers, agents, brokers and other organisations connected with the business of insurance.
 It specifies the form in which books of account should be maintained and statements of accounts
should be rendered by insurers and other insurance intermediaries.
 It regulates the investment of funds by insurance companies.
 It regulates the maintenance of margins of solvency.
 It adjudicates disputes between insurers and intermediaries or insurance intermediaries.
 The regulator specifies the percentage of premium income of the insurer to finance schemes for the
promotion and regulation of certain specified professional organisations.
 It specifies the percentage of life insurance business to be undertaken by an insurer in the rural or
social sector; and it exercises any other powers as may be prescribed.

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Structure of Banking in India

1. Reserve banks of India.

2. Indian Scheduled Commercial Banks.

a. State Bank of India and its associate banks.

Origin of Banking in India

Pure Banking and Mixed Banking

On the basis of lending operations of the bank, banking is classified into:

Local Area Banks

BKL]\78 QWERT90+Q GUIOP[]\-+++++

Forms of advances in commercial banking are;

 Demand loan vs term loan,

 Secured vs unsecured loan,

 Participation loan or consortium loan,

 Purchasing and discounting bills.

Customer relationship management

Functions and Powers of the IRDAI

 Protection of the policyholders in matters such as assigning of policy, nominating

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