1. NDIM
CONTENTS
S.NO TOPICS P.NO
1 History 2
2 Primary Operations of Bank 3
3 Different Groups Of Banking Sector 4
4 Private Sector Bank with examples 5
5 Controlling of Banks by Rbi 7
6 Over View of Banking System 8
7 Bank Investment 9
8 Statutory Liquidity Ratio 10
9 Activities of Commercial Bank 11
10 Para Banking Activities 12
11 Organisational Structure 14
12 New Technology in Banking Sector 15
1

2. NDIM
HISTORY
1870 – Bank of Hindustan – First Bank
Presidency Banks - Bank of Calcutta, Bank of Bombay and Bank of Madras
1921 - All 3 banks amalgamated and became Imperial Bank of India
1934 – RBI was Constituted
1949 – RBI came under government control
1955 – Imperial Bank became State bank of India
Banking:
A Bank is a financial institution licensed by a government.
Its primary activities include borrowing and lending money.
It provides Services like Credit card, debit card , interest on deposits.
The banking activities can be classified as :
 Accepting Deposits from public/others .
 Lending money to public .
 Transferring money from one place to another.
 Acting as trustees
 Acting as intermediaries
 Keeping valuables in safe custody
 Collection Business
 Government business
2

3. NDIM
MARKETING OF FINANCIAL SERVICES:-
• Concerned with the designing of product strategies keeping in view the needs and
requirements of prospects.
• It is concerned with product, place, pricing, distribution, and promotion decisions in the
changing socio-economic and business environment
• It is also related with the place decision i.e. locating bank at suitable point .
Primary Operations of Banks
• Keeping money safe while also allowing withdrawals when needed
• Issuance of check books so that bills can be paid and other kinds of payments can be
delivered by post
• Provide personal loans, commercial loans, and mortgage loans (typically loans to
purchase a home, property or business)
• Issuance of credit cards and processing of credit card transactions and billing
• Issuance of debit cards for use as a substitute for checks
• Allow financial transactions at branches or by using Automatic Teller Machines (ATMs)
• Provide wire transfers of funds and Electronic fund transfers between banks
• Facilitation of standing orders and direct debits, so payments for bills can be made
automatically
• Provide overdraft agreements for the temporary advancement of the Bank's own money
to meet monthly spending commitments of a customer in their current account.
• Provide Charge card advances of the Bank's own money for customers wishing to settle
credit advances monthly.
• Provide a check guaranteed by the Bank itself and prepaid by the customer, such as a
cashier's check or certified check.
• Notary service for financial and other documents
3

4. NDIM
Different groups
Banks in India are categorized in five different groups
according to their ownership and/or nature of operation. These bank groups are
(i) State Bank of India and its associates,
(ii) Nationalised Banks,
(iii) Regional Rural Banks,
(iv) Foreign Banks and
(v) Other Indian Scheduled Commercial Banks
4

5. NDIM
Central Bank – Reserve bank of India
Public Sector Bank
Types of banks
Allahabad Bank | Andhra Bank | Bank of Baroda | Bank of India | Bank of
Maharashtra |
Canara Bank | Central Bank of India | Corporation Bank | Dena Bank | Indian
Bank |
Indian Overseas Bank | Oriental Bank of Commerce | Punjab & Sind Bank |
Punjab National Bank |
State Bank of India | Syndicate Bank | UCO Bank | United Bank of India |
Union Bank of India |
Private Sector Banks
• Old generation private banks
• New generation private banks
• Foreign banks operating in India
• Scheduled co-operative banks
• Non-scheduled banks
Examples:
• Bank of Punjab | Bank of Rajasthan | Catholic Syrian Bank | Centurion Bank | City
Union Bank | Dhanalakshmi Bank | Development Credit Bank | Federal Bank | HDFC
Bank | ICICI Bank | IDBI Bank | IndusInd Bank | ING Vysya Bank | Jammu &
Kashmir Bank | Karnataka Bank | Karur Vysya Bank | Laxmi Vilas Bank | South Indian
Bank | United Western Bank | UTI Bank
5

6. NDIM
Private Sector Banks
• Old generation private banks
• New generation private banks
• Foreign banks operating in India
• Scheduled co-operative banks
• Non-scheduled banks
Development Banks/Financial Institutions
• IFCI
• IDBI
• ICICI
• IIBI
• SCICI Ltd.
• NABARD
• Export-Import Bank of India
• National Housing Bank
• Small Industries Development Bank of India
• North Eastern Development Finance Corporation
6

7. NDIM
Controlling the banks-
Reserve bank of India (RBI) that was introduced in 1935 and became nationalized in 1969 has
the responsibility to control all other banks performing in India. R.B.I acts as the central bank of
India and it has some major objectives that are as follows
1-Regulate the issue of banknote
2-Maintain reserve with a view to secure monetary policy
3-controlling the all other bank’s activities
Tools used by RBI to control other banks-
RBI uses some tools to control the other performing banks these tools are
Cash reserve ratio (CRR)
Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with the RBI. If the
central bank decides to increase the CRR, the available amount with the banks comes down. The
RBI uses the CRR to drain out excessive money from the system. Commercial banks are
required to maintain with the RBI an average cash balance, the amount of which shall not be less
than 3% of the total of the Net Demand and Time Liabilities (NDTL), on a fortnightly basis and
the RBI is empowered to increase the rate of CRR to such higher rate not exceeding 20% of the
NDTL.
Repo Rate
The rate at which the RBI lends money to commercial banks is called repo rate. It is an
instrument of monetary policy. Whenever banks have any shortage of funds they can borrow
from the RBI.
Reverse Repo Rate
Reverse repo rate is the rate at which the RBI borrows money from commercial banks. Banks are
always happy to lend money to the RBI since their money is in safe hands with a good interest.
Statutory liquidity ratio (SLR)
Every bank is required to maintain at the close of business every day, a minimum proportion of
their Net Demand and Time Liabilities as liquid assets in the form of cash, gold and un-
encumbered approved securities. The ratio of liquid assets to demand and time liabilities is
known as Statutory Liquidity Ratio (SLR). RBI is empowered to increase this ratio up to 40%.
7

8. NDIM
Bank Rate
Bank Rate is the rate at which central bank of the country (in India it is RBI) allows finance to
commercial banks. Bank Rate is a tool, which central bank uses for short-term purposes. Any
upward revision in Bank Rate by central bank is an indication that banks should also increase
deposit rates as well as Base Rate / Benchmark Prime Lending Rate.
Overview of Indian banking system
Phase 1
It started from 1786 to 1969 during this time the following things have taken place.
General bank of India was established in 1786 it was the first bank of India.
In 1935 Reserve Bank of India RBI became operational.
The company act 1949 was made.
People mostly used to save in postal deposits during this period.
In 1920, all three banks, Bank of Bombay, Bank of Bengal & Bank of Madras were
amalgamated and Imperial Bank of India was established.
It started as private shareholders banks, mostly European shareholders.
In 1865, Allahabad Bank was established exclusively by Indians.
Punjab National Bank was set up in 1894.
Phase 2
During this period the following incidents happened.
Nationalization of imperial bank of India.
Formation of State Bank of India (SBI) in 1955.
Nationalization of SBI in 1960
Creation of Indian rural bank.
In 1969, 14 major commercial banks were nationalized.
In 1980 seven more banks were nationalized.
Phase 3
Entry of foreign bank.
Phone banking and net banking.
8

9. NDIM
BANK INVESTMENTS
In addition to loans and advances, which were discussed in, banks deploy a part of
their resources in the form of investment in securities/ financial instruments. The bulk of a
bank's assets are held either in the form of loans and advances and investments.
Investments form a significant portion of a bank's assets, next only to loans and advances,
and are an important source of overall income. Commercial banks' investments are of three
broad types: Government securities, other approved securities and other securities.
These three are also categorised into SLR (Statutory Liquidity Ratio) investment and non-SLR
investments. SLR investments comprise Government and other approved securities, while
non-SLR investments consist of 'other securities' which comprise commercial papers, shares,
bonds and debentures issued by the corporate sector.
Under the SLR requirement, banks are required to invest a prescribed minimum of their net
demand and time liabilities (NDTL) in Government- and other approved securities under the
BR act, 1949. (Note that SLR is prescribed in terms of banks' liabilities and not assets). This
provision amounts to 'directed investment', as the law directs banks to invest a certain minimum
part of their NDTL in specific securities. While the SLR provision reduces a bank's flexibility to
determine its asset mix, it helps the Government finance its fiscal deficit.
9

10. NDIM
STATUTORY LIQUIDITY RATIO
Banks' investments in Central and State Government dated securities including treasury bills
are governed by the RBI guidelines regarding maintenance of minimum level of SLR securities
as well as their own approved policy.
As stated earlier, under the Banking Regulation Act, 1949, the RBI prescribes the minimum
SLR level for Scheduled Commercial Banks (SCBs) in India in specified assets as a percentage
of the bank's NDTL. The actual percentage (that is, the value of such assets of an SCB as a
percentage of its NDTL) must not be less than such stipulated percentage. The RBI may
change the stipulated percentage from time to time.
Over the years, this ratio (SLR ratio) has changed a lot, but has broadly moved on a downward
trajectory, from the of 38.5% of NDTL in the early 90's (September 1990) to 25% by October
1997, with the financial sector reforms giving banks greater flexibility to determine their
respective asset mix. The SLR was further reduced to 24 percent of NDTL in November 2008,
but has been raised back to 25 percent level since October 2009. Currently, it is at 25 percent
level.
NON SLR INVESTMENT
If there is any proposal to invest or disinvest in non-SLR securities, the concerned officials
must refer these proposals to the Investment Committee of the bank. Upon vetting and clearance
by the Investment Committee, financial sanction should be obtained from the appropriate
authority in terms of the Scheme of Delegation of Financial Powers.
it includes :-
-Investments in Associates/ Subsidiaries and Regional Rural Banks.
-Strategic Investments.
-Venture Capital Investments.
-PSU Bonds.
-Corporate Investments.
-Mutual Funds.
10

11. NDIM
ACTIVITIES OF COMMERCIAL BANK
As a continuation of their main deposit taking and lending activities, banks pursue certain
activities to offer a number of services to customers. They can be put into two broad categories:
Other basic banking activities and Para-banking activities. The former includes provision
of remittance facilities including issuance of drafts, mail transfers and telegraphic transfers,
issuance of travellers' cheques & gift cheques, locker facility etc. Banks also undertake various
para-banking activities including investment banking services, selling mutual funds, selling
insurance products, offering depository services, wealth management services, brokerage,
etc. While the services offered assist the banks to attract more depositors and borrowers, they
also manage to increase their income in the process. Banks earn fees by offering these services
to the customers, as opposed to interest income earned from the lending activities.
FOREIGN EXCHANGE SERVICE:-
Banks undertake foreign exchange transactions for their customers. The foreign exchange
contracts arise out of spot (current) and forward foreign exchange transactions entered into
with corporate and non-corporate customers and counter-party banks for the purpose of hedging
and trading. Banks derive income from the spread or difference between buying and selling
rates of foreign exchange.
BANK SERVICES TO GOVERNMENT:-
Banks offer various types of services to government departments including direct and indirect
tax collections, remittance facilities, payments of salaries and pensions, etc.
undertake other related businesses like distribution of Government and RBI bonds and handling
public provident fund accounts. Government departments pay fees to banks for undertaking
this business. Banks such as State of Bank of India, with a wide network of branches, are able
to earn significant income by offering these services to government departments.
PAYMENT & SETTELMENT SYSTEM :-
In any economy, banks are at the core of the payment and settlement
systems, which constitute a very important part of the commercial banks' functions. The
payment and settlement systems, as a mechanism, facilitate transfer of value between a
payer and a beneficiary by which the payer discharges the payment obligations to the
beneficiary.
The payment and settlement systems enable two-way flow of payments in exchange of goods
and services in the economy. This mechanism is used by individuals, banks, companies,
governments, etc. to make payments to one another.
11

12. NDIM
NRI REMITTENCE:-
NRI, as an individual, can remit funds into India through normal banking channels using the
facilities provided by the overseas bank. Alternately, an NRI can also remit funds through
authorised Money Transfer Agents (MTA). Further, a number of banks have launched their
inward remittance products which facilitate funds transfer on the same day/ next day.
CASH MANAGEMENT SERVICES:-
Many banks have branches rendering cash management services (CMS) to corporate clients,
for managing their receivables and payments across the country. Under cash management
services, banks offer their corporate clients custom-made collection, payment and remittance
services allowing them to reduce the time period between collections and remittances, thereby
streamlining their cash flows
PARA BANKING ACTIVITIES
PRIMARY DEALERSHIP BUSINESS:-
Primary Dealers can be referred to as Merchant Bankers to Government of India. In 1995, the
Reserve Bank of India (RBI) introduced the system of Primary Dealers (PDs) in the Government
Securities Market, which comprised independent entities undertaking Primary Dealer activity.
In order to broad base the Primary Dealership system, banks were permitted to undertake
Primary Dealership business in 2006-07. To do primary dealership business, it is necessary to
have a license from the RBI.
INVESTEMENT BANKING/MERCHANT BANKING:-
Investment Banking is not one specific function or service but rather an umbrella term for a
range of activities. These activities include issuing securities (underwriting) for companies,
managing portfolios of financial assets, trading securities (stocks and bonds), helping investors
purchase securities and providing financial advice and support services. It can be seen that all
these services are capital market related services. These services are offered to governments,
companies, non-profit institutions and individuals.
12

13. NDIM
MUTUAL FUND BUSINESS:-
A number of banks, both in the private and public sectors have sponsored asset management
companies to undertake mutual fund business. Banks have entered the mutual fund business,
sometimes on their own (by setting up a subsidiary) and sometimes in joint venture with
others. Other banks have entered into distribution agreements with mutual funds for the sale
of the latter's mutual fund products, for which they receive fees. The advantage that banks
enjoy in entering the mutual fund businesses is mainly on account of their wide distribution
network.
PENTION FUNDS MANAGEMENT:-
Consequent upon the issue of Government of India Notification dated May 24, 2007, banks
have been advised that they may now undertake Pension Funds Management (PFM) through
their subsidiaries set up for the purpose. This would be subject to their satisfying the eligibility
criteria prescribed by Pensions Fund Regulatory and Development Authority (PFRDA) for
Pension Fund Managers. Banks intending to undertake PFM should obtain prior approval of RBI
before engaging in such business.
DEPOSITORY SERVICES:-
In the depository system, securities are held in depository accounts in dematerialized form.
Transfer of securities is done through simple account transfers. The method does away with
the risks and hassles normally associated with paperwork. The enactment of the Depositories
Act, in August 1996, paved the way for the establishment of National Securities Depository
Limited (NSDL) and later the Central Depository Services (India) Limited (CDSL).
PORTFOLIO MANAGEMENT SERVICES:-
A number of banks and financial institutions are seeking a share in the fast-growing wealth
management services market. Currently, a high net worth individual can choose from among
a number of private sector and public sector banks for wealth management services.40 In
addition to high net worth resident Indians, non-resident Indians (NRIs) form a major chunk
of the customer base for personal wealth management industry in India.
13

14. NDIM
Organisational Structure
The entire organised banking system comprises of scheduled and non-scheduled banks. Largely,
this segment comprises of the scheduled banks, with the unscheduled ones forming a very small
component.
Scheduled commercial banks
A scheduled bank is a bank that is listed under the second schedule of the RBI Act, 1934. In
order to be included under this schedule of the RBI Act, banks have to fulfill certain conditions
such as having a paid up capital and reserves of at least 0.5 million and satisfying the Reserve
Bank that its affairs are not being conducted in a manner prejudicial to the interests of its
depositors. Scheduled banks are further classified into commercial and cooperative banks.
Scheduled Commercial Banks (SCBs):
Scheduled commercial banks (SCBs) account for a major proportion of the business of the
scheduled banks. As at end-March, 2009, 80 SCBs were operational in India.
State Bank of India and its six associates (excluding State Bank of Saurashtra, which has been
merged with the SBI with effect from August 13, 2008) are recognised as a separate category of
SCBs, because of the distinct statutes (SBI Act, 1955 and SBI Subsidiary Banks Act, 1959) that
govern them. Nationalised banks (10) and SBI and associates (7), together form the public sector
banks group and control around 70% of the total credit and deposits businesses in India. IDBI
ltd. has been included in the nationalised banks group since December 2004.
Foreign banks
Foreign banks are present in the country either through complete branch/subsidiary route
presence or through their representative offices. At end-June 2009, 32 foreign banks were
operating in India with 293 branches. Besides, 43 foreign banks were also operating in India
through representative offices.
Rural banks
Regional Rural Banks (RRBs) were set up in September 1975 in order to develop the rural
economy by providing banking services in such areas by combining the cooperative specialty of
local orientation and the sound resource base which is the characteristic of commercial banks.
RRBs have a unique structure, in the sense that their equity holding is jointly held by the central
government, the concerned state government and the sponsor bank (in the ratio 50:15:35), which
is responsible for assisting the RRB by providing financial, managerial and training aid and also
subscribing to its share capital. The no of rural banks as on 31st march 2011 were 86.
14

15. NDIM
Scheduled Cooperative Banks:
Scheduled cooperative banks in India can be broadly classified into urban credit cooperative
institutions and rural cooperative credit institutions. Rural cooperative banks undertake long
term as well as short term lending. Credit cooperatives in most states have a three tier structure
(primary, district and state level).
Non-Scheduled Banks:
Non-scheduled banks also function in the Indian banking space, in the form of Local Area
Banks (LAB). As at end-March 2009 there were only 4 LABs operating in India. Local area
banks are banks that are set up under the scheme announced by the government of India in
1996, for the establishment of new private banks of a local nature; with jurisdiction over a
maximum of three contiguous districts. LABs aid in the mobilisation of funds of rural and semi
urban districts. Six LABs were originally licensed, but the license of one of them was cancelled
due to irregularities in operations, and the other was amalgamated with Bank of Baroda in 2004
due to its weak financial position.
New Technologies in banking sector
The Indian banking sector has seen an acceleration with the introduction of technological
transformation like:
 ATMs
 Telephone banking,
 online banking,
 web based products,
 E-cheques,
 Credit cards,
 Debit cards.
15

16. NDIM
Easy Banking
• A mobile hand set with a connection is the only instrument needed to make a gateway to
your banking transaction, the latest innovation of technology.
• Mobile Banking, SMS Banking, Net Banking and ATMs are the major services by the banks
in India.
Mobile Banking
With mobile banking facilities, one can bank from anywhere, at anytime and in any condition or
anyhow. The system is either through SMS or through WAP.
Services offered on Mobile:
• Bill payments
• Fund transfers
• Check balances
• Any many more which is also
available in SMS Banking
SMS Banking
• Balance enquiry
• Last three transactions
• Cheque payment status
• Cheque book request
• Statement request
• Demat - Free Balance Holding
16

17. NDIM
• Demat - Last two Transactions
• Bill Payment
SMS banking is also very much safe. First, one authenticates the mobile number with the
authentications key. Second, the customer uses secret Mobile Personal Identification Number
(MPIN).
Internet Banking/E-Banking:
Features of Net banking:
– The banks offer only relevant information about their products and services to the
mass.
– Few banks provide interaction facility between the banks and its customers.
– Banks are coming up with arrangements of utility payments, like telephone bills,
electricity bills, etc.
Cost of installation of services –
– The cost for providing such services to the banks come around Rs 40 lakh to Rs
50 lakh.
17