Nationalized banks in india

 B-COM DEPARTMENT
 MANNAMMEMORIAL
N.S.S COLLEGE
KOTTIYAM
 KOLLAM
 DONE BY ;
 SREEKUTTY M S
Saturday, March 4, 2017
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CONTENTS
BANKS AN INTRODUCTION
HISTORY OF BANKING
ORIGIN OF THE WORD; BANK
BANKING STNDARD ACTIVITY
RANGE OF ACTIVITIES
CHANNELS
BANKING SERIVICES
THE SERVICES
BUSINESS MODELS
RETAIL BANKING
BUSINEES (OR COMMERCIAL/INVESTMENT ) BANKING
CAPITAL AND RISK
ECONOMIC FUNTIONS
TYPES OF BANKS
INTERNATIONAL BANKING
ACCOUNTING FOR BANK ACCOUNTS
GLOBALISATION IN THE BANKING INDUSTRY
BANKING IN INDIA
HISTORY OF BANKING IN INDIA(POST IND….)
NATIONALISATION
LIBERLISATION
BANKING CURRENT PERIOD
ADOPTION OF BANKING TECHNOLOGY
EXPANSION OF BANKING INFRASTRUCTURE
STEPS TAKEN BY RESERVE BANK TO STREGHTEN BANKING INFRASTRUCTURE
IFSC
RESERVE BANK OF INDIA
RBI – HISTORY(1935-1950)
BANKS CLASSIFICATION
NATIONALIZED BANKS (SBI AND ASSOCIATES)
REGIONAL RURAL BANKS
PRIVATE SECTOR BANKS
FOREIGN BANKS OPERATING IN INDIA
FOREIGN BANKS WITH BUSINESS IN INDIA
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BANKS :- AN INTRODUCTION
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BANK • WHAT DO YOU MEAN BY BANKS
 A bank is a financial intermediary that accepts deposits and channels those deposits into
lending activities, either directly by loaning or indirectly through capital markets. A bank links
together customers that have capital deficits and customers with capital surpluses.
 A bank is a company that works with the money that the people give it. If you give your
money to a bank, it not only protects it but pays you interest so that it can work with the
money. This is one of the reasons why people save their money in a bank. Money may also
be safer there than at home.
 Banks also lend money to other businesses and customers. They collect extra money called
banking fees with which they pay interest to savers as well as salaries for their workers.
Banks make a profit because they collect more interest than they pay to savers.
 Without banks the world’s economy would not be able to grow. Investors would not find the
money they need for new projects. Industries could not buy new machines and modern
technology.
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Under English common law, a banker is defined as a person who carries on the business of banking, which is specified as
conducting current accounts for his customers,
paying cheques drawn on him/her, and
collecting cheques for his/her customers.

Due to their importance in the financial system and influence on national
economies, banks are highly regulated in most countries. Most nations have
institutionalized a system known as fractional reserve banking, under which
banks hold liquid assets equal to only a portion of their current liabilities. In
addition to other regulations intended to ensure liquidity, banks are generally
subject to minimum capital requirements based on an international set of
capital standards, known as the Basel Accords.
Banking in its modern sense evolved in the 14th century in the rich cities of
Renaissance Italy but in many ways was a continuation of ideas and concepts
of credit and lending that had its roots in the ancient world. In the history of
banking, a number of banking dynasties—notably the Medicis, the Fugger's,
the Wellers, the Berenbergs, and the Rothschilds—have played a central role
over many centuries. The oldest existing retail bank is Monte dei Paschi di
Siena, while the oldest existing merchant bank is Berenberg Bank.
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HISTORY OF BANKING:-
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The origins of modern banking can be traced to medieval and early Renaissance Italy, to the rich cities in the north
like Florence, Lucca, Siena, Venice and Genoa. The Bardi and Peruzzi families dominated banking in 14th century
Florence, establishing branches in many other parts of Europe. One of the most famous Italian banks was the Medici
Bank, set up by Giovanni di Bicci de' Medici in 1397. The earliest known state deposit bank, Banco di San Giorgio
(Bank of St. George), was founded in 1407 at Genoa, Italy.
Modern banking practice, including fractional reserve banking and the issue of banknotes, emerged in the 17th and
18th centuries. Merchants started to store their gold with the goldsmiths of London, who possessed private vaults,
and charged a fee for that service. In exchange for each deposit of precious metal, the goldsmiths issued receipts
certifying the quantity and purity of the metal they held as a bailee; these receipts could not be assigned, only the
original depositor could collect the stored goods.
Gradually the goldsmiths began to lend the money out on behalf of the depositor, which led to the
development of modern banking practices; promissory notes (which evolved into banknotes) were issued for money
deposited as a loan to the goldsmith. The goldsmith paid interest on these deposits. Since the promissory notes
were payable on demand, and the advances (loans) to the goldsmith's customers were repayable over a longer time
period, this was an early form of fractional reserve banking. The promissory notes developed into an assignable
instrument which could circulate as a safe and convenient form of money backed by the goldsmith's promise to pay,
allowing goldsmiths to advance loans with little risk of default. Thus, the goldsmiths of London became the
forerunners of banking by creating new money based on credit.
The Bank of England was the first to begin the permanent issue of banknotes, in 1695. The Royal Bank of Scotland
established the first overdraft facility in 1728. By the beginning of the 19th century a bankers' clearing house was
established in London to allow multiple banks to clear transactions. The Rothschild's pioneered international finance
on a large scale, financing the purchase of the Suez canal for the British government.
The oldest bank still in existence is Monte dei Paschi di Siena, headquartered in Siena, Italy, which has been
operating continuously since 1472. It is followed by Berenberg Bank of Hamburg (1590) and Sveriges Riksbank of
Sweden (1668).

The sealing of the Bank of England Charter (1694).
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ORIGIN OF THE WORD; BANK:-
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The word bank was borrowed in Middle English from Middle French banque, from Old
Italian banca, from Old High German banc, bank "bench, counter". Benches were used as
desks or exchange counters during the Renaissance by Florentine bankers, who used to
make their transactions atop desks covered by green tablecloths
One of the oldest items found showing money-changing activity is a silver Greek drachm
coin from ancient Hellenic colony Trapezus on the Black Sea, modern Trabzon, c. 350–325
BC, presented in the British Museum in London. The coin shows a banker's table (trapeza)
laden with coins, a pun on the name of the city. In fact, even today in Modern Greek the
word Trapeza (Τράπεζα) means both a table (in formal language) and a bank (in everyday
speech). [The everyday word used for "table" is trapezi ("τραπέζι"), a modern form of the
archaic trapeza (τράπεζα)].

Banking ; Standard activities:-
Banks act as payment agents by conducting checking or current accounts for customers, paying
cheques drawn by customers on the bank, and collecting cheques deposited to customers' current accounts. Banks
also enable customer payments via other payment methods such as Automated Clearing House (ACH), Wire
transfers or telegraphic transfer, EFTPOS, and automated teller machine (ATM).
Banks borrow money by accepting funds deposited on current accounts, by accepting term deposits,
and by issuing debt securities such as banknotes and bonds. Banks lend money by making advances to customers
on current accounts, by making installment loans, and by investing in marketable debt securities and other forms
of money lending.
Banks provide different payment services, and a bank account is considered indispensable by most
businesses and individuals. Non-banks that provide payment services such as remittance companies are normally
not considered as an adequate substitute for a bank account.
Banks can create new money when they make a loan. New loans throughout the banking system
generate new deposits elsewhere in the system. The money supply is usually increased by the act of lending, and
reduced when loans are repaid faster than new ones are generated. In the United Kingdom between 1997 and
2007, there was a big increase in the money supply, largely caused by much more bank lending, which served to
push up property prices and increase private debt. The amount of money in the economy as measured by M4 in the
UK went from £750 billion to £1700 billion between 1997 and 2007, much of the increase caused by bank
lending. If all the banks increase their lending together, then they can expect new deposits to return to them and
the amount of money in the economy will increase. Excessive or risky lending can cause borrowers to default, the
banks then become more cautious, so there is less lending and therefore less money so that the economy can go
from boom to bust as happened in the UK and many other Western economies after 2007.
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Range of activities:-
Banks offer many different channels to access their banking and other services:
Automated Teller Machines
A branch is a retail location
Call center
Mail: most banks accept cheque deposits via mail and use mail to communicate to their customers,
e.g. by sending out statements
Mobile banking is a method of using one's mobile phone to conduct banking transactions
Online banking is a term used for performing multiple transactions, payments etc. over the Internet
Relationship Managers, mostly for private banking or business banking, often visiting customers at
their homes or businesses
Telephone banking is a service which allows its customers to conduct transactions over the telephone
with automated attendant or when requested with telephone operator
Video banking is a term used for performing banking transactions or professional banking
consultations via a remote video and audio connection. Video banking can be performed via purpose
built banking transaction machines (similar to an Automated teller machine), or via a video conference
enabled bank branch clarification
DSA is a Direct Selling Agent, who works for the bank based on a contract. Its main job is to increase
the customer base for the bank.
Activities undertaken by large banks include investment banking, corporate banking, private banking,
insurance, consumer finance, foreign exchange trading, commodity trading, trading in equities, futures
and options trading and money market trading.
Channels
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What kind of services do banks offer?
Banks provide their customers with a number of services. With a checking account you
can pay your bills. A check is a slip of paper that tells the bank how much money it should
withdraw from your account and pay to someone else. Today, more and more people use
the internet, also a banking service, to pay their bills. Banks also give their customers
plastic cards with which they can get money from their account everywhere and whenever
they want. They can also use them to pay without cash at shops, gas stations and other
stores. Checking accounts are a comfortable way for customers to handle their money.
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For people who want to save money banks offer savings accounts. Usually, banks pay more
interest for savings accounts than they do for checking accounts. They hope that the
customers will leave their money in the bank for a long time, which is why the bank can
work with this money and offer it as loans. Banks, however, cannot give all of their money
as loans. In most countries the government limits the amount of money that banks can use
as loans. They must always keep back a certain percentage in the form of cash.
People who need money for certain things like buying a house or a car need a lot of
money quickly. The money they borrow from a bank is called a loan. In most cases they do
not pay back all of the money at once but a small part of it, with interest, every month. If
someone cannot pay back a loan the bank usually can take away valuable objects like cars
or houses.
Modern banks offer their customers many other services as well. They tell them how
they can make money with investments in stocks and bonds. Credit cards are given to
customers as a cash-free way of buying things. Almost all banks have automatic teller
machines (ATM) at which customers receive money from their account. Telephone banking
is an easy way to pay your bills by calling a special telephone number and typing in a
certain sequence of digits. Some banks even deal with insurance.
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What are the different types of services offered by banks?
Banks offer the following services to account holders at their specified branches — multi-city / Payable at Par
(PAP) cheque facility, anywhere banking facility, trade services, phone banking facility, internet banking
facility, credit card, debit/ATM card, mobile banking and Real Time Gross Settlement (RTGS).
Foreign banks are expanding the number of products on offer, their complexity such as derivatives, leverage
financing. Doorstep banking facilities are being offered by some of these banks to cater to convenience
lifestyle of its customers. Private banks are extending services including wealth management and equity
trading apart from credit cards.
How do banks price their services?
The pricing mechanism is dependent on client relationship and the nature of the transaction. The
pricing can be arrived at by profiling customers into different segments. The large corporate
segment comprises of the bulk and large value transactions.
This segment is characterized by multiple service relationships. The pricing in this segment is
transaction based and depends on the size of transactions and on the banks' relationship with the
corporate. Hence, the pricing is decided on a one to one basis and public.
The other segments comprise the brokers, small and medium enterprises (SME), other banks and
the retail segment. In each of these cases, the pricing is not made public and is determined on the
basis of the nature of the transaction and the banks' relationship with the client, on a one to one
basis.
Typically, high volumes and low value characterize the SME segment. Therefore the pricing for this
segment differs from that of the large corporates. Similarly the pricing for the banks is very different.
In the retail segment, the bank publishes its tariff.
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How do services contribute to the bank's income?
Increasingly banks are witnessing a growth in their non-interest or fee-based incomes. With
interest spreads decreasing, banks have little option but to ramp up their revenues from fee-
based income.
Fee-based income constitutes a major portion of a bank's other income. The ratio of other
income to total income is an indicator of the size of fee-based income. Treasury incomes of
public sector banks are no longer the major revenue driver and have been coming down as
a result of rising interest rates. Volatility of interest rates are compelling banks to increase
their fee based income.
What is non-fund based income?
The non-fund based income comprises of revenues from both financial commitment and
services rendered. Financial commitment includes guarantees, letters of credit and bankers
acceptances etc.
The fees charged may vary from bank to bank and is dependant on the relationship of the
bank with the client and the size of the transaction. On the other hand, the revenues from
services rendered include fees from funds transfer and enabling services like ATM, internet
banking etc. The revenues from funds transfer come from corporate services such as cash
management, foreign exchange remittances and from retail services including drafts, pay
orders etc.
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The services
The Commercial Banks offer a number of services to the general public. Below is a
list of some of the services offered:
Deposit/Investment Accounts:
Savings
Fixed (Term) Deposits
Special Investment Accounts
Corporate/Personal Chequing Accounts
Foreign Currency Accounts
Credit Facilities:
Loans/Mortgages
Overdrafts
Bonds
Trade Financing (Export/Import Trade Financing):
Letter of Credit
Bill Discounting
Invoice Financing
Bills for Collection
Bank Guarantee and Confirmations
Inventory Financing
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Foreign Trade:
Draft/Money Orders Negotiation
Electronic Funds Transfers
Traveler’s Cheques
Night Deposit Facilities
Safety Deposit Boxes
Payroll Processing
Card Services:
Credit Cards (Local and Foreign)
Debit Cards
Automated Teller Machines (ATMs)
Point of Sales (POS) Terminals
Telephone Banking
Payment of Utility Bills
Internet Banking
Manager’s Cheques
Letter of Introduction
Balance Confirmation (Audit Queries)
Credit Enquiries Letters
Standing Orders
Encashment of Cheques/withdrawal of Funds from Accounts
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Different Services that a bank offers to Personal Customers
Most of us know what a bank is, we know in order to manage our financial life; we should have both
a current account and a saving’s accounts to create balance.
Take a look below at the services that banks offer to personal customers:
Current Account:
A Current Account is a common type of bank account used to store money that is needed on a
regular, day-to-day basis. It is a handy way to manage your money in the short-term. It allows you
to:
Receive money such as your salary or other types of income
Withdraw cash by using your ATM (Automated Teller Machine) or Laser Card or at the bank
counter
Pay for things using your Laser Card or by writing cheques
Transfer money to other accounts
Bank using the internet or the telephone
Pay bills
ATM Cards & Laser Cards
ATM Cards are used to withdraw cash from your current account
You can use your ATM card abroad so long as your card has a Link logo on the back
You can use your ATM card at any banks’ ATM machines
As an alternative to using cash Laser Cards (also known as Debit Cards) allow you to pay for
items at POS (Point of Sale) terminals in most shops, restaurants, and now even in some taxis!
Some retailers will give you the option of receiving “cash back”, the amount of which is added to
the transaction on your laser card
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Savings account:
A savings account is a type of bank, building society, credit union or An Post account that is used for accumulating
money. Funds saved can be for both short and long-term needs. Short-term needs include things like holidays,
weddings and Christmas presents or just for a rainy day. Longer-term needs include things like saving for college or a
house.
There are many different types of savings accounts available. When deciding on a savings account you should consider
how much you want to save and what access you want to the money.
Generally speaking, savings accounts can be opened with a small sum of money and you can save either regular
amounts or lumps sums, and sometimes both.
A Savings Account accumulates interest – interest rates can be either fixed or variable.
The Government charges DIRT (Deposit Interest Retention Tax) on the interest earned on savings. This tax is
automatically taken from your account.
Investments :
Investment involves purchasing a financial product or other item of value with the expectation that the value of the item
will increase over time. Simply put, investment means spending money in the hope of making more money.
Investments can offer you a better return on your money in the longer-term compared to savings accounts. However,
certain investments may carry a higher level of risk.
What is a Credit Card?
Credit cards are a “pay later” tool as they let you purchase an item and pay for it some time in the future.
VISA and MasterCard are the two main types of Credit Card in Ireland.
Credit cards are mainly provided by banks but some retailers and airlines also provide their own credit cards.
Remember that you must be 18 years or over to use a Credit Card
How does a Credit Card work?
Credit cards have a credit limit, meaning the amount you can spend on the card – this is set by your credit card
provider.
You have the option of spending the limit in one go or over a period of time.
Each month you will receive a credit card statement from your credit card provider. This shows you various information
relating to your card including how much you have spent since the last statement, any cash you withdrew using the
card, any interest due, the amount you owe and the minimum payment that must be made by a set date.
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What is Insurance?
Insurance is a form of risk management – you pay a set amount called a premium to an insurer and the
insurer agrees to cover the costs associated with certain risks that could be financially devastating if
they were to happen. There are a number of different types of insurance including:
Car Insurance
By law if you have a car you must, at the very least, have third party insurance. Third party insurance
covers any injury or loss suffered by other people as a result of your driving. Comprehensive insurance
is an “all inclusive” type of insurance that covers the cost of repair or replacement if your car is stolen,
damaged or destroyed and includes any loss suffered by Third parties.
Home Insurance
Some of the risks your home may be subject to include damage by fire or flooding, burglary or someone
injuring themselves on your property. Taking out insurance can cover you for some of these risks.
Travel Insurance
There are many risks associated with travel including damage or delay of luggage, cancelled flights,
delayed or missed departure, loss or theft of money or passport and illness or injury. Travel insurance
can help compensate you in the eventuality of these things happening.
Health Insurance
Private health insurance helps cover medical or hospital expenses if you get sick, have and accident or
need an operation.
Payment Protection insurance
Payment Protection insurance is designed to cover your repayments on a loan if you suffer from an
accident, illness, death or redundancy.
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What is a Mortgage?
A mortgage is a special type of loan offered by banks and building societies to enable people to buy
property. It’s typically a big loan, paid back by the borrower over 25 or 30 years, in monthly instalments.
Some different types of Mortgages….
Mortgage
This is the most common type of mortgage. The monthly repayment consists of the original loan amount
(or capital repayment) and the interest payment. At the beginning of the mortgage’s life, most of the
monthly repayment goes towards the interest. Towards the end, more of the monthly payment goes
towards the capital repayment.
Interest-only mortgage
With this type of mortgage the monthly repayment only covers the interest on the mortgage and not the
capital. The original loan must be repaid in a lump sum at the end of the mortgage term.
What is online banking?
Online banking refers to carrying out certain banking transactions over the internet. Banking online is
very convenient and can save you time and money. All the major banks offer online banking. There are a
number of things you can do online such as:
View balances and statements
Transfer money
Top up your mobile phone
Pay bills
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Some bank’s online banking services allow you to:
Apply for certain products, such as credit cards, loans and savings accounts
Set up, amend and cancel standing orders
Share deal – buy and sell shares online
Benefits of online banking Some of the benefits of online banking include:
Save time and effort by banking from home (or wherever you have access to a pc and the internet)
Information about your accounts and transactions is immediately available
Can be cost-effective – for example transactions charges may be lower and online accounts may offer higher interest
rates
Cuts down on your paper work
What is a pension and why start one?
Pensions are an investment you contribute to throughout your life, putting money away so you’ll have money in the
bank when you retire.
While there are many different types of pensions the principle is the same - to ensure you have a nest egg to live from
when you get older.
A pension plan is basically a long-term savings plan. People put money away in increments called “contributions”.
Usually people plan for their retirement by starting a pension plan once they start working.
People save for a pension so that they can maintain a certain standard of living after they retire.
Different types of pension
State Pension
The Government pays a weekly pension to people once they reach the age of 66.
Employee pensions
Some employers contribute to a pension fund for its’ employees and employees then have the option to add to this
fund.
Self-employed pensions
People who are self-employed are entitled to put a certain percentage of their profits into a pension plan and in doing so
gain some tax benefits.
Owner-Director pensions
The Government allows owners or directors of companies to pay into a pension fund once the business starts making
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Business model
A bank can generate revenue in a variety of different ways including interest, transaction fees and financial advice. The main
method is via charging interest on the capital it lends out to customers.[citation needed] The bank profits from the difference between the
level of interest it pays for deposits and other sources of funds, and the level of interest it charges in its lending activities.
This difference is referred to as the spread between the cost of funds and the loan interest rate. Historically,
profitability from lending activities has been cyclical and dependent on the needs and strengths of loan customers and the stage of
the economic cycle. Fees and financial advice constitute a more stable revenue stream and banks have therefore placed more
emphasis on these revenue lines to smooth their financial performance.
In the past 20 years American banks have taken many measures to ensure that they remain profitable while
responding to increasingly changing market conditions.
First, this includes the Gramm-Leach-Bliley Act, which allows banks again to merge with investment and
insurance houses. Merging banking, investment, and insurance functions allows traditional banks to respond to increasing consumer
demands for "one-stop shopping" by enabling cross-selling of products (which, the banks hope, will also increase profitability).
Second, they have expanded the use of risk-based pricing from business lending to consumer lending, which
means charging higher interest rates to those customers that are considered to be a higher credit risk and thus increased chance of
default on loans. This helps to offset the losses from bad loans, lowers the price of loans to those who have better credit histories,
and offers credit products to high risk customers who would otherwise be denied credit.
Third, they have sought to increase the methods of payment processing available to the general public and
business clients. These products include debit cards, prepaid cards, smart cards, and credit cards. They make it easier for consumers
to conveniently make transactions and smooth their consumption over time (in some countries with underdeveloped financial
systems, it is still common to deal strictly in cash, including carrying suitcases filled with cash to purchase a home).
However, with convenience of easy credit, there is also increased risk that consumers will mismanage their
financial resources and accumulate excessive debt. Banks make money from card products through interest charges and fees
charged to cardholders, and transaction fees to retailers who accept the bank's credit and/or debit cards for payments.
This helps in making profit and facilitates economic development as a whole.
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Retail banking
Checking
account
Savings
account
Money market
account
Certificate of
deposit (CD)
Individual
retirement account
(IRA)
Credit card
Debit card
Mortgage
Mutual fund
Personal loan
Time deposits
ATM card
Current
Accounts
Cheque books
Retail banking
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Business (or commercial/investment) banking:-
Business (or commercial/investment)
banking
Business loan
Capital raising
(Equity / Debt /
Hybrids)
Mezzanine finance
Project finance
Revolving credit
Risk
management
(FX, interest
rates,
commodities,
derivatives)
Term loan
Cash Management
Services (Lock box,
Remote Deposit
Capture, Merchant
Processing)
credit services
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CAPITAL AND RISK:-Banks face a number of risks in order to conduct their business, and how well these risks
are managed and understood is a key driver behind profitability, and how much capital a
bank is required to hold. Bank capital is comprised principally of equity, retained earnings
and subordinated debt.
Some of the main risks faced by banks include:
Credit risk: risk of loss[citation needed] arising from a borrower who does not make payments
as promised.
Liquidity risk: risk that a given security or asset cannot be traded quickly enough in the
market to prevent a loss (or make the required profit).
Market risk: risk that the value of a portfolio, either an investment portfolio or a trading
portfolio, will decrease due to the change in value of the market risk factors.
Operational risk: risk arising from execution of a company's business functions.
Reputational risk: a type of risk related to the trustworthiness of business.
Macroeconomic risk: risks related to the aggregate economy the bank is operating in.
The capital requirement is a bank regulation, which sets a framework within which a bank or
depository institution must manage its balance sheet. The categorization of assets and
capital is highly standardized so that it can be risk weighted.
e
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Economic functions
The economic functions of banks include:
1. Issue of money, in the form of banknotes and current accounts subject to check or payment at the customer's order. These
claims on banks can act as money because they are negotiable or repayable on demand, and hence valued at par. They are
effectively transferable by mere delivery, in the case of banknotes, or by drawing a check that the payee may bank or cash.
2. Netting and settlement of payments – banks act as both collection and paying agents for customers, participating in interbank
clearing and settlement systems to collect, present, be presented with, and pay payment instruments. This enables banks to
economize on reserves held for settlement of payments, since inward and outward payments offset each other. It also enables
the offsetting of payment flows between geographical areas, reducing the cost of settlement between them.
3. Credit intermediation – banks borrow and lend back-to-back on their own account as middle men.
4. Credit quality improvement – banks lend money to ordinary commercial and personal borrowers (ordinary credit quality), but
are high quality borrowers. The improvement comes from diversification of the bank's assets and capital which provides a
buffer to absorb losses without defaulting on its obligations. However, banknotes and deposits are generally unsecured; if the
bank gets into difficulty and pledges assets as security, to raise the funding it needs to continue to operate, this puts the note
holders and depositors in an economically subordinated position.
5. Asset liability mismatch/Maturity transformation – banks borrow more on demand debt and short term debt, but provide more
long term loans. In other words, they borrow short and lend long. With a stronger credit quality than most other borrowers,
banks can do this by aggregating issues (e.g. accepting deposits and issuing banknotes) and redemptions (e.g. withdrawals and
redemption of banknotes), maintaining reserves of cash, investing in marketable securities that can be readily converted to cash
if needed, and raising replacement funding as needed from various sources (e.g. wholesale cash markets and securities
markets).
6. Money creation – whenever a bank gives out a loan in a fractional-reserve banking system, a new sum of virtual money is
created.
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Types of banks
retail banking, dealing directly with individuals and small businesses;
business banking, providing services to mid-market business;
corporate banking, directed at large business entities;
private banking, providing wealth management services to high net worth individuals and
families;
investment banking, relating to activities on the financial markets.
RETAIL BANKING
CORPORATE
BANKING
PRIVATE BANKING
INVESTMENT BANKING
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International banking
The world’s largest banks are located in Europe, the United States
and Japan. In most cases they operate in many countries of the
world. Because banking is a global industry that does not stop at a
country’s borders there must be worldwide agreements.
International standards that banks must obey are written down in
the Basel accords.
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Accounting for bank accounts
Bank statements are accounting records produced by banks under the various
accounting standards of the world. Under GAAP and MAIC there are two
kinds of accounts: debit and credit. Credit accounts are Revenue, Equity and
Liabilities. Debit Accounts are Assets and Expenses. This means you credit a
credit account to increase its balance, and you debit a credit account to
decrease its balance.
This also means you credit your savings account every time you deposit
money into it (and the account is normally in credit), while you debit your
credit card account every time you spend money from it (and the account is
normally in debit). However, if you read your bank statement, it will say the
opposite—that you credit your account when you deposit money, and you
debit it when you withdraw funds. If you have cash in your account, you have
a positive (or credit) balance; if you are overdrawn, you have a negative (or
deficit) balance.
31

Globalization in the Banking Industry
In modern time there has been huge reductions to the barriers of global
competition in the banking industry. Increases in telecommunications and
other financial technologies, such as Bloomberg, have allowed banks to
extend their reach all over the world, since they no longer have to be near
customers to manage both their finances and their risk. The growth in cross-
border activities has also increased the demand for banks that can provide
various services across borders to different nationalities. However, despite
these reductions in barriers and growth in cross-border activities, the
banking industry is nowhere near as globalized as some other industries. In
the USA, for instance, very few banks even worry about the Riegle-Neal Act,
which promotes more efficient interstate banking. In the vast majority of
nations around globe the market share for foreign owned banks is currently
less than a tenth of all market shares for banks in a particular nation. One
reason the banking industry has not been fully globalized is that it is more
32

Banking in India in the modern sense originated in the last decades of the 18th century. The first banks were
Bank of Hindustan (1770-1829) and The General Bank of India, established 1786 and since defunct.
The largest bank, and the oldest still in existence, is the State Bank of India, which originated in the Bank of
Calcutta in June 1806, which almost immediately became the Bank of Bengal. This was one of the three
presidency banks, the other two being the Bank of Bombay and the Bank of Madras, all three of which were
established under charters from the British East India Company. The three banks merged in 1921 to form the
Imperial Bank of India, which, upon India's independence, became the State Bank of India in 1955. For many
years the presidency banks acted as quasi-central banks, as did their successors, until the Reserve Bank of India
was established in 1935.
In 1969 the Indian government nationalized all the major banks that it did not already own and these have
remained under government ownership. They are run under a structure know as 'profit-making public sector
undertaking' (PSU) and are allowed to compete and operate as commercial banks. The Indian banking sector is
made up of four types of banks, as well as the PSUs and the state banks, they have been joined since the 1990s by
new private commercial banks and a number of foreign banks.
Generally banking in India was fairly mature in terms of supply, product range and reach-even though reach in
rural India and to the poor still remains a challenge. The government has developed initiatives to address this
through the State Bank of India expanding its branch network and through the National Bank for Agriculture and
Rural Development with things like microfinance.
Indian Banking Industry currently employees 1,175,149 employees and has a total of 109,811 branches in India
and 171 branches abroad and manages an aggregate deposit of 67504.54 billion (US$1.1 trillion or €840 billion)
and bank credit of 52604.59 billion (US$870 billion or €650 billion). The net profit of the banks operating in India
was 1027.51 billion (US$17 billion or €13 billion) against a turnover of 9148.59 billion (US$150 billion or
€110 billion) for the financial year 2012-13.
34

History:-In ancient India there is evidence of loans from the Vedic period (beginning 1750 BC). Later during the Maurya dynasty (321 to 185 BC), an
instrument called adesha was in use, which was an order on a banker desiring him to pay the money of the note to a third person, which
corresponds to the definition of a bill of exchange as we understand it today. During the Buddhist period, there was considerable use of
these instruments. Merchants in large towns gave letters of credit to one another.[4]
Colonial era:-
During the period of British rule merchants established the Union Bank of Calcutta in 1829, first as a private joint stock association,
then partnership. Its proprietors were the owners of the earlier Commercial Bank and the Calcutta Bank, who by mutual consent created
Union Bank to replace these two banks. In 1840 it established an agency at Singapore, and closed the one at Mirzapore that it had opened
in the previous year. Also in 1840 the Bank revealed that it had been the subject of a fraud by the bank's accountant. Union Bank was
incorporated in 1845 but failed in 1848, having been insolvent for some time and having used new money from depositors to pay its
dividends.
The Allahabad Bank, established in 1865 and still functioning today, is the oldest Joint Stock bank in India, it was not the first though.
That honour belongs to the Bank of Upper India, which was established in 1863, and which survived until 1913, when it failed, with some of
its assets and liabilities being transferred to the Alliance Bank of Simla.
Foreign banks too started to appear, particularly in Calcutta, in the 1860s. The Comptoir d'Escompte de Paris opened a branch in
Calcutta in 1860, and another in Bombay in 1862; branches in Madras and Pondicherry, then a French possession, followed. HSBC
established itself in Bengal in 1869. Calcutta was the most active trading port in India, mainly due to the trade of the British Empire, and so
became a banking centre.
The first entirely Indian joint stock bank was the Oudh Commercial Bank, established in 1881 in Faizabad. It failed in 1958. The next
was the Punjab National Bank, established in Lahore in 1895, which has survived to the present and is now one of the largest banks in
India.
Around the turn of the 20th Century, the Indian economy was passing through a relative period of stability. Around five decades had elapsed
since the Indian Mutiny, and the social, industrial and other infrastructure had improved. Indians had established small banks, most of which
served particular ethnic and religious communities.
The presidency banks dominated banking in India but there were also some exchange banks and a number of Indian joint stock banks.
All these banks operated in different segments of the economy. The exchange banks, mostly owned by Europeans, concentrated on
financing foreign trade. Indian joint stock banks were generally under capitalized and lacked the experience and maturity to compete with
the presidency and exchange banks. This segmentation let Lord Curzon to observe, "In respect of banking it seems we are behind the
times. We are like some old fashioned sailing ship, divided by solid wooden bulkheads into separate and cumbersome compartments."
The period between 1906 and 1911, saw the establishment of banks inspired by the Swadeshi movement. The Swadeshi movement
inspired local businessmen and political figures to found banks of and for the Indian community. A number of banks established then have
survived to the present such as Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and Central Bank of India.
ng".
35

The fervour of Swadeshi movement lead to establishing of many private banks in Dakshina Kannada and Udupi district which were
unified earlier and known by the name South Canara ( South Kanara ) district. Four nationalized banks started in this district and also a
leading private sector bank. Hence undivided Dakshina Kannada district is known as "Cradle of Indian Banking
During the First World War (1914–1918) through the end of the Second World War (1939–1945), and two years thereafter until the
independence of India were challenging for Indian banking. The years of the First World War were turbulent, and it took its toll with
banks simply collapsing despite the Indian economy gaining indirect boost due to war-related economic activities. At least 94 banks in
India failed between 1913 and 1918 as indicated in the following table:
Years
Number of banks
that failed
Authorised Capital
( Lakhs)
Paid-up Capital
( Lakhs)
1913 12 274 35
1914 42 710 109
1915 11 56 5
1916 13 231 4
1917 9 76 25
1918 7 209 1
36

Post-Independence:-
The partition of India in 1947 adversely impacted the economies of Punjab and West
Bengal, paralyzing banking activities for months. India's independence marked the end of a
regime of the Laissez-faire for the Indian banking. The Government of India initiated
measures to play an active role in the economic life of the nation, and the Industrial Policy
Resolution adopted by the government in 1948 envisaged a mixed economy. This resulted
into greater involvement of the state in different segments of the economy including
banking and finance. The major steps to regulate banking included:
•The Reserve Bank of India, India's central banking authority, was established in April
1935, but was nationalized on 1 January 1949 under the terms of the Reserve Bank of
India (Transfer to Public Ownership) Act, 1948 (RBI, 2005b).
•In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of
India (RBI) "to regulate, control, and inspect the banks in India".
•The Banking Regulation Act also provided that no new bank or branch of an existing bank
could be opened without a license from the RBI, and no two banks could have common
directors.
37

Nationalization in the 1960s :-Despite the provisions, control and regulations of the Reserve Bank of India, banks in India except
the State Bank of India (SBI), continued to be owned and operated by private persons. By the 1960s,
the Indian banking industry had become an important tool to facilitate the development of the Indian
economy. At the same time, it had emerged as a large employer, and a debate had ensued about the
nationalization of the banking industry. Indira Gandhi, the then Prime Minister of India, expressed
the intention of the Government of India in the annual conference of the All India Congress Meeting
in a paper entitled "Stray thoughts on Bank Nationalization."[7] The meeting received the paper with
enthusiasm.
Thereafter, her move was swift and sudden. The Government of India issued an ordinance ('Banking
Companies (Acquisition and Transfer of Undertakings) Ordinance, 1969') and nationalized the 14
largest commercial banks with effect from the midnight of 19 July 1969. These banks contained 85
percent of bank deposits in the country.[7] Jayaprakash Narayan, a national leader of India, described
the step as a "masterstroke of political sagacity." Within two weeks of the issue of the ordinance, the
Parliament passed the Banking Companies (Acquisition and Transfer of Undertaking) Bill, and it
received the presidential approval on 9 August 1969.
A second dose of nationalization of 6 more commercial banks followed in 1980. The stated reason for
the nationalization was to give the government more control of credit delivery. With the second dose
of nationalization, the Government of India controlled around 91% of the banking business of India.
Later on, in the year 1993, the government merged New Bank of India with Punjab National Bank. It
was the only merger between nationalized banks and resulted in the reduction of the number of
nationalized banks from 20 to 19. After this, until the 1990s, the nationalized banks grew at a pace of
38

Liberalization in the 1990s
In the early 1990s, the then government embarked on a policy of liberalization, licensing a
small number of private banks. These came to be known as New Generation tech-savvy banks, and
included Global Trust Bank (the first of such new generation banks to be set up), which later
amalgamated with Oriental Bank of Commerce, UTI Bank (since renamed Axis Bank), ICICI Bank
and HDFC Bank. This move, along with the rapid growth in the economy of India, revitalized the
banking sector in India, which has seen rapid growth with strong contribution from all the three
sectors of banks, namely, government banks, private banks and foreign banks.
The next stage for the Indian banking has been set up with the proposed relaxation in the norms
for foreign direct investment, where all foreign investors in banks may be given voting rights which
could exceed the present cap of 10% at present. It has gone up to 74% with some restrictions.
The new policy shook the Banking sector in India completely. Bankers, till this time, were used
to the 4–6–4 method (borrow at 4%; lend at 6%; go home at 4) of functioning. The new wave ushered
in a modern outlook and tech-savvy methods of working for traditional banks. All this led to the retail
boom in India. People demanded more from their banks and received more.
39

Current period
All banks which are included in the Second Schedule to the Reserve Bank of
India Act, 1934 are Scheduled Banks. These banks comprise Scheduled
Commercial Banks and Scheduled Co-operative Banks. Scheduled
Commercial Banks in India are categorized into five different groups
according to their ownership and/or nature of operation. These bank groups
are:
State Bank of India and its Associates
Nationalized Banks
Private Sector Banks
Foreign Banks
Regional Rural Banks.
In the bank group-wise classification, IDBI Bank Ltd. is included in
Nationalized Banks. Scheduled Co-operative Banks consist of Scheduled
State Co-operative Banks and Scheduled Urban Cooperative Banks.
Growth of Banking in India of Scheduled Commercial Banks
40

Indicators
31 March of
2005 2006 2007 2008 2009 2010 2011 2012 2013
Number of Commercial
Banks
284 218 178 169 166 163 163 169 151
Number of Branches 70,373 72,072 74,653 78,787 82,897 88,203 94,019 102,377 109,811
Population per Banks (in
thousands)
16 16 15 15 15 14 13 13 12
Aggregate Deposits
17002 billion
(US$280 billio
n)
21090 billion
(US$350 billion
)
26119 billion
(US$430 billion)
31969 billion
(US$530 billion)
38341 billion
(US$640 billion)
44928 billion
(US$750 billion)
52078 billion
(US$860 billion)
59091 billion
(US$980 billion)
67504.54 billion
(US$1.1 trillion)
Bank Credit
11004 billion
(US$180 billio
n)
15071 billion
(US$250 billion
)
19312 billion
(US$320 billion)
23619 billion
(US$390 billion)
27755 billion
(US$460 billion)
32448 billion
(US$540 billion)
39421 billion
(US$650 billion)
46119 billion
(US$770 billion)
52605 billion
(US$870 billion)
Deposit as percentage to
GNP (at factor cost)
62% 64% 69% 73% 77% 78% 78% 78% 79%
Per Capita Deposit
16281
(US$270)
19130 (US$320) 23382 (US$390) 28610 (US$470) 33919 (US$560) 39107 (US$650) 45505 (US$760) 50183 (US$830) 56380 (US$940)
Per Capita Credit
10752
(US$180)
13869 (US$230) 17541 (US$290) 21218 (US$350) 24617 (US$410) 28431 (US$470) 34187 (US$570) 38874 (US$650) 44028 (US$730)
41

By 2010, banking in India was generally fairly mature in terms of supply, product
range and reach-even though reach in rural India still remains a challenge for the private
sector and foreign banks. In terms of quality of assets and capital adequacy, Indian banks
are considered to have clean, strong and transparent balance sheets relative to other banks
in comparable economies in its region. The Reserve Bank of India is an autonomous body,
with minimal pressure from the government.
With the growth in the Indian economy expected to be strong for quite some time-
especially in its services sector-the demand for banking services, especially retail banking,
mortgages and investment services are expected to be strong. One may also expect M&As,
takeovers, and asset sales.
In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake
in Kodak Mahindra Bank (a private sector bank) to 10%. This is the first time an investor
has been allowed to hold more than 5% in a private sector bank since the RBI announced
norms in 2005 that any stake exceeding 5% in the private sector banks would need to be
vetted by them.
In recent years critics have charged that the non-government owned banks are too
aggressive in their loan recovery efforts in connexion with housing, vehicle and personal
loans. There are press reports that the banks' loan recovery efforts have driven defaulting
borrowers to suicide.
42

Adoption of banking technology
The IT revolution has had a great impact on the Indian banking system. The use of computers has led to the introduction of online
banking in India. The use of computers in the banking sector in India has increased many fold after the economic liberalization of
1991 as the country's banking sector has been exposed to the world's market. Indian banks were finding it difficult to compete with
the international banks in terms of customer service, without the use of information technology.
The RBI set up a number of committees to define and co-ordinate banking technology. These have included:
In 1984 was formed the Committee on Mechanization in the Banking Industry (1984) whose chairman was Dr. C Rangarajan,
Deputy Governor, Reserve Bank of India. The major recommendations of this committee were introducing MICR technology in all
the banks in the metropolises in India.[12] This provided for the use of standardized cheque forms and encoders.
In 1988, the RBI set up the Committee on Computerization in Banks (1988) headed by Dr. C Rangarajan. It emphasized that
settlement operation must be computerized in the clearing houses of RBI in Bhubaneswar, Guwahati, Jaipur, Patna and
Thiruvananthapuram. It further stated that there should be National Clearing of inter-city cheques at Kolkata, Mumbai, Delhi,
Chennai and MICR should be made operational. It also focused on computerization of branches and increasing connectivity among
branches through computers. It also suggested modalities for implementing on-line banking. The committee submitted its reports in
1989 and computerization began from 1993 with the settlement between IBA and bank employees' associations.
In 1994, the Committee on Technology Issues relating to Payment systems, Cheque Clearing and Securities Settlement in the
Banking Industry (1994) was set up under Chairman W S Saraf. It emphasized Electronic Funds Transfer (EFT) system, with the
BANKNET communications network as its carrier. It also said that MICR clearing should be set up in all branches of all those
banks with more than 100 branches.
In 1995, the Committee for proposing Legislation on Electronic Funds Transfer and other Electronic Payments (1995) again
emphasized EFT system.
The total number of automated teller machines (ATMs) installed in India by various banks as of end June 2012 is 99,218.The new
private sector banks in India have the most ATMs, followed by off-site ATMs belonging to SBI and its subsidiaries and then by
nationalized banks and foreign banks, while on-site is highest for the nationalized banks of India.
Branches and ATMs of Scheduled Commercial Banks as of end March 2005
43

Bank type Number of branches On-site ATMs Off-site ATMs Total ATMs
Nationalized banks 33,627 38,606 22,265 60,871
State Bank of India 13,661 28,926 22,827 51,753
Old private sector banks 4,511 4,761 4,624 9,385
New private sector banks 1,685 12,546 26,839 39,385
Foreign banks 242 295 854 1,149
TOTAL 53,726 85,134 77,409 1,62,543
44

Expansion of banking infrastructure
As per the census of 2011, 58.7% of households are availing banking services in the country. There are 102,343 branches of
Scheduled Commercial Banks (SCBs) in the country, out of which 37,953 (37%) bank branches are in the rural areas and 27,219
(26%) in semi-urban areas, constituting 63% of the total numbers of branches in semi-urban and rural areas of the country.
However, a significant proportion of the households, especially in rural areas, are still outside the formal fold of the banking system.
To extend the reach of banking to those outside the formal banking system, Government and Reserve Bank of India (RBI) are taking
various initiatives from time to time some of which are enumerated below:
Opening of bank branches: Government had issued detailed strategy and guidelines on Financial Inclusion in October
2011, advising banks to open branches in all habitations of 5,000 or more population in under-banked districts and
10,000 or more population in other districts. Out of 3,925 such identified villages/habitations, branches have been
opened in 3,402 villages/habitations (including 2,121 Ultra Small Branches) by end of April, 2013.
Each household to have at least one bank account: Banks have been advised to ensure service area bank in rural
areas and banks assigned the responsibility in specific wards in urban area to ensure that every household has at least
one bank account.
Business Correspondent model: With the objective of ensuring greater financial inclusion and increasing the outreach
of the banking sector, banks were permitted by RBI in 2006 to use the services of intermediaries in providing financial
and banking services through the use of Business Facilitators (BFs) and Business Correspondents (BCs). Business
correspondents are retail agents engaged by banks for providing banking services at locations other than a bank
branch/ATM. BCs and the BC agents (BCAs) represent the bank concerned and enable a bank to expand its outreach
and offer limited range of banking services at low cost, particularly where setting up a brick and mortar branch is not
viable. BCs as agents of the banks, thus, are an integral part of the business strategy for achieving greater financial
inclusion. Banks had been permitted to engage individuals/entities as BC like retired bank employees, retired teachers,
retired government Banks had been permitted to engage individuals/entities as BC like retired bank employees, retired
teachers, retired government individual ,Public Call Office (PCO) operators, agents of Small Savings Schemes of
45

RBI had permitted banks to engage "for profit" companies registered under the Indian Companies Act, 1956, excluding
Non-Banking Financial Companies (NBFCs), as BCs in addition to individuals/entities permitted earlier. According to the
data maintained by RBI, as in December, 2012, there were over 152,000 BCs deployed by Banks. During 2012-13, over
183.8 million transactions valued at 165 billion (US$2.7 billion) had been undertaken by BCs till December 2012.
Swabhimaan Campaign: Under "Swabhimaan" - the Financial Inclusion Campaign launched in February 2011, banks
had provided banking facilities by March, 2012 to over 74,000 habitations having population in excess of 2000 using
various models and technologies including branchless banking through Business Correspondents Agents (BCAs).
Further, in terms of Finance Minister's Budget Speech 2012-13, the "Swabhimaan" campaign has been extended to
habitations with population of more than 1,000 in North Eastern and Hilly States and to habitations which have crossed
population of 1,600 as per census 2001. About 40,000 such habitations have been identified to be covered under the
extended "Swabhimaan" campaign.
Setting up of ultra-small branches (USBs): Considering the need for close supervision and mentoring of the Business
Correspondent Agents (BCAs) by the respective banks and to ensure that a range of banking services are available to
the residents of such villages, Ultra Small Branches (USBs) are being set up in all villages covered through BCAs under
Financial Inclusion. A USB would comprise a small area of 100 sq ft (9.3 m2) - 200 sq ft (19 m2) where the officer
designated by the bank would be available with a laptop on pre-determined days. While the cash services would be
offered by the BCAs, the bank officer would offer other services, undertake field verification and follow up on the
banking transactions. The periodicity and duration of visits can be progressively enhanced depending upon business
potential in the area. A total of over 50,000 USBs have been set up in the country by March 2013.
Banking facilities in Unbanked Blocks: All the 129 unbanked blocks (91 in North East States and 38 in other States)
identified in the country in July 2009, had been provided with banking facilities by March 2012, either through Brick
Mortar Branch or Business Correspondents or Mobile van. As a next step it has been advised to cover all those blocks
with BCA and Ultra Small Branch which have so far been covered by mobile van only.
USSD Based Mobile Banking: National Payments Corporation of India (NPCI) worked upon a "Common USSD
Platform" for all banks and telcos who wish to offer the facility of Mobile Banking using Unstructured Supplementary
Service Data (USSD) based Mobile Banking. The Department helped NPCI to get a common USSD Code *99# for all
telcos. More than 20 banks have joined the National Uniform USSD Platform (NUUP) of NPCI and the product has
been launched by NPCI with BSNL and MTNL. Other telcos are likely to join in the near future. USSD based Mobile
Banking offers basic Banking facilities like Money Transfer, Bill Payments, Balance Enquiries, Merchant Payments etc.
46

Steps taken by Reserve Bank of India (RBI) to strengthen
the banking infrastructure
RBI has permitted domestic Scheduled Commercial Banks (excluding RRBs) to open branches in tier
2 to tier 6 cities (with population up to 99,999 as per census 2001) without the need to take permission
from RBI in each case, subject to reporting.
RBI has also permitted SCBs (excluding RRBs) to open branches in rural, semi-urban and urban
centers in North Eastern States and Sikkim without having the need to take permission from RBI in each
case, subject to reporting.
Regional Rural Banks (RRBs) are also allowed to open branches in Tier 2 to Tier 6 centers (with
population up to 99,999 as per Census 2001) without the need to take permission from RBI in each
case, subject to reporting, provided they fulfill the following conditions, as per the latest inspection
report:
CRAR of at least 9%;
Net NPA less than 5%;
No default in CRR / SLR for the last year;
Net profit in the last financial year;
CBS compliant.
Domestic SCBs have been advised that while preparing their Annual Branch Expansion Plan (ABEP),
they should allocate at least 25% of the total number of branches proposed to be opened during the
year in unbanked Tier 5 and Tier 6 centers i.e. (population up to 9,999) centers which do not have a
brick and mortar structure of any SCB for customer based banking transactions.
RRBs have also been advised to allocate at least 25% of the total number of branches proposed to be
opened during a year in unbanked rural (Tier 5 and Tier 6) Centers).
New private sector banks are required to ensure that at least 25% of their total branches are in semi-
47

IFSC
IFSC stands for Indian Financial System Code. This concept
was invented by Reserve Bank of India. This code is Alphanumerical, which contains alphabets and
numbers. These twelve alphanumerical codes are allotted to every bank in India, and of course, these
codes are unique.
In this twelve character code, the first four characters mean the name of the bank. After this
four character, you can see a zero another six characters represent branch code of the bank. This code
is used by NEFT and RTGS for financial transfer system. You can see code is printed on every check
issued by banks. RBI also provided a list of banks and this unique code online for individuals and
business people.
For better banking services, especially for online payment this code is must. Banks that don’t
use this code are liable for legal action against them.
Uses of IFSC Code:
This code is helpful in transferring money from one bank to another bank online in
real time. This is not only used by individuals but also big companies. This code helps to
transfer money easily to the person who holds account in any bank across India.
This way of transferring funds is available around the clock all you need to have is
that you must add beneficiary name and his account number along with IFSC code for quick
transfer of money. It takes 24hrs of times to get confirmation once beneficiary successfully
added. This quick way of transferring money avoids complications that lead to big problems
to banks.
48

Using this code is must for every individual to transfer money immediately to friends who
have account in same bank or other bank. Money gets transferred right away if money is transferred
to the same bank. If it is other banks, it normally takes 24hrs of time but this assures safety.
This method of transferring money reduces a human effort, especially for individual as he
doesn’t have to walk to the person to give money.
He can be just simply open online banking with given ID and password and transfer. You
are taking chances if you are taking money in your pocket and walking to the counter to make
payments. This code reduces all above risks and helps you in safe banking. IFSC code reduces much
of human effort and eventually helps people to save a lot of money and time. This is how RBI
reduced efforts of banks and individual to happen payments and fund's transfer in short period of
time. Since this code was invented every individual, professionals and business people had taken the
advantage of this code and enjoyed its advantages.
49

The 'Reserve Bank of India is India's Central Banking Institution, which controls the
Monetary Policy of the Indian Rupee. on 1 April 1935 during the British Rule in accordance
with the provisions of the Reserve Bank of India Act, 1934. The original share capital was
divided into shares of 100 each fully paid, which were initially owned entirely by private
shareholders. Following India's independence on 15 - August - 1947, the RBI was
nationalized in the year of 1949.
The RBI plays an important part in the Development Strategy of the Government of India. It
is a member bank of the Asian Clearing Union. The general superintendence and direction
of the RBI is entrusted with the 21-member Central Board of Directors: the Governor
(currently Dr. Raghuram Rajan), 4 Deputy Governors, 2 Finance Ministry representatives,
10 government-nominated directors to represent important elements from India's economy,
and 4 directors to represent local boards headquartered at Mumbai, Kolkata, Chennai and
New Delhi. Each of these local boards consists of 5 members who represent regional
interests, as well as the interests of co-operative and indigenous banks.
The bank is also active in promoting financial inclusion policy and is a leading member of
the Alliance for Financial Inclusion (AFI).
51

History OF RBI :-
1935–1950
The Reserve Bank of India was founded on 1 April 1935 to respond to economic troubles
after the First World War. RBI was conceptualized as per the guidelines, working style and
outlook presented by Dr Ambedkar as written in his book “The Problem of the Rupee – Its
origin and its solution.” in front of the Hilton Young Commission . The bank was set up
based on the recommendations of the 1926 Royal Commission on Indian Currency and
Finance, also known as the Hilton–Young Commission. The original choice for the seal of
RBI was The East India Company Double Mohur, with the sketch of the Lion and Palm Tree.
However it was decided to replace the lion with the tiger, the national animal of India. The
Preamble of the RBI describes its basic functions to regulate the issue of bank notes, keep
reserves to secure monetary stability in India, and generally to operate the currency and
credit system in the best interests of the country. The Central Office of the RBI initially
established in Calcutta (now Kolkata), but was permanently moved to Bombay (now
Mumbai) in 1937. The RBI also acted as Burma's central bank, except during the years of
the Japanese occupation of Burma (1942–45), until April 1947, even though Burma
seceded from the Indian Union in 1937. After the Partition of India in 1947, the Bank served
as the central bank for Pakistan until June 1948 when the State Bank of Pakistan
commenced operations. Though originally set up as a shareholders’ bank, the RBI has
been fully owned by the Government of India since its nationalization in 1949.
52

1950–1960
In the 1950s the Indian government, under its first Prime Minister Jawaharlal Nehru, developed a
centrally planned economic policy that focused on the agricultural sector. The administration
nationalized commercial banks and established, based on the Banking Companies Act of 1949 (later
called the Banking Regulation Act), a central bank regulation as part of the RBI. Furthermore, the central
bank was ordered to support the economic plan with loans.
1960–1969
As a result of bank crashes, the RBI was requested to establish and monitor a deposit insurance
system. It should restore the trust in the national bank system and was initialized on 7 December 1961.
The Indian government found funds to promote the economy and used the slogan "Developing
Banking". The government of India restructured the national bank market and nationalized a lot of
institutes. As a result, the RBI had to play the central part of control and support of this public banking
sector.
1969–1985
In 1969, the Indira Gandhi-headed government nationalized 14 major commercial banks. Upon Gandhi's
return to power in 1980, a further six banks were nationalized. The regulation of the economy and
especially the financial sector was reinforced by the Government of India in the 1970s and 1980s. The
central bank became the central player and increased its policies for a lot of tasks like interests, reserve
ratio and visible deposits. These measures aimed at better economic development and had a huge
effect on the company policy of the institutes. The banks lent money in selected sectors, like agri-
business and small trade companies.
The branch was forced to establish two new offices in the country for every newly established office in a
town. The oil crises in 1973 resulted in increasing inflation, and the RBI restricted monetary policy to
reduce the effects.
53

1985–1991
A lot of committees analysed the Indian economy between 1985 and 1991. Their results had an effect on the
RBI. The Board for Industrial and Financial Reconstruction, the Indira Gandhi Institute of Development Research and
the Security & Exchange Board of India investigated the national economy as a whole, and the security and exchange
board proposed better methods for more effective markets and the protection of investor interests. The Indian financial
market was a leading example for so-called "financial repression" (Mackinnon and Shaw). The Discount and Finance
House of India began its operations on the monetary market in April 1988; the National Housing Bank, founded in July
1988, was forced to invest in the property market and a new financial law improved the versatility of direct deposit by
more security measures and liberalization.
1991–2000
The national economy came down in July 1991 and the Indian rupee was devalued . The currency lost 18%
relative to the US dollar, and the Narsimham Committee advised restructuring the financial sector by a temporal
reduced reserve ratio as well as the statutory liquidity ratio. New guidelines were published in 1993 to establish a
private banking sector. This turning point should reinforce the market and was often called neo-liberal. The central bank
deregulated bank interests and some sectors of the financial market like the trust and property markets. This first phase
was a success and the central government forced a diversity liberalization to diversify owner structures in 1998.
The National Stock Exchange of India took the trade on in June 1994 and the RBI allowed nationalized
banks in July to interact with the capital market to reinforce their capital base. The central bank founded a subsidiary
company—the Bharatiya Reserve Bank Note Mudran Private Limited—in February 1995 to produce banknotes.
Since 2000
The Foreign Exchange Management Act from 1999 came into force in June 2000. It should improve the
item in 2004–2005 (National Electronic Fund Transfer).The Security Printing & Minting Corporation of India Ltd., a
merger of nine institutions, was founded in 2006 and produces banknotes and coins.
The national economy's growth rate came down to 5.8% in the last quarter of 2008–2009 and the central bank
promotes the economic development.
In August 2014, The RBI has introduced a liquidity framework for cash management to ensure reduced volatility. It has
informally communicated to banks asking them to manage their treasury operations.
54

Central Board of Directors
The Central Board of Directors is the main committee of the Central Bank. The Government of India
appoints the directors for a 4-year term. The Board consists of a Governor, and not more than 4 Deputy Governors, 15
Directors to represent the regional boards, 2 from the Ministry of Finance and 10 other directors from various fields.
Governors
The current Governor of RBI is Raghuram Rajan. There are 4 Deputy Governors, Deputy Governor H
R Khan, Dr Urjit Patel, R Gandhi and SS Mundra. Dr. Urjit Patel became Deputy Governor in January 2013. One of the
four Deputy Governors is traditionally from RBI ranks, and is selected from the Bank's Executive Directors. As for the
rest, one is nominated from among the Chairpersons of Public Sector Bank, and the other is an economist of repute . It
is also often seen that an officer of Indian Administrative Service is appointed Deputy Governor of RBI and later as the
Governor of RBI. The case of Y. Venugopal Reddy, an officer of Indian Administrative Service batch of 1964 is a noted
example for this trend in the RBI.
Supportive bodies
The Reserve Bank of India has four regional representations: North in New Delhi, South in Chennai, East
in Kolkata and West in Mumbai. The representations are formed by five members, appointed for four years by the
central government and serve—beside the advice of the Central Board of Directors—as a forum for regional banks and
to deal with delegated tasks from the central board. The institution has 22 regional offices.
The Board of Financial Supervision (BFS), formed in November 1994, serves as a CCBD committee to control the
financial institutions. It has four members, appointed for two years, and takes measures to strength the role of statutory
auditors in the financial sector, external monitoring and internal controlling systems.
The Tarapore committee was set up by the Reserve Bank of India under the chairmanship of former RBI deputy
governor S.S.Tarapore to "lay the road map" to capital account convertibility. The five-member committee recommended
a three-year time frame for complete convertibility by 1999–2000.
On 1 July 2007, in an attempt to enhance the quality of customer service and strengthen the grievance redressal
mechanism, the Reserve Bank of India created a new customer service department.
55

Offices and branches
The Reserve Bank of India has four zonal offices. It has 19 regional offices at most state capitals and at
a few major cities in India. Few of them are located in Ahmedabad, Bangalore, Bhopal, Bhubaneswar,
Chandigarh, Chennai, Delhi, Guwahati, Hyderabad, Jaipur, Jammu, Kanpur, Kolkata, Lucknow, Mumbai,
Nagpur, Patna, and Thiruvananthapuram. It also has 9 sub-offices located in Agartala, Dehradun,
Gangtok, Kochi, Panaji, Raipur, Ranchi, Shillong, Shimla and Srinagar.
The bank has also two training colleges for its officers, viz. Reserve Bank Staff College at Chennai and
College of Agricultural Banking at Pune. There are also four Zonal Training Centre's at Mumbai,
Chennai, Kolkata and New Delhi.
MAIN FUNCTIONS :-
Bank of Issue
Under Section 22 of the Reserve Bank of India Act 1934, the Bank has the sole right to
issue bank notes of all denominations.(except one rupee notes and coins, which were
issued by the Ministry of finance, and now is stopped from being issued.).
The distribution of one rupee notes and coins and small coins all over the country is
undertaken by the Reserve Bank as agent of the Government. The Reserve Bank has a
separate Issue Department which is entrusted with the issue of currency notes. The assets
and the liabilities of the Issue Department are kept separate from those of the Banking
Department.
56

Regulator and supervisor of the financial system
The institution is also the regulator and supervisor of the financial system and prescribes broad
parameters of banking operations within which the country's banking and financial system functions. Its
objectives are to maintain public confidence in the system, protect depositors' interest and provide cost-
effective banking services to the public. The Banking Ombudsman Scheme has been formulated by the
Reserve Bank of India (RBI) for effective addressing of complaints by bank customers. The RBI controls
the monetary supply, monitors economic indicators like the gross domestic product and has to decide
the design of the rupee banknotes as well as coins.
Managerial of exchange control
The central bank manages to reach the goals of the Foreign Exchange Management Act, 1999.
Objective: to facilitate external trade and payment and promote orderly development and maintenance
of foreign exchange market in India.
Issuer of currency
The bank issues and exchanges or destroys currency notes and coins that are not fit for circulation. The
objectives are giving the public adequate sups of RBI are to issue bank notes, to maintain the currency
and credit system of the country to utilize it in its best advantage, and to maintain the reserves. RBI
maintains the economic structure of the country so that it can achieve the objective of price stability as
well as economic development, because both objectives are diverse in themselves. For printing of
notes, the Security Printing and Minting Corporation of India Limited (SPMCIL), a wholly owned
company of the Government of India, has set up printing presses at Nashik, Maharashtra and Dewas,
Madhya Pradesh. The Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL), a wholly
owned subsidiary of the Reserve Bank, also has set up printing presses at Mysore in Karnataka and
Salboni in West Bengal. In all, there are four printing presses. And for minting of coins, SPMCIL has four
mints at Mumbai, Noida (UP), Kolkata and Hyderabad for coin production.
57

Banker of Banks
RBI also works as a central bank where commercial banks are account holders and
can deposit money.RBI maintains banking accounts of all scheduled banks. Commercial
banks create credit. It is the duty of the RBI to control the credit through the CRR, bank rate
and open market operations. As banker's bank, the RBI facilitates the clearing of cheques
between the commercial banks and helps inter-bank transfer of funds. It can grant financial
accommodation to schedule banks. It acts as the lender of the last resort by providing
emergency advances to the banks. It supervises the functioning of the commercial banks
and take action against it if need arises.
Detection of Fake currency
In order to curb the fake currency menace, RBI has launched a website to raise awareness
among masses about fake notes in the market.www.paisaboltahai.rbi.org.in provides
information about identifying fake currency.
On January 22, 2014; RBI gave a press release stating that after March 31, 2014, it will
completely withdraw from circulation all banknotes issued prior to 2005. From April 1, 2014,
the public will be required to approach banks for exchanging these notes. Banks will provide
exchange facility for these notes until further communication. The Reserve Bank has also
clarified that the notes issued before 2005 will continue to be legal tender. This would mean
that banks are required to exchange the notes for their customers as well as for non-
customers. From July 1, 2014, however, to exchange more than 10 pieces of `500 and
`1000 notes, non-customers will have to furnish proof of identity and residence to the bank
branch in which she/he wants to exchange the notes. This move from the Reserve Bank is
expected to unearth black money held in cash. As the new currency notes have added
58

Developmental role
The central bank has to perform a wide range of promotional functions to support national objectives and industries.
The RBI faces a lot of inter-sector and local inflation-related problems. Some of this problems are results of the
dominant part of the public sector.
Related functions
The RBI is also a banker to the government and performs merchant banking function for the central and the state
governments. It also acts as their banker. The National Housing Bank (NHB) was established in 1988 to promote private
real estate acquisition. The institution maintains banking accounts of all scheduled banks, too. RBI on 7 August 2012
said that Indian banking system is resilient enough to face the stress caused by the drought like situation because of
poor monsoon this year.
Policy Rates and Reserve Ratios :-
Policy Rates, Reserve Ratios, Lending and Deposit Rates as of July 15, 2014
RATES PERCENTAGE
Bank Rate 9.00%
Repo Rate 8.00%
Reverse Repo Rate 7.00%
Cash Reserve Ratio (CRR) 4%
Statutory Liquidity Ratio (SLR) 22.00%
Base Rate 10.00%–10.25%
Savings Deposit Rate 4%
Term Deposit Rate 8.00%–9.5%
59

Bank Rate
RBI lends (no collateral required for long term lendings) to the commercial banks through its discount
window to help the banks meet depositor’s demands and reserve requirements for long term. The
Interest rate the RBI charges the banks for this purpose is called bank rate. If the RBI wants to increase
the liquidity and money supply in the market, it will decrease the bank rate and if RBI wants to reduce
the liquidity and money supply in the system, it will increase the bank rate. The Bank Rate has lost its
significance as a monetary policy tool as the central bank presently signals stance through changes in
repo, the rate at which banks borrow short-term funds from RBI. The Bank Rate, which is the standard
rate at which the RBI buys or re-discount bills of exchange or other commercial paper, is presently used
as
Reserve requirement cash reserve ratio (CRR)
Every commercial bank has to keep certain minimum cash reserves with RBI. Consequent upon
amendment to sub-Section 42(1), the Reserve Bank, having regard to the needs of securing the
monetary stability in the country, RBI can prescribe Cash Reserve Ratio (CRR) for scheduled banks
without any floor rate or ceiling rate, [Before the enactment of this amendment, in terms of Section
42(1) of the RBI Act, the Reserve Bank could prescribe CRR for scheduled banks between 5% and
20% of total of their demand and time liabilities]. RBI uses this tool to increase or decrease the reserve
requirement depending on whether it wants to effect a decrease or an increase in the money supply. An
increase in Cash Reserve Ratio (CRR) will make it mandatory on the part of the banks to hold a large
proportion of their deposits in the form of deposits with the RBI. This will reduce the size of their deposits
and they will lend less. This will in turn decrease the money supply. The current rate is 4.00%.. -25 basis
points cut in Cash Reserve Ratio(CRR) on 17 September 2012, It will release Rs 17,000 crore into the
system/Market. The RBI lowered the CRR by 25 basis points to 4.25% on 30 October 2012, a move it
said would inject about 175 billion rupees into the banking system in order to pre-empt potentially
tightening liquidity. The latest CRR is 4%
60

Statutory Liquidity ratio (SLR)
Apart from the CRR, banks are required to maintain liquid assets in the form of gold, cash and approved
securities. Higher liquidity ratio forces commercial banks to maintain a larger proportion of their
resources in liquid form and thus reduces their capacity to grant loans and advances, thus it is an anti-
inflationary impact. A higher liquidity ratio diverts the bank funds from loans and advances to investment
in government and approved securities . The latest SLR as on 8/8/14 is 22.00%. In well-developed
economies, central banks use open market operations—buying and selling of eligible securities by
central bank in the money market—to influence the volume of cash reserves with commercial banks and
thus influence the volume of loans and advances they can make to the commercial and industrial
sectors. In the open money market, government securities are traded at market related rates of interest.
The RBI is resorting more to open market operations in the more recent years. Generally RBI uses three
kinds of selective credit controls:
Minimum margins for lending against specific securities.
Ceiling on the amounts of credit for certain purposes.
Discriminatory rate of interest charged on certain types of advances.
Direct credit controls in India are of three types:
Part of the interest rate structure i.e. on small savings and provident funds, are administratively set.
Banks are mandatory required to keep 23% of their deposits in the form of government securities.
Banks are required to lend to the priority sectors to the extent of 40% of their advances.
Publications :-
A report titled "Trend and Progress of Banking In India" is published annually, as required by the
Banking Regulation Act of 1949. The report sums up trends and developments throughout the financial
sector. Starting in April 2014, the Reserve Bank of India is sending out bi-monthly policy updates.
61

RBI Governor RaghuramRajan(AN ARTICLE)
“If you can keep your head when all about you
Are losing theirs and blaming it on you;
If you can trust yourself when all men doubt you,
But make allowance for their doubting too:
If you can wait and not be tired by waiting,
Or being lied about, don't deal in lies,
Or being hated don't give way to hating,
And yet don't look too good, nor talk too wise”
From "If", a poem by Rudyard Kipling
The common goal [of the RBI and government] is growth
with low inflation. But our view of the time frame in which
we will achieve that and the necessities for that step can
be different from that of the government
62

Raghuram Govind Rajan cited excerpts from this famous poem by the acclaimed English writer on September 4, the day
he took over as the 23rd governor of the Reserve Bank of India (RBI). The poem, he said, lists the requirements of an
ideal central banker.
Rajan's reference to the poem in his maiden speech offers a glimpse into his mind - the mind of someone who is
determined to do the right thing and not be cowed by criticism.
Whatever doubts remained about Rajan's stoutly independent nature evaporated into the air when Business Today met
him at the RBI headquarters on South Mumbai's Shahid Bhagat Singh Marg after he announced the second quarter
monetary policy review. Sitting comfortably in the 18th floor visitors' room, filled with portraits of previous RBI governors
(his predecessor Duvvuri Subbarao's portrait has yet to be made), he wasted no time in asserting his autonomy. "Did
you get a brief?" we ask, hoping to provoke Rajan, who has been handpicked for the job by Finance Minister P.
Chidambaram, into saying something newsworthy. "Brief? From?" he shoots back with a stony face.
63

No doubt, Rajan, who used to be Chidambaram's chief economic advisor, has the government's
confidence. But relations between the RBI and the government have often been fraught with tension.
Benegal Rama Rau, the fourth RBI governor, resigned abruptly in January 1957 due to differences with
the then finance minister T.T. Krishnamachari. Even Subbarao shared an uneasy relationship with the
finance ministry. Last year, Chidambaram famously said he would "walk alone" to revive economic
growth if the RBI didn't offer any support.
And Subbarao took a dig at Chidambaram days before demitting office. "I do hope Finance Minister
Chidambaram will one day say, 'I am often frustrated by the Reserve Bank, so frustrated that I want to go
for a walk, even if I have to walk alone. But thank God, the Reserve Bank exists'," he said in August.
Expectations are high that Rajan will bridge the chasm between North Block, the seat of the finance
ministry in New Delhi, and Mint Road, which houses the RBI in Mumbai. Rajan dismisses these chasm
theories. He says the fact that Subbarao disagreed with his political masters shows the autonomy the
central bank enjoys. Does that mean the RBI never listens to the finance ministry? "Of course not. You
listen and accommodate [the government's views] where necessary. Where you think you are on a
different path, you try and distance yourself or you try and convince the other," he says.
Inflation Hawk?
In his first two months in office, Rajan has asserted his independence. Although the government would
have preferred a reduction in interest rates to boost the slowing economy, Rajan has instead raised the
main lending rate twice to tame inflationary expectations. The repo rate, at which the RBI lends money to
banks, now stands at 7.75 per cent from 7.25 per cent before he took over. Markets have branded him,
like Subbarao, an inflation hawk.
64

Subbarao increased the repo rate a record 13 times, from 4.75 per cent to 8.5 per cent, between March 2010 and
October 2011. Inflation still remains high - headline inflation based on wholesale prices has averaged 8.6 per cent in the
past three years (see Stubborn Inflation). And growth has slumped. The Indian economy expanded five per cent in
2012/13, the slowest pace in a decade. Rate hikes are, of course, not the only reason for slowing growth. Supply-side
bottlenecks and the government's failure to take reform measures are responsible as well.
So, is Rajan really the inflation hawk he is made out to be? On leave from his tenure as professor of finance at the
University of Chicago, Rajan believes low inflation is a prerequisite for long-term sustainable growth. The battle against
inflation is not the RBI's alone, he emphasises. "This fight is for everybody. Not just us, not just the government, but also
the private sector," says Rajan. "The common goal [of the RBI and the government] is growth with low inflation. But our
view of the time frame in which we will achieve that and the necessities for that step can be different from that of the
government."
65

Industry has criticised the rate hikes. "This [high inflation] is a supply-side issue and raising interest rates would hurt
growth," says Chandrajit Banerjee, Director General at the Confederation of Indian Industry. But Rajan has plenty of
supporters as well. "We had earlier attacked inflation more and kept liquidity tight. Rajan thinks both inflation and growth
can be tackled simultaneously," says Vishwavir Ahuja, Managing Director and CEO at Ratnakar Bank. "That is a positive
shift."
Chakravarthi Rangarajan, who also focused on price stability during his tenure as RBI governor in the 1990s, says there
is always a dilemma between growth and inflation. "People were critical of me, but I broke inflation's back. I took the
position that we have to increase interest rates," recalls Rangarajan, who now heads the Prime Minister's Economic
Advisory Council.
Baptism by fire
Rajan, who at 50 is the second-youngest governor in the RBI's history (Prime Minister Manmohan Singh was the youngest), took over at a time when
authorities were struggling to stabilise financial markets. The rupee was plunging to daily record lows against the dollar. Some even talked of the
foreign exchange reserves crisis like the one India faced in 1991. Rajan's appointment itself had a soothing effect on the markets. Investors cheered
the entry into the RBI of the former International Monetary Fund chief economist who famously predicted the 2008 economic meltdown three years
earlier before it struck the world. "At the global level a lot of people have faith in him because he has interacted with them at the IMF," says Kaku
Nakhate, India country head at Bank of America. "Big investors really talk to him."
Rajan took a number of steps to control the rupee's slide. At a time when foreign fund inflow had slowed down and the government was contemplating
a sovereign bond issue, Rajan opened a swap window for deposits from non-resident Indians. The swap window has attracted $12 billion in just two
months. He also allowed banks to borrow more overseas. These measures, along with easing worries of a US strike on Syria and the continuation of
the US Federal Reserve's steps to revive its economy, have helped stabilise the rupee. The local currency is now trading around 61 to a dollar
compared with the record low of 68.86 it touched on August 28.
66

Rajan is also normalizing monetary policy operations by making the repo rate the most important tool to signal interest
rates, moving away from levers such as the more expensive marginal standing facility (MSF). Before he took over at the
RBI, the difference between the repo rate and the MSF, the rate at which banks borrow from the RBI as the last resort,
had widened to 300 basis points. This had prompted large banks such as State Bank of India and ICICI Bank to increase
their base lending rates, even though the repo rate was not increased. Rajan slashed the MSF rate in three phases and
raised the repo rate, bringing the gap now to the normal level of 100 basis points. What industry needs in the short term,
says YES Bank founder and CEO Rana Kapoor, is "confidence, conviction and communication" from the central bank.
Glenn Maguire, Chief Economist for Asia Pacific at ANZ Economic Research, says Rajan has brought two powerful
characteristics to the RBI - accessibility and transparency. "The simpler monetary policy approach aligned with these
characteristics has been a key factor behind less market volatility, thus contributing to rupee stabilization," says Maguire.
No Face book 'likes'
A big task before Rajan is managing people's expectations. He knows some of his actions - like the recent rate hikes -
will be unpopular. But he is undeterred. "The governorship of the central bank is not meant to win one votes or Face
book 'likes'," he said in his maiden speech. North Block mandarins say Rajan, who they describe as amiable and not
very bureaucratic, has asked finance ministry officials to not speak publicly on his monetary policy, which is what
primarily ruined Subbarao's tenure. So far, nobody from the government has commented on Rajan's two monetary policy
reviews.
We need to draw a balance between innovation and regulation. Rajan is trying to ensure a proper
mix: C. Rangarajan, Chairman, Prime Minister's Economic Advisory Council
67

Rajan has many other issues on his agenda, and he is fixing strict timelines to achieve the goals. He plans, for
instance, to sell inflation-indexed bonds to retail investors by December. He has talked about inclusive growth and
development as one of the mandates of the RBI. "We need to draw a balance between innovation and regulation. Rajan
is trying to ensure a proper mix," says Rangarajan.
Banking sector reform is high on Rajan's priorities. He wants to issue new banking licences by January, though
he had previously opposed the entry of large corporate houses into the banking sector. He is also looking to treat foreign
banks on a par with Indian banks in terms of branch expansion. Ahuja of Ratnakar Bank says long before Rajan took
over as RBI governor he had outlined the future architecture of banking in India. "Rajan has indicated the kind of banks
that we must have - a few large Indian multinational banks, a few large Indian domestic banks and another set of banks
that are closer to customers which can serve the underprivileged sections," says Ahuja.
The new job is replete with challenges. Rajan has to tread carefully on the issue of separating the RBI's
monetary policy operations from its government debt management function. In October he faced opposition to his idea of
allowing foreign banks to acquire local lenders. The topic is sensitive, as India hasn't seen many mergers even among
local banks. Rajan says easing takeover rules is "a possibility", but the RBI will first examine how foreign banks perform
over time and whether further privileges are warranted.
Rajan's growth report on Indian states, before he became the RBI chief, is also under criticism from regional
parties. The report has put Maharashtra among the seven most developed states and Gujarat, home of the Bharatiya
Janata Party's (BJP) prime ministerial candidate Narendra Modi, among the 11 less developed ones. Critics say being
away from India for long could prove to be a big handicap for Rajan as he lacks adequate understanding of the political
system. Rajan is quickly learning the ropes. He is brushing up his Hindi as well. Rajan's older sister, Jayashri Sridharan,
who lives in Delhi, recollects how their parents had engaged a tutor to teach Hindi to their four children. "We used to run
away at the sight of the tutor," she recalls with a smile.
68

In August, after Rajan was named the central bank's chief,
senior BJP leader Murli Manohar Joshi questioned how a
foreigner could be appointed as the RBI governor. Rajan, who
holds a US green card, has dismissed such queries. "The
green card does not require you to take a pledge of allegiance
anywhere... It simply is a work permit which you need to have
to work in another country," he asserted on October 29 after
announcing the second-quarter monetary policy review. Will
he be able to navigate the political landscape while keeping
the RBI's autonomy intact? This will be keenly watched in his
three-year tenure. Rajan would surely love to end his innings
at the RBI with another Kipling poem, "The Secret of The
Machines":
"But remember, please,
the Law by which we live,
We are not built to comprehend a lie,
We can neither love nor pity nor forgive,
If you make a slip in handling us you die!
At the global level a lot of people have faith in
him [Rajan] because he has interacted with
them at the IMF: Kaku Nakhate, India country
head, Bank of America
69

This is a partial list of corporations engaged in banking business within the territory of India.
There are currently nationalized banks in India.
Banks are classified under the heads :-
Nationalized banks / Public-sector banks
 SBI and associate banks
 Regional rural banks
 Private-sector banks
 Foreign banks operating in India
 Foreign banks with business in India
 Foreign banks with representative offices in India
Indian banks with business outside India
70

Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of
Maharashtra
Bhartiya Mahila
Bank
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
IDBI Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of
Commerce
Punjab National Bank
Punjab & Sind Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank
SBI AND ASSOCIATES
71

SBI and associate banks
State Bank of India
State Bank of Bikaner & Jaipur
State Bank of Hyderabad
State Bank of Mysore
State Bank of Patiala
State Bank of Travancore
State Bank of Saurashtra (merged into SBI in 2008)
State Bank of Indore (merged into SBI in 2010)
72

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