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8/22/2019 Class 1 Banking
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CHAPTER- 01
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Origination of Banking in
India
Banking in India originated in the last
decades of the 18th century.
The first banks The General Bank of
India 1786, & Bank of Hindustan 1790;
Bank of Bengal, Bank of Madras &
Bank of Bombay merged--1921--Imperial Bank of India, ----State Bank
of India in 1955.
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Pre-Independence
HSBC ----Bengal in 1869
Punjab National Bank---Lahore 1895
The period between 1906 and 1911,
such as Bank of India, Corporation Bank,
Indian Bank, Bank of Baroda, Canara
Bank and Central Bank of India.
At least 94 banks in India failed---World War 1 period
http://en.wikipedia.org/wiki/HSBChttp://en.wikipedia.org/wiki/Bengalhttp://en.wikipedia.org/wiki/Punjab_National_Bankhttp://en.wikipedia.org/wiki/Lahorehttp://en.wikipedia.org/wiki/Bank_of_Indiahttp://en.wikipedia.org/wiki/Corporation_Bankhttp://en.wikipedia.org/wiki/Indian_Bankhttp://en.wikipedia.org/wiki/Bank_of_Barodahttp://en.wikipedia.org/wiki/Canara_Bankhttp://en.wikipedia.org/wiki/Canara_Bankhttp://en.wikipedia.org/wiki/Central_Bank_of_Indiahttp://en.wikipedia.org/wiki/Central_Bank_of_Indiahttp://en.wikipedia.org/wiki/Central_Bank_of_Indiahttp://en.wikipedia.org/wiki/Central_Bank_of_Indiahttp://en.wikipedia.org/wiki/Central_Bank_of_Indiahttp://en.wikipedia.org/wiki/Central_Bank_of_Indiahttp://en.wikipedia.org/wiki/Central_Bank_of_Indiahttp://en.wikipedia.org/wiki/Central_Bank_of_Indiahttp://en.wikipedia.org/wiki/Canara_Bankhttp://en.wikipedia.org/wiki/Canara_Bankhttp://en.wikipedia.org/wiki/Canara_Bankhttp://en.wikipedia.org/wiki/Bank_of_Barodahttp://en.wikipedia.org/wiki/Bank_of_Barodahttp://en.wikipedia.org/wiki/Bank_of_Barodahttp://en.wikipedia.org/wiki/Bank_of_Barodahttp://en.wikipedia.org/wiki/Bank_of_Barodahttp://en.wikipedia.org/wiki/Indian_Bankhttp://en.wikipedia.org/wiki/Indian_Bankhttp://en.wikipedia.org/wiki/Indian_Bankhttp://en.wikipedia.org/wiki/Corporation_Bankhttp://en.wikipedia.org/wiki/Corporation_Bankhttp://en.wikipedia.org/wiki/Corporation_Bankhttp://en.wikipedia.org/wiki/Bank_of_Indiahttp://en.wikipedia.org/wiki/Bank_of_Indiahttp://en.wikipedia.org/wiki/Bank_of_Indiahttp://en.wikipedia.org/wiki/Bank_of_Indiahttp://en.wikipedia.org/wiki/Bank_of_Indiahttp://en.wikipedia.org/wiki/Lahorehttp://en.wikipedia.org/wiki/Punjab_National_Bankhttp://en.wikipedia.org/wiki/Punjab_National_Bankhttp://en.wikipedia.org/wiki/Punjab_National_Bankhttp://en.wikipedia.org/wiki/Punjab_National_Bankhttp://en.wikipedia.org/wiki/Punjab_National_Bankhttp://en.wikipedia.org/wiki/Bengalhttp://en.wikipedia.org/wiki/HSBC8/22/2019 Class 1 Banking
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Post-Independence
The major steps to regulate banking included:
The Reserve Bank of India, established in April1934,
but was nationalized on January 1, 1949.
In 1949, empowerment of Reserve Bank of India(RBI) To regulate,
Control, and
Inspect the banks in India.
No new bank or branch of an existing bank couldbe opened without a license from the RBI, and notwo banks could have common directors.
http://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_India8/22/2019 Class 1 Banking
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RBI-- Function
Regulator and supervisor of financial system
Monetary Authority
Banker to the Government
Monopoly of Note Issue (other than Rupee One
notes and coins and subsidiary coins)
Manager of Foreign Exchange
Developmental role
Related Functions
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Nationalization
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Liberalization
In the early 1990s,
New Generat ion tech -savvy banks
Global Trust Bank, which later
amalgamated with Oriental Bank ofCommerce,
Axis Bank(earlier as UTI Bank), ICICI
Bank and HDFC Bank.
FDI cap raised from 10% to 74% with
some restrictions.
http://en.wikipedia.org/wiki/Axis_Bankhttp://en.wikipedia.org/wiki/Axis_Bankhttp://en.wikipedia.org/wiki/Axis_Bankhttp://en.wikipedia.org/wiki/Axis_Bankhttp://en.wikipedia.org/wiki/UTI_Bankhttp://en.wikipedia.org/wiki/ICICI_Bankhttp://en.wikipedia.org/wiki/ICICI_Bankhttp://en.wikipedia.org/wiki/HDFC_Bankhttp://en.wikipedia.org/wiki/HDFC_Bankhttp://en.wikipedia.org/wiki/HDFC_Bankhttp://en.wikipedia.org/wiki/HDFC_Bankhttp://en.wikipedia.org/wiki/ICICI_Bankhttp://en.wikipedia.org/wiki/ICICI_Bankhttp://en.wikipedia.org/wiki/ICICI_Bankhttp://en.wikipedia.org/wiki/UTI_Bankhttp://en.wikipedia.org/wiki/UTI_Bankhttp://en.wikipedia.org/wiki/UTI_Bankhttp://en.wikipedia.org/wiki/Axis_Bankhttp://en.wikipedia.org/wiki/Axis_Bankhttp://en.wikipedia.org/wiki/Axis_Bankhttp://en.wikipedia.org/wiki/Axis_Bankhttp://en.wikipedia.org/wiki/Axis_Bankhttp://en.wikipedia.org/wiki/Axis_Bankhttp://en.wikipedia.org/wiki/Axis_Bankhttp://en.wikipedia.org/wiki/Axis_Bankhttp://en.wikipedia.org/wiki/Axis_Bankhttp://en.wikipedia.org/wiki/Axis_Bankhttp://en.wikipedia.org/wiki/Axis_Bankhttp://en.wikipedia.org/wiki/Axis_Bankhttp://en.wikipedia.org/wiki/Axis_Bankhttp://en.wikipedia.org/wiki/Axis_Bankhttp://en.wikipedia.org/wiki/Axis_Bank8/22/2019 Class 1 Banking
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Narsimahmam Committee
The purpose of the Narasimham-I
Committee was
To study all aspects relating to the
structure, organization, functions andprocedures of the financial systems and
To recommend improvements in their
efficiency and productivity.
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Recommendations of NC1
1. Opening of More Pvt. sector banks
2. Motivation foreign banks to expand their network by
opening new branches.
3. Deregulation of RBI and Finance ministry of India.
Making RBI as a regulator of all Banks and let Bankstakes participation in equity market with govt. stake of
51%,
4. Regulation introduced by RBI include CAR, Asset
classification ,NPA ratio
5. Corporate Governance : promoting customer relationsand office culture
6. Asset Reconstruction for bringing down NPA in future
7. Risk Management
8. CDR or centralized data repositor
9. E-Banking and VRS
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CAR
Capital adequacy ratio (CAR), also
called Capital to Risk (Weighted)
Assets Ratio (CRAR)
Capital adequacy ratios are ameasure of the amount of a bank's
core capital expressed as a
percentage of its risk-weighted asset.
http://en.wikipedia.org/wiki/Tier_1_capitalhttp://en.wikipedia.org/wiki/Percentagehttp://en.wikipedia.org/wiki/Risk-weighted_assethttp://en.wikipedia.org/wiki/Risk-weighted_assethttp://en.wikipedia.org/wiki/Risk-weighted_assethttp://en.wikipedia.org/wiki/Risk-weighted_assethttp://en.wikipedia.org/wiki/Risk-weighted_assethttp://en.wikipedia.org/wiki/Risk-weighted_assethttp://en.wikipedia.org/wiki/Percentagehttp://en.wikipedia.org/wiki/Tier_1_capitalhttp://en.wikipedia.org/wiki/Tier_1_capitalhttp://en.wikipedia.org/wiki/Tier_1_capital8/22/2019 Class 1 Banking
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Narasimham-II Committee
Autonomy in Banking
Reform in the role of RBI
Stronger banking system
Non-performing assets
Capital adequacy and tightening of
provisioning norms
Entry of Foreign Banks
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Non Performing Asset
A loan that is not earning income and:
1. Full payment of principal and interest is no
longer anticipated,
2. Principal or interest is 90 days or more
delinquent, or
3. The maturity date has passed and payment
in full has not been made.
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REAL TIME GROSS SETTLEMENT (RTGS)
SYSTEM - IN compliance with Basle Core
Principles for Systemically Important
Payment Systems of BIS Indian Financial NetworkINFINETa `one-
of-a-kind initiative for sharing IT expensive
resources `ANYWHERE BANKING THROUGH CBS,
ANYTIME BANKING -National Financial
Switch for interconnecting ATMs
RBI CHANGINGSCENARIO
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RBI CHANGING
SCENARIO
IMPROVING CG- set up through fit
and proper criteria
INTEGRATED RISK MANAGEMENT
SYSTEMS
NATIONAL ELECTRONIC FUNDS
TRANSFER (NEFT) SYSTEM and
NATIONAL ELECTRONIC CLEARING
SERVICE (NECS).
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BANKING CONCEPTS
PLR or prime lending rate - rate of interest at whichbanks lend to their credit-worthy or favoured customers.
It is treated as a benchmark rate for most retail and term
loans.
influenced by RBIs policy rates the repo rate and cashreserve ratio
Deposit Rates - Interest rate paid on deposit accounts by
commercial banks and other FIs
Bank rate - rate of interest which RBI charges on loansand advances that it extends to commercial banks and
other financial intermediaries. Changes in the bank rate
are often used by RBI to control money supply
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Repo Rate - rate at which banks borrow from RBI. A reduction
in repo rate will help banks to get money at a cheaper rate.
Reverse Repo rate - rate at which RBI borrows money frombanks. An increase in Reverse repo rate can cause banks to
transfer more funds to RBI due to this attractive interest
rates. It can cause the money to be drawn out of the banking
system.
Due to this fine tuning of RBI using its tools of CRR, Bank
Rate, Repo Rate and Reverse Repo rate our banks adjust
their lending or investment rates for common man.
Difference between Bank Rate and Repo Rate
While repo rate - applicable to short-term loans and used for
controlling amount of money in market, bank rate - a long-
term measure and governed by long-term monetary policies
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STATUTORY LIQUIDITY RATIO
(SLR)
OBJECTIVE1) To restrict expansion of bank credit.
2) To augment investment of the banks in Government securities.
3) To ensure solvency of banks.
Commonly used to contain inflation and fuel growth, by
increasing or decreasing it respectively
MAINTAINED IN THE FORM OF :
a) Cash
b) Gold marked to market
c) Unencumbered approved securities or Gilts - valued at a price as specifiedby RBI
CURRENT SLR 24%
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CASH RESERVE RATIO (CRR)
OBJECTIVE
Banks required to hold a certain proportion of their deposits in the form ofcash, deposited with RBI/currency chests, considered as equivalent to
holding cash with themselves
This minimum ratio (that is the part of the total deposits to be held as cash)
is stipulated by RBI - CRR or Cash Reserve Ratio
Also known as - Cash Asset Ratio or Liquidity Ratio
PURPOSE
Higher the ratio (i.e. CRR), lower is amount that banks will be able to use
for lending and investment.
EXISTING CRR 4.75%