A commercial bank is a type of financial intermediary as it mediates between the savers and borrowers.
(i) Reserve bank of India was established in 1935 and got nationalized in 1949.
(ii) In 1969 and again in 1980 Government nationalized private commercial banks.
(iii) The purpose was to shift from class banking to mass banking.
CLASSIFICATION OF BANKS
(i) Public Sector Banks: which are owned by government.
(ii) Private Sector Banks: which are privately owned.
(iii) Cooperative Banks: which are managed by different members and organisations cooperating together.
DIFFERENT TYPES OF BANKS (BASED ON FUNCTION)
Securities and Exchange Board of India (SEBI)
(i) SEBI (Securities and Exchange Board of India) was initially constituted on April 12, 1988 as a non-statutory body through a resolution of the Government for dealing with all matters relating to development and regulation of securities market and investor protection and to advise the Government on all these matters.
(ii) SEBI was given statutory status and powers through an ordinance promulgated on January 30, 1992.
(iii) The statutory powers and functions of SEBI were strengthened through the promulgation of the Securities Laws (Amendment) ordinance on January 25, 1995 which was subsequently replaced by an Act of Parliament.
Functions of SEBI
(i) To safeguard the interests of investors and to regulate capital market with suitable measures.
(ii) To regulate the business of stock exchanges and other securities market.
(iii) To regulate the working of Stockbrokers, Sub-brokers, Share Transfer Agents, Trustees, Merchant Bankers, Underwriters, Portfolio Managers etc. and also to make their registration.
(iv) To register and regulate collective investment plans of mutual funds.
(v) To encourage self-regulatory organisations.
(vi) To eliminate malpractices of security markets.
(vii) To train the persons associated with security markets and also to encourage investors education.
(viii) To check insider trading of securities.
(ix) To supervise the working of various organisations trading in security market and also to ensure systematic dealings.
(x) To promote research and investigations for ensuring the attainment of above objectives.
INDUSTRIAL DEVELOPMENT BANK OF INDIA (IDBI)
Industrial Development Bank of firaia (IDBI) established under Industrial Development Bank of India Act, 1964, was the principal financial institution for providing credit and other facilities for developing industries and assisting development institution.
(i) The IDBI which was established as Development Finance Institution under IDBI Act, 1964 has been converted as a banking company.
(ii) Parliament passed the Act so as to cancel out IDBI Act, 1964 and to open the way for the registration of this new banking company.
(iii) IDBI got the certificate of commencement of business on Sept. 28, 2004 and the IDBI was transformed into IDBI Ltd. on October 1, 2004, a company under the Companies Act, 1956 and a Scheduled Bank (on October 11, 2004) under the RBI Act, 1934.
SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA (SIDBI)
Small Industries Development Bank of India (SIDBI) was established as wholly owned subsidiary of IDBI under the Small Industries Development Bank of India Act, 1989 as the principal financial institution for promotion, financing and development of industries in the small scale sector.
(i) SIDBI also co-ordinates the activities of agencies which provide finances to small enterprises.
(ii) SIDBI started its operations from April 2, 1990.
(iii) Its headquarter is situated at Lucknow.
(iv) 5 Regional and 21 Branch Offices have also been started in different parts of the country.
(v) All duties related to small enterprises which were performed by IDBI, have been shifted to SIDBI.
(vi) SIDBI provides assistance to the small scale industrial sector in the country through other institutions like State Financial Corporations (SFC), Commercial Banks, State Industrial Development Corporations etc.
INDUSTRIAL FINANCE CORPORATION OF INDIA LTD. (IFCI)
(i) Industrial Finance Corporation of India Ltd. was established in 1948 under a Special Act on the re-commendations of Central Banking Enquiry Committee.
(ii) The basic aim of IFCI is to arrange medium and long-term credit for various industrial enterprises of the country.
(iii) Initially the authorised capital of the corporation was Rs. 10 crore which was divided in equities of Rs. 5000 each.
(iv) Later on, this authorised capital was increased upto Rs. 20 crore.
(v) Since July 1, 1993 this corporation has been converted into a company and it has been given the status of a Ltd. company with the name Industrial Finance Corporation of India Ltd.
EXPORT-IMPORT BANK OF INDIA (EXIM BANK)
(i) EXIM bank in India was established on January 1, 1982 for financing, facilitating and promoting foreign trade in India. Besides, EXIM Bank also discharges duties of coordinating the activities of various financial institutions, providing finances for export and imports of goods and services.
(ii) Besides India, this bank also manages finances to third world countries for export and import of goods and services.
NATIONAL HOUSING BANK (NHB)
(i) National Housing Bank was established in July 1988 as wholly owned subsidiary of RBI.
(ii) NHB is the apex banking institution providing finances for houses.
(iii) The statutory mandate of NHB covers promotional, developmental and regulatory aspects of housing finance with focus on developing a sound housing finance system.
(iv) NHB amended its Act called NHB (Amendment) Act, 2000 which came into force on June 12, 2000.
(v) NHB has made a number of efforts to promote the supply of real resources like land and building material.
Payment Banks: Objective is to ensure financial inclusion of migrant labours, low income households, unorganised sector workers etc.
(i) Can accept deposit up to 1 lakh
(ii) Can issue debit cards
(iii) Cannot issue credit cards
(iv) Cannot give loans
(v) Cannot accept fixed deposits and recurring deposits
(vi) Have to invest a minimum of 75 percent of its demand deposit in government securities/treasury bills.
Non-Performing Assets: When the borrower pays neither the interest nor the principle for a specified period of time.
NPA’s can occur due to many reasons like bad lending practices, slowdown in economy etc.
RESOLUTION OF NPA
Indra Dhanush 2015: To revive the NPA ridden Public Sector banks a 7 point programme was introduced. It includes
(ii) Bank board bureau
(vi) Governance reforms
(vii) Transparent appointments
INSOLVENCY AND BANKRUPTCY CODE 2016
IBC consolidated the laws relating to insolvency into a single legislation.
(i) Insolvency Resolution: Separate processes for individuals, companies and partnership firms.
(ii) Insolvency Regulator: Establishes the Insolvency and Bankruptcy board of India with 10 members.
(iii) Insolvency Professionals.
(iv) Bankruptcy and Insolvency Adjudicator.
(a) National company law tribunal for companies and Limited liability partnerships.
(b) Debt recovery tribunal for individuals and partnerships.
SOME IMPORTANT TERMS
(i) Bank Run: When a large number of customers want to withdraw their deposits as they are not confident about their banks capacity to pay back. This depletes the bank’s resources further.
(ii) Twin Balance Sheet Problem: When companies cannot repay their loans to the bank as their investment’s fail and it adds to the bank's NPA’s. Thus the balance sheets of both the company and the banks become stressed.
(iii) Seigniorage: It is the difference between the face value of a currency or a coin and its actual production cost. The difference is the surplus of the RBI and is transferred to the government as Dividend.
MILESTONE SCHEME FOR BANKING
Pradhan Mantri Jan Dhan Yojana
Pradhan Mantri Jan Dhan Yojana (PMJDY) is a financial inclusion program of the Government of India open to Indian citizens (minors of age 10 and older can also open an account with a guardian to manage it), that aims to expand affordable access to financial services such as bank accounts, remittances, credit, insurance and pensions. This financial inclusion campaign was launched by the Prime Minister of India Narendra Modi on 28 August 2014.