Banking
A bank is a type of a financial intermediary which intermediates between a saver( depositor) and a borrower.
It's primary liabilities are deposits and primary assets are loans.
Banks are controlled by RBI( through RBI Act 1934) and governed by Banks Regulation Act ( BRA) 1949.
Whenever a depositor deposits a certain amount of money in a bank for a certain interest rate , the bank lends the money in the form of a loan to a borrower for a certain percentage of interest rate.
Classification of Banks
Public Sector Banks are further divided into:
1) SBI and associated Banks
2)Nationalized Banks
3) Other Public Sector Banks.
Scheduled Banks:
They come under the 2nd Scheduled of RBI Act
They can avail supports from RBI like Repo, Reverse Repo, MSF etc.
Unscheduled Banks:
They are not mentioned in 2nd Schedule of RBI Act.
They can't avail the options like Repo, Reverse Repo, MSF etc.
Commercial Banks:
They work for profit motive.
Co-operative Banks:
They work for the purpose of Social Empowerment and Financial Inclusion.
Public Sector Banks:
Government holds more than 50% of the total shares .
Private Sector Banks:
Private players own more than 50% of the bank's shares.
Foreign Sector Banks:
A foreign bank is a type of International Bank headquartered in a different country with branches in India.
History of Banking in India
Loans:
They can be classified based on their purpose:
Personal Loans- Personal purpose
Business Loans- Business Purpose
Fixed Interest Loans- Interest Rate remains constant throughout the term.
Security Loans- Loans with assets as Backup
Unsecured loans- Loans without assets as Backup.
Based on Term:
Long term loan- For a term of More than five years.
Mid term loans- for a term of 1- 5 years and agricultural loans for a term of 1.5-5 years.
Short term- For a term of less than 1 year ( less than 1.5 years for agricultural loans)
Classification of Bank's Branches
Guideline to Open Banks in India :
1)Minimum 5000 Crore capital
2)10 years of Experience in Running a finance oriented business ( NBFC)
3)Banks should open atleast 25% of its branches in unranked rural areas and should comply with Prority Sector Lending ( PSL) targets and sub targets.
Commercial Banks:
1)Registered under companies Act , 2013
2) Regulated under BRA 1949.
Cooperative Bank
1)Registered under cooperative societies Act of respective states
Eg.TN cooperative societies Act 1983.
2) Governed by Banking laws( Cooperative Societies Act 1955 and BRA 1949)
3) These Banks are dual and regulatory
4)Feb 2020 , the BRA was Amended to make RBI have direct control over the cooperative Banks.
Regional Rural Bank
These Banks were set up to make illiterate rural people participate in banking .
1) Set up in 1975 and later in 1976 , RRB ( Regional Rural Bank ) Act was enacted.
2) Registered under companies Act 2013.
3) Regulated by RBI and supervised by NABARD.
4) Shareholding
Central Government- 50%
State Government -15%
Sponsored Banks( SBI, IB,IOB) -35%
Eg: Pandian Bank- Central + State + IOB
Pallavan Bank- Central + State+ IB
Small Finance Banks
1) Established by RBI in the year 2016, to make basic banking processes like depositing and availing loans to all parts of Society , Social inclusion being the aim.
2) Registered under Companies Act 2013 and Regulated under BRA 1949.
Non-Banking Financial Companies( NBFC):
Eg: Star Health Insurance, Manapuram Gold Loan, Muthoot finance, Reliance
Life insurance.
1) Registered under companies Act 2013
2) Engages in Business Loans and Advances, Shares or Bonds, Insurance , chit funds etc.
3)They cannot accept Demand Deposit. They may accept Time deposit for a term of 1-3 years .
4) They cannot issue cheque or Dedit cards.
5)For Credit cards , a prior approval from RBI is required.
6) Won't come under DICGC( Deposit, Insurance, Credit Guarantee Corporation ) of RBI.
7) Regulator
Share- SEBI; Insurance- IRDA; Gold and Finance - RBI.
Payments Bank:
1) Registered under companies Act 2013 and Regulated by BRA 1949, for further financial inclusion.
2)Can accept Demand Deposit upto 1 lakh per individual.
3) Can give Debit cards.
4) Cannot involve in lending activities and cannot give Credit card.
Content Credits: A . Vishnu Varthan
