Structure of Organized Indian Banking System
Indian Banking System:
The exact date of existence of indigenous bank is not know. But, it is certain that the old banking system has been functioning for centuries. Some people trace the presence of indigenous banks to the vedic times of 2000-1400 BC. It has admirably fulfilled the needs of the country in the past. However, with the coming of the British, its decline started. Despite the fast growth of modern commercial banks however, the indigenous banks continue to hold a prominent position in the Indian money market even in the present times. It includes shroffs, seths, maharajas, chettis, etc.,
The Organised banking system in India can be classified as given below:
RBI:
The country had no central bank prior to the establishment of the RBI. The RBI is the supreme monetary and banking authority in the country and controls the banking system in India. It is called the " Reserve Bank " as it keeps the reserves of all commercial banks.
Commercial Banks:
Commercial banks mobilise saving of general public and make them available to large and small industrial and trading units mainly for working capital requirements.
Commercial banks in India are largely Indian public sector and private sector, with a few foreign banks. The Public sector banks account for maximum share of the entire banking business in India occupying a dominant position in the commercial banking. The State Bank of India and its 7 associates banks along with another 20 banks are the public sector banks.
Scheduled and Non-Scheduled Banks:
The scheduled banks are those which are enshrined in the second schedule of the RBI Act, 1934. These banks have a paid-up capital and reserves of an aggregate value of not less than Rs. 5 lakhs. They have to satisfy the RBI that their affairs are carried out in the interest of their depositors. All commercial banks (Indian and Foreign), regional rural banks and state cooperative banks are scheduled banks. Non-scheduled banks are those which are not included in the second schedule of the RBI Act, 1934. At present there are only three such banks in the country.
Regional Rural Banks:
The Regional Rural Banks (RRBs), the newest form of banks, came into existence in the middle of 1970s (Sponsored by individual nationalised commercial banks) with the objective of developing rural economy by providing credit and deposit facilities for agriculture and other productive activities of all kinds in rural areas. The emphasis is on providing such facilities to small and marginal farmers, agricultural labourers, rural artisans and other small entrepreneurs in rural areas.
Other special features of these banks are:
- There area of operation is limited to a specified region, comprising one or more districts in any state.
- Their lending rates cannot be higher than the prevailing lending rates of cooperative credit societies in any particular state
- The paid up capital of each rural bank is Rs. 25 Lakh, 50% of which has been contributed by the central government, 15 % by state government and 35% by sponsoring public sector commercial banks which are also responsible for actual setting of the RRBs.
These banks are helped by higher-level agencies. The sponsoring banks lend them funds and advise and train their senior staff, the NABARD gives them short term and medium term loans. The RBI has kept CRR and SLR for their total net liabilities, where as for other commercial banks the required minimum ratios have been varied over time.
Cooperative Banks:
Cooperative Banks are so called because they are organised under the provisions of the Cooperative Credit Societies Law of the states. The major beneficiary of the Cooperative Banking is the agricultural sector in particular and the rural sector in general.
The cooperative credit institutions operating in the country are mainly of two kinds. Agricultural (dominant) and Non-Agricultural. There are two separate cooperative agencies for the provision of agricultural credit. One for short and medium-term credit and the other for long-term credit. The former has three-tier and federal structure. At the apex is the State Cooperative Bank (SCB) (cooperation being a state subject in India) at the intermediate (district) level are the Central Cooperative Banks(CCBs) and at the village level are Primary Agricultural Credit Societies (PACs). Long-term agricultural credit is provided by the Land Development Banks. The funds of the RBI meant for the agricultural sector actually pass through SCBs and CCBs. Originally based in rural sector, the cooperative credit movement has now spread to urban areas also and there are many urban cooperative banks coming under SCBs. Narsimham & Andhyarujina Committees of financial sector reforms.
This ordinance allows banks and financial institution to take possession of securities of defaulting companies and sell them to enable them to recover their debts from defaulters quickly. The ordinance also enable banks and financial institutions to even take over the management of companies that have defaulted continuously leading to accumulation of NPAs and bad loans. Under this ordinance banks and financial institutions are empowered to constitute ARCs (Asset Reconstruction Companies) which will focus on taking over bad debts of banks and financial institutions at a negotiated value.
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