Finance is the life blood of trade, commerce and industry. Now-a-days, banking sector acts as the backbone of modern business. Development of any country mainly depends upon the banking system.
The term bank is either derived from old italian word banca or from a French word banque both mean a bench or money exchange table. in olden days, European money lenders or money changers used to display (show) coins of different countries in big heaps (quantity) on benches or tables for the purpose of lending or exchanging.
a bank is a financial institution which deals with deposits and advances and other related services. it receives money from those who want to save in the form of deposits and it lends money to those who need it.
Definition of a bank
Oxford dictionary defines a bank as "an establishment for custody of money, which it pays out on customer's order."
Characteristics / features of a bank
1. Dealing in money
Bank is a financial institution which deals with other people's money i.e. money given by depositors.
2. Individual / firm / company
a bank may be a person, firm or a company. a banking company means a company which is in the business of banking.
3. Acceptance of deposit
a bank accepts money from the people in the form of deposits which are usually repayable on demand or after the expiry of a fixed period. it gives safety to the deposits of its customers. It also acts as a custodian of funds of its customers.
4. Giving advances
A bank lends out money in the form of loans to those who require it for different purposes.
5. Payment and withdrawal
A bank provides easy payment and withdrawal facility to its customers in the form of cheques and drafts; it also brings bank money in circulation. This money is in the form of cheques, drafts, etc.
6. Agency and utility services
A bank provides various banking facilities to its customers. they include general utility services and agency services.
7. Profit and service orientation
A bank is a profit seeking institution having service oriented approach.
8. Ever increasing functions
Banking is an evolutionary concept. there is continuous expansion and diversification as regards the functions, services and activities of a bank.
9. Connecting link
A bank acts as a connecting link between borrowers and lenders of money. Banks collect money from those who have surplus money and give the same to those who are in need of money.
10. Banking business
A bank's main activity should be to do business of banking which should not be subsidiary to any other business.
11. Name identity
A bank should always add the word "bank" to its name to enable people to know that it is a bank and that it is dealing in money.
Banking
the purpose of banking is to provide a stable platform on which to perform financial transactions. banking stimulates the growth of business by generating confidence and predictability in a currency, and that growth in turn increases the demand for banking services. commercial banks provide payment services, such as checking and credit card accounts, for customers. they earn money by lending customer deposits in various ways, including installment loans, such as mortgages and lines of credit. investment banks enable business expansion by providing the liquidity that companies need to start or grow.
Organizational Structure and Role of Banks in India
Banking Regulation Act of India, 1949 defines Banking as “accepting, for the purpose of lending or of investment of deposits of money from the public, repayable on demand or otherwise or withdrawable by cheque, draft order or otherwise.” The Reserve Bank of India Act, 1934 and the Banking Regulation Act, 1949, govern the banking operations in India.
Organizational Structure of Banks in India:
In India banks are classified in various categories according to differ rent criteria. The following figure indicate the banking structure:
1.The Reserve Bank of India (RBI):The RBI is the supreme monetary and banking authority in the country and has the responsibility to control the banking system in the country. It keeps the reserves of all scheduled banks and hence is known as the “Reserve Bank”.
2.Public Sector Banks:
- State Bank of India and its Associates
- Nationalized Banks
- Regional Rural Banks Sponsored by Public Sector Banks
3. Private Sector Banks:
- Old Generation Private Banks
- Foreign New Generation Private Banks
- Banks in India
4. Co-operative Sector Banks:
- State Co-operative Banks
- Central Co-operative Banks
- Primary Agricultural Credit Societies
- Land Development Banks
- State Land Development Banks
5. Development Banks:Development Banks mostly provide long term finance for setting up industries. They also provide short-term finance (for export and import activities)
- Industrial Finance Co-operation of India (IFCI)
- Industrial Development of India (IDBI)
- Industrial Investment Bank of India (IIBI)
- Small Industries Development Bank of India (SIDBI)
- National Bank for Agriculture and Rural Development (NABARD)
- Export-Import Bank of India
Role of Banks:
Banks play a positive role in economic development of a country as repositories of community’s savings and as purveyors of credit. Indian Banking has aided the economic development during the last fifty years in an effective way. The banking sector has shown a remarkable responsiveness to the needs of planned economy. It has brought about a considerable progress in its efforts at deposit mobilization and has taken a number of measures in the recent past for accelerating the rate of growth of deposits. As recourse to this, the commercial banks opened branches in urban, semi-urban and rural areas and have introduced a number of attractive schemes to foster economic development.
The activities of commercial banking have growth in multi-directional ways as well as multi-dimensional manner. Banks have been playing a catalytic role in area development, backward area development, extended assistance to rural development all along helping agriculture, industry, international trade in a significant manner. In a way, commercial banks have emerged as key financial agencies for rapid economic development.
By pooling the savings together, banks can make available funds to specialized institutions which finance different sectors of the economy, needing capital for various purposes, risks and durations. By contributing to government securities, bonds and debentures of term-lending institutions in the fields of agriculture, industries and now housing, banks are also providing these institutions with an access to the common pool of savings mobilized by them, to that extent relieving them of the responsibility of directly approaching the saver. This intermediation role of banks is particularly important in the early stages of economic development and financial specification. A country like India, with different regions at different stages of development, presents an interesting spectrum of the evolving role of banks, in the matter of inter-mediation and beyond.
Mobilization of resources forms an integral part of the development process in India. In this process of mobilization, banks are at a great advantage, chiefly because of their network of branches in the country. And banks have to place considerable reliance on the mobilization of deposits from the public to finance development programmes. Further, deposit mobalization by banks in India acquired greater significance in their new role in economic development.
Commercial banks provide short-term and medium-term financial assistance. The short-term credit facilities are granted for working capital requirements. The medium-term loans are for the acquisition of land, construction of factory premises and purchase of machinery and equipment. These loans are generally granted for periods ranging from five to seven years. They also establish letters of credit on behalf of their clients favouring suppliers of raw materials/machinery (both Indian and foreign) which extend the banker’s assurance for payment and thus help their delivery. Certain transaction, particularly those in contracts of sale of Government Departments, may require guarantees being issued in lieu of security earnest money deposits for release of advance money, supply of raw materials for processing, full payment of bills on the assurance of the performance etc. Commercial banks issue such guarantees also.
Reserve Bank of India
From Wikipedia, the free encyclopedia
Reserve Bank of Indiaभारतीयरिज़र्वबैंक
Headquarters / ShahidBhagat Singh MargMumbai,Maharashtra
Coordinates / Coordinates:18.932679°N 72.836933°E
Established / 1April 1935; 81 years ago
Governor / RaghuramRajan
Currency / Indian Rupee(₹)
Reserves / US$363.00 billion[1][2]
Bank rate / 7.00%[3]
Interest on reserves / 4.00%(market determined)[4]
Website /
Public finance
Policies[show]
Fiscal policy[show]
Monetary policy[show]
Trade policy[show]
- Revenue
- Spending
Optimum[show]
Reform[show]
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The old RBI Building in Mumbai
TheReserve Bank of India(RBI, Hindi:भारतीयरिज़र्वबैंक) is India'scentral bankinginstitution, which controls themonetary policyof theIndian rupee. It commenced its operations on 1 April 1935 during the British Rule in accordance with the provisions of theReserve Bank of India Act, 1934.[5]The original share capital was divided into shares of 100 each fully paid, which were initially owned entirely by private shareholders.[6]Following India's independence on 15 August 1947, the RBI was nationalised on 1 January 1949.
The RBI plays an important part in the Development Strategy of theGovernment of India. It is a member bank of theAsian Clearing Union. The general superintendence and direction of the RBI is entrusted with the 21-member Central Board of Directors: theGovernor, 4 Deputy Governors, 2Finance Ministryrepresentatives, 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, and the interests of co-operative and indigenous banks.
The bank is also active in promoting financial inclusion policy and is a leading member of theAlliance for Financial Inclusion(AFI).
History[edit]
1935–1950[edit]
Reserve Bank of India-10 Rupees (1938), first year of banknote issue.
The Reserve Bank of India was founded on 1 April 1935 to respond to economic troubles after theFirst World War.[7]The Reserve Bank of India was conceptualized based on the guidelines presented by Dr. Ambedkar to the "Royal Commission on Indian Currency & Finance” in 1925; Commission members found DrB. R. Ambedkar’s book "The Problem of the Rupee- Its origin and Its Solution” an invaluable reference tool and the Central Legislative Assembly eventually passed these guidelines as the RBI Act 1934.[8]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.[9]The original choice for the seal of RBI was The East India CompanyDouble 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.[10]The Central Office of the RBI was established in Calcutta (now Kolkata), but was moved to Bombay (now Mumbai) in 1937. The RBI also acted as Burma's central bank, except during the years of theJapanese occupation of Burma(1942–45), until April 1947, even though Burma seceded from the Indian Union in 1937. After thePartition of Indiain 1947, the bank served as the central bank forPakistanuntil June 1948 when theState Bank of Pakistancommenced operations. Though set up as a shareholders’ bank, the RBI has been fully owned by theGovernment of Indiasince its nationalization in 1949.[11]
1950–1960[edit]
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[12]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 economic plan with loans.[13]
1960–1969[edit]
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[edit]
In 1969, theIndira Gandhi-headed government nationalized 14 major commercial banks. Upon Gandhi's return to power in 1980, a further six banks were nationalized.[9]The regulation of the economy and especially the financial sector was reinforced by the Government of India in the 1970s and 1980s.[14]The central bank became the central player and increased its policies for a lot of tasks like interests, reserve ratio and visible deposits.[15]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.[16]
The branch was forced to establish two new offices in the country for every newly established office in a town.[17]Theoil crisesin 1973 resulted in increasinginflation, and the RBI restricted monetary policy to reduce the effects.[18]klk
1985–1991[edit]
A lot of committees analysed the Indian economy between 1985 and 1991. Their results had an effect on the RBI. TheBoard for Industrial and Financial Reconstruction, theIndira Gandhi Institute of Development Researchand theSecurity & Exchange Board of Indiainvestigated 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).[19]TheDiscount and Finance House of Indiabegan its operations on the monetary market in April 1988; theNational 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 liberalisation.[20]
1991–2000[edit]
The national economy came down in July 1991 and the Indian rupee was devalued.[21]The currency lost 18% relative to theUS dollar, and theNarsimham Committeeadvised 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 calledneo-liberal.[22]The central bank deregulated bank interests and some sectors of the financial market like the trust and property markets.[23]This first phase was a success and the central government forced a diversity liberalisation to diversify owner structures in 1998.[24]
TheNational Stock Exchange of Indiatook 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—theBharatiya Reserve Bank Note Mudran Private Limited—on 3 February 1995 to produce banknotes.[25]
Since 2000[edit]
TheForeign Exchange Management Actfrom 1999 came into force in June 2000. It should improve the item in 2004–2005 (National Electronic Fund Transfer).[26]TheSecurity Printing & Minting Corporation of India Ltd., a merger of nine institutions, was founded in 2006 and produces banknotes and coins.[27]
The national economy's growth rate came down to 5.8% in the last quarter of 2008–2009[28]and the central bank promotes the economic development.[29]
Structure of RBI[edit]
RBI runs a monetary museum in Mumbai
The Central Board of Directors is the main committee of the Central Bank. TheGovernment of Indiaappoints the directors for a 4-year term. The Board consists of a Governor, and not more than 4 Deputy Governors, 4[30]Directors to represent the regional boards, 2 from the Ministry of Finance and 10 other directors from various fields. RBI wants to create a post of Chief Operating Officer (COO) and re-allocate work between the five of them(4 Deputy Governor and COO).[31][32]
The bank is headed by the Governor and the post is currently held by economistRaghuramRajan. There are 4 Deputy GovernorsH R Khan,DrUrjit Patel,R GandhiandS S Mundra. Two of the four Deputy Governors are traditionally from RBI ranks, and are selected from the Bank's Executive Directors. One is nominated from among the Chairpersons of public sector banks and the other is an economist. AnIndian Administrative Serviceofficer can also be appointed as Deputy Governor of RBI and later as the Governor of RBI as with the case ofY. Venugopal Reddy. Other persons forming part of the central board of directors of the RBI are Dr.NachiketMor,Y C Deveshwar,Prof DamodarAcharya, Ajay Tyagi and AnjulyDuggal.
Branches and support bodies[edit]
RBI Headquarters in Mumbai
The Reserve Bank of India has four zonal offices atChennai,Delhi,KolkataandMumbai.[33]It has 19 regional offices and 10 sub-offices. Regional offices are located inAhmedabad,Bangalore,Bhopal,Bhubaneswar,Chandigarh,Chennai,Delhi,Guwahati,Hyderabad,Jaipur,Jammu,Kanpur,Kochi,Kolkata,Lucknow,Mumbai,Nagpur,PatnaandThiruvananthapuram. It also has 9 sub-offices located inAgartala,Dehradun,Gangtok,Panaji,Raipur,Ranchi,Shillong,ShimlaandSrinagar. Recently the RBI has opened two more sub-offices atAizawalandImphal.[34]
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.[35]