NAME- JEEVANSH AHUJA

CLASS-12 TH B
SUBJECT-ECONOMICS
TOPIC -BANKING
 BANKING
Banking 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 .
 BANKING STRUCTURE OF INDIA
A well-regulated banking system is a key comfort for local and
foreign stake-holders in any country. Prudent banking
Regulation is recognized as one of the reasons why India was
less affected by the global financial crisis.
• Banks can be broadly categorized as Commercial Banks.
• Banks which meet specific criteria are included in the second schedule of
the RBI Act, 1934. These are called scheduled banks. They may be
commercial banks or co- operative banks. Scheduled banks are
considered to be safer, and are entitled to special facilities like re-finance
from RBI. Inclusion in the schedule also comes with its responsibilities
of reporting to RBI and maintaining a percentage of its demand and time
liabilities as Cash Reserve Ratio (CRR) with RBI.
Types of Banks
Commercial Banks: These banks play the most
important role in modern economic organization.
Exchange Banks: Exchange banks finance mostly
the foreign trade of a country.
Industrial Banks
Agricultural or Co-operative Banks
Savings Banks
Central Banks
Utility of Banks
BANKS CLASSIFICATION
IN INDIA
COMMERCIAL
BANKS
COMMERCIAL BANK IS PRIMARY UNIT OF
THE INDIAN BANKING [Link] OTHER
BUSINESSES , COMMERCIAL BANKS ALSO
AIM TO EARN PROFITS AND FOR THIS , THEY
OFFER A VARIETY OF SERVICES TO THEIR
CUSTOMERS.
COMMERCIAL BANK IS AN INSTITUTION
WHICH PERFORMS THE FUNCTION OF
ACCEPTING DEPOSITS, GRANTING LOANS
AND MAKING INVESTMENTS , WITH THE AIM
OF EARNING PROFITS .
Broad Classification of Banks
in India
 The 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”.
 Public Sector Banks:
 State Bank of India and its Associates
 Nationalized Banks
 Regional Rural Banks Sponsored by Public Sector Banks
 Private Sector Banks:
 Foreign New Generation Private Banks
 Banks in India
List of commercial banks
Public sector bank
 State Bank of India  Central Bank of India
 Punjab & Sind Bank  Bank of Baroda
 Dena Bank  Union Bank of India
 Bank of Maharashtra  Oriental Bank of
 Allahabad Bank Commerce Corporation
Bank
 Punjab National Bank
 Bank of India
 Indian Bank
 United Bank of India
 Canara Bank
 IDBI Bank
 Andhra Bank
 UCO Bank
 Syndicate Bank
 Vijaya Bank
 Indian Overseas Bank
INDIAN PRIVATE BANKS
 Axis Bank  Lakshmi Vilas Bank
 IndusInd Bank  Dhanalakshmi Bank
 Bank of Rajasthan  Nainital Bank
 ING Vysya Bank  Federal Bank
 Bharat Overseas Bank  Ratnakar Bank
 Jammu & Kashmir Bank  Ganesh Bank of Kurundwad
 Catholic Syrian Bank  SBI Commercial and international
 Karnataka Bank Limited Bank
 Centurion Bank of Punjab
 HDFC Bank
 Karur Vysya Bank
 South Indian Bank
 City Union Bank
 ICICI Bank
 Kotak Mahindra Bank
 Tamilnadu Mercantile Bank Ltd
 YES Bank
CENTRAL
BANK
CENTAL BANK IS AN ‘APEX’ BODY THAT
CONTROLS , OPERATES ,REGULATES AND
DIRECTS THE ENTIRE BANKING AND
MONETARY STRUCTURE OF THE COUNTRY.
IT IS KNOWN AS THE APEX BODY AS IT OCCUPIES
THE TOP MOST POSITIONS IN MONETARY AND
BANKING SYSTEM OF [Link]
FINANCIALLY DEVELOPED COUNTRIES HAVE
THEIR OWN CENTRAL BANK . INDIA’S CENTRAL
BANK IS RESERVE BANK OF INDIA{RBI} .RBI
WAS ESTABLISHED IN APRIL 1,1935 UNDER
RESERVE BANK OF INDIA ACT PASSED IN 1934.
RESERVE BANK
OF INDIA
The Reserve Bank of India is India's central bank,
which controls the issue and supply of the Indian
rupee. RBI is the regulator of the entire Banking in
India. RBI plays an important part in the Development
Strategy of the Government of India.
 The Role of Reserve Bank of
India (RBI)
 Banker’s Bank
• The Reserve Bank of India (RBI) is the central bank of India, and was
established on April 1, 1935 in accordance with the provisions of the
Reserve Bank of India Act, 1934. Since its inception, it has been
headquartered in Mumbai. Though originally privately owned, RBI has
been fully owned by the Government of India since nationalization in
1949.
• RBI is governed by a central board (headed by a Governor) appointed by
the Central [Link] has 22 regional offices across India. The
Reserve Bank of India was set up on the recommendations of the Hilton
Young Commission
FUNCTIONS OF CENTRAL
BANK
 CURRENCY AUTHORITY OF BANK OF ISSUE
 BANKER TO GOVERNMENT
 BANKER’S BANK AND SUPERVISOR
 CONTROLLER OF MONEY SUPPLY AND CREDIT
CURRENCY AUTHORITY OF
BANK OF ISSUE
CENTRAL BANK HAS SOLE AUTHORITY FOR ISSUE OF
CURRENCY IN INDIA.
IN INDIA,RESERVE BANK OF INDIA[RBI] HAS SOLE
RIGHT TOOF ISSUING PAPER CURRENCY NOTES
[EXCEPT ONE RUPEE AND COIN,WHICH ARE ISSUED BY
MINISTRY OF FINANCE].
ALL THE CURRENCY ISSUED BY THE CENTRAL BANK IS
ITSMONETARY LIABILITY [Link] BANK IS
OBLIGED TO BACK THE CURRENCY WITH ASSETS OF
EQUAL VALUE
 BANKERS TO
GOVERNMENT
Performs merchant banking function for the central
and the state governments; also acts as their banker.
 BANKER’S BANK AND
SUPERVISOR
 The RBI holds a part of the cash reserves of banks,
 Lends them funds for short periods, and
 Provides them with centralized clearing and cheap and quick
remittance facilities
 It provides the following functions:
• Payment and settlements of inter-bank obligations
and fund transfer between banks.
• Deposit insurance service to the banks
• Cash reserve ratio (CRR)
• Acting as a lender of last resort
It provides financial assistance
to banks by discounting their bills and
through loans and advances against
approved securities. ... It supervises,
regulates and control the activities of
commercial banks. It provides the
commercial banks with centralized cleari
ng and remittance facility.
 AS BANKER TO BANKS , THE CENTRAL
BANK FUNCTIONS IN THREE CAPACITIES
(i) It is the custodian of their cash reserves. Banks of the
country are required to keep a certain percentage of their
deposits with the central bank; and in this way the
central bank is the ultimate holder of the cash reserves of
commercial banks.
(ii) Central bank is lender of last resort. Whenever banks are
short of funds, they can take loans from the central bank
and get their trade bills discounted. The central bank is a
source of great strength to the banking system.
(iii) It acts as a bank of central clearance, settlements and
transfers. Its moral persuasion is usually very effective
so far as commercial banks are concerned.
 CONTOLLER OF MONEY
SUPPLY AND CREDIT
The central bank controls the volume
of credit and money supply in the country’s economy
though its “MONETARY POLICY”.
The main objective is to maintain price and
economic stability in the country.
To control inflation it has to restrict
the supply of credit and to prevent depression and
deflation it has to expand credit
 MONETARY POLICY

 Monetary policy is the policy adopted by the 

monetary authority of a nation to control either the 
interest rate payable for very short-term borrowing
 (borrowing by banks from each other to meet their short-
term needs) or the money supply, often as an attempt to
reduce inflation or the interest rate, to ensure 
price stability and general trust of the value and stability
of the nation's currency.
 INSTRUMENTS OF
MONETARY POLICY AND RBI
 QUANTITATIVE METHOD
 REPO RATE POLICY
 BANK RATE POLICY  QUALITATIVE METHOD
 REVERSE REPO RATE POLICY  MARGIN REQUIREMENTS
 OPEN MARKET OPERATIONS  MORAL SUASION
 LEGAL RESERVE  SELECTIVE CREDIT
REQUIREMENTS CONTROLS
• REPO
{ REPURCHASE }
 RATE
Repo rate refers to the rate at which
commercial banks borrow money by
selling their securities to the Central bank
of our country i.e. Reserve Bank of India
(RBI) to maintain liquidity, in case of
shortage of funds or due to some statutory
measures. It is one of the main tools of
RBI to keep inflation under control.
CHANGE IN REPO RATE BY
RBI
INCREASE DECREASE
 INCREASES COST OF  DECREASES COST OF
BORROWINGS FOR BORROWINGS FOR
COMMERCIAL BANKS. COMMERCIAL BANKS.
 INCREASE IN LENDING
 DECREASE IN LENDING
RATE OF COMMERCIAL RATE OF COMMERCIAL
BANK.
BANK.
 ENCOURAGES BORROWERS
 DISCOURAGES TO TAKE LOAN.
BORROWERS TO TAKE
LOAN.
 INCREASES CREDIT
CREATING POWER.
 REDUCES CREDIT  INCREASES MONEY SUPPLY
CREATING POWER.
IN ECONOMY.
 REDUCES MONEY
SUPPLY IN ECONOMY.
• BANK RATE
{ OR DISCOUNT
RATE }
 Bank rate is the rate charged by the
central bank for lending funds to
commercial banks. ... Higher bank rate will
translate to higher lending rates by
the banks. In order to curb liquidity, the
central bank can resort to raising the bank
rate and vice versa.
• REVERSE REPO RATE { OR
REVERSE REPURCHASE RATE
} Reverse Repo Rate is when the RBI
borrows money from banks when there is
excess liquidity in the market. The banks
benefit out of it by receiving interest for
their holdings with the central bank.
During high levels of inflation in the
economy, the RBI increases the reverse
repo.
• OPEN MARKET
OPERATIONS { OMO }
 Open Market Operations is the
simultaneous sale and purchase of
government securities and treasury bills
by RBI. The objective of OMO is to
regulate the money supply in the
economy. RBI carries out the OMO
through commercial banks and does not
directly deal with the public.
OPEN MARKET OPERATIONS
SALE OF SECURITIES BY RBI PURCHASE OF SECURITIES
BY RBI

 REDUCES CASH  INCREASES CASH

RESERVES OF RESERVES OF
COMMERCIAL BANK. COMMERCIAL BANK.
 REDUCES CREDIT  INCREASES CREDIT
CREATING POWER. CREATING POWER.
 REDUCES MONEY  INCREASES MONEY
SUPPLY IN ECONOMY. SUPPLY IN ECONOMY.
• LEGAL RESERVE
REQUIREMENTS
[VARIABLE RESERVE RATIO
METHOD]
Legal reserve ratio refers to the minimum fraction of deposits which the banks are
mandate to keep as cash themselves. The legal reserve ratio is fixed by Central
bank. Legal Reserve Ratio has two components:
 Cash Reserve Ratio (CRR)-It refers to cash reserves of Commercial Banks with
the Central Bank as a percentage of their deposits.
 Statutory Liquidity Ratio (SLR) refers to reserves in the form of liquid assets
(including (i) cash, (ii) gold, and (iii) approved securities) with the Commercial
Banks themselves, as a percentage of their total deposits.
Both CRR and SLR are fixed by the Central Bank, and both are a legal binding for
the Commercial Banks. In this sense, both CRR and SLR are legal reserve ratios.
 • MARGIN
REQUIREMENTS
 Margin requirement refers to the difference between the current value
of the security offered for loan (called collateral) and the value of loan
granted. It is a qualitative method of credit control adopted by the
central bank in order to stabilize the economy from inflation or
deflation. In case of inflation, the margin requirement is increased so
that demand for loans are decreased and in case of deflation, margin
requirements are decreased so that demand for loans are increased. For
example- a person mortgages his house worth one crore rupees with the
bank for a loan of 80 lakh rupees . The margin requirement in this case
will be 20 lakh rupees. 
WHAT IS VIRTUAL BANK
 Providing the banking services through extensive use
of information technology without direct recourse to
the bank by the customer is called virtual banking. The
origin of virtual banking can be traced to the 1970,s
with the installation of ATM’s. The principal types of
virtual banking services include automated teller
machines (ATM’s), phone banking and most recently
internet banking. With the increasing use of internet
banking there is greater reliance now on information
technology and the decrease of physical bank branches
to deliver the banking services to the customer.
E-Banking
• Many banks have modernized their services with the facilities
of computer and electronic equipments.
• The electronics revolution has made it possible to provide ease
and flexibility in banking operations to the benefit of the
customer.
• The e-banking has made the customer say good-bye to huge
account registers and large paper bank accounts
 THE E- BANKS
Which may call as easy bank offers the following
services to its customers
• Credit Cards – Debit Cards
• ATM
• E-Cheques
• EFT (Electronic Funds Transfer)
• D-MAT Accounts • Mobile Banking
• Telephone Banking
• Internet Banking
• EDI (Electronic Data Interchange)
 Benefits
of E-banking To the
Customer
• Anywhere Banking no matter wherever the customer is in the world. Balance
enquiry, request for services, issuing instructions etc., from anywhere in
the world is possible.
• Anytime Banking – Managing funds in real time and most importantly, 24
hours a day, 7days a week.
• Convenience acts as a tremendous psychological benefit all the time.
• Brings down “Cost of Banking” to the customer over a period a period of
time.
• Cash withdrawal from any branch / ATM
• On-line purchase of goods and services including online payment for the
same.
INTERNATIONAL
BANKING
• International banking relates to financial intermediaries that bid
for time deposits and make loans in the offshore market
• It is an unregulated market involving greater risk
• It is a wholesale segment of lending and deposit activity
• International banking brings together borrowers and lenders
from same country or different countries
• They are substitutes for the domestic banking system.
 FUNCTIONS
1. Facilitate imports and exports of their clients – trade financing.
2. Arrange for foreign exchange – cross-border transactions and foreign
investments.
3. Assist in hedging exchange rate risk.
4. Trade foreign exchange products for their own account.
5. Borrow and lend in the Eurocurrency market.
6. Participate in international loan syndicate – lending to MNCs- project
financing and to sovereign governments – economic development.
7. Participate in underwriting of Eurobonds and foreign bonds issues.
8. Provide consultancy and advice on hedging strategies, interest rate and
currency swap financing and international cash management services