Structure of Indian Banking System and Function of Banks

Structure of Indian Banking System and Function of Banks

Banking Structure in India:

 
SCHEDULED BANKS
Bank whose name is included in the 2^nd schedule of RBI Act 1934
The bank includes in the 2^nd schedule of RBI Act who satisfy the condition laid down in Sec 42(6) of RBI Act
Sec 42(6) says banks whose paid up capital and reserves are not less than Rs 5 lacs
Any bank which is not include in the 2^nd schedule of RBI Act is call Un-Scheduled Bank
FUNCTIONS OF BANKS
There are two types of functions of the banks

• Traditional Function
• Modern Function

Traditional Function

• Accepting deposits
• Granting Loans
• Remittances
• Miscellaneous services.

Modern Function

• Off-shore Banking / Cross Border Banking
• NRE
• FCNR
• ECB (External commercial borrowing)
• Merchant Banking
• Mutual Fund
• Insurance
• Universal Banking
• Electronic banking
• Globalization of banking

Merchant Banking

• Merchant banking refers to dealing with securities on fee basis
• Dis-intermediary between depositor and borrowers
• Encourage the surplus money holder to invest directly into the shares of the companies instead of depositing the saving or FD accounts
• Open specialized subsidiaries banks and branches

Universal Banking

• it refer to provide a wide range of financial products or services by an institute or an organization under one roof or under one umbrella
• Example for foreign banks HSBC and CITI bank jointly doing universal banking in India and abroad
• In India the SBI is the example of universal banking because SBI is dealing all the financial products by opening its new non-banking subsidiaries
• ICICI is the example in the private banking sector in India  

Electronic banking

• Development in Information and communication technology (ICT)
• Make mandatory to operate all the transaction through computers by all commercial banks
• Electronic banking provides a group of new channels like Internet Banking, Telephone Banking, ATM banking
• Make possible “anywhere and anytime banking”
• Provide speed, accuracy and confidentiality of customerstransaction
• Bank/branch able to provide a centralized platform of this various products

Globalization of Banking

•  Prime component to lilt the banking system in India
• It is a result of the policy of liberalization and opening up of banking and other sector after 1991
• Under this policy RBI granted licenses liberally
• Due to this policy many multinational corporation setting their  offices, manufacturing and trading units in India
• Best effort by the government to increase foreign exchange in the country
• India got a chance to open their offices abroad