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BANKING SYSTEM IN INDIA
The Banking System in India consists of : Reserve Bank Development Banks Public Sector Bank. Foreign Banks Private Sector Banks Cooperative Banks Regional Rural Banks

The Reserve Bank of India The Reserve Bank of India is the Central Bank of the Country and came into being by the Reserve Bank of India Act 1934 . It was nationalized in 1948. It is: The bank that issues and regulates the issue of currency in India The banker to the Government of India and the State governments. It manages the public debt. It has the obligation to transact the banking business of the Central Government. It undertakes to accept money on behalf of the Government and make payment on its behalf. The bankers bank. Commercial banks maintain their current account with the Reserve Bank of India. The bank that manages the volume of credit created by the commercial banks to ensure price stability. The bank that manages the external value of the currency (Indian rupee) The lender of Last Resort. It will lend to banks in trouble.

Development Banks These were set up to give long term finance for the development of the country. These are the Industrial Finance Corporation of India and the Industrial Development Bank of India, The Industrial Reconstruction Bank of India and the National Bank for Agriculture and Rural Development. A former development bank, the Industrial Credit and Investment Corporation of India Ltd. by a reverse merger in 2002, became a normal commercial bank. It is expected that the other development banks, having outlived their utility would also be either converted to commercial banks or merged with commercial banks. Public Sector Banks These are banks which the Government either owns or has a majority stake in.

The largest is the State Bank of India which was formed by the merger of the Presidency Banks the Bank of Bengal, the Bank of Bombay and the Bank of Madras in 1921. It was then known as the Imperial Bank. It was nationalized in 1955 by the passing of the State Bank of India Act, 1955. It has seven subsidiaries or associates. The other nationalized banks came into being on July 19, 1969 when Mrs. Gandhis Government nationalized fourteen banks that had deposits of Rs. 50 crores or more.

On April 15, 1980, six more banks having demand and time liabilities of not less than Rs.200 crores were nationalized. This was done to take banking to the villages and serve the developmental needs of all sectors of the economy. Foreign Banks These are branches of banks incorporated outside India. The larger ones that have been operating in India for many years are Standard Chartered Bank, Citibank, American Express Bank, ABN Amro, BNP Paribas and Hong Kong and Shanghai Banking Corporation. In 1995/ 96 many other foreign banks (optimistic in view of Indias liberalization) opened branches in India. However, after banking began to become increasingly competitive and margins began to be squeezed coupled with large non performing assets, many banks closed their branches. These include Dresdner Bank, Comerz Bank, KBC Bank and Comercial Bank of Siam. Private Sector Banks These are banks which are not government owned or controlled. Their shares are freely traded in the Stock Markets. These may be divided into: Old Private Sector Banks such Federal Bank, Dhanalakshmi Bank, Catholic Syrian Bank New Generation Banks such as HDFC Bank, IDBI Bank, UTI Bank and ICICI Bank. These were permitted to open provided they had a capital of Rs. 100 crores. Cooperative Banks Cooperative Banks are those that are created by a group of individuals to support either a community or a religious group. They operate in metropolitan, urban and semi urban centers to cater to the need s of small borrowers. These are controlled by the RBI and by State Cooperative Acts. In recent years these have been under a cloud on account as several (particularly in Gujarat and Andhra Pradesh) collapsed under controversy. They were used as vehicles by individuals to finance activities which did not succeed. Regional Rural Banks These came into being on October 2, 1975 when 5 regional rural banks were established under what became the Regional Rural Banks Act 1975. These were to bridge the gap in rural credit granting loans and advances to small and marginal farmers, artisans, small entrepreneurs and persons of small means engaged in trade, commerce, industry or other productive activities within their area of operation. Local Area Banks Local Area Banks came into existence in 1999 and licences were given for these banks as it was felt that regular commercial banks were not financial the rural/
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agricultural sector adequately. Licences were given to open branches in three districts. Branches in urban/ semi urban areas were granted only after ten branches were established in rural areas/ villages. Four licences were in total granted two in Andhra, one in Punjab and one in Gujarat. They were opened with an initial capital of Rs. 5 crores. A Report issued in 2002 has recommended that the capital should be increased to Rs. 25 crores and that these be permitted to operate in six districts.

BALANCE SHEET OF A BANK LIABILITIES Capital Reserves and Surplus Deposits Borrowings Other Liabilities and Provisions ASSETS Cash and balances with the Reserve Bank of India Balances with Banks at Money at call and short notice Investments Advances Fixed assets Other assets CONTINGENT LIABILITIES Letters of Credit Guarantees Foreign Exchange Contracts Underwriting Commitment PROFIT AND LOSS ACCOUNT I. Income Interest Income Other Income Expenditure Interest expense Operating expenses Provision and contingencies Profit (Loss) Net Profit (Loss) for the year Profit (Loss) brought forward Appropriations Transfer to statutory reserves Transfer to other reserves Proposed dividend Balance carried forward to the balance sheet.

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The remarkable factor of the financials of a bank is that banks seek liabilities in order to be profitable. If they do not have liabilities, they will not have funds to lend.