Banking

History

started in 1770, w/ establishment of Bank of Hindustan
later, 3 presidency banks set up
1. Bank of Calcutta in 1806
2. Bank of Bombay in 1840
3. Bank of Madras in 1845
1921: all these banks amalgamated to form Imperial Bak of India
- functioned till 1955 then became the SBI 🥴
Royal Commission on Indian Currency 1922: recommended operation of money mgmt in 1926
- $⟹$ Reserve Bak of India Act 1934 introduced
Nationalization of banks took place from 1969.
- 14 pvt banks nationalized in 1969
- 6 more nationalized in 1980
Post 1990, many nationalized banks amalgamated gradually

started ops on 1 Apr 1935
started as shareholder’s company, but nationalized in 1949 under RBI (Transfer of Public Ownership) Act, 1948
first governor Sir Osborne Smith (1935-37)
first indian governor CD Deshmukh (1943-49)
Manmohan Singh only PM who also was RBI governor
emblem $\to$ Tiger (earlier lion) and Palm Tree

create banks with larger scale to compete with global banks effectively
greater scale and synergy through consolidation
- $⟹$ cost benefits
provide impetus to amalgamated banks by increasing their ability to support larger lending & greater financial capacity
access to wider talent pool, larger database $⟹$ competitive advantage
adoption of best practices across amalgamated entities

to provide sufficient banking & credit facility for agri & other rural sectors
set up on recommendations of M Narasimham Working Group
mobilize deposits, primarily from rural/semi urban areas & provide loans to small, marginal farmers, agri labourers, rural artisans and other segments of priority sector
sources of funds $\to$ NABARD, deposits, owned funds, sponsor banks, SIDBI, National Housing Bank
supervised by NABARD
eg.
- Paschim Banga Gramin Bank
- Andhra Pragathi Grameena Bank

incorporated and registered under the States Co-Operative Societies Act. Also through following CG acts
- Banking Regulation Act 1949
- Banking Laws (Co-operative Societies) Act 1955
involved in all kinds of activities
- production
- marketing
- distributing
- possessing
- servicing
- banking
one member one vote
no profit no loss
customers are owners of co-op banks
main focus on agri & rural sector lending
2020: GoI approved to bring coop banks under RBI

engaged in business of loans and advances, acquisition and selling of shares, bonds, debentures, leasing, insurance, chit fund etc
2016: GoI allowed 100% FDI in “other financial services carried out by NBFC”
NBFC’s financial assets should constitute $>$ 50% of gross income
not all NBFC regulated by RBI

Banks	NBFC
can accept demand deposits	can’t accept demand deposits
part of payment system	not part of payment system
can issue cheque drawn on itself	can’t issue cheques drawn on itself
deposit insurance facility available	no deposit insurance facility
required to maintain reserve ratios	not required to maintain ratios
regulated under Banking Regulation Act 1949	regulated under Companies Act 1956
FDI upto 74% for pvt banks	100% FDI allowed

set of markets & institutions that operate partially or fully outside traditional commercial banking
either lightly or not regulated
not illegal, but not strictly monitored
no direct access to central bank liquidity
highly risky and illiquid assets

based on recommendations of Nachiket Mor Committee 2013
cater or serve specific segment of customers unlike other normal universal banks
differentiation may be based on capital requirement, scope of activities or areas of operation
offer limited range of services/products as compared to universal banks