1_1-Structure of Banking Industry

8/10/2019 1_1-Structure of Banking Industry

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Structure of Banking

Industry


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Structure of Banks in India


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Central Bank

Central bank is responsible for regulating the banking

system of a nation.

It is essentially a banker to banks as well as banker to

the Government.

Central bank also is responsible for the monetary and

credit policies of the economy.

Central bank issues currency notes for the country andoversees the movement of currency value in relation to

other countrys currency value.


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Reserve Bank of India

The Reserve Bank of India Act, 1934 established

Reserve Bank as the Central bank of India.

Regulator and Supervisory authority of the monetarypolicy of India.

Supervises the financial system of the Indian economy.

Issues Indian currency note (Rupee)

Ensures stability and management of interest rate in the

economy and exchange rates in an international setting.

Regulates and supervises the payment and settlement

systems in the economy.


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Role of Reserve Bank of India

Developing financial institutions and markets.

Promoting banking activities.

Ensuring safety of depositors funds in the banking

system.

Provide the supply of currency and credit for the

economy.

Manage Government debt.

Encourage financial inclusion in the society.

Encourage developmental functions in the economy.


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Structure of Reserve Bank of India


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Commercial Banks

Banks that accept deposits and provide loans and

advances.

Three types of commercial banks.

Public sector banks.

Private sector banks.

Foreign banks.


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Structure of Public Sector Banks


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Primary Functions of Commercial Banks

Accepting deposits

Surplus income and savings are mobilized as

short-term and long-term deposits for specified

interest rates.

Providing loans and advances

Fund needs of the society (individuals and

business establishments) are met through the

loans and advances at specified interest rates.

Loans are long term fund assistance.

Advances are short term fund assistance such as

cash credit, overdraft, discounting of bills.


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Secondary Functions of Commercial Banks

Safe custody of valuables.

Providing foreign exchange.

Transfer of money.

Providing guarantee and letters of credit.

Providing business support services such as

providing business information, credit reports etc.


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Investment Banks

Corporate financial advisory and investment service

providers.

Assist financial markets and provide capitalintermediation services.

Provide consultancy, market research and broking

services to assist high net worth individuals and other

entities in their investment goals.

Develop ventures through project finance to supportfund needs and export finance to meet international

trade ventures.


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Functions of Investment Banks

Services for individuals

Maintain financial accounts

Provide loans, lease and mortgages

Pension management

Investment management

Private banking

E-banking


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Services for business firms and institutions

Corporate advisory services

Investment management of institutional investors

Asset management services

Industry analysis and research

Information provision

Merger and amalgamation activities

Valuation services

Functions of Investment Banks


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Development Banks and Specialized Banks

Specialized development financial institutions.

Providers of long-term funds to economic sectors

experiencing shortage of funds.

Substantiate and bridge market gaps in developingeconomies.


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Illustrative Development Banks

Industrial Development Bank of India (IDBI)

Industrial Finance Corporation of India (IFCI).

National Bank for Agriculture and Rural Development(NABARD)

Export Import Bank of India (EXIM Bank)

National Housing Bank (NHB)

Small Industries Development Bank of India (SIDBI)

Infrastructure Development Finance Company (IDFC)

Industrial Investment Bank of India (IIBI)

State Finance Corporations (SFCs)


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Co-operative Banks

Established for the purpose of providing funds for non-

agricultural purposes.

These banks were formed by local communities, local

geographical groups or work groups.

Based on the principles of cooperation that implies

mutual help, open membership and participative

decisions.


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Types of Co-operative Banks

State Co-operative Banks.

Apex body of co-operative banks in a state.

Central / District Co-operative Banks.

Established at the district level and report to the State

Co-operative Banks.

Primary Co-operative Banks.

Located in urban or semi-urban areas catering to the

business needs of the locality.

Located in rural areas to meet the funding needs of the

community / work group / area.


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Structure of Co-operative Banks


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Non Banking Finance Companies

Non Banking Financial Companies offer a wide range of

services such as hire purchase finance, lease finance

and investment services.

They provide financial intermediation and have

expanded their products profile.

The Reserve Bank of India working group on Financial

Companies introduced registration of such companies

with net owned funds (NOF) of Rupees 5 million or

above.


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Types of NBFCs

NBFCs accepting deposits

NBFCs not accepting deposits but rendering financial

intermediation services

NBFCs that are investment companies (90% or more of

their total assets are in the form of investment in

securities of their group / holding / subsidiary companies)


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Mutual Funds

Mutual funds are capital market intermediaries.

Mutual funds are established as trust entities.

Mobilize money in the form of units and invest them in

portfolios to meet risk-return expectations of investors.

Mutual fund returns are shared among unit holders.


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Structure of Mutual Fund


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Microfinance Business Models

Joint Liability Group.

The group who are co-guarantors for other

members of the group.

Linkage with Banks.

SHGs coordinate with bank in microfinance

activities.


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Risk Management

Measurement and management of banking risks in a

regulated environment

Credit risk

Liquidity risk

Market risk

Operational risk

System risk


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Risk Management Structure


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Risk Management in Banks

Technology driven

Model driven

Capital adequacy to absorb risk

Dynamic strategies

Integration of risk management process

Risk based bank audit and supervision

Supportive legal environment


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Board of Directors

Banking Business

Lending decision

Deposit mobilization

Asset mobilization

Credit management

Investment decision

Risk Management Practices

Loan policy

Interest rate policy

Planning asset management

Internal rating systems

Setting risk tolerance level

1_1-Structure of Banking Industry

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