Banking and Financial Institutions-1
-
Upload
prathistha-rajput -
Category
Documents
-
view
234 -
download
0
Transcript of Banking and Financial Institutions-1
-
8/6/2019 Banking and Financial Institutions-1
1/40
PIBM
BANKING AND FINANCIAL
INSTITUTIONS20.01.2011
AJIT SINHA
-
8/6/2019 Banking and Financial Institutions-1
2/40
FINANCIAL SYSTEMS
Financial systems are of crucial significance
to capital formation-
The main function of financial systems is thecollection of savings and their distribution
for industrial investment thereby
stimulating the capital formation and
accelerating the process of economic
growth.
-
8/6/2019 Banking and Financial Institutions-1
3/40
FINANCIAL SYSTEMS
The process of capital formation involvesthree activities-
Savings the ability by which claims toresources are set aside and becomeavailable for other purposes
Finance- the activity by which claims toresources are either assembled fromthose released by domestic savings,obtained from abroad or created as bankdeposits or notes and then placed in thehands of the investors
-
8/6/2019 Banking and Financial Institutions-1
4/40
FINANCIAL SYSTEMS
Investments-The activity by which the resources are
actually committed to production.
The effective mobilization of savings, theefficiency of the financial
organization/system and the
channelization of these savings into the
most productive forms of investment have
a great bearing on the contribution of
capital formation to economic
development.
-
8/6/2019 Banking and Financial Institutions-1
5/40
-
8/6/2019 Banking and Financial Institutions-1
6/40
Financial Intermediaries
Banks
Mutual funds
Insurance organization
NBFCs-
Asset finance companies
Housing finance companies
Venture capital funds
Stock Broking Firms
-
8/6/2019 Banking and Financial Institutions-1
7/40
Financial Markets
Financial markets perform a crucial function inthe savings-investment process as facilitatingorganizations. They are not sources of finance
but they are a link between the savers andinvestors both individual as well asinstitutional.
Financial Markets-
Money markets
Capital /Securities markets
-
8/6/2019 Banking and Financial Institutions-1
8/40
Financial Assets/Instruments
Financial instruments represent claims on a
stream of income and assets of another
economic unit and are held as a store of value
and for the return that is expected.
Equity shares
Debentures
-
8/6/2019 Banking and Financial Institutions-1
9/40
-
8/6/2019 Banking and Financial Institutions-1
10/40
-
8/6/2019 Banking and Financial Institutions-1
11/40
INDIAN FINANCIAL SYSTEM- AN
OVERVIEWPhase 1-
The organization of the Indian FinancialSystem before 1951 had a close resemblancewith the theoretical model of a financialorganization in a traditional economy.
Industry had very limited access to outside
savings. Financial system was not responsive to
opportunities for industrial investment
-
8/6/2019 Banking and Financial Institutions-1
12/40
-
8/6/2019 Banking and Financial Institutions-1
13/40
INDIAN FINANCIAL SYSTEM- ANOVERVIEW
The main elements of the financial organizationin planned economic development could becategorized into four broad groups-
Public /Government ownership of financialinstitutions
Fortification of the institutional resources
Protection to investors Participation of financial institutions in
corporate management
-
8/6/2019 Banking and Financial Institutions-1
14/40
INDIAN FINANCIAL SYSTEM- AN
OVERVIEWPublic ownership of Financial Institutions-
Important segments of the financialmechanism were assigned to the direct
control ofPublic authorities through
nationalization measures as well through the
creation of entirely new institutions in the
public sector
-
8/6/2019 Banking and Financial Institutions-1
15/40
Nationalization
The nationalisation of the Reserve Bank of India
in 1948 marked the beginning of the transfer
of important financial intermediaries toGovernment control. This was followed in
1956 by the setting up of the State Bank of
India by taking over the then Imperial Bank ofIndia.
-
8/6/2019 Banking and Financial Institutions-1
16/40
Nationalization
In 1956 ,245 Life insurance companies were
nationalized and merged in to the state owned
Life Insurance Corporation of India (LIC).
In 1969 fourteen commercial banks were brought
under the direct ownership of the Government of
India, six more commercial banks were brought
under the public ownership. General insurance corporation (GIC) was set up in
1972
-
8/6/2019 Banking and Financial Institutions-1
17/40
New Institutions
In addition to nationalisation ,the control of
public authorities on the sources of credit and
finance led to the creation of a number of newinstitutions in the Public Sector.
Setting up of national/regional Development
banksCreation of an investment trust- the Unit Trust
of India
-
8/6/2019 Banking and Financial Institutions-1
18/40
Fortification of Institutional
StructureDevelopment Banks- The setting up of the
structure of development finance/Banking/term
lending institutions was the most outstandingdevelopment in this area.
In quantitative terms they grew into a massive
source of industrial finance and as the most
important supplier of capital during that period.
-
8/6/2019 Banking and Financial Institutions-1
19/40
Fortification of InstitutionalStructure
The role of Development banks had a qualitativedimension also which refers to their role asinstruments of state policy, of directing capital
into chosen areas of industry in conformitywith planning priorities.
The setting up of the Industrial Financecorporation of India (IFCI) in 1948 marked thebeginning of the era of Development bankingin India.
-
8/6/2019 Banking and Financial Institutions-1
20/40
Fortification of InstitutionalStructure
The Government of India set up the Refinance
corporation of India (RCI) Ltd in 1958 to
provide refinance to the banks against term
loans granted by them to medium/small
enterprises. The RCI subsequently merged
with the Industrial Development Bank of
India(IDBI) in 1964.
-
8/6/2019 Banking and Financial Institutions-1
21/40
Fortification of Institutional
Structure
Establishment of IDBI in 1964 is considered to be
the most important event in the sphere of
development banking in India. IDBI was
established as a subsidiary of the Reserve
Bank of India. It represented a step towards
evolving an integrated structure of financing
institutions in India.
-
8/6/2019 Banking and Financial Institutions-1
22/40
-
8/6/2019 Banking and Financial Institutions-1
23/40
-
8/6/2019 Banking and Financial Institutions-1
24/40
POST NINETIES
ORGANISATIONMajor economic policy changes implemented- Macro economic stabilization
Deli censing of Industries
Trade liberalization
Currency reforms
Reduction in subsidies
Financial sector/capital markets/Bankingreforms
-
8/6/2019 Banking and Financial Institutions-1
25/40
POST NINETIESORGANISATION
Privatization/disinvestments in public sectorunits
Tax reforms
Company law reforms
All of the above helped in capital market orienteddevelopments/reforms. The capital markettherefore emerged as the main agency for the
allocation of resources and all segments of theIndian economy like the Public sector, Privatesector, State Governments started competing toraise resources in the capital markets.
-
8/6/2019 Banking and Financial Institutions-1
26/40
POST NINETIESORGANISATION
The notable developments in the organization of
the organization of the Indian Financial system
in Phase III can be briefly summarized as-
Privatization of Financial Institutions
Reorganization of institutional resource
Investor protection
-
8/6/2019 Banking and Financial Institutions-1
27/40
Life Insurance Corporation of
IndiaLIC ,in 1956, was formed after amalgamation of245 life insurance companies into a single state
owned organisation.The setting of the LIC was a notable feature in
the evolution of the post 1951 organisation of
industrial financing in India.The LIC emerged as the single largest reservoir
of long term savings in India.
-
8/6/2019 Banking and Financial Institutions-1
28/40
RBI
Establishment
The Reserve Bank of India wasestablished on April 1, 1935 .
The Central Office of the Reserve Bankwas initially established in Calcutta butwas permanently moved to Mumbai in1937. The Central Office is where the
Governor sits and where policies areformulated.
Though originally privately owned, sincenationalization in 1949, the Reserve Bank
is fully owned by the Government of India.
-
8/6/2019 Banking and Financial Institutions-1
29/40
RBI
The Preamble of the Reserve Bank of Indiadescribes the basic functions of the
Reserve Bank as:"...to regulate the issue of Bank Notes andkeeping of reserves with a view tosecuring monetary stability in India and
generally to operate the currency andcredit system of the country to itsadvantage."
-
8/6/2019 Banking and Financial Institutions-1
30/40
STATE BANK OF INDIA
First Five Year Plan
In 1951, when the First Five YearPlan waslaunched, the development of rural India was given
the highest priority. The commercial banks of thecountry including the Imperial Bank of India had tillthen confined their operations to the urban sectorand were not equipped to respond to the emergent
needs of economic regeneration of the rural areas.In order, therefore, to serve the economy in generaland the rural sector in particular, the All India Rural
-
8/6/2019 Banking and Financial Institutions-1
31/40
STATE BANK OF INDIA
Credit Survey Committee recommendedthe creation of a state-partnered and state-sponsored bank by taking over the
Imperial Bank of India, and integrating withit, the former state-owned or state-associate banks. An act was accordinglypassed in Parliament in May 1955 and the
State Bank of India was constituted on 1July 1955.
-
8/6/2019 Banking and Financial Institutions-1
32/40
STATE BANK OF INDIA
More than a quarter of the resources of theIndian banking system thus passed underthe direct control of the State. Later, the
State Bank of India (Subsidiary Banks) Actwas passed in 1959, enabling the StateBank of India to take over eight formerState-associated banks as its subsidiaries
(later named Associates).
-
8/6/2019 Banking and Financial Institutions-1
33/40
STATE BANK OF INDIA
The State Bank of India was thus born with a newsense of social purpose aided by the 480 officescomprising branches, sub offices and threeLocal Head Offices inherited from the Imperial
Bank. The concept of banking as mererepositories of the community's savings andlenders to creditworthy parties was soon to giveway to the concept of purposeful banking subserving the growing and diversified financial
needs of planned economic development.
-
8/6/2019 Banking and Financial Institutions-1
34/40
STATE BANK OF INDIA
The State Bank of India was destined to act as
the pacesetter in this respect and lead the
Indian banking system into the exciting field of
national development.
-
8/6/2019 Banking and Financial Institutions-1
35/40
Nationalized Banks
The broad aim of Nationalization were-
To control the heights of the economy and
meet progressively and serve better the needsof development of the economy in conformity
with national policy and objectives.
14 major banks with individual deposits
exceeding Rs.50 crore were nationalized on 19
July 1969
-
8/6/2019 Banking and Financial Institutions-1
36/40
Nationalized Banks
Objective-
It was expected that the nationalized banks
would Endeavour to ensure that the needs
of productive efforts of diverse kinds,irrespective of size and social status of the
borrowers and in particular those of
farmers, small scale industries and selfemployed professional groups, are met in
increasing measure and to create fresh
opportunities for backward areas in the
different parts of the country.
-
8/6/2019 Banking and Financial Institutions-1
37/40
Privatization of Financial
InstitutionsWhile practically the entire financial system was
under the state ownership and control till the
mid eighties ,steps were initiated during the
phase III to privatize major financial
institutions.
Conversion of IFCI into a public company IFCI
Ltd
IDBI also offered its equity to private investors
-
8/6/2019 Banking and Financial Institutions-1
38/40
Foreign Banks
RBI allowed the entry of foreign banks as
branches subject to reciprocity and other
prudential considerations. Foreign
banks/companies have also been permitted to
invest up to 20 percent as a technical
collaborator (with overall 40 percent ceiling) in
a new private sector banks, subject togovernment approval, provided they do not
have presence in India.
-
8/6/2019 Banking and Financial Institutions-1
39/40
Foreign Banks
Foreign equity in new Indian private banks are
allowed in accordance with the foreign
investment policy.
Since 1992 , around 19 new foreign banks with
47 branches have been allowed.
It is mandatory for the foreign banks to achieve
the minimum target of 32 percent in priority
sector lending
-
8/6/2019 Banking and Financial Institutions-1
40/40
PIBM
THANK YOU
AJIT SINHA
M-8007999816