Bankforsterker Forsikring Etter at du har gjennomgått denne leksjonen, bør du kunne: Forstå konseptet for bankforvaltning Beskrive utviklingen av bankvirksomhet i India Forklar funksjonene til bankforskjeller blant banksektorer 1.1 Konsept for bankvirksomhet 1.2 Bankutvikling i India 1.3 Funksjoner i Bank 1.4 Bankingssektorer 1.6 Testspørsmål 1.7 Andre avlesninger Banksektoren er livsnerven til enhver moderne økonomi. Det er en av de viktigste søylene i finanssystemet, som spiller en viktig rolle i suksessfeltet i en økonomi. Bankene er en av de eldste finansmidlene i finanssystemet. De spiller en viktig rolle i mobilisering av innskudd og utbetaling av kreditt til ulike sektorer av økonomien. Banksektoren er dominerende i India, da den står for mer enn halvparten av eiendelene i finanssektoren. 1.1 Begrepet Banking Banker er institusjoner som godtar ulike typer innskudd og bruker disse midlene til å gi lån. Bankvirksomheten er det som en mellommann mellom økonomiets spare - og investeringsenheter. Den samler overskuddsmidler fra millioner av individuelle sparere som er vidt spredt og kanaliserer dem til investor. Ifølge banklovens § 5 (b), 1949, betyr banker å akseptere, med sikte på utlån eller investering, innskudd av penger fra offentligheten, tilbakebetales på forespørsel eller på annen måte, og tilbaketrekkbar med sjekk, utkast og bestilling eller på annen måte. Bankvirksomhet betyr ethvert selskap som driver forretningen med bank i India. Ingen selskap kan utøve bankvirksomheten i India, med mindre det som en del av navnet heter minst et av ordene bank, bank eller bank. De viktigste egenskapene til bankvirksomheten som definert i Bankreguleringslovens § 5 (b) er: Godkjennelse av innskudd fra offentligheten, Med sikte på utlån eller investering a) Uttrykke ved hjelp av et hvilket som helst instrument om en kontroll eller på annen måte . 1.2 Bankutvikling i India Bankens historie går tilbake til det trettende århundre da den første bytte ble brukt som penger i middelalderen. Det var ikke et slikt ord som bank før 1640, selv om praksis for oppbevaring og besparelser blomstret i Babylon-tempelet så tidlig som i 2000 B. C. Chanakya i sin Arthashastra skrevet i ca 300 B. C. nevnt om eksistensen av kraftige guilds av handelsbanker som mottok innskudd, avanserte lån og utstedte hunder (overføringsbrev). Jain-skriften nevner navnene på to bankfolk som bygget de berømte Dilwara-templene i Abu-fjellet i løpet av 1197 og 1247 A. D. Den første banken, kalt Venezia-banken, ble opprettet i Venezia, Itlay i 1157 for å finansiere monarken i hans kriger. Bankfolkene i Lombardia var berømte i England. Men den moderne banken begynte med den engelske gullsmeden først etter 1640. Den første banken i India var Bank of Hindustan, startet i 1770 av Alexander Amp Co, et engelsk byråhus i Calcutta, som mislyktes i 1782 med nedleggelsen av byrået. Men den første banken i moderne forstand ble etablert i det bengalske presidentskapet som Bengalbanken i 1806. Historien fra hverandre var det handelsbanken som først utviklet bankbanksystemet ved å handle i varer enn penger. Deres handelsaktiviteter krever pengeoverføringer fra ett sted til et annet. For dette har de utstedt hunder for å overføre midler. I India var slike handelsbanker kjent som Seths. Neste steg i veksten av bankvirksomhet var gullsmeden. Gullsmedens virksomhet var slik at han måtte ta spesielle forholdsregler mot tyveri av gull og smykker. Hvis han så ut til å være en ærlig person, begynte handelsmenn i nabolaget å forlate sin pølse, penger og ornamenter i hans omsorg. Etter hvert som denne øvelsen spredte, begynte gullsmeden å lade noe for å ta vare på penger og pølse. Som bevis for å motta verdisaker, utstedte han kvittering. Siden gull og sølvmynter ikke hadde noen merker av eieren, begynte gullsmeden å låne dem ut. Etter hvert som gullsmeden var forberedt på å gi kvitterens holder en like stor mengde penger på etterspørselen, ble gullsmittkvitteringene blitt som sjekker som et byttemiddel og et betalingsmiddel. Den neste fasen i veksten av bankvirksomhet er pengeoverføreren. Gullsmeden fant at i gjennomsnitt var uttak av mynter mye mindre enn innskuddene med ham. Så begynte han å fremme myntene på lån ved å belaste renter. Som en trygghet holdt han penger i reservatet. Gullsmed-pengelåner ble dermed banker som begynte å utføre de to funksjonene i moderne banker som å akseptere innskudd og fremskrittende lån. I India har våre historiske, kulturelle, sosiale og økonomiske forhold resultert i at det indiske pengemarkedet er preget av eksistensen av både uorganiserte og organisert sektor. (a) Uorganisert sektor: Den uorganiserte sektoren består av pengeoverførere og innbyggere som imøtekommer behovene til et stort antall mennesker, spesielt i landlige områder. De har møtt de økonomiske kravene til landsbygdens befolkning siden tidligere tider. Deres betydning kan måles fra det faktum at Jagat Seths, arvelige bankfolk fra Bengalens nawab, ble anerkjent, selv av Aurangzeb og Øst-India-selskapet som var tvunget til å låne fra dem, hylte dem også offentligheten. De innfødte bankmennene er forskjellige fra de riktige bankene på en rekke måter. For eksempel kombinerer de bankvirksomhet med handel, mens handel er strengt forbudt for banker i den organiserte sektoren. De tror ikke på formaliteter eller papirarbeid for innskudd eller uttak av penger. Faktisk, siden en betydelig prosentandel av deres klientell er analfabeter, tar de ofte et tommelfingerbilde av sine kunder på et blankt papir. Selv om de bruker et Hundi som et omsettelig instrument, vil det ikke bli angitt i ansiktet om transaksjonen støttes av verdifull vurdering eller det er bare som følge av gjensidig innkvartering. Rentesatsen belastet av dem svinger direkte med låntakers behov og kan noen ganger være så høye som 300 prosent. De er isolert fra alle typer penge - og kredittkontroller som de faller utenfor ditt RBI-forhold. Selv om de fortsatt er den viktigste kilden til midler til små låntakere, men nå har deres marked begynt å krympe på grunn av den raske utvidelsen av filialer av banker i uorganiserte sektorer. 1.3 Bankens funksjoner I henhold til § 6 i Bankreguleringsloven, 1949, er bankens hovedfunksjoner: aksept av innskudd og utlån av midler. I århundrer har banker lånt og lånt penger til næringsliv, handel og folk, lading av renter på lån og betaling av renter på innskudd. Disse to funksjonene er kjernevirksomheten til bankvirksomhet. Foruten disse to funksjonene utfører en kommersiell bank en rekke andre funksjoner som kan kategoriseres i to brede kategorier, nemlig (a) Byråer eller Representative funksjoner (b) Generelle bruksfunksjoner. (a) Agentur - eller representasjonsfunksjoner: Innsamling og betaling av ulike elementer: Banker utfører kundens stående instruksjoner for å foreta betalinger, inkludert abonnement, forsikringspremie, leie, strøm og telefonregninger mv. Gjør statlig virksomhet som betaling av pensjon, innsamling av direkte skatt (f. eks. inntektsskatt) og indirekte skatt som punktafgift. Referansebrev: Banker kjøper og selger utenlandsk valuta og dermed fremmer internasjonal handel. Denne funksjonen utlates normalt av Valutabanker. Kjøp og salg av verdipapirer: Underwrite og avtale på lager, fond, aksjer, obligasjoner, etc. Regjeringer Agent: Gjør som agenter for enhver myndighet eller lokal myndighet eller annen person eller personer, også videreført med byråer av enhver beskrivelse, inkludert clearing og videresending av varer, innlevering av kvitteringer og utslipp, og ellers opptrer som advokat på vegne av kundene, men unntatt virksomheten til en administrerende agent eller sekretær og kasserer i et selskap. Kjøp og salg av valuta: Banker kjøper og selger utenlandsk valuta og dermed fremmer internasjonal handel. Denne funksjonen utlates normalt av Valutabanker. Forvalter og eksekutor: Banker fungerer også som forvaltere og eksekutorer av eiendommene til sine kunder på deres råd. Overføring av penger: Banker oppgir også penger fra ett sted til det andre gjennom bankutkast eller post eller telegrafiske overføringer. (a) Generelle bruksfunksjoner: Locker anlegg: Banker tilbyr locker fasiliteter til sine kunder. Folk kan beholde gull - eller sølvsmykker eller andre viktige dokumenter i disse skapene. Deres årlige leie er veldig nominell. Bedriftsinformasjon og statistikk: Å være kjent med landets økonomiske situasjon, gir bankene råd til sine kunder om økonomiske forhold på grunnlag av forretningsinformasjon og statistiske data innsamlet av dem. Hjelp til transport av varer: Store forretningsmenn eller industriister etter å ha sendt varer til sine forhandlere sender jernbanekvitteringen til banken. Forhandlerne mottar denne kvitteringen fra banken ved betaling av verdien av sendingen til den. Etter å ha fått jernbanekvitteringen fra banken, mottar de forsendelsen fra jernbanevirksomheten. På denne måten hjelper bankene med å transportere varer fra produksjonssentrene til forbrukssentrene. Fungerer som dommer: Hvis kunden ønsker det, kan banken være dommer, dvs. hvem som kan henvises av tredjepart for å søke informasjon om kundens økonomiske stilling. Utstedelse av brev av kreditt: Bankers på en måte ved å utstede kredittkort sertifisere kredittverdigheten til kundene. Kredittbrev er svært populære i utenrikshandel. Fungerer som Underwriter: Bankene overtar også verdipapirene utstedt av regjeringen og bedriftsorganer for kommisjon. Navnet på en bank som underwriter oppfordrer investorer til å ha tro på sikkerheten. Utstedelse av reisendechecker og kredittkort: Bankene har gjort god service ved å utstede reisekontroller, som gjør at en person kan reise uten frykt for tyveri eller tap av penger. Nå har noen banker startet kredittkortsystem, der en kredittkortsinnehaver har lov til å benytte kreditt fra de listede utsalgene uten ekstra kostnader eller innsats. Derfor trenger en kredittkortholder ikke å bære eller håndtere penger hele tiden. Utstedelse av gavekontroller: Enkelte banker utsteder gavekontroller av ulike kirkesamfunn, for eksempel noen indiske banker utsteder gavekontroller av betegnelsen Rs. 101, 501, 1001 etc. Disse utstedes vanligvis gratis eller en meget nominell avgift belastes. Handel i utenlandsk valuta: Store grener av kommersielle banker handler også forretninger med utenlandsk valuta. Kommersielle banker er de viktigste autoriserte forhandlere av utenlandsk valuta i India. Merchant Banking Services: Kommersielle banker gjør også selgerbanetjenester til kundene. De hjelper i bruk av lån fra ikke-bank finansinstitusjoner. 1.4 Bankingssektorer Spekteret av behov og krav til enkeltpersoner, organisasjoner og sektorer i økonomien er svært omfattende og mangfoldig. Bankene har kommet opp med en rekke bankprodukter og tjenester for å dekke kundenes behov. Bankene omfatter bedriftsbank, internasjonal bank og landsbank. Bedriftsbanker: Samvirkebanker tjener vanligvis de økonomiske behovene til store bedriftshus - både innenlandske og multinasjonale offentlige sektorer og myndigheter. Tradisjonelt har banker imidlertid hovedsakelig fokusert på produksjonsbaserte aktiviteter og finansierte arbeidskapitalkrav samt terminlån til selskaper på grunn av følgende årsaker: Fra begynnelsen til pre-reform-perioden var forretningshusene sterkt avhengig av bankene for deres økonomiske behov . Kapitalmarkedene var ikke godt utviklede, norske norske normer hadde ikke blitt liberalisert, fusjoner og oppkjøp var ikke den foretrukne ruten og mange restriksjoner ble lagt på å øke finansiering fra oversjøiske markeder. Også bankinstitusjonene har foretrukket å gi kreditt til selskapene. På denne måten ble deres papirarbeid markert redusert ettersom antall klienter var mindre. Ikke bare arbeidsmengden ble lettet, men også risikoen var betydelig mindre, ettersom bedriftens lån ble gjort mot collaterals etter å ha kontrollert deres kapasitet til tilbakebetaling. Regjeringen hadde også øremerket prioritert sektor, og som sådan måtte bankene overholde målene tildelt dem. Etter liberalisering kunne mange bedrifter ikke møte konkurransen og gikk inn i den røde. Økonomisk nedgang og resesjonsmiljø resulterte i dårlig ytelse av mange låntakere. Som en direkte konsekvens av alle disse, begynte NPAene i bankene å montere. Men ifølge RBIs årsrapport for 2005-06 har kredittefterspørselen fra bedriftssektoren blitt sterk på bakgrunn av sterk industriell ytelse. Videre forventes bankene å ha større finansieringsmuligheter innen prosjektfinansiering, særlig i infrastrukturområdet, gitt konvertering av to store finansinstitusjoner til banker. Bankene har i hovedsak fokusert på syndikering av gjeld for å sikre bredere deltakelse i prosjektfinansiering og grossistledende segment. Bedriftsbanker tjener behov for selskaper, de som har en juridisk enhet. De tilbyr forretningskontoer, foretar kommersielle lån, deltar i syndikert utlån og er aktive i interbankmarkeder til lånerlendinger fra til andre banker. Mange banker tilbyr strukturerte produkter, kapitalmarkedstjenester og bedriftsløsninger. Bedriftsbankvirksomhet involverer relativt færre låntakere og kontostørrelsen er vanligvis stor og noen ganger kan den bli til milliarder dollar. I. Bedriftsbanktjenester inkluderer: II. Arbeidskapital og vilkår lån, overtrekter, regning diskontering, prosjektfinansiering. III. Kontantforvaltning både kortsiktige beholdninger av kontanter samt midler holdt i lengre perioder. IV. Finansiering av eksport og import inkludert eksportkredittarrangementer. V. Prosjektfinansiering VI. Overføring og kvittering av penger. VII. Håndtering av utenlandsk valuta og sikring mot verdiendringer. I nyere tid har det vært et markert skifte fra bedriftsmarkedet til privatbank. Den viktigste grunnen til å unngå bedriftskonto er den stigende misligholdte bedriftsregnskapet. Vanskelighetsgrad i prisen på tjenestene og høy risiko involvert er noen av de andre grunnene til å se på bedriftskonto. Dette er imidlertid svært lukrativt segment, forutsatt at det tas hensyn til å identifisere og fokusere på utvalgte forretningssegmenter og tilrettelegge for deres krav, f. eks. For små og mellomstore segmenter er kreditt viktig, mens for store bedrifter er det behov for tilpassede løsninger. Systematisk planlegging av prosesser kan bidra til å identifisere de lønnsomme kundene, og prising av tjenester kan hjelpe banken å kvitte seg med ressursproblemer. De fleste utviklede nasjoners banker har separate bedriftsbankdivisjoner som hjelper dem å unngå fallgruver av en størrelse som passer til alle retningslinjer. (B) Retail Banking: Med et hopp i den indiske økonomien fra en industrisektor, som aldri virkelig tok seg av, til en voksende servicesektor, endret bankene som helhet en forandring. Et større alternativ for forbrukeren blir oversatt til en større etterspørsel etter finansielle produkter, og tilpasning av tjenester blir raskt en norm enn en konkurransefortrinn. Med Retail-sektoren forventes å vokse med en hastighet på 30 spillere, fokuserer stadig mer på Retail og vekker opp til potensialet i denne sektoren for bankvirksomhet. Samtidig ser banksektoren som en helhet strukturelle endringer i reguleringsrammer og verdipapirisering og strenge NPA-normer som forventes å være på plass innen 2004, jo raskere tilpasser seg disse endrede dynamikkene, desto raskere forventes det å få fordelen . I denne artikkelen forsøker vi å studere årsakene til eufemismen om de indiske bankernes detaljhandel og prøve å vurdere hvor mye det er verdt oppmerksomheten det tiltrekker seg. Detaljhandel er typisk massemarkedskasse hvor enkelte kunder bruker lokale filialer av større forretningsbanker. Detaljhandel er banker som tilbyr direkte tjenester til forbrukerne. Mange med bankkontoer har kontoer hos en bank, og banker som tilbyr bankbanetjenester kan også ha handels - og kommersielle grener som jobber med bedrifter. For personer med høy nettoverdi og spesielle bankbehov, kan private detaljhandelstjenester bli forfulgt. Disse tilbyr et høyt servicenivå med en rekke alternativer som ikke er tilgjengelige for gjennomsnittlige medlemmer av publikum. Tjenester som tilbys inkluderer sparing og kontroll kontoer, boliglån, personlige lån, debetkort og innskuddsbevis (CDer). De mest grunnleggende detaljhandelstjenestene inkluderer sparekontoer og sjekker. De fleste banker forsøker imidlertid å gjøre seg til en engangsbutikk for bankkunder. Dette øker kundens oppbevaring og lojalitet, og sikrer at banken har en jevn tilførsel av kunder. Utvide banktjenester gir også flere muligheter for at banken kan vinne. Kjennetegn ved Retail Banking 1. Stort antall Små Kunder: Retail Banking er preget av at det er et stort antall små kunder som bruker personlig bank og småbedrifter. Den vesentlige forutsetningen for detaljhandel er at den er rettet mot forbrukeren om den er i størrelse, pris, leveringskanaler eller produktprofil. 2. Flere produkter: En kurv med produkter, inkludert flexi innskudd, kort, forsikring, medisinske utgifter, tilbys billån til forbrukerne. Foruten disse er det en rekke verdiskapende tjenester som de-mat-kontoer, utstedelse av gratis ATM-kort, porteføljestyring, betaling av vann, strøm og telefonregninger. 3. Flere Leveringskanaler: For å øke inntrengings - og tilgangsbankene begrenser de seg ikke til grener, men bruker mye av internett, telefonsentre, kiosker osv. Opprinnelse av Retail Banking: Opprinnelsen til Retail Banking i India kan spores til et nummer av utviklingen. 1. Reformer og liberalisering av finanssektoren: Før bankens åpning av økonomien i løpet av tiårene, hadde bedriftsmarkedet vært det foretrukne målet for bankfolk. Men etter reformene ble det ikke lenger slikt. Korporasjoner kan nå gå inn for eksterne kommersielle lån fra en internasjonalt anerkjent bank, eksportkreditbyrå, internasjonalt kapitalmarked eller leverandør av utstyr. De kan også velge fusjoner og oppkjøp. Så bankene måtte lete etter andre veier enn bedriftssektoren for vekst og ekspansjon. 2. Spredning av risiko: En annen konsekvens av liberalisering var industriell lavkonjunktur, økonomisk nedgang, industrisykdom som resulterte i mangel på mange store selskaper. Montering av misligholdte eiendeler gjorde bankene mer forsiktige med utlån til forretningshus, og avledet sine midler til detaljhandelssegmentet, ettersom detaljhandel har fordelen av å minimere risikoen og maksimere avkastningen. Avkastningen fra detaljhandelssegmentet er tre til fire prosent sammenlignet med en til to prosent fra bedriftssegmentet. 3. Vekst i bankteknologi og automatisering av bankprosesser: Teknologi har åpnet nye perspektiver for banksektoren og omdefinert sin natur, omfang og omfang. Den ultramoderne elektroniske teknologien har bidratt til å øke penetrasjonen gjennom minibanker uten å åpne flere grener. Internett har gjort det mulig å gjøre banker fra hjemmet. Telebanking og telefonbank er noen annen ny teknologi som har revolusjonert bankene. 4. Endre profil for kunder: En stadig økende middelklasse, med mer disponibel inntekt, høyere utdanning og et ønske om høyere levestandard, har etterspurt etterspørselen etter bankbanetjenester. Flere og flere mennesker syntes å ha tatt imot kredittkulturen, og krever forbruksvarer, ferier, utdanning og en rekke andre verdiskapende banktjenester. (C) Rural Banking: På fødselsdagen for Mahatma Gandhi 2. oktober 1975 ble Rural Banks etablert med sikte på å styrke landdistrikters kreditt. I 1975 utnevnte Indiens regering en arbeidsgruppe under formannskapet til M. Narasimham, nestleder i Reserve Bank of India, for å gjennomgå strømmen av institusjonell kreditt til folket i landlige områder. Utvalget skulle studere tilgjengeligheten av institusjonell kreditt til den svakere delen av landbefolkningen og foreslå alternative organer for dette formålet. Utvalget konkluderte med at kommersielle banker ikke ville være i stand til å oppfylle kredittkravene til de svakere delene av landsbygdene spesielt og landsbygdssamfunn generelt. Regjeringen godkjente arbeidsgruppens anbefalinger og vedtok en ordinasjon i september 1977 for å etablere regionale landsbanker. Behov for å etablere regionale landsbanker Det viktigste behov og mål for RBB var å yte kreditt og andre fasiliteter til små og marginale bønder, landbruksarbeidere og håndverkere, som i stor grad ikke var tilstrekkelig betjent av eksisterende kredittinstitusjoner, nemlig , kooperative banker og kommersielle banker: 1. Kooperative banker: For så vidt som den samarbeidende kredittstrukturen er bekymret, mangler den ledelsesmessige talentet, postkredittilsynet og låneutvinningen. De er heller ikke i stand til å mobilisere nødvendige ressurser. 2. Kommersielle banker: Disse bankene er for det meste sentralisert i byområder og er urbane orienterte. Selv om disse kan spille en avgjørende rolle så langt som landsbygdskreditten er bekymret. For dette må de tilpasse sine metoder, prosedyrer, opplæring og orientering i samsvar med landmiljøet. Videre, på grunn av høy lønnsstruktur, bemanningsmønster og høye etableringsutgifter, er også driftskostnadene høyere. Under disse omstendighetene kan kommersielle banker ikke gi kreditt til de svakere delene av landsbygda, til en billig pris. 3. Behov for en ny institusjon: I samsvar med landlige krav var det følgelig nødvendig å etablere en slik institusjon, det vil si en landlig orientert bank som kan oppfylle kredittbehovene til landbefolkningen, særlig den svakere delen. Det kan også kombinere fordelene til de ovennevnte to nevnte institusjoner, og bibeholde sine ulemper. RRBene, som subsidiering til nasjonaliserte banker, forventes i det lange løp, ikke bare for å gi kreditt til bønder og landsbyindustrier, men også for å mobilisere innskudd fra landlige husholdninger. De kan danne en integrert del av den finansielle strukturen i landet i India. Forskjellen mellom RRB og kommersielle banker Selv om RRBene er i utgangspunktet de planlagte forretningsbankene, er de likevel forskjellig fra hverandre i følgende henseender: 1. Området for RRB er begrenset til en spesifisert region som omfatter en eller flere distrikter av en stat. 2. RRBene gir direkte lån og forskudd bare til små og ledende bønder, håndverkere på land og landbruksarbeidere og andre som har små midler til produktive formål. 3. Utlånsrenten for RRB er ikke høyere enn de rådende utlånsrenten for kooperative samfunn, i en bestemt stat. Sponsorbankene og Reserve Bank of India gir mange subsidier og innrømmelser til RRBs for å gjøre det mulig å fungere effektivt. RRBene er etablert av Sponsorbank som regel en offentlig bank. Styringskomiteen på RRB identifiserer distriktene som krever disse bankene. Senere setter sentralregjeringen opp RRB med konsultasjon av statsregeringen og sponsorbanken. Hver RRB opererer innenfor lokale grenser med for eksempel navn som kan angis av staten. Banken kan etablere sine grener på et hvilket som helst sted innenfor de meldte områdene. Den autoriserte kapitalen til hver RRB er Rs. 5 crore som kan økes eller reduseres av staten, men ikke under den opptjente kapitalen til Rs. 25 lakh. Av dette er 50 prosent tegnet av staten, 15 prosent av staten og 35 prosent av sponsorbanken. For tiden er formelen for abonnement på RRBer satt til 6 0. 20 20 mellom statens, statens og s ponsorbanken. Statsregjeringens bidrag er gjort gjennom NABARD. Hver RRB styres av et styre. Den generelle superintendens, retning og styring av saker og forretninger i RRBs er avgjørende for de ni medlemmer styret. Staten utpeker tre styremedlemmer. Styreformannen, som regel en offiser i sponsorbanken, men er utnevnt av den sentrale regjeringen. Styret er forpliktet til å handle på forretningsprinsipper og i samsvar med direktiver og retningslinjer utstedt av Reserve Bank. På Statsnivå er Statens Nivå Koordineringskomité også blitt dannet for å ha likhet med tilnærmingen til ulike RRB. RRB er pålagt å utføre følgende funksjoner eller operasjoner: 1. Operasjoner relatert til landbruksaktiviteter: Å gi lån og forskudd til små og marginale framers og landbruksarbeidere, enten enkeltvis eller i grupper eller til kooperative samfunn, inkludert landbruksmarkedsforetak, landbruksprodukter samfunn, kooperative landbrukssamfunn, primære landbrukssamfunn for landbruksformål eller for andre relaterte formål. 2. Operasjoner relatert til ikke-landbruksaktiviteter: Tilskudd til utlån til håndverkere, små gründere og personer med små midler engasjert i handel, handel og industri eller andre produktive aktiviteter innenfor sitt operasjonsområde. (D) Mikrokreditt: Til tross for den fenomenale oppsøkingen av formelle kredittinstitusjoner, er de fattige i landet fortsatt avhengig av de uformelle kredittkildene. To hovedårsaker til dette er det store antallet små låntakere med små og hyppige behov. Også disse låntakers evne til å gi sikkerhet er svært begrenset. Dessuten har de lange og besværlige bankprosedyrene og deres risikoprevisjon også vært begrensende faktorer. Mikrokreditt har kommet fram som det mest egnede og praktiske alternativet til konvensjonell bankvirksomhet for å nå den hittil uutnyttede fattige befolkningen. Mikrokreditt eller mikrofinansiering betyr å gi svært fattige familier med svært små lån for å hjelpe dem med å engasjere seg i produktive aktiviteter eller dyrke sine små bedrifter. Over tid er konseptet med mikrokredit utvidet til å omfatte en rekke finansielle og ikke-finansielle tjenester som kreditt, egenkapital og institusjonsstøtte, sparing, forsikring etc. Mikrofinansieringsinstitusjon er en organisasjon som tilbyr finansielle tjenester til mennesker med begrenset inntekt som har problemer med å få tilgang til den formelle banksektoren. Målet med mikrofinansiering er å yte passende finansielle tjenester til betydelige antall lavinntektsøkonomiske aktive mennesker for å finansiere mikrovirksomheter og ikke-farminntektsgenererende aktiviteter, inkludert agro-allierte aktiviteter, og til slutt forbedre deres tilstand så vel som at av lokale økonomier. I henhold til RBI er mikrofinansiering speditør, kreditt og andre finansielle tjenester og produkter av svært lite omfang til de fattige i landlige, semi-urbane og byområder, slik at de kan øke sine inntektsnivåer og forbedre sin levestandard. Mikrokredittinstitusjoner er de som tilbyr disse fasilitetene. Mikrofinansieringstilgangen har kommet fram som en viktig utvikling i bankene for å kanalisere kreditt for fattigdomsbekjempelse direkte og effektivt. Mikrokreditten som bankene utvider til individuelle låntakere direkte eller gjennom et byrå, anses som en del av bankene prioriterte sektorlån. (E) Selvhjelpsgrupper: SHG er blitt lansert for å bekjempe problemet med å øke fattigdommen på gressrøtterivået. Små, sammenhengende og deltakende grupper av de fattige blir dannet som regelmessig sparer sine besparelser for å lage små rentebærende lån til sine medlemmer. I prosessen lurer de nyansene av finansiell disiplin. I utgangspunktet er bankkreditt ikke hovedmål. Det er først etter at gruppen stabiliserer og får mulighet til å gjennomføre produktiv aktivitet og bære risiko for at mikrokreditter kommer til spill. SHG Bank-koblingsprogrammet har vist seg å være det viktigste tilleggsavgiftssystemet med bred aksept fra banker, frivillige organisasjoner og ulike statlige avdelinger. Det oppfordrer de fattige i landet til å bygge sin kapasitet til å styre sin egen økonomi, og deretter forhandle bankkreditt på kommersielle vilkår. Visse normer må observeres i dannelsen av SHGer. For å bli medlem må en person være under fattigdomsgrensen. Bare ett medlem av en familie kan bli medlem, og den personen kan ikke bli medlem av mer enn en SHG. Det er ingen grense for maksimum antall medlemmer kan være mellom 10 og 20. Medlemmer av SHGs skal møte regelmessig, det vil si en gang i uken eller en gang i fjorten dager. Registreringen er imidlertid valgfri og overlatt til medlemmernes skjønn. (F) Finansielle mellommenn som ikke er banker: Finansielle mellommenn som ikke er banker, er en heterogen gruppe av finansinstitusjoner, bortsett fra kommersielle og kooperative banker. Disse institusjonene er en integrert del av det indiske finanssystemet. Et bredt utvalg av finansinstitusjoner er inkludert i den. Disse institusjonene innhenter midler fra offentligheten, direkte og indirekte, for å låne dem til de ultimate forbrukerne. Utviklingsbankene (som IDBI, IFCI, ICICI, SFCs, SIDCs, etc.) faller i denne kategorien. De spesialiserer seg på å lage term lån til sine låntakere. LIC, GIC og dets datterselskaper og UTI er de andre alle store store utlånsinstitusjonene i India. Av disse tre er bare UTI en ren finansiell formidler uten bank, de andre innhenter midler i form av premie fra salg av forsikring. Dessuten er det midler og postkontorer som mobiliserer offentlige besparelser på en stor måte for videreoverføring til de ultimate låntakere eller utbydere. Et stort antall små NBFs, som investeringsselskaps lånebedrifter, leiekjøpsfinansieringsselskaper og utstyrsleasingselskapene, er disse private sektorbedrifter med få unntak. Funksjoner for ikke-finansielle finansmedarbeidere: Hovedfunksjonene utført av NBF er som følger: 1. Meklere av Lånbare Fond: NBFs fungerer som meglere av utlånsbare midler og i denne kapasiteten de mellomliggende mellom den ultimate spareren og den ultimate investor. De selger indirekte verdipapirer til sparerne og kjøper primære verdipapirer fra investorer. Dermed forandrer de gjeld til kreditt. Ved å gjøre det tar de risikoen for seg selv og reduserer risikoen for endelige långivere. Ikke bare det ved å diversifisere sine finansielle eiendeler sprer de risikoen i stor grad og reduserer dermed sin egen risiko fordi lav avkastning på enkelte eiendeler blir kompensert av høy avkastning på andre. 2. Mobilisering av besparelser: Disse institusjonene mobiliserer besparelser til fordel for økonomien. By providing expert financial services like easy liquidity, safety of the principal amount and ready divisibility of savings into direct securities of different values they are able to mobilize more funds and attract larger share of public savings. 3. Channelization of Funds into Investment The NBFs, by mobilizing savings, channelize them into productive investments. Each intermediary follows its own investment policy. For instance, savings and loan associations invest in mortgages insurance companies invest in bonds and securities etc. Thus this channelization of public savings into investment helps capital formation and economic growth. 4. Stabilize the Capital Market These institutions trade in the capital market in a variety of assets and liabilities, and thus equilibrate the demand for and supply of assets. Since they function with a legal framework and rules and they protect the interests of the savers and bring stability to the capital market. 5. Provide Liquidity Since the main functions of the NBFs convert a financial asset into cash easily, quickly and without loss in the capital value, they provide liquidity. They are able to do so, because they advance short-term loans and finance them by issuing claims against themselves for long periods and they diversify loans among different types of borrowers. Types of Non Banking Financial Institutions: The main types of non-banking financial institutionsintermediaries are as under: The Life Insurance Companies: Life Insurance Corporation of India enjoys near monopoly of life insurance in India. It is the biggest institutional investor. The LIC was established in 1 September, 1956 by nationalizing all the life insurance companies operating in India. Prior to nationalization of insurance companies, 245 private insurance companies operate from 97 centres. The main objectives of LIC are (i) To carry on Life Insurance business in India. Life insurance is a very important form of long term savings. (ii) The LIC aims in promoting savings. (iii) To invest profitability the savings collected in the form of payments received from life insurers. The LIC has two tier of capital structure - the initial capital, and premium capital. The initial capital of LIC is Rs. 5 crore provided by the Government of India. The premium paid by policy holders are the principal source of funds by LIC. Besides, the LIC receives interest, dividends, repayments and redemptions which add to its investible resources. The LIC is required to invest atleast 50 of its funds in government and other approved securities. LIC has to invest 10 of its funds in other investments which include loans to state governments for housing and water supply schemes, to Municipal Corporation, and corporation, and cooperative sugar companies, loans to policy holders, fixed deposits with banks and cooperatives societies. The main principle involved is security of funds rather than maximization of return on investment. General Insurance Companies: General Insurance Corporation of India was established in January 1973, when General Insurance Companies were nationalized. At the time of nationalization, there were 68 Indian companies and 45 non-Indian companies in the field. Their business was nationalized and vested in the General Insurance Company and its four subsidiaries viz. National Insurance Company Ltd. and United India Insurance Company Ltd. The GIC is the holding company and its direct business is restricted only to aviation insurance general insurance is handled by the subsidiaries of GIC and they operate various types of policies to suit the diverse needs of various segments of the society. They derive their income from insurance premia and invest the funds in various types of securities as well as in the form of loans. GIC has thus emerged as an important investment institution operating in Indian capital market. Unit Trust of India: The UTI is an investment institution which offers the small investor a share in Indias industrial growth and productive investment with minimum risk and reasonable returns. The UTI was established as a Statutory Corporation in February 1964 under the UTI Act 1964. It commenced its operations from 1 July, 1964. The UTI was established with the objective of mobilizing the savings of the community and channeling them into productive investment. Its objective is to encourage widespread and diffused ownership of industry by affording investors particularly the small investors, a means of acquiring shares assured of a reasonable return with minimum risk. Thus, the primary objective of the Unit Trust in two fold (i) To stimulate and pool the savings of the middle and low income groups (ii) To enable the unit holders to share the benefits and prosperity of the rapidly growing industrialization in the country. The UTI is managed by a board of trustees. It consists of a chairman and 9 other trustees. The chairman is appointed by the government of India in consultation with the IDBI, 4 trustees nominated by the IDBI, one trustee each nominated by the RBI, LIC and SBI and 2 trustees selected by other institutions which contributed to the initial capital of the UTI. The head office of UTI is in Mumbai. It has four zonal offices at Mumbai, Kolkata, Chennai and New Delhi. It has 51 branch offices in various parts of the country. (G) Mutual Funds: A mutual fund is a trust that pools the savings of a number of investors who share a common financial gain. Anybody with an investible surplus of as little as a few thousand rupees can invest in mutual funds. These investors buy units of a particular Mutual Fund Scheme that has defined investment objective and strategy. The money thus collected is then invested by the fund manager in different type of securities. The income earned through investments and the capital appreciation realized by the scheme is shared by its unit holders in proportion to the number of units owned by them. In India, the mutual fund industry started with the setting up of Unit Trust of India in 1964. Public sector banks and financial institutions began to establish mutual funds in 1987. The private sector and financial institutions were allowed to set up mutual funds in 1993. (H) Provident Pension Funds: These funds represent the most significant form of long-term contractual saving of the household sector. At present the annual contribution to these funds is running at double the rate than the rate of annual contribution to life insurance. In the financial year 1999-2000, about Rs. 69.695 crore had accumulated in the provident fund and other accounts with the Government of India. The resources mobilized by the funds during the same year were Rs. 1,465 crore. The provident funds scheme practically started in the post-independence period. Under the legalization, provident funds have been made compulsory in the organized sector of industry, coal mining, plantation and services (such as government, banking, insurance, teaching, etc.) There is a separate P. F. Legislation for coal mining, industries and Assam tea plantations. With the growth of the organized sector of the economy and in wage employment, savings mobilizations through PFs will growth further. The wage - earners are encouraged to join, P. F. schemes and make contributions to them, because thereby alone they are able to earn employers matching contribution to the fund. (I) Post Offices: Post offices serve as the vehicle for mobilizing small savings of the public for the government. These have been established with the sole motive of collecting peoples small savings in urban, semi-urban and rural areas. They are generally known as Savings Banks. In rural areas where majority of the population live, do not have such commercial banks. To create banking habit among them and to collect their scattered small savings, the savings banks have been opened. In India where there are no commercial banks, the Post-Office perform the functions of commercial banks, they collect the deposits of the people, open their deposit accounts and pay interest for the deposited money. In simple words, bank refers to an institution that deals in money. This institution accepts deposits from the people and gives loans to those who are in need. Besides dealing in money, banks these days perform various other functions, such as credit creation, agency job and general service. The spectrum of needs and requirements of individuals, organizations and sectors of the economy is very vast and diverse. Banks have come up with a whole range of banking products and services to suit the requirements of their clients. Banking sectors include corporate banking, international banking and rural banking. 1.6 Test Questions Q1. What is a Bank Explain the main functions of a Bank. Q2. Explain the various types of retail banking services offered by banks. Q3. Give an overview of different banking sectors in India. 1.7 Further Readings Varshney P. N.amp Mittal D. K. Indian Financial System , Sultan Chand ampSons G. Ramesh Babu, Financial Markets and Institutions , Concept Publishing Company. Tripathi Prava Nalini, Financial Services , Prentice Hall of India, 2008. Jain T. R. Indian Financial System . V. K. Publications. Banking amp Insurance After going through this lesson you should be able to: Understand the Concept of Banking Describe the Development of Banking in India Explain the Functions of Bank Differentiate Among Banking Sectors 1.1 Concept of Banking 1.2 Development of Banking in India 1.3 Functions of Bank 1.4 Banking Sectors 1.6 Test Question 1.7 Further Readings The banking sector is the lifeline of any modern economy. It is one of the important pillars of the financial system, which plays a vital role in the successfailure of an economy. Banks are one of the oldest financial intermediaries in the financial system. They play an important role in mobilization of deposits and disbursement of credit to various sectors of the economy. The banking sector is dominant in India as it accounts for more than half the assets of the financial sector. 1.1 Concept of Banking Banks are institutions that accept various types of deposits and use those funds for granting loans. The business of banking is that of an intermediary between the saving and investment units of the economy. It collects the surplus funds of millions of individual savers who are widely scattered and channelize them to the investor. According to section 5(b) of the Banking Regulation Act, 1949, banking means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, and order or otherwise. Banking company means any company which transacts the business of banking in India. No company can carry on the business of banking in India unless it uses as part of its name at least one of the words bank, banker or banking. The essential characteristics of the banking business as defined in section 5(b) of the Banking Regulation Act are: Acceptance of deposits from the public, For the purpose of lending or investment a) Withdraw able by means of any instrument whether a cheques or otherwise. 1.2 Development of Banking in India The history of banking dates back to the thirteenth century when the first bill of exchange was used as money in medieval trade. There was no such word as banking before 1640, although the practice of safe-keeping and savings flourished in the temple of Babylon as early as 2000 B. C. Chanakya in his Arthashastra written in about 300 B. C. mentioned about the existence of powerful guilds of merchant bankers who received deposits, advanced loans and issued hundis (letters of transfer). The Jain scriptures mention the names of two bankers who built the famous Dilwara Temples of Mount Abu during 1197 and 1247 A. D. The first bank called the Bank of Venice was established in Venice, Itlay in 1157 to finance the monarch in his wars. The bankers of Lombardy were famous in England. But modern banking began with the English goldsmith only after 1640. The first bank in India was the Bank of Hindustan started in 1770 by Alexander amp Co. an English agency house in Calcutta which failed in 1782 with the closure of the agency house. But the first bank in the modern sense was established in the Bengal Presidency as the Bank of Bengal in 1806. History apart, it was the merchant banker who first evolved the system of banking by trading in commodities than money. Their trading activities required the remittances of money from one place to another. For this, they issued hundis to remit funds. In India, such merchant bankers were known as Seths. The next stage in the growth of banking was the goldsmith. The business of goldsmith was such that he had to take special precautions against theft of gold and jewellery. If he seemed to be an honest person, merchants in the neighborhood started leaving their bullion, money and ornaments in his care. As this practice spread, the goldsmith started charging something for taking care of the money and bullion. As evidence for receiving valuables, he issued a receipt. Since gold and silver coins had no marks of the owner, the goldsmith started lending them. As the goldsmith was prepared to give the holder of the receipt an equal amount of money on demand, the goldsmith receipts became like cheques as a medium of exchange and a means of payment. The next stage in the growth of banking is the moneylender. The goldsmith found that on an average the withdrawals of coins were much less than the deposits with him. So he started advancing the coins on loan by charging interest. As a safeguard, he kept some money in the reserve. Thus the goldsmith-money-lender became a banker who started performing the two functions of modern banking that of accepting deposits and advancing loans. In India our historical, cultural, social and economic factors have resulted in the Indian money market being characterized by the existence of both the unorganized and the organized sectors. (a) Unorganized Sector: The unorganized sector comprises moneylenders and indigenous bankers which cater to the needs of a large number of people especially in the rural areas. They have been meeting the financial requirements of the rural populace since times immemorial. Their importance can be gauged from the fact that Jagat Seths, hereditary bankers of the Nawab of Bengal, were recognized even by Aurangzeb and the East India Company who were compelled to borrow from them also publicly honored them. The indigenous bankers are different from the proper banks in a number of ways. For instance, they combine banking activities with trade whereas trading is strictly prohibited for banks in the organized sector. They do not believe in formalities or paper work for making deposits or withdrawing money. In fact, since a substantial percentage of their clientele is illiterate, they frequently take a thumb impression of their customers on a blank paper. Even if they use a Hundi as a negotiable instrument yet it will not be indicated on its face whether the transaction is supported by valuable consideration or it is merely as a result of mutual accommodation. The rate of interest charged by them fluctuates directly with the need of the borrower and may sometimes be as high as 300 percent They are insulated from all type of monetary and credit controls as they fall outside thy purview of RBI. Though they are still the major source of funds for small borrowers, but now their market has started shrinking because of the fast expansion of branches of banks in the unorganized sectors. 1.3 Functions of Bank According to section 6 of the Banking Regulation Act, 1949, the primary functions of a bank are: acceptance of deposits and lending of funds. For centuries, banks have borrowed and lent money to business, trade, and people, charging interest on loans and paying interest on deposits. These two functions are the core activities of banking. Besides these two functions, a commercial bank performs a variety of other functions which can be categorized in two broad categories namely (a) Agency or Representative functions (b) General Utility functions. (a) Agency or Representative functions: Collection and Payment of Various Items: Banks carry out the standing instructions of customers for making payments including subscriptions, insurance premium, rent, electricity and telephone bills, etc. Undertake government business like payment of pension, collection of direct tax (e. g. income tax) and indirect tax like excise duty. Letter of Reference: Banks buy and sell foreign exchange and thus promote international trade. This function is normally discharged by Foreign Exchange Banks. Purchase and Sale of Securities: Underwrite and deal in stock, funds, shares, debentures, etc. Governments Agent: Act as agents for any government or local authority or any other person or persons also carry on agency business of any description including the clearing and forwarding of goods, giving of receipts and discharges, and otherwise acting as an attorney on behalf of customers, but excluding the business of a managing Agent or Secretary and treasurer of a company. Purchase and Sale of Foreign Exchange: Banks buy and sell foreign exchange and thus promote international trade. This function is normally discharged by Foreign Exchange Banks. Trustee and Executor: Banks also act as trustees and executors of the property of their customers on their advice. Remittance of Money: Banks also remit money from one place to the other through bank drafts or mail or telegraphic transfers. (a) General Utility functions: Locker facility: Banks provide locker facilities to their customers. People can keep their gold or silver jewellery or other important documents in these lockers. Their annual rent is very nominal. Business Information and Statistics: Being familiar with the economic situation of the country, the banks give advice to their customers on financial matters on the basis of business information and statistical data collected by them. Help in Transportation of Goods: Big businessmen or industrialists after consigning goods to their retailers send the Railway Receipt to the bank. The retailers get this receipt from the bank on payment of the value of the consignment to it. Having obtained the Railway Receipt from the bank they get delivery of the consignment from the Railway Goods Office. In this way banks help in the transportation of goods from the production centers to the consumption centers. Acting as a Referee: If desired by the customer, the bank can be a referee i. e. who could be referred by the third parties for seeking information regarding the financial position of the customer. Issuing Letters of Credit: Bankers in a way by issuing letters of credit certify the credit worthiness of the customers. Letters of credit are very popular in foreign trade. Acting as Underwriter: Banks also underwrite the securities issued by the government and corporate bodies for commission. The name of a bank as an underwriter encourages investors to have faith in the security. Issuing of Travellers Cheques and Credit Cards: Banks have been rendering great service by issuing travellers cheques, which enable a person to travel without fear of theft or loss of money. Now, some banks have started credit card system, under which a credit card holder is allowed to avail credit from the listed outlets without any additional cost or effort. Thus a credit card holder need not carry or handle cash all the time. Issuing Gift Cheques: Certain banks issue gift cheques of various denominations e. g some Indian banks issue gift cheques of the denomination of Rs. 101, 501, 1001 etc. These are generally issued free of charge or a very nominal fee is charged. Dealing in Foreign Exchange: Major branches of commercial banks also transact business of foreign exchange. Commercial banks are the main authorized dealers of foreign exchange in India. Merchant Banking Services: Commercial banks also render merchant banking services to the customers. They help in availing loans from non-banking financial institutions. 1.4 Banking Sectors The spectrum of needs and requirements of individuals, organizations and sectors of the economy is very vast and diverse. Banks have come up with a whole range of banking products and services to suit the requirements of their clients. Banking sectors include corporate banking, international banking and rural banking. Corporate Banking: Cooperative banking typically serves the financial needs of large corporate houses - both domestic and multinational-public sectors and governments. However, traditionally banks had primarily been focusing on production based activities and financed working capital requirements as well as term loans to corporates due to following reasons: From the beginning till the pre-reform era, business houses were heavily dependent on banks for their financial needs. The capital markets were not well developed, joint ventures norms had not been liberalized, mergers and acquisitions were not the preferred route and numerous restrictions were placed on raising finance from overseas markets. The banking institutions too showed a preference for providing credit to the corporates. This way their paper work was markedly reduced as the numbers of clients were less. Not only the workload was eased but also the risk involved was considerably less as corporate borrowings were made against collaterals after verifying their capacity for repayment. The government had also earmarked priority sectors, and as such banks had to comply with the targets allotted to them. After liberalization, many corporates could not face the competition and went into the red. Economic downturn and recessionary environment resulted in poor performance of many borrowers. As a direct consequence of all these, the NPAs of banks started mounting. However, according to the RBI annual report of 2005-06, the credit demand by the corporate sector has turned robust on the back of strong industrial performance. Furthermore, banks are expected to have greater financing opportunities in the area of project finance, especially in the infrastructure sector, given the conversion of two major financial institutions into banks. Banks have been focusing mainly on syndication of debt to ensure wider participation in project finance and wholesale leading segment. Corporate banking serves the need of corporates, those having a legal entity. They offer business current accounts, make commercial loans, participate in syndicated lending and are active in inter-bank markets to borrowlend from to other banks. Many banks offer structured products, capital market services and corporate solutions. Corporate banking involves comparatively fewer borrowers and the account size is usually large and sometimes it can turn into billions of dollars. I. Corporate banking services include: II. Working capital and terms loans, overdrafts, bill discounting, project financing. III. Cash management both short term holdings of cash as well as funds held for longer periods. IV. Financing of exports and imports including export credit arrangements. V. Project finance VI. Transmission and receipt of money. VII. Handling foreign currency and hedging against changes in value. In recent times, there has been a marked shift from corporate to retail banking. The major reason for avoiding corporate accounts is the mounting non-performing corporate accounts. Difficulty in pricing the services and high risks involved are some of the other reasons for overlooking corporate accounts. However this is very lucrative segment provided care is taken in identifying and focusing on selected business segments and catering to their requirements, e. g. for the SME segment, credit is paramount whereas for big corporates, customized solutions are needed. Systematic account planning process can help to identify the profitable customers, and pricing of services can help the bank to get rid of asset quality problem. Most developed nations banks have separate corporate bank divisions which help them to avoid the pitfalls of one size fits all policies. (B) Retail Banking: With a jump in the Indian economy from a manufacturing sector, that never really took off, to a nascent service sector, Banking as a whole is undergoing a change. A larger option for the consumer is getting translated into a larger demand for financial products and customization of services is fast becoming the norm than a competitive advantage. With the Retail banking sector expected to grow at a rate of 30 players are focusing more and more on the Retail and are waking up to the potential of this sector of banking. At the same time, the banking sector as a whole is seeing structural changes in regulatory frameworks and securitization and stringent NPA norms expected to be in place by 2004 means the faster one adapts to these changing dynamics, the faster is one expected to gain the advantage. In this article, we try to study the reasons behind the euphemism regarding the Retail-focus of the Indian banks and try to assess how much of it is worth the attention that it is attracting. Retail banking is typical mass-market banking in which individual customers use local branches of larger commercial banks. Retail banking is banking that provides direct services to consumers. Many people with bank accounts have their accounts at a retail bank and banks that offer retail banking services may also have merchant and commercial branches that work with businesses. For people with high net worth and special banking needs, private retail banking services may be pursued. These offer a high level of service with a number of options that are not available to average members of the public. Services offered include savings and checking accounts, mortgages, personal loans, debitcredit cards and certificates of deposit (CDs). The most basic retail banking services include savings and checking accounts. Most retail banks, however, try to make themselves into a one stop shop for banking customers. This increases customer retention and loyalty, ensuring that the bank has a steady supply of customers. Expanding banking services also provides more opportunities for the bank to turn a profit. Characteristics of Retail Banking 1. Large Number of Small Customers: Retail banking is characterized by the existence of a large number of small customers, who consumes personal banking and small business services. The essential prerequisite of retail banking is its orientation towards the consumer whether it is in size, price, delivery channels or product profile. 2. Multiple Products: A basket of products including flexi deposits, cards, insurance, medical expenses, auto loans are offered to the consumers. Besides these, there are a number of value added services like de-mat accounts, issue of free ATM cards, portfolio management, payment of water, electricity and telephone bills. 3. Multiple Delivery Channels: To increase penetration and access banks are not limiting themselves to branches but are making extensive use of internet, call centres, kiosks, etc. Origin of Retail Banking: Origin of retail banking in India can be traced to a number of developments. 1. Financial Sector Reforms and Liberalization: Before opening up of the economy during the decade of the nineties, corporate banking had been the preferred goal for bankers. However, after the reforms it no longer remained so. Corporates could now go in for external commercial borrowings from any internationally recognized bank, export credit agency, international capital market or supplier of equipment. They could also opt for mergers and acquisitions. So banks had to look for other avenues than the corporate sector for growth and expansion. 2. Spreading of Risk: Another consequence of liberalization was industrial recession, economic downturn, industrial sickness which resulted in failure of many big corporates. Mounting non-performing assets made banks more cautious about lending to business houses, and diverting their funds into the retail segment, as retail banking has the advantage of minimizing the risk and maximizing the returns. The returns from retail segment are three to four percent as compared to one to two percent from the corporate segment. 3. Growth in Banking Technology and Automation of Banking Processes: Technology has opened up new vistas for the banking industry and redefined its nature, scope and extent. State-of-the-art electronic technology has helped to increase penetration through ATMs without opening more branches. Internet has made possible banking to be done from home. Telebanking and phone banking are some other new technologies which have revolutionized banking. 4. Changing profile of Customers: An ever-increasing middle class, with more disposable income, higher education and a desire for higher standard of living have fuelled the demand for retail banking services. More and more people seemed to have embraced the credit culture, and are demanding consumer goods, holidays, education and a host of other value added banking services. (C) Rural Banking: On the birth anniversary of Mahatma Gandhi on October 2, 1975, Rural Banks were established with a view to stepping up rural credit. In 1975, the Government of India appointed a working group under the Chairmanship of M. Narasimham, the Deputy Governor of the Reserve Bank of India to review the flow of institutional credit to the people in rural areas. The committee was to study the availability of institutional credit to the weaker section of the rural population and to suggest alternative agencies for this purpose. The committee concluded that the commercial banks would not be able to meet the credit requirements of the weaker sections of the rural areas in particular and rural community in general. The Government accepted the recommendations of the working group and passed an ordinance in September 1977 to establish Regional Rural Banks. Need to Establish Regional Rural Banks The main need and objective of the RBBs was to provide credit and other facilities to the small and marginal farmers, agricultural laborers and artisans, who had, by and large, not been adequately served by the existing credit institutions namely, cooperative banks and commercial banks: 1. Co-operative Banks: So far as the co-operative credit structure is concerned, it lacks the managerial talent, post credit supervision and the loan recovery. They are also not in a position to mobilize necessary resources. 2. Commercial Banks: These banks are mostly centralized in urban areas and are urban-oriented. Although these can play a crucial role as far as the rural credit is concerned. For this they have to adjust their methods, procedures, training and orientation in accordance with the rural environment. Further, due to high salary structure, staffing pattern and high establishment expenses their operational cost is also higher. Thus, under these circumstances, the commercial banks cannot provide credit, to the weaker sections of the rural areas, at a cheap rate. 3. Need of a New Institution: Thus in accordance with the rural requirements, the necessity was felt to establish such an institution i. e. a rural oriented bank which may fulfill credit needs of the rural people particularly the weaker section. It may also combine the merits of the above two mentioned institutions, keeping aside their drawbacks. The RRBs, as subsidization to nationalized banks, are expected in the long run not only to provide credit to farmers and village industries but also to mobilize deposits from rural households. They may form an integral part of the rural financial structure in India. Difference Between RRBs and Commercial Banks Although the RRBs are basically the scheduled commercial banks, yet they differ from each other in the following respects 1. The area of the RRB is limited to a specified region comprising one or more districts of a state. 2. The RRBs grant direct loans and advance only to small and managerial farmers, rural artisans and agricultural laborers and others of small having small means for productive purposes. 3. The lending rates of RRBs are not higher than the prevailing lending rates of co-operative societies, in any particular state. The sponsoring banks and the Reserve bank of India provide many subsidies and concessions to RRBs to enable it to function effectively. The RRBs have been established by Sponsor bank usually a public sector bank. The steering committee on RRBs identifies the districts requiring these banks. Later, the Central Government sets up RRBs with the consultation of the state government and the sponsor bank. Each RRBs operates within local limits with such as name as may be specified by the Central Government. The bank can establish its branches at any place within the notified areas. The authorized capital of each RRBs is Rs. 5 crore which may be increased or reduced by the Central Government but not below its paid up capital of Rs. 25 lakh. Of this fifty percent is subscribed by the Central Government, 15 percent by the State Government and 35 percent by the sponsor bank. At present the formula for subscription to RRBs has been fixed at 6 0. 20. 20 between central government, state government and the s ponsor bank. The Central Governments contribution is made through NABARD. Each RRB is managed by a Board of Directors. The general superintendence, direction and management of the affairs and business of RRBs vests with the nine member Board of Directors. The Central Government nominates 3 directors. The chairman, usually an officer of the sponsor bank but is appointed by the central Government. The Board of Directors is required to act on business principles and in accordance with the directives and guidelines issued by the Reserve Bank. At the State Level, State Level Coordination Committee have also been formed to have uniformity of approach of different RRBs. The RRB are required to perform the following functions or operations: 1. Operations Related to Agricultural Activities: To grant loans and advances to small and marginal framers and agricultural laborers, whether individually or in groups or to cooperative societies including agricultural marketing societies, agricultural processing societies, cooperative farming societies, primary agricultural societies for agricultural purposes or for other related purposes. 2. Operations Related to Non-Agricultural Activities: Granting of loans and advances to artisans, small entrepreneurs and persons of small means engaged in trade, commerce and industry or other productive activities within its area of operation. (D) Micro-Credit: In spite of the phenomenal outreach of formal credit institutions, the rural poor still depend upon the informal sources of credit. Two major causes for this are the large number of small borrowers with small and frequent needs. Also the ability of these borrowers to provide collateral is very limited. Besides, the long and cumbersome bank procedures and their risk perception have also been limiting factors. Micro-credit has emerged as the most suitable and practical alternative to conventional banking in reaching the hitherto untapped poor population. Micro-credit or micro-finance means providing very poor families with very small loans to help them engage in productive activities or grow their tiny businesses. Over time, the concept of micro-credit been broadened to include a whole range of financial and non-financial services like credit, equity and institution building support, savings, insurance etc. Micro-finance institution is an organization that provides financial services to people with limited income who have difficulty in accessing the formal banking sector. The objective of micro finance is to provide appropriate financial services to significant numbers of low-income, economically active people in order to finance micro-enterprises and non-farm income generating activities including agro-allied activities and ultimately improve their condition as well as that of local economies. As per RBI micro-finance is the provision of thrift, credit and other financial services and products of very small amount to the poor in rural, semi-urban and urban areas for enabling them to raise their income levels, and improve their living standard. Micro-credit institutions are those that provide these facilities. The micro-finance approach has emerged as an important development in banking for channelizing credit for poverty alleviation directly and effectively. The micro-credit extended by banks to individual borrowers directly or through any agency is regarded as a part of banks priority sector loans. (E ) Self-Help Groups: SHGs have been launched to combat the problem of growing poverty at the grass roots level. Small, cohesive and participative groups of the poor are formed who regularly pool their savings to make small interest bearing loans to its members. In the process, they lean the nuances of financial discipline. Initially bank credit is not primary objective. It is only after the group stabilizes and gains ability to undertake productive activity and bear risk that micro-credit comes into play. The SHG bank linkage programme has proved to be the major supplementary credit delivery system with a wide acceptance by banks, NGOs and various government departments. It encourages the rural poor to build their capacity to manage their own finances, and then negotiate bank credit on commercial terms. Certain norms have to be observed in the formation of SHGs. To become a member, a person has to be below the poverty line. Only one member of a family can become a member and that person cannot become a member of more than one SHG. There is no limit of maximum number of members can be between 10 and 20. Members of SHGs are supposed to meet regularly, that is, once a week or once a fortnight. However, registration is optional and left to the discretion of the members. (F) Non-Banking Financial Intermediaries: Non-Banking financial Intermediaries are a heterogeneous group of financial institution, other than commercial and cooperative banks. These institutions are an integral part of the Indian financial system. A wide variety of financial institutions is included in it. These institutions raise funds from the public, directly and indirectly, to lend them to ultimate spenders. The Development Banks (such as the IDBI, IFCI, ICICI, SFCs, SIDCs, etc.) fall in this category. They specialize in making term loans to their borrowers. LIC, GIC and its subsidiaries and the UTI are its other all India big term-lending institutions. Out of these three, only UTI is a pure non-banking financial intermediary, the others raise funds in the shape of premium from the sale of insurance. Besides this, there are provident funds and post offices who mobilize public savings in a big way for onward transmission to ultimate borrowers or spenders. A large number of small NBFs such as investment companies loan companies, hire purchase finance companies and the equipment leasing companies, these are private sector companies with only a few exceptions. Functions of Non-Banking Financial Intermediaries: The main functions performed by NBFs are as under: 1. Brokers of Loanable Funds: NBFs act as brokers of loanable funds and in this capacity they intermediate between the ultimate saver and the ultimate investor. They sell indirect securities to the savers and purchase primary securities from investors. Thus, they change debt into credit. By doing so, they take risk on themselves and reduce the risk of ultimate lenders. Not only that, by diversifying their financial assets they spread their risk widely and thus reduce their own risk because low returns on some assets are offset by high return on others. 2. Mobilization of Savings: These institutions mobilize savings for the benefit of the economy. By providing expert financial services like easy liquidity, safety of the principal amount and ready divisibility of savings into direct securities of different values they are able to mobilize more funds and attract larger share of public savings. 3. Channelization of Funds into Investment The NBFs, by mobilizing savings, channelize them into productive investments. Each intermediary follows its own investment policy. For instance, savings and loan associations invest in mortgages insurance companies invest in bonds and securities etc. Thus this channelization of public savings into investment helps capital formation and economic growth. 4. Stabilize the Capital Market These institutions trade in the capital market in a variety of assets and liabilities, and thus equilibrate the demand for and supply of assets. Since they function with a legal framework and rules and they protect the interests of the savers and bring stability to the capital market. 5. Provide Liquidity Since the main functions of the NBFs convert a financial asset into cash easily, quickly and without loss in the capital value, they provide liquidity. They are able to do so, because they advance short-term loans and finance them by issuing claims against themselves for long periods and they diversify loans among different types of borrowers. Types of Non Banking Financial Institutions: The main types of non-banking financial institutionsintermediaries are as under: The Life Insurance Companies: Life Insurance Corporation of India enjoys near monopoly of life insurance in India. It is the biggest institutional investor. The LIC was established in 1 September, 1956 by nationalizing all the life insurance companies operating in India. Prior to nationalization of insurance companies, 245 private insurance companies operate from 97 centres. The main objectives of LIC are (i) To carry on Life Insurance business in India. Life insurance is a very important form of long term savings. (ii) The LIC aims in promoting savings. (iii) To invest profitability the savings collected in the form of payments received from life insurers. The LIC has two tier of capital structure - the initial capital, and premium capital. The initial capital of LIC is Rs. 5 crore provided by the Government of India. The premium paid by policy holders are the principal source of funds by LIC. Besides, the LIC receives interest, dividends, repayments and redemptions which add to its investible resources. The LIC is required to invest atleast 50 of its funds in government and other approved securities. LIC has to invest 10 of its funds in other investments which include loans to state governments for housing and water supply schemes, to Municipal Corporation, and corporation, and cooperative sugar companies, loans to policy holders, fixed deposits with banks and cooperatives societies. The main principle involved is security of funds rather than maximization of return on investment. General Insurance Companies: General Insurance Corporation of India was established in January 1973, when General Insurance Companies were nationalized. At the time of nationalization, there were 68 Indian companies and 45 non-Indian companies in the field. Their business was nationalized and vested in the General Insurance Company and its four subsidiaries viz. National Insurance Company Ltd. and United India Insurance Company Ltd. The GIC is the holding company and its direct business is restricted only to aviation insurance general insurance is handled by the subsidiaries of GIC and they operate various types of policies to suit the diverse needs of various segments of the society. They derive their income from insurance premia and invest the funds in various types of securities as well as in the form of loans. GIC has thus emerged as an important investment institution operating in Indian capital market. Unit Trust of India: The UTI is an investment institution which offers the small investor a share in Indias industrial growth and productive investment with minimum risk and reasonable returns. The UTI was established as a Statutory Corporation in February 1964 under the UTI Act 1964. It commenced its operations from 1 July, 1964. The UTI was established with the objective of mobilizing the savings of the community and channeling them into productive investment. Its objective is to encourage widespread and diffused ownership of industry by affording investors particularly the small investors, a means of acquiring shares assured of a reasonable return with minimum risk. Thus, the primary objective of the Unit Trust in two fold (i) To stimulate and pool the savings of the middle and low income groups (ii) To enable the unit holders to share the benefits and prosperity of the rapidly growing industrialization in the country. The UTI is managed by a board of trustees. It consists of a chairman and 9 other trustees. The chairman is appointed by the government of India in consultation with the IDBI, 4 trustees nominated by the IDBI, one trustee each nominated by the RBI, LIC and SBI and 2 trustees selected by other institutions which contributed to the initial capital of the UTI. The head office of UTI is in Mumbai. It has four zonal offices at Mumbai, Kolkata, Chennai and New Delhi. It has 51 branch offices in various parts of the country. (G) Mutual Funds: A mutual fund is a trust that pools the savings of a number of investors who share a common financial gain. Anybody with an investible surplus of as little as a few thousand rupees can invest in mutual funds. These investors buy units of a particular Mutual Fund Scheme that has defined investment objective and strategy. The money thus collected is then invested by the fund manager in different type of securities. The income earned through investments and the capital appreciation realized by the scheme is shared by its unit holders in proportion to the number of units owned by them. In India, the mutual fund industry started with the setting up of Unit Trust of India in 1964. Public sector banks and financial institutions began to establish mutual funds in 1987. The private sector and financial institutions were allowed to set up mutual funds in 1993. (H) Provident Pension Funds: These funds represent the most significant form of long-term contractual saving of the household sector. At present the annual contribution to these funds is running at double the rate than the rate of annual contribution to life insurance. In the financial year 1999-2000, about Rs. 69.695 crore had accumulated in the provident fund and other accounts with the Government of India. The resources mobilized by the funds during the same year were Rs. 1,465 crore. The provident funds scheme practically started in the post-independence period. Under the legalization, provident funds have been made compulsory in the organized sector of industry, coal mining, plantation and services (such as government, banking, insurance, teaching, etc.) There is a separate P. F. Legislation for coal mining, industries and Assam tea plantations. With the growth of the organized sector of the economy and in wage employment, savings mobilizations through PFs will growth further. The wage - earners are encouraged to join, P. F. schemes and make contributions to them, because thereby alone they are able to earn employers matching contribution to the fund. (I) Post Offices: Post offices serve as the vehicle for mobilizing small savings of the public for the government. These have been established with the sole motive of collecting peoples small savings in urban, semi-urban and rural areas. They are generally known as Savings Banks. In rural areas where majority of the population live, do not have such commercial banks. To create banking habit among them and to collect their scattered small savings, the savings banks have been opened. In India where there are no commercial banks, the Post-Office perform the functions of commercial banks, they collect the deposits of the people, open their deposit accounts and pay interest for the deposited money. In simple words, bank refers to an institution that deals in money. This institution accepts deposits from the people and gives loans to those who are in need. Besides dealing in money, banks these days perform various other functions, such as credit creation, agency job and general service. The spectrum of needs and requirements of individuals, organizations and sectors of the economy is very vast and diverse. Banks have come up with a whole range of banking products and services to suit the requirements of their clients. Banking sectors include corporate banking, international banking and rural banking. 1.6 Test Questions Q1. What is a Bank Explain the main functions of a Bank. Q2. Explain the various types of retail banking services offered by banks. Q3. Give an overview of different banking sectors in India. 1.7 Further Readings Varshney P. N.amp Mittal D. K. Indian Financial System , Sultan Chand ampSons G. Ramesh Babu, Financial Markets and Institutions , Concept Publishing Company. Tripathi Prava Nalini, Financial Services , Prentice Hall of India, 2008. Jain T. R. Indian Financial System . V. K. Publications.
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