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Indian Banking System- UNIT- 1 Structure and Organization of Banks , Reserve bank of India, Apex banking institutions, Commercial

banks , Regional rural banks , Cooperative banks , Development banks. STRUCTURE & ORGANISATION OF BANKS : Indian banking structure can be broadly classified in to two categories : (i) ORGANISED SECTOR (ii) UNORGANISED SECTOR


Main constituents of organized sector banks are:


Reserve Bank of India

Reserve Bank of India is the apex monetary Institution of India which is responsible for the regulation of currency, printing of banknotes and minting coins. It is also called as the central bank of the country. The bank was established on April1, 1935 in Kolkata according to the Reserve Bank of India act 1934 but was later shifted to Mumbai in 1937. RBI was initially privately owned but since nationalization in 1949, the Reserve Bank is owned by the Government of India.

Commercial Banking System consists of : (i) Scheduled Banks (ii) Non scheduled Banks Scheduled Banks : Scheduled banks are included in the second Schedule of the Reserve Bank of India under Act, 1934. Every scheduled bank must have a paid up capital & reserves of an aggregate value of at least Rs.5 lakhs.


banks are owned & controlled by the government . The public sector commercial banking in India started with setting up of State Bank of India in 1955. At present 8 state banks & associate banks are in the group of S.B.I. i.e. State bank of Hyderabad, State Bank of Indore etc. as well as 20 nationalized banks i.e. Bank of Baroda , Allahabad Bank etc. Regional Rural Banks are also the scheduled banks which are governed by R.R.B. ACT,1976.

Private Sector Banks : Private sector
banks continued to operate in the banking sector after nationalization of 20 banks in 1969 &1980. According to new policy framed in January1993 by R. B. I. new banks were formed in private sector . Such as : The U.T.I. Bank Ltd., HDFC Bank Ltd., etc.

Foreign Banks : Foreign banks are working in
India from British days. ANG Grindlays Bank has 56 branches, The Standard Chartered Bank has 21 branches. New foreign banks are : Barclays bank, Bank of Ceylon, Fuji bank etc. CO-OPERATIVE BANKS: It mainly meets the credit needs of rural areas & agriculture. Cooperative banks has three tier functioning . State Co-operative bank acts as an apex body at the state level , District co-operative banks are operating at the district level and co-operative society (banks) are operating at villages & town

These institutions look after different sectors of economy . For example: IDBI,NABARD ,EXIM BANK ETC.

Unorganized Banking Sector

The unorganized sector of banking in India consists of money lenders and indigenous bankers known as shroffs, sahukars, mahajans, chettis, etc. These are individuals doing banking business, along with trading and commission business in many cases. Their activities are not organized. They follow rules of their own. The rate of interest charged by them is very high.

Organizational structure of banks

Definition of organizational structure of banks

According to G.Dessler, An organizational set up consists of people who carry out differentiated tasks which are co-ordinated to contribute to organizations goals. Types of organizational structure of banks: The organizational set up of a bank is mainly based on departmentalization : Departmentalization:- It is the process of dividing the total activities of the bank in to various departments, unit or sections. The similar nature of bank activities are grouped in one department.

Types of departmentalization
In banking system these two types of departmentalization is followed:1. Departmentalization by territory:- The organizational set up of a commercial bank on the basis of territory is of following type : (i)Central office: central office is main controlling authority of a particular is supreme body that determines the objectives , policies & frame rule & regulation. (ii) Regional office: The regional office coordinate the functions of the branches located in a particular region. It is charged with responsibilities of implementing the objectives & policies of top management to the branches.

Branch Office: The branch offices are the centers that do the actual banking business. They are in direct contact with customers & cater to their needs. 2. Departmentalization by Function: Functions include such activities as lending, investing, trust services, international banking, accepting deposits etc. Line managers are responsible for the direct functions of a commercial bank.

Management of banks
According to George R. Terry, management is a distinct process consisting of planning, organizing ,activating & controlling performance to determine & accomplish the objective by the use of people & resources. Objectives of bank management: 1.Maximisation of profit 2.Meet challenges of competitors 3.Improve the customer services 4.Introduction of new schemes 5. Manpower planning

Fundamental functions of bank management

1.Planning 2.Organising 3.Staffing 4.Directing 5.Communication 6.Controlling

Functional areas of bank management

1.Deposit mobilization 2.Financial management 3.Credit management 4. Profit evaluation 5.Liquidity management(CRR,SLR) 6.Marketing Management 7.Portfolio(Asset) Management

Commercial banks
According to the Banking Companies (Regulation)Act of India ,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 withdraw able by cheese , draft or otherwise.

Features of commercial banks:

1.Commercial establishment 2.Accept deposits 3.Repayment of accepted deposits 4.Advancing loans to public 5.Earning profit

The role of commercial banks

Commercial banks engage in the following activities: 1. processing of payments by way of telegraphic transfer, internet banking, or other means 2. issuing bank drafts and bank cheques 3. accepting money on term deposit

--------4. lending money by overdraft, installment loan, or other means 5. providing documentary and standby letter of credit, guarantees, performance bonds, securities underwriting commitments and other forms of off balance sheet exposures 6. safekeeping of documents and other items in safe deposit boxes 7. sales, distribution or brokerage, with or without advice, of: insurance, unit trusts and similar financial products as a

Functions of Commercial Banks

The functions of a commercial banks are divided into two categories: (i) Primary functions, and (ii) Secondary functions including agency functions. (iii) Modern Functions (i) Primary functions: The primary functions of a commercial bank include: (a) accepting deposits; and (b) granting loans and advances;

(a) Accepting deposits

The most important activity of a commercial bank is to mobilise deposits from the public. People who have surplus income and savings find it convenient to deposit the amounts with banks . Depending upon the nature of deposits, funds deposited with bank also earn interest. Thus, deposits with the bank grow along with the interest earned. If the rate of interest is higher, public are motivated to deposit more funds with the bank. There is also safety of funds deposited with the

Different Modes of Accepting Deposits

Different modes of Acceptance of Deposits Banks receive money from the public by way of deposits. The following types of deposits are usually received by banks: i) Current deposit ii) Saving deposit iii) Fixed deposit iv) Recurring deposit v) Miscellaneous deposits

-----i) Current Deposit Also called demand deposit, current deposit can be withdrawn by the depositor at any time by cheques. Businessmen generally open currentaccounts with banks. Current accounts do not carry any interest as theamount deposited in these accounts is repayable on demand withoutany restriction. The Reserve bank of India prohibits payment of interest on current accounts or on deposits upto 14 Days or less except where prior sanctionhas been obtained. Banks usually charge a small amount known asincidental charges on current deposit accounts depending on the numberof transaction

Savings deposit/Savings Bank Accounts

Savings deposit account is meant for individuals who wish to deposit small amounts out of their current income. It helps in safe guarding their future and also earning interest on the savings. A saving account can be opened with or without cheque book facility. There are restrictions on the withdrawls from this account. To open a savings account, it is necessary for the depositor to be introduced by a person having a current or savings account with the same bank.

Fixed deposit
The term Fixed deposit means deposit repayable after the expiry of a specified period. Since it is repayable only after a fixed period of time, which is to be determined at the time of opening of the account it is also known as time deposit. The rate of interest on fixed deposits depends upon the period of deposits. The longer the period, the higher is the rate of interest offered

Recurring Deposits
Recurring Deposits are gaining wide popularity these days. Under this type of deposit, the depositor is required to deposit a fixed amount of money every month for a specific period of time. Each instalment may vary from Rs.5/- to Rs.500/- or more per month and the period of account may vary from 12 months to 10 years. After the completion of the specified period, the customer gets back all his deposits along with the cumulative interest accrued on the deposits.

Miscellaneous Deposits
Banks have introduced several deposit schemes to attract deposits from different types of people, like Home Construction deposit scheme , Sickness Benefit deposit scheme, Children Gift plan, Old age pension scheme, Mini deposit scheme, etc.

----b) Grant of loans and advances The second important function of a commercial bank is to grant loans and advances. Such loans and advances are given to members of the public and to the business community at a higher rate of interest than allowed by banks on various deposit accounts. The rate of interest charged on loans and advances varies depending upon the purpose, period and the mode of repayment. The difference between the rate of interest allowed on deposits and the rate charged on the Loans is the main source of a banks income.


A loan is granted for a specific time period. Generally, commercial banks grant short-term loans. But term loans, that is, loan for more than a year, may also be granted. The borrower may withdraw the entire amount in lumpsum or in instalments. However, interest is charged on the full amount of loan. Loans are generally granted against the security of certain assets. A loan may be repaid either in lumpsum or in instalments

Different methods of Granting Loans by Bank

The basic function of a commercial bank is to make loans and advancesout of the money which is received from the public by way of deposits.The loans are particularly granted to businessmen and members of thepublic against personal security, gold and silver and other movable andimmovable assets. Commercial bank generally lend money in thefollowing form: i) Cash credit ii) Loans iii) Bank overdraft, and iv) Discounting of Bills

-----i) Cash Credit : A cash credit is an arrangement whereby the bank agrees to lend money to the borrower up to a certain limit. The bank puts this amount of money to the credit of the borrower. The borrower draws the money as and when he needs. Interest is charged only on the amount actually drawn and not on the amount placed to the credit of borrowers account. Cash credit is generally granted on a bond of credit or certain other securities. This a very popular method of lending in our country

------ii) Loans : A specified amount sanctioned by a bank to the customer is called a loan. It is granted for a fixed period, say six months, or a year. The specified amount is put on the credit of the borrowers account. He canwithdraw this amount in lump sum or can draw cheques against thissum for any amount. Interest is charged on the full amount even if theborrower does not utilise it. The rate of interest is lower on loans incomparison to cash credit. A loan is generally granted against the security of property or personal security. The loan may be repaid in lump sum or in instalments. Every bank has its own procedure of granting loans. Hence a bank is at liberty to grant loan depending on its own resources. The loan can be granted as: a) Demand loan, or b) Term loan

a) Demand loan
Demand loan is repayable on demand. In other words it is repayable at short notice. The entire amount of demand loan is disbursed at one time and the borrower has to pay interest on it. The borrower can repay the loan either in lump sum (one time)or as agreed with the bank. Loans are normally granted by the bank against tangible securities including securities like N.S.C., Kisan Vikas Patra Life Insurance policies and U.T.I. certificates.

b) Term loans
Medium and long term loans are called Term loans. These loans are repayable over a period of 5 years and maximum up to 15 years. Term loan is required for the purpose of setting up of new business activity, renovation, modernization, purchase of plant and machinery, vehicles, land or purchase of other immovable assets. These loans are generally secured against the mortgage of land, plant and machinery, building and other securities. The normal rate of interest charged for such loans is generally quite high.

ii) Advances
An advance is a credit facility provided by the bank to its customers. It differs from loan in the sense that loans maybe granted for longer period, but advances are normally granted for a short period of time. Further the purpose of granting advances is to meet the day to day requirements of business. The rate of interest charged on advances varies from bank to bank. Interest is charged only on the amount withdrawn and not on the sanctioned amount.

Modes of short-term financial assistance

Banks grant short-term financial assistance by way of cash credit, overdraft and bill discounting. a) Cash Credit Cash credit is an arrangement whereby the bank allows the borrower to draw amounts up to a specified limit. The amount is credited to the account of the customer. The customer can withdraw this amount as and when he requires. Interest is charged on the amount actually withdrawn. Cash Credit is granted as per agreed terms and conditions with the customers.

(b)Bank Overdraft

Overdraft is also a credit facility granted by bank. A customer who has a current account with the bank is allowed to withdraw more than the amount of credit balance in his account. It is a temporary arrangement. Overdraft facility with a specified limit is allowed either on the security of assets, or on personal security , or both.

(c) Discounting of Bills

Banks provide short-term finance by discounting bills, that is , making payment of the amount before the due date of the bills after deducting a certain rate of discount. The party gets the funds without waiting for the date of maturity of the bills. Incase any bill is dishonoured on the due date, the bank can recover the amount from the customer

Secondary functions
These are as follows 1) Issuing letters of credit, travellers cheques, circular notes etc. 2) Undertaking safe custody of valuables, important documents, and securities by providing safe deposit vaults or lockers; 3) Providing customers with facilities of foreign exchange. 4) Transferring money from one place to another; and from one branch to another branch of the bank.

-5) Standing guarantee on behalf of its customers, for making payments for purchase of goods, machinery, vehicles etc. 6 Collecting and supplying business information; 7) Issuing demand drafts and pay orders; and, 8) Providing reports on the credit worthiness of customers.


(i) Agency Services Agency services are those services which are rendered by commercial banks as agents of their customers. They include : a) Collection and payment of cheques and bills on behalf of the customers; b) Collection of dividends, interest and rent, etc. on behalf of customers, if so instructed by them; c) Purchase and sale of shares and securities on behalf of customers;

--d) Payment of rent, interest, insurance premium, subscriptions etc. on behalf of customers, if so instructed; e) Acting as a trustee or executor; f) Acting as agents or correspondents on behalf of customers for other banks and financial institutions at home and abroad.

ii) General utility services

These are available to the public on payment of a fee or charge:a)Issuing letters of credit and travellers cheques; b) Underwriting of shares, debentures, etc.; c) Safe-keeping of valuables in safe deposit locker; d) Underwriting loans floated by government and public bodies.

-e) Supplying trade information and statistical data useful to customers; f) Acting as a referee regarding the financial status of customers; g) Undertaking foreign exchange business.

(iii)Modern functions
1. Automatic teller machines (ATM) 2. Credit Cards 3. Mail Transfer & Telegrafic Transfer 4. Tele Banking 5. Internate Banking 6.Round the clock Banking

Different Types of Banks These are various kinds of Banks : Type 1. Saving Banks Saving banks are established to create saving habit among the people. These banks are helpful for salaried people and low income groups. The deposits collected from customers are invested in bonds, securities, etc. At present most of the commercial banks carry the functions of savings banks. Postal department also performs the functions of saving bank

Type 2. Commercial Banks

Commercial banks are established with an objective to help businessmen. These banks collect money from general public and give short-term loans to businessmen by way of cash credits, overdrafts, etc. Commercial banks provide various services like collecting cheques, bill of exchange, remittance money from one place to another place. In India, commercial banks are established under Companies Act, 1956. In 1969, 14 commercial banks were nationalised by Government of India. The policies regarding deposits, loans, rate of interest, etc. of these banks are controlled by the Central Bank.

Type 3. Industrial Banks / Development Banks

Industrial / Development banks collect cash by issuing shares & debentures and providing long-term loans to industries. The main objective of these banks is to provide long-term loans for expansion and modernisation of industries. In India such banks are established on a large scale after independence. They are Industrial Finance Corporation of India (IFCI), Industrial Credit and Investment Corporation of India (ICICI) and Industrial Development Bank of India (IDBI).

Type 4. Land Mortgage / Land Development Banks

Land Mortgage or Land Development banks are also known as Agricultural Banks because these are formed to finance agricultural sector. They also help in land development. In India, Government has come forward to assist these banks. The Government has guaranteed the debentures issued by such banks. There is a great risk involved in the financing of agriculture and generally commercial banks do not take much interest in financing agricultural sector.

Type 5. Indigenous Banks

Indigenous banks means Money Lenders and Sahukars. They collect deposits from general public and grant loans to the needy persons out of their own funds as well as from deposits. These indigenous banks are popular in villages and small towns. They perform combined functions of trading and banking activities. Certain well-known indian communities like Marwaries and Multani even today run specialised indigenous banks.

Type 6. Central / Federal / National Bank

Every country of the world has a central bank. In India, Reserve Bank of India, in U.S.A, Federal Reserve and in U.K, Bank of England. These central banks are the bankers of the other banks. They provide specialised functions i.e. issue of paper currency, working as bankers of government, supervising and controlling foreign exchange. A central bank is a non-profit making institution. It does not deal with the public but it deals with other banks. The principal responsibility of Central Bank is thorough control on currency of a country.

Type 7. Co-operative Banks

In India, Co-operative banks are registered under the Co-operative Societies Act, 1912. They generally give credit facilities to small farmers, salaried employees, small-scale industries, etc. Co-operative Banks are available in rural as well as in urban areas. The functions of these banks are just similar to commercial banks.

Type8. Exchange Banks

Hong Kong Bank, Bank of Tokyo, Bank of America are the examples of Foreign Banks working in India. These banks are mainly concerned with financing foreign trade. Following are the various functions of Exchange Banks :1. Remitting money from one country to another country, 2. Discounting of foreign bills, 3. Buying and Selling Gold and Silver, and 4. Helping Import and Export Trade

Type 9. Consumers Bank

Consumers bank is a new addition to the existing type of banks. Such banks are usually found only in advanced countries like U.S.A. and Germany. The main objective of this bank is to give loans to consumers for purchase of the durables like Motor car, television set, washing machine, furniture, etc. The consumers have to repay the loans in easy installments.

Features of organizational structure of banks

1. High degree of Departmentation 2. Regional or zonal office 3. Hierarchal management A- Top management B- Middle management C- Branch management

The Board of Directors is the apex management of a commercial bank. The board of Directors frame policies ,concentrate more on important issues & take strategic decisions . Functions of Boards of Directors :Following are the important functions1. Setting bank purpose & mission- Directors of a bank is to determine the goals and objectives of the banks business . The boards of directors has to decide in the light of capital position, size of deposits , demand for loan& investment .

--2. Formulating Bank Policies :- Board has to formulate specific policies for the successful attainment of the objectives. The realization of objectives is made easy with the help of policies . 3. Selection of bank executives :Banking activities require trained executives with knowledge. Executives must have knowledge of investments, credits operations , people & machines.

-4. Determination of Duty & Authority of Executive :- The executives must be given sufficient training to enable them to cope with administrative details & follow the policies.

5. Standing Committee:- Standing

committee is constituted by boards. It ensures better co-ordination between various departments . 6.Delegation of authorities :- Boards determine authority and duties of executives to perform their functions properly and efficiently.

Duties & liabilities of directors

Statutory Duties of Directors :- 1.Not to pay commission , brokerage , discount on shares in excess of the aggregate 2.5% the of paid up value of shares. 2.Not to create any charge upon the unpaid capital of the bank. 3.Not to pay dividends unless all the capitalized expenses are completely written off . 4.To maintain not less than 20% of the total time & demand liabilities of the bank in form of cash , gold or securities.

--5. To ensure that the annual accounts of the bank are prepared on last working day of every calendar year as given in the third schedule of the act. 6.To seek prior approval of Reserve Bank before appointing or removing any auditors of the bank. 7. To furnish three copies of account and balance sheet and auditors report with in three months of the of the period they refer.

General duties of directors of a bank

To supervise the general affairs of of the bank 2. To direct and control its subordinates 3. To attend board meetings 4. To examine reports and audit records 5. To make best efforts to collect slow & doubt full debts 6. To investigate credit worthy ness of the applicant granting loan.

Liabilities of bank directors

a. b.


Liable to outsiders for ultra-vires act Liability for mis-statement in prospectus Liability for breach of trust(i)liability for making secret profit (ii)liability for loss caused by his negligence

Organizational set up of central office

1. Board of directors :- The board of directors is the highest authority of a commercial bank The board of directors shall consist of not more than two whole time directors& three directors to represent the interest of farmers , workers & artisans . One directors have to represent the depositors.

2. Chairman cum-managing director

The chairman cum managing director is the chief executive of the bank . He presides over the meeting of board of directors. 3. Executive director: He is the executive head of the bank . He coordinates & supervises all operational responsibilities . 4. General managers of various departments :- a- loans & advances department b-investment department

-c. Foreign exchange department :- ( issue of letter of credit , rediscounting ,foreign securities.) d. Audit department e. Public relation department f. Legal department g. Organizational set up of zonal offices

Regional Rural Bank

Establishment & Growth
1. Initially, five RRBs were set up on October 2, 1975 which were sponsored by Syndicate Bank, State Bank of India, Punjab National Bank, United Commercial Bank & United Bank of India . Capital share being 50% by the central government, 15% by the state government and 35% by the scheduled bank. 2. Earlier Reserve Bank of India had laid down ceilings on the rate of interest to be charged by these RRBs. However from August 1996 the RRBs have been granted freedom to fix rates of interest,
which is usually in the range of 14-18% for advances.
There are 84 RRB banks at present.

--3. Each RRB is sponsored by a public sector bank which provides assistance in several ways viz., subscription to its share capital provision of such managerial and financial assistance as may be mutually agreed upon and help the recruitment and training of personnel during the initial period of its functioning.

Objectives of RRBs
RRBs was established with the following objective :1. Bridging the credit gap in rural areas 2. Check the outflow of rural deposits to urban areas 3. Reduce regional imbalances and increase rural employment , 4.provide credit and other facilities especially to the small and marginal farmers agricultural laborers, artisans etc.

--5.will operate within the local limits specified by notification. 6.establishing branches or agencies at places notified by the Government.

Functions of RRBs
1.Every RRB is authorized to carry on to transact the business of banking as defined in the Banking Regulation Act:(a) granting loans and advances to small and marginal farmers and agricultural laborers including agricultural marketing societies agricultural processing societies cooperative farming societies & primary agricultural credit societies.

--(b) granting loans and advances to artisans small entrepreneurs and persons of small means engaged in trade commerce industry or other productive activities within its area of operation. (c)The Reserve Bank of India has brought RRBs under the ambit of priority sector lending on par with the commercial banks. They have to ensure that forty percent of their advances are accounted for the priority sector. Within the 40% priority target, 25% should go to weaker section or 10% of their total advances to go to weaker section.

Regional Rural Banks in India

1.The State Bank of India is one of the major commercial banks having regional rural banks. There are 30 Regional Rural Banks in India, under the State Bank of India and it is spread in 13 states across India. The number of branches the SBI Regional Rural Banks is more than 2000.

2. Haryana State Cooperative Apex Bank Limited

The main purpose of the Haryana State Cooperative Apex Bank Limited is to financially assist the artisans in the rural areas, farmers and agrarian unskilled labor, and the small rural entrepreneurs of Haryana. Haryana State Cooperative Apex Bank Limited also referred as the HARCOBANK, is one of the apex organizations in the state of Haryana.

3. National Bank for Agriculture and Rural Development

The main purpose of the National Bank for Agriculture and Rural Development is to provide credit for the development and publicity of small scaled industries, handicrafts, rural crafts, village industries, cottage industries, agriculture, etc.

4. United Bank of India

The role played by the United Bank of India (UBI) as one of the regional rural banks is phenomenal. The UBI has propagated the network of branches in order to actively take part in the rural improvement and development.

5. Syndicate Bank
The development of the Syndicate Bank was in accordance to the development of the rural banking sector in India . The Syndicate Bank has performed actively in the development of the rural sector .

6. Regional Rural Banks in Tamil Nadu

Indian Bank has sponsored two Regional Rural Banks (RRBs) viz., Saptagiri Grameena Bank and Pallavan GramaBank. Pallavan Grama Bank with Head Quarters at Salem is operating in 14 districts .

7. Regional Rural Banks in Uttar Pradesh:

1.Allahabad UP Gramin Bank 2.Aryavart Gramin Bank 3.Ballia Etawah Gramin Bank 4.Baroda Uttar Pradesh Gramin Bank 5.Kashi Gomti Samyut Gramin Bank 6.Kshetriya Kisan Gramin Bank 7.Prathama Bank 8.Sarva UP Gramin Bank 9.Shreyas Gramin Bank 10.Purvanchal Gramin Bank

---Regional rural banks allowed to start branches in Tier 2 cities without RBI nod;The Reserve Bank of India allowed regional rural banks (RRBs) to open branches in Tier ii cities without taking its permission on August 2, 2012. It has been decided to allow RRBs to open branches without having the need to take permission from Reserve Bank of India .

Organizational structure of Regional Rural Banks

1. A Regional Rural Bank is sponsored by a commercial bank. The sponsored bank requests the Central Government for this purpose which issues a notification after consulting the concerned state government. 2. Generally , regional rural bank covers one district & maximum coverage of a RRB has been eight district. 3. Only the Manipur RRB covers the entire state of Manipur.

Board of Directors
The RRB is governed by a Board of directors who exercises all the powers and discharges all the functions of RRB. It consists of :i- a chairman appointed by the Central government for five years, ii- three directors nominated by the central government iii- two directors nominated by the concerned state iv- three directors nominated by the sponsor bank V- NABARD is vested with powers of inspection of RRBs.

Functions /objectives of RRBs

Provide loans to Rural population :RRB provides loans & advances to weaker section of the society. 2. Grant loans to co-operative societies:RRBs also provides loans & advances to co-operative societies including marketing societies , co-operative farming society etc. 3. Banking services:- RRB has to take the banking services to the doorsteps of the rural masses .

--4. Mobilize Rural saving:- RRB mobilize the rural savings by accepting deposits & channelise them for productive activities in the rural areas. 5. Arrangement of credit :- RRB provide credit to rural areas through refinance. 6. Cheap supply of credit :- RRB is to bring down the cost of supplying credit in rural areas. 7. Generate Employment opportunities :- RRB is major employment provider in rural areas.

Recent position( achievements)

In recent years RRBs performance is as follows:1. Extend advances for purchase of durable consumer goods. 2. Issue travellers cheques as agents of their sponsor bank & provides locker facility, 3. There are now 195 RRB in 23 states with 14500 branches , 4. Over 95% loans are provided to weaker section of society.

Performance of RRBS by March 2011

The following programmes were included in the performance of RRB Credit Flow to Agriculture; Current Viability; Non-Performing Assets (NPA) position; Capital-To-Risk-Weighted Assets Ratio (CRAR) position; Core Banking Solutions (CBS) IN RRBs; Branch Expansion of RRBs, etc.

--As on 31 March 2010, there were 82 RRBs with a network of 15475 branches spread over 619 districts in 26 States and 1 Union Territory. The following measures have been initiated to expand the outreach of the RRBs: 1.The RRBs were given a target in 2007 to open 2000 branches by March, 2011; 2.RRBs are required to migrate to Core Banking Solution (CBS) by September 2011 (As on date, 21 RRBs have already achieved 100% CBS status);

3. The Sponsor Banks would provide the required support to the RRBs sponsored by them for this purpose;

---4. For up gradation of Technology for Financial Inclusion, the RRBs are being provided funds from Financial Inclusion Fund (FIF) and Financial Inclusion Technology Fund (FITF) by NABARD.

5.As on 31.03.2010, 3 RRBs out of 82 RRBs were incurring losses. (Manipur Rural Bank Rs. 2.98 crore, Puduval Bharthiar Grama Bank Rs. 0.22 crore and Mahakaushall Gramin Bank- Rs. 2.45 crore)
6.The profitability of RRBs, as a segment, has been improving.

Factors responsible for losses

some of the factors responsible for losses in RRBs are identified as : 1.low recovery, 2.High NPA, 3.low business level, 4.low productivity per branch and per staff, 5. high cost structure, 6.poor financial management, area of operation, 8.non-viable level of operation in branches located in resource-poor areas etc. of the RRBs, namely Puduval Bharthiar Grama Bank, which was set up in March 2008, has not yet reached a breakeven point;

What is co-operative bank :According to the International Cooperative Alliance Statement of cooperative identity, a co-operative is an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise. Co-operatives are based on the values of self-help, self-responsibility, democracy, equality, equity and solidarity.

Principles (functions)of cooperative bank

The 7 co-operative principles are : 1. Voluntary and open membership 2. Democratic member control 3. Member economic participation 4. Autonomy and independence 5. Education, training and information 6. Co-operation among Co-operatives 7. Concern for Community

features :
1. Customer's owned entities : In a cooperative bank, the needs of the customers meet the needs of the owners, as co-operative bank members are both. As a consequence, the first aim of a co-operative bank is not to maximize profit but to provide the best possible products and services to its members. Some co-operative banks only operate with their members but most of them also admit non-member clients to benefit from their banking and financial services.

---2. Democratic member control : cooperative banks are owned and controlled by their members, who democratically elect the board of directors. Members usually have equal voting rights, according to the cooperative principle of "one person, one vote". 3.Profit allocation : In a co-operative bank, a significant part of the yearly profit/surplus is usually allocated to constitute reserves. A part of this profit can also be distributed to the cooperative members.

-4. Co-operative banks are deeply rooted inside local areas and communities. They are involved in local development and contribute to the sustainable development of their communities, as their members and management board usually belong to the communities in which they exercise their activities. By increasing banking access in areas or markets where other banks are less present - farmers in rural areas, middle or low income households in urban areas - co-operative banks reduce banking exclusion and foster the economic ability of millions of people.

Organizational structure of cooperative Bank

The structure of commercial banking is of branch-banking type; while the cooperative banking structure is a three tier federal one. - A State Co-operative Bank works at the apex level (i.e. works at state level). - The Central Co-operative Bank works at the Intermediate Level (i.e. District Cooperative Banks ltd. works at district level) - Primary co-operative credit societies at base level (At village level)

Difference between Co-operative banks & Commercial bank

They differ from commercial banks in the following respects 1. Commercial banks are joint-stock companies under the companies act of 1956 whereas cooperative banks were established under the co-operative societys acts of different states. 2. Commercial bank structure is branch banking structure whereas co-operative banks have a three tier setup, with state cooperative bank at apex level, central /district co-operative bank at district level, and primary co-operative societies at rural level.

--3. Only some of the sections of banking regulation act of 1949 (fully applicable to commercial banks), are applicable to co-operative banks, resulting only in partial control by RBI of co-operative banks and 4.Co-operative banks function on the principle of cooperation and not entirely on commercial parameters.

RBI Policies for co-operative banks

The RBI appointed a high power committee in May 1999 under the chairmanship of Shri. K. Madhava Rao, Ex-Chief Secretary, Government of Andhra Pradesh to review the performance of Urban Co-operative Banks (UCBs) and to suggest necessary measures to strengthen this sector. With reference to the terms given to the committee, the committee identified five broad objectives: 1. To preserve the co-operative character of UCBs 2. To protect the depositors interest 3. To reduce financial risk

Types of Co-operative Banks

The co-operative banks are small-sized units which operate both in urban and non-urban centers. They finance small borrowers in industrial and trade sectors besides professional and salary classes. Regulated by the Reserve Bank of India, they are governed by the Banking Regulations Act 1949 and banking laws (co-operative societies) act, 1965. The co-operative banking structure in India is divided into following 5 components:

1. Primary Co-operative Credit Society

The primary co-operative credit society is an association of borrowers and non-borrowers residing in a particular locality. The funds of the society are derived from the share capital and deposits of members and loans from central co-operative banks. The loans are given to members for the purchase of cattle, fodder, fertilizers, pesticides, etc.

2. Central co-operative banks

These are the federations of primary credit societies in a district and are of two types those having a membership of primary societies only and those having a membership of societies as well as individuals. The funds of the bank consist of share capital, deposits, loans and overdrafts from state co-operative banks and joint stocks. These banks provide finance to member societies within the limits of the borrowing capacity of societies. They also conduct all the business of a joint stock bank.

3.State co-operative banks

The state co-operative bank is a federation of central co-operative bank and acts as a watchdog of the co-operative banking structure in the state. Its funds are obtained from share capital, deposits, loans and overdrafts from the Reserve Bank of India. The state cooperative banks lend money to central co-operative banks and primary societies and not directly to the farmers.

4. Land development banks

The Land development banks are organized in 3 tiers namely:- state, central, and primary level. They meet the long term credit requirements of the farmers for developmental purposes. They are governed both by the state government and Reserve Bank of India. Recently, the supervision of land development banks has been assumed by NABARD. The sources of funds for these banks are the debentures subscribed by both central and state government. These banks do not accept deposits from the general public.

5.Urban Co-operative Banks

The term Urban Co-operative Banks (UCBs) refers to primary co-operative banks located in urban and semi-urban areas.. They mainly rely upon deposits from members and non-members and in case of need, they get finance from either the district central co-operative bank to which they are affiliated or from the apex co-operative bank if they work in big cities where the apex bank has its Head Office. They provide credit to small scale industrialists, salaried employees, and other urban and semi-urban residents.

What are the functions of Cooperative Banks in India?

1.Cooperative banks in India finance rural areas under:

1.Farming 2.Cattle 3.Milk 4.Hatchery 5.Personal finance

11. Cooperative banks in India finance urban areas under:1.Self-employment 2.Industries 3.Small scale units 4Home finance 5.Consumer finance 6.Personal finance

Meaning of Development Banks

Development banks are those financial institutions engaged in the promotion and development of industry, agriculture and other key sectors. In the words of A.G. Kheradjou :- A development bank is like a living organism that reacts to the socialeconomic environment and its success depends on reacting most aptly to that environment.

D.M. Mithani states that A development bank may be defined as a financial institution concerned with providing all types of financial assistance i.e. medium as well as long-term ,to business units in the form of loans, underwriting, investment and guarantee operations and development in general and industrial.

Features of a development bank

A development bank has the following features or characteristics: 1. A development bank does not accept deposits from the public like commercial banks and other financial institutions who entirely depend upon saving mobilization.

2. It is a specialized financial institution which provides medium term and long-term lending facilities. 3. It is a multipurpose financial institution. Besides providing financial help it undertakes promotional activities also.
4. It helps an enterprises from planning to operational level.

----5. It provides financial assistance to both private as well as public sector institutions. 6. The role of a development bank is of gap filler. When assistance from other sources is not sufficient then this channel helps. 7. Development banks primarily aim to accelerate the rate of growth. It helps industrialization specific and economic development in general. 8. The objective of these banks is to serve public interest rather than earning profits. 9. Development banks react to the socioeconomic needs of development.

Small Industries Development Bank of India (SIDBI)

SIDBI was established as wholly owned subsidiary of Industrial Development Bank of India (IDBI) under the small Industries Development of India Act 1989. It is the principal institution for promotion, financing and development of industries in the small-scale sector. Capital:- SIDBI started its operations from April 1990 with an initial authorised capital of Rs. 250 crore, which could be increased to Rs. 1000 crore.

What are the objectives of SIDBI?

In the setting up of SIDBI, the main purpose of the government was to ensure larger flow of assistance to the small-scale units. To meet this objective, the immediate thrust of the SIDBI was on the following measures: (i) initiating steps for technological upgradation and modernisation of existing units; (ii) expanding the channels for marketing the products of the small scale sector; and (iii) promotion of employment-oriented industries, especially in semi- urban areas to create more employment opportunities and thereby checking migration of population to urban areas.

What are the functions of SIDBI?

The major functions of SIDBI are given below: (i) It refinances loans and advances provided by the existing lending institutions to the small-scale units. (ii) It discounts and rediscounts bills arising from sale of machinery to and manufactured by small-scale industrial units. (iii) It extends seed capital/soft loan assistance under National Equity Fund, Mahila Udyam Nidhi and Mahila Vikas Nidhi and seed capital schemes.

---(iv) It grants direct assistance and refinance loans extended by primary lending institutions for financing exports of products manufactured by small-scale units. (v) It provides services like factoring, leasing, etc. to small units. (vi) It extends financial support to State Small Industries Corporations for providing scarce raw materials to and marketing the products of the small-scale units. (vii) It provides financial support to National Small Industries Corporation for providing; leasing, hire purchase and marketing help to the small-scale units.

Development Banks in India

Development banking was started after the World War II. It provided finance to reconstruct the buildings and industries which were destroyed in the war. In India, development banking was started immediately after independence. The arrangement of development

Types of development bank

Development banks in India are classified into following five groups:

1.Industrial Development Banks : It includes, for example, Industrial Finance Corporation of India (IFCI), Industrial Development Bank of India (IDBI), and Small Industries Development Bank of India (SIDBI). 2.Agricultural Development Banks : It includes, for example, National Bank for Agriculture & Rural Development (NABARD). 3. Export-Import Development Banks : It includes, for example, Export-Import Bank of India (EXIM Bank). 4. Housing Development Banks : It includes, for example, National Housing Bank (NHB). 5.Industrial Finance Corporation of India (IFCI) is the first development bank in India. It started in 1948 to provide finance to medium and large-scale industries in India.

NABARD is set up as an apex Development Bank with a mandate for facilitating credit flow for promotion and development of agriculture, small-scale industries, cottage and village industries, handicrafts and other rural crafts. It also has the mandate to support all other allied economic activities in rural areas, promote integrated and sustainable rural development and secure prosperity of rural areas. NABARD was set up in the year 1982. The Agricultural Refinance & Development Corporation (ARDC) which was set up to look in to the credit requirements in 1963 has also been merged with NABARD.

Role of NABARD
NABARD is entrusted with the following role :1.Providing refinance to lending institutions in rural areas.

2.Bringing about or promoting institutional development.

3.Evaluating, monitoring and inspecting the client banks . 4.Acts as a coordinator in the operations of rural credit institutions .

---5.Extends assistance to the government, the Reserve Bank of India and other organizations in matters relating to rural development 6.Offers training and research facilities for banks, cooperatives and organizations working in the field of rural development 7.Helps the state governments in reaching their targets of providing assistance to eligible institutions in agriculture and rural development 8. Acts as regulator for cooperative banks and RRBs.

Some of the milestones in NABARD's activities are:

NABARD has been pursuing a policy of promoting agricultural credit. NABARD provides 70% of loans through cooperatives & 30% through commercial banks. 2. About 67% of the total disbursement of the NABARD have been for minor irrigation. 3. NABARD has created Rural Infrastructural Development Fund to accelerate the agricultural development.

----4. 5.

NABARD also provides financial help to small scale & cottage industry. NABARD has set up Research & Development Fund for granting assistance to various institution involved in rural credit.

Core banking
Core banking is a general term used to describe the services provided by a group of networked bank branches. Bank customers may access their funds and other simple transactions from any of the member branch offices.

Core banking definition

CORE stands for "centralized online real-time environment". Core Banking is normally defined as the business conducted by a banking institution with its retail and small business customers. Many banks treat the retail customers as their core banking customers, and have a separate line of business to manage small businesses. Larger businesses are managed via the corporate banking division of the institution. Core banking basically includes deposit accounts, loans, mortgages and payments. Banks make these services available across multiple channels like ATMs, Internet banking, and branches.

----A few decades ago it used to take at least a day for a transaction to reflect in the account because each branch had their local servers, and the data from the server in each branch was sent in a batch to the servers in the datacenter only at the end of the day (E o D).

Core banking solutions

MEANING:- Core banking solutions are banking applications on a platform enabling a phased, strategic approach that is intended to allow banks to improve operations, reduce costs, and be prepared for growth. Core banking solutions are new terminology frequently used in banking circles. The advancement in technology, especially Internet and information technology has led to new ways of doing business in banking. These technologies have also cut down time, working simultaneously on different issues and increasing efficiency.

Gartner defines a core banking system as a back-end system that processes daily banking transactions, and posts updates to accounts and other financial records. Core banking systems typically include deposit, loan and credit-processing capabilities, with interfaces to general ledger systems and reporting tools. Strategic spending on these systems is based on a combination of serviceoriented architecture and supporting technologies that create extensible, agile architectures.