Report on Overview of Indian Banking Sector

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This report aims to provide an overview of banking sector in India for the purpose of expansion planning. The overview will be broadly divided into two parts: Indian Banking system and Bank-like financial institutions. For each type of banking institutions, a brief introduction, some recent statistics and corresponding functions will be included. The outline of this report is as follows:

1. Indian Banking system
1.1Central Bank – Reserve Bank of India (RBI)
1.2Commercial Banks
- Public sector Banks
- Private Banks
- Foreign Banks
1.3Co-operative Banks
- Primary Credit Societies
- Central Co-operative Banks
- State Co-operative Banks
1.4Regional Rural Banks
1.5Development Banks
1.6Specialized Banks
- Export Import Bank of India
- Small Industries Development Bank of India
National Bank for Agricultural and Rural Development

2. Indian Bank-like financial institutions
2.1Microfinance institutions
2.2 Development financial institutions

1. Indian Banking system
Reserve bank of India, commercial banks, co-operative banks and regional rural banks broadly make up the banking system in India. There are two more types of banks, namely development banks and specialized banks for some particular purposes.

1.1 Central Bank – Reserve Bank of India (RBI)
The Reserve Bank of India (RBI), the central bank of India, which was established in 1935, has been fully owned by the government of India since nationalization in 1949.

Like the central bank in most countries, Reserve Bank of India is entrusted with the functions of guiding and regulating the banking system of a country. The main functions of RBI are to:

1.Formulate and monitor the monetary policy, aiming to stabilize the price level and ensure adequate flow of credit to productive sectors. 2.Issue or destroy currency and coins not fit for circulation, aiming to give the public adequate quantity of supplies of currency notes and coins and in good quality. 3.Regulate and supervise the financial system by prescribing broad parameters of banking operation, aiming to maintain public confidence and protect depositors’ interest. 4.Manage the Foreign Exchange Management Act, aiming to facilitate external trade and promote orderly development and maintenance of foreign exchange market. 5.Act as Indian government’s banker, performs merchant banking function for the central and the state governments 6.Maintain deposit accounts of all other banks and advances money to other banks, when needed.

The recent focus of RBI is to cut asset (real estate, property) price inflation by formulating suitable monetary policy that is healthy to the economy of India.

1.2 Commercial Banks
There are three types of commercial banks in India
1.Public sector banks
2.Private banks
3.Foreign banks
Currently, there are 88 scheduled commercial banks, including 28 public sector banks, 29 private banks and 31 foreign banks.

1 Public sector banks
These are banks where majority stake is held by the Government of India or Reserve Bank of India. In 2006, the largest public sector bank is the State Bank of India.

2 Private Banks
Private Banks are banks that the majority of share capital is held by private individuals.

3 Foreign Banks
Foreign banks are registered and have their headquarters in a foreign country but operate their branches in India.

Though there are three types of commercial banks, their functions as commercial banks are very similar. The primary functions of Indian commercial banks include:

1.Accepting of deposits of money from the public for the purpose of lending or investment. 2.Granting of loans and advances for the purpose of smoothing the public’s consumption and business sectors’ investment in different period of business cycles.

The secondary functions include:

1.Issuing letters of credit, travellers cheque, etc.
2.Providing safe deposit vaults or lockers.
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