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BANKING MODULE
CHAPTER: 1

INTRODUCTION OF BANK
Introduction Of Bank: Banks is an establishment authorized by Government Regulatory to accepts
deposits pay interest, Clear Checks, make loans and act as an intermediary in financial transactions and
provide others financial services and products to its consumers. And the term Finance is a process of
money management where banking, investments, credit, asset and liabilities in three categories like
Public Finance, Private Finance and commercial Finance. Finance is the life blood of trade, commerce
and industry. Now-adays banking sectors act as the backbone of modern business, development of any
country mainly depends upon the banking systems. The term bank is either derived from an old Italian
word “banca” or from a French word “banque” both mean a bench or money exchange table. In olden
days European money lenders or money changes used to display coins of different countries big quantity
for the purpose of exchanging.

Characteristics And Features Of Banks:

1. Acceptance of Deposit: A bank accepts money from the people in the form of deposits which
are usually repayable on demand or after the expiry of a fixed period. It gives safety to the
deposits of its customers. It also acts as a custodian of funds of its customers.
2. Providing Advances: A bank lends out money in the form of loans to those who require it for
different purposes.
3. Payment and Withdrawal: A bank provides easy payment and withdrawal facility to its
customers in the form of cheques and drafts; It also brings bank money in circulation. This
money is in the form of cheques, drafts, through ATM and others facilitated systemized.

History Of Bank:

1. The origin of western type commercial Banking in India dates back to the 18th century. The story of
banking starts from Bank of Hindustan established in 1770 and it was first bank at Calcutta under
European management. It was liquidated in 1830-32.

2. From Bank of Hindustan in 1770, the evolution of banking in India can be divided into three different
periods as follows:

• Phase I: Early phase of primitive Indian banks to Nationalization of Banks in 1969

• Phase II: From Nationalization of India banks in 1969 up to advent of liberalization and banking
reforms in 1991
• Phase III: From Indian Financial and Banking Sector Reforms 1991 onward

3. In 1786 General Bank of India was set up. Since Calcutta was the most active trading port in India,
mainly due to the trade of the British Empire, it became a banking center.

4. Three Presidency banks were set up under charters from the British East India Company-

• Bank of Calcutta
• Bank of Bombay
• Bank of Madras.
5. The Bank of Calcutta established in 1806 immediately became Bank of Bengal.

6. In 1921 these 3 banks merged with each other and Imperial Bank of India got birth.

**Imperial Bank of India was later renamed in 1955 as the State Bank of India. Thus, State bank of
India is the oldest Bank of India.

7. In 1839, there was a fruitless effort by Indian merchants to establish a Bank called Union Bank. It
failed within a decade.

8. Next came Allahabad Bank which was established in 1865 and working even today.

9. The oldest Public Sector Bank in India having branches all over India and serving the customers for the
last 145 years is Allahabad Bank. .

10. The first bank purely managed by Indians was Punjab National Bank, established in Lahore in 1895.
The Punjab national Bank has not only survived till date but also is one of the largest banks in India.

11. The first Indian commercial bank which was wholly owned and managed by Indians was Central Bank
of India which was established in 1911. So, Central Bank of India is called India‟s First Truly Swadeshi
bank.

Some facts about banking in India

• Reserve Bank of India (RBI) was established in 1935 and Nationalized in 1949.
• Sir Osborne Smith was the first Governor of the Reserve Bank of India CD Deshmukh was the first
Indian Governor of RBI.
• Savings account system in India was started by Presidency Bank, in 1833.
• Cheque system was first introduced by Bengal Bank which was established in 1784.
• Allahabad Bank is the oldest existing public sector bank in India.
• Hongkong and Shanghai Banking Corporation (HSBC) introduced first time ATM in India in 1987,
Mumbai.
• Bank of India is the first Indian Bank to open overseas branch. It established a branch in London in
1946.
• Central Bank of India was the first public bank to introduce credit card. Central Bank of India is the
first commercial bank which was managed by Indians.
• ICICI Bank was the first Indian Bank to provide internet banking facility. • ICICI Bank was the first
Bank to provide Mobile ATM.
• Bank of Baroda has the maximum number of overseas branches.
• SBI (State Bank of India) has the total number of maximum branches and holds 2nd position in the
world.
• India‟s first “talking” Automated Teller Machine (ATM) launched by Union Bank of India (UBI) for
visually impaired was launched in Ahmedabad (Gujarat).
 • The National Payments Corporation of India (NPCI) launches India‟s first rural bank ATM card with
a regional rural bank in Varanasi. Note: NPCI launched the first Gramin bank ATM card with the

Banking Appetite.
1. First India bank Got ISO : Canara Bank
2. First Governor of RBI : Mr. Osborne Smith
3. First Indian governor of RBI : Mr. C D Deshmukh
4. First Bank to Introduce ATM in India : HSBC
5. First Bank to introduce saving Bank in India : Presidency bank in 1830
6. First Bank to Introduce Cheque system in India : Bengal Bank 1784
7. First Bank to introduce Internet Banking : ICICI BANK
8. First Bank to introduce Mutual Fund : State Bank of India
9. First Bank to introduce Credit Card in India : Central Bank of India
10. First Foreign Bank in India : Comptoired‟ Escompte de Paris of France in 1860
11. First Bank Set Up in India : Bank of Hindustan in 1770
12. First Joint Stock Bank of British India : State Bank of India
13. First Joint Stock Bank of India : Allahabad Bank
14. First Bank that is oldest Public Bank in India : Allahabad Bank
15. First national bank that is merged with Punjab National Bank : New Bank of India in 1993
16. First Indian bank to open branch outside India in London in 1946 : Bank of India
17. First Indian Bank started with Indian capital /indigenous Bank of India : Punjab National Bank

Reserve Bank of India

RBI regulates commercial banks and non-banking finance companies working in India. It serves as the
leader of the banking system and the money market. It regulates money supply and credit in the
country. The RBI carries out India & monetary policy and exercises supervision and control over banks
and non-banking finance companies in India. RBI was set up in 1935 under the Reserve Bank of India Act,
1934.

What is Nationalized Bank?

Nationalization refers to the transfer of public sector assets to be operated or owned by the state or
central government. In India, the Banks which were previously functioning under private sector were
transferred to the public sector by the act of nationalization and thus the nationalized banks came into
existence.
Currently there are some nationalized Banks in India as per the RBI:
• Allahabad Bank
• Bank of Baroda
• Bank of India
• Central Bank of India
• Indian Overseas Bank
• Oriental Bank of Commerce
• Punjab National Bank
• Syndicate Bank
• United Bank of India
 What is Pvt. Sector Bank?
The private sector banks in India are banks where the majority of the shares or equity are not held by
the government but by private share holders.
In 1969 all major banks were nationalized by the Indian government. However, since a change in
government policy in the 1990s, old and new private sector banks have re-emerged. The private sector
banks are split into two groups by financial regulators in India, old and new. The old private sector banks
existed prior to nationalization in 1968 and kept their independence because they were either too small
or specialist to be included in nationalization. The new private sector banks are those that have gained
their banking license since the change of policy in the 1990s.
Currently there are some Private Banks in India as per the RBI:
• ICICI Bank
• AXIS Bank
• HDFC Bank
• IDFC Bank
• Bandhan Bank
• Ujjiban Small Finance

Economic Reforms In Banking Sector:

Banking Sector in India Indian banking sector has undergone major changes and reforms during
economic reforms. Though it was a part of overall economic reforms, it has changed the very
functioning of Indian banks. This reform has not only influenced the productivity and efficiency of many
of the Indian Banks, but has left everlasting footprints on the working of the banking sector in India. Let
us get acquainted with some of the important reforms in the banking sector in India.

1. Reduced CRR and SLR: The Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) are gradually
reduced during the economic reforms period in India. By Law in India the CRR remains between 3-15%
of the Net Demand and Time Liabilities. It is reduced from the earlier high level of 15% plus incremental
CRR of 10% to current 4% level. Similarly, the SLR Is also reduced from early 38.5% to current minimum
of 25% level. This has left more loanable funds with commercial banks, solving the liquidity problem.
2. Deregulation of Interest Rate: During the economic reforms period, interest rates of commercial
banks were deregulated. Banks now enjoy freedom of fixing the lower and upper limit of interest on
deposits. Interest rate slabs are reduced from Rs.20 Lakhs to just Rs. 2 Lakhs. Interest rates on the bank
loans above Rs.2 lakhs are full decontrolled. These measures have resulted in more freedom to
commercial banks in interest rate regime.
3. Fixing prudential Norms: In order to induce professionalism in its operations, the RBI fixed prudential
norms for commercial banks. It includes recognition of income sources. Classification of assets,
provisions for bad debts, maintaining international standards in accounting practices, etc. It helped
banks in reducing and restructuring Non-performing assets (NPAs).
4. Introduction of CRAR: Capital to Risk Weighted Asset Ratio (CRAR) was introduced in 1992. It resulted
in an improvement in the capital position of commercial banks, all most all the banks in India has
reached the Capital Adequacy Ratio (CAR) above the statutory level of 9%.
Products Of Bank:
1. Accounts
2. Investment Policies
3. Insurance
4. Finance (Loan)
5. Others Services. (Debit cards, Credit cards, Lockers, ATM, NEFT, RTGS, IMPS & Others.)