Structure of Banking Industry
Structure of Banking
Structure of Banks in India
Structure of Banks in India
• Central bank is responsible for regulating the banking
system of a nation.
• It is essentially a banker to banks as well as banker to
• Central bank also is responsible for the monetary and
credit policies of the economy.
• Central bank issues currency notes for the country and
oversees the movement of currency value in relation to
other country’s currency value.
Reserve Bank of India
• The Reserve Bank of India Act, 1934 established
Reserve Bank as the Central bank of India.
• Regulator and Supervisory authority of the monetary
policy of India.
• Supervises the financial system of the Indian economy.
• Issues Indian currency note (Rupee)
• Ensures stability and management of interest rate in the
economy and exchange rates in an international setting.
• Regulates and supervises the payment and settlement
systems in the economy.
Role of Reserve Bank of India
• Developing financial institutions and markets.
• Promoting banking activities.
• Ensuring safety of depositors’ funds in the banking
• Provide the supply of currency and credit for the
• Manage Government debt.
• Encourage financial inclusion in the society.
• Encourage developmental functions in the economy.
Structure of Reserve Bank of India
• Banks that accept deposits and provide loans and
• Three types of commercial banks.
• Public sector banks.
• Private sector banks.
• Foreign banks.
Structure of Public Sector Banks
Primary Functions of Commercial Banks
• Accepting deposits
• Surplus income and savings are mobilized as
short-term and long-term deposits for specified
• Providing loans and advances
• Fund needs of the society (individuals and
business establishments) are met through the
loans and advances at specified interest rates.
• Loans are long term fund assistance.
• Advances are short term fund assistance such as
cash credit, overdraft, discounting of bills.
Secondary Functions of Commercial Banks
• Safe custody of valuables.
• Providing foreign exchange.
• Transfer of money.
• Providing guarantee and letters of credit.
• Providing business support services such as
providing business information, credit reports etc.
• Corporate financial advisory and investment service
• Provide consultancy, market research and broking
services to assist high net worth individuals and other
entities in their investment goals.
• Develop ventures through project finance to support
fund needs and export finance to meet international
Functions of Investment Banks
• Services for individuals
• Maintain financial accounts
• Provide loans, lease and mortgages
• Pension management
• Investment management
• Private banking
Functions of Investment Banks
• Services for business firms and institutions
• Corporate advisory services
• Investment management of institutional investors
• Asset management services
• Industry analysis and research
• Information provision
• Merger and amalgamation activities
• Valuation services
Development Banks and Specialized Banks
• Specialized development financial institutions.
• Providers of long-term funds to economic sectors
experiencing shortage of funds.
• Substantiate and bridge market gaps in developing
Illustrative Development Banks
• Industrial Development Bank of India (IDBI)
• Industrial Finance Corporation of India (IFCI).
• National Bank for Agriculture and Rural Development
• Export Import Bank of India (EXIM Bank)
• National Housing Bank (NHB)
• Small Industries Development Bank of India (SIDBI)
• Infrastructure Development Finance Company (IDFC)
• Industrial Investment Bank of India (IIBI)
• State Finance Corporations (SFCs)
• Established for the purpose of providing funds for nonagricultural purposes.
• These banks were formed by local communities, local
geographical groups or work groups.
• Based on the principles of cooperation that implies
Types of Co-operative Banks
• State Co-operative Banks.
• Apex body of co-operative banks in a state.
• Central / District Co-operative Banks.
• Established at the district level and report to the State
• Primary Co-operative Banks.
• Located in urban or semi-urban areas catering to the
business needs of the locality.
• Located in rural areas to meet the funding needs of the
community / work group / area.
Structure of Co-operative Banks
Non Banking Finance Companies
• Non Banking Financial Companies offer a wide range of
services such as hire purchase finance, lease finance
and investment services.
expanded their products profile.
• The Reserve Bank of India working group on Financial
Companies introduced registration of such companies
with net owned funds (NOF) of Rupees 5 million or
Types of NBFCs
• NBFCs accepting deposits
• NBFCs not accepting deposits but rendering financial
• NBFCs that are investment companies (90% or more of
their total assets are in the form of investment in
securities of their group / holding / subsidiary companies)
• Mutual funds are capital market intermediaries.
• Mutual funds are established as trust entities.
• Mobilize money in the form of units and invest them in
portfolios to meet risk-return expectations of investors.
• Mutual fund returns are shared among unit holders.
Structure of Mutual Fund
• Small scale financial service providers.
households and enterprises.
• Microfinance is provided by alternate sector such as
Non Government Organizations (NGOs), Self Help
Microfinance Business Models
• Joint Liability Group.
• The group who are co-guarantors for other
members of the group.
• Linkage with Banks.
• SHGs coordinate with bank in microfinance
Measurement and management of banking risks in a
• Credit risk
• Liquidity risk
• Market risk
• Operational risk
• System risk
Risk Management Structure
Risk Management in Banks
• Technology driven
• Model driven
• Capital adequacy to absorb risk
• Dynamic strategies
• Integration of risk management process
• Risk based bank audit and supervision
• Supportive legal environment
Board of Directors
Risk Management Practices
Interest rate policy
Planning asset management
Internal rating systems
Setting risk tolerance level