Bank

A bank is a financial institution that provides a range of services related to monetary transactions.
These services typically include accepting deposits, providing loans, and facilitating payments.
Banks play a crucial role in the economy by acting as intermediaries between individuals, businesses,
and governments, helping to allocate resources efficiently.
History
The history of banking in India dates back to the early 18th century during the British colonial period.
Here is a brief overview of the history of banking in India:

1. Bank of Hindustan (1770-1829): Established in 1770, the Bank of Hindustan is considered to be

2. Presidency Banks (1806-1921): The British East India Company established three presidency
banks during the early 19th century - the Bank of Bengal (1806), Bank of Bombay (1840), and
Bank of Madras (1843). These banks served as quasi-central banks in their respective regions.

3. State Bank of India (1806-1921): In 1806, the Bank of Calcutta (formerly Bank of Hindustan)
merged with Bank of Bombay and Bank of Madras to form the Bank of Bengal. Later, in 1921, these
three presidency banks were amalgamated to form the Imperial Bank of India. In 1955, the
Imperial Bank of India was nationalized and became the State Bank of India (SBI), which remains
one of the largest and oldest banks in India.

4. Nationalization of Banks (1969): In a significant move, the Government of India, under Prime
Minister Indira Gandhi, nationalized 14 major banks in 1969. This was done to bring about social
and economic reforms, and to ensure that credit was allocated in a manner that aligned with the
government's priorities.

5. Liberalization (1991): In the early 1990s, India initiated a series of economic reforms, including
financial sector reforms. This led to the introduction of private and foreign banks into the Indian
banking sector.

6. New Private Sector Banks (1993 onwards): After the liberalization, several new private sector
banks were established, including ICICI Bank, HDFC Bank, Axis Bank, and Yes Bank, among others.

7. Foreign Banks (1994 onwards): The Reserve Bank of India (RBI) allowed foreign banks to
establish a presence in India, leading to the entry of several international banks.

8. Regional Rural Banks (1975): These were established to cater to the credit needs of rural areas.
They were set up based on recommendations made by the Narasimham Committee.

9. Urban Cooperative Banks (1907 onwards): The first urban cooperative bank in India, the
Pragathi Krishna Gramin Bank, was established in 1907. These banks are cooperative institutions
that operate in urban and semi-urban areas.

10. Payment Banks and Small Finance Banks (2015): The RBI introduced the concept of Payment
Banks and Small Finance Banks to further enhance financial inclusion in the country.

Today, the Indian banking sector is diverse and dynamic, comprising a mix of public sector banks,
private sector banks, foreign banks, cooperative banks, and specialized financial institutions. It plays
a crucial role in supporting the country's economic growth and development.
Classification
Banks can be classified into various categories based on different criteria. Here are some common
classifications of banks:

1. Based on Ownership:

Public Sector Banks: These are owned and operated by the government. In India, examples
include State Bank of India, Punjab National Bank, etc.

Private Sector Banks: These are owned and operated by private individuals or corporations.
Examples include ICICI Bank, HDFC Bank, Axis Bank, etc.

Foreign Banks: These are banks that have their headquarters in a foreign country but operate
branches in India. Examples include Citibank, Standard Chartered, etc.

2. Based on Functions:

Commercial Banks: These are the most common type of banks. They provide a wide range of
financial services to individuals, businesses, and organizations, including accepting deposits
and providing loans.

Central Banks: These are the apex financial institutions in a country. They regulate and
control the money supply, implement monetary policy, and act as a banker to the government.
In India, the central bank is the Reserve Bank of India (RBI).

Development Banks: These banks primarily focus on providing long-term financing for
industrial projects. They play a vital role in the economic development of a country. An
example is the Industrial Development Bank of India (IDBI).

Cooperative Banks: These are financial institutions that operate on a cooperative basis,
often catering to the financial needs of a specific community or group. They are owned and
operated by their members.

Savings Banks: These are specialized banks that primarily deal with savings accounts and
provide a safe place for individuals to keep their money.

3. Based on Area of Operation:

Scheduled Banks: These are banks that are included in the Second Schedule of the Reserve
Bank of India Act, 1934. They need to fulfill certain criteria related to paid-up capital, reserves,
and other conditions. Examples include both public and private sector banks.

Non-Scheduled Banks: These are banks that are not included in the Second Schedule of the
RBI Act.

4. Based on Services:

Retail Banks: These cater to individual customers and offer services like savings and
checking accounts, loans, mortgages, etc.

Corporate Banks: These primarily focus on providing services to large corporations and
businesses. They often offer more complex financial products and services.

5. Based on Technology:

Traditional (Brick-and-Mortar) Banks: These have physical branches where customers can
conduct their banking transactions in person.

Online Banks (Virtual Banks): These operate primarily online, without physical branches.
Customers access their accounts and conduct transactions through online platforms and
mobile apps.

These classifications provide a framework for understanding the diversity and specialization within
the banking sector. Keep in mind that some banks may fall into multiple categories depending on
their specific operations and functions.
Systems of bank
Certainly! Here are the different systems of banks you mentioned:

1. Mixed Banking System:

A mixed banking system is a combination of different types of banks within a single country.
For example, a country might have both private sector banks and state-owned (public sector)
banks operating together. India is an example of a country with a mixed banking system.

2. Branch Banking System:

In a branch banking system, a bank operates multiple branches across different locations,
regions, or even countries. These branches are interconnected, and customers can access
their accounts and conduct transactions at any of the branches. Each branch is a part of the
same banking entity. For instance, a large national or international bank with branches in
various cities follows a branch banking system.

3. Unit Banking System:

In a unit banking system, a bank operates as a single, independent entity with only one office
or branch. It doesn't have multiple branches in different locations. The bank's operations are
limited to a specific area or community. This type of banking system is prevalent in smaller
communities or rural areas.

4. Group Banking System:

Group banking refers to a system where a group of banks is brought together under a
common ownership or control. These banks may retain their individual identities and
branches, but they operate under a larger parent company or holding company. This allows
them to benefit from economies of scale and share resources.

5. Chain Banking System:

Chain banking is similar to group banking, but it involves a network of banks that are
controlled by a single owner or management. In a chain banking system, there is a central
controlling authority that oversees the operations of all the banks in the network. The banks
may share a common brand and operate under a unified management structure.

These different systems of banking provide various organizational structures for financial
institutions. Each system has its advantages and may be suited to different economic environments,
geographic regions, or specific business strategies.
Structure of banks
Certainly! Here's a brief overview of the typical structure of a bank:

1. Board of Directors:

The Board of Directors is a group of individuals responsible for overseeing the bank's
operations and making strategic decisions. They are elected or appointed by the bank's
shareholders.

2. Senior Management:

This includes top executives like the Chief Executive Officer (CEO), Chief Financial Officer
(CFO), Chief Operating Officer (COO), and other key leaders. They are responsible for the day-
to-day operations and implementation of the bank's strategies.

3. Departments and Divisions:

Banks are organized into various departments and divisions based on their functions. These
may include Retail Banking, Corporate Banking, Risk Management, Compliance, Human
Resources, Marketing, IT, and others.

4. Front Office:

This is the customer-facing part of the bank, where customer transactions and interactions
occur. It includes branches (for retail banking), relationship managers (for corporate banking),
and customer service teams.

5. Middle Office:

The middle office supports the front office and is responsible for activities like risk
management, compliance, and treasury functions. It ensures that the bank operates within
regulatory guidelines and manages financial risks.

6. Back Office:

The back office handles administrative and operational tasks that support the overall
functioning of the bank. This includes tasks like record-keeping, transaction processing, and
IT infrastructure.

7. Compliance and Risk Management:

These departments are responsible for ensuring that the bank operates within legal and
regulatory frameworks. They manage risks associated with lending, investments, and other
financial activities.

8. Treasury Department:

This department manages the bank's liquidity, investments, and capital. It ensures that the
bank has enough funds to meet its obligations and looks for profitable investment
opportunities.

9. Credit Department:

This department assesses creditworthiness and approves or denies loans and credit
applications. It's responsible for managing the bank's loan portfolio.

10. Technology and IT:

This department manages the bank's technological infrastructure, including networks,

11. Audit Department:

The audit department is responsible for conducting internal audits to ensure that all
operations and activities are compliant with policies, procedures, and regulatory
requirements.

12. Legal Department:

This department handles legal matters, contracts, and provides legal advice to the bank. They
ensure that the bank's operations adhere to all applicable laws and regulations.

Remember that the specific structure of a bank may vary depending on its size, scope, and business
model. Additionally, there may be variations in terminology and organization based on different
regulatory environments and regions.
Balance sheet of bank

A balance sheet is a financial statement that provides a snapshot of a company's financial position at
a specific point in time. For a bank, the balance sheet outlines its assets, liabilities, and shareholders'
equity. Here is an overview of the components typically found on a bank's balance sheet:

1. Assets:

Cash and Cash Equivalents: This includes physical cash, balances with central banks, and
other highly liquid instruments that can be quickly converted into cash.

Due from Banks: These are amounts owed to the bank by other financial institutions.

Investments: This category includes securities like government bonds, corporate bonds, and
other debt instruments that the bank holds for various purposes, including earning interest
income.

Loans and Advances: This represents the total value of loans that the bank has extended to
its customers, including both individuals and businesses.

Property, Plant, and Equipment: This includes physical assets like buildings, land, furniture,
and equipment that the bank uses in its operations.

Other Assets: This category may include items like intangible assets (such as goodwill or
patents), prepaid expenses, and any other miscellaneous assets not covered by the above
categories.

2. Liabilities:

Deposits: This is the total value of funds held by the bank on behalf of its customers,
including savings accounts, current accounts, fixed deposits, and other types of deposits.

Borrowings: This includes funds that the bank has borrowed from other financial institutions
or through debt issuance in capital markets.

Other Liabilities: This category covers items like accrued expenses, provisions for future
liabilities, and any other miscellaneous liabilities.

Reserves and Shareholders' Equity:

Share Capital: This represents the capital invested by shareholders in the bank's stock.

Retained Earnings: This includes profits that the bank has retained for reinvestment
rather than distributing to shareholders.

Other Reserves: This category may include reserves set aside for specific purposes, such
as contingency reserves or statutory reserves.

The balance sheet equation, which must always hold true, is:

Assets=Liabilities+Shareholders′Equity

The balance sheet provides important insights into a bank's financial health, showing how much it
owns (assets) and how much it owes (liabilities), as well as the residual interest of the owners
(shareholders' equity). It's a crucial tool for assessing a bank's financial stability, solvency, and
capacity to meet its obligations.
Credit Creation and Credit Control
Credit Creation and Credit Control are fundamental concepts in the field of banking and finance. They
refer to the processes by which banks create and manage credit within an economy.

Credit Creation:

Definition: Credit creation is the process by which commercial banks, through lending and deposit
activities, expand the money supply in an economy.

Mechanism: When a bank lends money to a borrower, it creates a new deposit in the borrower's
account. Simultaneously, the borrower's ability to spend increases, effectively creating new money in
circulation. This is because both the original deposit (which remains in the bank) and the newly
created deposit (which the borrower now has) are considered as money.

Multiplier Effect: This process can have a multiplying effect on the money supply. For example, if a
bank lends $1000 to a borrower, and the borrower then deposits this money in another bank, that
bank can use a portion of it to make new loans, thus creating more money.

Importance: Credit creation is essential for economic growth as it provides the necessary funds for
investment, consumption, and business activities. However, it must be managed carefully to prevent
excessive inflation or financial instability.

Credit Control:

Definition: Credit control refers to the measures and tools implemented by a central bank or
regulatory authority to manage and regulate the credit creation process within an economy.

Objectives:

Price Stability: Controlling credit helps maintain stable prices by preventing excessive inflation or
deflation. Economic Stability: It aims to ensure a stable and sustainable economic environment by
managing the money supply and interest rates. Avoiding Financial Instability: By regulating credit,
authorities can prevent financial crises and banking panics. Tools of Credit Control:

a. Quantitative Tools:

Open Market Operations: This involves buying or selling government securities to influence the
money supply and interest rates.

Reserve Requirements: Regulating the percentage of deposits banks must hold in reserve, which
affects their lending capacity.

Liquidity Ratio: Setting the ratio of liquid assets to deposits that banks must maintain.

Repo Rate and Reverse Repo Rate: These are the interest rates at which the central bank lends to
or borrows from commercial banks.

b. Qualitative Tools:

Credit Rationing: Setting limits on the amount of credit banks can extend to specific sectors or
industries.

Margin Requirements: Specifying the amount of down payment required for certain types of loans
(common in securities trading).

Direct Action: Implementing specific directives or guidelines for banks to follow in their lending
practices.

c. Selective Credit Controls:

These are specific measures aimed at influencing credit in particular sectors or for specific
purposes. For example, encouraging or discouraging lending to certain industries or regions.

Importance: Effective credit control is crucial for managing inflation, ensuring financial stability, and
supporting overall economic growth.

Both credit creation and credit control are essential tools for regulating the money supply and
ensuring the stability and growth of an economy. They work in tandem to strike a balance between
providing access to credit for economic activities and preventing excesses that could lead to
financial instability.