THE TAMIL NADU Dr. AMBEDKAR LAW UNIVERSITY (State University Established by Act No. 43 of 1997) M.G.R. Main Road, Perungudi, Chennai - 600 096. | BANKING LAW STUDY MATERIAL By Dr. Kumudha Ratha Head of the Department (i/c) Department of Business Law o The Tamil Nadu Dr. Ambedkar Law University.MESSAGE Knowledge is power. Legal Knowledge is a potential power. It can be exercised effectively everywhere. Of all the domains of reality, it is Legal Knowledge, which deals with rights and liabilities, commissions and omissions, etc., empower the holder of such knowledge to have prominence over the rest. Law Schools and Law Colleges that offer Legal Education vary in their stature on the basis of their ability in imparting the quality Legal Education to the students. Of all the Law Schools and Colleges, only those that educate their students to understand the nuances of law effectively and to facilitate them to think originally, excel. School of Excellence in Law aims to be in top of such institutions. The revolution in Information and Communication Technology dump Jot of information in the virtual world. Some of the information are mischievous and dangerous. Some others are spoiling the young minds and eating away their time. Students are in puzzle and in dilemma to find out the right information and data. They do not know how to select the right from the wrong, so as to understand, internalise and assimilate into knowledge. Hence in the present scenario, the role of teachers gains much more importance in guiding the students to select the reliable, valid, relevant and suitable information from the most complicated, perplexed and unreliable data. The teachers of the School of Excellence in Law have made a maiden attempt select, compile and present a comprehensive course material to guide the students in various subjects of law. The students can use such materials as guidance and travel further in their pursuit of legal knowledge. Guidance cannot be a complete source of information. It is a source that facilitates the students to search further source of information and enrich their knowledge. Read the materials, refer relevant text books and case laws and widen the knowledge. Dr. P. Vanangamudi Vice-ChancellorPREFACE ‘The Banking system playsa vital role in economy of our country. Unlike other laws banking law is not single subject, but it is a combination of several laws (General Principles of contract and special contract, property law, consumer law, regulatory law and tortious law). ‘The development of banking from indigenous and un-organised to the organised and modern bank is development in the financial system and also the evolution of central bank helped to protect the depositors interest and promote and development of the banking in India. The Reserve bank of India as a central banker has a monitor and control over the banking system in India. Due to increase in banking business, as a measure all the banks have started providing mobile banking and electronic banking facilities, starting from fulfilling KYC norms, introduction others to open an account, Accounting opening, various electronic transfer (IMPS, NEFT etc.) and soon. The banking law as a curriculum gives detailed picture about the working of banks, various types of entities related to it, instruments used in banking system, relationship between banker and customer and also rights and ies of them. All care has been taken to prepare this material. This material is not all inclusive, but in addition to the Statues and other preferred texts. Therefore the Students are advised to take extra effort understand the subject. I wish you all the best. Dr. Kumudha Ratha Head of the Department (i/c) Department of Business Law The Tamil Nadu Dr. Ambedkar Law UniversityTABLE OF CONTENTS Introduction to Banking Amportant Events of Banking in India Different types of Banks Central Bank - Reserve Bank of India (RBI) Commercial Banks Co-operative Banks Regional Rural Banks Development Banks Specialized Banks Aion Banking Finance company(NBFC) & Asset Finance Company (AFC) ~Banking Nationalisation UNIT-IT The Banker and Customer Banker and customer relationship 25 Definition of Banker & Customer 25 wo theories of Customer 26 Nature of banking business 27 Deposit Transactions 29 Banker and customer relationships 30 Passbook 38 Termination of Banker and Customer Relationship 42 Different of Special Category customers Banker's duty - Secrecy Banker's Lien and Setoff Garnishee Order UNIT-III Laws relating to loans, advances and investments by Banks Safe deposit Lockers 65 Banker's Role and obligations regarding locker facility 69 VRBI guidelines on locker facility 2 Wiicarious Liability of Bank as Trustee 5 \Ambezzlement committed by Bank employeePAGE No. UNITS TITLE UNIT-IV | Winding up of companies 78 LTable of Legislative history of Insolvency in India 78 “Warious committee's on Insolvency 79 VReasons and procedure for Insolvency in India 79 Recovery of debts due to banks 80 Salient features of SARFEASI Act 88 ‘Winding up of Banking Company 89 UNIT-V Negotiable Instruments 97 Definition of Negotiable Instruments 97 Need for NI 99 Negotiation and Indorsement 99 Different types of Negotiable Instruments 101 Promissory Note 101 Bill of exchange 103 Cheque 105 viundi 106 MAnland and foreign Instruments 108 Parties to different types of Negotiable Instrument 9 Endorsement 122 Liability of Parties 122 Paying Banker and collective banker 124 Indemnities and Gitarantees 136 Dishonour of Cheques 137TABLE OF CASES CASE LAW | Allahabad Bank Ltd v. Kulbhushan and others ‘Arab Bank Ltd ‘Australia and New Zealand Bank v. Ateliers de Constructions... Baijnath v. Ramkumar Baker v. Lloyds Bank Balakrishna Pramanik v. Bhownipore Banking Corporation Ltd Bank of Baroda v. Punjab National Bank Bank of Bengal v. Radhakissen Bank of Bihar v. Mahabir Lal nk of Bihar vs Makabir aD Bank of India v. Goparathan Nair Bank of Maharashtra v. M/s Automotive Engineering Co Barclays Bank v. Astley Industrial Trust Ltd Bareilly Bank Ltd. vs Naval Kishore Basant v. Kolahal Bevins v, London & Smith Western Bank Ltd Bhutoria Trading Company (BTC) vs Allahabad Bank Block y. Bell Brahma Shumshere Jung Bahadur vs Chartered Bank of India Brandao v. Barnett Calvent v. Baker Canara Bank v. Canara Sales Corporation & others (Canara Bank v. Canara Sales Corporatise (@Oatiara Bank vs Canara Carlos v, Fancourt.; -~ Champaklal v. Keshrichand (Ghampaklal v. Keshrichand> Chatterton v. London and County Bank Chitton v. Attenborough Co-operative Development and C........ V. Bank of Bihar Crumpling v. London Joint Stock Bank Ltd Dashrath Rupsingh Rathod v. State of Maharashtra and Another Daulatram v. Bulakidas Dawn v, Hailing Dearle v. Lakebick K € Ye 1, wh wae ® aa ex FBX B&& ROE OLE ROKOEMA” Zz s CASE LAW RatOxs: | & w £866 ¥eBs fs 6 REOKE AE SLAG Delhi Cloth General Mills Co. Ltd v. Harnam Singh Devaynes v. Noble Dhanput Singh v. Maharaja Jugut Indur Diamond Bank vs. Ogochukwu Durga Lai Mohan Lai v. Governor General in Council Essa Ismail v. Indian Bank Ltd Foley v. Hill Ganeshdas v. Lachminarayan ¢Ganeshdas v. Lachminarayan) Gerald C'S. Lobo vs. Canara Bank Glenie v. Bruce Great Western Railway v. County Banking Co. Ltd Hales Owen Press Wrok case Harding v, London Joint Stock Bank Harman Electronics Pvt. Ltd. v. National Panasonic India Pvt. Ltd Hatch v. Searles _ Hemadri v. Seshama In Akrokerri (Atlantic) Mines Ltd. v. Economic Bank Indian Bank v. Catholic Syrian Bank Issac v. Palai Central Bank J.MS. Punto v. A.C. Rodrigues Jadovyji Gopal v. Jetha Shamji Jagjivan v. Ranchoddas pe ae ee osanaige ~K Bhaskaran v. Shankaran Kepatigalla Rubber Estates Ltd v. National Bank of India Ltd Kredit Bank Cassel v. Shenkers Ltd Kunju Pillaiand Others vs. Periasami( Ladbs ve Lall Mai v Kesho Das Lall Mai v Kesho DasCASE LAW aks ORUWSRAZRARESA RARE MED 6G F£OK 2OADY |> Lloyd y. Grace Smith & Co oyd cTo> Lona (KA) v. Dada Haji Ibrahim Hilari & Co Lucas v. Dorrien Madras Provincial Co-operative Bank Ltd. vs Official Liquidator... Mahany v. Liquidator of East Holyford Mining Company Mathews v. Williams Brown & Co Mendes v. Guedalla Miller v. The National Bank of India Montague v. Perkins Morgan v. United States Mortgage and Trust Co Morrison v. London County and Westminster Bank Ltd Mothireddy vs. Pothireddy 7 Muree Mohan v. Krishna Mohun NDICv. Okem Enterprises Limited New bank of India v. Peary Lai North & South Wales Bank v. Macbeth Nu-Stilo Footwear Ltd. v. Lloyds Bank Ltd ‘Obermeyer v. Barman Officer Commanding v. State Bank of India Paine v. Bevan Punjab National Bank Ltd v. R.B.L. Banarasi Das & Co R.C. Cooper v. Union of India R. Pillai v. S. Ayyar Radha Raman Choudhary v. Chota Nagpur Banking Association Ltd Raephal v. Bank of England Raghunath v. Seetaram Ram Charun Mullick v. Luchmee Chand Radakissen Rama Raviji Jambakar . Pralhaddas Subkaran Ramanbhai Mathurbhai Patel v State of Maharashtra Ramaswamy v. Sundararajam. Ramprasad v. Shrinivas Ramprasad v. Shrinivas Rangaraju v. Devichand Rayji’s Jambakar’s case Rikhabchand Mohanlal Surana vs. The Sholapur Spinning..... Rossy, London County Westminster and Parrs Bank LdCASE LAW Royal British Bank v. Thruquand SN Firm v. Natesan Pillai S.B.N. Ltd. v. De Lluch Sarjio Prasad v. Rampayari Debi Savory Company v. Llyods Bank Shankarlal Agarwalla v. State Bank of India Sheikh Mohamed case ‘Smith v. Nightingale (Brate Bank of India v. Shyma Devi Sagan Chandv-1tutchand Surajaml v. Kashiprasad Sutherland v. Barclays Bank Syndicate Bank v. Jaishree Industries ‘Tanjore Permanent Bank vs S.R. Rangachari Taxation v English Scottish & Australian Bank The Bank of India v. The Official Liquidator ‘The Secretary, Nanguneri Peace ...... v. Alamelu Ammal Tournier v. National Provincial and Union Bank of England ‘Travancore National And Quilon Bank case Udayar v. Muthia Underwood Ltd. v. Bank of Liverpool Martin Ltd United Africa Company Ltd. v. Saka Owoade United Bank of India Ltd. v. Muhammad Shamsuddin United Bank of India v. AT Ali Hussain & Co United Commercial Bank v. Hem Chandra Sarkar Vagliano Bros. v. Bank of England \Velji Lakshamsey & Co v. Dr.Banarje® Whislter v. Forster Williamson v. Rider Wise v. Perpetual Trustee Co ‘Yenamulla Malludora v. PSeetharatnamUNIT - I INTRODUCTION TO BANKING LAW CONTENTS Evolution of Banking Important Events of Banking in India Different types of Banks 1. Central Bank — Reserve Bank of India (RBI) 2. Commercial Banks Public sector Banks ii, Private Banks iii, Foreign Banks Co-operative Banks Regional Rural Banks Development Banks Specialized Banks 7. Non Banking Finance Company (NBFC) & Asset Finance Company (AFC) IV. Banking Nationalisation I. Evolution of Banking Bank is the term derived from the German word ‘banck’ which means, heap or mound or joint sock fund with this the Italian word ‘banca’ which means heap of money was coined. There is the other opinion among the scholars that the word ‘bank’ derived from the French words ‘bancus’, or ‘banque! which means ‘bench’ or ‘money exchange table’. The Jewish people transacted their everyday business on benches in the market place and as their practice the bench shadowed the modern banking counter. Ifthe ‘banque’ (bench) is broken or not able to use it by the people or failed then the ‘banque’ become ‘ brankrupt’. What is Bank? A banks defined by Merriam-Webster’s online as “an establishment for the custody, loan, exchange, or issue of money, for the extension of credit, and for facilitating the transmission of funds.” While they are simple to describe, the roles of banks, bankers, and banking are—for some—not as simple to understand. “Banking” can be defined as “the business of banking,” a vibrant business that continually evolves to meet the latest financial needs and economic conditions. In order to understand how banking evolves, it is important to gain a broad understanding of financial concepts, fundamental banking functions, and the banking business in a technology driven world. Banks have become essential to the economic life of every modern society. A successful banking system has not only become crucial for the functioning of every business, it has also become central to the daily routine of most people. While the possession and use of a bank account sill remained limited to the better * Gordan and Natarajof four or five decades ago, it has now become impossible to participate in the economic life of most industrialized societies without a bank account. Today, most people havea bank accounts with which they receive their salary, pay their bills, and invest their savings. This is particularly the case in modern, democratic, and industrialized nations—but not only there. Asa result, the security of bank deposits has become a matter of great political and economic importance, with governments doing their best to ensure their security. This process shall be explored in greater detail below. However, this section will first ‘examine why the banking sector has attracted such a great amount of official attention. This has mainly been the result of factors specific to the banking sector: 1, Banks provide all other parts of an economy as well as the consumers on which all businesses ultimately depend with credit. An efficient and well-performing banking sector is therefore fundamental to the health of any economy. 2. The banking industry is one of the most vulnerable parts of the modern economic system. The collapse of a bank has a very different and often much deeper impact than the failure of firms belonging to other sectors of the economy. While the bankruptcy of a company normally benefits other companies in the same industry by giving them an opportunity to take over its customer base, the collapse of a bank can seriously damage its competitors. The constant flow of capital from financial institution to financial institution has created a high level of interdependence within the finance and banking sectors. ‘Abank unable to live up tots financial commitments can therefore cause serious difficulties and disruption forthe rest of its industry. Moreover, the reaction of a wider public often unable to differentiate between good” and “bad” banks to.a major bank collapse or banking scandal can lead to.aso-called “bank run”. Such a massive withdrawal of money from accounts by normal consumersis likely to have knock-on effects on “healthy” banks, since the liquidation of an “unhealthy” bank's assets and liabilities (a process which in itself can incur heavy losses) is neither a quick nor an easy process. All things considered, the collapse of a bank can have catastrophic consequences for an entire banking industry and even a country’s economic performance asa whole. Moreover, the credit system could come under threat in such asituation, leading to potentially crippling financial and ultimately social turmoil. The banks have become an important institution in our life. To save our money, send money to our relatives, to pay fees, take demand draft, to receive scholarship from Government, receiving salary from the employer, to get subsidy from the government as direct benefit transfer and so on. This is why in as a good governance the State is much concentrating on financial literacy and financial inclusion. ‘The Oxford Advanced learners dictionary (New 8" edn.) defines bank as “an organisation that provides various financial services to its customers or others” Establishment of Chartered Banks Established Bank 1157 Bank of Venice 1401 Bank ofa 1407 Bank of Genoa 1609 Bank of Amsterdam 1690 Bank of Hamburg 1694 Bank of England 2History of Banking in India Banking in India has a very special origin; it started with giving of loans to others. Banking was synonymous with money lending. Manusmirithi speaks of deposits, pledges, loans and interest rate. Interest could be legally charged between 2% to 5% per month according to the transaction. The state regulated these transactions to prevent over charge of interest by the lenders and collection of usury was not allowed during those periods. The debtor or his family member had a pious obligation to repay the debt on the heir of the dead person. With the development in trade and commerce, the traders evolved system of money transfer. The main instrument used in that period was the bill of exchange or hundi. The Indian bankers acted as treasurer, insurer money changer. Il, Important Events of Banking in India Year Evolution and banking reforms 1786 General Bank of India 1806 Bank of Hindustan and Bengal 1809 Bank of Bengal 1840 Bank of Bombay 1843 Bank of Madras 1865 Allahabad Bank 1894 Punjab National Bank Second half of | Some exchange banks and Indian joint stock banks were set up 198 Century 1900 Nine joint stock companies, eight exchange banks and three presidency banks were existed 1921 IBI (Imperial Banks of India) three presidency banks were amalgamated and IBI formed under Companies Act, 1913. 1900-1930 ‘Due to world war and other financial crisis, to maintain stability in financial system the central banks were emerged all around the world ‘The Reserve Banks of India were created as Central bank for In ‘The Banking Regulation was enacted to regulation and restructure banks in India. Schedule VI, List I, Union List, Entry 38. Reserve Bank of India, Entry 43. Incorporation, regulation and winding up of trading corporations, including banking, insurance and financial corporations, but not including co-operative societies, Entry 45. Banking. List II, State List Entry 32. Incorporation, and winding up of corporations, other than those specified in List 1, and universities; unincorporated trading, literary, scientific, religious and other societies and associations; co-operative societies. List III Concurrent List Entry 9. Bankruptcy and insolvency.Year Evolution and banking reforms 1955 ‘SBI Act enacted to convert Imperial Bank of India to SBI 1959 ‘Nationalisation of SBI and Associate Banks 1961 Insurance cover were extended to deposits 1969 & 1980} Nationalisation of Banks, 14 and 6 banks were nationalized 1971 Creation of credit guarantee corporation, to protect the depositors 1975 Creation of Regional Rural Banks 1993 ‘The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 1993, 2001, 2013] License was given to private bank, foreign bank tostart universal bankingin India. 2002 ‘The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, This Act allows recovering loans from commercial and personal loans by public auction. 2013 FSLRC (Financial Sector Legislative Reforms Commission constituted under the Chairmanship of former Supreme Court Justice B.N..Srikrishna, based on his report India Finance Code Bill prepared 2016 ‘The Insolvency and Bankruptcy Code, 2016 enacted to prevent multiple contradictory elements in the legal arrangements. The Act has chosen the strategy of repealing man y existing Jaws on bankruptcy and insolvency, and writing a clean modern law which is a simple, coherent, and effective answer to the problems under Indian conditions. (refer unit If) 2016 Banks Board Bureau (BBB) The BBB will be a body of eminent professionals and officials, which will replace the Appointments Board for appointment of Whole-time Directors as well as non-Executive Chairman of PSBs 2016 MPC: Monetary Policy Committee created to take policy decisions.Ill. Different types of banks The structure of banking in India consists of following components: 1. Central Bank - Reserve Bank of India (RBI) The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934. The Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to Mumbai in 1937. The Central Office is where the Governor sits and where policies are formulated. Though originally privately owned, since nationalisation in 1949, the Reserve Bank is fully owned by the Government of India. The RBI is fully owned by the Government of India. It was inaugurated with share capital of Rs. 5 Cr divided into shares of Rs. 100 each fully paid up. RBI is governed by a central board (headed by a governor) appointed by the central government of India, RBI has 22 regional offices across India. The reserve bank of India was nationalized in the year 1949. Preamble of the RBI “Whereas it is expedient to constitute a Reserve Bank for India to regulate the issue of Bank notes and the keeping of reserves with a view to securing monetary stability in (India] and generally to operate the currency any credit system of the country to its advantage; And whereas in the present disorganization of the monetary systems of the world it is not possible to determine what will be suitable as a permanent basis for the Indian monetary system; But whereas itis expedient to make temporary provision on the basis of the existing monetary system and to leave the question of the monetary standard best suited to India to be considered when the international ‘monetary position has become sufficiently clear and stable to make it possible to frame permanent measures” Establishment and incorporation of Reserve Bank. (1) A bank to be called the Reserve Bank of India shall be constituted for the purposes of taking over the management of the currency from the [Central Government] and of carrying on the business of banking in accordance with the provisions of this Act. 2) The Bank shall bea body corporate by the name of the Reserve Bank of India, having perpetual succession and a common seal, and shall by the said name sue and be sued. ‘Composition of the Central Board and term of office of Directors [(1)_ The Central Board shall consist of the following Directors, namely: - (a) a Governor and [not more than four] Deputy Governors to be appointed by the Central Government; (b) four Directors to be nominated byte Central Government, one from each of the four Local Boards as constituted by section 9; (©) {ten} Directors to be nominated by the Central Government; and (d) [two Government officials] to be nominated by the Central Government;] (2) The Governor and Deputy Governors shall devote their whole time to the affairs of the Bank, and shall receive such salaries and allowances as may be determined by the Central Board, with the approval of the (Central Government): [Provided that the Central Board may, if in its opinion it is necessary in the public interest soto do, permit the Governor or a Deputy Governor to undertake, at the request of the Central Government or any State Government, such part-time honorary work, whether related to the purposes of this Act or not, as is not likely to interfere with his duties as Governor or Deputy Governor, asthe case may be:] 5(Provided further that the Central Government may, in consultation with the Bank, appoint a ‘Deputy Governor as the Chairman of the National Bank, on such terms and conditions as that Government may specify.] (3) A Deputy Governor and the Director nominated under clause (4) of subsection (1) may attend any meeting of the Central Board and take part in its deliberations but shall not be entitled to vote: {Provided that when the Governor is, for any reason, unable to attend any such meeting, a Deputy Governor authorised by him in this behalf in writing may vote for him at that meeting.] (4) The Governor and a Deputy Governor shall hold office for such term not exceeding five yearsas the [Central Government] may fix when appointing them, and shall be eligible for re-appointment. [A Director nominated under clause(c) of sub-section (1) shall [° **] hold office for a period of four years [and] [shall be eligible for reappointment: Provided that any such Director shall not be appointed for more than two terms, that is, for a maximum period of eight years either continuously or intermittently.] A Director nominated under clause (4) of sub-section (1) shall hold office during the pleasure of the [Central Government). (5) _Noact or proceeding of the Board shall be questioned on the ground merely of the existence of any vacancy in, or any defect in the constitution of, the Board. (©) Repealed (7) Aretiring Director shall be eligible for re-nomination.] RBI's Business transactions (s.17). The Bank shall be authorized to carry on and transact the several kinds of business hereinafter specified, namely:- (1) the accepting of money on deposit without interest from and the collection of money for, [** *] the {Central Government}, (***] the [State] Governments [***]{***] local authorities, banks and any other persons; (2) (a) the purchase, sale and rediscount of bills of exchange and promissory notes, {drawn on [and payable in India}] and arising out of bona fide commercial or trade transactions bearing two or more good signatures, one of which shall be that of a scheduled bank {or State co-operative bank] [orany financial institution, which is predominantly engaged in the acceptance or discounting of bills of exchange and promissory notes and which is approved by the Bank in this behalf] (***] and (maturing, (in the case of bills of exchange and promissory notes arising out of any such transaction relating tothe export of goods from India, within one hundred and eighty days, and (ii) in any other case, within ninety days, from the date of such purchase or rediscount exclusive of days of grace;] (b) the purchase, sale and rediscount of bills of exchange and promissory notes, [drawn [and payable in India]] and bearing two or more good signatures, one of which shall be that of a scheduled bank [or a [State] co-operative bank or any financial institution, which is predominantly engaged in the acceptance or discounting of bills of exchange and promissory notes and which is approved by the Bank in this behalf] and drawn or issued for the purpose of [financing agricultural operations] or the marketing of crops, and maturing within [fifteen months] from the date of such purchase or rediscount, exclusive of days of grace;(bb) the purchase, sale and rediscount of bills of exchange and promissory notes drawn and payable in India and bearing two or more good signatures, one of which shall be that of a State Co-operative bank] or State financial corporation (or any financial institution, which is predominantly engaged in the acceptance or discounting of bills of exchange and promissory notes and which is approved by the Bank in this behalf, and drawn or issued for the purpose of financing the production or marketing activities of cottage and small scale industries approved by the Bank and maturing within twelve months from the date of such purchase or rediscount, exclusive of days of grace, provided that the payment of the principal and interest ofsuch bills of exchange or promissory notes is fully guaranteed by the State Government;] (c) the purchase, sale and rediscount of bills of exchange and promissory notes (drawn [and payable in India]] and bearing the signature of a scheduled bank, ["**] and issued or drawn for the purpose of holding or trading in securities of (the Central Government [or a [State] Government]][***] and maturing within ninety days from the date of such purchase or rediscount, exclusive of days of grace; (3) (2) the purchase from and sale to scheduled banks {(b) the purchase, sale and rediscount of bills of exchange (including treasury bills) drawn in or on any place in any country outside India which is a member of the International Monetary Fund and maturing,- (i) in the case of bills of exchange arising out of any bona fide transaction relating to the export of goods from India, within one hundred and eighty days, and (i)in any other case, within ninety days, from the date of such purchase or rediscount: Provided that no such purchase, sale or rediscount shall be made in India except with a scheduled bank or a State co-operative bank;] (*****) {(BA) the making to any scheduled bank or State co-operative bank, of loans and advances, against promissory notes of such bank, repayable on demand or on the expiry of fixed periods not exceeding one hundred and eighty days; Provided that the borrowing bank furnishes a declaration in writing, to the effect that ~ (i) it holds bills of exchange arising out of any transaction relating to the export of goods from India, ofa value not less than the amount of such loans or advances, ~ (@) drawn in India and on any place in any country outside India which isa member of the International Monetary Fund or in any other country notified in this behalf by the Bank in the Gazette of India, and {(b) maturing not later than one hundred and eighty days from the date of the loan or advance, and it will, so ong as any part of such loans and advances remains unpaid, continue to hold such bills of exchange ofa value not less than the amount of such loans or advances outstanding for the time being; or] (Gi) it has granted a pre-shipment loan or advance to an exporter or any other person in India in order to enable him to export goods from India, the amount of the loan or advance drawn and outstanding at any time being not less than the outstanding amount of the loan or advance obtained by the borrowing bank from the Bank:]] (@B) the making to any scheduled bank or State co-operative bank of loans and advances repayable on demand or on the expiry of fixed periods not exceeding one hundred and eighty days against promissory notes of such bank; Provided that the borrowing bank furnishes a declaration in writing to the effect that it has made loans and advances for bona fide commercial or trade transactions or for financing agricultural operations or the marketing of crops or for other agricultural purposes as set out in the declaration and the said declaration includes such other particulars as may be required by the Bank:] the making to (***] local authorities, scheduled banks [State] cooperative banks {and State Financial Corporations [* **]] of loans and advances, repayable on demand or on the expiry of fixed periods not exceeding ninety days, against the security of — 7(a) stocks, funds and securities (other than immovable property) in which a trustee is authorized to invest trust money by any Act of Parliament [of the United Kingdom] or by any law for the time being in force in [Indial[***]; (©) gold or silver or documents of title to the same; (©) such bills of exchange and promissory notes as are eligible for purchase or rediscount by the Bank [or asare fully guaranteed as to the repayment of the principal and payment of interest by a State Government]; (4) promissory notes of any scheduled bank [State]] Co-operative bank), supported by documents of title to ‘goods [such documents having 1 (4A) the making to any State Financial Corporation {***), of loans and advances repayable on the expiry of fixed periods not exceeding eighteen months from the date of such loan or advance, against securities of the Central Government or of any State Government, of any maturity, or against bonds and debentures issued by that Corporation and guaranteed by the State Government concerned and maturing within a period not exceeding eighteen months from the date of such loan or advance: [Provided that the previous approval of the State Government shall be obtained for the borrowing by the State Financial Corporation and the amount of loans and advances granted to that Corporation under this clause shall not, at any time, exceed in the aggregate [twice the paid up share capital] thereof]; ((4AA) the making of annual contributions to the National Rural Credit (Long Term Operations) Fund and the National Rural Credit] (Stabilisation) Fund established under sections 42 and 43, respectively, of the National Bank for Agriculture and Rural Development Act, 1981;] ((4B) the making to the Industrial Finance Corporation of India [***] of loans and advances, ~ (a) repayable on demand or on the expiry of fixed periods not exceeding ninety days from the date of such loan or advance, against securities of the Central Government or of any State Government; or (b) repayable on the expiry of fixed periods not exceeding eighteen months from the date of such loan or advance, against securities of the Central Government of any maturity or against bonds and debentures issued by the said Corporation and guaranteed by the Central Government and maturing within a period not exceeding eighteen months from the date of such loan or advance: ((4BB) the making to any financial institution notified by the Central Government in this behalf, of loans and advances, - (@) repayable on demand or on the expiry of fixed periods not exceeding ninety days from the date of such loan or advance, against the securities of the Central Government or of any State Government, or (b) repayable on the expiry of fixed periods not exceeding eighteen months from the date of such loan or advance, against securities of the Central Government or of any State Government, of any maturity, or against bonds and debentures issued by that financial institution and guaranteed by the Central Government or any State Government, and maturing within a period not exceeding eighteen months from the date of such loan or advance: Provided that the amount of loans and advances granted to a financial institution under sub-clause (b) shall not, at any time, exceed in the aggregate sixty per cent, of the paid-up share capital thereof]; ((4BBB) the making to the Unit Trust of loans and advances - (i) repayable on demand or on the expiry of a fixed period not exceeding ninety days from the date of such loan or advance against the security of stocks, funds and securities (other than immovable property) in which a trustee is authorised to invest trust money by any law for the time being in force in India; 8(ii) repayable on demand or within a period of eighteen months from the date of such loan or advance against the security of the bonds of the Unit Trust issued with the approval of and guaranteed by the Central Government}; [(iii) for the purpose of any scheme other than the first unit scheme under the Unit Trust of India Act, 1963 onsuch terms and conditions and against the security of such other property of the Unit Trust as may be specified in this behalf by the Bank]; {(4C) the making to a Warehousing Corporation established under the Agricultural Produce Development and Warehousing) Corporations Act, 1956, of loans and advances, ~ (a) repayable on demand or on the expiry of fixed periods not exceeding ninety days, from the date of such loanor advance, against securities of the Central Government or of any State Government, of (b) repayable on the expiry of fixed periods not exceeding eighteen months from the date of such loan or advance, against securities of the Central Government or of any State Government, of any maturity, or against bonds and debentures issued by the Corporation to which the loan or advance is made, and, by the Central ora State Government, and maturing within a period not exceeding eighteen months from the date of such loan or advance: Provided that the amount of loans and advances granted under clause (b) shall not at any time exceed, in the aggregate, three crores of rupees in the case of the Central Warehousing Corporation and fifty lakhs of rupees in the case ofa State Warehousing Corporation}; [(4D) the making to the Deposit Insurance Corporation of loans and advances; and generally assisting the Corporation in such manner and on such terms as may be determined by the Central Board]; [(ADD) the making to the National Housing Bank of loans and advances and generally assisting the National Housing Bank in such manner and on such terms as may be determined by the Central Board]; [(4E) the making to the National Bank of loans and advances repayable on demand or on the expiry of fixed period not exceeding eighteen months from the date of making of the loan or advance, either- (j) against the security of stocks, funds and securities (other than immovable property) in which a trustee is authorised to invest trust money by any law for the time being in force in India; or (the Exim Bank] [or the Reconstruction Bank] (or the Small Industries Bank] out of the National Industrial Credit (Long Term Operations) Fund established under section 46C; [(4GG) the making of loans and advances to, and the purchasing of bonds and debentures of, the National Housing Bank out of the National Housing Credit (Long Term Operations) Fund established under section 46D); (4H) the making to [***) [the Small Industries Bank] of loans and advances - (a) repayable on demand or on the expiry of fixed periods not exceeding ninety days, from the date of such Joan or advance against the security of stocks, funds and securities (other than immovable property) in which a trustee is authorised to invest trust money by any law for the time being in force in India; or (b) against the security of bills of exchange or promissory notes, arising out of bona fide commercial or trade transactions bearing two or more good signatures and maturing within five years from the date of such loan or advance];((4-1) the making to scheduled banks, [the Exim Bank] [or the Reconstruction Bank or the Small Industries Bank, the Industrial Finance Corporation and any other financial institution as may, on the recommendation of the Bank, be approved in this behalf by the Central Government of loans and advances repayable on demand or otherwise and against such security and on such other terms and conditions as may be approved in this behalf by the Central Board for the purpose of enabling such banks, or financial institution, as the case may be, to purchase foreign exchange from the Bank for the purpose of financing the import of capital ‘goods or for such other purposes as may be approved by the Central Government]; [(4J) the making to the Exim Bank of loans and advances — (a) repayable on demand or on the expiry of a fixed period not exceeding ninety days, from the date of such loan or advance against the security of stocks, funds and securities (other than immovable property) in which a trustee is authorised to invest trust money by any law for the time being in force in India; or (b) against the security of bills of exchange or promissory notes, arising out of bona fide commercial or trade transactions bearing two or more good signatures and maturing within five years from the date of such loan or advance;] ((4K) the making to the Reconstruction Bank of loans and advances — (a) repayable on demand or on the expiry of a fixed period not exceeding ninety days, from the date of such loan or advance against the security of stocks, funds and securities (other than immovable property) in which a trustee is authorised to invest trust money by any law for the time being in force in India; or (b) against the security of bills of exchange or promissory notes, arising out of bona fide commercial or trade transactions bearing two or more good signatures and maturing within five years from the date of such loan or advance]; <5) the making to the [Central Government] [***] [and [State Governments] of advances repayable in each case not later than three months from the date of the making of the advance; {(6) the issue of demand drafts, telegraphic transfers and other kinds of remittances made payable at its own offices or agencies, the purchase of telegraphic transfers, and the making, issue and circulation of bank post bills); {(6A) dealing in derivatives, and, with the approval of the Central Board, in any other financial instrument. Explanation. — For the purposes of this clause, “derivative” means an instrument, to be settled at a future date, whose value is derived from change in one or a combination of more than one of the following underlyings, namely: (a) interest rate, (b) price of securities of the Central Government or a State Government or of such securities of a local authority as may be specified in this behalf by the Central Government, (c) price of foreign securities, (d) foreign exchange rate, (e) index of rates or prices, (f) credit rating or credit index, (g) price of gold or silver coins, or gold or silver bullion, or (h) any other variable of similar nature); (8) the Purchase and sale of securities {(8A) the purchase and sale of shares in, or the capital of (the [National Bank] [the Deposit Insurance Corporation], ("**], the State Bank (or any other bank (or financial institution] notified by the Central Government in this behalf]; [(8AA) the promoting, establishing, supporting or aiding in the promotion, establishment and support of any financial institution, whether as its subsidiary or otherwise;] ((8B) the keeping of deposits with the State Bank for such specific purposes as may be approved by the Central Government in this behalf}; 10(9) the custody of monies, securities and other articles of value, and the collection of the proceeds, whether principal, interest or dividends, of any such securities; (10) the sale and realisation of all property, whether movable or immovable, which may in any way come into the possession of the Bank in satisfaction, or part satisfaction, of any of its claims; (11) the acting as agent for{* **] the [Central Government] or any [State] Government or any local authority [or the Industrial Finance Corporation of India [***} [or any other body corporate which is established or constituted by or under any other law] [or the Government of any such country outside India or [any such person or authority] as may be approved in this behalf by the Central Government] in the transaction of any of the following kinds of business, namely; ~ (a) the purchase and sale of gold or silver [or foreign exchange]; (b) the purchase, sale, transfer and custody of bills of exchange, securities or shares in any company; (0) the collection of the proceeds, whether principal, interest or dividends, of any securities or shares: (4) the remittance of such proceeds, at the risk of the principal, by bills of exchange payable either in India or elsewhere; (e) the management of public debt; [***] the issue and management of [***] bonds and debentures); [(11A) the acting as agent for the Central Government, — {(a) in guaranteeing the due performance by any small scale industrial concern, approved by the Central Government, of its obligations to any bank or other financial institution in respect of loans and advances made, or other credit facilities provided, to it by such bank or other financial institution and the making as such agent of payments in connection with such guarantee, and (b) in administering any scheme for subsidising the rate of interest or other charges in relation to any loans or advances made, or other credit facilities provided, by banks or other financial institutions for the purpose of financing or facilitating any export from India and the making as such agent of payments on behalf of the Central Government;] [(12) the purchase and sale of gold or silver coins and gold and silver bullion and foreign exchange and the opening of a gold account with the principal currency authority of any foreign country or the Bank for International Settlements or any international or regional bank or financial institution formed by such principal currency authority or authorities or by the Government of any foreign country:] ((12A) the purchase and sale of securities issued by the Government of any country outside India or by any institution or body corporate established outsidelndia and expressed to be payable in a foreign currency or any international or composite currency unit, being in the case of purchase by the Bank securities maturing within a period of ten years from the date of purchase: Provided that in the case of securities of an institution or body corporate, the repayment of principal and payment of interest in respect of such securities shall be guaranteed by the Government of the country concerned]; [(12AA) lending or borrowing of securities of the Central Government or a State Government or of such securities of a local authority as may be specified in this behalf by the Central Government or foreign securities; (12AB) dealing in repo or reverse repo: Provided that lending or borrowing of funds by way of repo or reverse repo shall not be subject to any limitation contained in this section. Explanation. — For the purposes of this clause,— i(a) “repo” means an instrument for borrowing funds by selling securities of the Central Government ora State Government or of such securities of local authority as may be specified in this behalf by the Central Government or foreign securities, with an agreement to re purchase the said securities on a mutually agreed future date at an agreed price which includes interest for the funds borrowed; (b) “reverse repo” means an instrument for lending funds by purchasing securities of the Central Government ora State Government or of such securities of a local authority as may be specified in this behalf by the Central Government or foreign securities, with an agreement to resell the said securities on a mutually agreed future date at an agreed price which includes interest for the funds lent]; {(12B) the making of loans and advances in foreign currencies to scheduled banks, {***] {the Exim Bank), [the Reconstruction Bank or the Small Industries Bank], the Industrial Finance Corporation, any State Financial Corporation and any other financial institution as may, on the recommendation of the Bank, be approved by the Central Government and on such terms and conditions as may be specified by the Central Board in this behalf, against promissory notes of such bank or financial institution, as the case may be: Provided that the borrowing bank or financial institution, as the case may be, furnishes a declaration in writing tothe effect that —(a) it has made loans and advances in foreign currencies for financing international trade or for the import of capital goods or for such other purposes as may be approved by the Central Government; and (b) that the amount of loans or advances so made and outstanding at any time will not be less than the outstanding amount of the loans or advances obtained by it from the Bank;)} (13) the opening of an account with an office outside India of any bank, including a bank incorporated in India or the making of an agency agreement with, and the acting as an agent or correspondent of, any bank incorporated outside India, or the principal currency authority of any country under the law for the time being in force in that country or any international or regional bank or financial institution formed by such principal currency authorities or foreign governments, and the investing of the funds of the Bank in the shares and securities of any such international or regional bank or financial institution or of any other foreign institution as may be approved by the Central Board in this behalf]; (3A) participation in any arrangement for the clearing and settlement of any amounts due from, or to, any person or authority on account of the external trade of India with any other country or group of countries or of any remittances to, or from, that country or group of countries, including the advancing, or receiving, of any amount in any currency in connection therewith, and, for that purpose, becoming, with the approval of the Central Government, a member of any international or regional clearing union of central banks, monetary or other authorities, or being associated with any such clearing arrangements, or becoming a member of any body or association formed by central banks, monetary or other similar authorities, or being associated with the same in any manner]; (14) the borrowing of money fora period not exceeding one month for the purposes of the business of the Bank, and the giving of security for money so borrowed: Provided that no money shall be borrowed under this clause from any person in India (***] other than a scheduled bank [***] or from any person The words “ora Burma Scheduled Bank” ins. by the M. O. 1937, omitted by s.11, Act 11 of 1947outside India [***] other than a bank which is the principal currency authority of any country under the law for the time being in force in that country: Provided further that the total amount of such borrowing from persons in India [* **] shall not at any time exceed the amount of the [capital] of the Bank: (15) the making and issue of bank notes subject to the provisions of this Act [(15A) the exercise of powers and functions and the performance of duties entrusted to the Bank under this act or under any other law for the time being in force;] 12{(15B) the providing of facilities for training in banking and for the promotion of research, where, in the opinion of the Bank, such provision may facilitate the exercise by the Bank of its powers and functions, or the discharge of its duties;) (16) generally, the doing ofall such matters and things as may be incidental to or consequential upon the exercise of its powers or the discharge of its duties under this Act Functions of RBI A bank which is entrusted with the functions of guiding and regulating the banking system of a country is known as its Central bank. Such a bank does not deal with the general public. It acts essentially as Government's banker, maintain deposit accounts of all other banks and advances money to other banks, when needed. The Central Bank provides guidance to other banks whenever they face any problem. Itis. therefore knowns the banker's bank. The Reserve Bank of India is the central bank of our country. The Central Bank maintains record of Government revenue and expenditure under various heads. Italso advises. the Government on monetary and credit policies and decides on the interest rates for bank deposits and bank loans. In addition, foreign exchange rates are also determined by the central bank. Another important function of the Central Bank is the issuance of currency notes, regulating their circulation in the country by different methods. No other bank than the Central Bank can issue currency. The general superintendence and direction of the bank is entrusted to central board of directors of 20 members, the Governor and four deputy Governors, one Governmental official from the ministry of Finance, ten nominated directors by the government to give representation to important elements in the economic life of the country, and the four nominated director by the Central Government to represent the four local boards with the headquarters at Mumbai, Kolkata, Chennai and 29 New Delhi. Local Board consists of five ‘members each central government appointed for a term of four years to represent territorial and economic interests and the interests of cooperative and indigenous banks. The RBI Act 1934 was commenced on April 1, 1935. The Act, 1934 provides the statutory basis of the functioning of the bank. The bank was constituted for the need of following: - Toregulate the issues of banknotes. - To maintain reserves with a view to securing monetary stability - Tooperate the credit and currency system ofthe country to its advantage. Bank of Issue: The RBI formulates, implements, and monitors the monitory policy. Its main objective is maintaining price stability and ensuring adequate flow of credit to productive sector. Regulator-Supervisor of the financial system: RBI prescribes broad parameters of banking operations within which the country’s banking and financial system functions. Their main objective is to maintain public confidence in the system, protect depositor's interest and provide cost effective banking services to the public. Manager of exchange control: The manager of exchange control department manages the foreign exchange, according to the foreign exchange management act, 1999. The manager's main objective is to facilitate external trade and Payment and promote orderly development and maintenance of foreign exchange market in India. Issuer of currency: A person who works as an issuer, issues and exchanges or destroys the currency and coins that are not fit for circulation. His main objective isto give the public adequate quantity of supplies of currency notes and coins and in good quality. Developmental role: The RBI performs the wide range of promotional functions to support national objectives such as contests, coupons maintaining good public relations and many more, 13Regulatory functions: There are also some of the related functions to the above mentioned main functions. ‘They are such as; banker to the government, banker to banks etc... 1, Banker to government performs merchant banking function for the central and the state governments; also acts as their banker. Banker to banks maintains banking accounts toall scheduled banks. Controller of Credit: RBI performs the following tasks: Itholds the cash reserves of al the scheduled banks. Itcontrols the credit operations of banks through quantitative and qualitative controls. a ew It controls the banking system through the system of licensing, inspection and calling for information. 7. It acts as the lender of the last resort by providing rediscount facilities to Scheduled banks. The powers of RBI in the different roles as regulator and supervisor can be listed as follows a. Powertolicence; b. Power to appointment and removal of banking boards and personal Power to regulate the business of banks c d. Powertogive directions Power to inspect and supervise banks Power regarding audit of books Power to collect, collate furnish credit information Power to relating to moratorium, amalgamation and winding up and i. Power to impose penalties Supervisory Functions: In addition to its traditional central banking functions, the Reserve Bank performs certain non-monetary functions of the nature of supervision of banks and promotion of sound banking in India. The Reserve Bank Act 1934 and the banking regulation act 1949 have given the RBI wide powers of supervision and control over commercial and co-operative banks, relating to licensing and establishments, branch expansion, liquidity of their assets, management and methods of working, amalgamation, reconstruction and liquidation. The RBI is authorized to carry out periodical inspections of the banks and to call for returns and necessary information from them. The nationalisation of 14 major Indian scheduled banks in July 1969 has imposed new responsibilities on the RBI for directing the growth of banking and credit policies towards more rapid development of the economy and realisation of certain desired social objectives. The supervisory functions ofthe RBI have helped a great deal in improving the standard of banking in India to develop on sound lines and to improve the methods of their operation. 14Promotional Functions: With economic growth assuming a new urgency since independence, the range of the Reserve Bank's functions has steadily widened. The bank now performs a variety of developmental and promotional functions, which, at one time, were regarded as outside the normal scope of central banking. The Reserve bank was asked to promote banking habit, extend banking facilities to rural and semi-urban areas, and establish and promote new specialized financing agencies Indian Scheduled Commercial Banks The commercial banking structure in India consists of scheduled commercial banks, and unscheduled banks. Scheduled Banks: Scheduled Banks in India constitute those banks which have been included in the second schedule of RBI act 1934. RBI in turn includes only those banks in this schedule which satisfy the criteria laid down vide section 42(6a) of the Act. 2. Commercial Banks commercial bank is a profit-seeking business firm, dealing in money and credit. It isa financial institution dealing in money in the sense that it accepts deposits of money from the public to keep them in its custody for safety. So also, it deals in credit, i.e, it creates credit by making advances out of the funds received as deposits to needy people. It thus, functions as a mobiliser of saving in the economy. A bank is, therefore like a reservoir into which flow the savings, the idle surplus money of households and from which loans are given on interest to businessmen and others who need them for investment or productive uses. 1, Deposit Banks: The most important type of deposit banks is the commercial banks. They have connection with the commercial class of people. These banks accept deposits from the public and lend them to needy parties. Since their deposits are for short period only, these banks extend loans only fora short period. Ordinarily these banks lend money fora period between 306 months. They do not like tolend money for long periods or to invest their funds in any way in long term securities. 2. Industrial Banks: Industries require a huge capital for a long period to buy machinery and equipment. Industrial banks help such industrialists. They provide long term loans to industries. Besides, they buy shares and debentures of companies, and enable them to have fixed capital. Sometimes, they even underwrite the debentures and shares of big industrial concerns. The important functions of industrial banks are: a) They accept long term deposits. b) They meet the credit requirements of industries by extending long term loans. ©) These banks advise the industrial firms regarding the sale and purchase of shares and debentures. The industrial banks play a vital role in accelerating industrial development. In India, after attainment of independence, several industrial banks were started with large paid up capital. They are, The Industrial Finance Corporation (I.F.C.), The State Financial Corporations (S.F.C.), Industrial Credit and Investment Corporation of India (ICICI) and Industrial Development Bank of India (IDBI) etc. 3. Savings Banks:These banks were specially established to encourage thrift among small savers and therefore, they were willing to accept small sums as deposits. They encourage savings of the poor and middle class people. In India we do not have such special institutions, but post offices perform such functions. After nationalisation most of the nationalised banks accept the saving deposits. 154. Agricultural Banks: Agriculture has its own problems and hence there are separate banks to finance it. These banks are organised on co-operative lines and therefore do not work on the principle of maximum profit for the shareholders. These banks meet the credit requirements of the farmers through term loans, viz., short, medium and long term loans. There are two types of agricultural banks, a) Agricultural Co-operative Banks, and b) Land Mortgage Banks. Co-operative Banks are mainly for short periods. For long periods there are Land Mortgage Banks. Both these types of banks are performing useful functions in India. 5. Exchange Banks: These banks finance mostly for the foreign trade of a country. Their main function is to discount, accept and collect foreign bills of exchange. They buy and sell foreign currency and thus help businessmen in their transactions. They also carry on the ordinary banking business. In India, there are some commercial banks which are branches of foreign banks. These banks facilitate for the conversion of Indian currency into foreign currency to make payments to foreign exporters. They purchase bills from exporters and sell their proceeds to importers. They purchase and sell “forward exchange” tooand thus minimise the difference in exchange rates between different periods, and also protect merchants from losses arising out of exchange fluctuations by bearing the risk. The industrial and commercial development of a country depends these days, largely upon the efficiency of these institutions. 6. Miscellaneous Banks: There are certain kinds of banks which have arisen in due course to meet the specialised needs of the people. In England and America, there are investment banks whose object is to control the distribution of capital into several uses. ‘American Trade Unions have got labour banks, where the savings of the labourers are pooled together. In London, there are the London Discount House whose business is “to go about the city seeking for bills to discount.” There are numerous types of different banks in the world, carrying on one or the other banking business. Functions of Commercial Banks Primary: Acceptance of deposits Advancing loans, Creation of credit, Clearing of cheques, Financing foreign trade and Remittance of funds ‘Secondary: Agency Services and General Utility Services a. Public sector Banks There are 27 public sector banks in India (as on 04.08.2016) are the ones in which the government hasa major holding. They are divided into two groups i.e. Nationalized Banks and State Bank of India and its associates. Among them, there are 19 nationalized banks and 8 State Bank of India associates. Public Sector Banks dominate 75% of deposits and 71% of advances in the banking industry. Public Sector Banks dominate commercial banking India. These can be further classified into: 1) State Bank of India 2) Nationalized banks 3) Regional Rural Banks b. Private Banks The private sector banks played a crucial role in the growth of joint stock banking in India. They represent part of the indian banking sector that is made up of both private and public sector banks. The “private- sector banks” are banks where greater parts of state or equity are held by the private shareholders and not by government. 16Banking in India has been dominated by public sector banks since the 1969 when all major banks were nationalised by the Indian government. However, since liberalisation in government banking policy in the 1990s, old and new private sector banks have re-emerged. They have grown faster & bigger over the two decades since liberalisation using the latest technology, providing contemporary innovations and monetary tools and techniques.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 the nationalisation in 1969 and kept their independence because they were either too small or specialist to be included in nationalisation. The new private sector banks are those that have gained their banking license since the liberalisation in the 1990s. there are two types of private sector banks in india namely Old Private Banks (OPB) and New Private Bank (NPB). The Private sector banks introduced the concept of online banking in India, This was mostly because the private banks were technologically well equipped. Online banking is extremely common today since you can sit anywhere and go ahead with your banking transactions. You do not have to personally visit your bank. The Private sector banks were using state of the art technology and fully computerized systems since the time they entered the Indian market whereas the Public sector banks were not. However despite the technological challenges the public sector banks in India are still the preferred destinations for many as they are considered as safer options for money deposit. c. Foreign Banks As of 31* December 2016, there are 46 foreign banks from 26 countries operating as branches and 46 banks from 22 countries operating as representative offices. Although the discussion around differential licensing is still nascent, there is one foreign bank present asa credit card issuer with limited banking licence. In addition, a number of foreign banks have also entered India via the NBFC route, while a considerable number have set up captive centres in the country. Foreign banks present in India as representative offices often have correspondent banking relationships with domestic banks and provide a useful platform for foreign banks to access opportunities for foreign currency lending to Indian corporate and financial institutions. Foreign banks have less than 1% of the total branch network but about 7% of the total banking sector assets and a sizeable 11% of profits. With 334 branches in all, the share of foreign bank branchesis. less than 1%. 1. Co-operative Banks a. Primary Credit Societies b. Central Co-operative Banks cc. State Co-operative Banks Co-operative banks are small-sized units organized in the cooperative sector which operate both in urban and non-urban regions. These banks are traditionally centered on communities, localities and work place groups and they essentially lend to small borrowers and businesses. The term Urban Co-operative Banks (UCBs), though not formally defined, refers to primary cooperative banks located in urban and semi-urban areas., It has establishment and functions are mostly based on following principles namely, Voluntary and ‘open membership, Democratic member control, Member economic participation Autonomy and independence, Education, training and information, Co-operation among Co-operatives and Concern for Community. These banks provide most services such as savings and current accounts, safe deposit lockers, loan or mortgages to private and business customers. For middle class users, for whom a bank is where they can save their money, facilities like Internet banking or phone banking is not very important. Although they 17are not better than private banks in terms of facilities provided, their interest rates are definitely competitive. However, unlike private banks, the documentation process is lengthy if not stringent and getting a loan approved quickly is rather difficult. The criteria for getting a loan from a UCB are less stringent than for aloan from a commercial bank. 2. Regional Rural Banks The nationalization of the banks in 1969 boosted the confidence of the public in the Banking system of the country. However, in the early 1970s, there was a feeling that even after nationalization, there were cultural issues which made it difficult for commercial banks, even under government ownership, to lend to farmers. This issue was taken up by the government and it set up Narasimham Working Group in 1975. On the basis of this committee’s recommendations, a Regional Rural Banks Ordinance was promulgated in September 1975, which was replaced by the Regional Rural Banks Act 1976.Regional Rural Banks (RRBs) ‘were established in 1975 under the provisions of the Ordinance promulgated on the 26th September 1975 and followed by Regional Rural Banks Act, 1976 with a view to develop the rural economy and to create a supplementary channel to the ‘Cooperative Credit Structure’ with a view to enlarge institutional credit for the rural and agriculture sector. ‘The Government of India, the concerned State Government and the bank, which had sponsored the RRB contributed to the share capital of RRBs in the proportion of 50%, 15% and 35%, respectively. The area of operation of the RRBs is limited to notified few districts in a State. The RRBs mobilise deposits primarily from rural/semi-urban areas and provide loans and advances mostly to small and marginal farmers, agricultural labourers , rural artisans and other segments of priority sector. The RBI in 2001 constituted a Committee under the Chairmanship of Dr VS Vyas on “Flow of Credit to Agriculture and Related Activities from the Banking System” which examined relevance of RRBs in the rural credit system and the alternatives for making it viable. The consolidation process thus was initiated in the year 2005 as an off-shoot of Dr Vyas Committee Recommendations. First phase of amalgamation was initiated Sponsor Bank-wise within a State in 2005 and the second phase was across the Sponsor banks within a State in 2012. The process was initiated with a view to provide better customer service by having better infrastructure, computerization, experienced work force, common publicity and marketing efforts etc, The amalgamated RRBs also benefit from larger area of operation, enhanced credit exposure limits for high value and diverse banking activities. As a result of amalgamation, number of the RRBs has been reduced from 196 to 64 as on 31 March 2013. The number of branches of RRBs increased to 17856 ason 31 March 2013 covering 635 districts throughout the country. Sources of Funds The sources of funds of RRBs comprise of owned fund, deposits, borrowings from NABARD, Sponsor Banks and other sources including SIDBI and National Housing Bank. ‘The owned funds of RRBs comprising of share capital, share capital deposits received from the shareholders andthe reservesstood at 19304 crore ason 31 March 2013 asagainst 16462 crore ason 31 March 2012; registering a growth of 17.26%. The increase in owned funds to the tune of 2842 crore was mainly on account of accretion to reserves by the profit making RRBs. The share capital and share capital deposits together amounted to 6174 crore (a) The Chakrabarty Committee reviewed the financial position of all RRBs in 2010 and recommended for recapitalisation of 40 out of 82 RRBs for strengthening their CRAR to the level of 9 per cent by 31 March 2012. According to the Committee, the remaining RRBs are in a position to achieve the desired level of 18