functions inest1nent,

otherwise". mobilisation
means economy.
demand BankingAcording of make
deposits
the commercial A 14.2 14.1
economy. profits. Challenges14.5 14.4 14.3
any
of or means oft
a company
to Issues BANKING 14
otherwise,
commercial This of the ofmoney ProgressRecent
Structure
deposits
deposits Banking Commercial bank
the The
definition from Trends
which banking is in of
accep and Operational Banking
bank. of
and Regulation the a in
money ting disbursementbanks financial
withdrawable
broadly transacts public Commercial
sector 197
System
from for play and
intermediary Technology
the Act is
brings the 1949 the ofan lends Bankings in
the
purpose India
credit
important
public,
by business "Alifeline them
out
cheque, banking to
he
trepayable of of
various withwhich
important lending of any role
draft banking. company modern accepts a
sectors in view
or onor the
to
 STRUCTURE Scheduled
only RBI.reserves (b) (abanks.
)schedule banks.efficiency country.
banking privatebanking Punjab
ofThus, Bank byBanking 198
14.Fig1. The accommodation Commercial were were developments was and in
India. the large, 14.1
structure four The a itmust nationalised achieved
of
manner must Scheduled
To nationalised.
prior
sector sectorbusinessNational nationalisation
India) INDIA IN
number with have be of of With The STRUCTURE
non-scheduled banks a
also included Banking operation
bankS to state-induced in
of OF the
detrimental banking
has tbanks
paid he introduction instages.
scheduled and satisfy banks undergone in Bank. 1955.
COMMERCIAL of RBI; are are Inand
remittance
non-scheduled Regulation
up onset as India
required
they, thcapital
e
inclassified and wellsector At1993, in In ofThe
the are was present
banks to financial of Imperial
July, activity.India Business
commercial RBÍ those as of April RBI O
in the second economica reforms a New OF
facilities
and Act, into number entry economic near 1969,
at return, interests to that which there Bank1980, was afterBANKING Economics
BANKS present. reserves monopoly Bank The
banks maintain its schedule,1949; scheduled soundness. ofled 14
nationalised
enjoy affairs are retorms,of more are of
major 6Independence
public
banks at others to
reforms India more -V-
concessional of of changes the 19 of
is the incduded India
very a its are not a foreign nationalised of commercial
commercial ownership (T.Y.B.Com.::SEM-V)
in depositors.
certain
facility bank are and setting
India not less the the in was in SYSTEM
small. non-scheduledtedt
non-scheduledof in (now 1949
conductedthan5 in commercial terms banksGovernment early merged
up has
is rates of
amount the followed
the been,of
shown There financial seconde of in ot 1990%banke banks bankeState barks
from lakh size. the more with by
t are of in
f
Ban
 Cs. ne ernmet
ks banks State
1 1hebankbeen,
gedd bankollowe ofby SEM-V)
d ducted i chedule:secondchedule sizgof
nmercial moe of190%|banky with
ns thein
There raatesfrofinand
d mountf n+5lae
shown
Following
1969table consist
payment and Bank of The
private
14.2 Co-operative
Urban State
Bank Banking
in scheduled
RegionalIndiaon Group
certain of
sector Banks
BANKING
RECENT banks andSBI Fig.
important Rural SECTOR
PUBLIC
brings and commercialbanks 14.1 CO-OPERATIVE Nationalised
April,1st its Banks BANKS
: BANKS
local
associated Structure COMMERCIAL
Banks and
out TRENDS
areas area foreign Co-operative
the Rural
(RRBs).2017, banks of Banks
Rural
Regional
progress
: banks. banks Commercial
Banks
Nationalised banks.
consistof BANKS
IN Private
which
of
COMMERCIAL The Banks Local
Area IN
commercial Banks PRIVATE
SECTOR INDIA
Sector are banks,
public
sector FOREIGN
BANKS
Banks public in
winoio merged BANKS
India
Banks
include
IDBI sector Payment
Banks
banks with
include banks
since State
199
 2. Source: Commercial 200
1. Sector Priority
Share
Population
thousand)ofOfficel
(in per India in
Scheduled
Commercial
Banks No. Banks No.of
Metropolitan Semi-Urban
Urban Rural Non-Scheduled
Commercial
Banks Banks Banks
Co-operative (SCBs)
Banks
RuralCommercial Scheduled
Brarnch
has Regional SBI, includingthe No. of Regional|
which Of
Offices Table
beenJuneassociate 148, of RBI
Expansion:
steadylaof BankS 14.1:Progress
Rural 144State Website of
were
banksBank. Barnk At :
(September
increase scheduled the 1969
Froma wereThere of 14% 1,503|1,584|
|1,25,6761,39,240
85,393|1,17,280
20,740
3,342| 1,833
8,262| nklieations
T.Y.B.A.F.For
Business
64 16 73 89 of
India end
merged Indian
intotal were 2016)/2017. 2010
commercial (SBI) of 35.1%| 15,028|
17,003| 32,624 222
Economics
number June 13.8 133 218
ofwith 4 4 Banking
non-scheduled
8262 and 2017, 35.15%| 2014
19,213|21448| 45,177 151 -
SBI its 10.8| 146 V
branches 5 57
branches. banks
associate we
(T.Y.B.Com.::SEM-V)at
on 2015 a
1st had 36.61%| 38,23048,498
20,474|22,933,703|
97 152. Glance
10.3 148
including
inApril, 4 56
As
1969 banks. banks. 148 2017
on banks 39.5% 27,11 25,131 48,768|
the a0 I Ot 56 14| l48|
ag//
ricul such as
Since na
Bank Lthe peo he n an
 4
Commercial provide
Rural
agricultural in
In loans banks There 39.9%advances
to14% nationalization Barking
combining
o~ective
Regional
of debentures retail scaleAdvances
to lendingschemes
the loans. lso lending
of such
in the SinceBank branch,
thewhichbeen
Development for
provide has industries,
trade purpose changedicutural
consumer facilities, Of
2017,
1969 priority as, people Deposit athe
loans various been to
Bank nationalization,
Lending an
Rural in have facilities, which there
banksto 2018. export establishing total
activities, total
to and to credit and
improvement there
Mobilization
issued
to short rise 37.7% of from
been credit,
spread
and branches were
| we
banksmall road and was indicates e
Banks identify purposes. Priority sector self other
Setting
: the was 1,39,240
Program in neglected to extendedsecurity has Bank
by term, in and employment. retail a
th e
provide (RRBs) agricultural the advances
1991. been small
mercharnt bankcredit large
in 35
land share
business.water divert
has up
the :
Sector average percent branches
weaker medium bankingto development
lending increase As
good (IRDP). They It sectors an also linkedborrowers' of
increased of
:RRBsdevelopment of
increased transport, to the sPecial
banking banking result
Credit
features ofTheincreasinginreased.small-sale use
deposits were of
sections
marketing, also term food public : The to etc. has in
commerial
to share
such The production. of cells
substantially
undergonegreat
requirement, in
deposits. of in
provide
advances. self contribution credit divisions, The of
the extension rural
the ofwere as sector
to as
sharemain to saving
mobilized
395% emploved
agriculture, industries approach country.
of while serve areas.
privleged
co-operativesreated underbanks. etc.loans well increased
of There banksi
Commercial as
priority objective
The countrywide habit
in bank industial. since of
IntegratedBarks They long providing provision by
for 2017 persons, lending
ofand of banking India.in
with change among ahas
sector smallredit bank banks 1991. rural
investallied term from also 201
and the aso and of for
 9. 8. 7. 202

largest businesses,
Overseas P'ayment Samruddhi
savings
granted
to migrant efficiernt
Areathere
were Ltd. specialised scheme butLocal 8.0 InThewere changes andThey With areas. commerce
essentially
anagricultural RRBSdeposit sectionsthe
operated generally
expand percent
a line ideal
These number
improving 1970s
not Bank are vitalArea primarily were the
with have
verseas accounts licence was wereinstitution facilities of
through
Operations labour Banks in only and
component introduction limited with
their and institutions aLocal Ltd.,
localfocus Banks of of aimed commerciallabourers and the the
position introduced their brought
competitive
four
their reflected
RRBs their therural
other for : Coastal
Area industry
responsibility particularly
branchpresence workforce, To at to
a and 11 (LABs) total role
weakening for specific
network widen LABs of declined giving a population.
and Business
unorganised of payment tohad Bank in in in albout achieving of district.
network Indian (i) absorb Local rural intadvances
he : financial banks artisans
furthering
Local the in
overseas.
payments/remittance the functioning,
Ltd. financial 1996
banking objective to eTER-V
of low a operational in
from
restructuring the Economics
limited Area and financial the Thus, but to the
185 Banks: financial
banks. the and and They
and semi-urban with Area was
196 policysector financial develop
rural small
income their
overseas In sector unexpected SubhadraBank systemBanksfinancial RRBs small of
it capital intermediation the given in areas. came -
Indian namely, freedom refors, providing and V
is2018, They
inclusion, 2002-03health.
framework area (T.Y.B.Com.
followed entities. Ltd., objective and entrepreneurs.The
inclusion agriculture,
can marginal
households, in
(LABs) to into
provide Local areas. India. priority inclusion be Theof
offices. banks 15 baseKrishna amalgamationThese operation
losses. Capital to to aregarded is existence
Indian number RRBS credit
services the and Area As to The are 56 the farmers,. SEM-V) :
SBI
bycontinued
provide changes
in of in
()RBI hence, Bhima of
with LABs small sector.a about2017. RRBsRRBs. rural trade.
Bank has small smal Bank Local now, are and in
baankss of as
o the to has a

(a) operatUnder outreac hasRBI Se()

t (fEvn)k Re(i)le Intr) which ba
i n
c ks ha mathe in
in leni Faci Pro ecuded proces .
providng Overseasp Baroda. Ar
 Financial10. Banking
(°) (b) operations.
(a) Under
outreach RBI (v) (iv) (ii) ()
)include: objectivemaithen overseas
)whichexcluded
banks aprocess.
providing Baroda.
rrespondent
blished. banking
were been 90 Ultra areas.
plain in
population Swabhiman 1S
Programme.
than
Micro-Finance has Setting
Enhanced
in Relaxation Facilitator
Jenient
Introduction (BF)Provision
now the
continued districts have
ating 2000 of thFor
e
Inclusion: | Among
presence
Small financial affordable
financial
fromthe
extended banking up "Know been purpose,
services are of the
more financial
to use of the
Scheme:
provided achieve existing basic
Branches its of
Your mnodel. of directed services
formal th
inagents services
inclusion 'Growth Financial private
wisector
than : policy technology. Business banking 12
chless to to Self literacy Customer
all 1000 the greater regulatory financial to at offices
(BCAs),
percent Habitationswith initiatives al
: Help to use
villages north-eastern
To and he
tremmote products. inclusion
banking and
Correspondent/Business financial in
mode. of ensure outreach. (KYC) banks,
2016.
ultra population Groupfollowing credit combinationsystem.
aimed guidelines
parts
the covered
cost is ICICI
ruralsmall facilities. with counselling norms. inclusiondirected
the to of
hìlly - of at To
bankingavailability more population Bank schemes those the has
branches under expanding the in strategies of
achieve
the of to the
states The country.
than who aimssupport largest
business scheme Linkage centres form
outlets have 1600 with more are this, 203
are at
of in the of
 204

(ii) (ii) Following 1) Records was other time RuPay

Newstarting ofaccessbasic aims on The The () (e) Benefit
Direct(d)
Pradhan 28 the fInterest banks.
AtalPradhanPradhan Social provided.
conditions at Pradhanfarmers.
August, subvention or
percent operative introduce
thisKisandirectly
between lakh. 1banking
Debit to
universal
Under
Pension 23for credit interest a scheme
new August, period this Credit to
Security opening
15
For Card Mantri Mantri Subvention is
Mantri Mantrischemes account
and 2014 provided banks, the this
TheAugust, of those access rate
of of scheme, was
Scheme the having
insurance. accounts
Card scheme
2014. yojana toJan
Jan 3 one Transfer
Suraksha Jeevan Insurance most yojana, who percent of commercial introduced Economics
Business -
fimprove
or on
were to Dharn Dhan year
7Scheme Scheme
2014 in-built every banking short-term farmers for
Jyoti bank has opened percent. transferring of:The
Beema introduced a
and The Yojana
financial Yojana is which beneficiaries.
Schemes entered life household, available in :
Beema accounts beneficiaries
insurance accidental 26 can
: banks1998-99 Forgovernment
their facilities An is
Interest
Yojana January, crop access the -V
(PMJDY)(PMJDY)
inclusion. available
Yojana in the account additional loans benefits benefits
and (T.Y.B.Com.:SEM-V)
May during to by
Guinnesscover insurancefinancial with prompt-paying subvention credit the
2015 will was to regional has
2015 upto of
atThe farmerS NABARD, of decided 26
the ofand for receive leastlaunched
? literacy, fromfarmers,
scheme
: the yojana interes *
week Wold30,000 mt cover one lakh 3of2 rural
first at co-
a o
 telecommunication are
added cost,
The resource in newcustomers.
cards, the
to Banking.
Underfingertips. world. The ABanking
being banking 14.3
communities
trai n in g hub Centr es
and
on.so delivered elated
Virtual dimensions
to counter Information communities
(ATMs),
banking, Teller Physical banks Internet the
products offer The
Portant used development. TECHNOLOGY
Computerisation
This
PROGRESS and spoke
to: of
structure, regime purpose
and Financial
Machines recourse services
Banking: customised
in within
learning has
by banking, has
credit types to and to Technology
to apPproach
the the India been
the ofenabled enable the
networks
services. banking
Indian of Literacy
card,customersofthrough banks Technology business adopted
to It tele-banking,
products computerization creating
block.
the have employees IN strengthenof to
denotes the in(T)
debit virtual bank are banking (CFL)
The for sector banks banking
OPERATIONAL
extensive : began process, has function
wherein
trained
fromn aCFL
card,banking by and will
electronic by important
the providing etc. changed
relying the reforms,
industry. to to
the
to be has
smart customer. rendering work offerhave is is
taking
use usingmanage key human
financial
services
solely created better to the
card,fund of new a to IT-Act
culture IT, information theirbring
at
wide structure
place
IT electronic reduce
risks. ATMs,
Smart
i.e., resources
transfer, are on
internet The technologies quality capabilities
of range transformation
of technology as
1T.without
banking and all
Automated serviceS
The
transaction 1999 a
of services over of hub
bankinphone- human Indian
g mest direct value gave for 205
re and that and tothe
 209
Banking
Electronic Credit Clearing service is a reliable device used tor
bulk and repetitive credit-push payments such as salary
pension, dividend, commission, IPO refunds, interest, etc. ECS
facility is largely utilized by the public and private limited
companies and government departments which make bulk and
recurring payments.
Electronic Debit Clearing Service was introduced to fac1litate
the payment of credit-pull transactions such as payment of
utility bills, insurance premium and repayment of loan
instalments,
14. Real Time Gross Settlement (RTGS): RBIintroduced RTGS
system in order to enhance the efficiency of the cheque clearing
system. It is an electronic based settlement of interbank and
customer based transactions, with intra-day collateralized
liquidity support from the RBI to the participants of the system.
Itis a single, all-India system with the settlement beingeffected
in Mumbai. The settlement of funds is final and irrevocable.
The settlement is done in near real time (maximum of 2 to 4
hours)and the funds settled can be further used immediately.
It was started in March 2004. Both high value and retail
payments can be effected through the RTGS system.
Since 1991 Indian banking system has undergone far reaching
changes. Banks have reached nooks and corners of the country. More
people make use of banking services. Apositive change have taken
place in branch expansion, deposit mobilisation, lending credit,
introduction of new financial instruments and adoption of new
technology.
Cashless and Digital Economy :Technological changes mentioned
above are being used to promote cashless and digital banking
enabling the banking system to progressively reduce the use of cash.

14.4ISSUES

Banking sector in India is facing several issues/problems which have

hampered their effective functioning. We discuss below some major
issues and challenges faced by the banking sector.
 210 Business Economics - V
ASSet Quality : Asset quality of banking system is
Stressed loans and (i) Non-performing assets (NPAs)
i
Bad Loan: When aloan andlinterest is not returned for
(T.YB.affectCom.:eSdEEM-try Vy)
it is treated as bad loan. three morths,
Stressed Loan : When loan is doubtful to be
Stressed
days of the stipulated date, it becomes stressedrepaid
loan. even after 3)
For example, if one crore loan was
given by a bank on
which was to be repaid by 1-1-2019, along
not be returned even by 1-2-2019, the loans with interest, but cola 1-1-2018,
becomes a stressed loan.
Non-Performing Asset (NPA):A non-performing asset is one which
ceases to generate income. AcCording to RBL, a NPAisacredit fac1.
in respect of which the interest and instalment of
remained unpaid or past due' for a specified period ofprincipal
time.
has
As per RBI's circular dated 2nd
a day of default February, 2018, companies witheven
can be set on the path of debt
subsequernt barnkruptcy proceedings. In other words,resolution and
loans with one
day's default will be treated as NPAs.*
Atthe endof 2018, 10.3% of
advances fell in
the
As against this, China's NPAs account only 1.9 category of NPAS
percent.
Capital Adequacy : To protect the banks, specially
necessary toset aside money as a provision againstdepositors, it is
bad loans. For
this purp0se, banks are required to maintain a
Risk Assets Ratio (CRAR). Indian banks speciallyminimum Capital to
public sector banks
do not have sufficient capital hence the
inject capital from the tax payers money. government
is required to
Indian Banks are expected
to Bsel lIlcompliant by 2019 by maintaining 10.5% CRAR.
Bank Fraud : Former RBI Governor R. Rajan raised his
against the increasing number of fraudulent transactions. Banksconcem
are
reluctant to report these cases. According to RBl almost all corporate
loans related to fraud cases set seasoned for two tothree years S
NPAs before they are reported as fraud.
The RBI's circular dated 2nd February, 2018 was squashed by the
Suprie
Court on 2nd April, 2019. The RBl willbe bringing out anew circular on ths
issue.
 Banking 211
Dlining Profit : Banks, the public sector banks in particular, are
facing a problem of declining profit due to the reasons discussed
alove.

Batical Pressure : Business people/industrialist obtain loans

through politicallinfluence, spend the money for reasons other than
for wBhich the is obtained, report their units and
take advantage of the concessions provided for such bad loans.
People who commit frauds fleethe country so that they are
rechof
thereach of the Indian legal system. Very
often it happens beyond
with the
supportofpoliticians.
cCyber Thhreats : Nearly 95%
95% of the bank transactions in India,
rding to RBI, are paid in cash. As the digital transactions through
internetand other technological means, cyber crime is
becoming a
greater threat..As RBI put it not only simple attacks using
phishing,
vishing and social engineering, but also increasingly audacious
attacks by organised gangs have come to light.
Corruption:Securing loan from the banks, specially from the public
sector was never a çlean and open process. Bribing staff from bottom
to top is a normal affair as revealed in recent scams. So far
no
government has succeeded in eliminating corruption, both retail and
wholesale. It is said corruption like inflation is a global phenomenon.
Poor Service : Public sector banks services are poor, resulting in
harassmernt of clients. The fact the employees are having permanent
andsecure jobs, make them confident about their job security and
negligent in the attitude and approach. After liberalisation, though
the power of labour unions ha_ declined, it is still visjble in their
functioning.
Priority Sector Lending: Banks have not yet met the target of priority
sector lending. Within the priority sector, agriculture stillremains
neglected specially small and marginal farmers. Similar is the lot of
tiny and cottage industry sector.
 Busines Bponomics y
212

14.5 CHALLENGES (YB.om.: 55M

Banking sector in an economy iy the mosf important as i
important source of money and finance for 6h
forall economic ativits,
Indian banking sector has madeagood progres,
the nationalisation of 14 banks ih 1969, Yet it
faces part
manyicularly atey
in performing their role asa fifarcial catalystpf the eono
We explain briefly some of the challenges, challers
To clean up banks from corruption and fraud :
public sectors aretthe victirls of corruption and flaud.Banks special y
,Measurbankáng,eare
requiredito be implemente to prevent such maladiessin the
sector.

Eliminate political pressure : If is however a

honumented
Allpublic sector undertaking -|banks and non-banks are nottask.
fro
from this problem. Jolitical pressure leads to appointment of exoes
Jabour force, ofteh inefficienf ones, unwarránted expenditure
resulting in loss, As the case of Air India..Unfortsnately governmert
functioning is pot free from cofruption, favourjtism and nepotism
Financial Inclusion:Since 1969, after nationalisation, social banling
has increased helping the financial inclusjveness. Measures
introduced/inrecent years, finking bank accpunts for receiving
economic þenefits for the poo has widened the financial inclusion
Stilla large number of socally and economically lower strata
populatioh are yet to be included under these schemes. Schemes
like micro-jnance and other s¢hemesmust be extended to the people
who are left out of financial inusion schemes.
Ao promote Digital Banking It is required tp educate the pubic
who are not familiaywith the new banking technology and in using
these methÓds, so that banks furçtion with less cash andcarry out
their transactions with the help ofnew technology.
mprove Effiiency : Public sectpr banks are known for po0r
customers service and functionihg below optimum capac1y.
Measures are to be worked out to dyercome the above problemt
Measures may include greater autonomó, competition betweenthe
 213
Banking
anks, linking salary topertormance, negative incentives for under
performance and SO on.
Positive Approach:A good number of people are reluctant to
approach banks as the staff is very formal and official in their
behaviour. Banks are not keen to help the poor and less educated to
throughformalities and obtain loans. Poor people find the banks
beyond their reach. Banks
Banks should train their staff to develop
ustomer friendly approach.
Reovery of Loans : With the increasing NPAs, banks are facing its
big challenge of loan recovery. The recovery rate is less than 10
percent as against more then 90 percent in Japan and some other
advanced countries.
To enable banks to recover the loans, the government passed The
randBankruptcy Code (IBC). The Bill was passed in Lok
Babha on 29 December, 2017 and by the Rajya Sabha on January 2,
018. The entire mechanism for the Corporate Insolvency Resolution
Process (CIRP) has been put in place. A number of rules and
regulations have beern notified to create the institutions and
professiornals necessary tor the process to work. More than 500 cases
of corporate insolvency have been admitted across all the National
Company Law Tribunal (NCLT).
In August 2015, the Government brought out a seven point action
programme titled Indradhanush' to improve the performance of
PSBs. It comprises :
() Appointments with separation of the post of managing director
and non-executive chairman in some large PSBs;
(ü) Proposal for bank bòardbureau (BBB);
(ii) Plan for capitalisation ( 700 billion budgetary allocation for
four years upto financial year 2018-19);
(iv) Plan for de-stressing banks's books;
(v) Empowerment of PSBs by encouraging them to take the
business decision independently without interference by the
government;
214 Business Economics -Vr
(vi) Anew frameworkkfor accountability based
indicators (KPI) and
(vii) Better govemane through continuous
The above measure, it is hoped, will check the
on
Vengagement(T.YB.Copmer.wit;oSrtEhnnMbaanrkes,s
key

who raise the loan with the intention to

forpersonal benefit.
to the'WIandLLFUL'use
default dheehauter,
Banking sector, particularly, the PSBs are
increasing NPAs, corruptions and financialare in a
problem,
rnoney
banks reporting losses since last year. scams.
Measures
get rid off these problems and make thesel areThere:
to be are rmar
with its
and strictly as per banking norms. banks function t devised
REVIEWN QUESTIONS
efi enty
1. Explain the structure of Indian banking system.
2.
Analyse briefly progress of commercial banks
(1991). after
3. Bring out the measures of operational liberalisation
4.
banking system in recent years. te
Discuss the issues and challenges of banking
chnolo gy introduced in
5. Write short notes on: sector in India.
(a) Structure of Barnking in India
(b) Progress of banks in terms of
and other areas number ofbanks, branches, deposis
(c) Issues faced by the banks
(d) Challenges of banks

OBJECTIVE QUESTIONS
A. Choose the correct answer and rewrite the statements:
1. Ascheduled bank is one which has
(a) paid up capital and reserve not less than5 lakh
(b) term deposit of?5 lakh
(c) demand deposit of ? 5lakh