Structure of Indian Money Market

I.Organised Structure
1.Reserve bank of India
2.DFHI(discount and finance house of India)
3.Commercial banks
i->Public sector banks
--SBI with 7 subsidiaries
--Cooperative banks
--20 nationalised banks
ii->Private banks
--Indian Banks
--Foreign banks
4.Development bank
->IDBI,IFCI,ICICI,NABARD,EXIM,LIC,GIC,UTI,ect.,
 Structure of Indian Money Market
(Contd.)
II.Unorganised sector
1.Indigenous banks
2.Money lenders
3.Chits
4.Nidhis
III.Co-operative sectors
1.State cooperative
->central cooperative banks
--Primary Agri credit societies
--Primary urban banks
2.State Land development banks*
-->central land development banks
-->Primary land development banks
 Theoretical Basis of Banking
Operations
• Balancing profitability with Liquidity
Management:
– Banks deal in other people’s money, a substantial
part of which is repayable on demand.
– The shorter the term of the loan, lesser profitable it
would be for the bank
• Management of Reserves
– To make deposits safe and liquid
– To allow Central Bank to control money supply
• Creation of Credit: Every loan given by a Bank
creates a deposit.
 Indian Banking System

Reserve Bank of India

Scheduled Banks Non Scheduled Banks

Central Co-op Banks and

State Co-op Banks Commercial Banks Primary Credit Societies Commercial Banks
 Scheduled Banks
• The status of a scheduled bank is conferred upon a bank, when its name is
included in the second schedule to the RBI Act, 1934.
• The bank whose name is not included in the Second Schedule is known as
Non Scheduled Bank.
• The Scheduled Bank gets certain privileges from RBI, e.g., availing of the
facilities of accommodation from the Reserve Bank.
• The Reserve Bank is empowered to include in the Second Schedule the
name of a bank which carries on the business of banking in India and which
satisfies the following conditions:
– It must have a paid-up capital and reserves of an aggregate value of less than
Rs. 5 lakh;
– It must satisfy the RBI that its affairs are not being conducted in a manner
detrimental to the interests of its depositors
– It must be a
• A State Co-operative Bank or
• A company as in defined in Companies Act 1956 or
• A Central Govt institution or
• A corporation incorporated under any law in force in any place outside India
 Commercial Banks
Commercial Banks

Public Sector Banks Private Sector Banks

Regional
State Bank Group Nationalised Banks Indian Foreign
Rural Banks

Subsidiary Banks Old Banks

State Bank of India New Banks

Local Area
Banks
 Public Sector Bank
• Public Sector in Indian Banking emerged to its present
position in three stages:
– Conversion of the then existing Imperial Bank of India into State
Bank of India in 1956 and taking over of 7 state associated
banks as its subsidiary banks.
– Nationalisation of 14 major commercial banks on July 19, 1969.
– Nationalisation of 6 more commercial banks on April 15, 1980.
• The State Bank of India was established under the State
Bank of India Act, 1955 while subsidiary banks were
under State Bank of India (Subsidiary Banks) Act, 1959.
The nationalised banks were under the Banking
Companies (Acquisition and Transfer of Undertakings)
Act 1970 and 1980. So, SBI and nationalised banks are
governed by different statutes.
 Public Sector Bank (Contd.)
• Initially, the nationalised banks were wholly owned by the
Government of India and major part of the SBI’s share capital was
held by RBI. In 1994, the banks were empowered to raise share
capital from the public but there was a provision that the share of
the Central Govt. would not be less than 51% of the paid up capital.
In recent years, both the State Bank of India and a few nationalised
banks have enlarged their capital by issuing shares to the public.
The subsidiary banks of the SBI are owned by the SBI.

• The State Bank of India acts as against of the RBI at all places
where RBI does not have a branch. The nationalised banks on the
other hand, have been entrusted with the functions of paying,
receiving, collecting and remitting money and securities on behalf of
any Govt in India.
 Private Sector & Local Area Banks
Private Sector Banks
• After nationalisation of major banks in the private sector in 1969 and 1980.
The Narsimhan Committee on financial sector reforms recommended the
establishment of new banks in India. Reserve Bank of India, thereafter,
issued guidelines for setting up of new private sector banks in India in
January 1993.
• There guidelines aim at ensuring that the new banks are financially viable
and technological upto date from the start. They will function in a
professional manner, so as to improve the image of commercial banking
system and to win the confidence of the public.
Local Area Banks
• In 1996, Govt decided to allow new local area banks with the twin objective
of
– Providing an institutional mechanism for promoting rural and semi-urban savings
– For providing credit for viable, economic activities in local areas
• These banks will be established as public limited companies in the private
sector and will be promoted by individual, companies, trusts and societies.
 Regional Rural Bank
• Regional Rural Banks are relatively new banking institutions which
supplement the efforts of the co-operative and commercial banks in
catering to the credit requirements of the rural sector.
• The credit structure of co-operative banks was weak. They lacked
managerial talent and post-credit supervision and loan recovery.
The commercial banks focussed on urban areas and involved high
costs. Hence, there was a need of RRBs
• These banks have been set up in India since October 1975, under
the Regional Rural Banks Act 1976.
• The RRB is sponsored by a commercial bank and the latter is called
a sponsor bank.
• The Central Govt establishes a RRB at the request of the sponsor
bank and specifies the local limits within which it shall establish its
branch and agencies.
 Assets & Liabilities of a Bank
LIABILITY ASSET
(OUTFLOWS) (INFLOWS)
• Capital • Cash & Balances with RBI
• Reserves & Surplus • Balances with Banks &
• Deposits Money at call/Short-
• Borrowings notice lendings.
• Investments.
• Other Liabilities &
Provisions • Advances
• Contingent Liabilities • Fixed Assets.
• Other Assets.
 Liabilities of Banks
• Deposits
– Demand Deposits
• Current Deposits
• Savings Deposits
• Call Deposits
– Term deposits

• Other Liabilities
– Borrowings from RBI
– Borrowing IDBI, NABARD, EXIM Bank
– Bills rediscounted with FIs
 Assets of Bank
• Cash in hand and Balances with the RBI
• Assets with the Banking System
• Investment in Govt and other approved
securities
• Bank credit
– Loans
– Cash credit
– Overdrafts
– Demand loans
– Purchase and discounting of commercial bills
– Installment or hire-purchase credit