Chapter 03 - Structure of Banking

Introduction

PYQP

Banks

• Evolution of Govt Banking Policy

  

  

• Structure of Banks in India

  

• Types of Banks - According to Schedule

  • Scheduled Banks

  • Non Scheduled Banks

    Not Listed in Schedule 4 of RBI Act 1934

    1. Local Area Banks
       1. Concept in 1980
       2. Branches Not More than in 2 to 3 Districts
       3. Only 2 Examples
          1. Karnataka - Krishna Bhima Samruddhi Bank
          2. Andhra - Coastal Bank
    • List of All Types of Banks

      • Scheduled Public Sector Banks

        

      • Scheduled Private Sector Banks

        

      • Scheduled Foreign Banks in India

        

      • Scheduled Small Finance Bank

        

      • Scheduled Payments Banks

        

  • Difference Between Scheduled and Non Scheduled Banks

    LAF → Repo and Rev Repo → Borrowing from RBI

    All Cooperatives, SFB & PB are NOT Scheduled Banks

    

  💡 **Not all** SFB and Payment Banks are Scheduled → Example: Jio Payments Banks is a Non Scheduled Bank

• Types of Banks - According to Nature

  • Commercial Bank - Profit Making Nature

    • Special Case of IDBI

      IDBI is owned Primarily by LIC which is in Turn owned by Govt

      It is listed as Private Bank as of Now

    • Public Sector Bank - Govt Owns > 51% Ownership → Total 12

      1. SBI
      2. Nationalised Banks - in 1969 & 1980

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    • Domestic Private Banks
      1. Domestic - Started by Indians
    • Foreign Banks - 44 Banks
      1. By Foreigners
      2. Ex: Citi Bank

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    • RRB - with “Gramin”

      

      Examples of RRB Banks

      

    • Payment Bank & Small Finance Banks

      • Class Notes

        1. Payment Banks: When Bank Closes → 2 Lac Rupees Cannot Accept Fixed Deposits

           Small Finance Bank: No Such Restriction

        2. For Payment Banks 75% SLR has to be maintained with Govt in the Form of G SEC Only

           Here SLR is → There is No Percentage of NDTL as there is no time deposit only !

           Here SLR is → % of Deposits

        3. PSL doesn't apply to Payment Banks

        4. FDI Allowed in PSB is upto 20%

        5. FDI Allowed in Pvt Bank upto 74%

        6. PPI = Pre Paid Investment Providers

           Cred, PayTM, Flipkar, Amazon Wallet, Ola Money, Metro Card, Uber Money

        7. RWA - Risk Weighted Assets

      • Summary

        

  • Co Operative Banks - Welfare Nature

    • Cooperative Banks - Promote Cooperation

      1. Banking is Under : Union List
      2. Cooperatives : State List
         1. Multi State CP
         2. Single State CP
      3. CP Banks are regulated by both Centre and State
         1. Centre Regulates - RBI
            1. CRR SLR
            2. Safety of Depositors Money
         2. State Manages - Registrar of Cooperative Societies
            1. Criteria
            2. Election
            3. Registration
            4. Can Carry Audit
            5. Can Supersede BOD
            6. Qualification for Members of BOD

    • Important Note 1

      1. Scheduled Banks → RBI & BRA
      2. Non Scheduled Banks → BRA Only
      3. Anything Outside Purview of BRA 1949 is Reg by Reg of Soc
      4. Reg of Soc
         1. Long Term Rural Cooperative - Both Village and State called PACDB & SACDB
         2. Short Term Rural Cooperative - PACS

    • Summary Structure of Cooperative Banking

      

    • BRA, 2020 on Co Operative Banks

      

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    Types of CP Banks

    • Urban CP Banks- Can be Sch & Non Sch

      • Scheduled UCP - Dual Reg ( RBI Act & BR Act)

        1. Dual Regulation

        2. P&M Banks Crisis: They weren't able to give back the money

        3. This Crisis was Primarily due to Dual Regulations

        4. Govt Came up with Banking Regulation Amendment Act, 2020

        5. Reported: that Govt has finally ended Dual Regulations

        6. Truth: RBI Power to regulate has been Increased

        7. For Example → Powers of RBI

           1. To Appoint BOD
           2. Supersede BOD
           3. Procedure for Emergency

        8. Banking Regulation Act, 2020

           

      • Non Scheduled UCP - Solely by Reg of Soc

        1. Regulated by Registrar of Societies
        2. RBI has very Minimal Role. It is under

    • Rural CP Banks - Are All Non Sch Banks

      Non Scheduled Banks - 👇

      1. Short Term CP - Loans for < 1 Year

         1. Village Level CP PACS : Primary Agri Credit Society Reg By : Registrar of Societies

            

         2. District Level CP Central CP Banks Reg By : NABARD & Reg of Soc

         3. State Level CP State CP Banks Reg By : NABARD & Reg of Soc

      2. Long Term CP - Loans for > 1 Year
         1. NOT REG BY : RBI

  • Difference Between Scheduled Commercial and Cooperative Banks

    

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  • Need for Digital Banks

    • Need for Digital Banks in India

      

    • Important Details

      1. DBU - Digital Banking Units - 75 Digital Bankings Units Across India

      2. Countries with 100 Percent Digital Banks

         1. UK - Starling Bank, Monese Bank
         2. China - MyBank

      3. Challenger Banks or Neo Banks

      4. No License for 100% Digital Banks in India

      5. Banks Must Have Physical Services

      6. Digital Services by Physical Banks

         Ex: 811 Banking by Kotak Mahindra Bank

         Ex: DBS DigiBank

         Ex: ICICI iMobile

      7. Why is India NOT Experimenting 100% Digital Banks → NITI Aayog Recommended

    • Benefits

      1. Basic Points

         1. Efficient
         2. No Geographic Restriction
         3. Economic Democracy
         4. Ease of Transaction

      2. Economic Pointing

         1. Comparison to Size of Economy, Indian Banking is Dwarf

            Indian Eco 5th

            India’s Largest Bank SBI is 55th in Rank

         2. Credit to GDP Ratio → 67

         3. Dominance of PSB i.e 70% → Here 80% NPA are with PSB’s

            with 100% Digital Banks → 100% Digital Banks in Country

      3. Imp

         1. Paperless
         2. 24*7
         3. By Existing Scheduled Commercial Banks

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    • Digital Banking Units

      

  • A Step Towards 100% DB is DBU

    

• Types of Banks - According to Work Limit

  • Universal Banks

    No Restriction wrt

    1. Area of Operation
    2. Banking Services
    3. Loan Given to

  • Differentiated Banks

    • Introduction

      1. Evolution

         RRB 1975 → LAB 1990 → PB & SFB

      2. Restrictions

         1. Area of Operation Limited by

            Govt or RBI

            Example:

            RRB Restricted by Govt

            Payment Bank & Small Fin Bank Restricted by RBI

         2. Payment Banks cannot have fixed deposits

         3. Small Finance Bank and Payment Banks cannot Give Loans to All the People

    • PB and SFB as Differentiated Banks in India

      

  • Difference Between Universal and Differentiated Banks

    

• Types of Banks - According to Credit Creation

  • What is Shadow Banking ?

    They may be Partly Regulated or They Might not be Regulated at all

    Who is NOT Regulating it NOT Important, The Point is, that is it regulated or Not

    Note: Shadow Banks do NOT create money → Said by RBI

  • Differences Between Conventional banks and Shadow Banking

    

PCAF (Prompt Corrective Action Framework) for Banks

• Background

  • Interest Coverage Ratio - Question Aaya tha Pre 2016 Main

    ICR = Profit / Interest Payment on Loan (Taken or Will Take)

    ICR > 1 → High Capacity to Pay Existing Loans or Repay Future Loans

    ICR < 1 → Not able to repay existing loan & future loans → These Firms are called Zombie Companies

  • Zombie Firms have ICR Less Than 1

  

• Parameters for Threshold

  1. Non Performing Assets
  2. Capital Adequacy Ratio
  3. Leverage Ratio

• PCA Put on Bank by RBI with Restriction like

  1. No Loan to a Specific Sector
  2. Stop Expansion of Banks
  3. Improve Financial Performance
  4. Supersede BOD
  5. Cut Down Expenses

• Details about PCA Framework

  

• New PCA Framework

  Urban CP - Covered Under RBI’s Supervisory Action Framework → Focus on Revised Regime while Revising ; Earlier is Just for Reference

  

Non-Banks

• NBFI Structure - National Banking Finance Institutes

  • Introduction

    

    Remember:

    1. All India Financial Institution
    2. NBFC
    3. Primary Dealers

    are all Non Banking Financial Institutions

  • 1. AIFI

    • Introduction to AIFI

      

      

      

    • Important Allied Concept

      Credit Enhancement

      Take Out Financing

      Patient Capital

      Sovereign Wealth Fund

    • Money Invested in AIFI if PSL Norms are not Met

      1. RIDF (Rural infrastructure Development Fund) - NABARD
      2. SEDF (Small Enterprise Development Fund) - SIDBI
      3. AHF (Affordable Housing Fund) - NHB

    Types of AIFI

    • NABARD

      FPO - Farmer Producer Organisation

      

    • NHB

      

    • SIDBI

      

    • EXIM

    • NaBFID

      

      

  • 2. NBFC

    • How is a NBFC Decided

      

      1. There are Multiple Categories of NBFC

      2. Criteria - 50 50 Test → If Fulfilled, They Should get Registered with RBI

      3. 50 50 Test

         Company has Financial and Non Financial Asset

         Financial Assets → Loan to Real Estates, Share, Bond, Deposits with Banks etc

         Non Financial Assets → Land, Commercial Property, Residential Property etc

    • Summary of NBFC

      

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    • Types of NBFC by Means of Nature of Activity

      • Regulated by RBI

        

        • Investment and Credit Company (ICC)

        • Infrastructure Finance Company (IFC)

        • Core Investment Companies (CIC)

        • Infrastructure Debt Fund (IDF)

        • Micro Finance Institution

        • NBFC Factoring Companies - Invoice Factoring

          1. TReD - Trade Receivable Discounting System

          2. It is Regulated by RBI

             

             

        • P2P

          

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        • Account Aggregator

          Facilitate Cash Flow Base Lending

          Concept of Collateral Based Lending

          

        • Gold Loan Companies

        • Housing Finance Companies

      • Regulated by SEBI

        • Stock Broking Companies
        • Mutual Fund Companies
        • Venture Capital Fund

      • Regulated by Ministry of Corporate Affairs

        • Nidhi Companies

      • Regulated by State Government

        • Chit Fund Companies

    • Types of NBFC by Means of Asset Liability

      1. Deposit Taking NBFC - Deposit is NOT Insured

      2. Non Deposit Taking NBFC

         Capital By Means of Capital Papers, Bonds, Debentures etc

    • Types of NBFC by Means of Systematic Importance

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    • Scale Based Regulation of NBFC

      

      

    • PCA Framework for NBFC

      

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    • Difference Between Banks and NBFC

      

  • 3. Primary Dealer
    • Bank Primary Dealers - Ek Bank jo RBI se G Sec Khareedta Hai
    • Stand Alone Primary Dealers - Ek Entity jo RBI se G Sec Khareedti hai par Bank Nahi Hai

• AIF - Alternative Investment Fund

  

• Funds of Fund - Father Funds

  

• DFI - Development Finance Institutions Option

  • Details of DFI

    

  • Projects Partly in India and in Foreign - Maladan India Myanmar

  • Venn Diagram

    

• IL&FS Crisis

  

Micro Finance Sector

Remember: Sir has asked to Focus on Present Framework, Earlier Framework is Just for Reference

A 360-Degree Analysis of PSB & Allied Issues

• Factsheet of PSB

  

• Present Status of Public Sector Bank

  

• Problems faced by PSBs

  

• Privatisation of PSBs

  

  

• Strategies to Improve PSBs

  

Important Bodies

• Ombudsman Scheme - Grievance Mechanism for Banks and Non-Banks

  

• BIC - Banking Investment Company

  

• BBB - Banks Board Bureau

• FSIB - Financial Services Institution Bureau

  

• Difference Between Commercial Paper CP and Corporate Bonds CB

  CB > 1 Year → Long Term Capital → secured

  CP < 1 Year → Short Term Capital → unsecured

• Difference Between Corporate Bonds and Debentures

  Corporate Bonds - Secured Debt → Less Risky → Lower ROI

  Debentures - Unsecured Debt → Can Be Defaulted on Repayment of Debenture → More Risky → Higher ROI

• IL & FS Crisis - Concept of Rollover Risk & Asset Liability Mismatch

• Money Left from PSL is Sent to