Evolution of Banking Institutions in India

 

Introduction and Evolution of Banking Institutions in India

Definition of Banking

—Banking Regulation Act, 1949, Section 5(b) defines banking as, 'accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable, by cheque, draft, and order or otherwise.'

Evolution of Banking Institutions in India

I. Pre-Independence Phase (1786-1947)

• —The origin of the Banking system in India started with foundation of Bank of Calcutta in 1786.
• —Three presidency banks (British East India Company)

   ◦Bank of Bengal, (1809)

   ◦Bank of Bombay (1840) 

   ◦Bank of Madras (1843)

• —In 1935, the presidency banks merge together and formed a new bank named Imperial Bank of India.
• —The Imperial Bank of India subsequently named the State Bank of India.
• —The first Indian-owned Allahabad Bank (1865).
• —In 1895, the Punjab National Bank was established 
• —The Bank of India founded in 1906 in Mumbai.
• —1906 and 1913 - commercial banks established under Indian ownership

    ◦Canara Bank,  Central Bank of India,  ◦Bank of Mysore, ◦Indian Bank,◦Bank of Baroda

• —RBI (1935) The central Bank of India, RBI establish in 1935 on the recommendation of Hilton-Young Commission.
• —At that time, the Banking system was only covered the urban population and need of rural and agriculture sector was totally neglected.   

II. Post- Independence Phase (1947 to till)

• —The entire Banking sector was under private ownership.
• —The rural population to dependent on small money lenders
• —To solve these issues Gvt. nationalised the RBI in 1949.
• —In 1955 the Imperial Bank of India was nationalised and named the State Bank of India.
• —The Banking Regulation Act enacted in 1949.

III. Nationalisation Period (1969 to 1991)

• —In 1969, Government of India nationalised 14 major banks
• —Banks had national deposits were more than 50 crores.
• ◦Allahabad Bank, Bank of India , Punjab National Bank, Bank of Baroda, Bank of Maharashtra, Central Bank of India, Canara Bank
• ◦Dena Bank, Indian Overseas Bank, Indian Bank, United Bank, Syndicate Bank, Union Bank of India, UCO Bank        
• —The Indian Banking system immensely developed after nationalisation
• —the rural and weaker section of the society was still not covered under the system.

• —To solve these issues, the Narasimham Committee in 1974 recommended 
• —The establishment of Regional Rural Banks (RRB). On 2nd October 1975, 
• —RRBs were established with an objective to extend the amount of credit to the rural section of the society.
• —Six more banks further nationalised in the year 1980.
• —With the second wave of nationalisation, the target of priority sector lending was also raised to 40%.
• ◦Andhra Bank , Corporation Ban◦New Bank of India, Oriental Bank of Commerce, Punjab & Sindh Bank, Vijaya Bank

IV.  Liberalisation Phase (1990 to till)

• —In order to improve financial stability and profitability of Public Sector Banks,
• —The Government of India set up a committee under the chairmanship of Shri. M. Narasimham.
• —The committee suggested for no more nationalisation of banks.
• —Foreign banks would be allowed to open offices in India
• —Public sector banks and private sector banks should be treated equally
• —Adopt merchant banking and underwriting, retail banking, etc.
• —Now, foreign banks and Indian banks permitted to set up joint venture
• —10 Privates players got a license from the RBI to entry in the Banking sector.
• ◦Global Trust Bank, ICICI Bank, HDFC Bank, Axis Bank, Bank of Punjab, IndusInd Bank, Centurion Bank, IDBI Bank, Times Bank and Development Credit Bank. The Government of India accepted all the major recommendation of the committee

Role of Commercial Banks and Nationalisation of Bank

 

Commercial Banks and Nationalisation of Bank

Commercial Banks

Commercial Bank can be described as a financial institution, that offers basic investment products like a savings account, current account, etc to the individuals and corporates. Along with that, it provides a range of financial services to the general public such as accepting deposits, granting loans and advances to the customers.

Role of Commercial Banks

• —Accepting Deposits
• —Lending of Funds
• —Bank as an Agent

• ◦Collecting bills, draft, cheques, etc.
• ◦Paying the insurance premium, rent, loan installments, etc.
• ◦purchasing or redeeming securities, etc. in the stock exchange
• ◦Acting as an executor, administrator, or trustee of the estate of a customer
• ◦Also, preparing income tax returns, claiming tax refunds, etc.

• —General Utility Services
• ◦Issuing traveler cheques
• ◦Offering locker facilities for keeping valuables in safe custody
• ◦Also, issuing debit cards and credit cards etc.
• —Economic role
• ◦Accelerating the Rate of Capital Formation:
• ◦Provision of Finance and Credit
• ◦Developing Entrepreneurship
• ◦Promoting Balanced Regional Development
• ◦Help to Consumers

Nationalisation of Banks

• —According to the IMF (International Monetary Fund), “Nationalisation” is defined as “government taking control over assets and over a corporation, usually by acquiring the majority stake or the whole stake in the corporation”
• —In the Indian banking scenario, most public sector banks are referred to as Nationalised Banks.
• —bank nationalization in India proposed by the then Prime Minister Late Mrs. Indira Gandhi in July 19, 1969
• —1949 : Enactment of Banking Regulation Act
• —1955 : Nationalization of SBI (now it state owned)
• —1959 : Nationalization of SBI subsidiaries
• —1961 : Insurance cover extended to deposits
• —1969 : Nationalization of 14 major banks
• —1971 : Creation of credit guarantee corporation
• —1975 : Creation of regional rural banks
• —1980 : Nationalization of 6 banks with deposits over Rs. 200 crore.
• —Now in India there are 19 (except SBI) nationalised banks

Objectives of Nationalisation

• —To give service to agriculture sector to promote agriculture production and rural development.
• —To give credit and other facilities to small entrepreneurs.
• —Ending the control of big business houses.
• —To create development professional management atmosphere in banking sector.
• —Widening banks branch network in rural and semi-urban area.
• —Mobilization of saving through bank deposits.
• —Re-orientation of credit flows.

The impact of nationalization on Indian Banking

• —40 % proportion of net bank credit to agriculture and the weaker section
• —Banks open offices in rural and semi-urban areas
• —Banks maintain a credit deposit ratio of 60% in rural and semi urban areas.
• —To monetary and credit policy, banks required to formulate a credit plan
• —Credit Authorization Scheme was introduced.
• —Lending rate structure was built up
• —Regional Rural Banks were setup to meet the credit needs of the weak section.
• —To ensure that credit given by banks were used in development plan;
• —The district credit plans and annual action plan were formulated.

MATERIAL COST

Meaning of Material Cost

 Material cost is the significant constituent of the total cost of any product. It constitutes 40% to 80% of the total cost. The percentages may differ from industry to industry. But for manufacturing sector the material costs are of greatest significance. Inventory also constitutes a vital element in the Working Capital. So it is treated as equivalent to cash. Therefore the analysis and control on Material Cost is very important.

Objectives of Material Control System

Material Control: The function of ensuring that sufficient goods are retained in stock to meet all requirements without carrying unnecessarily large stocks.

The objectives of a system of material control are as following:-

(a) To make continuous availability of materials so that there may be uninterrupted flow of materials for production. Production may not be held up for want of materials.

(b) To purchase requisite quantity of materials to avoid locking up of working capital and to minimize risk of surplus and obsolete stores

(c) To make purchase competitively and wisely at the most economical prices so that there may be reduction of material costs

(d) To purchase proper quality of materials to have minimum possible wastage of materials

(e) To serve as an information centre on the materials knowledge for prices, sources of supply, lead time, quality and specification