Banks and NBFCs: Types of Banks & NBFCs: Central Bank, Nationalized & Co Operative Banks, Regional Rural Banks, Scheduled Banks, Private Banks & Foreign Banks, Mudra Bank, Small Finance Banks, Specialized Banks, NBFCs. Types of Banking: Wholesale and Retail Banking, Investment Banking, Corporate Banking, Private Banking, Development Banking.

1. Unit 4 : Banks and NBFCs
Banks and NBFCs: Types of Banks & NBFCs: Central
Bank, Nationalized & Co Operative Banks, Regional
Rural Banks, Scheduled Banks, Private Banks & Foreign
Banks, Mudra Bank, Small Finance Banks, Specialized
Banks, NBFCs.
Types of Banking: Wholesale and Retail Banking,
Investment Banking, Corporate Banking, Private
Banking, Development Banking.

2. • Nationalized & Co Operative Banks

3. SCHEDULED COMMERCIAL BANKS (SCB)
Governed by the Banking Regulation Act-1949.
Scheduled banks are those mentioned in the
2nd schedule of RBI Act, 1934.
Scheduled commercial banks (SCBs) account
for a major proportion of the business of
the scheduled banks.
Private sector banks include the old private
sector banks and the new generation
private sector banks– which were
incorporated according to the revised
guidelines issued by RBI regarding the entry
of private sector banks in 1993.

4. PUBLIC SECTOR BANKS
These are banks where the majority stake is
held by the Government of India.
Examples of public sector banks are: SBI,
Bank of India, Canara Bank, etc.
EMERGENCE OF STATE BANK OF INDIA
(SBI) GROUP
State bank group implies, State bank of India
and its associates.
Prior 1955, SBI was known as “Imperial Bank
of India”.
Imperial Bank of India created in 1921 by
amalgamating 3 Presidency banks of –
Bengal, Bombay and Madras.

5. Post – independence, the economic model of
Five-year plan necessitated a reorganisation
of banking. Following this, on July 1, 1955 as
per the SBI act 1955, the SBI constituted and
it took over the business and undertaking of
Imperial Bank.
By enacting SBI Act, 1955 the government
partially nationalized Imperial Bank of India
and renamed it as SBI.
In 1959, by enacting SBI (Associates) Act, 1959
the government brought 8 banks of former
princely states under SBI as its associates

6. • State bank of Bikaner and Jaipur were
merged and known as SBBJ (State Bank of
Bikaner and Jaipur)
• 2008 – State bank of Saurashtra was merged
with state bank of India.
• Now the number of associate banks is 5.
• SBI associates and Bharatiya Mahila Bank
was merged with SBI w.e.f. April 1, 2017.
• SBI is the largest public sector bank in
India.
• To unload RBI from its administrative work
and to endow it with only regulatory functions,
RBI’s shareholding was transferred to the
government of India.

7. • 2019: Global top banks – 100 banks :-
China (18 banks), USA (12 Banks), Japan >
France >…..India (only 1 bank: SBI at Rank
55).
• The Union Cabinet in 2017, had approved
the merger of five associate banks along
with Bharatiya Mahila Bank with SBI. The
five banks were State Bank of Bikaner and
Jaipur, State Bank of Hyderabad, State Bank
of Travancore, State Bank of Mysore and
State Bank of Patiala. At present, there are
12 Public Sector Banks in India including
SBI.

8. NATIONALIZATION OF THE BANKS
In India, the banks which were previously functioning
under the private sector were transferred to the
public sector by the act of nationalization and thus
the nationalized banks came into existence.
Post-independence, the GOI adopted a planned
economic development model for the country.
Nationalisation was in accordance with the
national policy of adopting the socialistic
pattern of society.
The first major step was Nationalization of the
Imperial Bank of India in 1955 via the State
Bank of India Act.
SBI was made to act as the principal agent of RBI
and handle banking transactions of the Union and
State Governments.

9. After that, in a major process of nationalization,
seven subsidiaries of the SBI were nationalized
via the SBI (Subsidiary Banks) Act, 1959.
In 1969, a major phase of nationalization was
carried out and 14 major commercial banks in
India were nationalized.
The second phase of nationalization Indian
Banking Sector Reform was carried out in 1980
with six more banks.
1969 – 14 banks nationalized
1980 – 6 more banks nationalized The
nationalized banks controlled about 91% of
banking assets
1990 – Narsimhan Committee Reformss New
Economic Policies (NEP)

10. REASONS FOR NATIONALIZATION OF BANKS
Wars with China (1962) and Pakistan (1965) that put
immense pressure on public exchequer.
Two successive years of drought had led to severe
food shortages and also compromised national
security (PL 480 program).
Resultant three-year plan holiday affected aggregate
demand as public investment was reduced.
India’s economic growth barely outpaced population
growth in 1960-70s and average incomes stagnated.
Share of the industrial sector in credit disbursement by
commercial banks almost doubled between 1951 and
1968, from 34% to 68% whereas agriculture
received less than 2% of total credit, though more
than 70 percent of the population was dependent upon
it.

11. REASONS FOR NATIONALIZATION OF BANKS
Priority Sector Lending – the agriculture sector and its
allied activities were the largest contributors to the
national income.
Nationalisation aimed at mobilizing the savings of the
people to the largest possible extent and to utilize
them for productive purposes.
Reducing inter and intra-regional imbalance to curb
the urban-rural divide
Controlling private monopolies over financial sectors.
Ensuring Socio-economic welfare as enshrined in
preamble of the Indian constitution.
Expansion of banking to rural pockets to ensure financial
inclusion.
To shift from ‘class banking’ to ‘mass banking’ (social
banking)

12. ECONOMIC SURVEY 2020 – After the 1980
nationalization, PSBs had a 91% share in the
national banking market which has reduced to
70% in recent times. Reduced stake has been
absorbed by New Private Banks (NPBs) which
came up in early 1990s after liberalization
ECONOMIC SURVEY 2020 – Allow campus
recruitment, lateral entry in higher management
positions, make employees ‘part owners’ through
Employee Stock Ownership Plan (ESOP). Use
Artificial Intelligence (AI), Machine Learning (ML),
Big Data Analytics, geotagging of mortgaged
assets etc. Setup an organization PSBN Network
to implement above ICT-solutions to improve
efficiency of PSBs.

14. Cooperative societies are based on the principles of
cooperation, – mutual help, democratic decision
making and open membership.
Cooperatives represented a new and alternative
approach to organisaton as against proprietary
firms, partnership firms and joint stock companies
which represent the dominant form of commercial
organisation.
Cooperatives Banks are registered under the
Cooperative Societies Act, 1912.
These are regulated by the Reserve Bank of India and
National Bank for Agriculture and Rural
Development (NABARD) under the Banking
Regulation Act, 1949 and Banking Laws (Application
to Cooperative Societies) Act, 1965.

15. In India, the history of Cooperatives begins with the
Cooperative Credit Societies Act, 1904 which
led to the formation of Cooperative Credit
Societies in both rural and urban areas.
In independent India, with the onset of planning,
the cooperative organizations gained more
leverage and role with the continued
governmental support.
Co-operative bank is a financial entity which
belongs to its members, who are at the same
time the owners and the customers of their bank.
Co-operative banks are often created by persons
belonging to the same local or professional
community or sharing a common interest.

16. Co-operative banks played an important
role in national development. Initially set
up to supplant indigenous sources of
rural credit, particularly money lenders,
today they mostly serve the needs of
agriculture and allied activities, rural-
based industries and to a lesser extent,
trade and industry in urban centres.
Cooperative banks are the primary
financiers of agricultural activities,
some small- scale industries and self-
employed workers.

17. These banks are cooperative credit
institutions that are registered under the
Cooperative Societies Act 1912. These
banks work according to the cooperative
principles of mutual assistance
Indian cooperative structures are one of the
largest such networks in the world with
more than 200 million members. It has
about 67% penetration in villages and
funds 46% of the total rural credit.

18. Anyonya Co-operative Bank Limited
(ACBL) is the first co-operative bank in
India located in the city of Vadodara in
Gujarat.
Banking activities of Urban Cooperative
Banks are monitored by RBI.
However, registration and management
activities are managed by the Registrar of
Cooperative Societies (RCS). These
RCS operate in single- state and Central
RCS (CRCS) operate in multiple states.

19. During the banking crisis of 1913-14, when no fewer than
57 joint stock banks collapsed, there was a there was a
flight of deposits from joint stock banks to cooperative
urban banks.
The constitutional reforms which led to the passing of
the Government of India Act in 1919 transferred the
subject of “Cooperation” from Government of India to the
Provincial Governments.
The Government of Bombay passed the first State
Cooperative Societies Act in 1925 “which not only
gave the movement its size and shape but was a pace
setter of cooperative activities and stressed the basic
concept of thrift, self help and mutual aid.” Other States
followed. This marked the beginning of the second
phase in the history of Cooperative Credit Institutions.

20. The Indian Central Banking Enquiry Committee
(1931) felt that urban banks have a duty to help the small
business and middle-class people.
The Mehta-Bhansali Committee (1939), recommended
that those societies which had fulfilled the criteria of
banking should be allowed to work as banks and
recommended an Association for these banks.
The Co-operative Planning Committee (1946) went on
record to say that urban banks have been the best
agencies for small people in whom Joint stock banks are
not generally interested.
The Rural Banking Enquiry Committee (1950), impressed
by the low cost of establishment and operations
recommended the establishment of such banks even in
places smaller than taluka towns.

21. After independence, the movement of cooperative
societies maintained its pace even after facing several
hardships during that phase and continued to be part
of the economic development of the country.
The First Five Year Plan recognised the importance of
cooperatives in the implementation of development
plans, particularly targeting the farmers and weaker
section of the society.
In 1954, Government of India appointed a committee
called All India Rural Credit Survey Committee to
remedy the problem of rural credit and other financial
issues of the rural community. It recommended a well-
defined institutional framework for cooperative
organizations, particularly for meeting the needs of
rural India.

22. The recommendations of the committee were
recognised and were put into effect under
the Second Five Year Plan. The Second
Five Year Plan recommended expanding the
scope of cooperative activities to other fields
with special emphasis on the warehousing
sector.
The Third Five Year Plan emphasised on
training personnel for the cooperative sector
and to increase the reach of the cooperative
movement.
The Fourth Five Year Plan recommended the
consolidation of a cooperative system for
effective functioning.

23. The Fifth Five Year Plan recommended the
establishment of Farmers Service Societies.
The Sixth Five Year Plan developed a point
programme for a cooperative society to bring
economic development and for expanding the
scope of cooperative societies.
The Seventh Five Year Plan also focused on
expansion and growth of the scope of
cooperative societies so as to achieve
greater employment and decrease poverty in
the country.

24. FEATURES OF COOPERATIVE BANKS
―Customer owned entities
―Democratic member combers
―Profit allocation
―Principle of mutual assistance
―Financial inclusion
―Principle of one person-one vote

25. SOURCES OF FUNDS (RESOURCES)
―Ownership funds
―Deposits or debenture issues.
―Central and state government
―Reserve Bank of India (RBI)
―NABARD
―Other co-operative institutions
A high powered committee chaired by
former Deputy Governor of RBI, R.
Gandhi has recommended the merging
and converting some of the cooperatives
banks to small finance banks

26. TIERS OF CO-OPERATIVE BANKS
―State Co-Operative Bank-SCBc
―District Central Co-Operative Bank
―Primary Credit Societies-PCSs
URBAN CO-OPERATIVE BANKS (UCB)
Primary credit societies (PCSs) in urban
areas that meet certain specified criteria can
apply to RBI for a banking license to operate
as urban co-operative banks (UCBs).
They are registered and governed under the
co-operative societies acts of the
respective states and are covered by the
Banking Regulation Act, 1949 – thus are
under dual regulatory control.

27. URBAN CO-OPERATIVE BANKS (UCB)
The managerial aspects of these banks are
controlled by the state governments, while the
matters related to banking are regulated by
RBI.
Well managed primary UCBs with deposits of over
Rs. 50 crore are also allowed to operate in more
than one state subject to certain norms.
As they are covered by the RBI Act, 1934 (2nd
Schedule) they have certain rights and
obligations – rights of obtaining refinance and
loans from the RBI and obligations such as
maintenance of cash reserves, submission of
returns to the RBI etc.

28. DCCBs & SCBs:
As their names implies, they operate at the
district and state levels.
One district can have no more than one
DCCB with a number of DCCBs reporting
to the SCB.
They were under supervision of the RBI –
later on this function was delegated to the
NABARD.

29. ADVANTAGES OF COOPERATIVE BANKS
Effective alternative to the traditional defective
credit system of the village money lender.
Provides cheap credit to masses in rural areas.
Discouraged unproductive borrowingpersonal
consumption and have established the culture of
productive borrowing.
Cooperative credit movement has encouraged
saving and investment, instead of hoarding
money
Cooperative credit is available for purchasing
improved seeds, chemical fertilizers, modern
implements, etc
Cooperatives Banks offer higher interest rates on
deposits.

30. ISSUES WITH CO-OPERATIVE BANKS
Issue of dual regulatory control – the UCBs come
under the RBI and the Registrar of Co-operative
Societies (RCS) of the respective states while the
DCCBs and SCBs come under the NABARD, the
RBI and the
Close links between politicians and co-
operatives and the fact that the RCS functions
under the state government, in practice this dual
(or triple) custody of the co-operative banks led to
poor supervision and control.
Most co-operative banks are lacking in skill and
expertise.
Recruitments are politicised as are appointments at
most levels.
Income recognition and prudential norms are still
due in this sector.

31. Co-operative banks have been in the news mostly for
fraudulent deals g. PMC bank crisis.
Patchy growth of cooperative societies across the map of
India. It is said these have grown maximally in states of
Gujarat, Maharashtra, Tamil Nadu whereas the other
parts of India don’t have a heightened presence.
The state partnership has led to excessive state control
and interference. This has eroded the autonomous
characters of many of these.
Their main focus being credit so they have reduced to
borrower-driven entities and majority of members are
nominal and don’t enjoy voting rights.
Credit recovery is weak especially in rural areas and it
has a sustainability crisis in some pockets.
There is a lack of risk management systems and lack of
basic standardised banking models. There is a
widening gap between the level of skills and the
increasing computerization of banks.