Banking and RBI in Punjab

• Modern banking started in India only from the beginning of the 19th century. The earliest commercial banks were started in India by the employees of the East India Company. These banks were known as ‘Agency House.’
• The first modern bank to open in India was Bank of Hindustan, which was established in 1770.
• Three Presidencies Banks viz. Bank of Calcutta, Bank of Bombay, and Bank of Madras were established in 1806, 1840 & 1843 respectively. 
• Bank of Calcutta was renamed as Bank of Bengal in 1809. These three presidency Banks were amalgamated & formed Imperial Bank of India on 27th January 1921. 
  • This Imperial Bank of India after independence was again renamed and became State Bank of India in 1955. State Bank of India is the largest and oldest bank of India.

Reserve Bank Of India

History of RBI

• The Reserve Bank of India was founded in 1935, under the RBI Act, 1934 on the recommendations of John Hilton Young Commission (also called Royal Commission on Indian Currency & Finance). It is the central bank of the country & was nationalized w.e.f 1st January 1949 and since then it is fully owned by the Government of India. Initially, the Central Office of the Reserve Bank of India was established in Calcutta but later on, it was permanently moved to Mumbai in 1937.

Functions of RBI

• It is the central bank to control other banks and regulate them based on the particular guidelines so that there is no monopoly and timely credit is available to all the sectors of an economy.
• RBI is the main and sole authority in India to issue currency notes under signatures of the Governor of RBI.
• RBI is the banker to the government because it provides loans and monetary help to the government.
• It also provides a timely supply of credit to other banks whenever required by them through monetary instruments. It also provides Export Credit Refinance, Liquidity Adjustment Facility & Marginal Standing Facility.
• Liquidity in the market is maintained by RBI as it can fix interest rates (including Bank Rate) & exercise selective credit controls. There are various monetary tools such as a change in cash reserve ratio, the stipulation of margin on securities, directed credit guidelines, etc. are used for this purpose.
• RBI is also responsible for maintaining the external value of Indian currency as well as the internal value.

RBI Structure

• The general superintendence and direction of the RBI are entrusted with the 21-member Central Board of Directors, which are mentioned below:
  • Governor (Shaktikanta Das – 25th Governor of RBI)
  • 4 Deputy Governors
  • 2 Finance Ministry representatives
  • 10 government-nominated directors to represent important elements of India’s economy
  • 4 directors to represent local boards headquartered at Mumbai, Kolkata, Chennai, and New Delhi.

Subsidiaries of RBI

• Deposit Insurance and Credit Guarantee Corporation of India (DICGC). 
• Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL). 
• Reserve Bank Information Technology Private Limited (ReBIT)
• Indian Financial Technology and Allied Services (IFTAS)
• Reserve Bank Innovation HUB (RBIH)

Other Important facts related to RBI

• Emblems of RBI are Panther and Palm Tree.
• The first Governor of the Reserve Bank of India was British banker, Osborn Smith, while C.D. Deshmukh was the first Indian Governor of RBI at the time of the nationalization of RBI in 1949.
• K.J. Udeshi was the first woman Deputy Governor of RBI.

Banking Structure in India

• The apex body in the Banking System of India is RBI. Further, the banking system is segregated into ‘non scheduled banks’ and ‘scheduled banks.’ Non scheduled banks refer to those that are not included in the lI Schedule of the Banking Regulation Act of 1965 while Scheduled banks are included in the Schedule and thus satisfy the following conditions:
  • Must have paid-up capital and reserve of not less than Rs. 5 lakh.
  • Satisfy RBI that its affairs are not conducted in a manner detrimental to the interest of its deposits.

Scheduled Banks

• Must fulfil two conditions simultaneously. 
  • A public sector or private sector bank has (Paid Up Capital + Reserves) : Minimum Rs.5 Lakhs. 
  • Bank is not conducting business in a manner harmful to its depositors.
• If fulfilled, listed in 2nd Sch of RBI Act, then known as Scheduled Bank (SB)
• Airtel Payments Bank and Paytm Payment Bank are categorised as scheduled banks in 2021-22. 

Nationalisation of Banks After Independence

• 1948: RBI Transfer of Ownership Act
• 1955: Imperial Bank nationalized became State Bank of India(SBI)
• Following Committees made for reforms in banking sector- M Narasimham-I (1991), M Narasimham-II (1997), Dr. Raghuram Rajan Committee (2007) and P.J Nayak Committee (2014)
• 2021: Death of M Narasimham- known as “father of Indian banking system reforms”. 
• Consolidation of Public Sector Banks (PSBs)- Made of two types of reforms-
  • Merger: Geographical & technological synergies in ATM, Branches, Security Staff, Servers cost, etc
  • Privatization: Govt selling 51% or larger shareholding to private parties. Then such a Public-Sector Bank will convert into a private sector bank.

Banking Regulation Act, 1949

• The Banking and Regulations Act was enacted to safeguard the interest of the depositors and to control the abuse of powers by controlling the banks by any means necessary and to the interest of the Indian economy. This act was originally enacted as the Banking Companies Act, 1949 on 16 March 1949. 
• From 1 March 1966, it was renamed as Banking Regulation Act, 1949. The act was initially enacted to regulate banking companies. In 1965, it was amended and made applicable to cooperative banks also.

Objectives of the Banking Regulation Act 1949

• The provision of the Indian Companies Act 1913 was found inadequate and unsatisfactory to regulate banking companies in India. Therefore a need was felt to have specific legislation having comprehensive coverage on banking business in India. Due to the inadequacy of capital many banks failed and hence prescribing a minimum capital requirement was felt necessary.
• The banking regulation act brought in certain minimum capital requirements for banks. The major objective of Banking Regulation Act, 1949 are:
  • Provide specific legislation containing comprehensive provisions, particularly to the business of banking in India.
  • Prevent such bank failures by prescribing minimum capital requirements.
  • Ensure the balanced development of banking companies.
  • Give powers to RBI to approve the appointment, reappointment, and removal of the chairman, directors, and officers of the banks.
  • Safeguard the Interests of Depositors.
  • Facilitate strengthening the banking system of the country.

Banking in Punjab

• • As far as the growth of the banking system in Punjab is concerned, developments at the national level have made a similar effect in the state of Punjab. With the advent of the Green Revolution, Punjab became the main contributor towards the food bowl of the country. It also necessitated the development of necessary infrastructure, including a banking system in Punjab.
  • As on 30th September, 2023, Punjab has 12 public sector banks, 15 private sector, 1 regional rural bank (Punjab Gramin Bank) and 1 cooperative bank with a total of 7295 branches.
  • The average population served by a bank branch is 4546. Public sector bank branches constitute 55% of total branches.
  • Punjab has the second highest number of commercial bank branches per thousand, only surpassed by Kerala. A strong banking network not only promotes financial inclusion, but also enables diversification of economic activities and productive investment as it facilitates mobilization of public savings.

• Total deposits and Credits of Scheduled Commercial Banks in Punjab increased in 2023.
• Credit-Deposit (CD) ratio, which is the proportion of loan sanctioned by banks from the deposits it receives has been near to the national benchmark. The national benchmark for CD ratio in India is maintained at 60. In Punjab, the CD ratio for 2022 and 2023 was maintained at 56.5 and 56.2 respectively for Scheduled Commercial Banks.

Private Sector Banks (PvB)

• • In 1980s – 1990s: Minister-Bizman Loan Scams. Inefficacy, Badloans Hartal, Losses in Sarkari Banks
  • M .Narasimham suggested allow private sector banks & foreign banks, reduce govt control over PSBs

• New-Generation Private Banks in India (Post 1991 Banks)
• ‘On-Tap’ License to open Private Sector Banks- Now, one can apply to RBI whenever he wishes, provided he meets eligibility requirements. 

Commercial Banks

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