INTRODUCTION For a country to operate effectively and grow economically, it needs an efficient financial system to back it up and promote

growth. In the earlier times, when money did not exist, we had what we now call the barter system. Payments were done in kind. Then in 1500 BC, the Phoenicians invented metal money, which they first formed into iron half-rings that looked like a pair of bulls horns. Thus coins and money came into existence. Slowly population grew, money started increasing thus banks came into the forefront and now they are the most important sector of any country. HISTORY OF BANKING IN INDIA

The RBI was established in April 1,1935 under the RBI act 1934. The RBI entered upon its career as a state owned institute from January 1949. Banking in India originated in the last decades of the 18th century. The first banks were The General Bank of India, which started in 1786, and Bank of Hindustan, which started in 1790; both are now defunct. Bank of Bengal, Bank of Bombay and the Bank of Madras merged in 1921 to form the Imperial Bank of India, which, upon India's independence, became the State Bank of India. The Government of India issued an ordinance and nationalized the 14 largest commercial banks with effect from the midnight of July 19, 1969. Later 6 more commercial banks were nationalized and thus 91% of the banking business in India was controlled by the government. In the early 1990s, the Narsimha Rao government embarked on a policy of liberalization, licensing a small number of private banks. These came to be known as New Generation tech-savvy banks, and included Global Trust Bank (the first of such new generation banks to be set up), which later amalgamated with Oriental Bank of Commerce, Axis Bank(earlier as UTI Bank), ICICI Bank and HDFC Bank. This move, along with the rapid growth in the economy of India, revitalized the banking sector in India, which has seen rapid growth with strong contribution from all the three sectors of banks, namely, government banks, private banks and foreign banks.

PROGRESS OF BANKING IN INDIA

The banking sector in India has been widening its scope due to liberalization. Banks today are not mere suppliers of money. They have become providers of services such as selling insurance, mutual funds, investment opportunities etc. The growth in the Indian Banking Industry has been more qualitative than quantitative and it is expected to remain the same in the coming years. Banks in India can be classified into a) Public Sector Banks b) Private Sector Banks c) Foreign Banks d) Co operative banks e) Regional Rural Banks

The banking system thus remains, as always, the most dominant segment of the financial sector. Indian banks continue to build on their strengths and grow. Any Banks main role is to provide financial service. Its role as a financial service provider can again be categorized into the following heads Bank as an intermediary. Banks role as payment system provider system constituent. Banks role as provider of other services.

BANKS AS FINANCIAL INTERMEDIARIES All financial institutions do or enable some form of intermediation. Banks enjoy the benefit of being the only institutions through which the money can be transferred from one person to another and from one place to another. Therefore, banks become the constituent of the payment system of the economy. All other financial intermediaries at one point or other depend on banks and cannot work efficiently in their absence. Banks, because of their reach, trust of the people, and other roles that they play, have enabled them to emerge as the largest financial intermediaries of the world. By virtue of this, the economic prosperity of the economy as a whole and of different regions and industries depends upon the banks. Services offered by banks as financial intermediary are as follows1) Deposit services 2) Loan or credit services Deposit or Liability Products of a Bank- Banks accept demand deposits and fixed or time deposits. Demand deposits are repayable on demand while fixed deposits have a fixed maturity period and are repayable only after the agreed period. Since demand deposits are more liquid as compared to fixed deposits, the interest paid on such deposits is at a low rate or no interest is paid at all. Lower the liquidity, higher is the rate of interest. Therefore, longer the period of the fixed deposit, higher will be the interest that is paid. While demand deposits are cheaper in terms of the interest paid on them, the cost of maintaining demand deposit accounts is higher than that of fixed deposit accounts in view of the large number of transactions involved in demand deposits. The various products offered by banks within the deposit services are: 1) 2) 3) 4) 5) 6) Current Accounts Savings Account Term Deposit Accounts Recurring Deposit Accounts 2 in 1 Accounts NRI Accounts

Current account- This is an Account created for business purposes. It has no Minimum balance restrictions, neither do the account holders get interest on the money in the account. There are no restrictions on the number of withdrawals. A current account offers various flexible payment methods to allow customers to distribute money directly to others. Most current accounts come with a cheque book and offer the facility to arrange standing orders, direct debits and payment via a debit card. Current accounts may also allow borrowing via an overdraft facility. Besides this there are multicity cheque facilities available. Here a balance of upto 1 lakhs is protected. Savings Account- Savings accounts are accounts maintained by banks, which that pay interest on the money kept in the account. Usually the rate of interest is 3.5% for all Indian Banks as regulated by the RBI. These accounts let customers set aside a portion of their liquid assets while earning a monetary return. The savings account funds are usually easily accessible, though some banks do

charge for withdrawing money more that a limited number of transactions. These accounts also come with facilities like cheque facilities, multicity banking, utility bill payment, tax payments, ATM cards, etc. Term Deposit Account or Fixed Deposit- In this type of account, the money deposit at a banking institution cannot be withdrawn for a preset fixed 'term' or period of time. When the term is over it can be withdrawn or it can be rolled over for another term. Usually the longer the term, the better the yield on the money. The term can be anywhere from a period of 7 days to 10 years. The interest is paid quarterly or on maturity. This account can be a single or joint. Even nomination facilities are available. On certain occasions if we want to prematurely close the account, it is possible. Even auto renewal facilities are available. The interest paid is taxable and TDS is applicable. Loans can be taken with a term deposit account as a security. Recurring Deposit Account- The Recurring deposit account is an account in the bank (or a Post office in some countries) where an investor deposits a fixed amount of money every month for a fixed tenure (mostly ranging from one year to five years). This scheme is meant for investors who want to deposit a fixed amount every month, in order to get a lump sum after some years. The small monthly savings in the Recurring Deposit scheme enable the depositor to accumulate a handsome amount on maturity. Interest at term deposit rates is computable on quarterly compounded basis. Here safety for upto 1 lakh is provided. This too has single and joint account facilities along with nomination facilities. The interest earned is taxable but TDS is not deducted. Two in One Accounts- This is an account where you earn the high interest rate of a fixed deposit while you enjoy the flexibility of a savings or current account. This helps in providing higher liquidity with higher rates if interest of fixed deposits. These come with a unique facility of auto sweep and reverse auto sweep. Auto sweep creates small fixed deposits on a day to day basis of the money in the current or savings account. This helps in getting bigger returns. The reverse auto sweep facility is where these temporary fixed deposits are broken to allow maximum liquidity. NRI accounts- NRI accounts are special accounts for non resident Indians. This account permits a NRI to hold and maintain foreign currency earnings in Indian rupees. The principal and interest earned on these balances are freely repatriable. Nomination facilities are available here too. Nomination can be in favour of resident or non-resident.
NRI Services 1. 2. 3. 4. 5. FCNR Scheme FEDAI WAR Rate International Banking Division NRI Rupee Deposit Scheme Other Schemes

Loan/ Asset/ Credit Products of a Bank- Like a Bank accepts deposits, it also lends out money in the form of loans to individuals or groups. The deposits in the banks are lent out as loans for a specific time frame which helps banks earn interest on the loans. This helps the money to grow in banks. This surplus money is given out as interest to account holders, can be invested in various avenues and thus helps the countrys economy to grow. The products offered by banks within loan services are as follows: 1) 2) 3) 4) 5) 6) 7) Demand Loans Term Loans Retail loans Personal Overdrafts Cheque Purchase Bills Advance Cash Credit

8) Credit Cards 9) Working Capital Services Along with these, banks as intermediaries also provide other services like1) Cash Management Services 2) Trade Finance 3) Project Finance Demand Loans- Loan with no specific maturity date, but payable at any time. Only interest is paid until the principal is paid off, or until the lender demands repayment of principal. The borrower may, however, pay off the loan early, without incurring a prepayment penalty. If the funds are advanced to a broker, it is referred to as a call loan. Term Loans- A loan from a bank for a specific amount, that has a specified repayment schedule and a floating interest rate. Term loans almost always mature between one and 10 years, but may last as long as 30 years in some cases. Term loans can be given on an individual basis but are often used for small business loans. The ability to repay over a long period of time is attractive for new or expanding enterprises, as the assumption is that they will increase their profit over time. Term loans are a good way of quickly increasing capital in order to raise a business supply capabilities or range. For instance, some new companies may use a term loan to buy company vehicles or rent more space for their operations. Retail Loans- Retail lending is the practice of loaning money to individuals rather than institutions. Retail lending is done by banks or also by other institutions. Retailing loans can be for for automobile purchases, home purchases, medical care, home repair, vacations, and other consumer uses. Retail loans have taken a prominent role in the lending activities of banks, as the availability of credit and the number of products offered for retail lending have grown. The amounts loaned through retail lending are usually smaller than those loaned to businesses. Retail lending may take the form of installment loans, which must be paid off little by little over the course of years, or noninstallment loans, which are paid off in one lump sum. Personal Overdrafts- An overdraft is a credit facility on your current account* that allows you to access funds to an agreed limit above your actual balance. You can access the overdraft when you use your Debit Card, when withdrawing cash from an ATM, or when you write a cheque or pay a bill. If the amount overdrawn is within the authorized overdraft limit, then interest is normally charged at the agreed rate. If the negative balance exceeds the agreed terms, then additional fees may be charged and higher interest rates may apply. Cheque PurchaseBills Advance- Bills Advance, also known as the Bill of Exhange is a negotiable financial instrument by the drawer (creditor) to the drawee (debtor) to pay a certain amount of money at a matured date. It is usually used in business transactions. It is a kind of legal negotiable instrument used to settle a payment at a future date. It is drawn by a drawer on a drawee wherein drawee accepts the payment liability at a date stated in the instrument. The Drawer of the Bill of Exchange draws the bill on the drawee and sends it to him for his acceptance. Once accepted by the drawee, it becomes a legitimate negotiable instrument in the financial market and a debt against the drawee. The drawer may, on acceptance, have the Bill of Exchange discounted from his bank for immediate payment to have his working capital funds. On due date, the bill is again presented to the drawee for the payment accepted by him, as stated therein the bill. Cash Credit- Cash credit is a short-term cash loan to a company. A bank provides this type of funding, but only after the required security is given to secure the loan. Once a security for repayment has been given, the business that receives the loan can continuously draw from the bank

up to a certain specified amount. This is a type of circulating credit given to run the daily expenses of a running business. Credit Cards- A credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy goods and services based on the holder's promise to pay for these goods and services. The issuer of the card creates a revolving account and grants a line of credit to the consumer (or the user) from which the user can borrow money for payment to a merchant or as a cash advance to the user. Working Capital Services- Banks provide working capital loan services to companies to run their businesses. Working capital loan funds provide your business the cash it needs to keep growing until you can cover all operating expenses out of revenue. Without a working capital loan most businesses are unable to generate enough revenue to stay afloat. These funds provide access to cash which can be used to pay rent or mortgage payments, utilities, marketing expenses, inventory, employees, etc. Other services offered by banks in this area are1) Cash Management Services- Cash Management is the stewardship or proper use of an entitys cash resources. It serves as the means to keep an organization functioning by making the best use of cash or liquid resources of the organization. Sometimes banks provide cash management services to certain high end customers too. The range of cash management services range from simple checkbook balancing to investing cash in bonds and other types of securities to automated software that allows easy cash collection. The banks thus helps its customers in better handling and investment of their cash. 2) Trade Finance- Trade Finance services are related to International Trade. These services are offered by banks to minimize the risk and fraud deals that could happen during trading. While trading, the seller or the exporter might want the buyer or importer to pre pay the price of the goods. While the importer might want to see the quality of the goods before buying. Banks come in here and provide both the buyer and seller a support system that can make these dealings easy. The importers bank may provide a Letter of Credit to the exporters bank, stating that payment would be made on the provision of certain documents like the Bill Of Lading. So the banks act as the security medias the this particular trade. So the exporter gets his money, the importer pays only after he has seen the goods and is satisfied. 3) Project Finance- This is long term financing of projects and infrastructure, based on the projected cash flow of the project, rather than the balance sheets of the project sponsors. A project financing structure involves a number of equity investors called sponsors and a syndicate of banks, that provide loans to the operation. Thus a banks role here is to provide the money cover to take care of the needs of the up coming business and to cover purchases of raw materials, machinery parts, inventory and/or payroll. This service provided by the bank is called Project Finance.

BANK AS A PAYMENT SYSTEM CONSTITUENT Apart from accepting deposits and lending money, Banks also carry out, on behalf of their customers the act of transfer of money - both domestic and foreign.- from one place to another. This activity is known as "remittance business" or a payment system. The primary goal of a payment system is to enable the circulation of money in its economy. Thus an efficient and secure payment system is an enabler of economic activity. Banks help in the efficient and smooth flow of cash from one entity to the other. And there are various ways in which banks can help in making

payments. The last few years have seen a huge change in the number of ways in which this cash flow can be carried out. Electronic commerce and Finance are growing rapidly. New payment mechanisms, designed to aid Electronic Commerce have become a routine. Some of the products and services offered by banks in their role as a payment system constituent are as follows1) 2) 3) 4) 5) Pay Order (Bankers Cheque or Cashiers Cheque) Demand Draft National Electronic Funds Transfer (NEFT) Real Time Gross Settlement System (RTGS) Electronic Clearing Service (ECS) a) Credit b) Debit

6) Telegraphic Transfer (TT) 7) Local Clearing/ National Clearing/ Outstation Cheque Collection 8) Multicity Cheques Pay Order (Bankers Cheque or Cashiers Cheque)- A pay order is a cheque where the funds are taken directly from the financial institution rather than the individual drawer's account. When an individual requests a banker's draft they must immediately transfer the amount of the draft (plus any applicable fees and charges) from their own account to the bank's account. An individual without an account at the issuing bank may request a banker's draft and pay for it in cash, subject to applicable anti-money laundering law and the bank's issuing policies. Note that like a normal cheque, a banker's draft must go through the usual clearing process and therefore may take around 3-5 days to clear. A Bankers Cheque is always cleared in the very specific branch of the bank that issued it. Demand Draft- A demand draft or "DD" is an instrument most banks in India use for effecting transfer of money. It is a pre paid negotiable instrument, wherein the drawee bank undertakes to make payment in full when the instrument is presented by the payee for payment. It is thus very similar to a Pay Order in all respects except that it is not only payable at the specific location where it is drafted, but also anywhere in the country. National Electronic Funds Transfer (NEFT)- National Electronic Funds Transfer (NEFT) is a nation-wide system that facilitates individuals, firms and corporates to electronically transfer funds from any bank branch to any individual, firm or corporate having an account with any other bank branch in the country. It is done electronically, as the name suggests and the transfer and safety is controlled by the RBI. It is a fast way to transfer funds safely. Any individual, firms or corporates maintaining accounts with a bank branch can receive funds through the NEFT system. It is, therefore, necessary for the beneficiary to have an account with the NEFT enabled destination bank branch in the country. Usually funds up to 1 lakhs are transferred through this system. Real Time Gross Settlement System (RTGS)- This system is very similar to the NEFT. Here the settlement of large-value transactions between banks and other financial institutions is streamlined. Instead of moving physical amounts of cash, the banks transfer funds electronically. When one bank transfers money to another, the funds are immediately credited to the second bank and debited to the first. Transactions over 1 lakhs are usually done through this system. This system lessens settlement risk because interbank settlement happens throughout the day, rather than just at the end of the day. Electronic Clearing Service (ECS)- Under this system, you can receive your payment for something or pay up for a purchase, electronically by way of direct credit or debit to your bank account. This avoids a lot of hassles like loss/fraudulent interception. This service works in two ways-

ECS Debit- Here money is debited from the account to make payments. This is usually a many to one facility, like the CESE bill collection where individuals use ECS Debit to pay their bills to CESE. ECS Credit- Here the money is credited into the account. Here the payment is usually from one to many. Like an organization paying its staff monthly salaries or an organization paying dividends to shareholders.

Telegraphic Transfer (TT)- This is a method of payment of banks in which funds are transferred via telegraph or cable. Telegraphic transfers are most common in business conducted in developing countries, where other types of infrastructure, such as computerized payments, may not be available. This is also called wire transfer, but it has been replaced by secure cable and wireless telecommunications networks in all developed countries nowadays. It usually is used in the transfer of foreign currency. Local Clearing/ National Clearing/ Outstation Cheque Collection- This is a facilty established by the banks in a local area to facilitate the presentment and exchange of checks between those banks. The representatives all banks meet up at the clearing house at a pre determined time and exchange cheques among themselves. At the end of it, each bank will either have gained money or have had to pay up money to other banks. This amount to be received or paid is settled by the RBI. This clearing is managed by the RBI or SBI or any other branch of a nationalized bank at that location. Multicity Cheques- This is a facility offered by a bank wherein the customer can issue cheques drawn at the base branch and payable at any branch at remote centre. These cheques will be treated as local cheques at the remote branch. There will be no collection charges and the credit will be given on the same day, as applicable to local cheques. Even if the cheque is dropped at any other bank other than the base bank, there will not be any collection charges. For example, if you are paid a Multi city cheque by an account holder at a SBI branch in Delhi and you drop the same at any bank in Mumbai where you hold an account, then there will not be any collection charges. BANK AS PROVIDER OF OTHER SERVICES Besides being financial intermediaries that link the depositors and those in need of money and being payment system constituents that help in a smooth flow of cash and easy payments, banks have other roles as well. Some of the services include1) Debit Card 2) Credit Card 3) Travelers Card 4) Travelers cheque 5) Foreign Currency Notes 6) Safe Deposit Lockers 7) Safe Custody Service 8) Standing Instructions 9) Payment of Taxes, Utility Bills and Mobile Phone Recharges 10) Demat Accounts 11) 3 In 1 Accounts 12) Multi city Banking 13) Portfolio On Wealth Management

14) Distribution of Third Party Products- Gold Coins, Share Issues, Mutual Funds, Life Insurance, General Insurance, Health Insurance 15) Government Bonds A brief idea of each of these services is as followsDebit and Credit Cards- Each bank issues these cards to their account holders for making their payments and purchases easier. These are also called Plastic Money. Instead of carrying money everywhere, cards can be used to make payments. This way payment is faster, less complicated and safer. Debit card payments are debited instantly while Credit card payments are debited after a specified time period and hence Credit cards can be used even when the account doesnt have that much money as the payment is not instant. Travelers Card- This a Credit Card that can be used to cover ones expenses during travel. Travelers cheque- A travelers cheque is designed to allow the person signing it to make an unconditional payment to someone else as a result of paying the account holder for that privilege. Traveller's cheques can usually be replaced if lost or stolen and people often used to use them on vacation instead of cash as many businesses used to accept traveller's cheques as currency. The use of credit or debit cards has, however, begun to replace the traveller's cheque as the standard for vacation money due to their convenience and additional security for the retailer. This has resulted in many businesses no longer accepting traveller's cheques. Foreign Currency Notes- Banks provide notes of foreing currency while traveling in exchange of local currency at the existing rate of exchange. Even left over foreign hard currency can be returned to the bank in exchange for local currency on return. Banks may levy certain minimal charges on the exchange transaction. Safe Deposit Lockers- Banks provide locker services to all its customers for safe keeping of valuables like jewellery away from home. A safe deposit locker offers privacy and security fire and theft and other such unforeseen circumstances. Individuals could decide on the size of the locker they would need depending on the kind of articles they have. Banks usually charge a rent on these lockers. Safe Custody Services- This service is similar to a locker service, the difference being that here articles can be kept in a sealed condition. The articles should be brought to the bank in a sealed condition itself and the bank would charge a safe custody tax on it. Articles too big in size are not allowed due to the difficulties in handling. Standing Instructions- These are instructions that an account holder can give to a bank to transfer a certain amount of funds from his/her account to another account at regular intervals. The instruction is sometimes known as a banker's order. They are typically used to pay rent, mortgage or other fixed regular payments. Because the amounts paid are fixed, a standing order is not usually suitable for paying variable bills such as credit card, or gas and electricity bills. This service is like to direct debits but the difference lies in the fact that though both are methods of setting up repeated transfers of money from one account to another, standing orders send payments arranged by the payer, while direct debits are specified and collected by the payee. Payment of Taxes, Utility Bills, Mobile Phone Recharges- Banks now help in the payment of bills, taxes and even recharge your mobile phones. All that the account holder needs to do is to leave instructions with the banking officer about the account number and all the payments that the account holder needs to do and then the rest would be taken care of. The quoted money automatically gets paid on or before the deadline. All the account holder needs is to have the money ready in his/her account. These services save a lot of our time, money and energy.

Demat Accounts- A Demat account is also known as a dematerialized account. This is opened by individuals with the sole purpose of trading. A Demat Account is opened by the investor while registering with an investment broker (or sub broker). It shows the number of shares held by an investor. The Demat account number is quoted for all transactions to enable electronic settlements of trades to take place. Access to the Demat account requires an internet password. And a transaction password is required for initiating and confirming transfers or purchases of securities. Purchases and sales of securities on the Demat account are automatically made once transactions are executed and completed. Initially stocks and securities had to be physically possessed by way of certificates which involved the risk of losing them. Now these can be held electronically in the banks demat account. It helps reduce brokerage charges, provides more liquidity, helps avoid bad deliveries caused by signature mismatch, postal delays and loss of certificates in transit. 3 in 1 Accounts- A 3 in 1 Account clubs banking, broking and a demat account all together into 1 account. This provides greater liquidity of cash as the money from the banking account can be transferred to the broking account for trade in just a click. It provides us with the flexibility to make a payment only when we trade. You can trade in shares without going through the hassle of tracking settlement cycles, writing cheques and transfer instructions. You can be rest assured, that your order for trade will be precisely for the amount you wanted it to be, without any deviation, giving you full control of your money and your trades. ATM ServicesMulti city BankingPortfolio on Wealth ManagementDistribution of Third Party ProductsGovernment Bonds-