Chapter-1:- Banking System in India

A bank is a financial institution licensed to receive deposits and make loans. Banks may
also provide financial services such as wealth management, currency exchange, and safe
deposit boxes. There are several different kinds of banks including retail banks,
commercial or corporate banks, and investment banks. In most countries, banks are
regulated by the national government or central bank.

Definition:-

1. “A banker is defined as a person who carries on the business of banking, which is specified
as: conducting current accounts for his customers, paying cheques drawn on him, and
collecting cheques for his customers”.- English Common Law

2. “A banking company is the one which transacts the business of banking which means
accepting, for the purpose of lending and investment of deposits of money from the public,
repayable on demand or otherwise and withdrawals by cheques, draft, order or otherwise.“

"Banking means the accepting, for the purpose of lending or investment of deposits of money
from the public, repayable on demand or otherwise and withdraw-able by cheque, draft, order
or otherwise."- Banking Regulation Act; India

Characteristics / Features of a Bank

1. Dealing in Money

Bank is a financial institution which deals with other people's money i.e. money given by
depositors.

2. Individual / Firm / Company

A bank may be a person, firm or a company. A banking company means a company which is
in the business of banking.

3. Acceptance of Deposit

A bank accepts money from the people in the form of deposits which are usually repayable
on demand or after the expiry of a fixed period. It gives safety to the deposits of its
customers. It also acts as a custodian of funds of its customers.

4. Giving Advances

A bank lends out money in the form of loans to those who require it for different purposes.
5. Payment and Withdrawal

A bank provides easy payment and withdrawal facility to its customers in the form of
cheques and drafts, It also brings bank money in circulation. This money is in the form of
cheques, drafts, etc.

6. Agency and Utility Services

A bank provides various banking facilities to its customers. They include general utility
services and agency services.

7. Profit and Service Orientation

A bank is a profit seeking institution having service oriented approach.

8. Ever increasing Functions

Banking is an evolutionary concept. There is continuous expansion and diversification as

regards the functions, services and activities of a bank.

9. Connecting Link-

A bank acts as a connecting link between borrowers and lenders of money. Banks collect
money from those who have surplus money and give the same to those who are in need of
money.

10. Banking Business

A bank's main activity should be to do business of banking which should not be subsidiary
to any other business.

11. Name Identity

A bank should always add the word "bank" to its name to enable people to know that it is a
bank and that it is dealing in money.

Functions of Banks:-
A. Primary Functions of Banks

The primary functions of a bank are also known as banking functions. They are the main
functions of a bank.

These primary functions of banks are explained below.

1. Accepting Deposits

The bank collects deposits from the public. These deposits can be of different types, such as

Saving Deposits

Fixed Deposits

Current Deposits

Recurring Deposits

a. Saving Deposits

This type of deposits encourages saving habit among the public. The rate of interest is low.
At present it is about 4% p.a. Withdrawals of deposits are allowed subject to certain
restrictions. This account is suitable to salary and wage earners. This account can be
opened in single name or in joint names.

b. Fixed Deposits
Lump sum amount is deposited at one time for a specific period. Higher rate of interest is
paid, which varies with the period of deposit. Withdrawals are not allowed before the
expiry of the period. Those who have surplus funds go for fixed deposit.

c. Current Deposits

This type of account is operated by businessmen. Withdrawals are freely allowed. No

interest is paid. In fact, there are service charges. The account holders can get the benefit of
overdraft facility.

d. Recurring Deposits

This type of account is operated by salaried persons and petty traders. A certain sum of
money is periodically deposited into the bank. Withdrawals are permitted only after the
expiry of certain period. A higher rate of interest is paid.

2. Granting of Loans and Advances

The bank advances loans to the business community and other members of the public. The
rate charged is higher than what it pays on deposits. The difference in the interest rates
(lending rate and the deposit rate) is its profit.

The types of bank loans and advances are :-

Overdraft

Cash Credits

Loans

Discounting of Bill of Exchange

a. Overdraft

This type of advances are given to current account holders. No separate account is
maintained. All entries are made in the current account. A certain amount is sanctioned as
overdraft which can be withdrawn within a certain period of time say three months or so.
Interest is charged on actual amount withdrawn. An overdraft facility is granted against a
collateral security. It is sanctioned to businessman and firms.

b. Cash Credits

The client is allowed cash credit upto a specific limit fixed in advance. It can be given to
current account holders as well as to others who do not have an account with bank.
Separate cash credit account is maintained. Interest is charged on the amount withdrawn
in excess of limit. The cash credit is given against the security of tangible assets and / or
guarantees. The advance is given for a longer period and a larger amount of loan is
sanctioned than that of overdraft.

c. Loans

It is normally for short term say a period of one year or medium term say a period of five
years. Now-a-days, banks do lend money for long term. Repayment of money can be in the
form of installments spread over a period of time or in a lumpsum amount. Interest is
charged on the actual amount sanctioned, whether withdrawn or not. The rate of interest
may be slightly lower than what is charged on overdrafts and cash credits. Loans are
normally secured against tangible assets of the company.

d. Discounting of Bill of Exchange

The bank can advance money by discounting or by purchasing bills of exchange both
domestic and foreign bills. The bank pays the bill amount to the drawer or the beneficiary
of the bill by deducting usual discount charges. On maturity, the bill is presented to the
drawee or acceptor of the bill and the amount is collected.

B. Secondary Functions of Banks

The bank performs a number of secondary functions, also called as non-banking functions.

These important secondary functions of banks are explained below.

1. Agency Functions

The bank acts as an agent of its customers. The bank performs a number of agency
functions which includes :-

Transfer of Funds

Collection of Cheques

Periodic Payments

Portfolio Management

Periodic Collections

Other Agency Functions

a. Transfer of Funds

The bank transfer funds from one branch to another or from one place to another.
b. Collection of Cheques

The bank collects the money of the cheques through clearing section of its customers. The
bank also collects money of the bills of exchange.

c. Periodic Payments

On standing instructions of the client, the bank makes periodic payments in respect of
electricity bills, rent, etc.

d. Portfolio Management

The banks also undertakes to purchase and sell the shares and debentures on behalf of the
clients and accordingly debits or credits the account. This facility is called portfolio
management.

e. Periodic Collections

The bank collects salary, pension, dividend and such other periodic collections on behalf of
the client.

f. Other Agency Functions

They act as trustees, executors, advisers and administrators on behalf of its clients. They
act as representatives of clients to deal with other banks and institutions.

2. General Utility Functions

The bank also performs general utility functions, such as :-

Issue of Drafts, Letter of Credits, etc.

Locker Facility

Underwriting of Shares

Dealing in Foreign Exchange

Project Reports

Social Welfare Programmes

Other Utility Functions

a. Issue of Drafts and Letter of Credits

Banks issue drafts for transferring money from one place to another. It also issues letter of
credit, especially in case of, import trade. It also issues travellers' cheques.

b. Locker Facility

The bank provides a locker facility for the safe custody of valuable documents, gold
ornaments and other valuables.

c. Underwriting of Shares

The bank underwrites shares and debentures through its merchant banking division.

d. Dealing in Foreign Exchange

The commercial banks are allowed by RBI to deal in foreign exchange.

e. Project Reports

The bank may also undertake to prepare project reports on behalf of its clients.

f. Social Welfare Programmes

It undertakes social welfare programmes, such as adult literacy programmes, public

welfare campaigns, etc.

g. Other Utility Functions

It acts as a referee to financial standing of customers. It collects creditworthiness

information about clients of its customers. It provides market information to its customers,
etc. It provides travellers' cheque facility.

Commercial Bank:-
These banks play the most important role in modern economic organisation. Their
business mainly consists of receiving deposits, giving loans and financing the trade of a
country. They provide short-term credit, i.e., lend money for short periods. This is their
special feature.

Although there are some types of commercial banks that help everyday consumers,
commercial banks tend to concentrate on supporting businesses. Both large corporations
and small businesses can turn to commercial banks if they need to open a checking or
savings account, borrow money, get access to credit or transfer funds to companies in
foreign markets.
 are regulated and managed under the Banking Regulation Act, 1949. These are profit
making banks based on their business model. Granting loans to the government, general
public, and corporate and accepting deposits counts as the primary function.

Functions of Commercial Bank

1. Primary functions
o Accepting Deposits: The primary function for which the commercial banks were
established is to accept deposits from the general public, who possess surplus funds
and are willing to deposit them so as to earn interest on it.
 There are various
products offered by the bank to the customers for the deposit of their money, which
includes savings account, current account, fixed deposit and recurring deposit.
o Advancing Loans: Next important function performed by the commercial bank is
lending money to the individuals and companies. The banks make loans to the
customers in the form of term loans, cash credit, overdraft and discounting of bills of
 exchange.

2. Secondary functions
o Agency Services: There are some facilities provided by the commercial banks in which
they act as an agent of the customers. Such services are:
▪ Collection and payment of rent, interest and dividend.
▪ Collection and payment of cheques and bills.
▪ Buying and selling securities.
▪ Payment of insurance premium and subscriptions.
o General Utility Services: Commercial banks provide general utility services to the
customers and charges a fee for the same. It covers services like:
▪ Safekeeping of valuables, documents etc, in locker or vault.
▪ ATM card, credit card and debit card facility.
▪ Issue of demand draft, pay order and traveller’s cheque.
▪ Internet and mobile banking
▪ Sale of application forms of competitive exams.
o Transfer of funds: Banks assist in the transfer of funds from one person to another or
from one place to another through its credit instruments.
o Credit Creation: The commercial banks are authorized to create credit, by granting
more loans than the amounts deposited by the customers.
A commercial bank offers an array of facilities such as internet banking, mobile banking,
ATM facility, credit card facility, NEFT, RTGS and so forth for which it charges a definite
sum as a fee for providing these facilities.

Types of Commercial Bank:-

A) Public Sector / Nationalized Banks:-

These banks for more than 75% of the total banking business in the nation. They are called
nationalized banks. The government holds the majority stakes at these banks. Post-merger,
SBI is the largest public sector banks by volume. It also ranks amongst the top 50 banks in
the world.
There are 21 nationalized banks in India, they are:
1. STATE BANK OF INDIA 2. BANK OF INDIA 3. ALLAHABAD BANK 4. BANK OF
MAHARASHTRA 5. CANARA BANK 6. INDIAN OVERSEAS BANK 7. IDBI BANK 8.
ORIENTAL BANK OF COMMERCEB 9. CENTRAL BANK OF INDIA 10. CORPORATION BANK
11. ANDHRA BANK 12. UCO BANK 13. BANK OF BARODA 14. UNION BANK OF INDIA 15.
UNITED BANK OF INDIA 16. VIJAYA BANK 17. DENA BANK 18. INDIAN BANK 19.
PUNJAB & SIND BANK 20.NATIONAL BANK 21. SYNDICATE BANK

B) Private Sector Bank:-

In case of private sector banks majority of the share capital of the bank is held by private
individuals. These banks are registered as companies with limited liability. For example The
Jammu and Kashmir Bank Ltd., Bank of Rajasthan Ltd., Development Credit Bank Ltd, Lord
Krishna Bank Ltd., Bharat Overseas Bank Ltd., Global Trust Bank, Vysya Bank, etc.

C) Regional Rural Bank:-

These are also scheduled commercial banks but they are established with the main
objective of providing credit to weaker sections of the society like agricultural labourers,
marginal farmers and small enterprises. They usually operate at regional levels in different
states of India and may have branches in selected urban areas as well. Other important
functions carried out by RRBs include-

• Providing banking and financial services to rural and semi-urban areas

• Government operations like disbursement of wages of MGNREGA workers,
distribution of pensions, etc.
• Para-Banking facilities like debit cards, credit cards and locker facilities

These banks were established mainly to support the weaker and lesser fortunate section of
the society like marginal farmers, laborers, small enterprises etc. they mainly operate at
regional levels at different states and may have branches in urban areas as well. Their main
features are:
1. Supporting rural and semi-urban region financially
2. Pension distribution and Wage disbursement of MGNREGA workers
3. Added banking facilities like locker, cards-debit, and credit

D) Foreign Bank:-

A bank operating as a private entity in India but headquartered in a Foreign country is a

foreign bank. They are governed by both the country they are located in as well the country
they have headquarters in. Some of these are:
1. CITI BANK 2. STANDARD CHARTERED BANK 3. HSBC BANK

A foreign bank is one that has its headquarters in a foreign country but operates in India as
a private entity. These banks are under the obligation to follow the regulations of its home
country as well as the country in which they are operating.

What is a Non- Banking Financial Company (NBFC)?

A Non Banking Financial Company (NBFC) is a company registered under the Companies
Act, 2013 of India, engaged in the business of loans and advances, acquisition of shares,
stock, bonds, hire-purchase insurance business or chit-fund business, but does not include
any institution whose principal business is that of agriculture, industrial activity, purchase
or sale of any goods (other than securities) or providing any services and
sale/purchase/construction of immovable property.

The working and operations of NBFCs are regulated by the Reserve Bank of India (RBI)
within the framework of the Reserve Bank of India Act, 1934 As banks are not able to reach
every corner of financial business needs in India, Non Banking Financial Company (NBFC)
plays a very vital role in financial sector of Indian economy. That’s is why, since last few
years in Indian economy is going down due to collapse of financial companies in India.

Different types of Non-Banking Financial Company (NBFC)

1. Asset Finance Company (AFC) : An AFC is a company which is a financial institution

carrying on as its principal business the financing of physical assets supporting
productive/economic activity, such as automobiles, tractors, lathe machines, generator
sets, earth moving and material handling equipments, moving on own power and general
purpose industrial machines. Principal business for this purpose is defined as aggregate of
financing real/physical assets supporting economic activity and income arising therefrom
is not less than 60% of its total assets and total income respectively.

2. Investment Company (IC) : IC means any company which is a financial institution

carrying on as its principal business the acquisition of securities.

3. Loan Company (LC): LC means any company which is a financial institution carrying on
as its principal business the providing of finance whether by making loans or advances or
otherwise for any activity other than its own but does not include an Asset Finance
Company.

4. Infrastructure Finance Company (IFC): IFC is a non-banking finance company a)

which deploys at least 75 per cent of its total assets in infrastructure loans, b) has a
minimum Net Owned Funds of ₹ 300 crore, c) has a minimum credit rating of ‘A ‘or
equivalent d) and a CRAR of 15%.

5. Systemically Important Core Investment Company (CIC-ND-SI): CIC-ND-SI is an

NBFC carrying on the business of acquisition of shares and securities which satisfies the
following conditions:- (a) it holds not less than 90% of its Total Assets in the form of
investment in equity shares, preference shares, debt or loans in group companies; (b) its
investments in the equity shares (including instruments compulsorily convertible into
equity shares within a period not exceeding 10 years from the date of issue) in group
companies constitutes not less than 60% of its Total Assets; (c) it does not trade in its
investments in shares, debt or loans in group companies except through block sale for the
purpose of dilution or disinvestment; (d) it does not carry on any other financial activity
referred to in Section 45I(c) and 45I(f) of the RBI act, 1934 except investment in bank
deposits, money market instruments, government securities, loans to and investments in
debt issuances of group companies or guarantees issued on behalf of group companies. (e)
Its asset size is ₹ 100 crore or above and (f) It accepts public funds.

6. Infrastructure Debt Fund: Non- Banking Financial Company (IDF-NBFC) : IDF-NBFC

is a company registered as NBFC to facilitate the flow of long term debt into infrastructure
projects. IDF-NBFC raise resources through issue of Rupee or Dollar denominated bonds of
minimum 5 year maturity. Only Infrastructure Finance Companies (IFC) can sponsor IDF-
NBFCs.

7. Non-Banking Financial Company – Micro Finance Institution (NBFC-MFI): NBFC-

MFI is a non-deposit taking NBFC having not less than 85% of its assets in the nature of
qualifying assets which satisfy the following criteria: 1. loan disbursed by an NBFC-MFI to a
borrower with a rural household annual income not exceeding ₹ 1,00,000 or urban and
semi-urban household income not exceeding ₹ 1,60,000; 2. loan amount does not exceed ₹
50,000 in the first cycle and ₹ 1,00,000 in subsequent cycles; 3. total indebtedness of the
borrower does not exceed ₹ 1,00,000; 4. tenure of the loan not to be less than 24 months
for loan amount in excess of ₹ 15,000 with prepayment without penalty; 5. loan to be
extended without collateral; 6. aggregate amount of loans, given for income generation, is
not less than 50 per cent of the total loans given by the MFIs; 7. loan is repayable on
weekly, fortnightly or monthly instalments at the choice of the borrower.

8. Non-Banking Financial Company – Factors (NBFC-Factors): NBFC-Factor is a non-

deposit taking NBFC engaged in the principal business of factoring. The financial assets in
the factoring business should constitute at least 50 percent of its total assets and its income
derived from factoring business should not be less than 50 percent of its gross income.

9. Mortgage Guarantee Companies (MGC) – MGC are financial institutions for which at
least 90% of the business turnover is mortgage guarantee business or at least 90% of the
gross income is from mortgage guarantee business and net owned fund is ₹ 100 crore.

10. NBFC- Non-Operative Financial Holding Company (NOFHC) is financial institution

through which promoter / promoter groups will be permitted to set up a new bank .It’s a
wholly-owned Non-Operative Financial Holding Company (NOFHC) which will hold the
bank as well as all other financial services companies regulated by RBI or other financial
sector regulators, to the extent permissible under the applicable regulatory prescriptions.
It is mandatory for any company who are juggling to start above said to business of the
company, to get registered and acquire Certificate of Registration from Reserve Bank of
India. the Reserve Bank can impose penalty or fine on them or can even prosecute them in
a court of law for not complying with.

Retail Banking:-
Definition: Retail banking, also known as Consumer banking, refers to the offering of
banking services to retail customers instead of institutional customers, such as companies,
corporations and/or financial institutions.
Advantages of the Retail Banking
There are several different advantages of the Retail Banking providing the opportunity to
the consumers and the bank. Some of the advantages are as follows:

1. With the help of retail banking, various services are offered to the individuals at one

place where the clients will be able to get multiple products of the bank. These

services include Checking accounts, Savings accounts, Debit/ATM cards, Credit

cards, Money orders, Wire transfers, Mortgages and home loans, Auto loans,

Personal loans, Safe deposit boxes, etc.

2. Retail deposits made by the consumers are stable and they constitute core deposits.

3. They are the low-cost funds of the bank which gives the better yield to the bank

with the improved bottom line. It also increases the subsidiary business of banks.

4. When there is a demand-driven economy, minimum marketing efforts are involved

in running retail banking. Also, it is presumed that the consumer loans have lower

risk, so there is less chance of loans becoming the NPA.

5. It provides affordable credit to the individuals, this fulfills their requirements and

increases their lifestyle.

6. It provides the services to the retail customers which increase the production

activity in the economy thereby helping in the economic revival of the nation.

Disadvantages of the Retail Banking

Apart from the advantaged, there are some limitations or drawbacks as well of the retail
banking which include the following:

1. There is a huge volume of the loan accounts in the retail banking which requires

regular monitoring. This requires huge spending on human resources. Also if there
 are no proper follow up of these accounts specially the long term loans then there

are high chances that these accounts will become the non- performing assets.

2. In the present world, the preferences of consumers are shifting from branch

banking to internet banking or phone banking.

3. It creates problems for the branches of the banks who find it difficult to introduce

the new products that are based on technology. Due to this, retaining customers is

becoming difficult. Also, in some of the cases, the huge investment is made by the

banks in the technology but they are unable to exploit them fully.

Retail Banking Services Offered by Banks

The advent of banking technology has seen a dramatic transformation in the functioning
and operations of retail banking in India. The banks have adopted the latest technology to
reach out to clients, fulfill their needs and expectations, learn customer behavior, increase
productivity, staff efficiency, increase sales and manage money. Various retail
banking services provided by banks include a range of financial products that can be
classified as retail deposit products, loan services, and payment services. Following are a
few retail banking solutions and services offered by banks to its consumers.
▪ Savings Bank Accounts: This is a type of bank account that customers can open at a
bank, providing retail banking services to deposit money and obtain interest on it.
▪ Current Account: Some other terms used to refer to this type of bank account at a retail
bank are: checking account, transaction account, and demand deposit account. It is made
available to the account holder as per their demand. The account holder can also make
frequent transactions through it.
▪ Debit Card: It is a plastic payment card that is used instead of cash to make payments at
ATMs and other places. Most of the banks provide this card for each current or savings
account.
▪ Credit Card: Just like debit cards, this is a plastic card to make payments instead of cash.
Banks allow cardholders to make the payments on credit with a promise to pay the bank
the amount spent and agreed on additional charges.
▪ ATM Cards: These cards are restricted to withdraw and do other transactions at ATM.
Some other products offered by retail banks to the individuals include term deposit
account, fixed deposit, recurring deposit account, zero balance salary accounts, and savings
account for senior citizens at a higher rate of interest.
▪ Loans: Banks lend money to their customers for various purposes. Loans in India
through retail banks include home loans, auto loans for new/used vehicles, consumer
loans, education loans, crop loans to farmers, business loans for small scale businesses
Online Banking/Internet Banking/Electronic Banking:-
E-Banking or Internet banking -Online banking also known as internet banking, e-
banking, or virtual banking, is an electronic payment system that enables customers of a
bank or other financial institution to conduct a range of financial transactions through the
financial institution's website. Internet banking is a term used to describe the process
whereby a client executes banking transactions via electronic means. This type of banking
uses the internet as the chief medium of delivery by which banking activities are executed.
The activities clients are able to carry out are can be classified to as transactional and non
transactional.
Online banking, also known as internet banking or web banking, is an electronic
payment system that enables customers of a bank or other financial institution to conduct a
range of financial transactions through the financial institution's website. The online
banking system will typically connect to or be part of the core banking system operated by
a bank and is in contrast to branch banking which was the traditional way customers
accessed banking services.

Advantages of E-banking or Internet banking

1. Convenience: Banks that offer internet banking are open for business transactions
anywhere a client might be as long as there is internet connection. Apart from periods of
website maintenance, services are available 24 hours a day and 365 days round the year. In
a scenario where internet connection is unavailable, customer services are provided round
the clock via telephone.

2. Low cost banking service: E-banking helps in reducing the operational costs of banking
services. Better quality services can be ensured at low cost.

3. Higher interest rate: Lower operating cost results in higher interest rates on savings
and lower rates on mortgages and loans offers from the banks. Some banks offer high yield
certificate of deposits and don’t penalize withdrawals on certificate of deposits, opening of
accounts without minimum deposits and no minimum balance.

4. Transfer services: Online banking allows automatic funding of accounts from long
established bank accounts via electronic funds transfers.

5. Ease of monitoring: A client can monitor his/her spending via a virtual wallet through
certain banks and applications and enable payments.

6. Ease of transaction: The speed of transaction is faster relative to use of ATM’s or

customary banking.

7. Discounts: The credit cards and debit cards enables the Customers to obtain discounts
from retail outlets.
8. Quality service: E-Banking helps the bank to provide efficient, economic and quality
service to the customers. It helps the bank to create new customer and retaining the old
ones successfully.

9. Any time cash facility: The customer can obtain funds at any time from ATM machines.

Disadvantages of E-banking Internet banking

1. High start-up cost: E-banking requires high initial start up cost. It includes internet
installation cost, cost of advanced hardware and software, modem, computers and cost of
maintenance of all computers.

2. Security Concerns: One of the biggest disadvantages of doing e-banking is the question
of security. People worry that their bank accounts can be hacked and accessed without
their knowledge or that the funds they transfer may not reach the intended recipients.

3. Training and Maintenance: E-banking requires 24 hours supportive environment,

support of qualified staff. Bank has to spend a lot on training to its employees. Shortage of
trained and qualified staff is a major obstacle in e-banking activities.

4. Transaction problems: Face to face meeting is better in handling complex transactions

and problems. Banks may call for meetings and seek expert advice to solve issues.

5. Lack of personal contact between customer and banker: Customary banking allows
creation of a personal touch between a bank and its clients. A personal touch with a bank
manager can enable the manager to change terms in our account since he/she has some
discretion in case of any personal circumstantial change. It can include reversal of an
undeserved service charge.
What is microfinance?
The term "microfinance" describes the range of financial products (such as
microloans, micro savings and micro-insurance products) that microfinance institutions
(MFIs) offer to their clients. Microfinance began in the 1970s when social
entrepreneurs began lending money on a large scale to the working poor.

• Microfinance is a banking service provided to unemployed or low-income

individuals or groups who otherwise would have no other access to financial
services.
• Microfinance allows people to take on reasonable small business loans safely, and
in a manner that is consistent with ethical lending practices.

Microfinance generally refers to the provision of basic financial services such as loans,
saving accounts and insurances for low-income but economical active people. In most
instances the term microfinance refers to the provision of small loans (=micro credits) for
micro-entrepreneurs.
 Mobile Banking
Mobile banking is a service provided by a bank or other financial institution that allows its
customers to conduct financial transactions remotely using a mobile device such as
a smartphone or tablet. Unlike the related internet banking it uses software, usually called
an app, provided by the financial institution for the purpose. Mobile banking is usually
available on a 24-hour basis. Some financial institutions have restrictions on which
accounts may be accessed through mobile banking, as well as a limit on the amount that
can be transacted. Mobile banking is dependent on the availability of an internet or data
connection to the mobile device.

Mobile banking is the process of carrying out financial transactions using your cell phone
device. You essentially use a mobile banking app to access and manage your funds. Most
banks in the country offer dedicated apps that are available on both Google Play Store and
Apple App Store to help you with your banking needs.

Services Available via Mobile Banking

Once you have completed your online mobile banking registration, you can enjoy the
following banking services on your phone:

1. Transactions

Availing mobile banking services can help you keep a detailed track of your transaction
requests, amount paid, or funds transferred. Some of the transactional services
available with mobile banking are:
• Make bank to bank transfers
• Make payments to third parties
• Transfer funds to self
• Set periodic payment instructions
• Avail NEFT/IMPS/RTGS/UPI/MMID facilities

2. Account Summary

Post mobile banking login, you can view a detailed account summary in the m-banking
app. These include:
• Checking available account balance
• Viewing transaction history
• Downloading e-statements, e-passbooks
• Viewing loan statements, card statements
 3. Investments

You can use mobile banking for making instant investments such as:
• Opening fixed deposit/recurring deposits
• Investing in mutual funds
• Availing portfolio management services

4. Other Banking Services

You can avail certain other services with online mobile banking account, such as:
• ATM/Branch locators
• Grievance redressal
• Contacting customer care
• Tracking loan/debit/credit card applications
• Cancelling cheques
• Others

How to Register for Mobile Banking

The general steps to register for mobile banking are:

• Step 1: Download the mobile banking app of your banking partner on your mobile.
• Step 2: Activate your mobile banking account, either by registering a separate user ID
and password or using your credit card PIN.
• Step 3: Once activated, log in using your credentials and proceed with mobile banking
activities.
• Step 4: Depending on the bank’s security policies, additional security steps, such
as OTP for verification, etc., might be required to proceed with mobile banking
transactions.

What is 'Payments Banks?

Definition: A payments bank is like any other bank, but operating on a smaller scale
without involving any credit risk. In simple words, it can carry out most banking operations
but can’t advance loans or issue credit cards. It can accept demand deposits (up to Rs 1
lakh), offer remittance services, mobile payments/transfers/purchases and other banking
services like ATM/debit cards, net banking and third party fund transfers.
Payments banks are new model of banks, conceptualised by the Reserve Bank of India (RBI),
which cannot issue credit. These banks can accept a restricted deposit, which is currently
limited to 200,000 per customer and may be increased further. These banks cannot issue loans
and credit cards. Both current account and savings accounts can be operated by such banks.
Payments banks can issue ATM cards or debit cards and provide online or mobile
banking. Bharti Airtel set up India's first payments bank

Features of Payment Banks

• They are differentiated and not universal banks.

• These operate on a smaller scale.
• It needs to have a minimum paid-up capital of Rs. 100,00,00,000.
• Minimum initial contribution of the promoter to the Payment Bank to the paid-
up equity capital shall at least be 40% for the first five years from the
commencement of its business.

Activities That Can Be Performed By Payment Banks

• Payment banks can take deposits up to Rs. 2,00,000. It can accept demand deposits
in the form of savings and current accounts.
• The money received as deposits can be invested in secure government securities
only in the form of Statutory Liquidity Ratio (SLR). This must amount to 75% of the
demand deposit balance. The remaining 25% is to be placed as time deposits with
other scheduled commercial banks.
• Payments banks will be permitted to make personal payments and
receive cross border remittances on the current accounts.
• It can issue debit cards.

Advantages of Having Payment Banks

• Expansion of rural banking and financial inclusion.

• Expansion of the formal financial system.
• Effective alternative to commercial banks.
• Efficiently deals with low value, high volume transactions.
• Access to diversified services.

Challenges Faced

• Lack of awareness among the masses to access these services.

• Lack of incentives for the agents to involve themselves in these activities.
• Lack of infrastructure and access to operational resources.
• Technological hurdles.

CAMEL Rating:-
The CAMEL Rating System is an international rating system that bank regulators use in
evaluating the overall financial performance of banks and financial institutions. The CAMEL
rating system is a tool which is internationally recognized, regulators and examiners in the
financial sector use the rating system for risk measurements. CAMEL stands for: C: Capital
A: Assets M: Management E: Profits L: Liquidity. The CAMEL rating system is adopted in the
United States, financial institutions are evaluated based on the five parameters listed above
in addition to the Sensitivity of these financial institutions.

There are five basic parameters for analysis when using the CAMEL rating system, they are:
Capital, Assets, Management, Profits, and Liquidity. From these parameters, there are 21
indices identifies by CAMEL, each of the indices is assigned a rate of 1-5 depending on their
performance. The CAMEL rating system embodies a lot of factors including interviews
conducted with top personnel of commercial entities and financial institutions. Each of the
parameters is outlined and explained below;

Capital Adequacy or Sustainability

This parameter seeks to analyze how solvent a financial institution or commercial entity is.
Solvency of financial institutions refers to their ability to pay their debts or possession of
assets that can aid in debt offset. The sustainability of capital helps to evaluate how well an
institution can manage or sustain its capital after incurring many losses or debts. There are
three major indexes that this parameter uses, they are;

• Capital leverage which reflects the relationship between the assets of a

(microfinance institution) MFI, its equity and risks.
• The response of the institution to the need to increase its equity.
• The ability of the MFI to sustain its capital especially when confronted by liabilities,
debts or losses. This index also measures the ability of the institution to absorb
likely losses.

Asset Quality

Another parameter that the CAMEL rating system analyses is the quality if asset that a
company owns. This analysis has three components namely;

• Portfolio Quality- This assesses whether the portfolio of a company is at risk or not.
Using the CAMEL rating criteria, the portfolio quality assessment considers the
sanctions and cancellations policy of the company on loans beyond 30 days.
• Classification System - This examines the classification of portfolio, the makeup of
portfolio amortization tables, and what policies are put in place by the company
towards portfolio classification and portfolio risk management.
• Fixed Assets - This component of evaluating asset quality measures how the
infrastructure of the company suffice for the needs of the company, its staff and
clients.
Management / General Administration

The CAMEL rating system uses five indexes when evaluating how general administration
contribute to the performance of a firm, they are;

• Administration - this examines the functions of the board of directors, how well they
are able to make decisions pertaining to the growth of the company, their technical
skills and management skills.
• Human Resources - This index checks whether the HR department hires competent
personnel, train existing employees and provide all round support for maximum
performance of employees.
• Processes, Controls and Auditing - This index checks the effectiveness of the key
processes, controls and audit that the company adopts.
• Technology System - This evaluates the computer technology system of the
company and how well it functions.
• Strategic Planning and Budgeting- This is the fifth index and it examines the
processes adopted by the company for budgeting and strategic planning. This index
checks whether the plans are appropriate and suitable for the needs of the company.

Earnings

In evaluating the earnings of a company and how it contributes to its performance, three
quantitative indices are applicable, these are;

• Adjusted Return on Equity (ROE)- this evaluates how the company realizes profits
through operational processes, thereby increasing its net value.
• Adjusted Return on Assets (ROA) - this index checks how adequately the assets of
the company generates profits.
• Interest Rate Policy -This examines the interest rates that the company has adopted
and how well these policies favor the company in profit generation.

Another important thing that is considered is operational efficiency which entails the
efficiency of the institution in attaining progress and realizing a favorable cost structure.

Liquidity Management

This parameter deals with how efficiently an institution increases its assets and minimizing
sourcing for funds through external means. There are five indexes that the CAMEL rating
system uses in measuring liquidity management, they are;

• Structure of liabilities- this index considers the liabilities of the institution, payment
conditions, interest rates among others. Also, the types of credit available to the
institution and various credit guarantees are examined.
• Banks capitalization - this addresses the availability of finance to meet the demand
for credit in the institution.
• The capacity of the institution in terms of cash flow statement, this is the cash
projection index.
• Productivity of Other Current Assets - this entails the analysis of both short and
long-term assets that produce value for the institution.