A Note on Banking and its Features

Banking is intricately tied to a country’s trade and daily life, either directly or indirectly. The financial services business manages credit, currencies, and other financial activities. Commercial banks are the most dominant entity in the financial industry, whether they are in charge of a country’s economy or credit provision to its consumers. A banking firm is responsible for completing all commercial transactions in India, including check writing, payment processing, and investing. In other words, the bank is involved in money deposit and withdrawal, savings accumulation and the development of a reasonable return from money lending. Additionally, banks support customers in mobilising their savings, facilitating the flow of capital to enterprises, and assisting them in beginning new business ventures.

Banking Takes Many Forms

Additionally, banks are categorised into four main categories.

The Banking Regulation Act of 1949 regulates commercial banks. They receive deposits from the public intending to lend or invest.

Agricultural cooperative banks: Agricultural cooperative banks are established under the State Cooperative Societies Act and provide members with low-interest loans. A substantial portion of the rural population relies on cooperative banks for financial support.

Specialised banks: These financial organisations provide financial support to specific sectors, international commerce, and other pertinent activities. Foreign currency banks, export and import banks, development banks, and other types of specialised banking are only a few examples.

Commercial banks: These lend and accept money from the common masses. 

Central banks: Central banks are generally responsible for overseeing, regulating, and monitoring all commercial banking operations in a country.

(1) Banks of the public sector

• Public sector banking is owned by the government in the majority and governed by the government.
• Examples are SBI, PNB, and OBC.

(2) Banks in the private sector

• Private sector banks are not government-owned, controlled or managed.
• They operate following market forces.
• HDFC, ICICI, and Kotak Mahindra are a few examples.

The Railway Recruitment Board Act 2014 was amended in 2014.

• Finance Minister Arun Jaitley tabled the Regional Rural Banks (Amendment) Bill, 2014, in the Lok Sabha of the Indian Parliament on December 18, 2014. The 1976 Regional Rural Banks Act is being updated due to this statute. It was authorised by Parliament in April of this year.
• The 1976 Regional Rural Banks Act established, regulated, and dissolved Regional Rural Banks (RRBs).

Banks that sponsor RRBs 

Under the Act, banks are required to support RRBs. During the first five years of operation, RRBs are obliged to provide capital to sponsor banks, educate their people, and give administrative and financial assistance to sponsor banks. The Bill repeals the five-year limit on such support, enabling it to continue indefinitely.

An RRB is permitted to have a capital of five crore rupees under the Act. It bans a capital decrease to less than Rs 25 lakh. The Bill proposes to increase the authorised capital to Rs 2,000 crore and to prevent it from ever being decreased to less than one crore rupees. We hope this information will help you crack all the banking exams and ace them.

Issued capital 

The Act authorises the federal government to set the minimum amount of capital that an RRB must issue, ranging between Rs 25 lakh and Rs one crore. • Issued capital: The Bill stipulates a minimum issued capital of Rs one crore.

Shareholding

The Act requires the federal government to retain 50% of the capital issued by an RRB, the relevant state government to retain 15%, and the sponsoring banking to retain 35%. According to the Bill, regional development banks (RRBs) may raise capital from sources other than the federal and state governments and sponsor banks. Under this model, the central government and sponsor bank cannot own less than 51% of the firm. Additionally, if a state government’s stake in the RRB is decreased to less than 15%, the federal government must communicate with the affected state government.

As stated in the Bill, the federal government may increase or decrease the limit on the central government’s, state governments’, or sponsor bank’s shares in the Reserve Bank of India by notice. The federal government may confer with state governments and the sponsor bank in making this determination. When a state government’s interest in the RRB is reduced, the federal government must confer with the affected state government.

Board of directors

The Act established the Board of Directors of the RRB, which comprises a chairman and directors selected by the federal government, NABARD, the sponsor bank, the Reserve Bank of India, and other organisations. According to the Bill, individuals who serve on the board of directors of a regional railway corporation are ineligible to serve on the board of directors of another regional railway corporation.

Additionally, this Bill has a provision that allows shareholders to elect directors based on the entire amount of equity share capital allocated to them. If shareholders own less than 10% of the total equity share capital, they will pick one director from inside. Two directors shall be chosen by shareholders holding between 10% and 25% of the company’s total equity share capital. If the issued equity share capital exceeds 25%, three directors must be chosen. Additionally, the federal government may appoint a representative to the board of directors of the RRB to oversee its effectiveness. 

Conclusion

Banking is a financial entity that specialises in deposit-taking and lending. A bank enables an individual with surplus funds (a Saver) to deposit his funds with the bank and earn interest on them. Similarly, a bank loans money to an individual in need of funds (investor/borrower) at a specific interest rate. Thus, banks operate as a middleman between savers and borrowers. Banks frequently accept deposits from the general public at a much lower interest rate, referred to as the deposit rate, and finance loans by lending the money to the borrower at a higher interest rate, referred to as the lending rate. We hope the article has helped you and you will be able to crack different banking exams with this information.