TARGET IBPS PO PRELIMS 2019 – Banking Awareness Day 1

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IBPS PO Prelims Exam 2019 is near and as promised , we are here with the Day 1 Questions for the IBPS PO Prelims Exam 2019 – Study Planner.

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Aspirants who are following this fresh can check the Detailed Study Planner for the IBPS PO Prelims Exam 2019 from the link that is mentioned below.

TARGET IBPS PO Prelims 2019 – Study Planner

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IBPS PO Prelims 2019 – Study Planner Day-1 – Banking Awareness

• Section : Banking Awareness
• Topic : Bank, Role of Banks in India, History of Banking in India, Quick Review of History of Banking in India, Nationalization of Banks, NARASIMHAM COMMITTEE ON BANKING SECTOR REFORMS, Salient Features/Recommendation of Narasimham Committee-I (1991) Report, Salient Features/Recommendation of Narasimham Committee-II (1998) Report
• Time: 45 Minutes

BANK

A Bank is a financial institution which attracts deposits from the public and lends the money to the needy persons at various interest rates. Lending activities can be performed either directly or indirectly through capital markets. Under Banking Regulation Act 1949, controls Banking Activities in India.

As per the Banking Regulation Act, Section 5(c) provides that ‘a banking company is a company which transacts the business of banking in India.’

Further, Section 5(b) of the BR Act defines banking business as, ‘accepting, for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, and order or otherwise.’

Role of Banks in India

• Banks help in developing other financial intermediaries and markets as per the need of the country.
• It helps the corporate sector to meet its money needs because of less developed equity and bond markets.
• Banks help mobilize the savings of large number of savers, which look for assured income and liquidity and safety of funds.
• It also provides financial stability in the economy.

HISTORY OF BANKING IN INDIA

First bank in India was the Bank of Hindustan, which was established in 1770 and liquidated in 1829–32; and later the General Bank of India, established in 1786 but failed in 1791.

The largest bank, and the oldest still in existence, is the State Bank of India (SBI). It originated and started working as the Bank of Calcutta in mid-June 1806. In 1809, it was renamed as the Bank of Bengal.

This was one of the three banks founded by a presidency government, the other two were the Bank of Bombay in 1840 and the Bank of Madras in 1843. The three banks were merged in 1921 to form the Imperial Bank of India, which upon India’s independence, became the State Bank of India in 1955. For many years the presidency banks had acted as quasi-central banks, as did their successors, until the Reserve Bank of India was established in 1935, under the Reserve Bank of India Act, 1934.

In 1960, the State Banks of India was given control of eight state-associated banks under the State Bank of India (Subsidiary Banks) Act, 1959. These are now called its associate banks. SBI acquired the control of seven banks in 1960. They were the seven regional banks of former Indian princely states. They were renamed, prefixing them with ‘State Bank of’. These seven banks were State Bank of Bikaner and Jaipur (SBBJ), State Bank of Hyderabad (SBH), State Bank of Indore (SBN), State Bank of Mysore (SBM), State Bank of Patiala (SBP), State Bank of Saurashtra (SBS) and State Bank of Travancore (SBT). All these banks were given the same logo as the parent bank, SBI.

On 15 February 2017, the Union Cabinet approved the merger of five associate banks with SBI. The State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala and State Bank of Travancore, and Bharatiya Mahila Bank were merged with State Bank of India with effect from 1 April 2017.

In 1969 the Indian government nationalised 14 major private banks, one of the big banks was Bank of India. In 1980, six more private banks were nationalised. These nationalised banks are the majority of lenders in the Indian economy. They dominate the banking sector because of their large size and widespread networks.

The Indian banking sector is broadly classified into scheduled and non-scheduled banks. The scheduled banks are those included under the 2nd Schedule of the Reserve Bank of India Act, 1934.

The scheduled banks are further classified into: Nationalised banks; State Bank of India and its associates; Regional Rural Banks (RRBs); Foreign banks; and other Indian private sector banks. The term commercial banks refer to both scheduled and non-scheduled commercial banks regulated under the Banking Regulation Act, 1949.

Quick Review of History of Banking in India:

• First bank established in India: Bank of Hindustan in 1770.
• Second Bank: General Bank of India, 1786
• The Imperial Bank of India (IBI) was the oldest and the largest commercial bank of the Indian subcontinent. It was created in Jan 1921 by amalgamation of three presidency banks, those are, Bank of Bengal, Bank of Bombay, Bank of Madras.
• After nationalization in 1955, the Imperial Bank of India was named as State Bank of India (SBI).
• The oldest Joint Stock Bank of India – Allahabad Bank
• The bank founded by Freedom Fighter Dr.Bhogaraju Pattabhi Sitaramayya – Andhra Bank

• The bank which was inaugurated by Mahatma Gandhi in 1919 – Union Bank of India

• The largest Bank among nationalised banks – Punjab National Bank
• Central Bank of India was the first public bank to introduce credit card.
• Central Bank of India is the first commercial bank which was managed by Indians.
• ICICI Bank was the first bank to provide Mobile ATM
• State Bank of India has the maximum number of overseas branches with a total of 52 branches (from January 31, 2018).
• India’s first “Talking” Automated Teller Machine (ATM) launched by Union Bank of India (UBI) for visually impaired, was launched in Ahmedabad (Gujarat).
• The National Payments Corporation of India (NPCI) launches India’s first rural bank ATM card with a regional rural bank in Varanasi.
• First Indian bank got ISO 9002 Certificate: Canara Bank
• First Indian Bank started solely with Indian capital investment is PNB (Punjab National Bank). Founder of Punjab National Bank is Lala Lajpat Rai.
• Reserve Bank of India (RBI) was instituted in 1935.
• First Governor of RBI: Mrs. Osborne Smith
• First Indian Governor of RBI: Mr. C. D. Deshmukh
• First Bank to introduce Savings Account in India: Presidency Bank in 1833
• First Bank to introduce Cheque System in India: Bengal Bank in 1833
• First Bank to introduce Internet Banking: ICICI Bank
• First Bank to introduce Mutual Fund: State Bank of India
• Largest Commercial Bank in India: State Bank of India
• First Bank to introduce Credit Card in India: Central Bank of India
• Credit cards are known as Plastic Money
• Open market operations are carried out by RBI
• India’s First Financial Archive has been set up at – Kolkata
• CRR, SLR, Repo Rate, Reverse Repo Rate are decided by RBI
• Savings banks interest rates, fixed deposit interest rates, Loan Rates etc are decided by Individual Banks.
• The bank which has launched Mobile Bank Accounts in association with Vodafone’s m-paisa- HDFC Bank
• Largest Public-Sector Bank in India – SBI
• Largest Private Sector Bank in India – ICICI
• Largest Foreign Bank in India – Standard Chartered Bank
• Frist Indian Bank to open branch outside India (London in 1946) – Bank of India
• First RRB named Prathama Grameen Bank was started by Syndicate Bank.
• First Bank to introduce ATM in India: HSBC in 1987, Mumbai
• Capital Market Regulator is SEBI.

NATIONALIZATION OF BANKS

To make banking system align itself to the needs of economy and policies of the Government, on July 19, 1969 fourteen (14) of the major private sector banks were nationalized as a part of social control over banks. This was an important milestone in the history of Indian banking. This was followed by the nationalization of another six private banks in 1980.

The 14 banks were nationalized under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970. Criterion for selection of these banks was that those which had deposit of Rupees 50 crores and above as on the date of Ordinance issued on 19th July, 1969. These banks were:

1. Allahabad Bank

2. Bank of Baroda

3. Bank of India

4. Central Bank of India

5. Dena bank

6. Canara Bank

7. Indian Overseas Bank

8. Bank of Maharashtra

9. Punjab National Bank

10. United Bank of India

11. Union Bank of India

12. Syndicate Bank

13. Indian Bank

14. United Commercial Bank

This process was followed again in 1980 when another lot of six banks were nationalized under Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980. Banks nationalized in second stage were:

1. Punjab & Sind Bank

2. Oriental Bank of Commerce

3. New bank of India (now merged with Punjab National Bank)

4. Vijay Bank

5. Andhra Bank

6. Corporation Bank

With the nationalization of these banks, the major segment of the banking sector came under the control of the Government. The nationalization of banks imparted major impetus to branch expansion in un-banked, rural and semi-urban areas, which in turn resulted in huge deposit mobilization, thereby giving boost to the overall savings rate of the economy. It also resulted in scaling up of lending to agriculture and its allied sectors.

In 1975 five Regional Rural banks were established on 02.10.1975 through an Ordinance. The ordinance was replaced by Regional Rural Banks Act, 1976, with the main objective to extend banking facilities to the un-banked rural areas along with commercial banks and cooperative banks.

To create a strong and competitive banking system, a number of reform measures were initiated in 1991. One important feature of the reforms of the 1990s was the permission to open new private sector banks. Following this decision, new banks such as ICICI Bank, HDFC Bank, IDBI Bank, Development Credit Bank (DCB), Kotak Mahindra Bank, IndusInd Bank, Yes Bank and UTI Bank (now Axis bank) were set up. From 1991 onwards till today, banking industry has seen the reforms in terms of their management and business policies.

COMMONLY RAISED QUESTIONS ABOUT THE NATIONALIZATION

1) Is SBI a nationalized bank?

People often get confused about whether SBI is a nationalized bank or not.

Here the Detail Solution:

SBI is not a nationalized bank. It is a Public Sector Bank. Actually, SBI draws power from State Bank of India Act, 1955. Nationalized banks are the banks which were nationalized in two phases – in 1969 and 1980. These banks were established under Banking Companies (Acquisition and Transfer of Undertakings) Acts, 1970 and 1980. So, these banks are governed by their respective statutes. In 1969, 14 Commercial banks were nationalized and in 1980, 6 more banks were nationalized. But, later in 1993, PNB and New India bank got merged taking the figure of nationalized banks to 19.

2)      Why SBI was not nationalized during the waves of Nationalization of Banks in 1969 and 1980?

SBI was already under State control in 1969/1980, vide SBI Act, 1955. So, there was no need of Nationalization of State Bank of India. Banks which were nationalized in 1969/1980 were either owned by private business groups or individual investors.

3)      Why Nationalization of Banks was done by the Government?

• To raise public confidence in banking system
• Provide banking facility in rural and sub-urban areas
• Expansion of banking facilities in a uniform manner
• Sought to end the monopoly control of big industrialists upon the banking system
• Aimed at giving more credit to priority sectors
• To reduce regional economic inequalities
• To ensure enough development funds for the planned growth of the country

NARASIMHAM COMMITTEE ON BANKING SECTOR REFORMS

From the 1991 India economic crisis to its status of third largest economy in the world by 2011, India has grown significantly in terms of economic development. So has its banking sector. During this period, recognising the evolving needs of the sector, the Finance Ministry of Government of India (GOI) set up various committees with the task of analysing India’s banking sector and recommending legislation and regulations to make it more effective, competitive and efficient.

Two such expert Committees were set up under the chairmanship of M. Narasimham. They submitted their recommendations in the 1990s in reports widely known as the Narasimham Committee-I (1991) report and the Narasimham Committee-II (1998) Report. These recommendations not only helped unleash the potential of banking in India, they are also recognised as a factor towards minimising the impact of global financial crisis starting in 2007. Unlike the socialist-democratic era of the 1960s to 1980s, India is no longer insulated from the global economy and yet its banks survived the 2008 financial crisis relatively unscathed, a feat due in part to these Narasimham Committees.

The purpose of the Narasimham-I Committee was to study all aspects relating to the structure, organisation, functions and procedures of the financial systems and to recommend improvements in their efficiency and productivity. The Committee submitted its report to the Finance Minister in November 1991 which was tabled in Parliament on 17 December 1991.

The Narasimham-II Committee was tasked with the progress review of the implementation of the banking reforms since 1992 with the aim of further strengthening the financial institutions of India. It focussed on issues like size of banks and capital adequacy ratio among other things. M. Narasimham, Chairman, submitted the report of the Committee on Banking Sector Reforms (Committee-II) to the Finance Minister Yashwant Sinha in April 1998.

Salient Features/Recommendation of Narasimham Committee-I (1991) Report:

• Reduction in the Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR)
• Redefining the Priority Sector
• Deregulation of Interest Rates

Salient Features/Recommendation of Narasimham Committee-II (1998) Report:

• Autonomy in Banking
• Reform in the role of RBI
• Stronger banking system
• Non-performing assets
• Capital adequacy and tightening of provisioning norms
• Entry of foreign banks

Aspirants who are following this fresh can check the Detailed Study Planner for the IBPS PO Prelims Exam 2019 from the link that is mentioned below. 

TARGET IBPS PO Prelims 2019 – Study Planner