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1. INTRODUCTION
1.1 Introduction of Banking system in INDIA
Banking in India is as old as the hills. It flourished even in ancient Vedic times. Money was
accepted on deposit and given in the firm of advances. Banking system of a nation is the shadow
of nation’s economy. A healthy and profitable banking system is just like the backbone of
nation’s economy. It is necessary for a nation to achieve growth and remain stable in this global
world and global economy. The Indian banking system, with one of the largest banking networks
in the world, has witnessed a series of reforms over the past few years like use of E-Banking and
the increased participation of private sector banks.
Indian Banking is the lifeline of nation and its people. Banking has developed vital sectors of the
economy and usher in a new dawn of progress on the Indian horizon. The sector has translated
the hopes and aspirations of millions of people into reality.
About 92 per cent of the country’s banking segment is under State control while the balance
comprises private sector and foreign banks. The public sector commercial banks are divided into
three categories.
• State bank group
This group consists of 8 banks comprising of the State Bank of India (SBI) and Associate Banks
of SBI. The Reserve Bank of India (RBI) owns the majority share of SBI and some Associate
Banks of SBI. The boards of directors and their committees hold monthly meetings while the
executive committee of each central board meets every week.
• Nationalized banks
In 1969, the Government arranged the nationalization of 14 scheduled commercial banks in order
to expand the branch network, followed by six more in 1980. A merger reduced the number from
20 to 19. Nationalized banks are wholly owned by the Government, although few of them have
made public issues. In contrast to the state bank group, nationalized banks are centrally
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governed, i.e., by their respective head offices. Thus, there is only one board for each
nationalized bank and meetings are less frequent (generally, once a month). The state bank group
and nationalized banks are together referred to as the public sector banks (PSBs).
• Regional Rural Banks (RRBs)
In 1975, the state bank group and nationalized banks were required to sponsor and set up RRBs
in partnership with individual states to provide low-cost financing and credit facilities to the rural
masses.
1.1.1 Definition of bank
On account of the multifarious activities of a modern bank, it becomes very difficult to give a
precise definition of the word “Bank”.
Following are the various different definitions of Bank:
According to Indian Banking Regulation Act, 1949:
“Banking Company (or a bank) is defined as “any company which transacts the business of
banking in India.” [Section 5(1)]
“Banking” is defined as accepting, for the purpose of lending or investment, deposits of money
from the public, repayable on demand or otherwise and withdraw able by Cheque ,draft, order or
otherwise. [Section 5(2)]
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1.1.2 History of Indian Banking System
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 the Bank of Hindustan, both of which are now
defunct The oldest bank in existence in India is the State Bank of India, a government-owned
bank that traces its origins back to June 1806 and that is the largest commercial bank in the
country. Allahabad Bank, established in 1865 and still functioning today, is the oldest Joint
Stock bank in India.
Central banking is the responsibility of the Reserve Bank of India, which in 1935 formally took
over these responsibilities from the then Imperial Bank of India, relegating it to commercial
banking functions. After India’s independence in 1947, the Reserve Bank was nationalized and
given broader powers.
❖ In 1948, the Reserve Bank of India, India’s central banking authority, was nationalized, and
it became an institution owned by the Government of India.
❖ In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of
India (RBI) “to regulate, control, and inspect the banks in India.”
❖ The Banking Regulation Act also provided that no new bank or branch of an existing bank
could be opened without a license from the RBI, and no two banks could have common
directors.
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1.2 CONSTITUENTS OF BANKING SYSTEM
The Banking System in India consists of:
1. Reserve Bank 2. Development Banks 3. Public Sector Bank. 4. Foreign Banks 5. Private
Sector Banks 6. Cooperative Banks 7. Regional Rural Banks
1. The Reserve Bank of India:-
The Reserve Bank of India is the Central Bank of the Country and came into being by the
Reserve Bank of India Act 1934. It was nationalized in 1948.
Reserve Bank of India is the bank that issues and regulates the issue of currency in India
.The banker to the Government of India and the State governments. It manages the public
debt. It has the obligation to transact the banking business of the Central GovernmentThe
bank that manages the volume of credit created by the commercial banks to ensure price
stability.The bank that manages the external value of the currency (Indian rupee).
2. Development Banks:-
These were set up to give long term finance for the development of the country. These
are the Industrial Finance Corporation of India and the Industrial Development Bank of
India, The Industrial Reconstruction Bank of India and the National Bank for Agriculture
and Rural Development. A former development bank, the Industrial Credit and
Investment Corporation of India Ltd. by a reverse merger in 2002, became a normal
commercial bank. It is expected that the other development banks, having outlived their
utility would also be either converted to commercial banks or merged with commercial
banks.
3. Public Sector Banks:-
These are banks which the Government either owns or has a majority stake in it. The
largest is the State Bank of India which was formed by the merger of the Presidency
Banks – the Bank of Bengal, the Bank of Bombay and the Bank of Madras in 1921. It
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was then known as the Imperial Bank. It was nationalized in 1955 by the passing of the
State Bank of India Act, 1955. It has seven subsidiaries or associates.
4. Foreign Banks:-
These are branches of banks incorporated outside India. In 1995/ 96 many other foreign
banks (optimistic in view of India‘s liberalization) opened branches in India. However,
after banking began to become increasingly competitive and margins began to be
squeezed coupled with large non- performing assets, many banks closed their branches
5. Private Sector Banks:-
These are banks which are not government owned or controlled. Their shares are freely
traded in the Stock Markets.
6. Cooperative Banks:-
Cooperative Banks are those that are created by a group of individual to support either a
community or a religious group. They operate in metropolitan, urban and semi urban
centres to cater to the needs of small borrowers.
7. Regional Rural Banks:-
These came into being on October 2, 1975 when 5 regional rural banks were established
under what became the Regional Rural Banks Act 1975. These were to bridge the gap in
rural credit granting loans and advances to small and marginal farmers, artisans, small
entrepreneur and persons of small means engaged in trade, commerce, industry or other
productive ,activities within their area of operation.
8. Local Area Banks:-
Local Area Banks came into existence in 1999 and licenses were given for these banks as
it was felt that regular commercial banks were not financial the rural/ agricultural sector
adequately. Branches in urban/ semi urban areas were granted only after ten branches
were established in rural areas/ villages.
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1.3 E-Banking
Internet banking (or E-banking) means any user with a personal computer and a browser
can get connected to his bank’s website to perform any of the virtual banking functions. In
internet banking system the bank has a centralized database that is web-enabled. All the services
that the bank has permitted on the internet are displayed in menu. Any service can be selected
and further interaction is dictated by the nature of service. Once the branch offices of bank are
interconnected through terrestrial or satellite links, there would be no physical identity for any
branch.
The delivery channels include direct dialup connections, private networks, public
networks, etc. with the popularity of computers, easy access to Internet and World Wide Web
(WWW), Internet is increasingly used by banks as a channel for receiving instructions and
delivering their products and services to their customers.
Electronic banking, also known as electronic funds transfer (EFT), is simply the use of
electronic means to transfer funds directly from one account to another, rather than by cheque or
cash. You can use electronic funds transfer to:
•Withdraw money from your checking account from an ATM machine with a personal
identification number (PIN), at your convenience, day or night.
•Instruct your bank or credit union to automatically pay certain monthly bills from your account,
such as your auto loan or your mortgage payment.
•Have the bank or credit union transfer funds each month from your checking account to your
mutual fund account.
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3. COMPANY PROFILE
3.1 INTRODUCTION OF HDFC BANK
The Housing Development Finance Corporation Limited (HDFC) was amongst the first to
receive an ‘in principle’ approval from the Reserve Bank of India (RBI) to set up a bank in the
private sector, as part of the RBI’s liberalization of the Indian Banking Industry in 1994. The
bank was incorporated in August 1994 in the name of ‘HDFC Bank Limited’, with its registered
office in Mumbai, India. HDFC Bank commenced operations as a Scheduled Commercial Bank
in January 1995.
HDFC is India’s premier housing finance company and enjoys an impeccable track record in
India as well as in international markets. Since its inception in 1977, the Corporation has
maintained a consistent and healthy growth in its operations to remain the market leader in
