Banking System in India: Structure and Operations – JAIIB Paper 1 Module A

The banking system in India is a well-structured financial network that plays a crucial role in the country’s economic development. Understanding the banking system is essential for JAIIB Paper 1 Module A, as it forms the foundation of Indian financial architecture.

1. Structure of the Banking System in India

The Indian banking system is organized into different categories:

a) Scheduled Commercial Banks:

• Public Sector Banks: Banks where the majority stake is held by the government (e.g., State Bank of India, Punjab National Bank)
• Private Sector Banks: Banks where the majority stake is held by private entities (e.g., HDFC Bank, ICICI Bank, Axis Bank)
• Foreign Banks: Banks incorporated outside India but operating branches in India (e.g., Citibank, HSBC, Standard Chartered)

b) Regional Rural Banks (RRBs): Established to provide credit to rural areas, jointly owned by Central Government, State Government, and Sponsor Banks

c) Cooperative Banks:

• Urban Cooperative Banks (UCBs)
• State Cooperative Banks
• District Central Cooperative Banks
• Primary Agricultural Credit Societies

d) Small Finance Banks and Payment Banks: New categories created to promote financial inclusion

2. Banking Operations and Services

Key banking operations include:

a) Deposit Services:

• Savings Accounts
• Current Accounts
• Fixed Deposits
• Recurring Deposits
• Term Deposits

b) Credit Services:

• Personal Loans
• Home Loans
• Vehicle Loans
• Working Capital Loans
• Term Loans
• Cash Credit and Overdraft Facilities

c) Payment and Settlement Services:

• NEFT (National Electronic Funds Transfer)
• RTGS (Real Time Gross Settlement)
• IMPS (Immediate Payment Service)
• UPI (Unified Payments Interface)

d) Other Services:

• Remittance services
• Locker facilities
• Investment advisory
• Insurance products
• Wealth management

1. Regulatory Framework

The Indian banking system operates under a comprehensive regulatory framework:

a) Reserve Bank of India (RBI): The central bank that regulates and supervises the banking sector

b) Banking Regulation Act, 1949: Governs the functioning of banks in India

c) Reserve Bank of India Act, 1934: Provides the legal framework for RBI’s operations

d) Banking Ombudsman Scheme: Provides redressal mechanism for customer complaints

4. Key Prudential Norms

Banks must maintain:

• Capital Adequacy Ratio (CAR) as per Basel III norms
• Statutory Liquidity Ratio (SLR)
• Cash Reserve Ratio (CRR)
• Priority Sector Lending targets

1. Recent Developments

• Digital banking and fintech integration
• Implementation of Core Banking Solutions (CBS)
• Jan Dhan Yojana for financial inclusion
• Bank consolidation and mergers
• Adoption of new technologies like AI and blockchain

1. Importance for JAIIB Examination

For JAIIB Paper 1 Module A, candidates must understand:

• The organizational structure of different bank categories
• The regulatory framework governing banks
• Various banking services and products
• Prudential norms and compliance requirements
• The role of banks in economic development
• Recent reforms and initiatives in the banking sector

This knowledge is fundamental for banking professionals as it provides the foundation for understanding how the banking system functions and contributes to India’s economic growth. A strong grasp of the banking system structure helps professionals make informed decisions and provide better services to customers.