[Music] dear viewers the htis welcomes you to the new series of simplified today's topic of discussion is banking system the dimensions we are going to cover are functions of bank types of banks non-performing assets that is npa and some of the committees associated with reforms in banking system so first of all let's discuss about the functions of bank banks are financial institutions that perform deposit and landing functions and to systemize the monetary condition of the country first is monetary functions repo and reverse separate it is the rate at which the central bank of a country rbi in case of india lends money to commercial banks in the event of any shortfall of funds here the central bank purchases the security reverse repo rate it is the rate at which the rbi borrows money from commercial banks within the country bank rate is the rate charged by the rbi for lending funds to commercial banks marginal standing facility that is msf msf is a window for scheduled banks to borrow overnight from the rbi in an emergency situation when interbank liquidity dries up completely and open market operations these are market operations conducted by rbi by way of sale or purchase of government securities to or from the market with an objective to adjust the rupee liquidity conditions in the market on a durable basis now moving on to some other functions primary functions of the banks include 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 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 that is lending rate and the deposit rate is its profit secondary functions of the bank are issuing letters of credit travelers check etc undertaking safe custody of valuables important documents and securities by providing safe deposit vaults or lockers providing customers with facilities of foreign exchange dealings transferring money from one account to another and from one branch to another branch of the bank through check pay order demand draft and standing guarantee on behalf of its customers for making payment for purchase of goods machinery vehicles etc now let's discuss about types of banks there are various types of banks which operate in our country to meet the financial requirements of different categories of people engaged in agriculture business profession etc on the basis of functions the banking institutions in india may be divided into the following types first is central bank it is entrusted with the functions of guiding and regulating the banking system of a country such a bank does not deal with the general public it acts essentially as the government's banker maintains deposit accounts of all other banks and advances money to other banks when needed the central bank provides guidance to other banks whenever they face any problem it is therefore known as the bankers bank next is commercial banks these are banking institutions that accept deposits and grant short-term loans and advances to their customers commercial banks are of three types first is public sector banks where majority stake is held by the government of india or reserve bank of india that is rbi examples of public sector banks are state bank of india corporation bank bank of badoda and dana bank etc next is private sector's banks majority of 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 limited bank of rajasthan limited development credit bank limited vs bank etc next is foreign banks these banks are registered and have their headquarters in a foreign country but operate their branches in our country examples are hong kong and shanghai banking corporation that is hsbc citibank etc next are development banks business often requires medium and long term capital for purchase of machinery and equipment for using the latest technology and for expansion and modernization such financial assistance is provided by development banks examples are ifci that is industrial finance corporation of india and state financial corporations that is sfcs are examples of development banks in india cooperative banks people who come together to jointly serve their common interests often form a cooperative society under the cooperative societies act when a cooperative society engages itself in banking business it is called a cooperative bank any cooperative bank as a society is to function under the overall supervision of the registrar cooperative societies of the state as regards banking business the society must follow the guidelines set and issued by the reserve bank of india there are three types of cooperative banks operating in our country first is primary credit societies these are formed at the village or town level with the borrower and non-borrower members residing in one locality central cooperative banks these banks operate at the district level having some of the primary credit societies belonging to the same district as their members and state cooperative banks these are the apex or highest level cooperative banks in all the states of the country next are specialized banks there are some banks which cater to the requirements and provide overall support for setting up business in a specific areas of activity they engage themselves in some specific area or activity and thus are called specialized banks exim bank sid b and nabard are examples of such banks exim bank that is export import bank of india exim bank can provide you the required support and assistance the bank grants loans to exporters and importers and also provides information about the international market sid b that is small industries development bank of india the aim and focus of sid b is to promote finance and develop small scale industries it also finances modernization of small scale industrial units use of new technology and market activities nabard that is national bank for agricultural and rural development it is a central or apex institution for financing agricultural and rural sectors nabard can provide credit both short-term and long-term through regional rural banks it provides financial assistance especially to cooperative credit in the field of agriculture small scale industries cottage and village industries handicrafts and allied economic activities in rural areas next are regional rural banks that is rrb these are special types of commercial banks that provide concessional credit to agriculture and the rural sector rrbs were established in 1975 and are registered under a regional rural bank act 1976. rrbs are joint ventures between the central government that is 50 state government 15 percent and a commercial bank that is 35 percent one rrb cannot open its branches in more than three geographically connected districts next are payment banks it is like any other bank but operating on a smaller or restricted scale examples are airtel payments bank india post payments bank etc credit risk is not involved with the payments bank it can carry out most banking operations but cannot advance loans or issue credit cards it can accept demand deposits only that is savings and current accounts not time deposits the payment banks cannot set up subsidiaries to undertake non-banking financial services activities a committee headed by dr nachi keith moore recommended setting up a payments bank to cater to the lower income groups and small businesses next is bad bank a bad bank is an arc or an asset management company that is amc that takes over the bad loans of commercial banks manages them and finally recovers the money over a period of time the bad bank is not involved in lending and taking deposits but helps commercial banks clean up their balance sheets and resolve bad loans and the takeover of bad loans is normally below the book value of the loan and the bad bank tries to recover as much as possible subsequently now we will discuss about non-performing assets that is npa npa is any asset of a bank which is not producing any income in other words a loan or lease that is not meeting its stated principle and interest payments on a bank's balance sheet loans made to customers are listed as assets the biggest risk to a bank is when customers who take out loans stop making their payments causing the value of the loan assets to decline categories are substandard when the npas have aged less than or equal to 12 months doubtful when the npas have aged greater than 12 months loss assets when the bank or its auditors have identified the loss but it has not been written off the higher the amount of npas the weaker will be the bank's revenue stream the simplest approach to cut down npas is to recover the bad loans steps taken to curb and par by the government mission indra dhanush to make the working of public sector banks more transparent and professional in order to curb the menace of npa in future insolvency and bankruptcy code to make it easier for banks to recover the loans from the debtors stringent npa recovery rules the securitization and the reconstruction of financial assets and enforcement of security interest act or sarfasi act of 2002 was amended in 2016. and recapitalization of banks infusing more capital in state-run banks so that they meet the capital adequacy norms the government infuses capital in banks by either buying new shares or by issuing bonds steps by rbi rbi introduced number of measures in last few years which include corporate debt restructuring that is cdr mechanism and setting up a joint lenders forum providing banks to disclose the real picture of bad loans asking them to increase provisioning for stressed assets now lastly let's discuss about some of the committees associated with reforms in banking system first is bhimal jalan for new bank licenses nachiket more comprehensive financial services for small businesses and low income households kv kamath to examine the financial architecture for micro small and medium enterprises guard gill 1969 that is the lead banking system usha thorad financial inclusion financial sector plan for north east region urjit patel to examine the current monetary policy framework nk sync to review the fiscal responsibility and budget management act and shamila gopinath for suggestions on post office small saving schemes so that's all for today stay tuned for the next episode thanks for watching [Music] you