IMPORTANT COMMERCIAL INSTITUTIONS NEW PRIVATE BANKS:
After the nationalization of major banks in 1969 new banks in the private sector could not be set up in India for more than two decades though there was no legal bar to that effect. The Narasimham Committee on Financial Sector (1991) recommended the establishment of such banks in India. The Reserve Bank of India, therefore, issued guidelines for the setting up of new private sector banks in India in January, 1993. These guidelines aim at ensuring that the new banks are financially viable and technologically up to date from the start. They are expected to start functioning in a professional manner, so as to improve the image of commercial banking system and to win' the confidence of the depositing public.
The new banks are required to be registered as public limited companies under the Companies Act, 1956, with initial paid up capital of Rs. 100 crore. They are to be governed by the provisions of Reserve Bank of India Act and the Banking Regulation Act, 1949 and shall comply with the directions issued by the Reserve Bank of India. Ten new private sector banks have been established mainly by the financial institutions such as UTI, ICICI, IDBI. HDFC. One such bank Times Bank was subsequently merged with another new bank HDFC Bank.
In January, 2001, Reserve Bank of India issued fresh Guidelines in this respect, which raised• the share capital of such banks to Rs 200 crore and permitted the conversion of non-banking financial companies into banks. Details of the Guidelines are given in Ap¬pendix A.
LOCAL AREA BANKS
In 1996, Government decided to allow new local area banks with the j:lvin objectives of (i) providing an institutional mechanism for promoting rural and semi-urban savings and (ii) for providing credit for vi¬able economic activities in the local areas. These banks wil1 be established as public limited companies in the private sector ana win be promoted by individu¬als, companies, trusts and societies. The minimum paid-up capital of such banks would be Rs 5 crore with
promoter's contribution at least Rs 2 crore. They are expected to be set up 'in district towns and the area of their operation would be a maximum of three geo¬graphically contiguous districts, where they can open their branches. A few Local Area Banks have already
been allowed to be set up.
COMMERCIAL BANKS
Among the banking institutions in the organized sector, the commercial banks are the oldest institu¬tions having a wide network of branches, commanding utmost public confidence and having the lion's share in the total banking operations. Initially, they were established as corporate bodies with share-holdings by private individuals, but subsequently there has been a drift towards State ownership and control. Today 27 banks constitute the strong public sector in Indian commercial banking.
Up to late sixties, they were mainly engaged in fnancing organized trade, commerce and industry. but since then. they are actively participating in financ¬ing agriculture, small business and small borrowers
also.
The commercial banks operating in India fall un¬der a number of sub-categories on the basis of own¬ership and control of management.
Foreign commercial banks are the branches in India of the joint stock banks incorporated abroad. These banks. besides financing the foreign trade of the coun¬try, undertake banking business within the country as well.
PUBLIC SECTOR BANKS
Public sector in Indian banking reached its present position in three stages-first, the conversion of the then existing Imperial Bank of India into the State Bank of India in 1955 followed by the establishment of its seven subsidiary banks second, the nationalisation of 14 major commercial banks on July 19, 1969 and last. the nationalisation of 6 more com¬mercial banks on April 15, 1980. One of them - New Bank of India was later on merged with Punjab Na¬tional Bank. Thus 27 banks constitute Public Sector in Indian Commercial Banking.
