Category : Banking
New Banking System
Over the years, banks in India have taken a new turn to avail their services to its customers in more easy and friendly manner. RBI is the sole organisation for providing a platform to fulfill the services offered by various bank. The Government's objective of achieving 100% financial inclusion in India got a shot in the arm with the new banking system.
Indradhanush Scheme for Public Sector Banks
Union Government has launched a seven pronged plan called Indradhanush Mission to revamp functioning of Public Sector Banks (PSBs).
Mission Indradhanush is aimed to revamp the functioning of public sector banks so that PSBs can compete with the Private Sector Banks. The mission is a brainchild of PJ Nayak committee.
The mission includes the seven key reforms of appointments, board of bureau, capitalisation, de-stressing, empowerment, framework of accountability and governance reforms.
Banks Board Bureau
Banks Board Bureau (BBB) is an autonomous body of Union Government of India, with a view to improve Governance of Public Sector Banks (PSBs). The BBB started the function from 1st April, 2016.
The Bureau will recommend for selection of heads-Public Sector Banks and Financial Institutions and help Banks in developing strategies and capital raising plans. Former Comptroller and Auditor General (CAG) Vinod Rai has been appointed as the first Chairman of Banks Board Bureau (BBB). It is a part of a seven-pronged revamp plan for PSBs dubbed as Indradhanush (rainbow) plan.
Composition of BBB
BBB comprises of a Chairman and six more members with at least 3 former bankers, 2 professionals and secretary, department of financial services representing government.
Major Functions of BBB
New Banks Format Payments Bank
Reserve Bank of India (RBI) released guidelines for Licensing of Payments Banks on 27th Nov, 2014. These guidelines will allow mobile firms and supermarket chains, among others, to enter the banking arena to cater to individuals and small businesses. The objectives of payments banks is to push financial inclusion by providing small savings accounts and payments or remittance services to migrant labour workforce, low income households, small businesses, other unorganised sector entities and other users.
Guidelines of RBI for Payments bank
According to guidelines
Licence Holding Companies
India’s First Payment’s Bank
Airtel Payments Bank Limited launched India’s first live payments. Bank in Rajasthan on 23rd November, 2016. Customers in towns and villages across Rajasthan will be able to open bank accounts saving. Airtel retail outlets. The customers will also be able to avail extra benefits. Like money transfer to any bank account in India and personal accidental insurance of Rs. 1 Lakh with every saving account.
Small Finance Banks
RBI had released the guidelines on Small Finance Banks along with the Payment Banks on 27th Nov, 2014. The objective of small finance banks is to further financial inclusion by providing
Conditions for Setting up Small Bank
Important Features of Small Banks
Difference between Payment Banks and Small Finance Banks
Professionals with 10 yr in financial services or promoter group with 5 yr track record
Card Issuers, Finance Companies, Business, Correspondents, Telecom Companies, Retailers, etc.
Rs. 100 crore Equity Capital
Rs. 100 crore Equity Capital
Providing basic banking facilities to poor and small businessmen
Accept Deposits, Issue Debit Cards, Remittance services. Cannot issue credit cards.
Scope of Activity
Providing basic banking facilities to poor and small businessman
Accept Deposits, Issues Debit Cards, Remittance services cannot issue credit cards.
Promoter's initial contribution should be 40% lowered to 26% in 12 yr.
Promoters should retain a 40% stake for first. 5 yr.
Jalandhar (punjab)-headquartered 'Capital Local Area Bank' lanched the India's first small finance bank. The small bank launched operations under a new name- Capital Small Finace Bank Limited on April 13, 2016.
India Post Payments Bank
The Union Cabinet has given its approval for setting up of the India Post Payments Bank (IPPB) as a Public Limited Company under the Department of Posts. It will have 100% Government of India (Gol) equity and shall be established with total expenditure of Rs. 800 crore. Now, the IPPB has to obtain banking licence from RBI by September, 2017.
The India Post Payments Bank Limited (IPPBL) has received the Certificate of Incorporation from the Registrar of Companies, Ministry of Corporate Affairs under the Companies Act, 2013. It will generate employment opportunities for about 3500 skilled banking professionals, will setup 650 branches and 5000 ATM across the country.
Important facts related to IPPB
It is a highly secure and convenient system for online, real-time inter branch transactions across the bank. Anywhere banking (AWB) offers you greater flexibility, transaction power, convenience and ease in banking. It is considered as 24 x 7 services.
Features of Anywhere Banking
National Payments Corporation of India (NPCI)
NPCI is the umbrella organisation for all retail payments system in India. It is being promoted by the Reserve Bank of India. It was founded in 2008 as a not for profit organisation registered under section 25 of the Companies Act, 2013. It has successfully played pioneering role in the development of a domestic card payment network called RuPay, reducing the dependency on international card schemes.
Services included in NPCI are
MUDRA Bank (SIDBI) Ltd.
Micro Units Development and Refinance Agency Bank (MUDRA Bank), is a new institution setup by the Government of India for development of micro units and refinance of MFIs to encourage entrepreneurship in India and provide the funding to the non-corporate small business sector. It was launched by Prime Minister Narendra Modi on 8th April, 2015. Mudra Bank has been setup with only one goal in mind – to fulfill all the Funding needs of Non-Corporate Small Business. Mudra Ltd. was setup as a corporate subsidiary of Small Industries Development Bank of India (SIDBI) in March, 2015 prior to the launch of the Pradhan Mantri Mudra Yojana (PMMY) in April, 2015. The Union Cabinet has approved the conversion of Mudra Ltd. into Mudra (SIDBI) Bank as, a wholly owned subsidiary of SIDBI. Mudra Ltd. has been functional since 8th April, 2015.
Under the guideline of Pradhan Mantri Mudra Scheme, MUDRA Bank has launched its three initiative product and its name is Shishu, Kishor and Tarun to signify the stage of growth and funding needs of the micro units or entrepreneur. Mudra Bank is refinancing through State level institutions. Mudra will deliver the loan through NBFC.s, MFIs, Rural Banks, District Banks. Nationalise Banks, Private Banks, Primary Lending Institutions and other intermediaries.
Categories are given below
New Banking Platform for Payment
Unified Payments Interface
UPI system has been developed for all retail payments in the country by National Payments Corporation of India (NPCI) to make the transfer of money easy and simple. It was launched on 11th April, 2016 in Mumbai. It is a system that powers multiple bank accounts into a single mobile application (of any participating bank), merging several banking features, seamless fund routing and merchant payments into one hood. At the start, ten major banks-SBI, Canara Bank, BOI, ICICI Bank, HDFC Bank, Punjab National Bank, Bank of Baroda, HSBC, and Citi Bank integrated the interface with their mobile apps. 29 banks have agreed to join the platform. Some important features of UPL
Features of UPI
National Unified NUUP Platform
National Unified USSD Platform (NUUP) is a Unstructured Supplementary Service Data (USSD) based mobile banking service from NPCI that brings together all the Banks and Telecom Service Providers. In NUUP, a customer can access banking service by just pressing *99# from his/her mobile phones. This service works across all GSM mobile handsets. According to the Reserve Bank of India (RBI), the USSD payment method can be used for sending money as low as Rs. 1, and as much as Rs. 5,000 per transaction.
Prepaid Payment Instruments
Prepaid payment instruments are payment instruments that facilitate purchase of goods and services, including funds transfer, against the value stored on such instruments. The value stored on such instruments represents the value paid for by the holders by cash, by debit to a bank account, or by credit card. The prepaid instruments can be issued as smart cards, magnetic stripe cards, internet accounts, internet wallets, mobile accounts, mobile wallets, paper vouchers and any such instrument which can be used to access the prepaid amount (collectively called Prepaid Payment Instruments hereafter). The prepaid payment instruments that can be issued in the country are classified under three categories viz
(i) Closed system payment instruments
(ii) Semi-closed system payment instruments and
(iii) Open system payment instruments
Banks, NBFCs and other persons are permitted to issue prepaid gift instruments subject to the following conditions:
(i) The maximum validity of the prepaid gift instruments shall be three years.
(ii) Maxim-urn value of each such payment instrument shall not exceed Rs. 50000.
(iii) Cash withdrawal shall not be permitted for such instruments.
(iv) Full KYC of the purchasers of such instruments shall be maintained.
(v) The issuer shall maintain the details of the persons to whom such instruments have been issued and made available on demand.
(vi) Entities may adopt a risk based approach, duly approved by their Board, in deciding the number of such instruments which can be issued to a customer, transaction limits, etc.
Core Banking System
Core banking is type of banking in which a person who opens a bank account in a branch of a bank, will become a customer not only of that branch, but he becomes a customer of all branches of bank and can conduct banking transactions anywhere and at any time. Thus, he can deposit and withdraw cash from anywhere with the branches of same bank. Core banking is a general term used to describe the services provided by a group of networked bank branches. Core banking is basically depositing and lending of money. Normal core banking functions will include deposit accounts, loans, mortgages and payments. Banks make these services available across multiple channels like ATMs, Internet banking, and branches.
Elements of Core Banking Include
National Automated Clearing House (NACH)
From 1st May, 2016 NACH replaced Electronic Clearing Service (ECS). The National Payments Corporation of India (NPCI) has implemented an electronic payment service termed as National Automated Clearing House (NACH) for banks, financial institutions, Corporates and Government Departments. NACH is a funds clearing platform similar to the existing ECS of RBI.
(i) NACH has both Debit and Credit variants and it aims at facilitating interbank, high volume, debit/credit transactions, which are bulk and repetitive in nature. The primary motive of NACH is to handle low value, high volume transactions based on electronic files.
(ii) Ideally implementing this mandate will allow transactions to be cleared in real-time mode rather than batch mode.
(iii) The NACH platform will have national footprint which will cover 82000 + bank branches.
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