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Exposure draft guidance note on Audit of Banks 2018

Last updated: 15 December 2017


Knowledge of the Banking Industry

1.01 The banking industry is the backbone of any economy as it is essential for sustainable socio-economic growth and financial statements in the economy. There are different types of banking institutions prevailing in India which are as follows:

(a) Commercial Banks.
(b) Regional Rural Banks.
(c) Co-operative Banks.
(d) Development Banks (more commonly known as ‘Term-Lending Institutions’).
(e) Payment Banks.
(f) Small Finance Banks.

1.02 All these banks have their unique features and perform various functions / activities subject to complying with the RBI guidelines issued from time to time. Section 6 of the Banking Regulation Act, 1949, lists down the forms of business in which banking companies may engage. The text of the Section 6 has been reproduced in Appendix I of the Guidance Note (given in CD accompanying the Guidance Note).

1.03 Of these banks, commercial banks are the most wide spread banking institutions in India. Commercial banks provide a number of products and services to general public and other segments of economy. Two of the main functions of commercial banks are (1) accepting deposits and (2) granting advances. In addition to their main banking activities, commercial banks also undertake certain eligible Para Banking activities which are governed by the RBI guidelines on Para Banking activities.

1.04 The functioning of banking industry in India is regulated by the Reserve Bank of India (RBI) which acts as the Central Bank of our country. RBI is responsible for development and supervision of the constituents of the Indian financial system (which comprises banks and non-banking financial institutions) as well as for determining, in conjunction with the Central Government, the monetary and credit policies keeping in with the need of the hour. Important functions of RBI are issuance of currency; regulation of currency issue; acting as banker to the central and state governments; and acting as banker to commercial and other types of banks including term-lending institutions.

Besides, RBI has also been entrusted with the responsibility of regulating the activities of commercial and other banks. No bank can commence the business of banking or open new branches without obtaining licence from RBI. The RBI also has the power to inspect any bank.

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