Finance Commission is established for the purpose of allocation of certain resources of revenue between the Union and the State Governments. The Finance Commission is established under Article 280 of the Constitution of India by the President. The Operational duration for the finance commission is five years. . So far 13 Finance Commissions have been appointed.

The 1^st finance Commission is established in the year 1951 headed by K C Neogy for the period 1952-57.

The 13^th Finance Commission is established in the year 2007 headed by Vijay kelkar for the period 2010-15.

The following are some of the key recommendations of the FC-XIII:

·  The share of States in net proceeds of shareable Central taxes shall be 32 per cent every year for the period of the award.

·  Revenue accruing to a State is to be protected to the levels that would have accrued to it had service tax been a part of the shareable Central taxes, if the 88^th Amendment to Constitution is notified and followed up by a legislations enabling States to levy service tax.

·  Centre is to review the levy of cesses and surcharges with a view to reducing their share in its gross tax revenue.

·  The indicative ceiling on overall transfers to States on revenue account may be set at 39.5 per cent of gross revenue receipts of the Centre.

·  The Medium Term Fiscal Plan (MTFP) should be a statement of commitment rather than intent.

·  New disclosures have been specified for the Budget/MTFP including on tax expenditure, public-private partnership liabilities and the details of variables underlying receipts and expenditure projections.

·  The Fiscal Responsibility and Budget Management (FRBM) Act needs to specify the nature of shocks that would require relaxation of the targets there under.

·  States are expected to be able to get back to their fiscal correction path by 2011-12 and amend their FRBM Acts to the effect.

·  State Governments are to be eligible for the general performance and special area performance grants only if they comply with the prescribed stipulation in terms of grants to local bodies.

·  The National Calamity Contingency Fund (NCCF) should be merged with the National Disaster Response Fund (NDRF) and the Calamity Relief Fund (CRF) with the State Disaster Response Funds (SDRFs) of the respective States.

·  A total non-Plan revenue grant of Rs 51,800 crore is recommended over the award period for eight States. A performance grant of Rs 1500 crore is recommended for three special category States that have graduated from a non-Plan revenue deficit situation.

·  An amount of Rs 19,930 crore has been recommended as grant for maintenance of roads and bridges for four years (2011-12 to 2014-15).

·  An amount of Rs 24,068 crore has been recommended as grant for elementary education.

·  An amount of Rs 27,945 crore has been recommended for State-specific needs.

·  Amounts of Rs 5,000 crore each as forest, renewable energy and water sector-management grants have been recommended.

·        A total sum of Rs 3,18,581 crore has been recommended for the award period as grants-in-aid to States. 

What is a Bank?

A Bank is a financial organization which accepts deposits that can be withdrawn on

demand and also lends money to individuals and business houses that need it.

Structure of banking sector in India:

 What is RBI?

The RBI is India's central bank. The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934.

RBI acts as a banker to the Government and Banks.

The Central Bank maintains record of Government revenue and expenditure under various heads. It maintains deposit accounts of all other banks and advances money to other banks, when needed.

Another important function of the Central Bank is the issuance of currency notes, regulating their circulation in the country by different methods.

What is Scheduled Bank?

All banks which are included in the Second Schedule to the Reserve Bank of India Act, 1934 are scheduled banks.

These banks comprise Scheduled Commercial Banks and Scheduled Cooperative Banks. The type of banks comes under these Scheduled Commercial Banks and Scheduled Cooperative Banks can be seen in the above figure.

All most all banks are Scheduled banks in India.

What are Commercial Banks?

Commercial banks may be defined as, any banking organization that deals with the deposits and loans of business organizations

Commercial banks issue bank checks and drafts, as well as accept money on term deposits.  Commercial banks also act as moneylenders, by way of installment loans and overdrafts.

Commercial banks also allow for a variety of deposit accounts, such as checking, savings, and time deposit. These institutions are run to make a profit and owned by a group of individuals.

Types of Loans offered by Commercial banks:

1)Secured Loan: A secured loan is one where the borrower provides a certain property or asset as collateral against the loan. The main condition of these loans is that if the loan remains unpaid, the bank has the right to use the property in any way they like to realize the outstanding amount.

2)Unsecured Loan: Unsecured loans have no collateral and therefore command higher interest rates. There are a variety of unsecured loans available today and these include credit cars, credit facilities such as a lines of credit, corporate bonds, and bank overdrafts.

3)Mortgage Loans: Mortgage loans that are provided by commercial banks are similar to secured loans but are used specifically to buy real estate property for commercial purposes. In most of these cases, the banks hold a lien on the title to the particular property purchased with the loan. If the borrower is unable to pay the loan back, the bank leverages this item against the loan to generate funds or recover the principal.

What are Public Sector Banks?

These are banks where majority stake is held by the Government of India.

Examples of public sector banks are: SBI, Bank of India, Canara Bank, etc.

What are Private Sector Banks?

These are banks majority of share capital of the bank is held by private individuals. These banks are registered as companies with limited liability.

Examples of private sector banks are: ICICI Bank, Axis bank, HDFC, etc.

What are Foreign Banks?

These banks are registered and have their headquarters in a foreign country but operate their branches in our country.

Examples of foreign banks in India are: HSBC, Citibank, Standard Chartered Bank, etc.

What are Regional Rural Banks?

Regional Rural Banks were established under the provisions of an Ordinance promulgated on the 26th September 1975 and the RRB Act, 1976 with an objective to ensure sufficient institutional credit for agriculture and other rural sectors. The area of operation of RRBs is limited to the area as notified by GoI covering one or more districts in the State.

RRBs are jointly owned by GoI, the concerned State Government and Sponsor Banks (27 scheduled commercial banks and one State Cooperative Bank); the issued capital of a RRB is shared by the owners in the proportion of 50%, 15% and 35% respectively.

Prathama bank is the first Regional Rural Bank in India located in the city Moradabad in Uttar Pradesh.

What are Cooperative Banks?

A co-operative bank is a financial entity which belongs to its members, who are at the same time the owners and the customers of their bank. Co-operative banks are often created by persons belonging to the same local or professional community or sharing a common interest. Co-operative banks generally provide their members with a wide range of banking and financial services (loans, deposits, banking accounts, etc).

They provide limited banking products and are specialists in agriculture-related products.

Cooperative banks are the primary financiers of agricultural activities, some small-scale industries and self-employed workers.

Co-operative banks function on the basis of "no-profit no-loss".

Anyonya Co-operative Bank Limited (ACBL) is the first co-operative bank in India located in the city of Vadodara in Gujarat.

How Bank gets Money?

Banks make money by lending your money out at interest and by charging you for services provided. Banks keep on lending money.

The other big revenue items generated by banks are the fees they charge. Bank charge for every service, whether it is for an electronic transaction, or permitting a transfer through the Internet banking system.

When banks get profits they invest in other companies and in return they will get money.