Banking system in India

Banking system in India

Banking system in India –

Banking system in India – Banking in India originated in the last decade of the 18th century. The first banks were the general bank of India, which started in 1786, and bank of Hindustan, which is started in 1790; both are now defunct.

The oldest bank in existence in India is the State bank of India, which originated in the bank of Calcutta in June 1806, which almost immediately became the bank of Bengal.

This was one of the three presidency banks, the other two being the bank of Bombay and the bank of Madras, all three of which were established under charters from the British East India company.

For many years the presidency banks acted as quasi-central banks, as did their successors. The three banks merged in 1921 to form the imperial bank of India, which, upon India’s independence, became the State bank of India in 1955.

Overview of banking :

Banking regulation act of India, 1949 defines banking as “accepting, for the purpose of lending or of investment of deposits of money from the public, repayable on demand or otherwise or withdrawable by cheque, draft order or otherwise.”

The reserve bank of India act, 1934 and the banking regulation act, 1949, govern the banking operations in India.

Banking system in India

Organisational structure of banks in India

In India banks are classified in various categories according to different criteria. The following charts indicated the banking structure :

Broad classification of banks in India

  1. The RBI : The RBI is the supreme monetary and banking authority in the country and has the responsibility to control the banking system in the country. It keeps the reserve of all scheduled bank and hence is known as the “Reserve bank”.
  2. Public sector banks:
  • State bank of India and its associates
  • Nationalised banks
  • regional rural banks sponsored by public sector banks

3. Private sector banks

  • Old generation private banks
  • Foreign new generation private banks
  • Banks in India

4. Co-operative sector banks

  • State co-operative banks
  • Central co-operative banks
  • Primary agriculture credit societies
  • land development banks
  • State land development banks

5. Development banks : Development banks mostly provide long-term finance for setting up industries. They also provide short-term finance (for export and import activities)

  • Industrial financial finance Co-operation of India (IFCI)
  • Industrial development of India (IDBI)
  • Industrial investment bank of India (IIBI)
  • Small industries development bank of India (SIDBI)
  • National bank for agriculture and rural development (NABARD)
  • Export Import Bank of India(EXIM)

Role of banks in economic development

Banks play a positive role in economic development of a country as repositories of community’s savings and as Purveyors of credit. Indian banking has aided the economic development during the last 50 years in an effective way. The banking sector has shown remarkable responsiveness to the needs of planned economy. It has brought about a considerable progress in its effort at deposit mobilisation and has taken a number of measures in the recent past for accelerating the rate of growth of Deposit. As resource to this, the commercial banks opened branches in urban, semi-urban and rural areas and have introduced a number of attractive schemes to foster economic development.

The activities of commercial banking have growth in multi directional ways as well as multi-dimensional manner. Banks have been playing a catalytic role in area development, backward area development, extended assistance to rural development all along helping agriculture, industry, international trade in a significant manner. In a way, commercial banks have emerged as key financial agency for rapid economic development.

By pooling the savings together, banks can make available funds to its specialised institutions which finance different sectors of the economy, needing capital for various purposes, risks and durations. By contributing to government securities, bonds and debentures of term lending institutions in the field of agriculture, industries and now housing, banks are also providing these institutions with an access to the common pool of savings mobilised by them, to that extent Relieving them of the responsibility of directly approaching the saver.

This intermediation role of banks in the particularly important in the early stages of economic development and financial specification. A country like India, with different regions at different stages of development, presents an interesting spectrum of the evolving role of banks, in the matter of inter-mediation and beyond.



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