Indian Banking & Financial System

Indian Banking

 

The Structure of Banking in India instigated in the last decades of 18th century. Indian Banking Structure is very different from that of other countries. Banking can be considered as the back bone of the country, its business, economic growth and development because finance is the vital element for a country’s trade, commerce and industry.

 

The role that banking system plays in a country can be quite but it is the most significant part of the country’s economy.

 

 

What is a Bank?

 

Simply talking “Bank is a financial institution licensed as a receiver of deposits”.

 

But if you want to define a Bank perfectly then we can say that “Bank is a lawful organization, which accepts deposits that can be withdrawn on demand, who also lends money to individuals and business houses that need it”.

 

 

Why is Banking an Integral Part of Economy?

 

Why-Banking-is-an-integral-part-of-economyBanking system plays a very significant role in the country’s economy by maintaining the flow of cash in various segment of the economy.

As we know that money lending is a process which could be seen in the ancient time also by the zamindars and sahukars, who lend money to the borrower by taking land and other properties as mortgage (security).

The money lending process is now undertaken by banks by providing credit and loans to other financial institutions.

 

The need of banking with government authorization is felt because India is not only the world largest democracy but also an emerging economic giant. The growth of the country depends on its credit facilities which can only be possible through an efficient banking. India is an agricultural based country,  and finance in agriculture is very important,  which is also provided by those Banks, who provide funds for agricultural development i.e. NABARD (National Bank for Agriculture and Rural Development).

 

 

How Banking Started in India?

 

 Banking in India has started in 18th century.

 

 Bank of Hindustan (1770-1832) and General Bank of India (1786-1791) were the very first banks, which failed later.

 

 The oldest bank which still have its existence is the State Bank of India, originated in June 1806 as the Bank of Calcutta, renamed as the Bank of Bengal in year 1809. Other two banks were the Bank of Madras and the Bank of Bombay.

 

How-banking-started-in-India

 In the year 1921, these three banks got merged and become the Imperial Bank of India and renamed as the State Bank of India (SBI) in the year 1955.

 

 Before the Reserve Bank of India emerged in the year 1935, the SBI acted as the central bank.

 

 In the year 1960, the SBI took control over 8 subordinate banks, now called as associate banks.

 

 14 major banks were nationalized in the year 1969 and 6 more banks were nationalized in the year 1980. These nationalized banks have the control over the country’s banking sector as they have large network.

 

 NABARD (National Bank for Agriculture and Rural Development) was established in July, 1982, which looks after the development of the cottage industry, small industry and village industry, and other rural industries.

 

 At present we have 93 commercial banks, 15 private sector banks, 44 foreign banks, 27 public sector banks, out of which 21 are nationalized banks and six are SBI and its associate banks.

 

 

Classification of banks

 

The Banking System in India is categorized into scheduled and non-scheduled banks. They are further divided into cooperative and commercial banks. The Reserve Bank of India (RBI) controls all these banks. RBI is considered as the Central Bank of our country. It also acts as the banker’s bank.

 

 

The structure of Indian Banking System can be understood as follows:-

 

 

A. Reserve Bank of IndiaClassification-of-banks (RBI): Reserve Bank of India (RBI) is also called as Central Bank of India. RBI was established on April 1, 1935 under the Reserve Bank of India Act, 1934. RBI maintains records of deposits from all the banks and revenue and expenditures of Governments and provides loan to other banks whenever needed. Thus acts as a banker to the Government and other Banks.

 

 

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

 

 

1. Commercial Banks: These banks helps the entrepreneurs and businessmen by giving them financial services like debit cards, banks accounts, short term deposits, etc. with the money people deposit in such banks. There are 93 commercial banks in India.

 

 

Public Sector Banks – These banks are owned and managed by Government. The major part share in these banks are of Government. Examples – State Bank of India, Punjab National Bank, Bank of Baroda etc.

 

There are 27 public sector in our country: 21 nationalized and 6 SBI and associates.

 

 List of public sector banks: -

 

Public-Sector-Banks(1) State Bank of India State (2) Bank of Hyderabad (3) State Bank of Patiala (4) State Bank of Mysore (5) State Bank of Bikaner and Jaipur (6) State Bank of Travancore (7) Allahabad Bank (8) Andhra Bank (9) Bank of Baroda (10) Bank of India (11) Bank of Maharashtra (12) Bharatiya Mahila Bank (BMB) (13) Canara Bank (14) Central Bank of India (15) Corporation Bank (16) Dena Bank (17) Indian Bank (18) Indian Overseas Bank (19) Oriental Bank of Commerce (20) Punjab and Sind Bank (21) Punjab National Bank (22) Syndicate Bank (23) UCO Bank (24) United Bank of India (25) Union Bank of India (26) Vijaya Bank (27) IDBI Bank

 

 

Private Sector Banks – These banks are owned and managed by Private undertakings, major share of which are kept with these banks. Example – ICICI Bank, Axis Bank, HDFC Bank etc. We have 15 private sector banks.

Private-Sector-Banks

 

 List of private sector banks: -

 

(1) Axis Bank (2) Bank of Punjab (3) Centurion Bank Ltd. (4) Development Credit Bank (6) ICICI Bank (7) IndusInd Bank (8) Kotak Mahindra Bank (9) Yes Bank (10) Times Bank (11) Global Trust Bank (12) Balaji Corporation Bank Limited (13) HDFC bank (14) Bandhan bank (15) IDFC Bank

 

 

Foreign Banks – These banks are based in foreign country but have numerous branches in India. Example – HSBC, Standard Chartered Bank. There are 44 foreign banks in India.

 

 List of foreign banks: -

 

Foreign-Banks (1) Australia and New Zealand Banking Group (2) Commonwealth Bank of Australia (3) National Australia Bank (4) Westpac Banking Corporation (5) Bank of Bahrain and Kuwait (6) AB Bank (7) Sonali Bank (8) Antwerp Diamond Bank (9) Bank of Nova Scotia (10) Industrial & Commercial Bank of China (11) BNP Paribas (12) Credit Agricole (13) Societe General (14) Deutsche Bank (15) HSBC (16) Bank Internasional Indonesia (17) Mizuho Corporate Bank (18) Sumitomo Mitsui Banking (19) Bank of Tokyo-Mitsubishi (20) State Bank of Mauritius (21) Rabobank (22) Doha bank (23) Sberbank (24) VTB (25) HSBC Bank Oman (26) Royal Bank of Scotland (27) DBS Bank (28) United Overseas Bank (29) FirstRand Bank (30) Shinhan Bank (31) Woori Bank (32) Bank of Ceylon (33) Credit Suisse (34) UBS AG (35) Chinatrust Commercial Bank (36) Krung Thai Bank (37) Abu Dhabi Commercial Bank (38) Mashreq Bank (39) Barclays Bank (40) Standard Chartered Bank (41) American Express (42) Bank of America (43) Citibank (44) J.P. Morgan Chase Bank

 

 

Regional Rural Banks (RRBs) – These banks functions with the objective of providing loan to rural and agricultural provinces. Owned by State Government and a sponsor bank. Example – Allahabad UP Gramin Bank, Andhra Pradesh Grameena Vikas Bank, Assam Gramin Vikash Bank, etc. At present there are 56 RRBs in India.

 

 List of RRBs: -

 

(1) Allahabad UP Gramin Bank (2) Andhra Pradesh GrameenaVikas Bank (3) Andhra Pragathi Grameena Bank (4) Arunachal Pradesh Rural Bank (5) Assam Gramin Vikash Bank (6) Bangiya Regional-Rural-Banks-(RRBs)Gramin Vikash Bank (7) Baroda Gujarat Gramin Bank (8) Baroda Rajasthan Kshetriya Gramin Bank (9) Baroda UP Gramin Bank (10) Bihar Gramin Bank (11) Central Madhya Pradesh Gramin Bank (12) Chaitanya Godavari Grameena Bank (13) Chhattisgarh Rajya Gramin Bank (14) Dena Gujarat Gramin Bank (15) Ellaquai Dehati Bank (16) Gramin Bank of Aryavarti (17) Himachal Pradesh Gramin Bank (18) J&K Grameen Bank (19) Jharkhand Gramin Bank (20) Karnataka Vikas Grameen Bank (21) Kashi Gomti Samyut Gramin Bank (22) Kaveri Grameena Bank (23) Kerala Gramin Bank (24) Langpi Dehangi Rural Bank (25) Madhyanchal Gramin Bank (26) Madhya Bihar Gramin Bank (27) Maharashtra Gramin Bank (28) Malwa Gramin Bank State (29) Manipur Rural Bank (30) Meghalaya Rural Bank (31) Mizoram Rural Bank (32) Nagaland Rural Bank (33) Narmada Jhabua Gramin Bank (34) Odisha Gramya Bank (35) Pallavan Grama Bank (36) Pandyan Grama Bank (37) Paschim Banga Gramin Bank (38) Pragathi Krishna Gramin Bank (39) Prathama Bank (40) Puduvai Bharthiar Grama Bank (41) Punjab Gramin Bank (42) Purvanchal Bank (43) Rajasthan Marudhara Gramin Bank (44) Saptagiri Grameena Bank (45) Sarva Haryana Gramin Bank (46) Sarva UP Gramin Bank (47)Saurashtra Gramin Bank (48) Sutlej Gramin Bank (49) Telangana Grameena Bank (50) Tripura Gramin Bank (51) Utkal Grameen Bank (52) Uttar Banga Kshetriya Gramin Bank (53) Uttar Bihar Gramin Bank (54) Uttarakhand Gramin Bank (55) Vananchal Gramin Bank (56) Vidharbha Konkan Gramin Bank

 

 

 2. Cooperative Banks: Co-operative banks are financial entities which belong to their members, who are the owners and the customers of their bank, at the same time.

 

 

Cooperative-Banks Primary Credit Society – These are formed in small localities and their members usually know each other.

 

 

Central Cooperative Banks – These banks provide loans to their members, who belong to the same district and act as a link between the state cooperative banks and the primary credit societies.

 

 

State Cooperative Banks – These banks operate at the top level in every state.

 

 

 

3. Investment Bank: These are financial institutions, which provide financial and advisory assistance to individuals, businesses, or government organizations by raising funds when required.

 

 

 

4. Specialized Banks: These banks are foreign exchange banks, industrial banks, development banks, export-import banks satisfying the specific needs of these unique activities and provides financial support to industries, heavy turnkey projects and foreign trade.

 

 

Important facts relating to Indian Banking

 

 Canara Bank is the first Indian bank got ISO (International Organization for Standardization) Certification.

 

 PNB (Punjab National Bank) is the first Indian bank started solely with Indian capital investment.

 

 First governor of RBI is Mr.Osborne Smith and First Indian Governor of RBI is Mr. C D Deshmukh.

 

 Presidency Bank is the first bank to introduce savings account in India (in 1833).

 

 Bengal Bank is the first bank to introduce cheque system in India (in 1833).

 

 Central Bank of India is the first bank to introduce credit card in India.

 

 State Bank of India (SBI) is the largest Commercial bank in India.

 

 HDFC Bank has launched Mobile Bank Accounts in association with Vodafone’s “m-paisa”.

 

 Minimum money transfer limit through RTGS (Real-time Gross Settlement Systems) is 2 Lakhs.

 

 State Bank of India (SBI) is the largest Public sector bank in India and also the first bank to introduce mutual fund.

 

 ICICI Bank is the largest Private sector bank in India and also the first bank to introduce internet banking.

 

 Standard Chartered Bank is the largest foreign bank in India.

 

 Bank of India is the first Indian bank to open branch outside India (in 1946, London).

 

 Syndicate Bank started the first RRB named Prathama Grameen Bank.

 

 HSBC is the first Bank to introduce ATM in India. (in1987, Mumbai)

 

 Bank of Baroda has the maximum number of overseas branches and SBI holds the second position.

 

 HDFC Bank launched “Premium credit cards exclusively for women” and a product of Personal loan called “SWIFT”.

 

 Asian Development Bank approved loan of $500mn to help India improve Rail services.

 

 FDI limit for new banks is 49%.

 

 FDI limit for private banks is 74%.

 

 

We have covered all the detailed information related to Indian Banking in this article. You will get help in answering the questions about banking systems in the competitive exams.

 

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