Banks in India – Essential Element Of Economic Growth

Banks in India are financial institutions registered under the banking regulatory act 1949 which offers banking services in the market. Banks provide services like accept cash deposits and cash withdrawal as per the demand of the customer.

What are you going to explore

1. Introduction
2. History
3. Working
4. Types of Banks in India
5. Why banks are important for the economy
6. Conclusion
7. FAQs

Introduction

Banks are financial institutions that offer financial services like cash deposit, cash withdrawal, investment banking, retail banking, and payment methods like NEFT, RTGS, and Demand Drafts, etc in the market. They are regulated by the central bank I. e, Reserve Bank of India. 

Meanwhile banks in India are the financial bodies that provide services like accept cash deposits and cash withdrawal as per the demand of the customer. They have the authority to issue cheques. Banks promote savings routines among individuals.

These financial bodies in India provide funds to individuals as well as Businesses for financial support; banks charge interest on loans provided to customer which generate revenue. But they also offer investment services like fixed deposits, recurring deposits, mutual funds, pension funds, insurances.

However banks in India provide various types of accounts to their customers like a savings account, current account, demate account, trading account, etc. services like the exchange of foreign currencies.

History

The first Indian bank which comes into existence was Oudh Commercial Bank with limited liability which was established in 1881 in Faizabad till 1958.

Meanwhile the year 1949 need for regulating and controlling commercial banks starts pleading due to the failure of 588 banks in different states of India and the banking crisis in the year 1913 to 1917. 

After that in February month of 1949 banking companies’ act was passed which was latterly amended as the banking regulatory act 1949.

In short this act will provide the proper legal framework and guidelines for the regulation of the banking system by the Reserve Bank of India in India.

Imperial Bank of India

There were three presidency banks in India Bank of Bombay (02 June 1806), Bank of Bengal (15 April 1840), Bank of Madras (1 July 1843). Later on, these three banks will merge together and form the Imperial Bank of India on 27 January 1921. This was the first merger of banks in India.

To clarify the Imperial bank of India was the largest bank in India; however it was nationalized in the year 1955 and renamed as State bank of India with its 8 associate banks in the year 1959.

However in January 1963 state bank of Bikaner was merged with the state bank of Jaipur similarly state bank of Saurashtra was merged with the State bank of India in 2008.

Meanwhile In the year, 2010 the state bank of Indore merged with the State bank of India. At last, In July 1969 the government of India issued an ordinance regarding acquiring ownership and control of 14 major banks in India along with 6 more commercials that were nationalized from April 1980.

Working

Banks in India work under the regulations and guidelines provided by the central bank of India I.e., Reserve bank of India.

However banks accept deposits in saving and current accounts or in the form of fixed deposits, recurring deposits, etc; bank lend the number of deposits as loans to others and charge interest in it which results as revenue generation.

Other factors

Meanwhile, These financial bodies impose fees, taxes, and various charges on services available by the customers like ATMs, Net banking, Fund transfer, Debit Cards, Credit Cards, Payment methods like National electronic fund transfer(NEFT), Real-time gross settlement(RTGS), penalties, surcharge, TDS, etc.

Above all banks in India have the authority to sell the mortgage in case of defaulter which will sometimes bring revenue. They also provide insurance policies which bring revenue in most cases in the form of premium.

Types of Banks in India

There are various banks which exist in markets these banks are different in nature acts differently and perform different activities in the market

CENTRAL BANK

A bank that acts as a mentor for other banks one who regulates and guides other banks is called the central bank. It acts like a government’s bank. Primarily it is a bank of banks it provides advances and deposits money from other banks.  

The central bank advises the government about monetary and credit policies. Central bank decides the interest rates and other charges of banks which will be imposed on the offered services of Banks.  
For Example Reserve Bank of India

 PUBLIC (govt.) BANK

Public banks are banks owned by the government which is considered as Nationalized banks; currently, there are 6 nationalized in April 2020.
The public bank offers commercial services at the operational level directly to the customers.
For Example State Bank of India, Punjab National Bank, Canara Bank

 PRIVATE BANK

Banks which are registered as companies with limited liabilities along with banking license. Private individuals hold the shares of these banks.

Meanwhile, these banks offer almost every service like a public bank. One can start his banks with a minimum capital of 500 crores.  
For Example HDFC Bank, ICICI Bank, Axis Bank

FOREIGN BANK

Banks originated in a different country but serves in another country is called Foreign Bank.
As a result headquarters of these banks are in their parent country but operational branches are providing services across the globe.
After the financial sector reforms of 1991 government encourage more banks to serve in India.  
For Example Standard Chartered, CITI Bank, HSBC Bank

DEVELOPMENT BANK

Huge funds are required to set up plants and machinery for business. Therefore development banks provide capital for massive projects and businesses for the development of their business. Development bank undertakes subscription of shares, bonds, and debenture of companies.  
For Example Industrial Finance Corporation of India

CO-OPERATIVE BANK

When Co-operative societies step in the banking business it is called as Co-operative bank.
The society has to attain a license from the reserve bank of India to perform banking services and should obey and follow the guidelines provided by the Reserve bank of India.
However Co-operative society has to function under the supervision of the Registrar and co-operative societies of the state.  

For Example Apex Bank

There are two types of Co-operative banks in India:

State co-operative banks

These are the high-level co-operative banks in states which are called apex bank. They provide funds and supply funds in different sectors. State co-operative banks collect funds from central co-operative banks and their primary credit societies.  

Central co-operative banks

Co-operative banks are located in various districts of states and operate from districts.

Central Co-operative banks play a mediocre role between State co-operative banks and primary credit societies. Therefore, Co-operative provides credits from state co-operative banks to primary credit societies.

Primary Credit Societies

These are the lowest level of operation. A primary credit society performs at the lowest. Primary credit society provides loans at the village and town level. Primary credit societies are restricted to small areas.

SPECIALIZED BANK

As the name suggests specialized banks offer specialized service. Specialized banks aim at specifics businesses that operate in specialized fields.  

For Example NABARD, SIDBI, EXIM

Why banks are important for economy

Banks play a crucial role in a country’s economy. They increase the money supply in the country. Banks promote import and exports transaction.

However these financial bodies help the government regarding the surveillance of the money of citizens regarding back money and other illegal issues. Banks help to manage the flow of money in the economy.

Meanwhile these financial institutions assist in the development of the country by providing funds and credits to farmers, small scale industries, self-employed people, infrastructural projects, massive businesses.

Banks promote business transactions through receipts and payments by cheques and vouchers instead of currency which increases the accountability and accuracy in records.

Conclusion

Banks are an essential part of the economy. These financial institutions change the spending as well as saving habits of peoples.

They change the management and handling of monetary policies and money management among people.

These financial institutions have become the necessity in the economy no financial operation can be done without banks.

Bank helps businesses to provide funds. These financial institutions help individuals to raise the standard of living of individuals.

Also read: NBFC, Bank scams in India , NBFC crisis, Merger of Banks

FAQs