in India has its origin as carry as the Vedic period. It is believed that the
transition from money lending to banking must have occurred even before Manu,
the great Hindu jurist, who has devoted a section of his work to deposits and
advances and laid down rules relating to the interest. During the mogal period,
the indigenous bankers played a very important role in lending money and
financing foreign trade and commerce. During the days of East India Company, it
was to turn of the agency houses top carry on the banking business. The general
bank of India was the first joint stock bank to be established in the year
1786.The others which followed were the Bank of Hindustan and the Bengal Bank.
The Bank of Hindustan is reported to have continued till 1906, while the other
two failed in the meantime. In the first half of the 19th Century
the East India Company established three banks; The Bank of Bengal in 1809, The
Bank of Bombay in 1840 and The Bank of Madras in 1843.These three banks also
known as presidency banks and were independent units and functioned well. These
three banks were amalgamated in 1920 and The Imperial Bank of India was
established on the 27th Jan 1921, with the passing of the SBI Act in
1955, the undertaking of The Imperial Bank of India was taken over by the newly
constituted SBI. The Reserve Bank which is the Central Bank was created in 1935
by passing of RBI Act 1934, in the wake of swadeshi movement, a number of banks
with Indian Management were established in the country namely Punjab National
Bank Ltd, Bank of India Ltd, Canara Bank Ltd, Indian Bank Ltd, The Bank of
Baroda Ltd, The Central Bank of India Ltd .On July 19th 1969, 14
Major Banks of the country were nationalized and in 15th April 1980
six more commercial private sector banks were also taken over by the
government. The Indian Banking industry, which is governed by the Banking
Regulation Act of India 1949, can be broadly classified into two major
categories, non-scheduled banks and scheduled banks. Scheduled Banks comprise
commercial banks and the co-operative banks.
first phase of financial reforms
resulted in the nationalization of 14 major banks in 1969 and resulted in a
shift from class banking to mass banking. This in turn resulted in the
significant growth in the geographical coverage of banks. Every bank had to
earmark a min percentage of their loan portfolio to sectors identified as
“priority sectors” the manufacturing sector also grew during the 1970’s in
protected environments and the banking sector was a critical source. The next
wave of reforms saw the nationalization of 6 more commercial banks in 1980
since then the number of scheduled commercial banks increased four- fold and
the number of bank branches increased to eight fold.
the second phase of financial sector
reforms and liberalization of the sector in the early nineties. The PSB’s found
it extremely difficult to complete with the new private sector banks and the foreign
banks. The new private sector first made their appearance after the guidelines
permitting them were issued in January 1993.
Indian Banking System:
in our country is already witnessing the sea changes as the banking sector
seeks new technology and its applications. The best port is that the benefits
are beginning to reach the masses. Earlier this domain was the preserve of very
few organizations. Foreign banks with heavy investments in technology started
giving some “Out of the world” customer services. But, such services were
available only to selected few- the very large account holders. Then came the
liberalization and with it a multitude of private banks, a large segment of the
urban population now requires minimal time and space for its banking needs.
teller machines or popularly known as ATM are the three alphabets that have
changed the concept of banking like nothing before. Instead of tellers handling
your own cash, today there are efficient machines that don’t talk but just
dispense cash. Under the
Bank of India Act 1934, banks are classified as scheduled banks and
non-scheduled banks. The scheduled banks are those, which are entered in the
Second Schedule of RBI Act, 1934. Such banks are those, which have paid- up capital
and reserves of an aggregate value of not less then Rs.5 lacs and which satisfy
RBI that their affairs are carried out in the interest of their depositors. All
commercial banks Indian and Foreign, regional rural banks and state
co-operative banks are Scheduled banks. Non Scheduled banks are those, which
have not been included in the Second Schedule of the RBI Act, 1934.
organized banking system in India can be broadly classified into three
categories: (i) Commercial Banks (ii) Regional Rural Banks and (iii)
Co-operative banks. The Reserve Bank of India 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 reserves of all commercial banks
and hence is known as the “Reserve Bank”.
The Structure of Indian
The Indian banking industry has Reserve Bank of
India as its Regulatory Authority. This is a mix of the Public sector, Private
sector, Co-operative banks and foreign banks. The private sector banks are
again split into old banks and new banks.
Figure 1: Structure of Indian Banking
Current Scenario in Indian Banking Sector
The banking sector in India
is on a growing trend. It has vastly benefitted from the surge in disposable
income of individuals in the country. There has also been a noticeable upsurge
in transactions through ATMs, and also internet and mobile banking.
Consequently, the different banks, viz public, private and foreign banks have invested
considerably to increase their banking network and thus, their customer reach.
Figure 2: Growth in deposits in India
Deposits in India are estimated to reach US$ 1541 billion
The banking industry in India has the potential to
become the fifth largest banking industry in the world by 2020 and third
largest by 2025 according to a KPMG-CII report. Over the next decade, the
banking sector is projected to create up to two million new jobs, driven by the
efforts of the RBI and the Government of India to integrate financial services
into rural areas. Also, the traditional way of operations will slowly give way
to modern technology.
With the growth in the Indian economy expected to be
strong for quite some time especially in its services sector, the demand for
banking services especially retail banking, mortgages and investment services
are expected to be strong. Mergers & Acquisitions., takeovers, are much
more in action in India.
One of the classical economic functions of the
banking industry that has remained virtually unchanged over the centuries is
lending. On the one hand, competition has had considerable adverse impact on
the margins, which lenders have enjoyed, but on the other hand technology has
to some extent reduced the cost of delivery of various products and services.
Bank is a financial institution that borrows money
from the public and lends money to the public for productive purposes. The
Indian Banking Regulation Act of 1949 defines the term Banking Company as
“Any company which transacts banking business in India” and the term
banking as “Accepting for the purpose of lending all investment of
deposits, of money from the public, repayable on demand or otherwise and
withdrawal by cheque, draft or otherwise”.
Banks play important role in
economic development of a country, like:
mobilise the small savings of the people and make them available for productive
the habit of savings among the people thereby offering attractive rates of
interests on their deposits.
safety and security to the surplus money of the depositors and as well provides
a convenient and economical method of payment.