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Banking System in India

INTRODUCTION:

Banks are considered as backbone of every country’s financial system as they provide adequate credit to the agencies which are in requirement for the development purpose. Finance plays a crucial role in execution of plans and policies of every organization. Without sound and stable financial system, no government or organization could achieve their goals into their administration in an effective manner. Every new business can be initiated if the person has adequate financial support system and machinery to regulate it. For every successful administration there must be effective financial system of it, so that in urgency they could maintain stability into the administration.

In recent times, as new advancements in every field takes place, various revolutionary changes have also been introduced in banking sector also. With the advancement of technology, now banking facilities are easily available to the customer at their nearest place. Earlier person must visit bank personally to deposit their cash into the account. And for every purpose they must visit personally at their main branch even if he was out of area. It was difficult for them to access the services. But now banks provide ATM facilities to ease the customers for withdrawal and deposit of the amount. Now banking is more secured as everything is linked with registered mobile number where frauds can be prevented. Grievance cells have been established for effective redressal. Locker facilities are provided for the customers and now a day’s online payment method is in vogue where every payment is easily done at anywhere.

HISTORICAL PERSPECTIVE:

From very early, during British period, East India Company entered India for the purpose to establish and expand their trade and commerce with India through various means. They have entered into several contracts in the field of cotton, silk, indigo and spices from South India. They have increased military and naval power with the help of sound economic growth of the country. Gradually they have controlled all the states through their policies and achieved their sole purpose which was to enhance financial power.

The Indian Banking system evolves slowly with due time through several agencies. Introduction of banks in India can be traced back from the first bank of India particularly known as ‘Bank of Hindustan’ which was established in the year 1770, which was followed by General Bank of India in year 1786, but it could not get flourished. Later, Oudh commercial bank was established. And Imperial bank, which was renamed as State Bank of India, one of the largest banks of India today. At that time introduction of various banks could not get much appreciation from public side because they were not familiar with the functioning and services of the banks. Due to which some small size banks were failed.

BANKING SYSTEM:

Indian banking system can be classified into three different phases –

  1. Pre -Independence phase,
  2. After Independence phase, and
  3. The LPG era 1991 and beyond.

The Pre–Independence phase saw a remarkable presence of number of banks of nearly about 600 banks’ emergence. Bank of Hindustan was the first Indian bank and after that so many big and small banks have evolved during that period.

The After-Independence phase is important because at that time banks were nationalized. The main objective of nationalization of banks are to provide credit to large businesses, to uplift the critical sectors like agriculture, small scale industries etc.

LPG era is the most crucial phase in the banking system of India. Indian government opened the economy for private and foreign investors to invest their money in India. This would boost the economical chain and enhance the revenue. Due to privatization, private banks have been introduced and provided license by the RBI.

 RBI is a statutory body enacted by the government of India on the recommendation of the Hilton Young commission. RBI is the central and top-level bank of India into the hierarchy of the bank structure. It was established in 1935 and nationalized on 1949. RBI is regulatory and supervisory body who aids other banks and supervises their work. It formulates and implement several policies regarding to rate, interest policies. It provides credit to banks and government as well. It also issues currency and notes on limited basis.

In India, banks are classified into two broad categories: –

  1. Scheduled banks, and
  2. Non – scheduled banks

Scheduled banks are those which follows the norms prescribed by the RBI. These banks are eligible for the inclusion into second schedule of RBI Act, 1934. Scheduled banks can borrow money from RBI and has to submit their returns to RBI on time as they are adhering to the rules. Scheduled banks are categorized into commercial and cooperative banks. Commercial banks include public sector banks, private sector banks, foreign banks, and regional rural banks. Public sector banks are nationalized one such as SBI, PNB. Private sector consists of old private banks and new private banks such as HDFC, ICICI, etc. Cooperative banks consist of scheduled state cooperative banks and scheduled urban cooperative banks.

Non-scheduled banks are such which do not adhere to the rules of RBI and does not fall under the second schedule of RBI Act, 1934. These banks do not borrow money and have no accountability to the RBI, means don’t have to submit their report or returns to them. Non -scheduled banks are categorized into local area bank and non -scheduled urban cooperative banks. Such as Baroda city cooperative bank limited, citizen bank cooperative limited, commercial cooperative bank limited.

CONCLUSION:

Financial system is fundamental for the development of economic sector of the country. Banks are the organization which plays a vital role in execution of plans laid down by the RBI in an effective manner so that the flow of the credit into the market will be stable. As India has mixed economy now there are more private banks in the market and providing much effective interesting rates to the individual or businesses. Banking system is now more flexible as compared to earlier times. Now people can access banking services at their doorstep. There are number of options given to the individual like online payment method which is much more effective process. Now loans are given on flexible requisition and people can easily be allowed to get. Banks are institutions that accepts investment and lends money on certain principles. Banking now is much more secured with password generated payment and their grievances can be resolved by the banking ombudsman on serious matter. 


Cite this article (The Bluebook 20th ed.)-

Yogesh Sharma, Banking System in India, Ex Gratia Law Journal, (March 10, 2021), https://exgratialawjournal.in/blawg/economic-law/banking-system-in-india-by-yogesh-sharma/.


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Author

Yogesh Sharma
Student - Chandigah University