Indian banking sector Introduction

The existence of banking systems in India dates right back to 1955 when
Imperial Bank got renamed as State Bank of India post independence.
Since then Indian economy witnessed two liberalizations in 19!s and
199!s leading to o"r c"rrent banking str"ct"re which comprises of a
primary go#erning body and f"rther indi#id"al banking entities.
B"t on a broader basis the differentiation can be done as $%ationalized
Banks& and $%ew 'ri#ate Sector Banks&.
By (!1!) banking in India was generally fairly mat"re in terms of s"pply)
prod"ct range and reach*e#en tho"gh reach in r"ral India still remains a
challenge for the pri#ate sector and foreign banks. In terms of +"ality of
assets and capital ade+"acy) Indian banks are considered to ha#e clean)
strong and transparent balance sheets relati#e to other banks in
comparable economies in its region. The ,eser#e Bank of India is an
a"tonomo"s body) with minimal press"re from the go#ernment.
-ith the growth in the Indian economy expected to be strong for +"ite
some time*especially in its ser#ices sector*the demand for banking
ser#ices) especially retail banking) mortgages and in#estment ser#ices are
expected to be strong. .ne may also expect /01s) takeo#ers) and asset
sales.
The IT re#ol"tion has had a great impact on the Indian banking system.
The "se of comp"ters has led to the introd"ction of online banking in India.
The "se of comp"ters in the banking sector in India has increased many
fold after the economic liberalization of 1991 as the co"ntry2s banking
sector has been exposed to the world2s market. Indian banks were finding it
diffic"lt to compete with the international banks in terms of c"stomer
ser#ice) witho"t the "se of information technology.
3et "s "nderstand a bit of Indian Banking system with some key points and
f"nctions. ,eser#e Bank being the top most in the go#erning layer
manages the li+"idity of money in market and play a key role in controlling
the inflation rates in the Indian economy. ,BI also reg"lates the basic
banking str"ct"re and acts as a monitor and ad#isor to the indi#id"al
banking entities in India. The iss"ance of c"rrency notes and keeping of the
reser#es to sec"re monetary stability is also among the key roles of ,BI.
In the next layer comes the indi#id"al banking entities or the $banks& which
in t"rn ser#es the retail and corporate clients. ,etail banking addresses the
need of an indi#id"al c"stomer and corporate banking caters of b"siness
clients on a considerably larger le#el.
/odern commercial banking) in its present form) is of recent origin. Its
e#ol"tion can be traced in the f"nctions of money lender) the goldsmiths
and the merchants.
1 bank has been often described as an instit"tion engaged in accepting of
deposits and granting loans. It can also be described as an instit"tion which
borrows idle reso"rces) makes f"nds a#ailable to. It does not refer only to a
place of tending and depositing money) b"t looks after the financial
problems of its cons"mers.
This era is the age of specialization with the changing sit"ation in the world
economy) banking f"nctions ha#e broadened. 4inancial instit"tions which
are shaped by the general economic str"ct"res of the co"ntry concerned
#ary from one co"ntry to another. 5ence) a rigid classification of banks is
bo"nd to the "nrealistic.
There seem so be no "niformity amongst the economist abo"t the origin of
the word 6Bank7. It has been belie#ed that the word 6Bank7 has been deri#ed
from the 8erman word 6Bank7 which means 9oint stock of firm or from the
Italian word 6Banco7 which means a heap or mo"nd.
In India the ancient 5ind" script"res refers to the money * lending acti#ities
in #edic period. They performed most of those f"nctions which banks
perform in modern times. In other words the de#elopment of commercial
banking in ancient times was closely associated with the b"siness of
money changing.
In simple words) bank refers to an instit"tion that deals in money. This
instit"tion accepts deposits from the people and gi#es loans to those who
are in need. Besides dealing in money) bank these days perform #ario"s
other f"nctions) s"ch as credit creation) agency 9ob and general ser#ice.
Bank) therefore is s"ch an instit"tion which accepts deposits from the
people) gi#es loans) creates credit and "ndertakes agency work.
Definitions of Bank
1. Indian Banking Companies Act - $Banking :ompany is one which
transacts the b"siness of banking which means the accepting for the
p"rpose of lending or in#estment of deposits money from the p"blic
repayable on demand or otherwise and withdrawable by che+"e) draft)
order or otherwise&.
2. Dictionary Meaning of the ord !Bank" -The oxford dictionary defines
a bank as $an establishment for c"stody of money recei#ed from or on
behalf of its c"stomers. It7s essential d"ty is to pay their drafts on it. It7s
profits arises from the "se of the money left employed by them&.
#. $he ebster"s Dictionary Defines a bank as $an instit"tion which
trades in money) establishment for the deposit) c"stody and iss"e of
money) as also for making loans and disco"nts and facilitating the
transmission of remittances from one place to another&.
%. According to &rof. 'in(ey) $1 bank is an establishment which makes to
indi#id"als s"ch ad#ances of money as may be re+"ired and safely made)
and to which indi#id"als entr"st money when it re+"ired by them for "se&.
The abo#e definitions of bank re#eal that bank is a B"siness instit"tion
which deals in money and "se of money. Th"s a proper and scientific
definition of the bank sho"ld incl"de #ario"s f"nctions performed by a bank
in a proper manner. The b"siness of a bank consists of acceptance of
deposits) withdrawals of deposits) /aking loans and ad#ances)
in#estments on acco"nt of which credit is exacted by banks.