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The Indian banking system is a complex one, with a large number of banks and a variety of types of banks. The first thing to understand about the Indian banking system is that it is highly centralized. The Reserve Bank of India (RBI) is the central bank of India, and it is responsible for the regulation and supervision of all banks in the country. The RBI is also responsible for the monetary policy of the country, and it sets the interest rates that banks charge on loans.
The Indian banking system can be broadly divided into two parts: the scheduled banks and the non-scheduled banks. Scheduled banks are those which are listed in the Second Schedule of the Reserve Bank of India Act, 1934. Non-scheduled banks are those which are not so listed. As of March 31, 2016, there were 27 public sector banks, 21 private sector banks, 49 foreign banks, and 56 regional rural banks in India.
The public sector banks are owned by the government, and they include the State Bank of India (SBI) and its associates, as well as the other nationalized banks. The private sector banks are those which are not owned by the government, and they include both foreign and domestic banks. The foreign banks operating in India include Citibank, HSBC, Standard Chartered Bank, and Deutsche Bank.
The regional rural banks (RRBs) are a special type of bank which serves the rural areas of the country. There are 56 RRBs in India, and they are owned by a consortium of banks, with the SBI having the largest share.
The Indian banking system is primarily a deposit-taking system, with deposits being the major source of funds for banks. Banks use these deposits to lend money to individuals and businesses. The RBI regulates the interest rates that banks can charge on loans, as well as the interest rates that they must pay on deposits.
The banking system in India is undergoing a major transformation at present, with the government aiming to increase financial inclusion by expanding the reach of banking services to rural and remote areas. The government has also launched a scheme to provide loans to small and medium enterprises (SMEs) at discounted rates, in order to boost investment and growth.
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History of Banking in India
Banking in India has a long and rich history dating back to ancient times. The first banks in India were the cooperatives, which were started by the farmers and artisans in the rural areas. These cooperatives provided credit and banking services to the members and helped them in their businesses. In the urban areas, the first banks were the merchant banks, which were started by the trading communities. These banks provided financing for the trading activities of the merchants and also helped them in managing their finances. The first modern bank in India was the State Bank of India, which was established in 1806. Since then, the banking sector in India has grown tremendously, with a large number of private and public sector banks operating in the country.
CLICK HERE FOR NOTES ON HISTORY OF BANKING IN INDIAHistory of the Reserve Bank of India
The Reserve Bank of India (RBI) is the central banking institution of India. It controls the monetary policy of the Indian rupee. The RBI was established on April 1, 1935 in accordance with the Reserve Bank of India Act, 1934. The original share capital was divided into shares of 100 rupees each. The RBI plays an important role in the development strategy of the Government of India. It is a member of the Asian Clearing Union.
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Major Provisions of RBI Act
The RBI Act 1934 is the primary legislation governing the Reserve Bank of India. The RBI Act 1934 provides for the establishment of the Reserve Bank of India, its powers and functions, the supervision and control of banking in India, and the issuance of currency.
CLICK HERE FOR NOTES ON MAJOR PROVISIONS OF RBI ACTBanking Regulation Act of India
Banking Regulation Act is an Act of the Parliament of India enacted in 1949 to regulate the banking system in India. The Reserve Bank of India was constituted under the provisions of this Act. Prior to the enactment of this Act, the Reserve Bank of India Act, 1934 governed the Reserve Bank of India.
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Nationalization of Banking in India
Nationalization of banking in India refers to the process of taking control of the banks by the government. This was done in order to develop the Indian banking system and to make it more efficient. The government nationalized the 14 biggest commercial banks of the country in 1969.
CLICK HERE FOR NOTES ON NATIONALIZATION OF BANKING IN INDIABanking Reforms During Liberalization in India
After the liberalization of the Indian economy in the early 1990s, the banking sector underwent a number of reforms. These reforms were aimed at improving the efficiency and profitability of banks, and expanding the reach of banking services to all sections of society. Some of the key banking reforms during this period include:
– The establishment of private sector banks
– The introduction of new technology and banking products
– The deregulation of interest rates
– The consolidation of the banking sector
These reforms have helped to make the Indian banking sector one of the most dynamic and vibrant in the world.
Major Banking Reforms of 21st century in India
In the 21st century, the banking sector in India has undergone several major reforms. These have been introduced in order to make the banking system more efficient and customer friendly. Some of the major reforms introduced in the banking sector are:
1. The wide adoption of information technology in all aspects of banking operations.
2. The introduction of new products and services such as mobile banking and Internet banking.
3. The implementation of stricter norms for Know Your Customer (KYC) and anti-money laundering (AML).
4. The provision of better banking services to rural and semi-urban areas through the establishment of new branches and ATMs.
5. The introduction of Basel III norms which have enhanced the role of banks in the economy.
Types of Banking in India
Banking in India has evolved over the years with the rise of different types of banks. Each type of bank has its own unique set of services and products. The four main types of banks in India are commercial banks, rural banks, cooperative banks, and foreign banks.
Commercial banks are the most common type of bank in India. They are typically large banks that offer a full range of banking services to both retail and corporate customers. Rural banks are smaller banks that focus on serving the banking needs of rural areas. Cooperative banks are owned and operated by their members, and foreign banks are banks that are based in another country but have operations in India.
Types Of Banks In India
In India, banks can be broadly classified into four types – public sector banks, private sector banks, foreign banks, and regional rural banks. Public sector banks are owned and controlled by the Indian government. These include State Bank of India (SBI) and its associates, as well as other nationalized banks. Private sector banks are owned and controlled by private entities.
These include both old private sector banks such as HDFC Bank, ICICI Bank, AXIS Bank, etc., as well as new generation private sector banks such as Kotak Mahindra Bank, Yes Bank, etc. Foreign banks are banks that have been incorporated in a foreign country, but operate in India. These include banks such as Citibank, HSBC, Standard Chartered, etc. Regional rural banks are a special type of bank that has been created to serve the needs of rural India. These include banks such as Punjab and Sind Bank, Kerala Gramin Bank, etc.
Public Sector Banks in India
Public sector banks (PSBs) are a major source of financing for the government and play a significant role in the Indian economy. As of March 2018, there are 21 PSBs in India. PSBs are typically large and have a wide reach, with branches across the country.
PSBs offer a range of banking services including deposits, loans, and credit products. PSBs also have a large network of ATMs and branches, which makes them convenient for customers.
Private Sector Banks In India
The Indian banking sector is broadly classified into two categories- public sector banks and private sector banks. Public sector banks are those banks in which the majority stake is held by the government. On the other hand, private sector banks are those banks in which the majority stake is held by private individuals.
The banking sector in India has witnessed a tremendous growth in the last few years. This growth can be attributed to the growth of the economy and the increasing trust of the people in the banking system. The banking sector is one of the most important sectors in the Indian economy.
Banks play a very important role in the economy by channeling the savings of the people into productive investments. They also provide a vital source of credit to the businesses and entrepreneurs. Banks also play an important role in the process of economic development by providing financial services to the under-banked and un-banked sections of the society.
Foreign Banks in India
The banking sector in India has undergone a rapid transformation in the last two decades. The liberalization and globalization of the economy have facilitated the entry of foreign banks in India.
At present, there are 43 foreign banks operating in India with over 9,000 branches. These banks have been able to carve out a niche for themselves in the Indian banking landscape and offer a wide range of products and services.
The foreign banks in India are subject to the same regulatory and supervisory framework as the domestic banks. They are also required to follow the guidelines issued by the Reserve Bank of India (RBI) from time to time.
Cooperative Banks In India
The Indian banking sector is broadly classified into five categories – scheduled commercial banks, urban cooperative banks, rural cooperative banks, state cooperative banks and central cooperative banks. Among these, scheduled commercial banks and urban cooperative banks dominate the banking sector in India in terms of reach, size and government support.
In India, a cooperative bank is one that is registered as a co-operative society under the Cooperatives Societies Act. As on 31 March 2016, there were 1,562 urban cooperative banks (UCBs) in India with a total membership of over 42 million.
Cooperative banks play an important role in the financial inclusion of the country as they provide banking services to a large number of small businesses and rural households which are not served by the scheduled commercial banks. These banks are also helpful in funding the priority sectors of the economy such as agriculture, small-scale industry etc.
