INDIAN BANKING SYSTEM.

Introduction The Indian Banking System: it is an institutional framework which enables financial transactions. Now, the point is why do we need to make money transactions? Every common man thinks that if only barter system was allowed, life would be so much more peaceful.... Let's get to know more about it with the help of a short story- Reena had loads of salt but she was in need of corn, on the other hand Dev had access to corn which he didn't mind trading for salt(this is how barter system functions). But now Dev is in trouble as his reserve of corn would go bad in a while. This is when Dev(the smarter one :p) came up with an idea to introduced a new system of trading ie. Money.The Banks that are available in our country help us make all these transactions easily. They further give us security of our money and even the appropriate credit capitalisation{GDP} on our money which is deposited in the banks.

History of Indian Banking System

FIRST FEW BANKS OF INDIA:Bank of Hindustan in 1770, Calcutta.

General Bank of India in 1786.

THREE PRESIDENCY BANKS:Bank of Calcutta in 1806.

Bank of Bombay in 1840.

Bank of Madras in 1843.

Later, Bank of Calcutta was nationalized and given the name Imperial Bank of India in 1921 which was further renamed to State Bank of India in 1955. This makes SBI one of the oldest banks of India.

Captain of Indian Banking System The Indian Banking System works in accordance to Reserve Bank of India(RBI). The Reserve Bank of India is India's central banking institution, which controls the monetary policy of the Indian rupee. It commenced its operations on 1 April 1935 and following India's independence on 15 August 1947, the RBI was nationalised on 1 January 1949.

Structure of Indian Banking System

The indian banking system can be classified mainly in two parts:

Commercial Banks-Private sector Banks-Public sector Banks-Foreign Banks-Regional Rural Banks

Coorporative BanksShort term

-Primary Credit Coorporative Banks{PCCB}-Disrict Central Coorporative banks{DCCB}

-State Coorporative Banks{SCB}

Long term

-Primary Cooperative Agriculture and Rural Development Bank{PCARDB}

-State Cooperative Agriculture and Rural Development Bank{SCARDB}

Urban Banks

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Let's first see what does a commercial bank general do?

A commercial Bank is a type of financial institution that provides services such as accepting deposits, making business loans, and offering basic investment products. The functions performed by a commercial bank are:

Accepting deposits.

Making advances.

Credit creation.

Clearance of cheques.

Transfer of money.

Providing insurance.

To work as a trustee: The banks act as trustee to manage trust propeties as per instructions of property owners.

Sale/Purchase of Bonds/Shares: A bond is debt instrument that a government or a company issues to raise money. One can buy and sell bonds and shares on the open market or to the banks.

To work as a representative: Commercial bank sometimes acts as an agent on behalf of its customers.

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So where lies the difference amongst the various types of commercial banks?

Lets see the main points which diffrentiate all the commercial banks.

Private Sector Banks: The major stake holders of these banks are corporators or industrial companies.

Public Sector Banks: The major stake holders of these banks is the Indian government.

Foreign Banks: These banks function in india but their headquarters are located in some foreign nation.

Regional Rural Banks: These are set up to simply meet the needs of people in rural areas (villagers) and not to make profits..

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What does a coorporative bank do?

Cooperative banking is retail and commercial banking organized on a cooperative basis. Co-operative banks differ from stockholder banks by their organization, their goals, their values and their governance. Cooperative Banks in India have become an integral part of the success of Indian Financial Inclusion story. They work on a no profit no loss agenda helping other villagers or the respective people. RBI only has partial control over these banks unlike commercial banks where RBI has full control over them.

Here are the differences between commercial and cooperative banks.

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Here are the features which make various types of Cooperative Banks unique

Short term:PCCB- they give short term loans to villagers or people in rural areas only.

DCCB- they give loans to PCCBs and not to the villagers directly.

SCB- they monitor and govern all the loans and pass them to DCCBs only.

Long term:PCARDB- they give long term loans to villagers or people in rural areas by mortgaging immovable property as security.

SCARDB- they monitor all the loans and pass them to PCARDBs

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Urban Banks
These are further of two types- scheduled and non-scheduled.Scheduled Banks are the banks which were established in or after 1934 and who function in accordance to the RBI, whereas Non-Scheduled Banks are the banks which do not follow the rules made by the RBI, and most of them were established in 1902.

Here are the various types of Urban Banks:Scheduled BanksMultistate- the bank has its branches over multiple state.

Single state- the bank has all it's branches in a single state itself.

Non-ScheduledMultistate

Single stateTier 1- they have a total deposit less than 100 crore INR.Tier 2 -they have a total deposit more than 100 crors INR.

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To conclude with, I'd like to summarize about the INDIAN BANKING SYSTEM by talking about it's accomplishment-

Physical as well as virtual expansion of banking through mobile banking, internet banking, tele banking, bio-metric and mobile ATMs is taking place since last decade and has gained momentum in last few years. The new UPI {unified payment interface} has been launched by RBI to make transactions and payment even more simpler and easier on a user level.