BANKING SYSTEM

The banking system in India is significantly different from other countries.

1. Reserve Bank of India:

Reserve Bank of India is the Central Bank of our country. It was established on 1^st April 1935 under the RBI Act of 1934. It holds the apex position in the banking structure. RBI performs various developmental and promotional functions.

It has given wide powers to supervise and control the banking structure. It occupies the pivotal position in the monetary and banking structure of the country. In many countries central bank is known by different names.

For example, Federal Reserve Bank of U.S.A, Bank of England in U.K. and Reserve Bank of India in India. Central bank is known as a banker’s bank. They have the authority to formulate and implement monetary and credit policies. It is owned by the government of a country and has the monopoly power of issuing notes.

2. Commercial Banks:

Commercial bank is an institution that accepts deposit, makes business loans and offer related services to various like accepting deposits and lending loans and advances to general customers and business man.

These institutions run to make profit. They cater to the financial requirements of industries and various sectors like agriculture, rural development, etc. it is a profit making institution owned by government or private of both.

Commercial bank includes public sector, private sector, foreign banks and regional rural banks:

a. Public sector banks:

It includes SBI, seven (7) associate banks and nineteen (19) nationalized banks. Altogether there are 27 public sector banks. The public sector accounts for 90 percent of total banking business in India and State Bank of India is the largest commercial bank in terms of volume of all commercial banks.

b. Private sector banks:

Private sector banks are those whose equity is held by private shareholders. For example, ICICI, HDFC etc. Private sector bank plays a major role in the development of Indian banking industry.

c. Foreign Banks:

Foreign banks are those banks, which have their head offices abroad. CITI bank, HSBC, Standard Chartered etc. are the examples of foreign bank in India.

d. Regional Rural Bank (RRB):

These are state sponsored regional rural oriented banks. They provide credit for agricultural and rural development. The main objective of RRB is to develop rural economy. Their borrowers include small and marginal farmers, agricultural laborers, artisans etc. NABARD holds the apex position in the agricultural and rural development.

3. Co-operative Bank:

Co-operative bank was set up by passing a co-operative act in 1904. They are organized and managed on the principal of co-operation and mutual help. The main objective of co-operative bank is to provide rural credit.

The cooperative banks in India play an important role even today in rural co-operative financing. The enactment of Co-operative Credit Societies Act, 1904, however, gave the real impetus to the movement. The Cooperative Credit Societies Act, 1904 was amended in 1912, with a view to broad basing it to enable organization of non-credit societies.

Three tier structures exist in the cooperative banking:

i. State cooperative bank at the apex level.

ii. Central cooperative banks at the district level.

iii. Primary cooperative banks and the base or local level.

4. Scheduled and Non-Scheduled banks:

A bank is said to be a scheduled bank when it has a paid up capital and reserves as per the prescription of RBI and included in the second schedule of RBI Act 1934. Non-scheduled bank are those commercial banks, which are not included in the second schedule of RBI Act 1934.

5. Development banks and other financial institutions:

A development bank is a financial institution, which provides a long term funds to the industries for development purpose. This organization includes banks like IDBI, ICICI, and IFCI etc. State level institutions like SFC’s SIDC’s etc. It also includes investment institutions like UTI, LIC, and GIC etc.