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Banking in India Notes

The document provides a comprehensive overview of banking in India, detailing its role as a financial intermediary that mobilizes savings and facilitates credit creation. It covers the history of banking, the functions of banks, the structure of the Indian banking system, and recent developments such as digital payments and financial inclusion initiatives. Key highlights include the establishment of the Reserve Bank of India, the nationalization of banks, and the impact of technology on banking services.

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172 views2 pages

Banking in India Notes

The document provides a comprehensive overview of banking in India, detailing its role as a financial intermediary that mobilizes savings and facilitates credit creation. It covers the history of banking, the functions of banks, the structure of the Indian banking system, and recent developments such as digital payments and financial inclusion initiatives. Key highlights include the establishment of the Reserve Bank of India, the nationalization of banks, and the impact of technology on banking services.

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pranavcsc2021
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We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd

Banking in India: Comprehensive Notes

Introduction to Banking
- Banks are financial intermediaries: they mobilize savings by accepting deposits and channel them
as loans or investments to businesses and individuals.
- By matching savers with borrowers, banks facilitate payments and enable credit creation, thereby
supporting economic activity and growth.
- They safeguard deposits, issue payment instruments (cheques, drafts, cards), and provide credit
(advances, overdrafts).
- Overall, the banking system enhances resource efficiency, boosting investment and consumption
in the economy.

Meaning of Banking
- Defined in the Banking Regulation Act, 1949: 'Banking means the accepting, for the purpose of
lending or investment, of deposits of money from the public, repayable on demand or otherwise,
and withdrawable by cheque, draft, order or otherwise.'
- In practice: accepting deposits (current, savings, fixed) and advancing loans (cash credit,
overdrafts, term loans).
- Provides payment and clearance services and financial transaction management.
- A bank is a company licensed under the RBI Act to conduct the business of banking.

History of Banking in India


- Ancient & Medieval: Mauryan-era 'adesha' (bill of exchange), hundis used in trade.
- Colonial: Bank of Hindustan (1770), Presidency Banks (Bank of Bengal, Bombay, Madras),
merged into Imperial Bank of India (1921).
- Reserve Bank of India: Established in 1935, nationalized in 1949, central regulator.
- Nationalization: 14 banks in 1969, 6 more in 1980.
- Liberalization: 1991 reforms, private banks (ICICI, HDFC, Axis) and foreign banks grew.
- Digital Era: UPI (2016), fintech integration, Aadhaar-KYC, Digital Rupee (2022).

Functions of Banks
Primary Functions:
- Accepting deposits (current, savings, fixed).
- Lending (loans, overdrafts, cash credit, bills discounting).
- Credit (money) creation.

Secondary Functions:
- Payment and agency services (cheques, drafts, NEFT/RTGS/UPI).
- Issue letters of credit, guarantees, traveler’s cheques.
- Safekeeping (lockers) and consultancy.

Modern Functions:
- Internet/mobile banking, ATMs, UPI/QR-code payments.
- Insurance, mutual funds, wealth management.
- Technology: fintech partnerships, AI/ML analytics.
Structure of the Indian Banking System
- Reserve Bank of India (apex body).
- Scheduled Commercial Banks:
* Public Sector Banks (SBI & nationalized banks).
* Private Sector Banks (ICICI, HDFC, Axis, etc.).
* Foreign Banks (HSBC, Citi, etc.).
* Regional Rural Banks (RRBs).
* Small Finance Banks.
* Payment Banks.
- Cooperative Banks (urban & rural).
- Development Financial Institutions (NABARD, SIDBI, EXIM).
- Non-Banking Financial Companies (NBFCs).

Recent Developments in Indian Banking


- Digital Payments: UPI, BHIM, QR-code payments.
- Central Bank Digital Currency: RBI Digital Rupee (e■) pilot launched 2022.
- Financial inclusion: Jan Dhan Yojana, Aadhaar-KYC, Payment/SFBs.
- Monetary policy: RBI repo rate adjustments, Basel III norms.
- Mergers of PSBs for efficiency.
- Tech upgrades: AI, blockchain, open banking APIs.

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