A bank is an institution that accepts
deposits of money from the public, which are repayable on demand and withdrawable
by cheque. Such deposits are used for lending to others and not for financing
its own business of any kind. The term lending includes both direct lending
to borrowers and indirect lending through investment in open market securities.
A sound banking system plays a pivotal role in the growth of a nation's
economy. In India, the beginning of banking system dates back to 1881,
when the first bank called as 'the Oudh Commercial Bank' was established.
It was followed by the setting up of the 'Punjab National Bank' in 1894.
Subsequently, a number of commercial banks came up in the country. The number of bank offices multiplied from 8,300 in July
1969 to more than 47,000 in June 1995. It substantially improved the overall
availability of banking facilities in the country.
The Reserve Bank of India (RBI) is
the supreme monetary authority responsible for controlling the banking
system in the country. It was established on April 1, 1935, in accordance
with the provisions of the Reserve
Bank of India Act, 1934. Though originally privately owned, since
nationalisation in 1949, the Reserve Bank is fully owned by the Government
of India. It was nationalised on the basis of the Reserve Bank of India
(Transfer to Public Ownership) Act, 1948. As a result all shares in the
capital of the bank were deemed transferred to the Central Government
on payment of a suitable compensation.The central office of the Reserve
Bank is established at Mumbai and the bank has 22
regional offices ,most of which are in State capitals. The Banking
Regulation Act, 1949, provides the legal framework for regulation of the
banking sector by the Reserve Bank of India.
The main functions of RBI are:-
- Formulate, implement and monitor
the monetary policy with the objective of maintaining price stability
and ensuring adequate flow of credit to productive sectors.
- Regulate and supervise the financial
system by prescribing the broad parameters of banking operations within
which the system must function.
- Manager foreign exchange in order
to facilitate external trade and promote orderly development and maintenance
of foreign exchange market in India.
- Issues and exchanges or destroys
currency and coins not fit for circulation, so as to give the public
adequate quantity of supplies of currency notes and coins and in good
quality.
- Performs a wide range of promotional
functions to support national objectives.
- Banker to the Central and State Governments.
- Banker to banks by maintaining banking
accounts of all scheduled banks.
Composition and current scenario
As per the Reserve Bank of India Act,
1934, banks in India are classified into scheduled and non-scheduled banks.
Scheduled banks are those which are entered into the second schedule of
the RBI Act, 1934. It includes those banks which have a paid-up capital
and reserves of an aggregate value of not less than Rs.5 lakhs and which
satisfy RBI that their affairs are being carried out in the interests
of the depositors. While, non-scheduled banks are those which have not
been included in the second schedule of the Act. The scheduled banks comprise
scheduled commercial banks and scheduled cooperative banks. Further, the
scheduled commercial banks in India are categorised into five different
groups according to their ownership and/or nature of operation:- (i) Nationalised
Banks; (ii) State Bank of India and its associates; (iii) Regional Rural
Banks (RRBs); (iv) Foreign banks; and (v) Other Indian private sector
banks. Scheduled Co-operative Banks consist of Scheduled State Co-operative
Banks and Scheduled
Urban Co-operative Banks.
At present, there are 170 scheduled commercial banks in the country, which includes 91 regional rural banks (RRBs), 19
nationalised banks, 8
banks in State Bank of India group and the Industrial
Development Bank of India Limited (IDBI Ltd).Besides, there are only four non-scheduled commercial banks in the country.
The State Bank of India (SBI) and its associate banks include:-
Regional Rural Banks (RRBs) have been set up in the country on the sponsorship of individual nationalised
commercial banks. These banks aim at taking the banking facilities to
the doorsteps of rural masses especially in the remote areas. The objective
was to provide credit to small and marginal farmers, agricultural labourers,
artisans and small entrepreneurs so as to develop productive activities
in the rural areas. They have been conceived as institutions that combine
the features of both the co-operatives and commercial banks. Initially,
five RRBs were set up in 1975, at Moradabad and Gorkhpur in Uttar Pradesh;
Bhiwani in Haryana; Jaipur in Rajasthan and Malda in West Bengal. But
gradually the spread of these banks has increased and the Government has
taken several policy measures for their growth and expansion.
Foreign banks like Citibank
, HSBC , Standard
Chatered Bank , etc are the branches of those banks which are incorporated
in foreign countries. Most of them perform essentially the same range
of services as local banks, except that their focus in terms of product
and customers may be different due to their limited branch network. They
bring in new technology and facilitate in the introduction as well as
assimilation of international products into the domestic markets. They
help the local banking industry keep pace with developments in the financial
centres abroad. They also help provide Indian corporations access to foreign
capital markets. In keeping with the general trend towards liberalisation,
the Government has introduced several measures for widening the scope
for foreign banks to enter and operate in India.
The State Co-operative Banks
(SCBs) constitute the apex of the three tier co-operative credit structure,
organised at the level of individual States. While, Urban Co-operative
Banks (UCBs), refers to the primary cooperative banks located in urban
and semi-urban areas. Initially, these banks were allowed to lend money
only for non-agricultural purposes and essentially to small borrowers
and businesses. Today, their scope of operations has widened considerably.
The Urban
Banks Department of the Reserve Bank of India is vested with the responsibility
of regulating and supervising the urban cooperative banks.
Given this set up, with liberalisation,
banks in India are venturing into non-traditional and diversified areas
other than the core banking activities. They are facing increased competition
both domestically and abroad. Hence, in order to make a benchmark in the
changed environment, they need to tackle issues like profitability, efficiency,
technological upgradation, customer satisfaction, etc in an effective
manner.
