All you need to know about the banking systems in India

Banking System in India

When coming to banking systems in India merchants established the Union Bank of Calcutta in 1829 1st as a private joint-stock association, later as a consortium

The institution which deals in collecting money of the citizens as savings and grants loans and investments to the citizens, as well as various organizations, are known as banks. To summarise briefly bank can be termed as the financial organization that collects, receives money from the people, transfers, exchange, pay money for the people, and lends money to the people and secures, invest money of the people. Banks include investment banks, financing companies, and money lending associations.

The banking system plays a vital role in enhancing the economic growth of the nation and it has become an integral part of the development of the economy. It converts savings into investment thereby boosting economic growth. The primary objective of the banking system is the allocation of resources efficiently and effectively from the savers to the investors. The banking system serves as the root of India’s financial sector.

The banking system of India consists of the Central Bank that is the Reserve Bank of India, various commercial banks, cooperative banks, and development institutions. These institutions work on their targeted market which caters to a different group of people. Some banks operate in rural areas and some in urban areas.

Indian financial regulators

  • Reserve Bank of India ( RBI) – This is the central bank of India and executes various functions being the backbone of the financial sector of India.
  • Securities Exchange Board of India ( SEBI) – This organization takes charge of the capital markets and mutual funds. It regulates law regarding the market of securities in India.
  • Insurance Regulatory and Development Authority ( IRDA) – This institute checks the working of all the insurance companies of the economy and whether the companies are complying with the prescribed rules or not.

The structure of the banking sector can be classified into public sector banks and scheduled banks.

Public Sector Banks

The banks which are nationalized and operate in the entire nation can be said as public sector banks. Currently, in India, there is 27 banking public sector. These banks have substantial deposits and assets base and perform all the core and different functions of the bank. These banks contribute about 75% of the total deposits and approx 70% of the total advances of all commercial banks in India. These banks have established their branches all over the country.

Scheduled Banks

These are the banks that are listed in the second schedule of the Reserve Bank of India Act, 1934. The cooperative banks and commercial banks come under the category of scheduled banks. They are required to maintain certain amounts with RBI and bask the facility of financial accommodation and remittance facilities at certain rates from RBI.

The banking sector has manifold the path of financial services since liberalization. There have been countless positive changes in the big economy and one can even say that the transformation of the banking system has flourished in bringing the Indian financial system closer to global standards.

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