Banking system in India plays a vital role in the economic development of a country. Banking system in India can be broadly divided into unorganized sector and organized sector. Unorganized sector mainly comprises of money lenders and indigenous bankers. The organized sector consists of commercial banks, co-operative banks and regional banks. Apart from these institutions which provide short-term credit to businesses, there are number of specialized term lending institutions which provide long term requirements of industry, agriculture and foreign trade. Post office savings is another segment of banking system. The RBI, the Central Bank of the country is at the apex of the banking structure in India.
Indigenous bakers lend money; act as money changers and finance internal trade by means of internal bill of exchange. With their own capital, they grant loans against securities such as gold, jewellery, land, promissory notes, etc. They also buy and sell remittance and discount hundies. They generally deal with agriculturist and small traders. The interest rate charged by them is higher than the interest charged by other banking institutions. According to RBI, about 50% of internal trade is financed by these indigenous bankers.
Commercial banks are the oldest banking institutions in the organized sector. They constitute the predominant segment of the banking system in India. They cater to the needs of trade, commerce, industries, agriculture, small business, transport and other activities with a wide network of branches throughout the country. Commercial banking system consists of scheduled banks and non-scheduled banks.
Scheduled banks: These banks are registered in the Second Schedule of the RBI. The following conditions must be fulfilled by a bank for inclusion in the Schedule:
1. The bank concerned must be carrying on a business of banking in India.
2. The bank must have paid-up capital and reserve of an aggregate value of not less than Rs. 5 lakhs.
3. It must satisfy RBI that its affairs are not being conducted in a manner detrimental to the interest of the depositor.
Presently, the RBI has prescribed a minimum capital of Rs. 100 crore for starting a new commercial bank.
Non- Scheduled Bank: Bank which is not included in the Second Schedule of the RBI is known as non-scheduled bank. The scheduled bank comes within the direct purview of the credit control measures of the Reserve Bank. They are entitled to borrowing and rediscounting facilities from the RBI.
Co-operative Banks: It is another component of the Indian banking system which was originated with the enactment of the Co-operative Credit Societies Act of 1904. The Act provided for the establishment of the credit societies for financing agriculturalists. The Co-operative Credit Societies Act, 1912 provided for the establishment of co-operative central banks by a union of primary credit societies. The co-operative movement to meet the needs of the agriculturalist received momentum only during the post independence era.
The co-operative banking structure in India is a pyramid type of a three tier structure comprising
1. Primary Agricultural Co-operative Credit Society at the village level:
The primary co-operative societies function at the base of the co-operative credit system. It may be organized by ten or more persons normally belonging to a village or a cluster of villages. The society raises fund by ways of share capital, deposit from members and non-members and loans from District Central Co-operative Banks. The borrowing power of the members as well as the society is limited. Loans are given for short period for the purchase of cattle, fodder, fertilizers etc.
2. District Central Co-operative Banks at the district level, and:
It is a federation of primary credit societies in specified areas normally...