Role of Indian Banks in the Growth of the Indian Economy

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  • Topic: Bank, Central bank, Fractional-reserve banking
  • Pages : 6 (2120 words )
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  • Published : April 30, 2010
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In the current global order, where the world has become a big village, consumers take a global look at the products and services in terms of price, quality, delivery and after-sale services. This trend has sown the seeds of competition in every sector of economy and banking sector is no exception to this event. Banking, the world over, has been changing at a spectacular pace. This change is due to multifarious factors like the need to be efficient in functions, thirst for becoming finance superpowers than mere banks, growing importance of private banking, the rise in high net worth individuals, etc. the decade of 90s has witnessed a sea change in the way banking is done in India. Technology has made tremendous impact in banking. “ANYWHERE BANKING” and “ANYTIME BANKING” have become a reality. Growing integration of economies and the markets around the world have made global banking a reality too. The surge in globalization of finance has also gained momentum with the technology advancements, which have effectively become overcome the national borders in the financial services business. India, as we know, is one of the 104 signatories of Financial Services Agreement (FSA) of 1997. This gives Indian banks an opportunity to expand on a quid pro quo basis. BANKING IN INDIA:

Banking in India originated in the last decades of the 18th century. The oldest bank in existence in India is the State Bank of India, a government-owned bank that traces its origins back to June 1806 and that is the largest commercial bank in the country. Central banking is the responsibility of the Reserve Bank of India, which in 1935 formally took over these responsibilities from the then Imperial Bank of India, relegating it to commercial banking functions. After India's independence in 1947, the Reserve Bank was nationalized and given broader powers. In 1969 the government nationalized the 14 largest commercial banks; the government nationalized the six next largest in 1980. Currently, India has 96 scheduled commercial banks (SCBs) - 27 public sector banks (that is with the Government of India holding a stake), 31 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 38 foreign banks. They have a combined network of over 53,000 branches and 17,000 ATMs. STRUCTURE OF BANKING SYSTEM IN INDIA:

The following figure represents the structure of Indian Banking System. {draw:frame}
Money lending in one form or the other has evolved along with the history of the mankind. Even in the ancient times there are references to the moneylenders. Indian history is also replete with the instances referring to indigenous money lenders involved in the business of money lending by mortgaging the landed property of the borrowers. Towards the beginning of the 20th century, with the onset of modern industry in the country, the need for government regulated banking system was felt. Reserve Bank of India was set up to regulate the formal banking sector in the country. But the growth of modern banking remained slow mainly due to lack of surplus capital in the Indian economic system at that point of time. Modern banking institutions came up only in big cities and industrial centers. The rural areas, representing vast majority of Indian society, remained dependent on the indigenous money lenders for their credit needs. Independence of the country heralded a new era in the growth of modern banking. In 1969, Indian government took a historic decision to nationalize 14 biggest private commercial banks. A few more were nationalized after a couple of years. This resulted in transferring the ownership of these banks to the State and the Reserve Bank of India could then issue directions to these banks to fund the national programs, the rural sector, the plan priorities and the...
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