Introduction to Banking Operations
After reading this chapter, you will be conversant with:
• The Changing Nature of Banking Operations
• Importance of Customer Relationship Management in Banks • Different Types of Products and Services Offered to Customers • Role of Technology in Banking Operations
• Bookkeeping and Maintenance of Accounts
• The Need for Asset-Liability Management
• Regulatory Framework for Compliance
Banking has flourished in India since the ancient times. The Rig Veda mentions indebtedness and some of the earliest dharma shastras lay down rates of interest and regulations governing debts and mortgages. Thus, a money economy existed in the ancient Vedic times. References to money lending for business purposes are found in the Manu Smriti too. The Jatakas of the Buddhist period, archeological discoveries and the literature relating to it, contain evidence of the existence of “Sreshthis” or bankers. Early on, trade guilds acted as bankers both for receiving deposits and issuing loans. In South India, in particular, the larger temples served as bankers. The village communes occasionally advanced loans to peasants. In the process of emergence of systems for performing such banking operations during the early era, the Vaishyas emerged as a class of indigenous bankers and ‘hundi’ emerged as the earliest form of bill of exchange in India. These two developments can be considered as two important landmarks in the history of Indian banking. Indigenous bankers played a very important role in lending money for trade and commerce. Every town, big or small, had a Seth, a Shah, a Shroff or a Chettiar, who performed a number of banking functions. Expansion of trade and commerce, both in terms of quantity and geography meant that the concept of banking would only gain more importance. Banking operations gradually transcended from individuals to groups and later on to companies. The Industrial Revolution of the 18th and 19th centuries, can be termed as an important landmark that helped widen the spread of banking operations. Banking is continuously and dramatically changing over the past few years. In a modern economy, banking plays an indispensable role. Banks today offer a wider range of products and services and deliver them faster and more efficiently than ever before. But the central function of banking still remains the same – mobilizing the savings (deposits and investments) of the economy towards investment. While banking did not enjoy a steady and harmonious growth, it emerged and evolved through various phases adapting itself continuously to meet the increasing needs of trade and commerce. The following ‘core’ areas have a bearing on the operations in the banking system. • Changing nature of banking operations
• Different types of products and services offered to customers • Role of technology in banking operations
• Importance of customer relationship management in banks • Bookkeeping and maintenance of books of accounts • The need for asset-liability management
• Regulatory framework for compliance.
Changing nature of banking operations
IN INDIA, THE INDIGENOUS BANKERS PLAYED A VERY IMPORTANT ROLE IN LENDING MONEY AND FINANCING FOREIGN TRADE AND COMMERCE DURING THE MOGHUL PERIOD. DURING THE BRITISH RULE, THE AGENCY HOUSES CARRIED ON THE BANKING BUSINESS. THE HINDUSTAN BANK WAS THE FIRST BANK TO BE ESTABLISHED IN 1779 FOLLOWED BY THE GENERAL BANK OF INDIA IN 1786. IN THE FIRST HALF OF THE 19TH CENTURY, THE EAST INDIA COMPANY ESTABLISHED THREE BANKS THE BANK OF BENGAL IN 1809, THE BANK OF BOMBAY IN 1840 AND THE BANK OF MADRAS IN 1843, WHICH WERE KNOWN AS “PRESIDENCY BANKS.” THESE THREE BANKS WERE AMALGAMATED IN 1920 AND A NEW BANK, THE IMPERIAL BANK OF INDIA...