All About Indian Banking System

Indian Banking System Every One Must Know


The existing Indian Banking System structure makes progress over several decades, is elaborated and has been providing the credit and banking services needs of Indian economy. Indian Banking System is divided into multiple layers which follows the requirements of different customers and borrowers of the country. The banking structure played a crucial role in the mobilisation of savings and promoting economic development. In the post-financial sector reforms (1991) phase, the performance and strength of the Indian Banking structure improved noticeably. India cannot possess a healthy economy without a strong and productive banking system. The banking system should be hassle free and must be able to meet the new challenges posed by technology and other factors.

Definition of Bank-

A bank is an organization which deals in money and credit. Thus, a bank is an intermediary body which handles Customers money both for their advantage and to its own profit as well. But a bank is not solely a trader of money but also an important constructor of money. In other words, we can say a bank is a factory of credit.

Banking Structure in India-

The Following Figure shows Indian Banking System-

Banking Structure

Features of Banking-

  • Following are the basic characteristics of Banking:
  1. Dealing in Money: The banks receive deposits from the public and facilitate loans to the needy people. The deposits may be of different forms like saving, current, fixed accounts etc. The deposits are accepted on various terms and conditions.
  2. Deposits must be withdrawable: The deposits (other than fixed deposits) done by
    the public must be withdrawable either by cheques, draft or any other ways provided by the bank i.e. the bank issue and pay cheques. The deposits are usually withdrawable as per the demand of the public.
  3. Dealing with credit: The banks are the financial institutions that can provide additional money for lending. Thus, “creation of credit” is the unique feature of the banking system.
  4. Commercial in nature: As we know all the banking functions are carried on with the focus of making a profit, so it is regarded as commercial institutions.
  5. Nature of agent: Apart from the basic functions of accepting deposits and lending money as loans, banks hold the character of an agent because of its various agency services.

Classification of Banks

Nowadays is the age of specialization and we can find specialization in all most every field including banking. The banks have started specialized in a particular line of finance. Various types of banks have developed to outfit the economic enlargement and requirements of the country. The banking institutions of a country may be classified into following types:

  1. Central Banks
  2.  Commercial Banks
  3.  Industrial Or Development Banks
  4.  Exchange Banks (authorized dealers in foreign exchange)
  5.  Co-operative Banks
  6.  Land-mortgage Banks
  7.  Indigenous Banks
  8.  Savings Banks
  9.  Supranational Banks
  10.  International Banks

1.Central Banks: Central Bank is known as the bank of a country or a nation. The main function of it is to issue currency known as ‘Bank Notes’. This bank function as the chief of the banking system and money market of the nation by regulating credit and money. These kind of banks are the bankers to the government; they are banker’s banks and the ultimate superintendent of a nation’s foreign exchange reserves. The aim of the Central Bank is not to earn the financial gain, but to maintain price stability and to strive for economic development with an all-round growth of the country.

2. Commercial Banks: A bank, which undertakes all kinds of the ordinary banking business, is called a commercial bank.

3. Industrial Banks or Financial Institutions: An Industrial Bank is the bank which specializes in providing loans and fixed capital amount to industrial concerns by subscribing to share and credit issued by public companies.

4. Exchange Banks (Authorised Dealers in Foreign Exchange): Such kind of banks are fundamentally engaged in transactions involving foreign exchange. They deal with foreign bills of exchange import and export of bullion and apart from that participate in the financing of foreign trade.

5. Co-operative Banks: They are basically organized on co-operative principles of mutual help and assistance. They grant short-term loans to the agriculturists for a purchase of harvesting, seeds and for other cultivation costs. They accept money in the form of deposit from and make loans to their members at a very low rate of interest.

6. Land-mortgage Banks (Presently known as Agriculture and Rural Development Banks): Such banks are designed for agriculture development. They supply long-term loans for a period up to 15 years for development of land to improve agricultural yields. They grant loan for permanent improvements in agricultural lands as well. The National Bank for Agriculture and Rural Development (NABARD) was constituted by the Government to promote rural development in Country.

7. Indigenous Banks: The Central Banking Enquiry Commission describe an indigenous banker as an individual or film accepting deposits which deal in indigenous lending of money to the needy. They construct unorganized part of the banking structure, i.e., these are unrecognized operators which receive deposits and lending money.

8. Savings Banks: These are institutions which collect the periodical savings of the general public. Their main objective is to promote thrift and saving habits among the middle and lower income sections of the society of our country.

9. Supranational BanksSupranational Banks have been established to deal with certain international financial matters. World Bank is differently known as International Bank for Reconstruction and Development (IBRD) which provides long-term loans to developing countries for their economic growth and agricultural development. Asian Development Bank (ADB) is another Supranational Bank which provides finance for the economic development of poor countries of Asia.

10. International BanksInternational Banks are those organization which are operating in different countries. While the registered head office is situated in one country, they operate through their different branches in other countries. Such banks specialize in Banking business pertaining to foreign trade like the opening of letters of credit, arranging foreign currency credits, issuing of performance guarantee, providing short-term finance in foreign currency, etc. They perform trades in International Currencies like US ‘dollars’, Japanese ‘Yen’, European Currency ‘Euro’, etc.

This Article provides you basic information about Indian Banking System. We will provide you with more articles related to Indian Banking System and Economy for that, please visit our website on a very daily basis.

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