Indian Banking & Financial System

Posted on January 20, 2017 by Abhilasha G in Out of The Box1

The Structure of Banking in India instigated in the last decades of 18th century.
Indian Banking Structure is very different from that of other countries. Banking can
be considered as the back bone of the country, its business, economic growth and
development because finance is the vital element for a country’s trade, commerce
and industry.

The role that banking system plays in a country can be quite but it is the most
significant part of the country’s economy.

What is a Bank?

Simply talking “Bank is a financial institution licensed as a receiver of

deposits”.

But if you want to define a Bank perfectly then we can say that “Bank is a lawful
organization, which accepts deposits that can be withdrawn on demand, who
also lends money to individuals and business houses that need it”.

Why is Banking an Integral Part of Economy?

Banking system plays a very significant role in the country’s economy by

maintaining the flow of cash in various segment of the economy.

As we know that money lending is a process which could be seen in the ancient time
also by the zamindars and sahukars, who lend money to the borrower by taking
land and other properties as mortgage (security).

The money lending process is now undertaken by banks by providing credit and
loans to other financial institutions.

The need of banking with government authorization is felt because India is not only
the world largest democracy but also an emerging economic giant. The growth
of the country depends on its credit facilities which can only be possible through an
efficient banking.

India is an agricultural based country, and finance in agriculture is very

important, which is also provided by those Banks, who provide funds for agricultural
development i.e. NABARD (National Bank for Agriculture and Rural Development).

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How Banking Was Started in India?

Banking in India has started in the 18th century.

Bank of Hindustan (1770-1832) and General Bank of India (1786-1791) were the
very first banks, which failed later.

The oldest bank which still have its existence is the State Bank of India, originated
in June 1806 as the Bank of Calcutta, renamed as the Bank of Bengal in year 1809.
Other two banks were the Bank of Madras and the Bank of Bombay.

In the year 1921, these three banks got merged and become the Imperial Bank of
India and renamed as the State Bank of India (SBI) in the year 1955.

Before the Reserve Bank of India emerged in the year 1935, the SBI acted as the
central bank.

In the year 1960, the SBI took control over 8 subordinate banks, now called as
associate banks.

14 major banks were nationalized in the year 1969 and 6 more banks were
nationalized in the year 1980. These nationalized banks have the control over the
country’s banking sector as they have large network.

NABARD (National Bank for Agriculture and Rural Development) was established in
July, 1982, which looks after the development of the cottage industry, small industry
and village industry, and other rural industries.

At present we have 93 commercial banks, 15 private sector banks, 44 foreign

banks, 27 public sector banks, out of which 21 are nationalized banks and six are SBI
and its associate banks.

Classification of banks

The Banking System in India is categorized into scheduled and non-scheduled banks.
They are further divided into cooperative and commercial banks. The Reserve Bank
of India (RBI) controls all these banks. RBI is considered as the Central Bank of our
country. It also acts as the banker’s bank.

The structure of Indian Banking System can be understood as follows:-

A. Reserve Bank of India (RBI): Reserve Bank of India (RBI) is also called as
Central Bank of India. RBI was established on April 1, 1935 under the Reserve Bank
of India Act, 1934. RBI maintains records of deposits from all the banks and revenue
and expenditures of Governments and provides loan to other banks whenever
needed. Thus acts as a banker to the Government and other Banks.
B. Scheduled banks: banks which are included in the Second Schedule to the
Reserve Bank of India Act, 1934 are scheduled banks.

1. Commercial Banks: These banks helps the entrepreneurs and businessmen by

giving them financial services like debit cards, banks accounts, short term deposits,
etc. with the money people deposit in such banks. There are 93 commercial banks in
India.

Public Sector Banks – Thesebanks are owned and managed by

Government. The major part share in these banks are of Government. Examples –
State Bank of India, Punjab National Bank, Bank of Baroda etc.

There are 27 public sector banks in our country: 21 nationalized and 6 SBI and
associates.

LIST OF PUBLIC SECTOR BANKS IN INDIA

(3) (5) State

(1) State (4) State (6) State (7)
(2) Bank of State Bank of
Bank of Bank of Bank of Allahabad
Hyderabad Bank of Bikaner and
India State Mysore Travancore Bank
Patiala Jaipur

(12)
(14)
(10) Bharatiya
(8) Andhra (9) Bank of (11) Bank of (13) Canara Central
Bank of Mahila
Bank Baroda Maharashtra Bank Bank of
India Bank
India
(BMB)

(19) (21)
(15) (17) (18) Indian (20) Punjab
(16) Dena Oriental Punjab
Corporation Indian Overseas and Sind
Bank Bank of National
Bank Bank Bank Bank
Commerce Bank

(24)
(22)
(23) UCO United (25) Union (26) Vijaya
Syndicate (27) IDBI Bank
Bank Bank of Bank of India Bank
Bank
India
Private Sector Banks – These banks are owned and managed by Private
undertakings, major share of which are kept with these banks. Example – ICICI Bank,
Axis Bank, HDFC Bank etc. We have 15 private sector banks.

LIST OF PRIVATE SECTOR BANKS IN INDIA

(1) Smt. Shikha (2) Catholic (3) City (4) Development (5) Dhanalakshmi
Sharma Syrian Bank Union Bank Credit Bank Bank

(8) ICICI (10) ING Vysya

(6) Federal Bank (7) HDFC Bank (9) IndusInd Bank
Bank Bank

(11) Jammu & (12) Karnataka (13) Karur (14) Kotak (15) Lakshmi
Kashmir Bank Bank Vysya Bank Mahindra Bank Vilas Bank

(16) Nainital (17) Ratnakar (18) South (19) Tamilnadu (20) Yes Bank
Bank Bank Indian Bank Mercantile Bank Ltd.

Foreign Banks – These banks are based in foreign country but have numerous
branches in India. Example – HSBC, Standard Chartered Bank. There are 44 foreign
banks in India.

LIST OF FOREIGN BANKS IN INDIA

(1) Australia (2) (3) National (4) Westpac (5) Bank of (6) AB Bank
 and New
Commonwealth Australia Banking Bahrain and
Zealand
Bank of Australia Bank Corporation Kuwait
Banking Group

(10) Industrial
(8) Antwerp (9) Bank of (11) BNP (12) Credit
(7) Sonali Bank & Commercial
Diamond Bank Nova Scotia Paribas Agricole
Bank of China

(18)
(16) Bank (17) Mizuho
(13) Societe (14) Deutsche Sumitomo
(15) HSBC Internasional Corporate
General Bank Mitsui
Indonesia Bank
Banking

(19) Bank of
(20) State Bank of (21)
Tokyo- (22) Doha bank (23) Sberbank (24) VTB
Mauritius Rabobank
Mitsubishi

(30)
(25) HSBC (26) Royal Bank (27) DBS (28) United (29) FirstRand
Shinhan
Bank Oman of Scotland Bank Overseas Bank Bank
Bank

(35)
(31) Woori (32) Bank of (33) Credit Chinatrust (36) Krung
(34) UBS AG
Bank Ceylon Suisse Commercial Thai Bank
Bank

(37) Abu Dhabi (39)

(38) Mashreq (40) Standard (41) American (42) Bank of
Commercial Barclays
Bank Chartered Bank Express America
Bank Bank

(43) Citibank (44) J.P. Morgan Chase Bank

Regional Rural Banks (RRBs) – These banks functions with the objective of
providing loan to rural and agricultural provinces. Owned by State Government and a
sponsor bank. Example – Allahabad UP Gramin Bank, Andhra Pradesh Grameena
Vikas Bank, Assam Gramin Vikash Bank, etc. At present there are 56 RRBs in India.

LIST OF REGIONAL RURAL BANKS IN INDIA

(1) (2) Andhra (3) (4) (5) Assam (6) (7)

Allahaba Pradesh Andhra Arunachal Gramin Bangiya Baroda
d UP GrameenaVi Pragathi Pradesh Vikash Gramin Gujarat
 Gramin Gramee Rural Vikash Gramin
kas Bank Bank
Bank na Bank Bank Bank Bank

(8)
(11)
Baroda (12) (13)
(10) Central (14) Dena
Rajastha (9) Baroda Chaitanya Chhattisga
Bihar Madhya Gujarat
n UP Gramin Godavari rh Rajya
Gramin Pradesh Gramin
Kshetriy Bank Grameena Gramin
Bank Gramin Bank
a Gramin Bank Bank
Bank
Bank

(17) (21)
(20)
(15) Himach (19) Kashi
(16) Gramin (18) J&K Karnataka
Ellaquai al Jharkhan Gomti
Bank of Grameen Vikas
Dehati Pradesh d Gramin Samyut
Aryavarti Bank Grameen
Bank Gramin Bank Gramin
Bank
Bank Bank

(24) (25) (26) (28)

(22) (27)
(23) Kerala Langpi Madhyanc Madhya Malwa
Kaveri Maharasht
Gramin Dehangi hal Bihar Gramin
Grameen ra Gramin
Bank Rural Gramin Gramin Bank
a Bank Bank
Bank Bank Bank State

(33)
(29) (31) (32) (34) (35)
(30) Narmada
Manipur Mizora Nagaland Odisha Pallavan
Meghalaya Jhabua
Rural m Rural Rural Gramya Grama
Rural Bank Gramin
Bank Bank Bank Bank Bank
Bank

(38) (40)
(36) (37) Paschim (41)
Pragathi (39) Puduvai (42)
Pandyan Banga Punjab
Krishna Prathama Bharthiar Purvanc
Grama Gramin Gramin
Gramin Bank Grama hal Bank
Bank Bank Bank
Bank Bank

(43)
(45)
Rajastha (49)
(44) Sarva (46) Sarva (47)
n (48) Sutlej Telangan
Saptagiri Haryan UP Saurashtr
Marudha Gramin a
Grameena a Gramin a Gramin
ra Bank Grameen
Bank Gramin Bank Bank
Gramin a Bank
Bank
Bank

(52)
(56)
Uttar (54)
(50) (53) Uttar (55) Vidharb
(51) Utkal Banga Uttarakha
Tripura Bihar Vananchal ha
Grameen Kshetriy nd
Gramin Gramin Gramin Konkan
Bank a Gramin
Bank Bank Bank Gramin
Gramin Bank
Bank
Bank

2. Cooperative Banks: Co-operative banks are financial entities which belong to

their members, who are the owners and the customers of their bank, at the same
time.
Primary Credit Society – These are formed in small localities and their members
usually know each other.

Central Cooperative Banks – These banks provide loans to their members, who
belong to the same district and act as a link between the state cooperative banks
and the primary credit societies.

State Cooperative Banks – These banks operate at the top level in every state.

3. Investment Bank: These are financial institutions, which provide financial and
advisory assistance to individuals, businesses, or government organizations by
raising funds when required.

4. Specialized Banks: These banks are foreign exchange banks, industrial

banks, development banks, export-import banks satisfying the specific needs of
these unique activities and provides financial support to industries, heavy turnkey
projects and foreign trade.

Important facts relating to Indian Banking

Canara Bank is the first Indian bank got ISO (International Organization for
Standardization) Certification.

PNB (Punjab National Bank) is the first Indian bank started solely with Indian capital
investment.

First governor of RBI is Mr.Osborne Smith and First Indian Governor of RBI is Mr. C D
Deshmukh.

Presidency Bank is the first bank to introduce savings account in India (in 1833).

Bengal Bank is the first bank to introduce cheque system in India (in 1833).

Central Bank of India is the first bank to introduce credit card in India.

State Bank of India (SBI) is the largest Commercial bank in India.

HDFC Bank has launched Mobile Bank Accounts in association with Vodafone’s “ m-
paisa”.

Minimum money transfer limit through RTGS (Real-time Gross Settlement Systems)
is 2 Lakhs.

State Bank of India (SBI) is the largest Public sector bank in India and also the first
bank to introduce mutual fund.
 ICICI Bank is the largest Private sector bank in India and also the first bank to
introduce internet banking.

Standard Chartered Bank is the largest foreign bank in India.

Bank of India is the first Indian bank to open branch outside India (in 1946, London).

Syndicate Bank started the first RRB named Prathama Grameen Bank.

HSBC is the first Bank to introduce ATM in India. (in1987, Mumbai)

Bank of Baroda has the maximum number of overseas branches and SBI holds the
second position.

HDFC Bank launched “Premium credit cards exclusively for women” and a product
of Personal loan called “SWIFT”.

Asian Development Bank approved loan of $500mn to help India improve Rail
services.

FDI limit for new banks is 49%.

FDI limit for private banks is 74%.