Module 1: Introduction to Banks
Bank, Banker, Banking, Evolution, Role of Banking System in India
**Bank**: A financial institution that accepts deposits, provides loans, and offers various
financial services such as wealth management, currency exchange, and safe deposit boxes.
**Banker**: An individual or institution engaged in the business of banking. Bankers
facilitate financial transactions, manage accounts, and provide advisory services to clients.
**Banking**: The process of managing financial transactions, including accepting deposits,
lending money, issuing credit, and facilitating trade and commerce through payment
systems.
**Evolution of Banking**:
1. **Ancient Banking**: Originated with money lending in temples and trading hubs.
2. **Medieval Banking**: Emergence of banking families and goldsmith bankers.
3. **Modern Banking**: Introduction of central banks and structured regulations; focus on
digital transformation and customer-centric services.
**Role of Banking System in India**:
- Promotes savings and investments.
- Facilitates capital formation.
- Provides financial support for industrial and agricultural development.
- Enhances financial inclusion and economic stability.
- Plays a crucial role in implementing government policies.
Classification, Objectives, Functions
**Classification of Banks**:
1. **Commercial Banks**: Operate for profit and provide services like savings accounts,
loans, and payment facilities. Includes public sector banks (e.g., SBI), private sector banks
(e.g., ICICI Bank), and foreign banks (e.g., HSBC).
2. **Cooperative Banks**: Operate on a smaller scale, primarily for rural areas. Includes
state cooperative banks, district cooperative banks, and primary agricultural credit
societies.
3. **Development Banks**: Provide long-term finance for industries, agriculture, and
infrastructure projects. Examples: NABARD, EXIM Bank.
4. **Regional Rural Banks (RRBs)**: Focus on rural development and financial inclusion.
5. **Specialized Banks**: Include small finance banks and payment banks.
**Objectives of Banks**:
- Mobilize public savings.
- Provide credit for productive purposes.
- Enhance economic growth.
- Ensure financial stability.
- Foster financial inclusion.
**Functions of Banks**:
1. **Primary Functions**:
- Accepting Deposits: Savings, current, and fixed deposits.
- Granting Loans and Advances: Personal loans, business loans, and mortgages.
- Facilitating Payments: Cheques, NEFT, RTGS, UPI, and more.
2. **Secondary Functions**:
- Agency Functions: Fund transfers, standing instructions, tax payments.
- Utility Functions: Locker facilities, wealth management, foreign exchange services.
Schedule v/s Non-Schedule, Public v/s Private
**Scheduled Banks**:
- Registered under the Second Schedule of the RBI Act, 1934.
- Must maintain a minimum paid-up capital and adhere to RBI regulations.
- Eligible for borrowing from the RBI and participating in clearinghouses.
**Non-Scheduled Banks**:
- Not listed in the Second Schedule of the RBI Act.
- Operate on a smaller scale with limited access to RBI facilities.
**Public Sector Banks**:
- Majority ownership by the government.
- Objective: Serve the public interest and support government initiatives.
- Examples: State Bank of India (SBI), Punjab National Bank (PNB).
**Private Sector Banks**:
- Majority ownership by private individuals or corporations.
- Objective: Profit maximization and customer-focused services.
- Examples: HDFC Bank, Axis Bank.
Traditional v/s Modern Payment Banks
**Traditional Banks**:
- Full-service banks offering deposit accounts, loans, investment services, and financial
advice.
- Require physical branches and manual processes for most operations.
**Modern Payment Banks**:
- Focus on low-cost banking services for small businesses, unbanked and underbanked
populations.
- Operate through digital platforms with limited banking functions (e.g., no credit facilities).
- Examples: Paytm Payments Bank, India Post Payments Bank.
Banking System in India
India's banking system is a multi-tiered structure regulated by the Reserve Bank of India
(RBI). It includes:
1. **Commercial Banks**: Public sector, private sector, and foreign banks.
2. **Cooperative Banks**: Rural and urban cooperative banks.
3. **Regional Rural Banks (RRBs)**: Focus on rural credit.
4. **Development Banks**: Provide long-term finance for infrastructure and industrial
growth.
5. **Payments Banks**: Specialize in digital payments and small-scale financial services.
Recent trends in the Indian banking system include digital transformation, use of artificial
intelligence (AI) in banking operations, and a push for financial inclusion through
government initiatives such as Jan Dhan Yojana.
