Banks in India

Finance » Banks

Although banking is said to have originated in the affluent cities of Italy in the 14th century, it was introduced in India in the late 18th century. The first banks to come up in the country were Bank of Hindustan (1770), The General Bank of India (1786), and the State Bank of India (1806). The banking system has come along way and the banking sector has witnessed a rapid growth in the country in the past few decades. The Reserve Bank of India functions as the central bank and has a control over all the nationalized banks of the country.

There are various types of banks and they can be divided into some of the following categories:

Banks in IndiaSavings banks: These banks function with the intention to culminate saving habits among people, especially those who belong to low income groups or those who are salaried. The money these people deposit in the banks are invested in securities, bonds etc. These days, many commercial banks perform the dual functions of savings bank. The postal department is also in a way a saving bank.

Commercial banks: These banks function to help the entrepreneurs and businesses. They give financial services to these businessmen like debit cards, banks accounts, short term deposits, etc. with the money people deposit in such banks. They also lend money to businessmen in the form of overdrafts, credit cards, secured loans, unsecured loans and mortgage loans to businessmen. The commercial banks in the country were nationalized in 1969. So the various policies regarding the loans, rates of interest and loans etc are controlled by the Reserve Bank. These days, the commercialized banks provide some services given by investment banks to their clients.

The commercial banks can be further classifies as: public sector bank, private sector banks, foreign banks and regional banks.

  1. The public sector banks are owned and operated by the government, who has a major share in them. The major focus of these banks is to serve the people rather earn profits. Some examples of these banks include State Bank of India, Punjab National Bank, Bank of Maharashtra, etc.
  2. The private sector banks are owned and operated by private institutes. They are free to operate and are controlled by market forces. A greater share is held by private players and not the government. For example, Axis Bank, Kotak Mahindra Bank etc.
  3. The foreign banks are those that are based in a foreign country but have several branches in India. Some examples of these banks include; HSBC, Standard Chartered Bank etc.
  4. The regional rural banks were brought into operation with the objective of providing credit to the rural and agricultural regions and were brought into effect in 1975 by RRB Act. These banks are restricted to operate only in the areas specified by government of India. These banks are owned by State Government and a sponsor bank. This sponsorship was to be done by a nationalized bank and a State Cooperative bank. Prathama Bank is one such example, which is located in Moradabad in U.P.
Cooperative banks: These banks are controlled, owned, managed and operated by cooperative societies and came into existence under the Cooperative Societies Act in 1912. these banks are located in the urban as well in the rural areas. Although these banks have the same functions as the commercial banks, they provide finance to farmers, salaried people, small scale industries, etc. and their rates of interest of interest are lower as compared to other banks.

There are three types of cooperative banks in India, namely:

  1. Primary credit societies: These are formed in small locality like a small town or a village. The members using this bank usually know each other and the chances of committing fraud is minimal.
  2. Central cooperative banks: These banks have their members who belong to the same district. They function as other commercial banks and provide loans to their members. They act as a link between the state cooperative banks and the primary credit societies.
  3. State cooperative banks: these banks have a presence in all the states of the country and have their presence throughout the state.
Investment banks: These are financial institutions that provide financial and advisory assistance to their customers. Their clients can be individuals, businesses, or government organizations. They assist their customers to raise funds when required. These banks act as the underwriters for their customers when they want to raise capital by issuing securities. In some cases, they also help their customers to issue securities.

When there is a merger or an acquisition, they provide their customers with the necessary support like marketing, foreign trading, foreign exchange, sale of equities, fixed income instruments etc. Apart from raising capital, these banks render valuable financial advise to their customers and various kinds of businesses. Some examples of these banks include, Bank of America, Barclays Capital, Citi Bank, Deutsche Bank etc.

Specialized banks: These provide unique services to their customers. Some such banks include, foreign exchange banks, development banks, industrial banks, export import banks etc. These banks also provide huge financial support to businesses and various kinds projects and traders who have to import or export their goods or services.

Central bank: The central bank is also called the banker's bank in any country. In India, the Reserve Bank of India is the central bank. The Federal Reserve in USA and the Bank of England in UK function as the central bank. This bank makes various monetary policies, decides the rates of interest, controlling the other banks in the country, manages the foreign exchange rate and the gold reserves and also issues paper currency in a country. The monetary control is the primary function of a central bank in most countries and so they are considered as the lender of last resort to various commercial banks.

The banking system has witnessed a huge growth and the competition amongst various banks have increased these days. The boom in e-commerce industry, globalization, and increased popularity of internet has made it vital for the banks keep up with the latest technology trends. With the entry of the private and global banks in the market, the competition amongst the banks has increased in the country. They provide a wide variety of services other than borrowing and lending money to people.