What is Banking?
Banking refers to the business of accepting deposits and providing loans. Banks play a crucial role in mobilizing savings and channeling them into productive investments.
🔹 Structure of Banking in India
1. Reserve Bank of India (RBI)
- Central bank of India, established in 1935.
- Regulates the banking system, issues currency, controls inflation, and manages monetary policy.
2. Commercial Banks
- Public Sector Banks (e.g. SBI, PNB, BoB) – majority government-owned.
- Private Sector Banks (e.g. HDFC, ICICI, Axis) – privately owned.
- Foreign Banks (e.g. Citibank, HSBC) – headquartered outside India.
3. Regional Rural Banks (RRBs)
- Serve rural areas, especially for agricultural and small-scale lending.
4. Co-operative Banks
- Run on co-operative principles; provide banking to small borrowers in rural and urban areas.
5. Development Banks / Financial Institutions
- Support large industries and infrastructure (e.g., NABARD, SIDBI, EXIM Bank).
6. Small Finance Banks & Payments Banks
- Target underserved sections like small businesses and low-income groups (e.g., India Post Payments Bank, AU Small Finance Bank).
🔹 Functions of Banks in India
- Accepting Deposits – Savings, Current, and Fixed Deposits.
- Providing Loans and Advances – Personal, business, housing, education, etc.
- Credit Creation – Increase money supply through lending.
- Remittance Services – NEFT, RTGS, IMPS, UPI.
- Financial Inclusion – Expanding banking to rural and underserved areas.
- Digital Banking – Mobile banking, net banking, and payment apps.
🔹 Role of Banking in Indian Economy
- Mobilizes savings and channels them into investments.
- Funds economic development – agriculture, industries, infrastructure.
- Supports government policies – through priority sector lending, interest rate management.
- Generates employment in financial services and allied sectors.
- Boosts entrepreneurship via Mudra loans, MSME support.
- Promotes Digital India and cashless economy.
🔹 Challenges in Indian Banking
- Non-Performing Assets (NPAs) – Bad loans affect bank profitability.
- Fraud and cybercrime in digital banking.
- Financial exclusion in remote areas.
- Need for recapitalization of public sector banks.
- Over-dependence on RBI directives.
🔹 Recent Reforms & Initiatives
- Bank mergers to create stronger entities (e.g., BoB with Vijaya and Dena Bank).
- Insolvency and Bankruptcy Code (IBC) to resolve bad loans.
- Jan Dhan Yojana – Financial inclusion through basic bank accounts.
- Unified Payments Interface (UPI) – Boost to digital transactions.
- Prompt Corrective Action (PCA) framework by RBI.