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Introduction

A bank is a financial institution that provides banking and other financial

services to their customers. A bank is generally understood as an institution

which provides fundamental banking services such as accepting deposits and

providing loans. There are also nonbanking institutions that provide certain

banking services without meeting the legal definition of a bank. Banks are asubset of the financial services industry. A banking system also referred as a

system provided by the bank which offers cash management services for

customers, reporting the transactions of their accounts and portfolios, through

out the day. The banking system in India, should not only be hassle free but it

should be able to meet the new challenges posed by the technology and any

other external and internal factors. For the past three decades, Indias banking

system has several outstanding achievements to its credit. The Banks are the

main participants of the financial system in India. The Banking sector offers

several facilities and opportunities to their customers. All the banks safeguards

the money and valuables and provide loans, credit, and payment services, such

as checking accounts, money orders, and cashiers che!ues. The banks also

offer investment and insurance products. As a variety of models for

cooperation and integration among finance industries have emerged, some of

the traditional distinctions between banks, insurance companies, and securities

firms have diminished. In spite of these changes, banks continue to maintain

and perform their primary role"accepting deposits and lending funds from

these deposits.

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Need of Banks

Before the establishment of banks, the financial activities were handled by

money lenders and individuals. At that time the interest rates were very high.

Again there were no security of public savings and no uniformity regarding

loans. #o as to overcome such problems the organi$ed banking sector was

established, which was fully regulated by the government. The organi$ed

banking sector works within the financial system to provide loans, accept

deposits and provide other services to their customers. The following

functions of the bank explain the need of the bank and its importance%

& To provide the security to the savings of customers.

& To control the supply of money and credit

& To encourage public confidence in the working of the financial system,

increase savings speedily and efficiently.

& To avoid focus of financial powers in the hands of a few individuals and

institutions.

& To set e!ual norms and conditions 'i.e. rate of interest, period of lending etc(

to all types of customers

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History of Indian Banking System

The first bank in India, called The )eneral Bank of India was established in

the year *+-. The ast India /ompany established The Bank of

Bengal0/alcutta '*12(, Bank of Bombay '*31( and Bank of 4adras '*35(.

The next bank was Bank of 6industan which was established in *+1. These

three individual units 'Bank of /alcutta, Bank of Bombay, and Bank of

4adras( were called as 7residency Banks. Allahabad Bank which was

established in *-8, was for the first time completely run by Indians. 7un9ab

:ational Bank ;td. was set up in *23 with head!uarters at ;ahore.

Between *21- and *2*5, Bank of India, /entral Bank of India, Bank of

Baroda, /anara Bank, Indian Bank, and Bank of 4ysore were set up. In *2


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After independence, )overnment has taken most important steps in regard of

Indian Banking #ector reforms. In *288, the Imperial Bank of India was

nationali$ed and was given the name >#tate Bank of India>, to act as the

principal agent of =BI and to handle banking transactions all over the country.

It was established under #tate Bank of India Act, *288. #even banks forming

subsidiary of #tate Bank of India was nationali$ed in *2-1. ?n *2th @uly,

*2-2, ma9or process of nationali$ation was carried out. At the same time *3

ma9or Indian commercial banks of the country were nationali$ed. In *21,

another six banks were nationali$ed, and thus raising the number of

nationali$ed banks to


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*21% :ationali$ation of seven banks with deposits over


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STRUCTURE

The =eserve Bank of India, the nations central bank, began operations on

April 1*, *258. It was established with the ob9ective of ensuring monetary

stability and operating the currency and credit system of the country to its

advantage.

In India, the banks are being segregated in different groups. ach group has

their own benefits, own dedicated target markets, limitations in operating in

India. The commercial banking structure in India consists of #cheduled

/ommercial Banks and Cnscheduled Banks.

"# CO$$ERCIA% BAN

/ommercial banks are type of financial institutions that lends money and

provides transactional, savings, and money market accounts and that accepts

time deposits. /ommercial banking play very important role in economy by

mobili$ing savings from various sectors. The commercial banks are classified

as follows

&u'(ic Sector Banks

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7ublic sector banks are those in which the ma9ority stake is held by the

)overnment of India. 7ublic sector banks together make up the largest

category in the Indian banking system. There are currently


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Foreign Banks

Foreign banks have their registered and head offices in a foreign country but

operate their branches in India. The =BI permits these banks to operate either

through branchesE or through whollyowned subsidiaries.

The primary activity of most foreign banks in India has been in the corporate

segment. 6owever, some of the larger foreign banks have also made consumer

financing a significant part of their portfolios. These banks offer products such

as automobile finance, home loans, credit cards, household consumer finance

etc. Foreign banks in India are re!uired to adhere to all banking regulations,

including prioritysector lending norms as applicable to domestic banks

.

Regiona( Rura( Bank

The history of =egional =ural Banks in India dates back to the year *2+8. Its

the :arasimham committee that conceptuali$ed the foundation of =egional

=ural Banks in India. The committee felt the need of regionally oriented rural

banks that would address the problems and re!uirements of the rural people

in India. =egional =ural Banks were established under the provisions of an

?rdinance promulgated on the


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classification of bank branches, the =eserve bank of India defines rural area as

a place with a population of less than *1,111.==Bs are 9ointly owned by

)overnment of India, the concerned #tate )overnment and #ponsor BanksE

the issued capital of a ==B is shared by the owners in the proportion of 81,*8 and 58 respectively.

*# COO&ERATI+E BANS

The cooperative banks are smallsi$ed units which operate both in urban and

nonurban centers. They finance small borrowers in industrial and trade

sectors besides professional and salary classes. =egulated by the =eserve Bank

of India, they are governed by the Banking =egulations Act *232 and banking

laws 'cooperative societies( act, *2-8. /ooperative banks cater to the

financing needs of agriculture, retail trade, small industry and selfemployed

businessmen in urban, semiurban and rural areas of India. A distinctive

feature of the cooperative credit structure in India is its heterogeneity. The

structure differs across urban and rural areas, across states and loan maturities

The cooperative banking structure in India is divided into following

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