Banking
in its crude form is in vogue in society for long. It existed even in ancient
times. Report a French writer has mentioned the existence of banks and banknotes in Babylon as far back as 600 B.C. i.e., more than 26 centuries since
now. Manu Smiriti, a prehistoric piece of literature has references to money
lending business in Indian society. History of Egypt and neighboring countries
bears a record of the existence of banks in rudimentary form in early times. In
India's regular banking system came into existence in the eighteenth century.
Role of Banks in the Development
Word "bank” has been derived either from the Greek word
"Benque" a from the Italian word "benque" both of which refer to a
bench on which the money lenders and money chequers used to sit in order to
display their money and also carry out transactions in the market place.
Banking in India started with the opening of The General Bank of India in 1786
and the Bank of Hindustan. Both these banks are not in existence now. The
oldest bank still in existence is the State Bank of India which started
operating in Calcutta in June 1806. Just after the start, it was named Bank of
Bengal. This was one of three Presidency banks, the other two being the Bank of
Madras and the Bank of Bombay. All three Presidency Banks were established
under the Charter of the East India Company. For quite some time the Presidency
Bank acted as east Central Bank as did their successors. The three Presidency
banks merged together to form the Imperial Bank of India. after independence
Imperial Bank of India was renamed "Reserve Bank of India". In 1947
the Reserve Bank was nationalized and was given broader powers. In 1969 Govt.
of India nationalized the 14 largest banks operating in India and in 1980 next
biggest six banks were also nationalized.
Classification of Banks
(1) Scheduled banks and (ii) Non-scheduled Banks
Progress of Banking
The progress of the banking industry was quite slow during the
first half of 20 century or say during the period of the foreign rule because
during that period Indian Banking System had to face a series of crises whereby
bank failure was a common event. But with the planned economic growth after
independence, their growth has been rapid. It is also the result of an increase in the money supply and cultivation of banking habits as also the guidance provided by
the Reserve Bank of India. The contribution of the nationalization of banks proved to
be a milestone in the progress and development of the banking industry.
Development Oriented Banks
During its expansion period after independence, the banking industry has covered new segments of the economy in addition to the traditional ones. The area of banking has widened from accepting more deposits and bending of funds to development-oriented banking. They are now catering to the needs of the industrial and agriculture sectors. From short term financing, they have now shifted to long term and medium-term financing. The small and weak industrial units small formers and artisans and other groups hitherto neglected are now having properly assisted by banks.
(1) Opening of bank branches in all important locations.
(3) Mobilizing the savings of the people in the respective districts.
The performance of the lead banks is judged by the number
of projects assisted by them in order to improve productivity or creating new
employment opportunities.
Priority Sector Lending by Bank
Before nationalization the banks usually neglected
priority sector lending as these were owned and controlled by big industrial
houses but after nationalization commercial banks have started financing of
priority sectors such as agriculture. The Union Finance Minister on 18th June,
2004 announced certain measures to double the flow of credit for agriculture
sector within a period of three years, a target that was comfortably achieved.
Diversification in Banking Services
Banking Regulation Act of 1949 authorizes the banks to
diversify their functions in accordance with the needs of their customers. The
diversification can be observed in the following fields :
1. Merchant Banking and underwriting
2. Mutual Funds
3. Rural Banking
4. ATMs
5. Anywhere Banking
6. Internet Banking
7. Venture Capital Funds
8. Factorship
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