Origin & Kinds of Banks
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Origin & Kinds of B
anks
Priyanka Mohanan T
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Origin of banks in India
The first bank in India was establishedin 1786. From 1786 till today, the
journey of Indian Banking System canbe segregated into three distinctphases. They are :
Early phase from 1786 to 1969 ofIndian Banks
Nationalization of Indian Banks and upto 1991 prior to Indian banking sector
Reforms.
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PHASE I
The General Bank of India was set upin the year 1786. Next came Bank of Hindustan and
Bengal Bank. The East India Company established
Bank of Bengal (1809), Bank ofBombay (1840) and Bank of Madras
(1843) as independent units andcalled it Presidency Banks. These three banks were amalgamated
in 1920 and Imperial Bank of India
was established which started as
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During the first phase the growth was
very slow and banks also experiencedperiodic failures between 1913 and 1948.There were approximately 1100 banks,mostly small.
To streamline the functioning andactivities of commercial banks, theGovernment of India came up with The
Banking Companies Act, 1949 whichwas later changed to BankingRegulation Act 1949 as per amendingAct of1965 (Act No. 23 of 1965).
Reserve Bank of India was vested with
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PHASE II
Government took major steps in this IndianBanking Sector Reform after independence.In 1955, it nationalised Imperial Bank of
India with extensive banking facilities on a
large scale specially in rural and semi-urbanareas. It formed State Bank of india to act asthe principal agent of RBI and to handle
banking transactions of the Union and StateGovernments all over the country.
Seven banks forming subsidiary of State
Bank of India was nationalised in 1960 on
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The following are the steps taken by theGovernment of India to Regulate Banking
Institutions in the Country: 1949 : Enactment of Banking Regulation
Act. 1955 : Nationalisation of State Bank of
India. 1959 : Nationalisation of SBI subsidiaries. 1961 : Insurance cover extended to
deposits. 1969 : Nationalisation of 14 major banks. 1971 : Creation of credit guarantee
corporation. 1975 : Creation of regional rural banks.
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Phase III
This phase has
introduced many moreproducts and facilities inthe banking sector in itsreforms measure. In 1991,under the chairmanship of
M Narasimham a
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The financial system of India has shown a great deal ofresilience. It is sheltered from any crisis triggered by any
external macroeconomics shock as other East AsianCountries suffered. This is all due to a flexible exchangerate regime, the foreign reserves are high, the capitalaccount is not yet fully convertible, and banks and theircustomers have limited foreign exchange exposure.
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The entire banking cosmos, the past hasbeen well explained under three different
heads namely: History of Banking in India Nationalisation of Banks in India
Scheduled Commercial Banks in India
The first deals with the history part sincethe dawn of banking system in India.
Government took major step in the 1969 toput the banking sector into systems and itnationalised 14 private banks in the
mentioned year. This has been elaborated in
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Kinds of banks
Types of Banks There are various types of banks which
operate in our country to meet the
financial requirements of differentcategories of people engaged inagriculture, business, profession, etc. On
the basis of functions, the bankinginstitutions in India may be divided intothe following types:
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Types of Banks
Central Bank Development Banks Specialised Banks
(RBI, in India) (EXIM Bank SIDBI, NABARD)
Commercial Banks Co-operative Banks
(i) Public Sector Banks (i) Primary Credit Societies
(ii) Private Sector Banks (ii) Central Co-operative Banks
(iii) Foreign Banks (iii) State Co-operative Banks
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a) Central BankA bank which is entrusted with the
functions of guiding and regulating thebanking system of a country is known as itsCentral bank. Such a bank does not deal
with the general public.It acts essentially as Governments
banker, maintain deposit accounts of allother banks and advances money to otherbanks, when needed.
The Central Bank provides guidance toother banks whenever they face any
problem. It is therefore known as the
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The Reserve Bank of India is the central bank of ourcountry. The Central Bank maintains record ofGovernment revenue and expenditure under various
heads.It also advises the Government on monetary and
credit policies and decides on the interest rates for bankdeposits and bank loans. In addition, foreign exchange
rates are also determined by the central bank.Another important function of the Central Bank is the
issuance of currency notes, regulating their circulation inthe country by different methods. No other bank than the
Central Bank can issue currency.
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b) Commercial BanksCommercial Banks are banking
institutions that accept deposits and grantshort-term loans and advances to theircustomers.
In addition to giving short-term loans,commercial banks also give medium-termand long-term loan to business enterprises.
Now-a-days some of the commercial
banks are also providing housing loan on along-term basis to individuals.
Types of Commercial banks: Commercial banks are of three types i.e.,
1.Public sector banks
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(i) Public Sector Banks: These are banks
where majority stake is held by theGovernment of India or Reserve Bank of India.Examples of public sector banks are: StateBank of India, Corporation Bank, Bank ofBaroda and Dena Bank, etc.
(ii) Private Sectors Banks: In case ofprivate sector banks majority of share capital of
the bank is held by private individuals. Thesebanks are registered as companies with limitedliability. For example: The Jammu and KashmirBank Ltd., Bank of Rajasthan Ltd.,
Development Credit Bank Ltd, Lord Krishna
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c) Development BanksBusiness often requires medium and long-
term capital for purchase of machinery andequipment, for using latest technology, or forexpansion and modernization. Such financialassistance is provided by Development Banks.
They also undertake other developmentmeasures like Public Sector Banks comprise 19nationalised banks and State Bank of India andits 7 associate banks subscribing to the sharesand debentures issued by companies, in case ofunder subscription of the issue by the public.
Industrial Finance Corporation of India (IFCI)
and State Financial Corporations (SFCs) are
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d) Co-operative BanksPeople who come together to jointly serve
their common interest often form a co-operative society under the Co-operativeSocieties Act.
When a co-operative society engagesitself in banking business it is called a Co-operative Bank.
The society has to obtain a licence from
the Reserve Bank of India before startingbanking business.
Any co-operative bank as a society is tofunction under the overall supervision of theRe istrar, Co-o erative Societies of the
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Types of Co-operative
BanksThere are three types of co-operative
banks operating in our country. They areprimary credit societies, central co-operativebanks and state co-operative banks. These
banks are organized at three levels, villageor town level, district level and state level.(i) Primary Credit Societies: These are
formed at the village or town level with
borrower and non-borrower membersresiding in one locality. The operations ofeach society are restricted to a small area
so that the members know each other and
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Specialized BanksThere are some banks, which cater to
the requirements and provide overallsupport for setting up business in specificareas of activity. EXIM Bank, SIDBI and
NABARD are examples of such banks. Theyengage themselves in some specific area oractivity and thus, are called specializedbanks.
i. Export Import Bank of India (EXIMBank):
If you want to set up a business for
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ii. Small Industries Development Bank ofIndia (SIDBI):
If you want to establish a small-scalebusiness unit or industry, loan on easy termscan be available through SIDBI. It alsofinances modernization of small-scaleindustrial units, use of new technology and
market activities. The aim and focus ofSIDBI is to promote, finance and developsmall-scale industries.iii. National Bank for Agricultural and
Rural Development (NABARD):
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Thank you