Banking System in India: Structure and other Details

Indian Banking System: Structure and other Details

Bank is an institution that accepts deposits of money from the Public.  Anybody who has account in the bank can withdraw money. Bank also lends money.

Banking in India, in the modern sense, originated in the last decades of the 18th century. Among the first banks were the Bank of Hindostan, which was established in 1770 and liquidated in 1829-32; and the General Bank of India, established in 1786 but failed in 1791.

The largest bank, and the oldest still in existence, is the State Bank of India (S.B.I). It originated as the Bank of Calcutta in June 1806. In 1809, it was renamed as the Bank of Bengal. This was one of the three banks funded by a presidency government, the other two were the Bank of Bombay and the Bank of Madras. The three banks were merged in 1921 to form the Imperial Bank of India, which upon India’s independence, became the State Bank of India in 1955. For many years the presidency banks had acted as quasi-central banks, as did their successors, until the Reserve Bank of India was established in 1935, under the Reserve Bank of India Act, 1934.

Important facts about Banking System in India

  • The Reserve Bank of India was established on 1st April, 1935 and it was nationalized on 1st January, 1949.
  • The Finance Ministry issue Currency notes and coins of rupee one all other Currency Notes are issued by the Reserve Bank of India.
  • The first bank of limited liability managed by Indians was Oudh Commercial bank founded in 1881. Subsequently, Punjab National Bank was established in 1894.
  • Swadeshi movement, which began in 1906, encouraged the formation of a number of Commercial banks.
  • The Banking companies Act was passed in February 1949, which was subsequently amended to read as banking Regulation Act, 1949.
  • Commercial banks mobilise saving in urban areas and make them available to large and small industrial and trading units mainly for working capital requirements.
  • Commercial banking system in India consisted of 298 scheduled commercial banks (Including foreign banks).
  • Of the scheduled commercial banks, 224 are in public sector of which 196 are regional rural banks (RRBs) and these account for about 77.9% of the deposits of all scheduled commercial banks.
  • Commercial banks are broadly classified into nationalised or Public sector banks and private sector banks, with a few foreign banks. The Public sector banks account for more than 92% of the entire banking business in India- Occupying a dominant position in the commercial another 20 banks are the Public sector banks.
  • Oudh Commercial Bank was the first complete Commercial Bank of India.
  • The Imperial Bank was established in the year 1921 by merging there main presidency Banks.
  • The largest bank-imperial Bank was nationalised in 1955 on recommendation of Gorewala Committee and rechristened as state Bank of India.
  • In 1959, 7 regional banks were nationalised and given the status of Associate Banks of State Bank of India.
  • On 19th July, 1969, 14 big commercial banks with deposits worth rs.50 crores or more and on 15th April, 1980, six other scheduled banks were nationalised, bringing total number of nationalised banks to 27 (19+SBI+7 SBI Associates).
  • Before the merger of New Bank of India in Punjab National Bank (in 1993) the total number of nationalised banks was 28 ( 8 SBI & Associates+14+6).

Lead Bank Scheme

  • After the nationalisation of 14 banks the Lead Bank Scheme of the RBI was adopted in 1969 for branch expansion programme of banks.
  • Under the scheme, all the nationalised banks and there private banks were allotted specific distracts where they were asked to take the lead in surveying the scope of banking development particularly expansion of credit facilities.

Banking Reforms

  • On the recommendation of Narasimham Committee, a number of steps are taken to improve functioning of banking sector. SLR and CRR are reduced.
  • Banks given freedom to open new branches. Rapid computerization of banks being undertaken.
  • Banking “ombudsmen Scheme” stared functioning to expedite inexpensive resolution of customer’s Complaints.

Scheduled and Non-scheduled Banks:

  • The scheduled banks are those which are entered in the second Schedule of the RBI Act, 1934. These banks have a paid-up capital and reserves of an aggregate value of not less than Rs.5 Lakhs and satisfy the RBI that their affairs are carried out in the interest of their depositors.
  • All commercial banks (Indian and foreign), regional rural banks and state co-operative banks are scheduled banks. Non scheduled banks are those which are not included in the second scheduled banks 1934. At president there is only one such bank in the country.

Regional Rural Banks

  • The regional rural Banks (RRBs) , the newest from of banks, have come into existence since idle of 1970s (sponsored by individual nationalised commercial banks ) with the objective of developing rural economy by providing credit and deposit facilities for agriculture and other productive of all kinds in rural areas.
  • The emphasis is on providing such facilities to small and marginal farmers, agriculture labourers, rural artisans and other small entrepreneurs in rural areas.

Co-operative Banks

  • Co-operative Banks are so called because they are organised under the provisions of the Co-operative credit Societies law of the states. The major beneficiary of the Co-operative Banking is the agricultural sector in particular and the rural sector in general. The first such bank was established in 1904.
  • The Co-operative credit institution operative in the country are mainly of two kinds : agricultural (Dominant) and non-agricultural.
  • At the apex s the state Co-operative Bank (SCB) (Co-operative being a state subject in India ), at the intermediate (district) level are the Central Co-operative Banks (CCBS), and at the village level are the Agricultural Credit Societies (PACs); Long-term agricultural credit is provided by the land development Banks.
  • Approximately 91% of total credit of banks is controlled by the banks of public sectors.
  • In public sector banks, the state Bank of India group is the biggest, which controls 29% of total credits.
  • First Regional Rural Bank was established on 2nd October, 1975.
  • In the year 1991, Narasimham Committee was constituted to advice in the issue of reconstruction of banking system.

Development Banks : Main functions: Development of housing finance in the country.

  • Industrial Development Bank of India (IDBI), established in 1964. Main functions: Providing finance to large and medium scale industrial units.
  • Industrial Finance Corporation of India (IFCI), established in 1948. Main functions; (a) Project Finance (b) Promotional services.
  • Industrial Credit and Investment Corporation in Indian and foreign currencies; Underwriting of issues of shares and debentures.
  • Small industries Development Bank of India (SIDBI), established in 1989. Main function : providing assistance to small scale industries through state finance corporation, state industrial development corporations, commercial banks etc.
  • Expert- Import Bank India (Exim. Bank) was established in 1982. Main functions: Coordinating the working of institution engaged in financing export and import trade, Financing exports and imports.
  • National Housing Bank (NHB) started operations in 1988.

NABARD was established in 1982: Main function: to serve as an apex refinancing agency for institutions engaged in providing agricultural finance to develop credit delivery system to coordinate rural financing activities.


  • The basic concept of insurance is of spreading the loss of a few over many. Insurance industry includes two sectors-Life Insurance and general Insurance. Life Insurance in India was introduced by Britishers. A British firm in 1818 established the Oriental Life Insurance Company at Calcutta now Kolkata.
  • Life insurance Corporation (LIC) was established in September 1956. General Insurance Corporation (GIC) was established in November 1972.
  • Indian Insurance sector has low penetration particularly in rural areas. It also has low turnover and profitability despite high premium rate. The committee on Insurance Sector reforms was set-up in 1993 under the chairmanship of R.N. Malhotra which submitted its report in 1994.
  • Malhotra Committee recommended entry of the private sector in insurance sector. It also suggested entry of foreign insurance companies on selective basic. All the four associate companies of GIC should be granted permission to perform their business independently.
  • Insurance Regultory Authority (IRA) should be established on the lines of SEBI and IRA should be granted complete functional autonomy.

List of Banks in India (with website)

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