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Structure of Banking System in India


Posted Date: 12-Jun-2010  Last Updated:   Category: General    
Author: Member Level: Gold    Points: 35


Read this article to know the structure of banking system in India.



Financial System in India

The group of institutions in the economy that help to match one person's saving with another person's investment. It mobilizes economy's scarce resources from savers to borrowers. Financial system can be branched into four divisions namely Financial institutions, Financial markets, Financial instruments (claims, assets, securities), Financial services

Financial markets facilitate savers to directly provide funds to borrowers. Bond market and stock markets are two most important financial markets in our economy.

Mutual fund It is an institution that sells shares to the public and uses the proceeds to buy a selection, or portfolio, of various types of stocks, bonds, or both stocks and bonds. Though there are many financial intermediaries banking sector in India has been contributing to a major portion of total credit lending to various sectors and in resource mobilization it has been playing a main role which is because of cumulative effects.

Assured rate of return on assets of depositors in banks. Easy, costless access to services through the large branch net work of banks. Virtually zero risk on the investments in banks unlike other non banking sectors which pose greater risks. GOI and RBI policies supported the cause of banks through their policies like, Interest rate ceiling on deposits with NBFC & Ceiling on quantum deposits in these companies.

The banking system structure in India can be branched and sub branched into various types .Reserve bank plays a crucial role in controlling the functioning of these banks through its policies in other words it is the central bank of India

Evolution of banking in India

Traditionally banking operations in the country have been overwhelmingly dominated by scheduled commercial banks. The activities of these banks are regulated by RBI In 1955 GOI in accordance with recommendation of AIRCSC took over Imperial bank of India and reconstituted it as SBI. In 1969 nationalization act was passed under which 14 banks were nationalized each with a minimum of 50 crore deposits. The main objectives for nationalization were to mobilize savings and canalize them for productive purposes. By 1980, six more banks were nationalized each with at least 200 crore deposits.

But the situation by early 1990s, many public sector banks turned unprofitable and under- capitalized due to accumulation of non performing assets and earning low rates of return and capital inadequacy.

Role of banks in Shaping India: The "privileged role" of the banks is a result of their unique features. For a financial system to mobilize and allocate saving of the country successfully and productively, and to facilitate day to day transactions there must be class of financial institutions apparently banks provide all these facilities through their large branch network spread all over the country. The economies of scope between deposit taking and lending give banks an information advantage over finance companies and others. The structure and working of the banking system are integral to country's financial stability and economic growth.

Liabilities and assets of bank: Deposits constitute the major source of funds for banks which constitute up to75%-80% of total bank liabilities in India along with borrowings from other banks and RBI. Assets of banks include cash in hand and balance with the RBI assets with the banking system investments in government and other approved securities and bank credit.

Banking sector reforms

: In 1991, Narasimham Committee setup by GOI recommended structural reforms and liberalization programme in the banking sector among them the following have been implemented by the GOVT.
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