Banking System

        A banking system is a group or network of institutions that provide financial services. The major types of banking systems include those made up of commercial, national, and investment banks and credit unions may also be part of a banking system.

        Banking refers to any business entity that accepts and safeguards the finances of other persons and organizations and lends the finances to carry out economic activities such as making profits. Banking is important in the economy since it provides crucial services for both businesses and consumers, such as offering car loans, offering checking accounts, home loans, among other services. Banks also carry out currency exchange, wealth management, safe deposit, and offering loans to gain profits.

Functions of banking systems

  • Accepting of deposits and withdrawals
  • Lending of funds
  • Offering loans
  • Offering checking accounts,
  • Remittance of funds
  • Offering credit and debit cards
  • Bill payment services and safe deposits.
  • Central Banks

            The banking system of India consists of the central bank (Reserve Bank of India - RBI), commercial banks, cooperative banks and development banks (development finance institutions). These institutions, which provide a meeting ground for the savers and the investors, form the core of India’s financial sector.

            The banking system plays an important role in promoting economic growth not only by channeling savings into investments but also by improving allocative efficiency of resources. The recent empirical evidence, in fact, suggests that banking system contributes to economic growth more by improving the allocative efficiency of resources than by channeling of resources from savers to investors. An efficient banking system is now regarded as a necessary pre-condition for growth.

    Functions of the central bank include:

  • Issuance of money.
  • lender of last resort to other commercial banks.
  • Ensuring the stability of financial systems.
  • Formulation of monetary policies.
  • Targeting growth and unemployment.
  • lender of last resort to the government.
  •         Banking development in India has been, by and large, a state-induced activity. The Reserve Bank of India was nationalized in 1949 followed by the nationalization of Imperial Bank of India (now the State Bank of India - SBI) in 1955. In 1969, 14 major commercial banks were nationalized and the exercise was repeated when 6 more commercial banks were nationalized in 1980. Thus, prior to economic reforms initiated in early 1990s, banking business in India was a near-monopoly of the Government of India.

            In India the banks and banking have been divided in different groups. Each group has their own benefits and limitations in their operations. They have their own dedicated target market. Some are concentrated their work in rural sector while others in both rural as well as urban. Most of them are only catering in cities and major towns.

    Public sector Banks functions in India

  • The State Bank Group and Nationalized banks: Is a group of 27 banks
  • Has the largest number of branches in metro/ urban/rural areas throughout the country
  • Contributes to about 75% of the total deposits
  • Contributes about 70% of total advances of all commercial banks in India.
  • Most have a very large branch network spread over all parts of the country
  • Have a Large deposits and assets base
  • Perform all kinds of core and modern banking functions
  •  Scheduled Banks functions in India

            These are banks which are listed in the second schedule of the Reserve Bank of India Act, 1934. These banks are required to maintain certain amounts with RBI and, in return, they enjoy the facility of financial accommodation and remittance facilities at concessionary rates from RBI. State Co-operative Banks.

    Basic Banks Services

            Banks have existed since at least the 14th century. They provide a safe place for consumers and business owners to stow their cash and a source of loans for personal purchases and business ventures. In turn, the banks use the cash that is deposited to make loans and collect interest on them.
    Banks offer various ways to stash your cash and various ways to borrow money. Various types of bank accounts exist to attend to the different needs of the consumers. The following are the different types of banking accounts and the purpose they serve.

    1. Savings Accounts : Savings accounts pay interest to the depositor. Depending on how long account holders hope to keep their money in the bank, they can open a regular savings account that pays a little interest or a certificate of deposit (CD) that pays a little more interest.

    2. Checking Accounts : Checking accounts are deposits used by consumers and businesses to pay their bills and make cash withdrawals. They pay little or no interest and typically come with monthly fees, usage fees, or both. Today's consumers generally have their paychecks and any other regular payments automatically deposited in one of these accounts. These accounts are often linked to debit cards which can be used for purchases or ATM withdrawals. Checking accounts are purposely to hold money in a secure place for a limited duration of time and convenient payment of bills.

    3.Money market accounts (MMAs): Has the features of both saving and checking accounts to come up with a single deposit account. The sole purpose of this account is to provide potential investors with a safer platform for investing in highly liquid cash and debt-based assets by using smaller capital. It is a better account for people who hold higher account balances and would wish to earn higher interest out of them.

    4.Certificate of deposits (CDs): These are time fixed deposit accounts that hold a person's money for a fixed term. It attracts more interest than all the other accounts if there are no premature withdrawals before the end of the period to avoid penalties. It is important to save financial goals with planned end dates such as six months or five years in exchange for interest from the bank.

    5.Financial Banking sector in India : Along with the rest of the economy and perhaps even more than the rest, financial markets in India have witnessed a fundamental transformation in the years since liberalization. The going has not been smooth all along but the overall effects have been largely positive.     

    Financial Sector in India consists of three main segments

    • Financial institutions -banks, mutual funds, insurance companies

    • Financial markets -money market, debt market, capital market, forex market

    • Financial products -loans, deposits, bonds, equities

    Which is the Best Bank in India

            The primary function of any public sector bank or private sector bank is to receive deposits and lend money to needful individuals and businesses. Banks are considered to be a synonym of trust across the world. When any individual deposits money in the nationalized banks in India, it doesn’t matter what the amount is, the individual knows that the money will be safe in the bank as compared to anywhere else. Top Banks in India help you in putting your hard-earned money in a place that will also give you interest on that amount.

      The Indian banking sector has witnessed wide ranging changes under the influence of the financial sector reforms initiated during the early 1990s. The approach to such reforms in India has been one of gradual and non-disruptive progress through a consultative process. The emphasis has been on deregulation and opening up the banking sector to market forces. The Reserve Bank has been consistently working towards the establishment of an enabling regulatory framework with prompt and effective supervision as well as the development of technological and institutional infrastructure.

    Persistent efforts have been made towards adoption of international benchmarks as appropriate to Indian conditions. While certain changes in the legal infrastructure are yet to be effected, the developments so far have brought the Indian financial system closer to global standards.

    Private banks are today increasingly displacing nationalized banks from their positions of pre-eminence. Though the nationalized State Bank of India (SBI) remains the largest bank in the country by far, private banks like ICICI Bank, Axis Bank and HDFC Bank have emerged as important players in the retail banking sector. Though spawned by government-backed financial institutions in each case, they are profit-driven professional enterprises.

    Apart from this, the bank bank in India also provide various kinds of banking services such as loan facilities, fixed deposit schemes, debit & credit card facilities, etc. Currently, there are a total of 34 nationalized banks in India of which 12 are Indian government banks and the rest 22 are private sector banks. Below is a list of all banks in India.

    Best Public Sector (PSU) Banks in India

    List of PSU Banks Number of Branches Number of ATMs Headquarter
    State Bank of India (SBI) 24000 58559 Mumbai
    Punjab National Bank (With Merger of Oriental Bank of Commerce and United Bank of India) 11437 8985 New Delhi
    Bank of Baroda (With Merger of Dena Bank & Vijaya Bank) 8581 10318 Vadodara
    Canara Bank (With Merger of Syndicate Bank) 10391 12829 Bengaluru
    Union Bank of India (With Merger of Andhra Bank and Corporation Bank) 9500 13300 Mumbai
    Bank of India 5825 5000 Mumbai
    Indian Bank (With Merger of Allahabad Bank) 6000+ 6104 Chennai
    Central Bank of India 2876 4666 Mumbai
    Indian Overseas Bank 2995 3400 Chennai
    UCO Bank 2377 4000 Kolkata
    Bank of Maharashtra 1860 1897 Pune
    Punjab & Sindh Bank 1045 1554 New Delhi

    Best Private Sector Banks in India

    List of Private Banks Number of Branches Number of ATMs Headquarter
    Axis Bank 4094 17315 Mumbai
    Bandhan Bank 1000 485 Kolkata, West Bengal
    Catholic Syrian Bank 426 290 Thrissur, Kerala
    City Union Bank 600 1724 Thanjavur, Tamil Nadu
    DCB Bank 323 4,99 Mumbai, Maharashtra
    Dhanlaxmi Bank 269 3,46 Thrissur, Kerala
    Federal Bank 1252 1598 Aluva, Kerala
    HDFC Bank 4787 13514 Mumbai, Maharashtra
    ICICI Bank 4882 15159 Mumbai, Maharashtra
    IDBI Bank 1892 3693 Mumbai, Maharashtra
    IDFC First Bank 301 216 Mumbai, Maharashtra
    IndusInd Bank 1004 2662 Mumbai, Maharashtra
    Jammu & Kashmir Bank 958 1322 Srinagar, Jammu and Kashmir
    Karnataka Bank 835 1503 Mangaluru, Karnataka
    Karur Vysya Bank 668 1641 Karur, Tamil Nadu
    Kotak Mahindra Bank 1369 2429 Mumbai, Maharashtra
    Lakshmi Vilas Bank 570 1045 Chennai, Tamil Nadu
    Nainital Bank 135 - Nainital, Uttarakhand
    RBL Bank 342 - Mumbai, Maharashtra
    South Indian Bank 852 1393 Thrissur, Kerala
    Tamilnad Mercantile Bank Limited 509 1156 Thoothukudi, Tamil Nadu
    Yes Bank 1050 1305 Mumbai, Maharashtra

    Frequently Asked Questions

    What is the purpose of the banking system?

            The purpose of the banking system is to provide an easy way for people to pay for goods and services, save their money, and transfer money between accounts. Banking systems provide credit opportunities, facilitate fund flow into the economy, ensure financial generation for public development and growth, and provide payment options.

    What are the different types of banking system?

            Banking systems comprises all institution that operates by accepting deposits and lending out finances to gain profit. They include; commercial banks, central banks, credit unions, and investment banks.

    How does the banking system work?

            Banking systems manage the flow of money between individuals and businesses by accepting deposits and lending out money for investments. Banks earn interest from loans, the cost of managing consumer accounts, and investing for profits.

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