Banks play an important role in our economy. Banks’ primary purpose is to put their account holders’ money to use by renting it to others, who can then use it to buy houses, start companies, send their children to college, and so on. Then How Do Banks Works In India?
How Do Banks Works In India?
- When an individual deposits money into their bank account, the bank has the ability to lend the money to anyone.
- The depositing customer receives a small amount of money in return (interest on deposits), while the lending customer pays the bank a greater amount of money in return (interest on loans).
- The bank keeps the difference to make money for itself.
In reality, many people seem to believe that banking is “free,” due to banks’ constant promotion of free checking accounts, free direct deposit, free budgeting features, and so on. Since banks do not produce physical goods, it can be difficult to understand what they do.
India’s banking system
Banks and banking have been split into various classes in India. Each group’s operations have their own set of advantages and disadvantages. They have their own targeted market. Some work mostly in rural areas, while others work in both rural and urban areas. The majority of them only serve cities and major towns.
India’s financial governments
In India, there are primarily three financial governments:
The Reserve Bank of India (RBI) controls the banking sector, while the Securities Exchange Board of India (SEBI) controls the capital markets and mutual funds, and the Insurance Regulatory and Development Authority (IRDA) controls insurance companies.
INDIA’S BANKING SYSTEM STRUCTURE
Banks are broadly categorised into the following sub-categories:
|INDIA’S PUBLIC SECTOR BANKS||SCHEDULED BANKS|
|Has the most branches in metro, urban, and rural areas across the country. Contributes approximately 75% of total deposits.||These are the banks listed in the Reserve Bank of India Act, 1934’s second schedule.|
|Nationalized banks and the State Bank Group: Is a partnership of 27 banks.||These banks are expected to maintain certain amounts with the RBI in exchange for financial accommodation and remittance facilities at lower prices from RBI.|
|Contributes approximately 75% of total deposits.||State Co-operative Banks.|
|Contributes roughly 70% of overall advances made by all commercial banks in India.||Banks in the commercial sector|
|Most have a wide branch network that covers the entire world.|
|Have a substantial deposit and asset base. AND|
Perform both core and modern banking functions
The banking system is critical in promoting economic growth not only by channelling savings into investments, but also by enhancing resource allocative efficiency.
In fact, recent empirical evidence indicates that the banking system contributes to economic growth more by improving capital allocative efficiency than by channelling money from savers to investors. An efficient banking system is now regarded as a pre-requisite for development.
The central bank (Reserve Bank of India – RBI), commercial banks, cooperative banks, and development banks represent India’s banking system. These institutions, which serve as a meeting place for savers and investors, are at the heart of India’s financial sector.
Banks play an important role in the growth of underdeveloped countries by mobilising capital and allocating them more effectively.
An Overview of Indian Banking
The country’s central bank of India is the Reserve Bank of India. This was formed in 1935, in connection with the Reserve Bank of India Act of 1934. The RBI regulates banking in India and is responsible for the following main functions:
- Functions as a monetary authority.
- Acts as a financial market regulator and supervisor.
- Controls foreign exchange.
- Produces money
- Carry out related tasks
In India, there are 6 types of banks:
- Commercial banks
- Scheduled banks
- Non-scheduled banks
- Regional rural banks
- Co-operative banks
- Foreign banks
How do bank earn?
What is a bank in a nutshell?
What is the purpose of interest charged by banks?
What causes banks to fail?
Who made money?
Why can’t governments simply print money?
What is the primary feature of a bank?
I hope you learned some thing new. Thanks for reading.