The banking sector is an essential part of every country’s financial system. It affects the country’s economy by providing credit, infrastructure, and investment.
The banking sector plays a vital role in the growth and expansion of any country. This article discusses the role and importance of banking in India. Along with that, you will also get to know about different types of banks.
Furthermore, if you wish to enroll in the banking sector, you must prepare for the exams. Therefore, you must work under a group of skilled experts who can guide you all along.
In that case, you can rely on the Institute of Professional Banking (IPB). The Institute guides pupils in their preparation for a banking career. They provide various banking courses that help students get into banking careers.
Let’s take a brief look at the info on the banking sector.
Banking Meaning & Definition
In simple words, banking is the act of saving, generating, and managing money. The industry negotiates with credit, cash, and multiple other trades. Banks provide people with a safe place to keep their cash and credit.
In addition to that, banks also offer Certificates of Deposit. To make loans, banks use various deposits. They also comprise business loans, car loans, and home mortgages. They keep the records in secure databases, so they can’t get hacked.
People get money from banks to make payments or buy goods and services. Businesses also borrow money to grow their business. Banks have a wide network of branches across the country and overseas. With its help, they perform these functions effectively.
Moreover, the banking industry is the backbone of global economies. The banking system in India plays a vital role in the development and growth of the country.
Types of Banks in India
In India, there are different types of banks all over the nation. All of them have different functions that make them vary from each other. Based on operation, the banking institutions can be divided into the following groups:
- Central Banks
- Commercial Banks
- Development Banks
- Co-operative Banks
- Specialized Banks
Let us get into the details of these banks.
Central Banks in India
The responsibility of guiding and regulating a country’s banking system depends on Central banks. They are not responsible for dealing with general public issues.
The parts of Central Banks are-
- It acts as a banker’s bank.
- The central bank acts essentially as the government’s banker.
- It upholds the data of all the government’s costs and revenue.
- In case of any issue, they supervise other banks.
- It suggests the government on monetary and credit policies. In addition, it determines the interest rates for bank loans and deposits.
- The bank decides the foreign exchange rates.
- The issue of currency notes and their circulation in different countries also comes under their duty.
Commercial Banks in India
Commercial banks are banking institutions that grant short-term loans and accept customer deposits and advances. Besides that, they provide medium-term and long-term loans to business firms.
Types of Commercial Banks
It comprises three types of commercial banks.
Public Sector Banks
The shares of these banks are mostly owned by the Reserve Bank of India and the Government of India. For example
- Corporation Bank
- Bank of Baroda
- State Bank of India
- Canara Bank
- Oriental Bank of Commerce
- Punjab National Bank
- Bank of India
Private Sector Bank
In the case of private sector banks, private individuals own the majority of share capital. For example
- Bharat Overseas Bank Ltd.
- ICICI Bank Ltd.
- ING Vysya Bank
- Global Trust Bank
Foreign banks have headquarters in foreign countries but run their branches in India. For example
- American Express Bank
- Hong Kong and Shanghai Banking Corporation (HSBC)
- Standard and Chartered Bank
Development banks offer financial assistance to people through medium and long-term capital. Businesses use them to purchase machinery and equipment for modernization or the latest technology. For example:
- State Financial Corporation (SFC)
- Industrial Finance Corporation of India (IFCI)
Those who belong to the professional community, the same local, or share a common interest under the co-operative societies act from these banks.
Co-operative banks offer their members a wide array of banking and financial services. The society has to get a license from the Reserve Bank of India to form. Plus, they have to obey the guidelines issued by them.
These banks provide overall support for businesses in specific areas. For example, SIDBI, EXIM bank, NABARD, etc.
Export-Import Bank of India (EXIM bank):
The bank offers assistance and support to set up a business for exporting products abroad and importing products from foreign countries for sale in our country. Plus, it informs people about the international market.
Moreover, it provides loans to importers and exporters to run their firms. It also makes them aware of their rivals and the risks they might face further.
- Small Industries Development Bank of India (SIDBI)
The bank loans those wishing to establish a small-scale industry or unit. Along with that, it finances the modernization of small-scale industrial units. The bank operates to develop, finance, and encourage small-scale industries.
- National Bank of Agriculture and Rural Development (NABARD)
It is an apex or central institution that provides agricultural and rural sectors finance. The sectors may be fishing, handloom weaving, and many others.
They provide both long-term and short-term through regional rural banks. It offers financial aid in small-scale industries, agriculture, cottage and village industries, handicrafts, and economic activities in rural areas.
Format Of The Banking System
The banking system offers some organizational features like:
- Chain banking
- Unit banking
- Branch banking
- Group banking or holding company
Apart from these, banking systems also operate some functions or techniques:
- Mixed banking
- Deposit banking
- Merchant banking
- Investment banking
From these, group banking and chain banking are related to Unit Banking. Modern banking concepts went through a huge historical procedure.
These processes are accomplished based on geographical, political, and socio-economic factors. The reason is that historical experiences vary from nation to nation.
Role of Indian Banking In Economic Development
Indian banking has a big role in the growth of the economy of India. Every country’s economy lies in the banking system. When the bank functions well, only then it benefits in nation-building.
Below we’ve provided the function of the banking system in India:
When it comes to business growth, the Indian banking sector helps a lot. It establishes different branches to develop strong ties with foreign countries. That helps in the major growth of the economy.
In addition to this, Indian banks facilitate trade and commerce. It offers payment facilities to various local and international business houses.
- Financial Stability
The banking sector provides financial stability to the Indian economy. It also offers safe and secure financial services to help people. The services count money orders, cash deposits, and cash card services. People can take advantage of these perks to help their businesses grow.
- Cash Management
Cash management plays an essential role in the growth of the economy of India. It permits banks to provide money transfers and quick cash. That’s how they help people with different services.
Many business houses ask for money from the banks to help their business. It helps banks handle the money transfer carried out for many industrial units and various business houses. And it makes the whole method smooth.
- Advancement of Credit
Every bank provides loans to people to expand their businesses. The Indian banking sector is one of the most active sectors that provide loans to individuals and institutions.
The Indian economy has a huge impact on active loans. It is crucial in providing funds to different priority sectors like small-scale industries, agriculture, trading enterprises, real estate, etc.
- Financial Security
The Indian banking system provides people with financial security for their funds. It is done by offering loans at competitive rates, paying reliable remittance services, etc. That’s how people can save their money.
They also invest in financial tools like government securities, long-term bonds, etc. Thus, it plays an essential role in the context of financial security.
- Manage Assets
Banks handle money and precious items such as gold, silver, diamonds, etc. People rely on banks to keep their valuable items safe and sound. They make loans and accept deposits and payments from their clients.
They also provide credit cards, debit cards, checkbooks, etc. They can count as a reliability factor for their assets.
The banking sector comes up with a lot of perks for the nation. In addition to that, the bank employees can also benefit a lot. It is the best choice if you also want to get into the banking sector.
When looking up the preparation, you can seek help from IPB. Many students have succeeded with the help of this institution. You can be the next, so get in contact with them today.