Banking Sector in India

Mains Marks Booster     4th August 2023        

Introduction: The Indian economy has benefited greatly from the evolution of the banking sector. The history of banking begins in the ancient world. What began as a straightforward barter system and gift economy has evolved into an internet-based, technology-driven, globalised banking system.

Recent developments in Banking sector-

  • Post 2014, new initiatives were launched to achieve financial inclusion like PM Jan Dhan Yojana, PM MUDRA yojana, etc.
  • Introduction of Insolvency and bankruptcy code in 2016.
  • Monetary policy committee formed after Urjit Patel committee recommendations.
  • Two types of niche bank- Small Finance Banks and Payment Banks came up after Nachiket Mor committee recommendations.
  • Mergers- 10 PSBs have been merged into 4 banks in 2019. India now has 12 Public sector banks.
  • Emergence of new forms of banking systems like neo banks, digital banks etc.

Functions of the Banking Sector:

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.

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.

    1. Business Growth: Indian banks facilitate trade and commerce. It offers payment facilities to various local and international businesses.
    2. Financial Stability: RBI being the central regulator helps in bring stability to the system through various methods, the most important among it is monetary policy recommendations.
    3. Advancement of Credit and Cash Management-It permits banks to provide money transfers and quick cash and people with different services.
    4. Crowding in of private sector- It helps banks handle the money transfer carried out for many industrial units and various business houses. 
    5. Financial Security: Offering loans at competitive rates, paying reliable remittance services, etc.- to improve savings. 
    6. Manage Assets: such as gold, silver, diamonds, etc.  
    7. Agency functions of bank- It includes transfer of money, periodic collection of dividends, salary, pension etc. Manages the portfolio of its clients
    8. Specialized institutions for specialized services- Export and import functions are covered by the EXIM bank, Agricultural investments and credit is looked upon by NABARD etc
    9. Promoting social justice and act as harbingers of change - Banking sector of a country has the ability to maintain a sustainable level of economic growth if properly governed by the regulator as well as the central government. Thus, giving the banks flexibility to grow and bring grass root revolution would bring progress in the long run.