Banks are known as ‘bancus’ or ‘banque’ in Latin whereas in English it is termed as bench. A bank is an institution which deals with financial transactions like deposit and withdraw of cash/money. It is also a financial intermediary that involves activities like loaning. Banks are generally regulated with certain rules and regulations due to the heavy influence of banking within a financial system and economy of a country. All banks need to comply to the regulations set by Basel i.e. set of international standards for banking. Most of the authors globally have given some definitions regarding banking; some of them are discussed below.
• F.E. Perry: “The bank is an establishment which deals in money, receiving it on deposit from customers, honouring customer’s drawings against such deposits on demand, collecting cheques for customers and lending or investing surplus deposits until they are required for repayment.”
• Walter Leaf: “A banker is an institution or individual who is always ready to receive money on deposits to be returned against the cheques of their depositors.”
• Dr. Herbert L. Hart: “A banker is one who in the ordinary course of his business, honour scheques drawn upon him by persons from and for whom he receives money on current accounts.”
• The Indian Banking Companies Act, 1949: “Banking means the acceptance for the purpose of lending or investment, of deposits of money from the public repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise”.
Characteristics of Banking-
• Trade in Money: All banks deal with money exchanges like deposit of money in bank or lend or borrow the money from banks.
• Company/Firm/Individual: Bank is an institution which can be operated through a company/firm or an individual by the implementation of certain regulations.
• Providing Advances/ Overdraft: A bank provides money in the form of overdraft/ loans to persons/companies who need it for various assignments.
• Easy methods to operate: A bank is also responsible for providing easy facilities for his customers for depositing /withdrawing money through cheques/drafts, etc.
• Various utility services: A bank is also responsible for implementing or provides various banking facilities to its customers through various technologies.
Banking in Asia
Several governments in Asia after independence soon realized the changes to the market economy and the requirement of supportive development to their banking and financial systems, including considerable capacity building in an area that needed to be re-established almost from scratch. The resulting reform programs designed and aimed at restructuring and modernizing of the components of financial system creating conditions for sustainable economic growths were implemented in the 1990s. The entire era has been divided in two stages.
First stage-
During the first phase in Asia, sovereign currencies began with restrictive monetary politics to curb inflation. As a result, high-interest rate policies and formal and informal restrictions on convertibility were implemented and enforced. High-interest rates, low level of reserves, lack of liquidity, economic and political instability and devaluation continued throughout 1995–96, along with continued dollarization of the financial system and outflow of funds.
Second stage-
Improvements in monetary policies, combining structural and institutional reforms, and reforming fiscal discipline eventually brought economic stability to various regions of Central Asia by the mid of the 1990s. Inflation fell from hyperinflationary levels in 1993 to about 15–20 percent in 1997–98 and reduced the devaluation of local currencies, which remained relatively viable until the 1998 Russian financial crisis. In addition, it was at the end of 1997 that gross domestic product (GDP) began to grow in the gross area.
Banking in India
Modern banking was developed in England and introduced in India by the British government during their rule in India. Naturally, Indian banking system today is almost similar to the concept of banking system of the British government. However, this does not mean that banking system was unknown to India. The essence of banking in India had been present since ancient time. In fact, India was a major contributor in international trade and a major producer of steel, textiles, spices and fine articles during the ancient and medieval age. To refer Manusmriti, the concept of rate of interest and security of loans is present in our nation during ancient age. Arthashastra of Kautilya also mentions the regulation of interest rates, deposits and even exemption in bills. They were called 'Hundies'. The big traders, merchants and moneylenders were called his superior as ‘nagarseeth’, who held important positions in the Mughal and Maratha reign. They had efficient courier systems and had extensive branches all over India and had also given loans to kings.
However, with its double entry accounting system, the emphasis was on modern banking and deposit by the British. The British rule expanded the stages of development in banking in India. Modern banking promoted indigenous banking.
Stages in the Evolution of Banking in India:
The history of the Indian banking system is divided in three stages:
• Before Independence
• Between 1947-1991
• After 1991 to till date
Before Independence
Banking system in India started with the establishment of Bank of Hindustan in the year 1770 but it has been ceased to operate in 1832. During this period, there is an alliance of three major banks i.e. Bank of Bengal, Bank of Bombay and Bank of Madras. However, during the British rule, these banks were amalgamated formed as a new bank called Imperial Bank established in 1921 with its network of branches in all over the country (taken over by SBI in 1955). Following banks were established during this period:
• Allahabad Bank (Established in year 1865)
• Punjab National Bank (Established in year 1894)
• Bank of India (Established in year 1906)
• Bank of Baroda (Established in year 1908)
• Central Bank of India (Established in year 1911)
Banking Between 1947-1991
Hilton Young Commission emphasized the need for a separate central bank. As per the commission recommendation, Reserve Bank of India has been established in 1935 and after the Independence it has been nationalised on 1 January 1949. Along with the nationalization of reserve bank, regional rural banks were also introduced in our country on 2 October 1975.
Nationalization of banks has improved the efficiency of the banking system of our country. This has boosted the confidence of the public in our banking system. This nationalization has helped increase funds which may lead the economic growth of our country. After independence, another significant step was taken in 1969 which was to nationalize 14 Indian banks. After this in 1980, six more India banks were also nationalised. This nationalisation of banks brought about great changes in the policies, attitudes, procedures, functions and coverage of Indian banks throughout the world. Indian banks are now being ready to become leading international players.
Banking After 1991
After 1991, Indian banking system has shown tremendous growth rate. Liberalization policies introduced by the government have also boosted up the growth of Indian banking system. This tenure is also known as the phase of expansion, consolidation and increment of Indian banking system. This tenure has also been responsible for the entry of private sector in Indian Banking System. As a result, RBI has given license to ten private entities (ICICI, HDFC and Axis Bank) for the establishment of banks in India.
At present, the banking system of India is known or termed as Modern Banking Era in India. As per the reports published by Reserve Bank of India (RBI), India’s banking sector is sufficiently capitalised and well-regulated. The financial and economic conditions of Indian banking system is far superior and better to any other banking system in another country in the world. After making the study of credit, market and liquidity risk, it has been observed that Indian banks are generally durable and have withstood the global downturn well.
The banking industry of India has recently witnessed the implementation of innovative banking solutions like payments and establishment of small finance banks. The new measures of RBI’s may go a long way in helping the restructuring of the domestic banking industry. Establishment of digital payments system in India has evolved the most among 25 countries with India’s IMPS (Immediate Payment Service) being the only system at level 5 in the Faster Payments Innovation Index (FPII). Currently, Indian banking system features the following:
• 27 public sector banks.
• 21 private sector banks.
• 49 foreign banks.
• 56 regional rural banks.
• 1562 cooperative banks.
• 94,384 rural cooperative banks and cooperative credit institutions.
Key Developments of Indian Banks-
As per the banking reports of September 2018, government of India has initiated the India Post Payments Bank (IPPB) and opened its branches across all the districts of our country for achieving the objective of financial inclusion. As of May 2018, the equity funding of microfinance companies has grown up at the rate of 39.88 to Rs 96.31 billion (Rs 4.49 billion) in 2017-18 from Rs 68.85 billion (US$ 1.03 billion).