Commercial Banking in India - Introduction

Banks have played a critical role in the economic development of some developed countries.In emerging economics banks are special for 3 important reasons

• They take a leading role in developing financial intermediaries and markets
• Corporate sectors depends heavily on banks to meet its financial needs
• Banks cater to the needs of savers,who prefer assured income and liquidity and safety of funds

In India, the definition of the business of banking has been given in the Banking Regulation Act, (BR act),1949.BR act defines banking as

 "Accepting for the purpose of lending or investments,of deposits of money from the public, repayableon demand or otherwise, and withdrawal,by cheque,draft,order or otherwise."

Evolution of Banks in India

The Commercial Banking in India started in 1786 with the establishment of Bank of Bengal in Calcutta. The Indian government established three presidency banks

• Bank of  Bengal   (established in 1809)
• Bank of  Bombay (established in 1840)
• Bank of  Madras  (established in 1843)

In 1921 the above mentioned 3 presidency banks amalgamated to form the Imperial Bank of India, with mainly European shareholders.

In 1865, Allahabad bank was established with purely Indian Share holders.

Punjab National Bank established in 1895.

Between 1906 and 1913 other banks like Bank of India, Canara bank, Bank of Baroda, Central Bank of India, Indian Bank and Bank of Mysore were set up.

State Bank of India was constituted in 1955. Subsequently in 1959, SBI act was passed, enabling SBI to take over 8 former state associates and its subsidiaries.

In 1990's new private sector banks like ICICI bank, HDFC bank,IDBI bank and UTI  were set up.

Functions Of Commercial Banks

Payment System 

A Fundamental method by which banks help in settling the financial transaction process by issuing and paying cheques issued on behalf of customers. It also  involves electronic banking,wire transfers, settlement of credit card transactions etc.

Financial Intermediation

Bank will take deposits from customers and then lend these funds to borrowers. Bank Deposits address the purpose of liquidity,safety and minimal interest of money. Bank loan and Investments are useful for channelling the funds to make profit.

Financial Services

Financial services including investment banking, insurance related business, foreign exchange business, Wealth management services etc. Income from these services improve bank profit.