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Role of Banks in IndiaÂ
An economy needs a healthy banking system to protect and strengthen the financial, social and viability of its tenants. It should be able to make the transactions from the remotest corner of the country. India experienced its first bank in in 1786 and from then to till date the development has underscored the excellence its has achieved.
Since the development of the Bank of Hindustan and Bengal bank , Bank of Bombay (1840) , Bank of India, Central bank of India, Bank of Mysore and lately RBI (1935) Indian economy has seen varied phase of development. To streamline the functions of the bank the central bank came up with the idea of having the banking regulation act, 1949 which was later changed to banking regulation act, Â 1949. This led to the strengthening of the RBI and it was declared the central bank authority.
The positioning of the banks has made this institution extremely responsible for the development of the social structure of India. It started working as a borrower , lender and the underwriter. The agricultural as well as industrial resolution in India has been valiantly supported by this economic institution. Banking has different phases which infer RBI as the regulator and commercial banks, private banks, retail banks and investment banks as the player.
It help us lot in capital formation, monetization of the economy. It gives stimulus for innovation by financing the risk – takers and funds the priority sectors e.g agriculture and small scale industries. It has been mentioned that it induces the remote areas to mobilize the savings and make them available to the entrepreneurs for the productive purpose. The inaccessible backward areas in the country are approached by the rural banking which leads to the monetization of their production.
Innovations are basic prerequisite for economic progress. Here, banks pay special attention to the financing of business innovations by proving adequate and cheap credit to entrepreneurs. Agriculture and small scale industries has been always under the protection of banks as they constitute the backbone of the economy. The banking sector in India has performed the key functions of providing liquidity and payment services to the real sector and has accounted for the bulk of the financial inter mediation process.
It has been observed that the magnitude of the bank deposits in 1956 was only 15% of the national income ( at current prices). But with each successive 5 year plan this amount has increased invariably. In the context of the present scenario, It’s very important to understand that instead of depending on foreign aid for our economic development our banking system should become stronger by revising the policies and plans. After the formulation of the 5 year plans the government realized the exigency of social ownership of the means of production. And for achieving the social objective of catering to the needs of poor sections the banks were nationalized. The monopolization of commercial banks was diluted, private holdings became government institutions. Though the nationalization of commercial banks was undertaken with all objectives, the end failed due to the existing constraints.
