Introduction to banking in india
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Indian banking originated in the 18th century with the establishment of the General Bank of India. Key events in Indian banking history include the founding of the State Bank of India in 1806 and the nationalization of the Reserve Bank of India in 1947. Banks act as intermediaries between savers and borrowers, accepting deposits and lending money. The basic principles of banking include trust, liquidity, solvency, profitability, and intermediation. Banks play an important role in a country's economic development by facilitating capital formation, investment, employment generation, and implementing monetary policy.
Introduction to banking in india
- 1. UNIT 1 Introduction to Banking In India
- 2. Introduction Indian banking is the lifeline of the nation and its people. Today, Indian banks can confidently compete with modern banks of the world. Before the 20th century, usury, or lending money at a high rate of interest, was widely prevalent in rural India.
- 3. History of Indian Banking Industry Banking in India originated in the first decade of 18th century with The General Bank of India coming into existence in 1786. Followed by Bank of Hindustan’ Both Banks-Bankrupt Oldest bank- State Bank Of India ( The Bank of Bengal- Calcutta June1806) Foreign Banks- Credit Lyonnais 1850 Calcutta – Most Active Trading Port – British Empire Allahabad Bank-1865- First fully Indian owned bank 1900- PNB 1895- Bank of India- Lahore RBI-1935 1947- RBI nationalized – powers to regulate
- 4. The concept of Banking A Bank is an establishment which makes to individuals such advance of money as may be required and safely made and to which individuals entrust money when not required them for use. Banks are institutions whose debts usually referred to as bank deposits are commonly accepted in final settlement of other people debts.
- 5. Origin of the Word ‘Bank’ Bank is derived from Italian word banco. Bankers used to make their transaction above a desk covered by green tablecloth. A bank is an institutions that accepts various types of deposits and then advances money in form of loans to people requiring it. Money and credit provide the axle around which all economic activities revolve. Banks-Money Growth- capital Formation
- 6. Business of Banking Money Surplus Units Money deficit Units ( Savers) (Investors) Money Intermediar y ( Banks)
- 7. Functioning of a Bank General Functions of a Bank Lending Money To Public ( Loans) Transferring Money from One place to another ( remittance) Accepting Deposits from public/Others ( deposits) Doing Government Business Transactions Keeping Valuables in safe custody Acting as Trustees
- 9. Basic Principles of Banking Basic Principles of Banking Principle of Trust Principle of Liquidity Principle of SolvencyPrinciple of Profitability Principle of Intermediation
- 10. Principle of Intermediation Banks are Called ‘Financial Intermediaries’ Invest-lend Funds of depositors Expertise to manage risk. Banks mediate between the depositors and borrowers and earn interest spread as a reward of risk taking. Interest Earned-Interest paid= Spread
- 11. Principle of Liquidity Receiving deposits- Lending funds- simultaneously Arranging for funds demanded by its depositors at any point of time. This is called ‘ Liquidity Management or Asset Liability’ Management. This principle enforced by RBI Maintain CRR
- 12. Principle of Profitability Banking business has to be profitable to sustain. A) Interest Income B) Interest Spread
- 13. Principle of Solvency Solvency Means: 1. Long term financial soundness of a bank, achieved by compliance/adherence to vigilant policies in banking. 2. Maintenance of profits for business growth 3. Implementation of a professional management system. A bank’s financial soundness is judged by analyzing its financial graph ( accounts) of a couple of years.
- 14. Principle of Trust Trustworthiness is a function of bank’s good track record over a fairly long period of time in terms of: 1. Liquidity 2. Profitability 3. Financial Soundness 4. Meeting Its commitments to all concerned parties.
- 15. Role of banks in Economic Development of a country Role of Banks Capital Formation Motivate Investment Helpful in decreasing demand Employment Generation Arrangement of Foreign Exchange Implementation of monetary policy Development of rural sector Inducement of Innovations