ROLE OF BANKS AND FINANCIAL INSTITUTIONS IN ECONOMY
Money lending in one form or the other has evolved along with the history of themankind. Even in the ancient times there are references to the moneylenders.
Shakespeare also referred to ‘Shylocks’ who made unreasonable demands in case
the loans were not repaid in time along with interest. Indian history is also repletewith the instances referring to indigenous money lenders, Sahukars andZamindars involved in the business of money lending by mortgaging the landedproperty of the borrowers.Towards the beginning of the twentieth century, with the onset of modernindustry in the country, the need for government regulated banking system wasfelt. The British government began to pay attention towards the need for anorganised banking sector in the country and Reserve Bank of India was set up toregulate the formal banking sector in the country. But the growth of modernbanking remained slow mainly due to lack of surplus capital in the Indianeconomic system at that point of time. Modern banking institutions came up onlyin big cities and industrial centers. The rural areas, representing vast majority of Indian society, remained dependent on the indigenous money lenders for theircredit needs.Independence of the country heralded a new era in the growth of modernbanking. Many new commercial banks came up in various parts of the country. Asthe modern banking network grew, the government began to realise that the