ROLE OF BANKING SYSTEM IN

ECONOMIC DEVELOPMENT

BANKING SYSTEM
&
INDIAN ECONOMY
PRESENTED BY:
PREM KR.
ECONOMIC SIGNIFICANCE OF BANKING

Facilitates the development of trade and industry

Facilitates the development of agriculture sector
Facilitates the development of service sector
Contributes for the balanced growth
Encouragement of international trade
Implementation of monetary policy
Social service
HISTORY OF BANKING SYSTEM
IN INDIA
First modern bank-1688, Madras (Agency House) by Britishers
Bank of Hindustan- 1770, calcutta
General bank of india-1786
Three Presidency banks- Bank of Calcutta(1806),Bank of Bombay(1840),
Bank of Madras(1843)
Imperial bank of India(1921)- which was nationalised in 1955 and named
SBI
Other banks- Allahabad bank(1865), PNB(1894), BOI(1906), Indian
Bank(1907), BoB(1909), CBI(1911).
 Kinds of Bank

 CENTRAL BANK
 Commercial banks
 Co-operative banks
 Specialized banks
 Rural banks
 Housing banks
 CENTRAL BANKS
RBI
(established in1935)
A central bank- is usually state owned but it
may also be a private organization.
For instance,
RBI- started as a shareholders’
organization in 1935, however, it was
nationalized in 1949.
(It is free from parliamentary control)
 FUNCTIONS OF RBI
TRADITIONAL FUNCTIONS:
 To issue currency notes
 A banker, Agent & Financial Advisor to the state government
 A bankers bank
 Control and supervision of banks
 Manage and control of foreign exchange
 Controlling credit
 Lender of the Last Resort
DEVELOPMENT AND PROMOTIONAL FUNCTIONS:
 Institutionalised agricultural credit
 Establishment of UTI
 Setting up of NABARD
 Setting up of IDBI (a subsidiary of RBI)
 Commercial Banks
(Public, Private & Foreign)
Commercial banks are joint stock companies dealing in money and credit.
prior to July 1969
73 scheduled and 26 non-scheduled banks, except the SBI and its
subsidiaries- controlled by private sector.
On July 19, 1969
14 major commercial banks with deposits of over 50 Corers were
nationalized.
In April 1980
Another six commercial banks of high standing undertaken by the
government.
20 nationalized banks + SBI and its 7subsidiaries (public sector banks)

(controls over 90 per cent of the banking business in the country)

FUNCTIONS OF COMM. BANKS
 PRIMARY FUNCTION:-
collection of deposits
Loans and advances:
Loans to business and trade
Loans to industry
Loans to agriculture and allied activities
Export and import trade
 SECONDARY FUNCTION:-

Agency services
General utility services
 CO-OPERATIVE BANKS
A group of financial institutions organized under the
provisions of the Co-operative societies Act of the
states.
Main objective :
 To provide cheap credits to their members.
Principle:
 self-reliance and mutual co-operation

 Co-operative banking system in India has the shape

of a pyramid a three tier structure, constituted by:
 Primary credit
societies
[APEX]

Central co-operative
banks
[District level]

State co-operative banks

[Villages, Towns, Cities]
 SPECIALIZED BANKS

1. Foreign exchange banks (BoA, BoT, BBME etc.)

2. Development banks
3. Land development banks,
4. Exim bank,
 DEVELOPMENT BANKS
(IFCI, IDBI, SFCs, SIDCs IRBI, SIDBI & ICICI)
FUNCTIONS:
 Sanction of loan
 Guarantee of loan
 Underwriting of industrial securities
 Investment in shares and debentures
 Merchant banking
 Development functions
 CREDIT CREATION
(POWER OF BANKS)
Liquidity……..Profitability………Safety

CREDIT MULTIPLIER
=
Reciprocal of CRR
(1/ 1/CRR)
 BANKING VISION 2020
 to evolve into a strong, sound and globally competitive
financial system
 to provide integrated services to customers from all
segments
 to leverage on technology and human resources,
adopting the best accounting and ethical practices and
fulfilling corporate and social responsibilities towards all
stakeholders.
 TARGET(2020)
 Ranking- 11th to 4th among 207 countries given in the
World Development Report in terms of (GDP).
 FDI-to contribute 35% (21% now) in capital formation
 International trade-below 1%(present) to 6%
 Contribution of GDP- 15% (present) to 35%
 Annual growth(GDP)- 8.5% to 9%
 Urbanization- 30% to 40%
 SME- Major player of the economy
 FUTURE LANDSCAPE
FOUR DYNAMIC TRENDS:-

1. Consolidation of major players through

merger & acquisition
2. Globalization of operation
3. Development of new technology
4. Universalization of banking
THANK YOU