====== Banking System in India ====== The **Indian Banking System** plays a crucial role in the economic development of the country by mobilizing savings, providing credit, and facilitating payments. It has evolved significantly since independence. ===== Structure of Indian Banking System ===== ==== Regulatory Framework #### **Reserve Bank of India (RBI):** * **Establishment**: 1935 * **Role**: Central bank, monetary authority * **Functions**: Currency issuance, banking regulation, monetary policy * **Headquarters**: Mumbai **Banking Regulation Act, 1949:** * **Objective**: Regulate commercial banks * **Provisions**: Licensing, operations, supervision * **Amendments**: Regular updates for modern banking ==== Types of Banks #### ^ Bank Type ^ Ownership ^ Examples ^ Market Share ^ | **Public Sector Banks** | Government majority | SBI, PNB, BoB | 59.8% (deposits) | | **Private Sector Banks** | Private ownership | HDFC, ICICI, Axis | 35.9% (deposits) | | **Foreign Banks** | Foreign ownership | Citi, Standard Chartered | 4.3% (deposits) | ===== Public Sector Banks (PSBs) ===== ==== Major PSBs #### **State Bank of India (SBI):** * **Establishment**: 1955 (merger of Imperial Bank) * **Market share**: Largest bank in India * **Branches**: 22,000+ branches * **Assets**: ₹53 lakh crore (2021) **Other Major PSBs:** * **Punjab National Bank (PNB)** - Post-merger with OBC, United Bank * **Bank of Baroda** - Merged with Vijaya Bank, Dena Bank * **Canara Bank** - Merged with Syndicate Bank * **Union Bank of India** - Merged with Andhra Bank, Corporation Bank ==== PSB Consolidation #### **Bank Mergers (2017-2020):** * **Objective**: Stronger capital base, operational efficiency * **Result**: 27 PSBs reduced to 12 * **Benefits**: Reduced competition among PSBs, better resource utilization ===== Private Sector Banks ===== ==== New Generation Private Banks #### **HDFC Bank:** * **Establishment**: 1994 * **Market capitalization**: Highest among Indian banks * **Technology**: Leader in digital banking * **Performance**: Consistent profitability **ICICI Bank:** * **Establishment**: 1994 * **Focus**: Retail and corporate banking * **International presence**: Multiple countries * **Innovation**: Pioneered many banking products **Axis Bank:** * **Establishment**: 1993 (as UTI Bank) * **Strength**: Corporate banking * **Network**: Strong urban presence ==== Old Private Banks #### * **Karnataka Bank** - Regional focus * **South Indian Bank** - Kerala-based * **Lakshmi Vilas Bank** - Merged with DBS India ===== Specialized Banks ===== ==== Development Banks #### **National Bank for Agriculture and Rural Development (NABARD):** * **Establishment**: 1982 * **Role**: Agricultural and rural development finance * **Functions**: Refinancing, policy formulation, supervision * **Coverage**: Rural and semi-urban areas **Export-Import Bank (EXIM Bank):** * **Establishment**: 1982 * **Role**: Export-import finance * **Functions**: Export credit, project financing * **Focus**: International trade promotion ==== Small Finance Banks #### * **Objective**: Financial inclusion, small businesses * **Minimum capital**: ₹200 crore * **Examples**: Equitas, Ujjivan, Jana Small Finance Bank * **Focus**: Unbanked and underbanked segments ==== Payments Banks #### * **Objective**: Payments and remittances * **Restrictions**: No lending, limited deposit size * **Examples**: Paytm Payments Bank, India Post Payments Bank * **Target**: Digital financial services ===== Cooperative Banking ===== ==== Structure #### **Three-Tier System:** 1. **Primary Agricultural Credit Societies (PACS)** - Village level 2. **District Central Cooperative Banks (DCCBs)** - District level 3. **State Cooperative Banks (SCBs)** - State level ==== Urban Cooperative Banks #### * **Function**: Urban and semi-urban banking * **Regulation**: RBI and state governments * **Issues**: Governance, capital adequacy * **Examples**: Saraswat Bank, Cosmos Bank ===== Regional Rural Banks (RRBs) ===== ==== Establishment and Purpose #### * **Year**: 1975 * **Objective**: Rural credit, financial inclusion * **Ownership**: Central government (50%), State government (15%), Sponsor bank (35%) * **Current number**: 43 RRBs (after consolidation) ==== Functions #### * **Agricultural credit**: Crop loans, farm mechanization * **Rural development**: Self-help groups, microfinance * **Banking services**: Deposits, remittances, insurance ===== Banking Reforms ===== ==== First Generation Reforms (1991) #### **Narasimham Committee I (1991):** * **Recommendations**: Deregulation, competition * **Implementation**: New private banks, branch licensing deregulation * **Impact**: Improved efficiency, customer service ==== Second Generation Reforms (1998) #### **Narasimham Committee II (1998):** * **Focus**: Strengthening banking system * **Recommendations**: Capital adequacy, asset quality * **Implementation**: Basel norms adoption ==== Recent Reforms #### **Jan Dhan-Aadhaar-Mobile (JAM) Trinity:** * **Jan Dhan**: Financial inclusion through bank accounts * **Aadhaar**: Unique identification for KYC * **Mobile**: Digital payments platform **Insolvency and Bankruptcy Code (IBC) 2016:** * **Objective**: Faster resolution of bad loans * **Process**: Time-bound insolvency resolution * **Impact**: Recovery rates improvement ===== Financial Inclusion ===== ==== Pradhan Mantri Jan Dhan Yojana (PMJDY) #### * **Launch**: 2014 * **Objective**: Universal banking access * **Accounts opened**: 46+ crore accounts * **Features**: Zero-balance accounts, RuPay debit cards, insurance ==== Digital Banking #### **Unified Payments Interface (UPI):** * **Launch**: 2016 * **Growth**: 45 billion transactions (2022) * **Value**: ₹84 lakh crore annually * **Impact**: Financial inclusion, cashless economy **Digital Payment Systems:** * **RTGS**: Real-time gross settlement * **NEFT**: National electronic funds transfer * **IMPS**: Immediate payment service * **Mobile banking**: App-based banking ===== Challenges in Banking Sector ===== ==== Non-Performing Assets (NPAs) #### * **Definition**: Loans overdue for 90+ days * **Peak level**: 11.2% (2018) * **Current level**: 6.9% (2021) * **Sectors affected**: Infrastructure, steel, textiles, aviation ==== Other Challenges #### * **Governance issues**: PSB management * **Capital adequacy**: Meeting Basel III norms * **Technology adoption**: Legacy systems * **Cybersecurity**: Digital banking risks * **Competition**: Fintech companies ===== Future of Banking ===== ==== Digital Transformation #### * **Artificial Intelligence**: Credit scoring, chatbots * **Blockchain**: Trade finance, record keeping * **Open banking**: API-based services * **Neo-banking**: Digital-only banks ==== Regulatory Developments #### * **Central Bank Digital Currency (CBDC)**: Digital rupee pilot * **Account Aggregator**: Consent-based data sharing * **Regulatory sandbox**: Fintech innovation testing ===== UPSC Relevance ===== * **Paper**: General Studies Paper III (Economic Development) * **Topics**: Banking reforms, financial inclusion, monetary policy * **Previous Year Questions**: - Banking sector consolidation impact (2021) - Financial inclusion through digital banking (2020) - NPA crisis and resolution mechanisms (2019) - Cooperative banking structure and challenges (2018) ===== Key Statistics ===== * **Bank branches**: 1.6 lakh+ (2021) * **ATMs**: 2.13 lakh (2021) * **Credit-Deposit ratio**: 71.9% (2021) * **CASA ratio**: 44.9% (2021) * **Banking penetration**: 80% adults have bank accounts ===== Memory Techniques ===== **Major PSBs**: **S**BI **P**NB **B**oB **C**anara **U**nion * **S** - State Bank of India * **P** - Punjab National Bank * **B** - Bank of Baroda * **C** - Canara Bank * **U** - Union Bank of India **Private Banks**: **H**DFC **I**CICI **A**xis * **H** - HDFC Bank * **I** - ICICI Bank * **A** - Axis Bank ===== Related Topics ===== * [[indian_economy:agriculture|Agricultural credit and banking]] * [[indian_economy:private_sector|Role of private banks]] ← [[indian_economy:start|Back to Indian Economy]] | [[start|Home]] ---- //Sources: RBI Annual Report, Economic Survey, Banking Statistics//