Banking is an integral part of the whole financial system. It affects the country’s economy by providing investment, credit, and infrastructure. The banking industry is the backbone of global economies. The banking sector plays a significant role in the economic growth and development of any country. The global banking sector is estimated to be over USD 20 trillion. It includes trade, finance, insurance, and investment activities of banks. The introduction of the banking industry highlights the importance of the banking sector in developing countries, especially rural areas where traditional financial institutions are less developed, and there is a need for change.

Introduction of Banking

In simple terms, banking is the act of generating, storing, and managing money. It is an economical operation that a banker does to make money available for lending purposes. Banking has various functions like production of money, security of money, deposit operation, investment, and other financial services like international money transfers. The banking sector provides various kinds of financial services through banks.

Introduction of Banking Types

There are three main types of banks in India: commercial banks, development banks, and cooperative banks.

Most banks in India provide the following services:

  • Account services for businesses, companies, and individuals
  • Saving accounts for customers to deposit their money into. These can be interest-bearing accounts or non-interest-bearing accounts. Savings accounts are usually free of processing fees, whereas non-savings accounts may come with charges if they are not paid off in a certain amount of time, such as a credit card account.
  • Loans, such as mortgages and personal loans, to individuals and businesses. They may be provided by the bank itself or through its agents who act on behalf of the bank (known as a subsidiary).
  • Services that are important to running a business, whether a customer needs to pay their employees or suppliers or needs to know when their goods will be delivered.

History of Introduction of Banking

The introduction of the banking industry in India was done in 1916. Banks were meant to facilitate credit and improve the financial health of people. The following are the steps:

The bank was first introduced by the British East India Company (EIC) in Bengal and became a part of the banking sector in India. Bank of Bengal was established on 21st December 1770, with its headquarters at Calcutta (now Kolkata). It was modeled after the Bank of England introduced a commercial banking system.

Importance of Banking Sector in a Country

  • Banking is an integral part of the whole financial sector. It affects the country’s economy by providing investment, credit, and infrastructure.
  • The banking sector plays a significant role in the economic growth and development of any country.
  • The global banking sector is estimated to be over USD 20 trillion. It includes trade, finance, insurance, and investment activities of banks.
  • With the advent of computers and microprocessing machines, now most banks have been automated. Financial transactions have been made easier and quicker. With the easy availability of funds, entrepreneurs can get more funds for their businesses. 
  • The Banking Sector has also helped poor farmers in developing countries by providing them with credit facilities.
  • The banking sector has also been criticized for not providing people with sufficient access to funds, a lack of transparency, too big of a size, and its role in the global economy.

Bank Structure In India

The bank structure in India is divided into several segments based on banks functions. One may have difficulty understanding the banking structure due to various names given by Govt of India and RBI or by different banks themselves.

The Bank Structure in India can be divided into sectors as below:

The Banking Sector includes all activities related to providing credit and other financial services to help customers. It also includes other sectors like insurance, financial markets, treasury, investments, etc.

The Money Market is a part of the banking sector that manages securities held by financial institutions or individuals. It includes government securities, corporate bonds, and other instruments like bills (not negotiable) and certificates of deposit.

Securities Holding: This is a branch of the money market banking sector where banks buy and sell Government securities, equity shares, and corporate bonds on behalf of their customers. Banks also buy and sell financial products like debentures, treasury bills, and others on behalf of their customers.

Investment Banking: This is a part of the banking sector that includes firms that provide investment banking services to clients, including advising them on mergers and acquisitions (M&As), capital raising, underwriting of securities, etc.

Conclusion

The recent developments in the banking sector showed the precise functioning of various segments of the banking sector. Since the introduction of banking, the banking structure in the country has grown leaps and bounds, which is why it is so important for us to understand how it works and what different segments are there. This understanding will go a long way in helping us open our bank account and also help us expand our business through business banking. It is important to know the level of loan that we can avail and other profitable schemes running in the country.