This document provides an overview of the origin and development of banking in India. It discusses the history of banks in India dating back to the 18th century with the establishment of banks like Bank of Hindustan and presidency banks. It then covers the nationalization of banks in India in 1969 and 1980. The document also defines key banking terms like banks, characteristics of banks, and functions of banks such as accepting deposits and lending funds. It provides context on the various types of banks that operate in India and how the banking system works.

1. UNIT -1 ORIGIN AND
DEVELOPMENT OF BANKING
By Kavisha shah

2. 1. Introduction to Banking
2. History of banks
3. Meaning of banking
4. Characteristics / Features of banks
5. Importance of Banks
6. Banker customer relationship
7. Functions of bank
8. Differences between Banks and NBFCs:
9. Banking system
10. Types of banks
11. Types of Bank accounts
12. Types of banking
13. Role of banks
14. Differences between organized and
unorganized sector
Topics

3. Introduction of Banking
• The banking history is interesting and reflects evolution in trade and
commerce.
• The development of banking from the traditional lines to the modern
structure passes through Merchant bankers, Goldsmiths, Money lenders and
Private banks. Merchant Bankers were originally traders in goods. Gradually
they started to finance trade and then become bankers.

4. Introduction of Banking
• Goldsmiths became bankers who perform both the basic banking functions
such as accepting deposit and lending money.
• Money lenders were gradually replaced by private banks.
• Private banks were established in a more organized manner. The growth of
Joint stock commercial banking was started only after the enactment of
Banking Act 1833 in England.

5. History of Banks
• India has a long history of financial intermediation.
• In the beginning of 18th century, British East India Company launched a
few commercial banks.
• Bank of Hindustan (1770) was the first Indian bank established in India.
• Later on, the East India Company started three presidency banks, Bank of
Bengal(1806), Bank of Bombay(1840) and Bank of Madras(1843) These
bank were given the right to issue notes in their respective regions.

6. History of Banks
• Allahabad bank was established in 1865 and Alliance Bank in 1875. The first
bank of limited liability managed by Indians was Oudh Commercial Bank
founded in 1881.
• Subsequently, the Punjab National Bank was established in 1894.
• In the Beginning of the 20th century, Swadeshi movement encouraged
Indian entrepreneurs to start many new banks in India.

7. History of Banks
• In the history of Indian banking was the formation of Imperial bank of
India in 1921 by amalgamating 3 presidency banks It is the Imperial Bank
which performed some central banking functions in India.
• A number of banks failed during the first half of the 20 Century. It affected
the people’s belief and faith in Banks.

8. History of Banks
• In 1951, there were 566 private commercial banks in India with 4,151 branches.
• The Reserve Bank of India (RBI) was originally established in 1935 by the
Government of India.
• Reserve bank of India was nationalized in the year 1949.
• The enactment of the Banking Companies Act 1949 (Later it was renamed as
Banking Regulation Act) was a bold step in the history of banking in India.
• In 1955, Imperial Bank of India was nationalized and renamed as State bank of
India (SBI).
• The SBI started number of branches in urban and rural areas of the country.

9. History of Banks
• Nationalization of 14 commercial banks in 1969 was a revolution in the
history of banking in India.
• Six more commercial banks were nationalized in 1980.
• In the history of Indian banking were the establishment of National Bank
for Agricultural and Rural Development (1988), merger of New Bank of
India with Punjab National Bank (1993).

10. History of Banks
• Merger of State Bank of Sourashtra with SBI (2008) and the merger of State
Bank of Indore with SBI (2010).
• At present, there are 27 Public sector banks, 20 private sector banks, 30
Foreign banks and 82 Regional Rural Banks in India.

11. Meaning of Banks
• Finance is the life blood of trade, commerce and industry. Now-a-days,
banking sector acts as the backbone of modern business.
• Development of any country mainly depends upon the banking system. The
term bank is either derived from old Italian word banca or from a French
word bunque both mean a Bench or money exchange table.
• A bank is a financial institution which deals with deposits and advances and
other related services. It receives money from those who want to save in the
form of deposits and it lends money to those who need it.

12. Definition of a Bank
• Oxford Dictionary defines a bank as "an establishment for custody of money,
which it pays out on customer's order."
• According to H. L. Hart, a banker is “one who in the ordinary course of his
business honours cheques drawn upon him by person from and for whom he
receives money on current accounts”.
• Banking Regulation Act of 1949 defines banking as “accepting for the purpose of
lending or investment, of deposits of money from the public, repayable on demand
or otherwise, and withdrawable by cheque, draft, order or otherwise”.

13. Characteristics / Features of banks
1. Dealing in Money:
Bank is a financial institution which deals with other people's money i.e. money given by
depositors.
2. Individual / Firm / Company :
A bank may be a person, firm or a company. A banking company means a company which is
in the business of banking.
3. Acceptance of Deposit :
A bank accepts money from the people in the form of deposits which are usually repayable
on demand or after the expiry of a fixed period. It gives safety to the deposits of its
customers. It also acts as a custodian of funds of its customers.

14. Characteristics / Features of banks
4. Giving Advances:
A bank lends out money in the form of loans to those who require it for different purposes.
5. Payment and Withdrawal :
A bank provides easy payment and withdrawal facility to its customers in the form of cheques
and drafts, It also brings bank money in circulation. This money is in the form of cheques,
drafts, etc.
6. Agency and Utility Services
A bank provides various banking facilities to its customers. They include general utility services
and agency services.

15. Characteristics / Features of banks
7. Profit and Service Orientation:
A bank is a profit seeking institution having service oriented approach.
8. Ever increasing Functions :
Banking is an evolutionary concept. There is continuous expansion and diversification as
regards the functions, services and activities of a bank.
9. Connecting Link :
Bank acts as a connecting link between borrowers and lenders of money. Banks collect money
from those who have surplus money and give the same to those who are in need of money.

16. Characteristics / Features of banks
10. Banking Business:
A bank's main activity should be to do business of banking which should not
be subsidiary to any other business.
11. Name Identity:
A bank should always add the word "bank" to its name to enable people to
know that it is a bank and that it is dealing in money.

17. Importance of banks
1. Banks mobilize small, scattered and idle savings of the people, and make
them available for productive purposes
2. By offering attractive interests, Banks promote the habit of thrift and savings
3. By accepting savings, Banks provide safety and security to the surplus money
4. Banks provide convenient and economical means of payments
5. Banks provide convenient and economical means of transfer of funds

18. Importance of banks
• 6. Banks facilitate the movement of funds from unused regions to useful
regions
• 7. Banking help trade, commerce, industry and agriculture by meeting their
financial requirements
• 8. Banking connect saving people and investing people.
• 9. Through their control over the supply of money, Banks influence the
economic activities, employment, income level and price level in the
economy.

19. Banker customer relationship
Bankers play very important role in the economic development of the nation.
The health of the economy is closely related to the growth and soundness of
its banking system.
Banks fund collection, lending and related activities facilitate the process of
production, distribution, exchange and consumption of wealth.
In this way, they become very effective partners in the process of economic
development.

20. Basic Relationship
A. Debtor and Creditor:
The basic relationship between banker and customer is When a customer deposits
money with a bank, Bank becomes the debtor and Customer the creditor.
B. Creditor and Debtor:
The position is reversed if the customer is advanced a loan by the Bank. Banker
becomes creditor and Customer is debtor
C. Advisor and Client:
When a customer invests in securities on the advice of his bank, the banker acts as an
advisor.

21. Special Relationships
A. Bailer and Bailee relationship:
when a customer gives a sealed box to the bank for safe custody, the customer
becomes the Bailer, and the bank becomes the Bailee. A bank may accept the valuables
of his customer such as jewelry, documents, and securities for safe custody.
B. Agent - Principal:
• Banker acts as agent of the customer for various purposes such as Customer
(principal) deposits with Banks, cheques, drafts, dividends warrants for collection.
• He also gives written instructions to the bank to purchase securities, pay insurance
premium, installments of loans etc.

22. Special Relationships
C. Lessor and Lessee:
When the banker hires a safe deposit locker to the customer. Banker becomes
the Lessor, and Customer will become the Lessee.
D. Trustee and Beneficiary:
A trustee holds property on behalf of the beneficiary, and the income earned
from the property belongs to the beneficiary. If the customer creates a Trust
and appoints the bank as Trustee, the bank administers the property for the
benefit of the beneficiary named in the Trust Deed.

23. Functions of Banks
• Commercial banks are authorized to provide a variety of Financial
services which includes loans, savings accounts, etc.
• Functions of bank Broadly categories in to two ways
 Primary Functions
 Secondary Functions
 Innovative Functions

24. Primary Functions of Commercial Banks
Accepting Deposits
Lending of Funds

25. Accepting Deposits
 Commercial banks accept deposits from people, businesses, and other entities in the
form of:
 Savings deposits – The commercial bank accepts small deposits, from households
or persons, in order to encourage savings in the economy.
 Time deposits – The bank accepts deposits for a fixed time and carries a higher rate
of interest as compared to savings deposits.
 Current deposits – These accounts do not offer any interest. Further, most current
accounts offer overdrafts up to a pre-specified limit. The bank, therefore,
undertakes the obligation of paying all cheques against deposits subject to the
availability of sufficient funds in the account.

26. Lending of Funds
 lending funds to customers in the form of loans and advances, cash credit,
overdraft and discounting bills, etc.
 Loans are advances that a bank extends to his customers with or without security
for a specified time and at an agreed rate of interest.
 The bank credits the loan amount in the customers’ account which he withdraws as
per his needs.

27.  Under the cash credit facility, the bank offers its customers a facility to borrow cash
up to a certain limit against the security of goods.
 An overdraft is an arrangement that a bank offers to customers wherein a
temporary facility is offered to overdraw from the current account without any
security.
 Banks also discount and purchase bills. In both of these cases, a bank credits the
amount of the bill in the customer’s account after deducting discounts and
commissions. Subsequently, this amount is recovered from the debtors on the
maturity of the instrument.

28. Secondary Functions of Commercial
Banks
Bank as an Agent
General Utility Services

29. Bank as an Agent
 A bank acts as an agent to its customers for various services like:
Collecting bills, draft, cheques, etc.
 Paying the insurance premium, rent, loan installments, etc.
 Working as a representative of a customer for purchasing or redeeming
securities, etc. in the stock exchange.
 Acting as an executor, administrator, or trustee of the estate of a customer
 Also, preparing income tax returns, claiming tax refunds, etc.

30. General Utility Services
 There are several general utility services that commercial banks offer like:
 Issuing traveler cheques
 Offering locker facilities for keeping valuables in safe custody
 Issuing debit cards and credit cards, etc.

31. Innovative Functions
• The adoption of Information and Communication technology enable banks to provide many
innovative services to the customers
1. ATM services
2. Debit card and credit card facility
3. Tele-banking
4. Internet Banking
5. Bancassurance
6. Mobile Banking
7. Electronic Clearing Services
8. Electronic Fund Transfer/National Electronic Fund Transfer (NEFT)
9. Real Time Gross Settlement System (RTGS):

32. ATM services
• ATM services Automated Teller Machine (ATM) is an electronic
telecommunications device that established by banks to enable enables the
clients of banks to perform financial transactions by using a plastic card.
• It is used to withdraw money, check balance, transfer funds, get mini
statement, make payments etc.
• It is available at 24 hours a day and 7 days a week.

33. Debit card and credit card facility
Debit card is an electronic card issued by a bank which allows bank clients
access to their account to withdraw cash or pay for goods and services.
• It can be used in ATMs, Point of Sale terminals, e-commerce sites etc.
• Debit card removes the need for cheques as it immediately transfers money
from the client's account to the business account.
Credit card is a card issued by a financial institution giving the holder an
option to borrow funds, usually at point of sale. Credit cards charge interest
and are primarily used for short- term financing.

34. Tele-banking
Telephone banking is a service provided by a bank or other financial institution,
that enables customers to perform financial transactions over the telephone,
without the need to visit a bank branch or ATM.

35. Internet Banking
• Online banking (or Internet banking or E-banking) is a facility that allows
customers of a financial institution to conduct financial transactions on a
secured website operated by the institution. To access a financial institution's
online banking facility, a customer must register with the institution for the
service, and set up some password for customer verification. Online banking
can be used to check balances, transfer money, shop online, pay bills etc.

36. Bancassurance
• It means the delivery of insurance products through banking channels.
• It can be done by making an arrangement in which a bank and an insurance
company form a partnership so that the insurance company can sell its
products to the bank's client.
• Banks can earn additional revenue by selling the insurance products, while
insurance companies are able to expand their customer base without having
to expand their sales forces

37. Mobile Banking
Mobile banking is a system that allows customers of a financial institution to
conduct a number of financial transactions through a mobile device such as a
mobile phone or personal digital assistant.
It allows the customers to bank anytime anywhere through their mobile phone
Customers can access their banking information and make transactions on
Savings Accounts, Demat Accounts, Loan Accounts and Credit Cards at
absolutely no cost.

38. Electronic Clearing Services
It is a mode of electronic funds transfer from one bank account to another
bank account using the services of a Clearing House.
This is normally for bulk transfers from one account to many accounts or vice-
versa.
This can be used both for making payments like distribution of dividend,
interest, salary, pension, etc. by institutions or for collection of amounts for
purposes such as payments to utility companies like telephone, electricity, or
charges such as house tax etc..

39. Electronic Fund Transfer/National Electronic
Fund Transfer (NEFT)
• Based on Demand Net Settlement (DNS)
• Fastest method of money transfer
• Complete transactions in batches
• There is no minimum limit of transactions
• Settlement on hour basis (11 settlements from 9 am to 7 pm)

40. Real Time Gross Settlement System (RTGS)
• Based on Gross Settlement
• Slower than RTGS transfer
• Complete transactions individually
• Minimum amount to be remitted
• Settlement in real time (at the transfer order is processed)

41. Differences between Banks and NBFCs:
• NBFC cannot collect deposits in the manner of a bank
• NBFC cannot issue checks drawn on itself
• NBFC cannot issue Demand Drafts like banks
• NBFC cannot indulge primarily in agricultural or industrial activity
• NBFC cannot engage in construction of immovable property
• NBFC cannot accept demand deposits
• While banks are incorporated under banking companies act, NBFC is incorporated under Company Act of
2013 NBFC is required to register with Reserve Bank of India
• There are several multiples private and Housing financial companies work under the NBFCs
• NBFC are follows both the entities rules and regulations RBI as well as National housing banks

42. Banking System
 The structure of banking system differs from country to country depending upon their
economic conditions, political structure, and financial system.
 Banks can be classified on the basis of the volume of operations, business pattern and areas
of operations.

43. What do banks do
• A banking system is a network of institutions that provide financial services to organizations and individuals.
• These institutions are responsible for operating payment system, providing loans, taking deposits, and helping with
investments.
• The concept of banking encompasses such industry which covers credit, cash and various other financial transactions.
• The Banks that works in extending credit to its customers as well as storing their deposits.
• These deposits are further used by banks to grant loans to customers.
• It offers multiple services including saving accounts, checking of balance and providing certificate of deposits, among
others.
• While banks can pay interest to savers, they also can charge them fees to generate revenue.

44. Common Bank Fees
• The most common fees you might pay to a bank include:
• Monthly maintenance fees for checking accounts
• Monthly maintenance fees for savings or money market accounts
• Excess withdrawal fees for savings accounts or money market accounts
• Early withdrawal penalties for CD accounts
• Overdraft or non-sufficient funds fees
• ATM withdrawal fees (if you’re using an out-of-network ATM)
• Debit card replacement fees
• Cashier’s check, certified check and money order fees

45. Types of banks
• Central banks
• Commercial banks
• Specialised Bank
• Cooperative Bank
• Investment banks/industrial
• Savings and loan associations
• Agricultural bank
• Exchange bank
• Retail banks
• Regional Rural Banks (RRB)
• Small Finance Banks

46. Types of banks
Central banks
• Reserve Bank of India (RBI) which acts as the apex body for
regulating and monitoring all other banks in the country.
• It also acts as banker to the government in certain situations.
• RBI is instrumental in laying down the repo rate, reverse repo rate,
cash reserve ratio and statutory liquidity ratio.

47. Types of banks
Small Finance Banks
• This sort of bank, as the name implies,
provides loans and financial help to micro
industries, small farmers, and the
unorganized sector of society. The country's
central bank oversees these institutions.
• The following is a list of our country's small
finance banks:
Jana Small Finance Bank, AU Small Finance
Bank
Specialised Bank
• Specialised banks are formed with the
specific goals of catering to a particular
industry or sector.
• It may focus on export and import or
provide financial services to some
specific industries.
• Example of a specialised bank in India
is Export Import Bank.

48. Types of banks
Commercial Bank
• Commercial banks perform the function
for the public in terms of accepting
profits or extending loans.
• These loans act as investments of the
commercial banks with the objective of
earning profit.
Cooperative Bank
• Cooperative banks in India are
established under the State
Cooperative Societies Act, providing
easy credit to the members of the
cooperative banks.
• One of the core functions of
cooperative banks is to provide
financial resources to the rural
population at large.
• social welfare by providing low-interest
loans.

49. Types of banks
Industrial banks/Investment banks
• Industrial banks are those banks which provide fixed capital to
industries.
• They invest their funds in subscribing to the shares and
debentures of industrial concerns.
• They are seen in countries like US, Canada, Japan, Finland, and
Germany.
• In India industrial banks are not found.
Agricultural banks
• Agricultural banks are banks which provide finance to agriculture
and allied sectors.
• It is found in almost all the countries. They are organized
generally on co-operative basis.
• They generally give credit facilities to small farmers, salaried
employees, small-scale industries, etc.
• Co-operative Banks are available in rural as well as in urban areas.
• Agricultural banks are of two types;
1. Agricultural co-operative banks:
2. Land Development Banks:

50. Types of banks
Exchange banks
• Exchange banks finances foreign exchange
business (export, import business) of a country.
• Special exchange banks are found only in some
countries.
• The main functions of exchange banks are
remitting money from one country to another
country, discounting of foreign bills, buying and
selling gold and silver, helping import and export
trade etc.
Savings banks
• Savings banks are those banks which specialize in
the mobilization of small savings of the middle
and low income group. In India, saving bank
activities are done by commercial banks and post
offices. Features of savings banks are;
• Mobilize small and scattered savings
• Keep only small portion in hand and invest major
part in govt. securities
• They do not lend to general public.

51. Types of banks
Regional Rural Banks (RRB)
• These are unique types of commercial banks that lend to
agriculture and the rural economy at a reduced rate.
• RRBs were founded in 1975 and are governed by the
1976 Regional Rural Bank Act.
• RRBs are 50/50 joint ventures between the federal
government and state governments (15%), as well as a
commercial bank (35 percent ).
• Between 1987 and 2005, 196 RRBs were established.
• A single RRB cannot open branches in more than three
districts that are geographically connected.
Retail Banks
• Retail banks are probably what most people think of
when they think of banking.
• These banks offer loans, deposit accounts and other
banking services to everyday customers.
• Retail banks can be brick-and-mortar institutions with
branches or online banks.

52. Types of bank account
• Savings accounts
• Current Account
• Fixed Deposit Account
• Recurring Deposit Account

53. Types of bank account
Savings account
 The facilities of savings account are only
for savings purposes.
 Bank is liable to pay interest on the
funds which are deposited in the
account.
 In India, the rate of interest for savings
accounts ranges from anywhere between
4% to 7%.
Current Account
• Current account mainly contains liquid
deposits that are utilised for business
purpose and not for savings or
investments.
• No interest is paid on such an amount,
and there are no maturity periods as well
due to the continuous nature of the
account.

54. Types of bank account
Fixed Deposit Account
 A particular sum of money is deposited in a
fixed deposit account for a given duration.
 If deposit is taken out before the maturity
date, penalties will be imposed.
 Fixed deposits enjoy higher interest rates.
 The interest rate is subjected to variation from
bank to bank and also periodic revisions.
Recurring Deposit Account
 Recurring deposit account, deposit will have to
be made by the account holder at regular
intervals for a specified time period.
 The bank will have to pay the relevant rate of
interest when the amount is repaid after the
fixed time period.

55. Types of Banking
• E banking/Virtual banking
• Unit Banking
• Branch Banking
• Correspondent Banking
• Pure Banking and Mixed Banking
• Relationship Banking
• Universal Banking
• Wholesale Banking
• Retail Banking
• Chain banking
• Islamic banking
• Shadow Banking
• Group Banking
• Deposit banking
• Investment banking
• Regional Banking
• Local Area Banks
• Private Banking

56. E-Banking/Virtual Banking
• Electronic banking or e-banking engages electronic medium enabling customers to access their
funds.
• It does away with the need of the customer to visit the bank premises for a transaction.
• With greater penetration of the internet, it has become easier for customers to avail the
facilities of e-banking.
• E-banking has become convenient for both bankers and customers.
• Banks have to bear reduced transaction costs and also significantly less margin for human
error. The fixed costs also lessen considerably.
• It helps to save both time and money for the customer. It also removes geographical distance
in case of certain banking transactions.

57. E-Banking/Virtual Banking
• Virtual banking is performing all banking operations online. This has
served as a great revolution in banking market as banks have to
continuously struggle for perfection to live up to competition and stay
ahead of it.
• As banks don’t have physical offices, they find the options very cost-
effective.
• The banks thus pass these benefits to customers in form of waiving of
account fee or higher rates of interest.
• The trend is catching in Indian markets but some typical fears still grip an
average Indian who still places more trust in bank staff with whom they
can personally go and talk, rather than relying on machines.

58. UnitBanking
• Unit banking is a system of banking which originated in US.
• It is a limited way of banking where banks operate only from a single branch (or a
few branches in the same area) taking care of local community.
• In comparison to branch banking, the size of unit banks is very small.
• Due to small size and due to unit structure; the decision making in unit banks is
very fast.
• The management in unit banks enjoy more autonomy and more discretionary
powers. However, due to single units, the risk is not distributed or diversified.

59. BranchBanking
• Branch banking involves business of banking via branches. The branches are set
up under Section 23 of Banking Regulations Act, 1949.
• The advantage of branch banking is that it helps in better management, more
inclusion and risk diversification.
• The disadvantage of branch banking is that it might encourage outside local
influences.

60. CorrespondentBanking
• Correspondent banking prevalent in over 200 countries is a profitable way of doing
business by banks in foreign countries in which they don’t have physical presence or
limited operational permissions.
• Correspondent banks thus act as banking agent for a home bank and provides
various banking services to customers where otherwise the home bank does not
operate.
 It helps customers to perform banking operations at ease even in places where their
banks don’t have physical presence.
 Customers stay loyal to such banks as they get excellent customer service even in
foreign lands.
 The best examples of correspondent bank in India are RBI or central bank.

61. MixedBanking
• Mixed Banking is the system in which banks undertake activities of commercial
and investment banking together.
• These banks give short-term and long-term loans to industrial concerns.
• The banks appoint experts which give valuable advice on various financial issues
and also help the financial health of companies.
• They thus promote rapid industrialization.

62. RelationshipBanking
• Relationship banking is a banking system in which banks make deliberate efforts
to understand customer needs and offer him products accordingly.
 It helps banks to gather critical soft information about the borrowers, which helps
them to determine creditworthiness of such clients.
 Clients too often become responsible and avoid moral hazard behaviour.
 However, the banks may discourage borrowers to invest in high risk projects.
 Clients can often renegotiate their loan terms and hence result in inefficient
investments for banks.

63. Universal Banking
• Universal banking is a system of banking under which big banks undertake a
variety of banking services like commercial banking, investment banking, mutual
funds, merchant banking, insurance etc.
• It involves providing all these services under one roof by financial experts who
can handle multiple financial products easily.
• This helps to boost investor confidence and also makes the operations more
cost-effective. However, different policy regulations for different financial products
makes the operations cumbersome and are a big drawback for banks. Also, if
such banks fail, it will lead to a big dip in customer confidence.

64. WholesaleBanking
• Wholesale banking involves banking services for high net-worth clients like
corporate, commercial banks, mid-size companies etc.
• India has a suitable investment climate and is seen as a favoured investment
destination so it has a huge potential for the growth of this vertical of banking.
• It provides an ease of access to the complete financial portfolio of a client who
can easily browse through the same and make suitable allocations, transfers etc.
• It can be equally risky for a firm if all the funds are parked in one place only and
there is no diversification of risks.

65. RetailBanking
• Retail banking means banking where transactions are held directly with
customers and there are no transactions with other banks or corporations.
• The banks provide all kinds of personal banking services to customers like
saving accounts, transactional accounts, mortgages, personal loans, debit and
credit cards etc.
• It has provided immense benefits to customers who ultimately become loyal
customers due to benefits like wide interest spreads, diversified credit risks and
stability. However, due to increasing use of new technology, the operational costs
for banks have gone up considerably.

66. ChainBanking
• Chain banking system refers to the type of banking when a group of persons
come together to own and control three or more independently chartered banks.
• Each of these banks could maintain their independent existence despite common
control and ownership.
• The banks in the chains were assigned specific functions so there was no loss of
profits and overlapping of interests.
• Here two or more banks are controlled by a single group through the ownership
of shares or otherwise.

67. Shadow Banking
• Shadow banking refers to all the non-bank financial intermediaries that provide services similar
to those of traditional commercial banks. They generally carry out traditional banking functions,
but do so outside the traditional system of regulated depository institutions. Some of these
activities include:
 Credit intermediation – Any kind of lending activity including at least one intermediary between
the saver and the borrower
 Liquidity transformation – Usage of short-term debts like deposits or cash-like liabilities to
finance long-term investments like loans.
 Maturity transformation – Using short-term liabilities to fund investment in long-term assets
• In the Indian financial arena, shadow banks term can be used for Non-Banking Finance
Companies (NBFCs). However, NBFCs in India have been regulated by the RBI (Reserve Bank
of India) since 1963. Other examples are investment bankers, Money market mutual funds,
mortgage companies etc.

68. Other types of Banking
• Group Banking: This is a system under which two or more banks, separately
incorporated, are connected by being controlled by a single holding company as
trust. As similar as chain banking.
• Deposit Banking: In this category, the banks act as custodian or trustees of the
depositors.
• Local Area Banks: With a view to bringing about a competitive environment and to
overcome the deficiencies of Regional Banks, Government has permitted the
establishment of one type of regional banks in rural and semi-urban centers under
private sector known as “Local Area Banks”.
• Islamic Banking: Islamic banking is banking or banking activity that is consistent with
the principles of sharia and its practical application through the development of
Islamic economics.

69. Other types of Banking
• Private Banking : Private or Personal Banking is banking with people rich
individuals instead of banking with corporate clients. It attends to the need of
individual customers, their preferences and the products or services needed by
them. This may include all-around personal services like maintaining accounts,
loans, foreign currency requirements, investment guidance, etc.
• Regional Banking: In order to provide adequate and timely credits to small
borrowers in rural and semi-urban areas, Central Government set up Regional
Banks, known as Regional Rural Banks all over India jointly with State
Governments and some Commercial Banks.
• Investment Banking: This refers to banks whose main function is to provide
finance for investment to industrial concerns. They provide this by purchasing
shares and debentures of newly floated companies.

70. Role of Banks in Economy
• Capital formation
• Encouragement to entrepreneurial innovations
• Monetization of economy
• Influencing economic activity
• Implementation of monitory policy
• Promotion of Trade and industries

71. Role of Banks in Economy
• Encouraging right type of industries
• Regional Development
• Development of agricultural and other neglected sectors

72. Thank you…