All you Need to know About Banks
When we think of a bank, immediately we will get an image of money in our minds. Yes, a bank is a financial institution or a platform that collects and accepts deposits from the public and converts those deposits into different landing activities. The activities include giving loans, investing in capital markets, mutual funds etc. All these can be done directly or indirectly. This is all we know. Let's try to get in-depth knowledge about banks with this introduction to banks. First, what is the history of banking in India, different types of banks, functions of various Banks etc.?
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History of Banking in India
In the aspect of introduction to banks, it is good to know when the banking system was started, which was the first bank etc. To find out the answers to all these questions, let's look into the history of banking in India.
To give support to the economy of India, the introduction to Banks happened in 1770, before independence itself. The first
The bank was the "Bank of Hindustan" in Calcutta, the capital of India during that time. In India, around 600 banks were established before independence. But many of them were not in operation for long years. The surviving banks are as follows-
The General Bank of India (1786-1791)
Bank of Bengal (1809)
Bank of Bombay (1840)
Bank of Madras (1843)
Oudh Commercial Bank (1881-1958)
Among these banks, the East India Company had established three banks. Namely - Bank of Bengal, Bank of Madras and Bank of Bombay. These are under the management of the British government and are known as presidential banks.
After a few years, the three presidential banks decided to merge and forward a new bank called the Imperial Bank of India. As it did happen in 1921, we can say that the Imperial Bank of India was established in 1921. Another interesting fact of Imperial Bank of India is it is still in operation by changing its name to the state bank of India.
Along with the Imperial Bank of India, let's have a glance at the list of banks established during the pre-independence and post-independence periods.
Banks Before Independence:-
Allahabad Bank - 1865
Punjab National Bank - 1894
Bank of India - 1906
Canara Bank - 1906
Bank of Baroda - 1908
Central Bank of India - 1911
Banks After Independence:-
Allahabad Bank
Bank of India
Bank of Baroda
Bank of Maharashtra
Andhra Bank
Corporation Bank
New Bank of India
Oriental Bank of Comm.
Punjab & Sind Bank
State Bank of Patiala
State Bank of Hyderabad
State Bank of Bikaner & Jaipur
State Bank of Mysore
State Bank of Travancore
State Bank of Saurashtra
State Bank of Indore
Vijaya Bank
Central Bank of India
Canara Bank
Dena Bank
Indian Overseas Bank
Indian Bank
Punjab National Bank
Syndicate Bank
Union Bank of India
United Bank
UCO Bank etc.
In the history of banking in India, many changes had taken place after independence and with developed technology.
Types of Banks
Based on the functions, locality banking services can be divided into different types. They are as follows -
Central Banks:- Among all types of banks, the central banks are the top-notch banks in any country. Eat the acts as the head of all other subsidiary banks. The Reserve Bank of India is our central bank. Its functions are- currency printing, supplying, managing, monitoring the subsidiary banks, being involved in foreign exchange etc.
Commercial Banks:- Commercial banks are another type of which concentrate on purely collecting deposits and lending money to the investors and public as well, especially for business purposes. Simply, it is like a funding platform—HDFC, HSBC, Axis Bank, Canara bank etc. We have two different types of commercial banks.
Scheduled banks
Non- scheduled banks
Investment Banks:- Investment banks are purely related to trading activities. They give funds to purchase the stocks, get repayments of loans from the capital etc.
Cooperative Banks:- From all types of banks, these cooperative banks are considered non-profitable agencies that the depositors purely own. Whatever the amount acquired in the form of deposits can be reused to provide loans, online properties, movable and immovable things etc., for the regular usage of the public.
Conclusion
Hence it is clear that a bank is a financial intermediary which acts as a third person from a donor to a lender. Also, we come across different banks established before and after independence while discussing the introduction to banks. Also, we have gone through about four types of banks. All four types of banking products and services were unique.
FAQs on Introduction to Banks
1. What is a bank and what is its main role in the economy?
A bank is a financial institution that is licensed to receive deposits from the public and create loans. Its main role is to act as a financial intermediary, channelling money from people who have surplus funds (savers) to those who need them for investment or spending (borrowers). This circulation of money is vital for economic activity and growth.
2. What are the primary functions of a commercial bank?
The two primary functions of any commercial bank are:
- Accepting Deposits: This involves taking money from the public and businesses through various accounts like savings accounts, current accounts, and fixed deposits.
- Granting Loans and Advances: This is the process of lending the collected money to individuals and businesses for various purposes, such as home loans, business loans, or personal loans, and earning interest on it.
3. What are the main types of banks found in India?
In India, the banking system consists of several types of banks, each serving a specific purpose. The main categories include:
- Commercial Banks: These include public sector, private sector, and foreign banks that offer everyday banking services to the general public and businesses.
- Cooperative Banks: These operate on a cooperative model, primarily serving the financial needs of rural and agricultural sectors.
- Specialised Banks: These are established for a specific economic purpose, like NABARD for agricultural development or SIDBI for small industries.
- Central Bank: The Reserve Bank of India (RBI) is India's central bank. It supervises and regulates the entire banking system.
4. How does a bank actually make a profit?
A bank's primary source of profit is the 'interest rate spread'. This is the difference between the interest it pays to customers on their deposits and the higher interest it charges to customers on their loans. For example, if a bank pays 3% interest on a savings account but lends that money out as a loan at 9% interest, the 6% difference is its gross profit, which is used to cover costs and earn revenue.
5. What is the main difference between a commercial bank and a central bank like the RBI?
The key difference is who they serve. A commercial bank (like SBI or ICICI) deals directly with the public for deposits and loans. In contrast, the central bank (the RBI) acts as the 'banker to the banks' and the government. It does not interact with the public but instead regulates commercial banks, controls the money supply, and maintains the country's financial stability.
6. How do banks help individuals and businesses on a daily basis?
For individuals, banks provide a safe place to store money, offer loans for major purchases like homes or cars, and simplify payments through debit cards and online transfers. For businesses, banks provide crucial working capital loans for daily operations, offer funds for expansion, and manage financial transactions, which are all essential for growth and smooth functioning.
7. Why is the banking system often called the 'backbone' of a country's economy?
The banking system is considered the economy's backbone because it facilitates the flow of money—the lifeblood of all economic activity. It mobilises household savings that might otherwise sit idle and channels them into productive investments for businesses. This process of credit creation helps industries to grow, creates employment, promotes trade, and supports overall economic development.
