What is banking ?

What is banking

Banking is a process in which money is collected from those who has extra money for savings and then provided that money on loan to other who needs it. In financial system banks act as intermediaries between investors and borrowers of money. This system helps to control supply of money in country and maintain required liquidity in economy. Banking system is required to regulate proper flow of money with law and development of economic condition of a country.


History of Banking

Initiation of banking in India had been started from 18th century with opening of The General Bank of India and Bank of Hindustan. State bank of India is oldest bank which is still in existence. Bank of Bengal, Bank of Bombay and Bank of Madras were merged to form Imperial bank of India, which later called as State bank of India. SBI was nationalized in 1955. After SBI and its subsidiaries, total 20 banks were nationalized. After merger number of nationalized banks become 19 from 20. In 1935 Reserve bank of India was created by government to regulate other banks of country.

Types of Bank

  • Central Bank

  • Commercial bank or cooperative bank

  • Public bank or Private bank:

Central Bank:

RBI is Indian central bank which was established in 1935. RBI mainly performs functions like regulation of other banks, providing license to banks, economic development of country, Currency formation and control of money circulation in economy. This is done by controlling CRR, SLR, repo rates and reverse repo rate. RBI headquarter is situated in Mumbai. RBI act as bank for government and other bank as it invests of and lends money to them.

Commercial and Cooperative banks:

Commercial banks are those which work for earning profit. They provide low interest rates on savings. On the other hand cooperative banks are those which lend money to farmers and agriculture purpose. Concept of these banks is self help. Commercial banks involve SBI, Its associates, rural banks, foreign banks, all nationalized banks and private banks.

Public bank and private bank:

Public sector banks are those in which government has atleast 51% of paid up share capital. These banks generally work for serving people. While private banks are those Private sector banks are owned by one or more individuals or companies but they are regulated by RBI. These banks work to earn maximum profit.

Public sector banks are SBI and all other nationalized banks, while private banks are YES bank, AXIS bank, HDFC bank etc.

Banking Function

  • Deposit money for investment and lend it for interest on loan.

  • Online banking, Credit and Debit cards.

  • Agency services.


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