2.

INTRODUCTION

EVOLUTION OF INDIAN BANKING

Ancient banking system of India constituted of indigenous bankers. They have beencarrying on their age-
old banking operations in different parts of the country under differentnames. The modern age of
banking constitutes the fundamental basis of economic growth. Theterm Bank is being used since long
time but there is no clear conception regarding its beginning.

Italian money leaders were known as “Banchi” because they kept a special type of table to

transact their business.

IMPORTANCE OF BANKS

Today banks have become a part and parcel of Kotak Bank's life. There was a time whendwellers of the
city alone could enjoy their services. Now banks offer access to even a commonman and their activities
extend to areas hither to untouched. Banks cater to the needs ofagriculturalists, industrialists, traders
and to all the other sections of the society. In modern age,the banking constitutes the fundamental basis
of economic growth. Thus, they accelerate the

economic growth of a country and steer the wheels of the economy towards its goals of “self

-reliance in all fi

elds”. It naturally arouses Kotak Bank's interest in knowing more about the‘Bank’ and the various men
and the activities connected with it.

Indian Banking System

Banking in India has its origin as early as the Vedic period. It was believed that transitionfrom money
lending to banking must have occurred even before Manu, The great Hindu Jurist,who has devoted a
section of his work to deposit advance and laid down rules relating to rates ofinterest. During the Mogul
period, the indigenous Bankers played a very important role inlending money financing foreign trade and
commerce. During the days of East India Company, itwas turn over the agency houses to carry on the

business. “The General Bank of India” was the

first to join sector in the year 1786.The others that followed were the Bank of Hindustan and theBengal
bank. The bank of Hindustan is reported to have continued till 1906 while the other twofailed in theme
an time. In the first half of the 19

th
century the East India Company establishedthree banks

1. Bank of Bengal (1809)2. Bank of Bombay (1840)3. Bank of Madras (1843).These three banks are also
known as Presidency Banks were independent units andfunctioned well. These three banks were
amalgamated in 1920 and Imperial Bank of India wasestablished on 27

th

january1921, which started as private shareholders banks, mostly Europeansshareholders, with the
passing of time Imperial bank was taken over by the newly constitutedState bank of India act in1955.In
1865 Allahabad Bank was established and first time exclusively by Indians, Punjab National Bank Ltd. was
set up in1894 with headquarters at Lahore. Between1906 and 1913, Bank of India, Central Bank of India,
Bank of Baroda, Canara Bank, IndianBank, and Bank of Mysore were set up. Reserve Bank of India came
in 1935. On July, 1969, 14major banks of India were nationalized and on 15

th

April, 1980 six more commercial private banks were also taken over by the government.

Reserve Bank of India

The Banking system is an integral sub-system of the financial system. It represents animportant channel
of collecting small savings from the households and lending it to the corporatesector. The Indian banking
system has The Reserve Bank of India (RBI) as the apex body fromall matters relating to t

he banking system. It is the “Central Bank” of India and act as the banker

to all other banks.

Functions of RBI:

Currency issuing authority

Banker to the government.

Banker to other Bank.

Framing of monetary policy.

Exchange control.

Custodian to foreign exchange and gold reserves.

Development activities.

Research and development in the banking sector.

CLASSIFICATION OF BANKS:I.

On the basis of Ownership:a.

Public sector banks are those banks that are owned by the government. The governmentowns these
banks. In India 20 banks were nationalized in 1969and 1980 respectively. Socialwelfare is there main
objective.

b.

PRIVATE SECTOR BANKS

These banks are those banks that are owned and run by private sector. An individual hascontrol over
these banks in proportion to the shares of the banks held by him.

c.

CO-OPERATIVE BANKS

These are those banks that are jointly run by a group of individuals. Each individual has anequal share in
these banks. Its shareholders manage the affairs of the bank.

II.

According to the Law:a)

SCHEDULED BANK

Schedule banks are the banks, which are included in the second schedule of the bankingregulation act
1965. According to this schedule bank:1. Must have paid-up capital and reserve of not less than Rs500,
000.2. Must also satisfy the RBI that its affairs are not conducted in a manner Determinate to theinterest
of its depositors. Schedule banks are sub-divided as:-a) State co-operative banks b)Commercial banks

b)
NON-SCHEDULED BANKS

Non -schedule banks are the banks, which are not included in the second schedule of the banking
regulation act 1965. It means they do not satisfy the conditions lay down by thatschedule. These are the
banks having paid up capital, less than Rs.5Lakhs. They are furtherclassified as follows:-A. Central Co-
operative banks and Primary Credit Societies.B. Commercial banks

III.

According to Function:a)

COMMERCIAL BANKS

These are the banks that do banking business to earn profit. These banks make loans forshort to
business and in the process create money. Credit creation is the main function of these banks.

b)

FOREIGN BANKS

These are those banks that are incorporated by foreign company. They have set up their branches in
India. These banks have their head offices in foreign countries. Their principlefunction is to make credit
arrangement or the export and the import of the country and these banks deals in foreign exchange.

c)

INDUSTRIAL BANKS

Industrial banks are those banks that offer long term and medium term loan to theindustries and also
work for their development. These banks help industries in sale of theirshares, debentures and bonds.
They give loan to the industries for the purchase of land andmachinery.

d)

AGRICULTURAL BANKS

Agricultural banks are those banks that give credit to agricultural sector of the economy.