Banking institutional Framework in India

Borrowing and lending are nearly as old as man himself, though with time and changed circumstances, their form has undergone changes. During the pre-independence period, British banks dominated the financial scene, although there were few Indian banks. The foundations of modern Indian banking were laid during the beginning of the 19^th century when three presidency banks were set up in Calcutta, Bombay and Madras. In 1921, the three presidency banks were amalgamated to form the Imperial Bank of India which started to function more or less like the central bank of the country for a decade. It became the State Bank of India in 1955. It was in 1935 that a proper central bank, namely, the Reserve Bank of India (RBI), was established.

The RBI became state owned after the RBI act in 1949. The commercial and co-operative banks are required to keep and maintain part of their reserves with the RBI from where they can borrow money for their requirements. Vast powers are vested in the RBI and certain decisions can be taken by the banks only in consultation with or after obtaining permission of the RBI. These matters relate to the establishment of new banks, setting up of bank branches, swapping of branches, cash reserve ratio, statutory reserve ratio, etc. The RBI also functions as a promotional organization in some respects. In 1963, the RBI also promoted agriculture re-finance organization known as National Bank for Agriculture and Rural Development (NABARD) to provide long-term finance for agriculture development.

Banking in India has passed through various phases to reach its present level of development. There are different types of commercial banks, namely, scheduled banks, non-scheduled banks, foreign banks and regional rural banks (RRBs). The scheduled banks are those banks which are included in the second schedule of Banking Regulation Act, 1965, and have to satisfy certain requirements regarding capital, etc. The banks which are not included in second scheduled are non-scheduled banks.

State Bank of India is the largest bank of India and also holds the Guinness book of world record having the maximum number of bank branches in the world. ICICI bank is the second largest bank of India.