India has a large network of banks and other financial institutions spread across the length and breadth of the country. A bank may be defined as an institution which accepts deposits from the public for the purpose of lending, and makes payment on the instructions of its customers by passing their cheques within their balance or sanctioned limit. Thus, accepting deposit, making loans and passing cheques, etc. are the major functions of a bank.
Before the nationalisation of 14 private sector banks in 1969, and six other banks in 1980, the main motive of banks in India was to earn profit from their transactions like a business house. With nationalisation they were given a social responsibility of contributing towards social development by making their activities under the rules framed by the government and implemented through the controller bank-The Reserve Bank of India. Certain areas which were earmarked as per national priority such as small scale industry, agriculture, small business, professional and self-employment, etc.
started getting proper attention from the banks as a specific percentage of the bank’s total lending is to be directed towards these sectors. This policy of social priorities is still going on. Some other areas like housing and education have been added in the Priority Sector.
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In the last two decades, the functions, responsibilities and services of banks have undergone a sea change due to introduction of the latest technology. All the branches of almost all the banks have started transacting their day-to-day functions through computers. The system of keeping ledgers for Saving, Current and Fixed Deposit Accounts has been discarded. Now all the accounts of customers are stored in the computers installed in the branch. The position of each account can be ascertained by punching the proper keys on the keyboard.
The monitor shows everything on its screen on the basis of which, further transactions can be made as per instructions of the account holder. Similarly the days of the passbooks are over. The customers can get the account statement every month. In Saving Accounts, the passbooks are maintained, but there are machines to keep them up to date, there is no need to make entries manually which is not only tedious and time-consuming, but also prone to errors.
With the application of computers, the functions for bank employees have become easier. In the days of the ledgers, they had to make each entry manually. Besides, they had to calculate monthly/quarterly or half-yearly interest on each and every account. Such calculations had to be checked and rechecked before making credit entries in each individual account. Apart from calculations of interest and making debit and credit transactions in the accounts, the balances of each ledger had to be tallied every month. These days, all these functions are performed by the computer.
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They are so programmed that they not only calculate the periodic interest but also credit it to the respective customer’s account. They also tally the balances of each head on a daily basis. The chances of error have been reduced to almost nil.
With the application of new technology, new banking products in the shape of credit cards, debit cards and ATMs have been launched. Withdrawal of money from the account has become so convenient. There is no need to go to the particular branch where you are maintaining the account and present the cheque to withdraw the money. If you have a credit card or a debit card, you can withdraw the amount from any of the ATM counter by inserting your card in the slot, punch your code and pass necessary instructions through the keys on the machine.
Carrying your card instead of cash is not only convenient but also risk-free. Banks have adopted a liberal policy in giving credit limits to their customers who can withdraw money up to a certain limit. This limit is sanctioned as per creditworthiness of the customer and can be from a few thousand rupees to several lac rupees. The customers can shop at various places-shops, malls, supermarkets -or can eat in a restaurant on the basis of their credit card. Even tickets-for rail or air travel can be booked with a credit card.
The card-holder signs the bill which is sent to the bank which debits the customer’s account along with some service charges, etc. Each bank earns lakhs of rupees as interest and charges on credit cards, each day. The government earns a sizeable amount in the form of service tax.
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The clearing system of the banks has become vastly improved. There was a time when the outstation cheques used about a month to clear. Now some banks have a computer clearing system whereby even the outstation cheques can be cleared within 3-4 days. Each bank has its own Regional Collection Centre at major cities which expedites the clearing of cheques. Local cheques are cleared within a couple of days.
There is also a system of special clearing in case of cheques of heavy amount. In cash management also there have been vast improvements. New currency notes are given to the customers when they withdrew money through ATM. For cashiers there are more facilities in every branch. They have note counting machines as well as the machines to detect fake currency notes. Each bank has its own currency chest which regulates the currency supply in the branches. It collects the surplus cash from branches and supplies to those branches which are in need.
The network of branches of various banks has spread to the remote corners of the country. In rural areas, the banks have been given the special task of bringing about development through implementation of schemes of the government to help the beneficiaries start their enterprises. The schemes included Prime Minister’ Rozgar Yojana (PMRY), Integrated Rural Development Programme (IRDP), etc.
Under the Service Area Approach, the branches adopt the villages allotted to them to cater to their financial needs. Agriculture which is still the mainstay of Indian economy looks forward to banks to lend to small, medium and big farmers to buy inputs like fertilizers, seeds, farm implements. Banks have started responding to the credit needs of the farmers at low rate of interest as per national priority. The banks have started Kisan Credit Card for the farmers whereby they can withdraw money as per their cultivation needs.
With the liberalisation of Indian economy during the early 1990s in the wake of globalisation, the banks have been asked to stand up to the new challenges of financing entrepreneurs and exporters to produce more, augment exports and earn valuable foreign exchange for the country. The banks have performed commendably in this regard. This can be evidenced from the fact that the bank’s credit to exporters has increased fourfold during the last decade; the country’s foreign exchange reserves are now well past $200 billion; the exports are showing a steady increase of 10-15 per cent, annually.
The Indian rupee has become so strong against other foreign currencies especially the dollar, that the government is thinking about full convertibility of the rupee. The banks have played a major role in bringing these developments.
Banking in India has turned thoroughly professionally over the years. There are Agriculture Development Branches (ADBs), Foreign Exchange Branches, Housing Development/Finance Branches to perform specific functions. Besides, the banks have taken up additional functions of insurance, collection of income tax, electricity and telephone bills not only for their account- holders but the public at large. Easy finance of cars, household goods and other products has boosted manufacturing and trade.
National Bank for Agriculture and Rural Development (NABARD), Exim Bank, etc. are sector specific banks, whereas Regional Rural Banks (RRBs) play a key role to make banking broadbased. Money-changing and other functions relating to foreign exchange are being performed by special branches authorised for the same. Many foreign banks are operating in India while many Indian banks have branches in foreign countries. The Indian Banking System is now highly modern, performing at all the levels of requirement excellently.