Banking explain in detail.
07/December/2025 22:43
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BANKING — Detailed Notes ---
1. Meaning and Definition of Banking
Banking refers to the business of accepting deposits, granting loans, and providing other financial services to the public. Banks act as financial intermediaries between depositors and borrowers and facilitate economic growth by mobilizing savings and allocating capital efficiently.
Definitions
1. Indian Banking Regulation Act, 1949:
> “Banking means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise.”
2. RBI Definition:
> “A bank is an institution which accepts deposits, advances loans, and provides other financial services to promote economic development.”
In simple words:
Banking is a financial system that safeguards public deposits and provides credit to individuals, businesses, and government.
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2. Laws Governing Banking
Banking operations are governed by several laws to ensure financial stability, legal compliance, and consumer protection:
1. Banking Regulation Act, 1949 – Main law regulating Indian banking
2. Reserve Bank of India Act, 1934 – Central bank authority and control
3. Negotiable Instruments Act, 1881 – Cheques, promissory notes
4. Companies Act, 2013 – For corporate banks
5. Payment and Settlement Systems Act, 2007 – Digital and electronic banking
6. Deposit Insurance and Credit Guarantee Corporation Act, 1961 – Protection of deposits
Key Principles of Banking Law
Banks must maintain minimum capital and liquidity
Must comply with RBI regulations
Protect customer deposits and rights
Avoid fraud and unethical lending practices
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3. Channels of Banking
Banks provide services through multiple channels, adapting to technology and customer convenience:
1. Traditional Branch Banking
Physical branches for deposits, withdrawals, loans
2. Automated Teller Machines (ATM)
24×7 cash withdrawal, balance check, fund transfer
3. Internet Banking / Online Banking
Fund transfer, bill payments, loan applications
4. Mobile Banking
Banking through apps on smartphones
5. Core Banking Solutions (CBS)
Unified banking system across multiple branches
6. Phone Banking / IVR Banking
Banking services over phone
7. Digital Payment Platforms
UPI, Paytm, Google Pay integration
Example: SBI YONO app integrates multiple banking and investment services.
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4. Types of Banking
A. Based on Ownership
1. Public Sector Banks – Government-owned
Example: SBI, PNB, Bank of Baroda
2. Private Sector Banks – Privately owned
Example: HDFC Bank, ICICI Bank, Axis Bank
3. Foreign Banks – Operate branches in India
Example: HSBC, Citibank
B. Based on Function
1. Commercial Banking – Deposits and lending for profit
2. Co-operative Banking – For farmers, SMEs, community groups
3. Investment Banking – Corporate finance, stock issuance, M&A
4. Retail Banking – Services for individuals – savings accounts, loans, credit cards
5. Central Banking – RBI in India – regulates other banks, monetary policy
6. Development Banking – Funding industries and infrastructure
Example: NABARD, SIDBI, HUDCO
C. Specialized Banking
Islamic Banking / Sharia-compliant Banking
Green Banking – Eco-friendly projects financing
Digital-only Banks / Neo Banks – No physical branches
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5. Challenges within Banking Sector
1. Non-Performing Assets (NPAs) – Loans defaulted by borrowers
2. Fraud & Cybersecurity Threats – Digital banking risks
3. Regulatory Compliance – RBI norms, KYC, AML compliance
4. Technological Upgradation – Cost of CBS, AI, and Fintech integration
5. Customer Expectations – Fast, personalized, 24×7 service
6. Competition – From NBFCs, fintech startups, mobile wallets
7. Global Economic Impact – Inflation, interest rate changes, international financial crises
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6. Banking in India
Historical Overview
First Bank in India: Bank of Hindustan (1770)
Imperial Bank of India: 1921, later became SBI
Nationalization of Banks: 1969 (14 major banks) & 1980 (6 banks)
Structure of Banking in India
1. Central Bank: Reserve Bank of India (RBI)
2. Scheduled Banks: Meet RBI capital and reserve requirements
Public Sector, Private Sector, Foreign Banks
3. Co-operative Banks: Urban & Rural cooperative banks
4. Regional Rural Banks (RRBs): Focus on rural areas
5. Development Banks & NBFCs: Support agriculture, SMEs, housing
Recent Trends
Digital banking growth (UPI, Internet Banking)
Mergers of public sector banks (e.g., SBI merger with Associate Banks)
Financial inclusion programs like PMJDY
Adoption of AI, blockchain, and fintech solutions
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7. Global Banking
Global Banking System
Types: Commercial banks, Investment banks, Central banks, Retail banks
Key Global Banks: JPMorgan Chase, HSBC, Citibank, Barclays, Deutsche Bank
Functions: Deposits, loans, foreign exchange, trade finance, investment services
Global Trends
1. Digital Transformation: Neo banks, online banking, blockchain adoption
2. Cross-border Operations: Foreign branch expansion
3. Risk Management: Basel III compliance, stress testing
4. Regulatory Oversight: IMF, BIS guidelines
5. Sustainable Banking: Green bonds, ESG financing
Example
HSBC provides retail and corporate banking services in 64 countries, with strong digital integration for global clients.
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8. Conclusion
Banking is the backbone of the financial system, ensuring smooth economic activity, mobilization of savings, and allocation of credit.
In India, banks serve urban, rural, and corporate needs while facing technological, regulatory, and competitive challenges.
Globally, banks are moving towards digitalization, risk management, and sustainable finance.
Effective banking ensures financial inclusion, economic growth, and customer satisfaction.
