Unit – I: Introduction to Banking

History of Banking- Provisions of Banking Regulations Act 1949 – Features of Banking – Banks
and Economic Development. Banking Structure in India – Public Sector Banks, Private Banks,
Foreign Banks, Payment Banks and Small Finance Banks. Banking System – Branch Banking -
Unit Banking - Universal Banking- Financial Inclusion
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Bank – Meaning

A bank is known as a financial institution responsible for accepting deposits from the public
and creates a demand deposit while simultaneously providing loans to its borrowers. Banks
can perform these lending activities either directly or through capital markets.

As per the BR Act, Section 5 (c), “a banking institution is a company that transacts the
business of banking in India.”

Section 5 (b) of the BR Act also describes the banking business as “accepting for the purpose
of lending or investment of deposits of amounts from the public, repayable on demand or
otherwise, and withdrawal by cheque, draft, and order, or otherwise.

Evolution of Banking in India

The Banking Companies Act of 1949 defines banking systems in India and governs
the banking industry, which is essential to the country's economic growth. The Indian
banking system comprises private, regional, rural, cooperative, public, scheduled, and
unscheduled commercial banks.
1. Pre-Independence Era (15th Century - 1947):
During British rule, modern banking institutions emerged with the primary aim of
managing government finances and facilitating trade and commerce. The functions of
banking during this period included:
1. Presidency Banks: The Bank of Bengal (1809), Bank of Bombay (1840), and Bank
of Madras (1843) were established under royal charters to manage the British East
India Company's finances and support its commercial activities.
2. Note Issuance: Presidency banks issued their own currency notes, initially in limited
regions, which later expanded to broader territories.
3. Government Banking: Presidency banks served as bankers to the government,
managing its receipts and payments, and underwriting government loans.

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 4. Some Presidency Banks were merged into one to become the Imperial Bank, which
later became the State Bank of India and laid the foundation for the modern banking
system in India.
2. Post-Independence Era (1947 - 1990):
After India gained independence in 1947, the government undertook significant steps
to reform the banking sector. The functions of banking during this period included:
1. Nationalization: In 1969, the government nationalized 14 major banks, with a focus
on promoting financial inclusion and directing credit towards priority sectors like
agriculture and small industries. This move aimed to reduce regional imbalances and
ensure credit availability to underserved sections of society.
2. Priority Sector Lending: Nationalized banks were directed to allocate a specified
portion of their lending to priority sectors like agriculture, small-scale industries, and
weaker sections of society.
3. Rural Branch Expansion: Nationalized banks were encouraged to open branches in
rural and semi-urban areas to extend banking services to the unbanked and
underbanked populations.
4. In the early 1990s, India adopted economic liberalization policies, and the banking
sector underwent significant changes. The functions of banking during this period
included:
5. Entry of Private and Foreign Banks: The government allowed private and foreign
banks to operate in India, ending the monopoly of public sector banks and introducing
competition in the banking sector.
6. Technological Advancements: With liberalization, banks started adopting modern
technology, introducing online banking, ATMs, and electronic fund transfers to
improve customer service and convenience.
7. Foreign Investment: Foreign banks and financial institutions were permitted to
invest and set up subsidiaries in India, leading to the entry of multinational banks into
the Indian market. Some popular foreign banks in India are Citibank, HSBC and DBS
Bank.
3. Modern Banking (Early 2000s - Present):
1. Technology and Digitalization: With advancements in technology, the banking
sector in India witnessed a digital revolution. Online banking, mobile banking, ATMs,
and electronic fund transfers became prevalent, providing customers with greater
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 convenience and accessibility to banking services. Fintech companies and digital
payment platforms disrupted the traditional banking model, leading to a surge in
digital transactions.
2. Financial Inclusion and Microfinance: During this phase, there was an increased
emphasis on financial inclusion, especially for the unbanked and underbanked
population. Microfinance institutions and self-help groups played a significant role in
providing small loans, savings, and insurance products to marginalized sections of
society, promoting financial empowerment.
3. Fintech and Innovation: The fintech revolution has gained momentum in India, with
numerous startups and technology-driven companies entering the financial services
space. Digital payment platforms, mobile wallets, peer-to-peer lending, and robo-
advisory services have reshaped the way banking and financial services are delivered.

Characteristics of Banking
1. Accepting Deposits – Accepting deposits from savers or account holders is the
primary function of bank. Banks accept deposit from those who can save money, but
cannot utilize in profitable sectors. People prefer to deposit their savings in a bank
because by doing so, they earn interest.
2. Advancing of Loans – Banks are profit oriented business organizations. So they have
to advance loan to public and generate interest from them as profit. After keeping
certain cash reserves, banks provide short-term, medium-term and long-term loans to
needy borrowers.
3. Discounting of Bill of Exchange – Bill of exchange is a negotiable instrument, which
is accepted by the debtor, drawn upon him/her by the creditor and agrees to pay the
amount mentioned on maturity. Discounting bill of exchange is another function of
modern commercial bank. Under this, banks purchase bill of exchange from holder in
discount after making some marginal deduction in the form of commission. The banks
pay the deducted value to the holders when traders discount it into bank.
4. Cheque Payment – Banks provide cheque books to the account holders. Account
holders can draw cheque upon bank to pay money. Banks pay for cheques of
customers after formal verification and official procedures.

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 5. Remittance – Remittance is a system, through which cash fund is transferred from
one place to another. Banks provide the facilities of remittance to the customers and
earn some service charge.
6. Collection And Payment of Credit Instruments – In modern business, different
types of credit instruments such as bill of exchange, promissory notes, cheques etc.
are used. Banks deal with such instruments. Modern banks collect and pay different
types of credit instruments as the representative of the customers.
7. Foreign Currency Exchange – Banks deal with foreign currencies. As the
requirement of customers, banks exchange foreign currencies with local currencies,
which is essential to settle down the dues in the international trade.
8. Consultancy – Modern commercial banks are large organizations. They can expand
their function to consultancy business. In this function, banks hire financial, legal and
market experts, who provide advice’s to customers in regarding investment, industry,
trade, income, tax etc.
9. Bank Guarantee – Customers are provided the facility of bank guarantee by modern
commercial banks. When customers have to deposit certain fund in governmental
offices or courts for specific purpose, bank can present itself as the guarantee for the
customer, instead of depositing fund by customers.
Features / Characteristics of a Banking
1. Dealing with Money: Bank is a financial institution which deals with other people’s
money i.e., money given by depositors.
2. Individual / Firm / Company: A bank may be a person, firm or a company. A
banking company means a company which is in the business of banking.
3. Acceptance of Deposit: A bank accepts money from the people in the form of
deposits which are usually repayable on demand or after the expiry of a fixed period.
It gives safety to the deposits of its customers. It also acts as a custodian of funds of
its customers.
4. Giving Advances: A bank lends out money in the form of loans to those who require
it for different purposes.
5. Payment and Withdrawal: A bank provides easy payment and withdrawal facility to
its customers in the form of cheques and drafts. It also brings bank money in
circulation. This money is in the form of cheques, drafts, etc.

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 6. Agency and Utility Services: A bank provides various banking facilities to its
customers. They include general utility services and agency services.
7. Profit and Service Orientation: A bank is a profit seeking institution having service-
oriented approach.
8. Ever Increasing Functions: Banking is an evolutionary concept. There are
continuous expansion and diversification as regards the functions, services and
activities of a bank.
9. Connecting Link: A bank act as a connecting link between borrowers and lenders of
money. Banks collect money from those have surplus money and give the same to
those who are in need of money.
10. Banking Business: A bank is main activity should be to do business of banking
which should not be subsidiary to any other business.
11. Name Identity: A bank should always add the word “bank” to its name to enable
people to know that it is a bank and that it is dealing in money.
Role of Bank in the Economy of India
1. Removing the deficiency of Capital Formation: The banks provide loans to the
investors. This helps in capital formation in an economy. In the developing economy,
it helps in removing capital deficiency. The banks also convert the dormant money in
the economy into active capital by giving interest to the customers.
2. Helps in generating Employment Opportunities: The banks give loans to start-ups
and finance their expenses. This provides impetus to the generation of employment.
The loan also helps in scaling up the firms. The banking sector creates lakhs of jobs
every year.
3. Helps in implementing Monetary Policy: Since the banks are the producers of
money, they are very crucial in the implementation of monetary policy. Banks by
regulation of the interest rate decide the flow of liquid cash in the economy. It also
helps in combating inflation.
4. Financial Assistance to Industries: The financial assistance rendered by the banks is
very helpful to the MSMEs and other small informal businesses. It helps an economy
to get through the recession.
5. Promote Saving Habits of the people: The banks attract the money of the public by
giving profitable interest payments. It helps in promoting saving habits among people.

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6. Banks as Safe Custody: Safe custody services are offered by banks to provide a
secure place for customers to store important items that they do not need to access
frequently. Customers can store many types of items in safe custody like a bank
including important documents like wills, property deeds, and contracts, as well as
valuable items like jewelry, precious metals, and artwork. Securities like stocks,
bonds, and mutual fund certificates can also be held in safe custody with a bank.
Banks may charge fees for safe custody services which can vary depending on the
size and value of the items stored and the length of time they are held in custody.
7. Funds to Organizations: Banks play an important role in promoting economic
development by providing funds to organizations. By providing funding to businesses
and other organizations, banks help to create jobs, stimulate investment, and
contribute to overall economic growth.
8. Loans by Banks: Banks provide loans to generate profits, manage risk, promote
economic growth, and build relationships with customers. By providing loans banks
help to support the growth and development of individuals and businesses which can
have a positive impact on the broader economy. Banks also provide loans to small
businesses, entrepreneurs, and individuals so that they can use this money to increase
their business.
9. Interest on Deposits: Banks need deposits to fund their lending activities. so, they
offer well-paid interest rates to attract more depositors. This increases the funds of the
banks. And then the bank can use this fund for other activities. Different banks have
different interest rates. It also varies depending on the type of account.

Structure of the Indian banking system

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 The Indian banking system consists of a well-organized network of financial
institutions that provide banking and financial services to the economy. It is regulated by the
Reserve Bank of India (RBI), which acts as the apex authority.

At the top of the structure is the RBI, which controls currency issue, regulates banks,
manages monetary policy, and ensures financial stability.

Below the RBI are Commercial Banks, which form the backbone of the banking
system. These include public sector banks, private sector banks, foreign banks, and non-
scheduled banks. Commercial banks mobilize savings and provide credit to trade, industry,
and individuals.

Next are Cooperative Banks, which operate on cooperative principles and serve urban
and rural areas. Rural cooperative banks follow a three-tier structure comprising State
Cooperative Banks, District Central Cooperative Banks, and Primary Agricultural Credit
Societies.

Regional Rural Banks (RRBs) were established to provide loans specifically to rural
and agricultural sectors. They are jointly owned by the Central Government, State
Government, and sponsor banks.

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 The system also includes Development Banks like NABARD and SIDBI, which
provide long-term finance, and new-age banks such as Payments Banks and Small Finance
Banks, which promote financial inclusion and digital banking.

The Indian banking system is organized in a hierarchical structure to ensure efficient

regulation, supervision, and delivery of banking services. At the apex is the Reserve Bank of
India (RBI), followed by different categories of banks based on their functions and
ownership.

1. Reserve Bank of India (RBI) – Apex Institution

The Reserve Bank of India is the central bank and the supreme monetary authority of the
country.

Key Functions:

• Issues currency notes (except ₹1 note and coins)

• Regulates and supervises banks

• Controls credit and money supply

• Acts as banker to the Government

• Acts as banker’s bank and lender of last resort

All banks in India function under the guidelines and control of the RBI.

2. Classification of Banks

As shown in the diagram, banks are broadly classified into:

1. Scheduled Banks

2. Non-Scheduled Banks

3. Scheduled Banks

Scheduled banks are those banks that are included in the Second Schedule of the RBI Act,
1934. These banks enjoy special facilities from RBI such as refinancing.

Scheduled banks are further divided into:

• Commercial Banks
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 • Co-operative Banks

4. Commercial Banks

Commercial banks form the core of the Indian banking system. They accept deposits from the
public and provide loans to individuals, businesses, and the government.

Types of Commercial Banks:

(a) Public Sector Banks

Public sector banks are banks in which the Government of India holds a majority stake.

They are further classified into:

i) SBI and Associate Banks

• State Bank of India (SBI) is the largest public sector bank

• Associate banks were merged with SBI

ii) Nationalised Banks

• Banks nationalised in 1969 and 1980

• Examples: Punjab National Bank, Bank of Baroda

iii) Other Public Sector Banks

• Includes remaining government-owned banks

Role:

• Promote social welfare

• Priority sector lending

• Financial inclusion

(b) Private Sector Banks

Private sector banks are owned and managed by private individuals or companies.

Examples: HDFC Bank, ICICI Bank, Axis Bank

Features:

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 • Advanced technology

• Better customer service

• Profit-oriented approach

(c) Foreign Banks

Foreign banks are banks that have their head offices outside India but operate through
branches in India.

Examples: HSBC, Citibank, Standard Chartered

Role:

• Facilitate international trade

• Serve multinational companies

• Operate mainly in metropolitan cities

(d) Regional Rural Banks (RRBs)

Regional Rural Banks were established to provide banking services to rural and semi-urban
areas.

Ownership:

• Central Government – 50%

• State Government – 15%

• Sponsor Bank – 35%

Objectives:

• Provide credit to farmers, artisans, and small traders

• Promote rural development and financial inclusion

5. Co-operative Banks

Co-operative banks operate on the principle of co-operation and mutual help. They are
mainly formed to serve the needs of members.

Types of Co-operative Banks (as shown in diagram):

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(a) State Co-operative Banks

• Operate at the state level

• Apex institutions in the cooperative structure

(b) District Co-operative Banks

• Operate at the district level

• Act as intermediaries between state banks and primary societies

(c) Other Co-operative Banks

• Includes Primary Agricultural Credit Societies (PACS) and urban cooperative banks

Role:

• Agricultural credit

• Rural finance

• Support to small borrowers

6. Non-Scheduled Banks

Non-scheduled banks are banks not listed in the Second Schedule of the RBI Act.

Features:

• Smaller in size

• Limited operations

• Fewer RBI facilities

• Lesser importance in the banking system

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Public sector banks
Public sector banks are banks in which the government, whether directly or through
other government agencies or corporate bodies, holds a major percentage of ownership.
Such banks aim to serve the interest of the public, and inclusion in the financial scope
is guaranteed for all sections of the society.
They are, therefore, different from banks of the private sector, which essentially
remain as privately owned and run organizations, catering more to profit motives.
They also play a very important role in implementing government policies on varied
economic aspects like agricultural loans, educational loans, and poverty alleviation programs
among many others.
History of Public Sector Banks in India
Public sector banks in India have a history dating back to the early 20th century when
the need for extending banking facilities for social inclusion, economic, and agricultural
support became important. The high moment in PSBs' evolution history occurred when 14
major commercial banks were nationalized by then Prime Minister Indira Gandhi in 1969.
This move was purposed at increasing the reach of banking services in the rural and semi-
urban areas and cater to the credit requirements of various population segments.
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 Phase 2 of nationalization occurred in 1980, in which six more banks were
nationalized. The number of bank branches rose dramatically across the countryside, and this
era witnessed enhanced banking services in the neglected sectors of the country. In the 1990s
after liberalization, banking in India underwent a sea of change, but public sector banks still
remained the nucleus of the financial firmament of India.

Private sector banks

Private sector banks are those financial institutions in which the majority of stake is in
the hands of private shareholders, not by the government. These banks work on a profit
motive and customer satisfaction; they use technology and maintain financial soundness.
They have a pivotal role in the field of providing diversified banking services such as loans,
credit, deposits, wealth management, etc.
History of Private Sector Banks in India
The history of private sector banks in India can be traced back to the early 1990s
when the Indian banking sector went through significant liberalization reforms. It was, in
fact, the Narasimham Committee Report of 1991 that evinced a decision to set up new private
sector banks. These reforms opened up prospects for privatization and, furthermore, allowed
new entrants with the express purpose of increasing competition and efficiency.
Prior to economic liberalization, the nationalized banks had dominated the banking
sector in India. After liberalization, quite a few numbers of new private sector banks such as
HDFC Bank, ICICI Bank, and Axis Bank have been set up and expanded rapidly to grab the
share of public sector banks. Such banks have introduced innovative products, improved
customer service, and also introduced newer technologies and thereby helped in the all-round
development of the Indian banking sector.

Foreign bank
A foreign bank is one that is owned or controlled by individuals or entities from
another country. It may operate through branches or subsidiaries and plays a key role in
global finance, trade, and capital markets. For example, HSBC and Standard Chartered are
leading foreign banks in India, providing services like trade finance, NRI banking, and cross-
border lending. Foreign banks are financial institutions whose headquarters are in a country,
but in another country operate branches or subsidiaries.
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History of Foreign Banks in India
It is true that the history of foreign banks in India goes back to the colonial period to
that bank, which was required intermediaries in the trade between India and Europe. The
foreign bank had its branches built in all major ports to meet trade financing, shipping, and,
lastly, export-import requirements. The first foreign bank in India was the Mercantile Bank of
India (now HSBC), which began operations in 1853 in Mumbai.
Before Independence:
• 1853: Mercantile Bank of India (now HSBC) began its operations in Mumbai.
• 1858: Chartered Bank now called Standard Chartered Bank opened its doors
in Calcutta.
• 1860: The predecessor of BNP Paribas started operating in Calcutta.
• 1902: Citibank commenced operations in India under the name National City
Bank of New York.
Post-Independence:
• The government barred foreign banks in the beginning from entering into their
operations, restricting their spread and the scope of services.
• However, it was with the 1991 liberalization reforms that India indicated its
willingness to allow greater foreign participation in the banking business and
move toward the global integration of the banking system

Commercial Banks
• Organised under the Banking Companies Act, 1956
• They operate on a commercial basis and its main objective is profit.
• They have a unified structure and are owned by the government, state, or any
private entity.
• They tend to all sectors ranging from rural to urban
• These banks do not charge concessional interest rates unless instructed by the
RBI
• Public deposits are the main source of funds for these banks
The commercial banks can be further divided into three categories:

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 • Public sector Banks – A bank where the majority stakes are owned by the
Government or the central bank of the country.
• Private sector Banks – A bank where the majority stakes are owned by a
private organization or an individual or a group of people
• Foreign Banks – The banks with their headquarters in foreign countries and
branches in our country, fall under this type of bank

Regional Rural Banks (RRB)

• These are special types of commercial Banks that provide concessional credit to
agriculture and rural sectors.
• RRBs were established in 1975 and are registered under the Regional Rural Bank Act,
1976.
• RRBs are joint ventures between the Central government (50%), State government
(15%), and a Commercial Bank (35%).
• 196 RRBs have been established from 1987 to 2005.
• From 2005 onwards government started the merger of RRBs thus reducing the
number of RRBs to 82
• One RRB cannot open its branches in more than 3 geographically connected districts.

Tamil Nadu Pallavan Grama Bank Indian Bank Salem

Pandyan Grama Bank Indian Overseas Bank Virudhunagar

Small Finance Banks

• As the name suggests, this type of bank looks after the micro industries, small
farmers, and the unorganized sector of society by providing them with loans and
financial assistance. These banks are governed by the central bank of the country.
Given below is the list of the Small Finance Banks in our country:

AU Small Finance Equitas Small Jana Small Finance Northeast Small

Bank Finance Bank Bank Finance Bank

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Capital Small Fincare Small Suryoday Small Ujjivan Small Finance
Finance Bank Finance Bank Finance Bank Bank

Esaf Small Finance Utkarsh Small

Bank Finance Bank

Payments Banks
A newly introduced form of banking, the payments bank has been conceptualized by
the Reserve Bank of India. People with an account in the payments bank can only deposit an
amount of up to Rs.1,00,000/- and cannot apply for loans or credit cards under this account.
Options for online banking, mobile banking, the issue of ATMs, and debit cards can be done
through payments banks. Given below is a list of the few payments banks in our country:
• Airtel Payments Bank
• India Post Payments Bank
• Fino Payments Bank
• Jio Payments Bank
• Paytm Payments Bank
• NSDL Payments Bank

Branch Banking
Branch banking refers to a bank that is connected to one or more other banks in an
area or outside of it; to its customers, this bank provides all the usual financial services but is
backed and ultimately controlled by a larger financial institution.
A banking system where a single bank operates multiple branches across different
locations.
Features:
• Large network of branches.
• Centralized management and decision-making.
• Diversification of risk across different regions.
• Economies of scale due to larger size and operations.

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Functions Of Branch Banking
• Accepting Deposits: Branches collect savings, current, and fixed deposits from
customers.
• Lending Services: They offer loans such as personal, home, and business loans to
individuals and organizations.
• Facilitating Withdrawals: Customers can withdraw money from their accounts
through the branch.
• Processing Payments: Branches handle bill payments, fund transfers, and other
payment services.
• Customer Support: They provide assistance with account management, queries, and
other banking services.
• Foreign Exchange Services: Some branches offer currency exchange and
international banking services.
• Opening New Accounts: Branches assist in opening new savings, current accounts,
and a demat account.
Advantages Of Branch Banking
• Convenience: Customers can access banking services at multiple locations.
• Efficiency: Centralized operations can lead to cost savings and efficiency.
• Stability: Diversification reduces the impact of regional economic downturns.
• Financial Inclusion: Can reach a wider population, including in rural areas.
Disadvantages Of Branch Banking
• Less Local Focus: May not be as responsive to local needs as unit banks.
• Bureaucracy: Decision-making can be slower due to centralized control.
• Monopoly Concerns: Potential for large banks to dominate the market.
Unit Banking
A unit banking is a banking system in which one bank, generally a small independent
bank that renders banking services to its local community.
Unit banking refers to a bank that is a single, usually small bank that provides
financial services to its local community. A unit bank is independent and does not have any
connecting banks — branches — in other areas.
A banking system where banks operate as independent, single-office entities.

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Features of Unit Banking
• Localized operations.
• Independent decision-making.
• Close relationship with the local community.
Advantages of Unit Banking
• Local Focus: Better understanding of local needs and personalized service.
• Faster Decision-Making: More responsive to local market conditions.
• Community-Oriented: Stronger ties with the local community.
Disadvantages of Unit Banking
• Limited Reach: Cannot serve customers outside their immediate area.
• Higher Costs: May have higher operating costs due to smaller scale.
• Higher Risk: More vulnerable to economic downturns in their local area.
• Limited Services: May not offer the same range of services as larger banks.

Differences between Branch Banking and Unit Banking

Basis for
Unit Banking Branch Banking
Comparison
Meaning Unit banking is that system of banking Branch banking is a banking method
in which there is a single small wherein a bank operates in more than one
banking company, that provides place to provide banking services to
financial services to the local customers, through its branches.
community.
Local economy Affected by the ups and downs of the It is not affected by the ups and downs of
local economy. the local economy.
Independence of More Comparatively less
operations
Supervision Cost Low Comparatively high
Financial Limited financial resources Large pool of financial resources
Resources

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Basis for
Unit Banking Branch Banking
Comparison
Competition No or little within the bank Exist between the bank branches
Rate of interest Not fixed, as the bank has its own Fixed by the head office, and directed by
policies and norms. the central bank.
Decision making Quick Time Consuming

Universal Banking
Universal Banking refers to the banking system that offers a wide range of banking
and financial services, including insurance, development banking, investment banking,
commercial banking, and other financial services, all at one platform.
In simple terms, it can also be understood as a combination of all three services that is
retail banking, investment banking, and wholesale banking.
Universal banking is a system of banking where banks undertake a comprehensive of
financial services like investment banking, commercial banking, development banking,
insurance and other financial services including functions of merchant banking, mutual funds,
factoring, housing finance, insurance etc.
Universal Banking means that Financial Institutions (FIs) and Banks are allowed to
undertake all kinds of activity of banking, financing and related businesses.

Universal Banking in India

The second Narasimham Committee of 1998 gave an introductory remark on the
concept of the Universal banking, as a different concept than the Narrow Banking.
Narsimham Committee II suggested that Development Financial Institutions (DFIs) should
convert ultimately into either commercial banks or non-bank finance companies.
However, the concept of Universal Banking conceptualized in India after the RH
Khan Committee recommended it as a different concept. The Khan Working Group held the
view that DFIs (Development Finance Institutions) should be allowed to become banks at the
earliest.
Advantages of Universal Banking
• Economies of Scale would result in greater economic efficiency in the form of
lower cost, higher output and better products.
• Increased diversions and increased profitability
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 • Better Resource Utilization.
• Brand name leverage
• Existing clientele leverage
• Value added services
• ‘One-stop shopping’ saves a lot of transaction costs

Hurdles in Universal Banking

• Different regulatory framework for Financial Institutions and Banks
• No expertise in both the fields as both need domain expertise.
• Long gestation of Infrastructure Financing

Financial Inclusion
Financial inclusion refers to the process of making financial services accessible and
affordable to all individuals and businesses, especially those traditionally excluded or
underserved. These services include banking, savings accounts, credit, insurance, and
investment opportunities.
Importance of Financial Inclusion
The importance of financial inclusion lies in its ability to foster social and economic
development. Here’s why it is crucial:
1. Promotes Economic Growth: Financial inclusion mobilizes resources for
investments and business activities, boosting economic growth. A well-banked
population contributes to a stable and expanding economy.
2. Reduces Poverty: Access to savings, credit, and insurance allows low-income
families to manage risks, invest in education, and improve their living conditions,
lifting them out of poverty.
3. Enhances Gender Equality: Women, who often face financial exclusion, benefit
significantly from inclusive financial systems. Empowering women financially has a
ripple effect, improving household welfare and community prosperity.
4. Encourages Entrepreneurship: Small businesses are the backbone of many
economies. Financial inclusion ensures that entrepreneurs have access to affordable
credit and tools to grow their businesses, driving innovation and job creation.

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 5. Strengthens Social Security: Access to insurance and pension products creates a
safety net, reducing helplessness to financial shocks and ensuring long-term security.

Financial Inclusion Schemes in India

The Government of India has been introducing several exclusive schemes for the
purpose of financial inclusion. These schemes intend to provide social security to the less
fortunate sections of the society.
After a lot of planning and research by several financial experts and policymakers, the
government launched schemes keeping financial inclusion in mind. These schemes have been
launched over different years. Let us take a list of the financial inclusion schemes in the
country:
• Pradhan Mantri Jan Dhan Yojana (PMJDY)
• Atal Pension Yojana (APY)
• Pradhan Mantri Vaya Vandana Yojana (PMVVY)
• Stand Up India Scheme • Pradhan Mantri Mudra Yojana (PMMY)
• Pradhan Mantri Suraksha Bima Yojana (PMSBY)
• Sukanya Samriddhi Yojana
• Jeevan Suraksha Bandhan Yojana
• Credit Enhancement Guarantee Scheme (CEGS) for Scheduled Castes (SCs)
• Venture Capital Fund for Scheduled Castes under the Social Sector
Initiatives
• Varishtha Pension Bima Yojana (VPBY)

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