Banking System in India

Banking System in India

Banking System in India or Indian Banking System or Banking Sector in India refers to a network of financial institutions, such as banks and credit unions, that handle financial transactions and provide financial services to individuals, businesses, and governments. These institutions, primarily, act as intermediaries between people with money i.e. savers, and those who need money i.e. borrowers. The types of services offered by the banking institutions, usually, include accepting deposits, lending money, facilitating transactions, and offering various financial products like savings accounts, loans, and credit cards.

Reserve Bank of India Act, 1934 

Banks, forming part of the Banking System in India, can be divided into two categories – Scheduled Banks and Non-Scheduled Banks.

Scheduled Banks

Scheduled Banks under the Banking System in India refer to those financial institutions that are listed in the 2nd Schedule of the Reserve Bank of India Act, 1934. This inclusion signifies that they meet specific criteria set by the RBI and are subject to its stricter regulations.A bank to be listed in the schedule has to satisfy the following 2 conditions:

1. It should have paid-up capital and reserves of not less than 5 lacs, and
2. It should satisfy the RBI that their affairs are not being conducted in a manner detrimental to the interest of their depositors.

If any Scheduled Bank violates these conditions, it gets delisted from the schedule.A Scheduled Bank gets the following benefits:

• Facility of loans on Bank Rate from RBI.
• Automatic membership of Clearing House.
• Facility of Re-Discount of first-class exchange bills from RBI.

Non-Scheduled Banks

Non-Scheduled Banks under the Banking System in India refer to those financial institutions that don’t meet the criteria to be included in the 2nd Schedule of the Reserve Bank of India Act, 1934. Being excluded from the schedule means they operate under a different set of regulations as compared to Scheduled Banks.