UNIT 1

The evolution of banking in India is a fascinating journey that spans several centuries. From
ancient times to the modern digital age, the banking sector in India has undergone significant
changes and transformations. Here's a brief overview of the key stages in the evolution of
banking in India:

1. Ancient and Medieval Periods: The concept of banking in India can be traced back to
ancient times when moneylenders and merchants provided basic financial services. During
the medieval period, indigenous banking systems like "Hundis" and "Sarrafs" were prevalent,
which allowed for the transfer of funds and facilitated trade across different regions.

2. Colonial Era: The British colonial period brought modern banking practices to India. In
1806, the Bank of Calcutta (later renamed the Bank of Bengal) was established, followed by
the Bank of Bombay in 1840 and the Bank of Madras in 1843. These three banks together
formed the foundation of the modern banking system in India, known as the "Presidency
Banks." They primarily served the interests of the British colonial administration and
European businesses.

3. Nationalization of Banks (1969 and 1980): The Indian banking landscape underwent a
significant change with the nationalization of major banks. In 1969, the Indian government
nationalized 14 major private banks, aiming to improve access to banking services and
promote financial inclusion. In 1980, another six banks were nationalized. This move greatly
expanded the reach of banking services across the country.

4. Rural and Agricultural Focus: In the subsequent decades, there was a growing emphasis on
providing banking services to rural and agricultural areas. Regional Rural Banks (RRBs)
were established to cater to the needs of rural communities. Additionally, the National Bank
for Agriculture and Rural Development (NABARD) was set up to provide credit and other
financial services to support agricultural development.

5. Liberalization and Technological Advancements: In 1991, India embarked on economic

liberalization, which had a significant impact on the banking sector. Foreign banks were
allowed to operate in India, leading to increased competition. Technological advancements,
such as the introduction of ATMs, online banking, and electronic fund transfers,
revolutionized the way banking services were delivered.

6. New Generation Private Banks and Payment Banks: In the 2000s, new generation private
banks like HDFC Bank, ICICI Bank, and Axis Bank emerged, offering innovative products
and services to customers. In 2015, the concept of "Payment Banks" was introduced, focusing
on providing basic banking services and digital payments to underserved areas of the country.

7. Demonetization and Digital Push: In 2016, the Indian government implemented a

controversial move called demonetization, which aimed to curb black money and promote
digital payments. This event accelerated the adoption of digital banking solutions and mobile
wallets.

8. Current Landscape: The Indian banking sector continues to evolve with a strong emphasis
on digitization, financial inclusion, and regulatory reforms. The introduction of initiatives like
the Unified Payments Interface (UPI) has transformed the way people make payments and
transfer funds. The "Jan Dhan Yojana" has aimed to bring millions of unbanked individuals
into the formal banking system.

9. Challenges and Future Trends: Despite progress, the Indian banking sector faces
challenges such as Non-Performing Assets (NPAs), governance issues, and the need for
enhanced cybersecurity. Looking ahead, trends like AI-driven banking, blockchain
technology, and sustainable banking practices are likely to shape the future of banking in
India.

In conclusion, the evolution of banking in India reflects a blend of historical practices,

colonial influences, policy changes, technological advancements, and a growing focus on
financial inclusion. The sector's journey continues to adapt to the changing needs of the
Indian population and the global financial landscape.

Bank nationalization refers to the process of transferring ownership and control of banks
from the private sector to the government. In the context of India, bank nationalization
specifically refers to the government taking over ownership of major private banks and
transforming them into public sector banks. This move was aimed at achieving various socio-
economic objectives, including increasing financial inclusion, promoting balanced economic
development, and controlling the concentration of wealth.
In India, two major waves of bank nationalization occurred:
1. **1969 Nationalization**: On July 19, 1969, the Indian government, led by then-Prime
Minister Indira Gandhi, announced the nationalization of 14 major banks in the country. This
move was a response to the need for social control over the banking sector and to ensure that
credit was directed toward priority sectors and neglected areas. The banks that were
nationalized included some prominent names like Punjab National Bank, Bank of India,
Canara Bank, and Bank of Baroda.
 The objectives of the 1969 nationalization included:
- **Expansion of Banking**: Nationalization aimed to expand the banking network to rural
and semi-urban areas, ensuring that banking services were available to a wider section of the
population.
- **Priority Sector Lending**: The government intended to use nationalized banks to
promote lending to sectors like agriculture, small-scale industries, and weaker sections of
society.
- **Control over Capital**: By owning a significant share in these banks, the government
aimed to control capital allocation and prevent concentration of economic power.

2. **1980 Nationalization**: In 1980, the government undertook a second wave of

nationalization, bringing six more banks under its control. This move further solidified the
public sector's dominance in the banking industry. The banks that were nationalized during
this phase included Andhra Bank, Corporation Bank, and New Bank of India.

The nationalization of banks in India significantly expanded the reach of banking services
across the country, especially in rural and remote areas. It also played a crucial role in
channeling credit to priority sectors and promoting inclusive economic growth. However,
over the years, there have been debates and discussions about the effectiveness and efficiency
of public sector banks in comparison to private sector banks. Issues such as bureaucratic
control, political interference, and a lack of flexibility have been raised as challenges faced by
public sector banks.

In recent years, the Indian government has taken measures to address some of these
challenges and promote the health and efficiency of the banking sector. This has included
efforts to recapitalize banks, improve governance, and introduce reforms to enhance the
lending process and asset quality.

Banks perform a variety of functions that are essential to the functioning of modern
economies. These functions can be broadly categorized into primary functions and secondary
functions. Here's an overview of the key functions of banks:

**Primary Functions of Banks:**

1. **Accepting Deposits**: One of the fundamental functions of banks is to accept deposits
from individuals, businesses, and other entities. Deposits can be in the form of savings
accounts, current accounts, fixed deposits, and more. Banks provide a safe place for people to
store their money while also paying them interest on their deposits.
2. **Providing Loans and Advances**: Banks lend money to individuals, businesses, and
governments for various purposes, such as buying homes, funding education, starting or
expanding businesses, and infrastructure development. Loans and advances generate interest
income for the banks.

3. **Credit Creation**: Banks play a crucial role in creating credit. When banks lend money,
they effectively create new money in the economy by increasing the overall money supply.
This credit creation function contributes to economic growth and development.
**Secondary Functions of Banks:**
1. **Agency Services**: Banks act as agents for their customers by performing various
financial transactions on their behalf. These include collecting and remitting payments,
handling foreign exchange transactions, and managing investment portfolios.

2. **Payment System**: Banks facilitate the transfer of funds within and across borders
through various payment methods, such as checks, electronic funds transfers (EFT), wire
transfers, and digital payment systems like mobile wallets and online banking.

3. **Safekeeping of Valuables**: Many banks offer safe deposit boxes where customers can
store valuable items such as documents, jewelry, and other assets in a secure environment.

4. **Foreign Exchange Services**: Banks provide foreign exchange services, allowing

customers to buy, sell, and exchange different currencies for international trade, travel, and
investment purposes.

5. **Remittance Services**: Banks offer remittance services, enabling individuals to send

money to their families or friends in different regions or countries.

6. **Investment and Advisory Services**: Banks provide investment advisory services,

helping customers make informed decisions about their investments. They may also offer
products like mutual funds, insurance, and retirement plans.

7. **Clearing and Settlement**: Banks participate in clearing and settlement processes,

ensuring that transactions between different banks are settled efficiently and accurately.
8. **Underwriting of Securities**: Banks may participate in underwriting securities like
stocks and bonds, helping companies raise capital through initial public offerings (IPOs) and
other offerings.

9. **Financial Intermediation**: Banks act as intermediaries between savers and borrowers.

They collect funds from savers (depositors) and lend these funds to borrowers, thereby
facilitating the flow of funds in the economy.

10. **Risk Management and Hedging**: Banks offer various financial products and services
to help clients manage risks, including derivatives, insurance, and hedging strategies.

11. **Customer Relationship Management**: Banks maintain relationships with customers

and provide personalized financial advice, services, and solutions to meet their diverse needs.

12. **Research and Market Analysis**: Banks often provide research reports and market
analysis to assist customers in making informed financial decisions.
These functions collectively contribute to the stability and growth of economies by
facilitating efficient allocation of resources, promoting savings and investment, and providing
a secure financial environment for individuals and businesses.
Banks can be classified into various types based on their functions, ownership, and the
services they provide. Here are some common types of banks:
1. **Commercial Banks**: These are the most common types of banks that offer a wide
range of financial services to individuals, businesses, and governments. They provide
services such as accepting deposits, providing loans, facilitating payments, and offering
various financial products.
2. **Retail Banks**: Also known as consumer banks, retail banks primarily serve individual
customers. They provide services like savings accounts, checking accounts, personal loans,
mortgages, and credit cards.
3. **Corporate Banks**: Corporate banks cater to the banking needs of businesses and
corporations. They offer services like business loans, trade finance, cash management,
foreign exchange, and treasury services.
4. **Investment Banks**: Investment banks specialize in providing financial services related
to capital markets. They assist companies in raising capital through underwriting and
advising on mergers and acquisitions (M&A), as well as providing securities trading, asset
management, and investment advisory services.
5. **Central Banks**: Central banks are government institutions responsible for overseeing
and regulating the country's monetary policy, issuing currency, maintaining financial
stability, and often acting as the lender of last resort to banks in times of financial crisis.
6. **Development Banks**: Development banks focus on providing financial assistance and
support to promote economic development and growth. They often provide funding for
infrastructure projects, industrial development, and sectors that may have difficulty accessing
traditional commercial financing.
7. **Savings Banks**: Savings banks primarily focus on providing savings accounts and
other basic financial services to individuals. They often emphasize financial inclusion and
encourage savings among the general population.
8. **Cooperative Banks**: Cooperative banks are owned and operated by their members,
who are usually individuals with a common interest or affiliation, such as residents of a
particular locality or members of a specific group. They provide banking services primarily to
their members.
9. **Credit Unions**: Credit unions are similar to cooperative banks but are typically smaller
in scale. They are member-owned financial cooperatives that provide a variety of financial
services, often with a focus on community involvement.
10. **Online Banks**: Also known as internet banks or virtual banks, these banks operate
exclusively online, offering a range of financial services through digital platforms and
without physical branches.

11. **Foreign Banks**: These banks are based in one country but have branches or
operations in other countries. They provide services to both local and international clients.
12. **Payment Banks**: Payment banks focus on providing basic financial services, such as
accepting deposits and facilitating payments, especially to underserved and remote areas.
They are not allowed to offer credit and lending services.
13. **Small Finance Banks**: Small finance banks primarily target underserved and
unbanked populations, including small businesses, low-income individuals, and farmers.
They provide basic banking services as well as credit facilities.
14. **Postal Banks**: Postal banks are part of the postal system of a country and provide
basic banking services through post office branches. They often play a role in reaching
remote and rural areas.
These are just a few examples of the diverse types of banks that exist, each with its own
specific focus, services, and objectives.

Procedure for opening & operating of deposit account:

Opening and operating a deposit account at a bank involves several steps to ensure a
smooth and secure process. The exact procedure may vary slightly depending on the
bank and the type of account you're opening, but here's a general overview of the steps
involved:
**1. Choose the Type of Account:**
Decide on the type of deposit account you want to open. Common types include savings
accounts, current accounts, fixed deposit accounts, and recurring deposit accounts.
**2. Select the Bank:**
Choose the bank where you want to open the account. Research the bank's reputation,
services, fees, and interest rates to make an informed decision.
**3. Gather Required Documents:**
Collect the necessary documents. Generally, you will need:

- Proof of identity (such as a valid passport, driver's license, Aadhaar card, etc.).
- Proof of address (like a recent utility bill, rental agreement, etc.).
- Passport-size photographs.
- PAN (Permanent Account Number) card or Form 60/61 if you don't have a PAN.
- Any additional documents that the bank may require.
**4. Visit the Bank:**
Visit the nearest branch of the chosen bank. Approach the customer service desk or the
account-opening section.
**5. Fill Out the Account Opening Form:**
Fill out the account opening application form provided by the bank. This form collects your
personal details, contact information, and account preferences.
**6. Provide Documents and Verification:**
Submit the required documents along with the filled-out application form. Bank personnel
may ask for original documents for verification, so make sure to carry them as well.
**7. Initial Deposit:**
Make the initial deposit required to open the account. The amount varies depending on the
type of account you're opening and the bank's policies.
**8. KYC (Know Your Customer) Process:**
The bank will perform a KYC process to verify your identity and address. This is a regulatory
requirement to prevent money laundering and fraud.
**9. Signature Verification:**
In some cases, you may be required to sign on a signature card or provide a specimen
signature to be used for future verification purposes.
**10. Receipt and Welcome Kit:**
Once the account is successfully opened, the bank will provide you with an account number
and other relevant details. You might also receive a welcome kit containing information
about the bank's services and terms.

**11. Activation of Online Services (if applicable):**

If your account offers online banking services, the bank will guide you through the process of
activating your online account access.
**12. Start Using the Account:**
Once your account is active, you can start using it to deposit and withdraw funds, make
transactions, and manage your finances.
**13. Operating the Account:**
Follow the bank's guidelines and terms for operating your account. These might include
maintaining a minimum balance, adhering to withdrawal limits, and understanding the
charges for various services.
Keep in mind that procedures may vary based on the bank's policies, the type of account, and
local regulations. It's a good idea to contact the bank or visit their website to get specific
information about their account opening process.

Traditional And Modern Methods Of Remittances:

Remittances refer to the transfer of money from one place to another, typically from a
migrant worker to their family or loved ones in their home country. Over time, remittance
methods have evolved from traditional methods involving physical cash or checks to modern
electronic methods that offer convenience and speed. Here's a comparison of traditional and
modern methods of remittances:
**Traditional Methods of Remittances:**
1. **Cash in Envelope**: Migrants would send physical cash through postal services or
trusted intermediaries to their families back home.
2. **Bank Checks or Money Orders**: Migrants could send bank checks or money orders
through postal services, which recipients could then deposit into their bank accounts.
3. **Travelers' Checks**: Migrants could buy travelers' checks and send them to their
families, who could then cash them at local banks.
4. **Hawala and Informal Channels**: Informal money transfer systems like hawala
involved using intermediaries to facilitate the transfer of funds. These systems were based on
trust and personal connections.
5. **Telegraphic Transfers**: Migrants could visit their local bank and request a telegraphic
transfer to send money to their families. This method involved sending a message to the
recipient's bank to release the funds.
**Modern Methods of Remittances:**
1. **Bank Transfers**: Migrants can use their bank accounts to transfer funds electronically
to the recipient's bank account. This can be done online, through mobile banking apps, or by
visiting a bank branch.
2. **Wire Transfers**: Similar to bank transfers, wire transfers involve sending funds
electronically from one bank account to another. This can be done domestically or
internationally.
3. **Online Money Transfer Services**: Dedicated online platforms like Western Union,
MoneyGram, TransferWise (now known as Wise), and others allow users to send money
online and provide options for cash pickup or direct bank deposits.
4. **Mobile Wallets**: Mobile wallets enable users to send money to recipients' mobile
phone numbers. The recipients can then access the funds through their mobile wallets or
withdraw them at designated locations.
5. **Digital Remittance Apps**: Smartphone apps offer convenient ways to send money
internationally, often with competitive exchange rates and lower fees compared to traditional
methods.
6. **Cryptocurrency**: Some migrants use cryptocurrencies like Bitcoin to send remittances.
Cryptocurrencies offer the potential for lower fees and faster transfers, especially for cross-
border transactions.

7. **Prepaid Debit Cards**: Some companies offer prepaid debit cards that migrants can load
with funds and send to their families. The recipients can then use these cards for purchases or
withdrawals.
8. **Peer-to-Peer (P2P) Platforms**: Online P2P platforms connect individuals who want to
exchange money. These platforms can provide competitive rates and flexibility.
9. **Payment Banks and Digital Wallets**: Payment banks and digital wallets in some
countries provide services that include remittance options, allowing users to send money
digitally.
Modern methods of remittance have gained popularity due to their convenience, speed, and
accessibility. They often provide a more secure and efficient way for migrants to support
their families and loved ones back home.
Types Of Risks Provided By Banks:
Banks face a variety of risks in their operations, which can impact their financial stability,
reputation, and overall performance. These risks can arise from various sources and can have
different implications. Here are some of the key types of risks that banks commonly
encounter:
1. **Credit Risk**: This is the risk that borrowers may default on their loans or credit
obligations. Banks are exposed to credit risk when they lend to individuals, businesses, and
governments. This risk can result in non-performing assets (NPAs) and financial losses for
the bank.
2. **Market Risk**: Market risk arises from fluctuations in interest rates, foreign exchange
rates, commodity prices, and equity prices. Banks can experience losses due to adverse
movements in these markets, impacting their trading portfolios and investment activities.
3. **Interest Rate Risk**: Interest rate risk refers to the potential impact of changes in
interest rates on a bank's earnings and capital. Banks with imbalanced maturity profiles
between assets and liabilities can face challenges when interest rates change.
4. **Liquidity Risk**: Liquidity risk occurs when a bank is unable to meet its short-term
financial obligations due to a shortage of liquid assets. This risk can arise from unexpected
deposit withdrawals or difficulty in selling assets quickly.
5. **Operational Risk**: Operational risk encompasses risks arising from inadequate or
failed internal processes, systems, people, or external events. It includes risks related to fraud,
errors, IT failures, cyberattacks, and more.
6. **Reputation Risk**: Reputation risk arises when a bank's image, brand, or credibility is
damaged due to negative public perception, customer complaints, ethical issues, or other
factors. A tarnished reputation can lead to customer attrition and loss of business.
7. **Compliance and Legal Risk**: Compliance risk is the risk of legal or regulatory
sanctions, financial loss, or reputational damage due to non-compliance with laws,
regulations, or industry standards. Banks must adhere to various regulations, including anti-
money laundering (AML) and Know Your Customer (KYC) requirements.
8. **Country and Sovereign Risk**: Country risk refers to the potential impact of adverse
economic, political, or social conditions in a specific country where a bank operates or has
exposure. Sovereign risk pertains to the risk of default by a government on its debt
obligations.

9. **Systemic Risk**: Systemic risk refers to the risk of disruptions in the entire financial
system due to the interconnectedness of financial institutions. It can arise from events that
trigger widespread financial instability.
10. **Concentration Risk**: Concentration risk arises from a high exposure to a specific
borrower, industry, or geographic region. If a bank has a significant portion of its portfolio
concentrated in a single area, adverse developments in that area can lead to losses.
11. **Strategic Risk**: Strategic risk arises from poor decision-making, inadequate business
planning, or ineffective implementation of strategies. It can result in missed opportunities or
unfavorable positioning in the market.
12. **Cybersecurity Risk**: With the increasing reliance on technology and digital
platforms, banks face cybersecurity risk from cyberattacks, data breaches, and unauthorized
access to sensitive customer information.
Banks use risk management practices, such as risk assessment, monitoring, mitigation
strategies, and capital buffers, to manage and mitigate these various types of risks. Effective
risk management is crucial to maintaining the stability and resilience of the banking sector.

Digitalization Of Banking Services:

The digitalization of banking services, often referred to as "digital banking" or "digital
transformation," involves the integration of technology and digital channels to provide
banking services to customers. This shift has significantly transformed the way banks interact
with customers, deliver services, and manage their operations. Here are some key aspects of
the digitalization of banking services:

1. **Online Banking Platforms**: Banks have developed user-friendly online banking

platforms that allow customers to access their accounts, check balances, transfer funds, pay
bills, and perform various transactions over the internet. These platforms offer convenience
and flexibility, enabling customers to manage their finances from anywhere.
2. **Mobile Banking Apps**: Mobile banking apps have become central to digital banking.
Banks offer dedicated apps that allow customers to perform banking tasks using their
smartphones and tablets. Features include account management, transfers, mobile deposits,
and real-time notifications.
3. **Digital Payments**: Digital banking has led to the widespread adoption of digital
payment methods such as mobile wallets, peer-to-peer (P2P) payments, and QR code
payments. These methods facilitate secure and fast money transfers between individuals and
businesses.
4. **ATM Network**: ATMs have evolved to offer advanced functionalities beyond cash
withdrawal, such as depositing checks, transferring funds, and updating account information.
Some ATMs also support cardless transactions through mobile apps.
5. **Chatbots and AI Assistants**: Many banks use chatbots and artificial intelligence (AI)
assistants to provide instant customer support and answer queries. These AI-driven systems
are available 24/7 and can handle routine inquiries effectively.
6. **Personalized Banking Services**: Banks use data analytics and AI to offer personalized
recommendations and financial insights to customers. This enhances the customer experience
and helps individuals make informed financial decisions.
7. **Online Account Opening**: Customers can open new accounts online without visiting a
branch. This includes submitting necessary documents digitally and completing the
verification process remotely.
8. **Digital Wealth Management**: Some banks offer digital wealth management platforms
that use algorithms to create customized investment portfolios based on customer preferences
and risk tolerance.
9. **Digital Lending**: Online loan applications and approvals have become common,
allowing customers to apply for loans and credit products from the comfort of their homes.
10. **Blockchain and Cryptocurrencies**: Some banks are exploring the use of blockchain
technology for secure and transparent transactions. Additionally, a few banks are integrating
cryptocurrencies into their services.
11. **Data Security and Privacy**: Banks prioritize data security and privacy as they handle
sensitive customer information. Advanced encryption and security protocols are implemented
to safeguard customer data.
12. **Branch Transformation**: While digital channels have gained prominence, physical
branches are also evolving. Some banks are creating "smart" branches that offer self-service
kiosks, interactive displays, and consultation areas for more complex transactions.
13. **Regulatory Compliance**: Digital banking services must comply with regulatory
standards, such as anti-money laundering (AML) and know-your-customer (KYC)
requirements, to ensure security and legality.

Digitalization of banking services has brought numerous benefits, including improved

accessibility, reduced operational costs, enhanced customer experiences, and faster service
delivery. However, it also presents challenges such as cybersecurity risks, the need for
continuous technology upgrades, and the potential for excluding individuals without access to
digital platforms.
Opportunities and challenges:
The digitalization of banking services presents both opportunities and challenges for the
banking industry. Here's a breakdown of some of the key opportunities and challenges that
come with the digital transformation of banking:
**Opportunities:**
1. **Enhanced Customer Experience**: Digital banking allows for convenient and seamless
access to banking services, leading to improved customer satisfaction and loyalty.
2. **Financial Inclusion**: Digital banking can reach underserved populations, providing
them with access to basic financial services and promoting financial inclusion.
3. **Cost Efficiency**: Automation of processes, reduced paperwork, and streamlined
operations can lead to cost savings for banks.
4. **Data Analytics and Insights**: Banks can use data analytics to gain insights into
customer behavior, preferences, and needs, allowing for more personalized services and
targeted marketing.
5. **Product Innovation**: Digitalization enables banks to introduce innovative products and
services, such as robo-advisors, digital wallets, and peer-to-peer lending.
6. **Global Reach**: Digital banking allows banks to expand their customer base beyond
geographical boundaries, enabling them to serve customers anywhere in the world.
7. **Improved Risk Management**: Data analytics and AI can assist in better identifying and
managing risks, including fraud detection and credit risk assessment.
8. **Partnerships and Ecosystems**: Banks can collaborate with fintech companies and other
players to create comprehensive financial ecosystems, offering a wide range of services
beyond traditional banking.
**Challenges:**
1. **Cybersecurity Risks**: As digital banking expands, the risk of cyberattacks and data
breaches increases. Banks need to invest in robust cybersecurity measures to protect customer
data and maintain trust.
2. **Digital Divide**: While digital banking offers convenience, it can exclude individuals
without access to technology or digital literacy, exacerbating the digital divide.
3. **Privacy Concerns**: The collection and utilization of customer data raise privacy
concerns, requiring banks to navigate regulations and ensure transparent data practices.
4. **Regulatory Compliance**: The digital landscape is subject to evolving regulations and
compliance standards. Banks must adapt to changes in data protection, anti-money laundering
(AML), and other regulations.
5. **Operational Risks**: Reliance on technology introduces operational risks, such as
system outages, IT failures, and software glitches that can disrupt services.
6. **Customer Trust**: Maintaining customer trust is crucial in digital banking. Any security
breaches or incidents can erode customer confidence in the bank's ability to secure their
information.
7. **Digital Skill Gap**: Banks need skilled personnel to manage digital operations and
cybersecurity. There may be a shortage of professionals with the necessary skills in the
industry.
8. **Legacy Systems**: Transitioning from legacy systems to modern digital platforms can
be complex and costly. Banks need to ensure a smooth migration while maintaining
uninterrupted services.
9. **Competition from Fintechs**: Fintech startups are agile and innovative, posing
competition to traditional banks. Banks need to adapt quickly to retain market share.
10. **Overreliance on Technology**: While technology is transformative, banks must
balance its use with the need for human interactions, especially for complex financial
decisions.
The digitalization of banking services is reshaping the industry and providing exciting
possibilities for improved customer experiences and operational efficiency. However,
addressing challenges related to cybersecurity, privacy, regulatory compliance, and inclusive
access is essential to realizing the full potential of digital banking while maintaining trust and
security.
A banker and a customer are terms used in the context of banking and financial
transactions:
1. **Banker**: A banker refers to an individual or an entity (usually a financial institution
such as a bank) that provides a variety of financial services to individuals, businesses, and
other organizations. These services can include holding and safeguarding money, accepting
deposits, granting loans, facilitating payments, offering investment opportunities, and
providing other financial advice and services. Bankers play a crucial role in the economy by
facilitating the flow of funds and supporting economic activities.

2. **Customer**: A customer, in the context of banking, refers to an individual, business, or

organization that holds an account or maintains a relationship with a bank or other financial
institution. Customers use the bank's services to manage their finances, conduct transactions,
save money, borrow funds, invest, and carry out various financial activities. Customers have
different types of accounts, such as savings accounts, checking accounts, and investment
accounts, depending on their specific financial needs.

In essence, the banker provides financial services and products to the customer, who, in turn,
utilizes these services to manage and conduct their financial affairs. The relationship between
bankers and customers is regulated by banking laws, regulations, and agreements that ensure
transparency, security, and fairness in financial transactions.

Commercial banks in India, like in many other countries, are regulated financial institutions
that play a crucial role in the economy by providing various financial services to individuals,
businesses, and the government. The Reserve Bank of India (RBI) is the regulatory authority
that oversees and governs the functioning of commercial banks in the country. The permitted
activities of commercial banks in India can be categorized into general and special features:

**General Activities of Commercial Banks in India:**

1. **Accepting Deposits**: Commercial banks are allowed to accept various types of

deposits from customers, such as savings accounts, current accounts, fixed deposits, and
recurring deposits.

2. **Providing Loans and Credit**: One of the fundamental functions of commercial banks is
to provide loans and credit facilities to individuals and businesses. These loans can be in the
form of personal loans, home loans, business loans, and more.

3. **Payment Services**: Banks offer payment services such as issuing checks, debit and
credit cards, facilitating electronic fund transfers, and providing mobile banking services.
4. **Foreign Exchange Transactions**: Banks facilitate foreign exchange transactions,
including currency exchange, remittances, and trade-related transactions.

5. **Safekeeping of Valuables**: Some banks provide safe deposit boxes for customers to
store valuable items securely.

6. **Investment Services**: Commercial banks offer investment options such as fixed

deposits, mutual funds, government securities, and more, allowing customers to earn interest
on their savings.

7. **Advisory Services**: Banks provide financial advice and consultancy services to

customers regarding investments, financial planning, and risk management.

**Special Features of Commercial Banks in India:**

1. **Priority Sector Lending**: Commercial banks in India are mandated to allocate a certain
percentage of their loans to priority sectors like agriculture, small-scale industries, education,
and housing for weaker sections of society. This is to promote balanced economic
development.

2. **Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR)**: Commercial banks
are required to maintain a certain percentage of their deposits as reserves with the RBI. CRR
is the portion of deposits that banks need to keep with the RBI in cash, while SLR is the
portion that banks need to invest in specified securities like government bonds.

3. **Branch Expansion**: The opening of new bank branches and ATMs is regulated by the
RBI to ensure wider financial inclusion and accessibility to banking services.

4. **Lending Rates Regulation**: The RBI monitors and regulates lending rates, ensuring
that they are reasonable and in line with economic conditions.

5. **Capital Adequacy Requirements**: Commercial banks are required to maintain a

minimum level of capital to ensure their stability and ability to absorb losses.
6. **Prudential Norms**: Banks are subject to prudential norms and regulations set by the
RBI to maintain financial stability and prevent risky lending practices.

7. **Reporting and Compliance**: Banks are required to submit regular reports to the RBI
and adhere to various compliance requirements to ensure transparency and accountability.

8. **Financial Inclusion**: Commercial banks are encouraged to extend their services to

underserved and remote areas to promote financial inclusion.

These general and special features together shape the roles and responsibilities of commercial
banks in India, influencing their contribution to the nation's economic development and
stability.