Certificate

This is to certify that the project entitled “Banking” has been successfully completed by [Student
Name] of Class 12 under the guidance of [Teacher’s Name]. This project is submitted as part of
the CBSE curriculum for the academic year 2024–2025.

Signature of Student Signature of Teacher

Acknowledgement

I would like to express my heartfelt gratitude to my Economics teacher, [Teacher’s Name], for their
unwavering support, guidance, and motivation throughout the completion of this project. Their
insights and constructive feedback were instrumental in shaping the depth and direction of my
work. I also thank my school for providing the necessary infrastructure and a conducive learning
environment. Special thanks to my family and friends who encouraged me and assisted in
collecting information and reviewing the content. Without their continuous support, this project
would not have reached its current level of excellence.
Introduction

Banking is the cornerstone of any developed and developing economy. It refers to the business
activity of accepting and safeguarding money owned by other individuals and entities, and then
lending out this money in order to earn a profit. As a financial intermediary, banks play a vital role in
the financial system of a country. In India, the banking system is vast and comprises numerous
institutions including commercial banks, cooperative banks, regional rural banks, and the apex body
– the Reserve Bank of India (RBI). This project discusses the concept of banking, its significance,
the structure of the Indian banking system, and recent developments that have transformed the
industry.
Meaning and Definition of Banking

The term 'bank' has been derived from the Italian word 'banco', which means a bench. In olden
days, moneylenders used to transact their business on benches. A bank is a financial institution that
deals with deposits and advances and other related services. It accepts deposits from the public
and lends money for productive purposes. The Banking Regulation Act, 1949 defines banking as,
'accepting, for the purpose of lending or investment, of deposits of money from the public,
repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise.' Thus, a
bank acts as an intermediary between people who have surplus money and those who need funds.
Banks also help in the smooth functioning of the economy by promoting savings and investments.
Types of Banks in India

The Indian banking system is structured and organized under different categories. Some of the
main types are:

1. Commercial Banks: These include public sector banks (like SBI), private sector banks (like
HDFC and ICICI), and foreign banks. They deal with individual customers and businesses by
providing savings accounts, loans, and other services.
2. Cooperative Banks: Operate in rural and urban areas and are owned by their members. They
cater mainly to farmers, small-scale businesses, and rural dwellers.
3. Regional Rural Banks (RRBs): These were established to serve the banking needs of the rural
population. They provide credit and other financial services to farmers, artisans, and small
entrepreneurs.
4. Development Banks: These are specialized institutions that provide long-term capital for
industries and agriculture. Examples include NABARD and SIDBI.
5. Central Bank (RBI): The Reserve Bank of India is the regulatory authority of banks in India. It
ensures the country’s monetary stability and implements fiscal policies.

6. Payment Banks: Introduced to promote financial inclusion, these banks can accept a restricted
deposit of up to ■2 lakh per individual customer and offer services like remittances, internet
banking, and ATM/debit cards. However, they cannot issue loans or credit cards. Examples include
Paytm Payments Bank and India Post Payments Bank.
7. Small Finance Banks: These banks cater to the needs of small businesses, marginal farmers,
and low-income households by providing credit access. Examples include AU Small Finance Bank
and Equitas Small Finance Bank.
8. Local Area Banks (LABs): These are small private banks aimed at promoting rural and
semi-urban banking. Although their number is limited, they play a critical role in mobilizing rural
savings and credit.
Functions of Commercial Banks

Primary Functions:
1. Accepting Deposits: Banks accept deposits in various forms—Savings, Current, Recurring, and
Fixed Deposits. These deposits help individuals earn interest and ensure safety for their funds.
2. Providing Loans and Advances: Banks provide short-term and long-term loans to individuals and
businesses. They also offer overdraft and cash credit facilities.

Secondary Functions:
1. Agency Services: Banks collect and pay cheques, dividends, utility bills, taxes, etc., on behalf of
customers.
2. General Utility Services: Banks offer lockers, issue letters of credit, deal in foreign exchange,
provide internet banking, and more.
These functions help facilitate trade, commerce, and daily financial operations efficiently.

Additional Functions:
3. Credit Creation: Banks create credit by issuing loans much larger than the actual cash reserves
held. This process supports business activities and boosts economic growth.
4. Foreign Exchange Transactions: Commercial banks are authorized dealers in foreign exchange,
facilitating currency conversion and international remittances for travelers, importers, and exporters.
5. Investment Services: Many commercial banks now offer portfolio management, mutual fund
distribution, and demat account facilities to attract investors.
6. Insurance and Bancassurance: Banks collaborate with insurance companies to sell insurance
products directly through their branches, increasing customer convenience and financial product
penetration.
Credit Creation

Credit creation is one of the most important functions of commercial banks. When banks receive
deposits, they are required to keep a certain percentage as reserves (as mandated by the central
bank) and lend the rest to borrowers. The borrower spends this money, and the recipient deposits it
in their bank, which again keeps a fraction as reserve and lends out the rest. This process
continues and leads to the creation of credit that is a multiple of the original deposit. It increases the
money supply in the economy and stimulates economic activity. However, excessive credit creation
may lead to inflation, so it needs to be carefully regulated.
Role of RBI – The Central Bank

The Reserve Bank of India is the central banking institution of India which controls the issue and
supply of the Indian rupee. Founded in 1935, it was nationalized in 1949. The RBI has multiple
roles:
- Formulating and implementing monetary policy to ensure price stability and economic growth.
- Issuing currency notes and managing currency circulation.
- Supervising and regulating commercial and cooperative banks.
- Acting as a banker to the government and other banks.
- Managing the country's foreign exchange reserves.
- Promoting financial inclusion and literacy.
In recent years, RBI has also taken measures to strengthen cybersecurity and transparency in
banking operations.
Recent Developments in Indian Banking

The Indian banking sector has undergone a massive transformation over the past decade. Some of
the recent developments include:
- Digital Banking: Introduction of mobile apps, net banking, and digital wallets has simplified
banking services.
- Unified Payments Interface (UPI): A game-changer in digital payments, enabling instant transfer
of money between accounts.
- Bank Mergers: Several public sector banks were merged to form stronger and more stable
entities.
- Financial Inclusion: Initiatives like Pradhan Mantri Jan Dhan Yojana brought millions of
unbanked people into the formal banking system.
- Cybersecurity: With the rise in online transactions, banks have invested heavily in strengthening
security systems.
- Green Banking: Promoting eco-friendly practices like paperless banking and funding sustainable
projects.
These initiatives have made banking more accessible, efficient, and inclusive.

- Fintech Integration: The integration of financial technology in banking operations—like

robo-advisory, AI-powered chatbots, and blockchain for secure transactions—has enhanced
efficiency and customer experience.
- Neo-Banking: These are digital-only banks that operate without physical branches, offering
services via mobile apps and websites. They are redefining the future of banking by focusing on
digital-native customers.
- Cybersecurity Measures: With increasing threats of online fraud, banks have introduced
two-factor authentication, biometric login, and real-time fraud detection systems.
- Green Finance: Several banks now fund projects that promote sustainable practices such as
renewable energy, waste management, and carbon reduction. This aligns the banking sector with
climate goals and responsible finance.
- Regulatory Sandboxes: Introduced by RBI, these allow fintech firms to test new products in a
controlled environment under regulatory supervision, encouraging innovation while maintaining
safety.
Conclusion

To conclude, banking is not just about handling money; it is a powerful tool for economic
development. A robust banking system ensures that resources are allocated efficiently, savings are
mobilized, and investments are made in productive sectors. The Indian banking sector has
witnessed significant changes with the integration of technology and progressive reforms. As we
move towards a more digital economy, the role of banks will continue to evolve, making financial
services more accessible and efficient for every citizen. Hence, understanding the functioning of
banks is essential not only for economics students but also for every individual participating in the
modern economy.
Bibliography

- NCERT Class 12 Economics Book

- RBI Official Website (www.rbi.org.in)
- Economic Times, Business Standard
- Government of India Financial Schemes
- Online academic portals and study materials