Unit-5 Monetary and Financial Resources

This unit discusses these aspects which have a crucial bearing on the flow of monetary and financial resources needed for the development of the economy.

State in brief the major constituents of the commercial banking system in India.

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Written on Jun 26, 2019 3:43:55 PM

As said in the previous section, the three constituents of the commercial banking structure in India are: (i) public sector banks, (ii) private sector banks, and (iii) foreign banks.

Public Sector Banks: The Nationalisation of the banks took place in two phases. In the first phase, 14 major commercial banks were nationalised in 1969. In the second phase, 6 more banks were nationalised 21 Monetary and Financial Resources in 1980. With the nationalisation, banks in India came to acquire two faces viz. (i) a commercial side i.e. to generate income for building the financial strength necessary to satisfy the regulatory standard and also provide for the wherewithal of future growth; and (ii) a non-commercial side i.e. to finance the setting up of economic enterprises in backward areas so as to aid the process of balanced regional development and social uplift.

Banks in the Private Sector: The area of operation of private sector banks had considerably narrowed down after the two-phase nationalisation. Private sector banking received a boost with the announcement of the New Economic Policy in 1991. The RBI issued a set of guidelines on January 22, 1993 for private sector companies wishing to enter the banking sector. 

Following this, initially eight new private banks were set up. There has been a gradual expansion of the private sector banks accounting for a market share of 20 percent of total deposits and advances of the banking sector. At present, there are 28 banks with 7,099 branches.

Foreign Banks: The foreign banks in the private sector are branches of those banks which are incorporated in foreign countries. There are at present 29 such banks with 272 branches. Most foreign banks perform essentially the same range of services as commercial banks, except that their focus in terms of product and customers are different in that they mainly cater to the upper-end segments of the society. Besides, these banks have been introducers of modern financial engineering products - such as swaps, electronic fund transfers, etc.

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