- Banks are financial intermediaries — they connect savers and borrowers, fuelling the economy.
- RBI is the apex bank of India — it regulates all other banks, issues currency, and manages monetary policy.
- Commercial banks (such as SBI and HDFC) are the most common — they serve the general public for everyday banking needs.
- Cooperative and RRBs serve rural India and weaker sections, providing affordable credit.
- EXIM Bank (est. 1982) exclusively supports India's international trade through long-term finance.
- Development Banks like SIDBI and NABARD drive industrial and agricultural growth by providing long-term capital.
- Modern additions — Small Finance Banks and Payments Banks — ensure financial inclusion for India's last-mile population.
Definitions [1]
Definition: Concept of Bank
- “A bank Collects money from those who have it to spare or who are saving it out of their incomes, and it lends this money to those who require it.” — Crowther
- According to the Indian Companies (Amendment) Act, 2000, banking means:
“Accepting for the purpose of lending or depositing money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft or otherwise.”
Key Points
Key Points: Concept of Bank
- Modern money = Currency (by RBI) + Deposit Money (by Commercial Banks)
- A bank must perform all three functions: accept deposits + lend + create money
- Credit/money creation is the unique characteristic that separates commercial banks from all other financial institutions
- Banks use fractional reserve banking — keeping a small % as reserves (CRR) and lending the rest
- Money Multiplier = 1/CRR — an initial deposit multiplies through the banking system
- Post Office Savings Bank, LIC, and UTI are non-banking financial institutions — they cannot create money
- Modern banking evolved from goldsmiths, who first issued paper receipts for gold deposits.
Key Points: Types of Bank
