Role of Banks in Indian Economy
Banking
system plays a very significant role in the economy of a country. It is central
to a nation’s economy as it caters to the needs of credit for all the sections
of the society. Money-lending in one form or the other has evolved along with
the history of mankind. Even in the ancient times, there are references to the
money-lenders, in the form of sahukars and
zamindars who lend money by
mortgaging the land property of the borrowers.
Towards
the beginning of the 20 century, with the onset of modern industry in our
country, the need for government-regulated banking system was felt. The British
government began to pay attention towards the need for an organized banking
sector in the country and the Reserve Bank of India was set up to regulate the
formal banking sector in the country. Ever since they were nationalized in
1969, banks have been playing a major role in the socio-economic life of the
country. The have to act not only as purveyors of credit, but also as
harbingers of social and economic development through a variety of enterprises,
many of which may tiny and yet capable of generating productive energies.
Agriculture
in India has a significant
history and it is demographically the broadest economic sector and plays a
significant role in the overall socio-economic fabric of India . Finance
in agriculture is an important as development of technologies. A dynamic and
growing agricultural sector needs adequate finance through banks to accelerate
overall growth. Most of the credit-related schemes of the government to uplift
the poorer and the under-privileged sections have been implemented through the
banking sector. With the passing of the Reserve Bank of India Act 1934, there
were improvements in agricultural credit. Earlier, the co-operative banks were
the main institutional agencies providing finance to agriculture. But after
nationalization of 14 major commercial banks, it was mandatory for them to
provide finance to agriculture as a priority sector. Thus, agricultural credit
acquired multi-agency dimension.
The
government has allocated `10000
crore to the National Bank for Agriculture and Rural Development (NABARD) for
refinancing Regional Rural Banks (RRBs) to disburse short term crop loans to
small and marginal farmers. The short-term crop loans scheme offers credit to
farmers at 7 per cent interest rate. Besides, in order to reduce post-harvest
losses, farmers are eligible to get post-harvest loans up to six months at 4
per cent interest rate provided they keep their produce in warehouses. The
rural sector in a country like India
can growth only if cheaper credit is available to the farmers for their
short-and medium-term loans. In addition, the farmers get loans for purchase of
electric motors with pump, tractors and other machinery, digging wells or
boring wells, purchase of dairy animals and for many other allied enterprises.
The
Industrial Development Bank of India (IDBI) is the premier institution in India purveying
financial assistance to the industrial sector projects. It provides direct
financial assistance to the industrial concerns in the form of granting loans
and advances, and purchasing or underwriting the issues of stocks, bonds or
debentures. The creation of the Development Assistance Fund is the special of
the IDBI. The Fund is used to provide assistance to those industries which are
not able to obtain funds mainly because of heavy investment involved or low
expected rate of returns. Assistance from the Fund requires the prior approval
by the government. Apart from this, the IDBI even gives guidance to start a
business.
In
addition to the above traditional roles, banks also perform certain new age
functions which could not be thought of a couple of decades ago. Today, the
banking sector is one of the biggest service sectors in India .
Availability of quality services is vital for the well-being of the economy.
The focus of banks has shifted from customer acquisition to customer retention.
With the stepping in of information technology in the banking sector, the
working strategy of the banking sector has been revolutionary changes. Various
customer-oriented products like internet banking, ATM services, telebanking and
electronic payment have lessened the workload of customers. The facility of
internet banking enables a consumer to access and operate his bank account
without actually visiting the bank premises. The facility of ATMs and
credit/debit cards has revolutionized the choices available with the customers.
Banks also serve as alternative gateways for making payments on account of
income-tax and online payment of various bills like the telephone, electricity
and tax. In the modern-day economy where people have not time to make these
payments by standing in queue, the services provided by banks are commendable.
To
conclude, we can say that the modern economies of the world have developed
primarily by making best use of the credit availability in their systems. India is on the
march; far reaching socio-economic changes are taking place and Indian banks
should come forward to play this role in the process. The role of banks has
been important, but it is going to be even more important in the future.
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