Section 5(b) of the Banking Regulation Act, 1949, provides “banking” means the 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.
Banking is a system of financial institutions, such as scheduled Commercial banks, Local Area Banks, Regional Rural banks, cooperative Banks, Payment Banks, and small finance banks that provide various financial services to individuals, businesses, and governments. Banking services mainly include accepting deposits, lending money, facilitating transactions, and offering various financial products like savings accounts, loans, and credit cards etc. As per RBI website, currently there are 12 public sector banks, 21 scheduled private sector banks, 11 scheduled small finance banks and 4 scheduled payment banks. Also there are 45 scheduled foreign banks in India and 43 Regional rural banks (RRBs) in India. Also there are over 1434 Non-Scheduled Urban Cooperative Banks in India (non-scheduled banks those banks which are not included in second schedule of RBI Act.
Scheduled banks:
A Scheduled Commercial Bank (SCB) is a commercial bank that has been included in the Second Schedule of the Reserve Bank of India Act, 1934 (RBI Act). Conditions for inclusion in the Second Schedule of the RBI Act are as stated in section 42(6)(a) of the RBI Act. The bank’s paid-up capital and raised funds must be at least Rs. 5 lakh to qualify as a scheduled bank. SCBs are eligible for debts/loans at the bank rate from the RBI. Further, these banks automatically acquire the membership of the clearing house. SCBs include Public Sector Banks, Private Sector Banks, Foreign Banks, Regional Rural Banks, Scheduled Payments Banks, Scheduled Small Finance Banks and Scheduled Co-operative Banks.
The following are the services included in the functions of scheduled commercial banks;
Basic banking services such as Savings Accounts, Current Accounts, Fixed Deposits, Recurring Deposits, Loans, etc., are provided by Scheduled commercial banks.
Besides working as savings vehicles, they are engaged in offering credit facilities to large Industrial units, Exporters and importers, foreign exchange, small business units, micro and small industries, small and marginal farmers, and other unorganised sectors through their advanced technology.
Credit facilities include both fund-based and non-fund-based facilities like Bank Guarantee/(Letter of guarantee (LG), deferred payment guarantees (DPG), Letter of credit (LC), A letter of credit (LC), also known as documentary credit or bankers commercial credit, or letter of undertaking (LoU), Letter of comfort, etc. issued on behalf of the customers.
Para-banking facilities provided to customers such as locker facilities, debit and credit cards, mobile banking, internet banking, and UPI services, selling gold coins, selling Bancassurance (insurance) products, etc. Transfer of funds through NEFT, RTGS, IMPS (immediate transfer) available 24*7, 365 days as well as UPI (immediate money transfer, bill payments, and more).
Today, digital transactions dominate the financial world. But despite that, some financial instruments issued by banks continue to serve as reliable and secure means of transferring funds. Among them, the demand draft remains a reliable choice for many individuals and businesses.
An automated teller machine (ATM) is an electronic banking outlet that allows customers to complete basic transactions like Cash withdrawals, Mini account statements, Cash transfers, and Account balance details. Deposit of money etc. without the aid of a branch.
Scheduled banks are also members of clearing houses. They collect cheques drawn from other banks and make payments of the cheques of their customers presented to them through clearing. The Electronic Clearance Service (ECS) scheme provides an alternative method of effecting bulk payment transactions like periodic (monthly/ quarterly/ half-yearly/ yearly) payments of interest/ salary/ pension/ commission/ dividend/ refund by Banks/Companies /Corporations /Government Departments.
ISO 20022 (pronounced ‘ISO twenty-oh-twenty-two’) or Universal Financial Industry Message Scheme (also called” UNIFI”) and Swift financial messages are the global standard for exchanging electronic messages between financial institutions that include payment transactions, securities trading, and settlement information, credit as well as debit card transactions, Foreign Exchange transactions, etc. Further, the SFMS system is used for trade finance messages by banks to confirm LG, LC, etc.
Scheduled Banks are responsible for maintaining an average daily cash reserve ratio and statutory liquidity ratio (SLR) with the central bank. Scheduled commercial banks are regulated by the central bank to ensure that they operate safely and soundly. This helps to maintain financial stability in the economy and prevents bank failures that can cause widespread economic damage.
Scheduled commercial banks often work with the government to support various programs, such as rural development, housing, and education. This helps to achieve social and economic objectives and promotes inclusive growth.
Customers access various banking products, services, and facilities from mobile devices. For banks, it means having to provide minimal human intervention, and for customers, it means being able to stay on top of their finances from anywhere. The rapid developments in Payment Systems and technology have led to the implementation of major reforms of payment systems to expedite the processing of payments, reduce the risk and uncertainty associated with noncash payments, facilitate the adoption of indirect instruments of monetary policy, and foster financial market development. Now there are over 45 varieties of digital payment systems, digital enablers, and payment options available to consumers in India.