Banking: Evolution, Structure and Functions
This domain tests the historical stages of Indian banking, the institutional map of the banking system, and the functions that distinguish a bank from a non-bank financial company.
Evolution
Indigenous bankers and agency houses preceded modern banking. The Presidency Banks - Bengal (1806), Bombay (1840) and Madras (1843) - merged into the Imperial Bank of India in 1921; it became State Bank of India in 1955. Fourteen major commercial banks were nationalised in 1969 and six more in 1980. Regional Rural Banks were created in 1975, and liberalisation after 1991 allowed new private and foreign banks.
Structure
The RBI is the apex institution. Below it are scheduled commercial banks (public sector, private, foreign), RRBs, cooperative banks (urban and rural), small finance banks and payments banks. A scheduled bank is one included in the Second Schedule of the RBI Act, 1934; it is not necessarily government-owned.
Functions
Primary functions are accepting deposits and lending. Secondary functions include agency work (collection, payments, standing instructions) and utility services (lockers, remittances, letters of credit). Modern functions include mobile banking, UPI and bancassurance.
Worked example
A bank is jointly owned by the Central Government (50%), a State Government (15%) and a sponsor bank (35%), and lends mainly to small farmers. This shareholding pattern identifies it as a Regional Rural Bank, not a cooperative bank or a public sector bank.
Traps
Do not equate scheduled with nationalised. Remember that ₹1 notes and coins are issued by the Government of India, while the RBI issues other notes. The nationalisation figures are 14 in 1969 and six in 1980, not the reverse.