Banking

The banking sector is a critical component of the Indian economy, and as such, is an important topic for the Civil Services Exam (CSE) in India. The CSE is a competitive examination conducted by the Union Public Service Commission (UPSC) to select candidates for various civil service positions in the Indian government, including the Indian Administrative Service (IAS), the Indian Foreign Service (IFS), and the Indian Police Service (IPS).

In the UPSC CSE, candidates may be tested on their knowledge of the banking sector in India, including the role of banks in the economy, the types of banks operating in the country, the regulatory framework for banks, and the challenges and issues facing the banking industry.

Classification of Banks in accordance with the RBI Act of 1934

All banks (Commercial Banks, RRBs, and Cooperative Banks) can be categorised as either scheduled or non-scheduled.

1. Scheduled Banks

The banks mentioned in the second schedule of the RBI Act of 1934.

Eligible for borrowing from RB at the Bank Rate.

Non- Scheduled Financial Institutions

Banks not included in the second schedule of the RBI Act of 1934.

Generally unable to receive loans from RBI.

Industrial Banks

It is separated between the public sector and the private sector.

governed by the Banking Regulation Act of 1949.

They can collect deposits, offer loans, and provide additional financial services for profit.

(a) Public Sector Financial Institutions

More than fifty percent of these banks’ shares are controlled by the government.

After the merger of SBI with its partner banks and Bhartiya Mahila Bank, there are currently 21 public sector banks in India (BMB).

The government carried out the nationalisation of banks in two stages:

• In July of 1969, fourteen banks were nationalised as part of the initial phase of nationalisation.
• In April 1980, six banks were nationalised during the second stage of the nationalisation of banks.

Objectives of bank nationalisation:

1. Eliminating Private Monopolies

2. Social Welfare

3. Enhancement of Banking Services

Concentration on Priority Sector Lending

Private Sector Institutions

• The majority of shares in these banks are not controlled by the government.
• Private sector banks include both Indian and international banks.
• Old Banks are private banks that were established before 1990 (liberalisation of the economy).
• Private banks that were established after 1990 (due to economic liberalisation) are classified as New Banks.
• Local Region Banks Local area banks are private banks that are permitted to operate in a limited region and are incorporated under the Companies Act of 1956. The minimum needed capital for these banks is 5 crores INR.

Regional Rural Banks Created under the RRB Act of 1976

• Regional Rural Banks are established by banks in the public sector.
• The purpose of RRBs is to promote the flow of credit to rural regions.
• Since the Kelkar committee’s April 1987 recommendations, no new RRBs have been established.
• Cooperative banks established to finance agriculture, cottage industries, etc., are able to accept deposits and make loans.
• The National Bank for Agriculture and Rural Development (NABARD) is the pinnacle of India’s cooperative sector.

Other topics that may be covered in the CSE related to the banking sector include financial inclusion, financial literacy, and the use of technology in banking.

To prepare for the CSE, candidates should familiarize themselves with the relevant subject matter and be able to analyze and interpret data and information related to the banking sector in India. It may also be helpful to stay current on developments in the banking industry and to have a basic understanding of economics and finance.