Banking: an overview

Dear readers,

The banking sector is a dream
destination for many young students – bank PO, for example, is among the most
sought after jobs in our country. Therefore, it is important for students to
have at least a basic understanding of this sector. Such understanding would be
very helpful in your interviews and Group discussions. In this article,
therefore, we take a brief look at the banking sector overall.

To start with, let us take a quick
look at the figure given below. This figure shows the different entities that
affect the banking sector and/or are affected by the banking sector. 

The different entities captured in
this figure are:

1.
Government

2.
Reserve Bank of India (RBI) and
its Wholly Owned Subsidiaries (WOS)

3.
Bank

4.
Depositors

5.
Borrowers

6.
Various Channels of Banking

7.
Investment Avenues

8.
Regulatory Bodies

9.
Economy

Let us quickly look at each entity
and its role.

The different entities captured in
this figure are:

1.     
Government

2.     
Reserve Bank of India (RBI) and
its Wholly Owned Subsidiaries (WOS)

3.     
Bank

4.     
Depositors

5.     
Borrowers

6.     
Various Channels of Banking

7.     
Investment Avenues

8.     
Regulatory Bodies

9.     
Economy

Let us quickly look at each entity
and its role. 

Government: The government of India
frames the fiscal policy which provides a framework for the allocation of the
country’s budget to the various sectors of its economy. Moreover, the government
is a stakeholder in the banking sector with majority stakes in all nationalized
banks (commonly grouped as Public Sector Banks – PSBs).

Reserve Bank of India:  The RBI is the central bank for India and it
regulates the Banking sector in India. The RBI governs through the RBI Act,
1934. The Reserve Bank of India frames the monetary policy and reviews and
makes necessary corrections to it. The main objective of the Reserve Bank of
India is to control inflation and spur growth in the economy.

Banks: The centrepiece of the banking
sector comprises the individual banks which are governed through the Banking
Regulation Act, 1949.  The major function
of banks is to accept deposits and lend to borrowers. The main source of profit
for banks is the interest they earn on the loans disbursed by them.

Depositors: Banks safeguard the money
deposited with them and at the same time pay interest on the deposited funds. Hence,
banks are an attractive option for depositing one’s savings. Further, banks
provide many additional services to depositors and may charge various fees for
such services.

Borrowers: Individuals and corporates
who need funds may borrow money from banks in the form of various loans. Such
borrowers pay interest on the loaned amount to the bank which has given them a
loan.

Channels of banking: This covers the
various methods of accessing the banking facilities available to the consumers
of a bank. Such methods may encompass many different layers and methods.

Investment Avenues: Banks invest in
various investment options across the country, either in their individual
capacity or as part of a consortium. An investment decision is usually made on
the basis of the earning potential of the project.

Regulatory Bodies:  These are the regulatory
bodies which effects the environment the Bank works. These are SEBI, AMFI, IRDA
and others.

Economy: Banking is one of the vital parts
of any country’s economy. If an economy is not performing well, then banks’
business may suffer. Inversely, if banks are not effective and efficient, the
economy as a whole may be negatively impacted.

This is a brief overview of the
banking sector overall. Keep reading articles on PaGaLGuY for a detailed look
at various banking sector entities and their working.

Read Next