Thursday, September 23, 2021

Working for Nation Building

By Satish Singh

Banks & other financial institutions have played an important role in strengthening the economy of the country. The Indian economy had been devastated due to prolonged slavery. At the time of independence, the country was dominated by private banks and moneylenders, who worked only for their own benefit. For this reason, banks were nationalized in 1969 and 1980. National Bank for Agriculture and Rural Development (NABARD) was established in 1982, Small Industries Development Bank of India (SIDBI) in 1990 and Regional Rural Banks in 1975. In this direction, cooperative banks, land development banks etc. were also formed and the concept of Non-Banking Financial Company (NBFC) was developed.

Before independence, about 1100 small and big banks were functioning in the country. The largest and oldest bank in India which is still in existence is State Bank of India. It was established in the year 1806 as Bank of Calcutta and in the year 1809 its name was changed to Bank of Bengal. Later it was known as Presidency Bank. On July 1, 1955, the government named it as State Bank of India and a bill was passed in this context in the Parliament, which is known as SBI Act 1955.

The main objective of private bank is to earn profit, whereas the purpose of public sector banks is to earn profit while fulfilling social concerns. For this reason, the concept of inclusive development is being realized in the country. However, in the last 73 years, the Indian economy has grown tremendously. Now again the need of private banks is being felt. So, recently the central government has started the process of privatization of 2 public sector banks namely Central Bank of India and Indian Overseas Bank. In the changed scenario, consolidation of public sector banks has also taken place. There were 27 public sector banks in the country in March 2017, whose number has come down to 12 in April 2020.

Regional Rural Banks were established based on the recommendation of the “Narasimham Committee” through an ordinance in the year 1975 and given constitutional recognition based on the Regional Rural Banks Act 1976. Its objective is to accelerate agriculture, commerce, industry, and other production activities in rural areas and to provide financial support to small and marginal farmers, agricultural workers, small entrepreneurs in rural areas according to their need. This bank is operated with the help of Government of India, State Governments and Sponsor Banks. The Government of India, the sponsor banks and the respective states have 50, 35 and 15 percent stake in these banks respectively. These banks are regulated by NABARD. To strengthen the regional rural banks, the government has consolidated these banks in three phases. Now the number of Regional Rural Banks in the country has come down to about 45, which was 196 in the year 2005.

NABARD is the apex financial institution providing finance for agriculture and rural development. Apart from agriculture, it works for the development of small industries, cottage industries and infrastructure related projects. It is a statutory body. The objective of NABARD is also to realize the concept of financial inclusion. It prepares district level loan schemes, so that financial institutions can meet the financial needs of the villagers.

With the help of cooperative credit societies, cooperative banks are doing the work of helping farmers, landless farmers, and agricultural laborers from the exploitation of middlemen and moneylenders in rural areas. The cooperative movement in India was started with the aim of helping in the all-round development of farmers, agricultural labourers, artisans etc. The history of co-operative bank is very old. It came into existence in the year 1904 after the passing of the Co-operative Societies Act.

Land Development Bank has played a very important role in strengthening rural India. This bank provides long term loans to the needy. This capital is provided by the state government, nationalized banks, cooperative banks etc. The main function of the Land Development Bank is to give loans by mortgaging the land. Loans can be taken from this bank for farming, agricultural machinery, tractors, land improvement, repayment of old loans etc.

SIDBI was established on 2 April 1990 under the Small Industries Development Bank of India Act 1989. The function of this bank is to provide financial assistance for the growth of micro and small industries. It also works for the promotion of small-scale industries, and coordination between developmental works. It has played an important role in strengthening the infrastructure of rural areas since its inception.

Financial institutions, which are not banks, but accept deposits and provide credit facilities like banks, are called NBFCs. NBFCs do not include only financial companies. The companies involved in this do business of investment and insurance, chit funds, business banking, stock broking, alternative investments etc. The total number of NBFCs registered with the Reserve Bank of India as on 31 January 2021 was 9507. Presently, the total asset size of the sector is around 14 percent of all scheduled commercial banks.

Today, NBFCs are playing an important role in providing deposit and credit facilities to low-income families and Micro, Small and Medium Enterprises (MSMEs). It is also providing credit facilities in areas where banks do not have access. It provides loans on easy terms to the people who are unsuccessful in getting loans from banks. The percentage of NPA in loans given by it is very less. Thus, NBFCs have an amazing ability to assess the risk appetite of customers and establish relationships with them.

Reserve Bank of India is the central bank of India. It is called the Bank of the Banks. It is also the operator of all the banks in India. It is always active to keep the Indian economy healthy. It was established on 1 April 1935 based on the provisions of the Reserve Bank of India Act 1934.

Financial institutions are the backbone of the economy. By the help of these institutions, the dream of inclusive development is being realized in the country. Even in the Corona pandemic, financial institutions are playing an important role in strengthening the economy and providing relief to the common man. The relief package has been announced by the government in several phases since the start of the corona pandemic. Under the relief package, the relief amount has been transferred directly to the accounts of the eligible beneficiary, which has become possible due to the opening of Pradhan Mantri JanDhan accounts. Apart from this, provision has also been made to do other financial assistance given under the relief package through banks. Today banks are also providing life insurance, health insurance, crop insurance, pension etc. to the common man and businessmen. Financial institutions are also doing the work of providing loans to crores of artisans and laborers working in the unorganized sector under the Pradhan Mantri Mudra scheme. Due to their positive role, the Indian economy is improving rapidly even during the Corona period.

(Author is Chief Manager at State Bank of India, Mumbai. The views expressed are personal opinion of the author. He can be reached at and

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