Category All About Money

         Yes, it is the Reserve Bank of India that issues banknotes needed for the country. But have you ever wondered on what basis they issue the currency notes? Most certainly, on a demand-basis.

         The value and amount of banknotes to be printed are decided by the RBI. Based on the demand for a particular currency, it is issued and circulated.

          Let us take an example from the present day situation. People are in great need for currency notes in larger denominations like 500. To make up this need, the RBI note issuing unit in Mysuru stopped printing all other banknotes, and began to produce the new series of Rs 500 exclusively. This is what is meant by demand-based production.

            The bank also issues currency depending on the number of soiled notes that are returned to it.

            The new banknotes are distributed through various RBI offices located in Ahmadabad, Belapur, Bhubaneshwar, Kolkata, Bangalore, Chandigarh, Hyderabad, Guwahati, Chennai, Lucknow, Kanpur, Bhopal, Patna, Jaipur, New Delhi, Nagpur, Jammu, Kochi, Thiruvananthapuram and Mumbai.

            These offices receive and ensure the circulation of fresh banknotes issued by the central bank. 

         Broadly, the Indian banking sector can be divided into two types of banks- scheduled and non-scheduled.

          Scheduled banks are those listed in the 2nd schedule of the RBI Act, 1934. As per law, the paid up capital and collected funds in these banks should not be less than Rs 5 lakhs. They are also eligible for loans from the central bank.

          Scheduled banks are further classified into nationalized banks, the State Bank of India and its associate banks, regional rural Banks (RRBs), foreign banks, and private banks. Some of the state and urban co-operative banks too come under this category.

          Allahabad Bank, Bank of India, Canara Bank, Indian Bank, Punjab and Sindh Bank, Punjab National Bank, Union Bank of India, Vijaya Bank, and Dena Bank are among the 27 nationalized banks in the country.

         State Bank of Travancore, State Bank of Mysore, State Bank of Hyderabad etc. are the associate banks of the State Bank of India. It was in 1960 that SBI took over control of these associate banks.

         The IDBI Bank and the Bharatiya Mahila Bank are other two important public sector banks functioning in the country.

Continue reading “What are the major types of banks existing in our country?”

         Until the 1960s, all banks except the State Bank of India remained under the ownership and management of private persons. By then, banks had become an important tool for the development of economy.

         In a sudden and unexpected move that marked a major change in our history, the then Prime Minister Indira Gandhi announced the nationalization of 14 commercial banks with effect from the midnight of July 19th, 1969. These were the banks that managed around 85 per cent of the country’s deposits.

         One of the biggest changes caused by nationalization was equipping banks to work for social welfare. Sensitive sectors like agriculture and rural industries were greatly benefitted by the move.

          Nationalization helped improve the public’s confidence in banking. Altogether nationalization strengthened India’s banking network.

         The second phase of nationalization took place in 1980, when six more commercial banks were nationalized.

         In its literal sense, ‘liberalization’ means relaxation of restrictions or regulations. It was a policy adopted in our country almost two decades ago. It was introduced in the 1990s in our banking sector too. Manmohan Singh was the finance minister then. So, what exactly did this process mean?

        Liberalization as a policy meant the removal of some restrictions imposed by the government on its various sectors.

         The move towards liberalization not only enhanced the growth of our economy, but also boosted our banking system.

          Till then, there were strict regulations on many matters including the interest rate, lending, and foreign participation.

          With liberalization, many private banks were given license to operate in the country. These banks including the ICICI Bank, Induslnd Bank, HDFC Bank, Axis Bank etc are popularly known as the new generation banks. Contributions from the public sector, private sector and foreign banks together made the system stronger and stable. 

As the name suggests, co-operative societies are groups working based on the principles of co-operation, joint ownership, mutual help, and democratic decision making.

Banks formed by these societies, popularly known as co-operative banks, are thus, small financial entities created for banking purposes by persons belonging to a locality, or professional community, or even by those who share common interests.

Operating both in urban and rural centres in our country, co-operative banks provide banking services like savings and loans to members as well as non-members.

Although they are smaller than commercial banks, co-operative banks have been successful in financing areas under agriculture, personal finance, self employment, small scale industries etc.

The banking system has a three-tier set up. The state co-operative bank is at the apex level, the district co-operative bank is at the district level, and primary co-operative societies are at the rural level.

Compared to others, these banks provide a little higher rate of interest on deposits. They mainly work on the principle of ‘no profit, no loss’. Anyonya Sahakari Mandali, established in 1889 in the province of Baroda, is known to be the earliest known cooperative credit union in our country. They played a significant role in our economy. 

         Negotiable instruments are those that can be converted into liquid cash under certain conditions like that of a cheque.

         The transactions of these instruments in our country are regulated by a law titled the Negotiable Instruments Act, framed in the year 1881. According to this, the three negotiable instruments that can be used are – a promissory note, a cheque, or a bill of exchange.

         The Act is quite important to our banking sector as it gives statutory definitions for these three instruments as well as the conditions under which they can be used. Besides, a certain section of the Act – Section 138 – is a step towards justice.

         As per this section, if a cheque issued by someone is bounces due to an insufficient amount in his account, it is an offence. This section inserted later in 1988 was a major change in banking, because till then, there were no provisions to restrain a person from issuing a cheque without sufficient money in his account.