1. Explain the origin & development of banking in India.

Banking was in existence in India during the Vedic times (2000 BC to 1400 BC). Money lending was regarded as an old art and was practiced in the early Aryan days. Rina (debt) is often mentioned in the Rig Veda reflecting a normal condition prevalent in the Vedic Society. The transition from money-lending to banking must have occurred before Manu-he states that a sensible man should deposit his money with a person of good family, good conduct, well-acquainted with law, wealth and honorable. There are references to lending and banking in the two epics namely Ramayana & Mahabharata. During that period banking had become a full fledged business More details pertaining to money lending in the Sutra period (7th century to 2nd century) are available from the Jatakas (Buddhist writings). Jatakas establish the existence of seths (money lenders) and contain several stories of Kings receiving financial help from the guilds. From these accounts it is evident that money lending, banking and trading were interlinked. In the Buddhist period even the Brahmins & Kshatriyas started taking banking as a business. Bills of exchange came into use in this period. The banking business was being carried out even in the Smriti period and the Smritis explained the methods of regulation of interest. The tradition from money-lending to banking appears to have taken place in the 2nd or 3rd century AD. During This period, people were enjoined upon to make deposits with respectable bankers. This period is characterized as one in which the activities of the bankers/money lenders were well controlled and regulated. Rules for safeguarding the interest of borrowers were introduced. Kautilya in his Arthashastra which was written in the Maurya period in the 4th century mentioned the maximum rate of interest which could be charged by the lenders. The bankers during this period was known as Shakuras and Mahajans There is no live account of indigenous banking from the 6th to 16th century but some stray evidence is found.

During the Moghul period indigenous banking was in its prime. There was hardly any village without its money-lender or Sharoff who financed trade and commerce. The system of currency and coinage rendered money lending a highly profitable business. The British came to India in the 17th century. The East India company established its Agency houses in Bombay, Calcutta & Madras. These agency houses were the combination of trade & banking in India. Bank of Hindustan- Appendage of Alexander & Co.1st bank under European direction Established in 1771 at Cal. Collapsed due to failure of parent company Bengal bank was established in 1784 General Bank of India was established in 1786. It was the 1st joint stock company with limited liability Presidency banks were established in Calcutta, Bombay & Madras. It amalgamated into the Imperial bank in 1921. In 1865 Allahabad Bank was set up under European management In 1875 Alliance Bank of Shimla was started Oudh Commercial bank was the 1st purely Indian management joint bank. Swadeshi movement stated in 1905 and the period from 1906 to 1913 was a period of boom for Indian Banking. The Bank of Burma was established in 1904. Bank of India, Bank of Rangoon & Indian Specie Bank was established in 1906 Some of the important banks which were established later were Bank of India, Central Bank of India, Bank of Baroda, etc.

2. What are the objectives & achievements of bank nationalization in India? Objectives-

According to the Banking Companies Act, 1970, the aim of nationalization of banks in India is to control the heights of the economy and to meet progressively and serve better the needs of development of the economy in conformity with national policy and objectives. 1. The elimination of concentration of economic power in the hands of a few 2. diversification of the flow of bank economic credit towards priority sectors such as agriculture, small industry and exports, weaker sections and backward areas 3. fostering of new classes of entrepreneurs, so as to create, sustain and accelerate economic growth 4. professionalisation of bank management 5. providing adequate training as well as reasonable terms of service to bank staff 6. extending banking facilities to unbanked rural areas and semi rural areas to mobilize savings of people to the largest possible extent and to utilize for productive purposes 7. to curb the use of bank credit for speculative and other unproductive purposes 8. to bring banks under the control of RBI

Achievements

1. Accelerated branch expansion in rural and backward regions- in 1969 bank branches in rural areas accounted to only 22.5% of the total number of branches. Today branches in rural areas account to 52% 2. Deposit mobilization-after nationalization banks attract deposits from different sections by means of attractive deposit schemes

3. Finance to priority sectors- In 1969 the total credit given to priority sectors like agriculture, small industries and rural development was only 2% of total bank credit. By 2006-2007 in increased to around 40% of total credit 4. Increase in total transactions-the total deposits which was 4,664 crores in 1969 increased to 38.30 trillion 5. Differential rate of interest-to provide credit to weaker sections of the society at very low rate of interest, banks came out with Differential Rate of Interest scheme in 1972 6. Profit making-after nationalization, banks are making profits in addition to achieving economic and social objectives. 7. Safety-the government has given importance to safety of the banks. The RBI exercises tight control over banks and safeguards depositors interest 8. Developmental functions- after nationalization, banks provide assistance for the progress of agriculture, rural development, industry, trade and other developmental plans of the government 9. Advances under self-employment scheme-public sector banks play a significant role in promoting self employment through advances to unemployed through various schemes of the government like IRDP,JGSY, etc

3. State the argument for & against nationalization

For 1. It would enable the government to obtain all the large profits of the banks as its revenue 2. Nationalization would safeguard interests of public and increase their confidence thereby bringing about a rapid increase in deposits. Thus preventing bank failures 3. It would remove the concentration of economic power in the hands of a few industrialists

4. It would help in stabilizing the price levels by eliminating artificial scarcity of essential goods 5. It would enable the baking sector to diversify its resources for the benefit of the priority sector. 6. Eliminates wasteful competition and raises the efficiency of the working of banks 7. enables rapid increase in the number of banking offices in rural & semi-urban areas & helped considerably in deposit mobilization to a great extent 8. necessary for the furtherance of socialism and in the interest of community 9. Enables the Reserve Bank to implement its monetary policy more effectively 10. It would replace the profit motive with service motive 11. It would secure standardization of banking services in the country 12. Would check the incidence of tax evasion and black money 13. Through pubic ownership and control, banks function like other public utility services by catering to the financial need of the common man. 14. Like other countries, India should also get profit by nationalizing her banking industry. 15. Essential for successful planning and all-round progress of the national economy, community development and for the welfare of the people.

Against 1. Nationalization involves huge amounts to be paid as compensation to the shareholders adding to the financial burden of the government. 2. Extending loans to agriculture and small scale industries is risky and less remunerative and may weaken the economic viability of these institutions 3. It may not lead to socialism as State capitalism is not socialism 4. It may reduce the efficiency of these banks as political interference will impair the smooth working of these institutions 5. It is not the remedy for growth of monopoly and the concentration of wealth and power as the root cause for them lies in the existing economic system

6. Other countries like Sweden, Finland, Denmark etc have privately run banks and are running smoothly 7. Control of RBI and government authorities make the bank officials scared to take decisions and it adversely affects the bank services 8. The rapid extension of banking into the rural ad semi-urban areas has often been cited as a major factor affecting the earning capacity of banks 9. Inter-state rivalries and policies would raise their ugly heads, damaging the present sound banking system. 10. Banks were not at all responsible for the evasion of taxes or for creation of black money. It was the product of an irrational tax-structure, high deficit financing and corrupt public administration. 11. Bank nationalization should follow and precede nationalization of all major trades and industries of the country 12. Inflation is caused by unsound monetary and fiscal policies and nationalization of banks cannot solve this problem 13. Rapid expansion of branches has increased establishment costs and reduced the quality of supervisory and managerial staff 14. Malpractices in privately owned banks can be checked by adopting appropriate monetary and fiscal policies and through efficient supervision, nationalization is not necessary 15. Public control leaves the doors of banks open for corruption and favoritism. Delays and lethargy in work are common in public sector undertakings.

4. What are the main functions of banks?

There are four types of banking services. They are as follows1) 2) 3) Central banking services. Commercial banking services. Specialized banking services.

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Non-banking financial services. The various functions of each of the following banks are-

Central banking services The central bank of any country1) 2) Issues currency and bank notes. Discharges the treasury functions of the Government.

3) Manages the money affairs of the nation and regulates the internal and external value of money. 4) 5) Acts as banker to the govt. Acts as bankers bank.

Commercial banking services Commercial banking services include1) 2) Receiving various types of deposits. Lending various types of loans.

3) Extending some non-banking customer services like facilities of locker, rendering services in paying directly house rent, electricity bills, share calls, insurance premium etc

Specialized banking services They are estd for definite specialized banking services like 1) Industrial banks to lend long term loans and working capital for industrial purposes. 2) 3) 4) Land mortgage banks for granting loans on equitable mortgage. Rural credit banks for generating funds for extending rural credit. Developmental banks to support any developmental activities.

These types of banks accept all types of deposits but mobilize the amount in its specially focused area.

Non-banking financial services Many banks are established for carrying out non banking financial services. Mutual funds are institutions accepting finances from its members and investing it in long term capital of companies both directly in primary market as well as indirectly in the capital market. Financial institutions acting as portfolio managers receive funds from the public and manage the funds for or on behalf of its depositors. They undertake to manage the funds of the principal so as to generate maximum return.

Explain the role of banks in promoting economic development.

Banks play a very significant role in the economic development of the country. Banking system as a whole has an imp influence on the tempo of economic activity. The economic importance of banks are1) Banks mobilize the small, scattered and idle savings of the people and make them available for productive purposes. They help the process of capital formation. 2) By offering attractive interests on the savings of the people deposited with them banks promote the habit of saving in them. 3) By accepting the savings of the people banks provide safety and security to the surplus money of the customers. 4) Banks provide a convenient and economical mean of transfer of funds from one place to another. Even cheques are used for the movement of funds from one place to another. 5) Banks help the movement of funds from one region where they are not very useful to regions where they can be more usefully employed. By moving funds from one place to another banks contribute to the economic development of backward regions. 6) Banks influence the rate of interest in the money market, through the supply of money. They exercise a powerful influence on the interest rate in money market.

7) Banks help trade, commerce, industry and agriculture by meeting their financial requirements. Without the financial assistance the growth of trade and commerce industry would have been very slow. 8) Banks direct the flow of funds into collective channels while lending money. They discriminate in favour of essential activities as against non-essential activities. Thus they encourage the development of right type of activities which the society desires. 9) Banks help the industrious, the prudent, the punctual, the honest and discourage the dishonest by not giving finance for wrongful purpose. Thus banks act as public conservator of commercial activities. 10) Banks serve as the best financial intermediaries between the borrowers and the lenders. 11) Through the process of creation of money, banks acquire control over the supply of money in the country. Through their control over supply of money they influence economic activities, employment, income and general price level in the economy. 12) Banks monetize the debts of others that is cover t the debts of others into money by exchanging bank deposits in return for securities. Thus a strong and a sound banking system is indispensable for the economic development of any country.