Role of Bank in the Financial System of India

            Banks are among the main participants of the financial system in India.  They are classified into two groups, namely scheduled banks and non-scheduled banks.  A bank helps a lot in capital formation and monetization of the economy.  It gives stimulus for innovation by financing the risk-takers and funds the priority sector – agriculture and small –scale industries.  It induces the remote areas to mobilize the savings and make them available to the users for productive purposes.  Banks pay special attention to the financing of business innovations by providing adequate and cheap credit to entrepreneurs.  The banking sector in India has performed the key functions of providing liquidity and payment services to the real sector and has accounted for the bulk of the financial intermediation process.  It has been observed that with each successive Five-year plan the magnitude of bank deposits has increased invariably.  In the context of the present scenario, it is very important to understand that instead of depending on foreign aid for our economic development our banking system should become stronger by revising the policies and plans.

            As the growth story of banks unfolds in India, retail banking is going to emerge as a major driver.  To take a plunge into retail banking, banks need to have a well-defined business strategy.  As of now, action that is taking place on the retail front is by and large confined to metros and cities.  There is still a vast market available in rural India which remains to be trapped.

Banks take part in spreading of education by giving education loans.  They encourage industrialisation by giving loans for setting up industries and for meeting their working capital needs.  By actively participating in financial inclusion banks encourage and inculcate saving habit among the masses and it tries to eliminate middle men in financial transactions largely.

Banks participate in financing of priority sector advances thereby helping the needy sector for achieving growth of economy.  Also Self Help Group concept when implemented properly can increase the employment opportunities and can give a sense of self esteem among rural women and urban women.