General Knowledge for SSC Exams (Banking System In India)

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General Knowledge for SSC Exams (Banking System In India)

  • Bank of Hindustan (1770) was the first bank to be established in India (Alexander and Co.) at Calcutta under European management. Other banks set-up were Bank of Bengal (1806), Bank of Bombay (1840) and the Bank of Madras (1843) - these were called Presidency Banks

  • First bank with limited liability managed by an Indian board was Oudh Commercial Bank, founded in 1881. The first purely Indian bank was the Punjab National Bank (1894).

Reserve Bank of India

  • It is the Central Bank of the country.

  • It was established on April 1, 1935 with a capital of Rs. 5 crore. This capital of Rs. 5 crore was divided into 5 lakh equity shares of Rs. 100 each. In the beginning, the ownership of almost all the share capital was with the non-government share-holders.

  • It was nationalized on Jan 1, 1949 as govt. acquired the private share holdings.

  • Administration: 14 directors in Central Board of Directors besides the Governor, 4 Deputy Governors and one Government official. The Governor is the Chairman of the board & Chief Executive of the Bank.

  • Governors : Ist Governor - Sir Smith (1935 - 37)

  • Ist Indian Governor - C.D. Deshmukh (1948-49)

Functions

1. Issue of Notes: Regulates issue of bank notes above 1 rupee. It acts as the only source of legal tender money because the one rupee notes issued by Ministry of Finance are also circulated through it. The Reserve Bank has adopted the Minimum Reserve System for the note issue. Since 1957, it maintains gold and foreign exchange reserves of Rs. 200 crore, of which at least 115 crore should be in gold.
2. Banker to the Government: Acts as the banker, agent and advisor to the Govt. of India. It also manages the public debt for the Government.
3. Banker’s Bank: The Reserve Bank performs the same function for other banks as the other banks ordinarily perform for their customers.
4. Controller of Credit: The Reserve Bank undertakes the responsibility of controlling credits created by the commercial banks. To achieve this objective, it makes extensive use of quantitative and qualitative techniques to control and regulate the credit effectively in the country.
5. Custodian of Foreign Reserves: For the purpose of keeping the foreign exchange rates stable, the Reserve Banks buys and sells the foreign currencies and also protects the country’s foreign exchange funds.
6. It formulates and administers the monetary policy.
7. Acts as the agent of the Government of India in respect to India’s membership of the IMF and the World Bank.

  • No personal accounts are maintained and operated in RBI.

Nationalization of Banks

  • In order to have more control over the banks, 14 large commercial banks whose reserves were more than Rs. 50 crore each, were nationalized on July 1969 banks were:

1. The Central Bank of India
2. Bank of India
3. Punjab National Bank
4. Canara Bank
5. United Commercial Bank
6. Syndicate Bank
7. Bank of Baroda
8. United Bank of India
9. Union Bank of India
10. Dena Bank
11. Allahabad Bank
12. Indian Bank
13. Indian Overseas Bank
14. Bank of Maharastra

On April 15,1980 6 other private sector banks were nationalized. These banks are as—

1. Andhra Bank
2. Punjab & Sind Bank
3. New Bank of India
4. Vijaya Bank
5. Corporation Bank
6. Oriental Bank of Commerce.

Important Points

  • Bank Rate: It is the rate at which the Reserve Bank of India extends credit to commercial banks.

  • Cash Reserve Ratio (CPR): A commercial bank is required to keep a certain percentage of its total deposits with the Reserve Bank of India in cash. It is called Cash Reserve Ratio.

  • Statutory Liquidity Ratio (SLR): It is that ratio/ percentage of its total deposits which a commercial bank has to maintain with itself at any given point of time in the form of liquid assets like cash in hand, etc.

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