Role of Financial Institution in Economy

Role of argots and financial Institutions in providence M unmatchabley change in one form or the different has evolved along with the history of the humannesskind. Even in the ancient times on that point ar references to the moneylenders. Shakespeare also referred to Shylocks who made unfair demands in case the loans were non repaid in time along with interest. Indian history is also lavish with the instances referring to indigenous money lenders, Sahukars and Zamindars involved in the business of money lending by mortgaging the landed property of the borrowers.Towards the beginning of the twentieth century, with the onset of bran-newfangled industry in the country, the demand for organization regulated banking arrangement was felt. The British government began to pay attention towards the need for an organised banking domain in the country and Reserve Bank of India was set up to regulate the ceremonial banking sector in the country. But the growth of new-fashioned banking remained slow principally due to lack of surplus capital in the Indian sparing system at that point of time. Modern banking institutions came up entirely in big cities and industrial centres.The hoidenish areas, representing vast majority of Indian society, remained certified on the indigenous money lenders for their recognition unavoidably. Independence of the country tell a new era in the growth of modern banking. numerous new commercial banks came up in various parts of the country. As the modern banking network grew, the government began to realise that the banking sector was catering equable to the needs of the well-to-do and the capitalists. The interests of the poorer sections as well as those of the common man were being ignored. In 1969, Indian government took a historic finding to nationalise 14 biggest private commercial banks.A few more were nationalised later on a couple of years. This resulted in transferring the ownership of these banks to the St ate and the Reserve Bank of India could then issue directions to these banks to fund the national programmes, the rural sector, the plan priorities and the precedence sector at differential rate of interest. This resulted in providing fillip the banking facilities to the rural areas, to the under-privileged and the vote outtrodden. It also resulted in financial inclusion of all categories of mickle in almost all the regions of the country.However, after almost two decades of bank nationalization some new issues became contextual. The divine serve up standards of the public sector banks began to decline. Their profitability came down and the efficiency of the staff became suspect. Non- transacting assets of these banks began to rise. The wheel of time had turned a right circle by early nineties and the government after the admittance of structural and economic reforms in the financial sector, allowed the setting up of new banks in the private sector. The new generation private banks have promptly established themselves in the system and have set new standards of service and efficiency.These banks have also given tough barely healthy challenger to the public sector banks. Modern Day Role Banking system and the Financial Institutions play very signifi basist social function in the economy. First and send-offly is in the form of catering to the need of credit for all the sections of society. The modern economies in the world have developed primarily by devising best use of the credit accessibility in their systems. An efficient banking system must cater to the needs of high end investors by making uncommitted high amounts of capital for big projects in the industrial, infrastructure and service sectors.At the same time, the medium and excellent ventures must also have credit available to them for new investment and expansion of the existing units. farming(prenominal) sector in a country like India can grow only if cheaper credit is available to t he farmers for their short and medium term needs. Credit accessibility for infrastructure sector is also extremely important. The success of any financial system can be fathomed by finding out the availability of reliable and adequate credit for infrastructure projects.Fortunately, during the past about one decade there has been increased participation of the private sector in infrastructure projects. The banks and the financial institutions also cater to a nonher important need of the society i. e. mopping up little nest egg at reasonable rates with several selections. The common man has the option to park his savings under a few alternatives, including the small savings schemes introduced by the government from time to time and in bank deposits in the form of savings work outs, recurring deposits and time deposits. Another option is to invest in the stocks or plebeian funds.In addition to the above traditional role, the banks and the financial institutions also perform certa in new-age functions which could not be thought of a couple of decades ago. The forwardness of internet banking enables a consumer to access and operate his bank account without very visiting the bank premises. The facility of ATMs and the credit/debit cards has revolutionised the choices available with the customers. The banks also serve as alternative gateways for making payments on account of income tax and online payment of various bills like the telephone, electricity and tax.The bank customers can also invest their funds in various stocks or mutual funds straight from their bank accounts. In the modern day economy, where muckle have no time to make these payments by standing in queue, the service provided by the banks is commendable. While the commercial banks cater to the banking needs of the people in the cities and towns, there is another category of banks that looks after the credit and banking needs of the people living in the rural areas, particularly the farmers. Reg ional Rural Banks (RRBs) have been sponsored by many commercial banks in several States.These banks, along with the cooperative banks, take care of the farmer-specific needs of credit and other banking facilities. forthcoming Till a few years ago, the government largely patro-nized the small savings schemes in which not only the interest rates were higher, but the income tax rebates and incentives were also in plenty. The bank deposits, on the other hand, did not entail such benefits. As a result, the small savings were the first choice of the investors. But for the last few years the trend has been reversed. The small savings, the bank deposits and the mutual funds have een brought at par for the designing of incentives under the income tax. Moreover, the interest rates in the small savings schemes are no longer higher than those offered by the banks. Banks today are superfluous to determine their interest rates within the given limits prescribed by the RBI. It is now easier for the banks to open new branches. But the banking sector reforms are still not complete. A lot more is required to be through to revamp the public sector banks. Mergers and amalgamation is the next measure on the agenda of the government.The government is also preparing to disinvest some of its equity from the PSU banks. The option of allowing foreign direct investment beyond 50 per cent in the Indian banking sector has also been under consideration. Banks and financial intuitions have play major role in the economic development of the country and most of the credit- related schemes of the government to uplift the poorer and the under-privileged sections have been implemented through the banking sector. The role of the banks has been important, but it is going to be even more important in the future.