Concept of saving has always existed in different cultures all over the world. Collecting currency/gold coins in pots and burying them under the earth is something that has been done all over the world in ancient times. The royal treasury was the repository of monies collected in a kingdom by way of taxes or acquired as levies from subordinate vassals/dependent kingdoms.
With the advent of modern banking, management of money shifted from the home to the bank. People found it safer to deposit money and jewellery in the bank which had vaults to safeguard their wealth. Also, banks offered interest on deposits which meant additional income. Banks, on their side, began to invest these deposits in various stocks and securities. Thus, began a new system of investment banking and corporate banking.
Government money, too, passed from the treasury of the king to the central bank which slowly became the monetary policy regulator also. Today, one cannot visualize an economy without a central regulatory bank. The central bank, in India's case, the Reserve Bank of India, is no longer a parker of government funds but has become the monetary policy regulator, banker to banks, regulator of currency, et al.
The banking system in India started with small, private commercial banks. But, when some of these began to fail or funds deposited were siphoned off by the banker and customers lost hard earned money deposited, the government decided to step in and nationalize these banks. This major reform ensured that the customer was not affected by any loss incurred by the bank or the bank could not misuse customer money. Gradually, over the years, other regulatory
mechanisms were introduced to regulate public sector banks. Recommendations of Narsimham Committee on Banking sector reforms proved to be another major stepping stone in this direction. Thereafter there have been series of gradual reforms focusing on improving efficiency and governance of banking sector.
At one time, the government felt that, like in all other sectors, privatization should be brought into the banking sector also, to keep pace with global trends. Private sector banks like HDFC, ICICI, Axis and Yes Bank were allowed to operate in the Indian banking sector. These banks proved more successful in gaining customer satisfaction as compared to the public sector banks and became a main stay in both corporate banking and retail banking. Taking a clue, public sector banks also began to become more customer friendly and introduced technological improvements in their functioning.
A very big obstacle to successful banking has been the issue of Non-performing assets which has been a major source of concern for most of the banks in India, whether in the public or private sector. To resolve this major issue in the banking sector, the government announced Mission Indradhanush focusing on important reform mechanisms like recapitalization, creation of Banking Board Bureau, and creating framework of accountability. Later Insolvency and Bankruptcy Code provided another framework for resolving the issue of NPAs.
Cyber security is another concern in modern banking especially with the era of less cash economy and digitalization of banking transactions. This is attempted to be resolved through various initiatives by the department of information technology in collaboration with institutions like IIT. Financial inclusion through banking is a major thrust of the government with schemes like Jan Dhan Yojana and DBT. Rural banking is also another area of concern, since many areas still remain to be covered by banking services due to inaccessibility. Rural populations are still, to a large extent, not very comfortable with the banking system partially due to low levels of literacy, inaccessibility of banking services etc. These have been sought to be addressed by the government by introduction of Banking correspondents who serve as link between banks and the rural population.
On the face of it, the concept of banking reforms may seem an issue for economists and policy planners. But banks are the places which people trust their hard earned money with. Being in control of your finances is a great stress reliever and an efficient good banking system is the key to relieving this stress from everyone’s life.