Introduction to Banking Sec 5 (b) of the Banking Regulation Act, 1949 defines banking as accepting for the purpose

of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise. Prior to initiation of reforms in 1991, Indian banking industry suffered from lack of competition, low capital base, inefficiency and high intermediation costs. Ever since the bank nationalization of 1969, the banking sector had been dominated by the public sector along with a high degree of financial repression characterized by administered interest rates and allocated credit. Banking sector reforms of the last two decades have placed greater emphasis on structural measures and improvement in standards of disclosure and levels of transparency in order to align the Indian standards with international best practices. Reforms have brought about considerable improvements as reflected in various parameters relating to capital adequacy, asset quality, profitability and operational efficiency. The key objective of reforms in the banking sector in India has been to enhance the stability and efficiency of banks. An outstanding feature of banking sector reforms in India has been the emergence of micro credit as the most suitable and practical alternative to the conventional banking in reaching the hitherto unreached poor population. The Self-help Group (SHG)-Bank Linkage Programme was formally launched in the year 1992 as a flagship programme by National Bank for Agriculture and Rural Development (NABARD) and aptly supported by the Reserve Bank of India (RBI) through its policy support.

Importance of Banking Banks play very important role in the economic life of the nation. The health of the economy is closely related to the soundness of its banking system. Although banks create no new wealth but their borrowing, lending and related activities facilitate the process of production, distribution, exchange and consumption of wealth. In this way they become very effective partners in the process of economic development. Today, modern banks are very useful for the utilization of the resources of the country. The banks are mobilizing the savings of the people for the investment purposes.

In recent years, the banking industry around the world has been undergoing a rapid transformation. In India also, the wave of deregulation of early 1990s has created heightened competition and greater risk for banks and other financial intermediaries. The cross-border flows and entry of new players and products have forced banks to adjust the product-mix and undertake rapid changes in their processes and operations to remain competitive.