ABSTRACT

In general terms, the Indian banking system may be divided into two main sectors: that which concerns itself with commercial banking (as that term is commonly understood in Western countries); and that which derives from indigenous banking practice, with a tradition going back many hundreds of years. It would be wrong to suppose that these two sectors are wholly unconnected with each other, but the links which exist are somewhat tenuous and complete integration into a unified system has yet to be achieved. Underlining this dichotomy is the restricted use made of the cheque. In any extensive sense, it is still true to say that the banking habit is relatively undeveloped and the use of banks tends to be confined to the larger commercial centres. Banking in its sophisticated forms is very much an urban institution in India, though even in the cities and towns much business is transacted by indigenous institutions which are not banks in the accepted sense of the word. At the same time, the cheque as an instrument of commerce is supplemented in a very important way by indigenous credit arrangements. Even so, for much of the rural population, which is largely illiterate, organized banking arrangements scarcely exist. In consequence—and looking at the country as a whole—we find, first, that the use made of bank credit is relatively restricted; second, that the majority of transactions involve the direct employment of notes and coin; and, third, and even more obviously beyond the influence of banking institutions, that many transactions are still effected on a non-monetary basis. Superimposed on all this is the hoarding habit, which appears to provide an almost bottomless pit for the absorption of gold and silver. This is the background against which to view the organization of banking in India.