Usually all persons want money for personaland commercial purposes.

Banks are the oldestlending institutions in Indian scenario. They areproviding all facilities to all citizens for their ownpurposes by their terms. To survive in this modernmarket every bank implements so many newinnovative ideas, strategies, and advancedtechnologies. For that they give each and everyminute detail about their institution and projects toPublic.They are providing ample facilities to satisfytheir customers i.e. Net Banking, Mobile Banking,Door to Door facility, Instant facility, Investmentfacility, Demat facility, Credit Card facility, Loansand Advances, Account facility etc. And such banksget success to create their own image in public andcorporate world. These banks always acceptsinnovative notions in Indian banking scenario likeCredit Cards, ATM machines, Risk Management etc.So, as a student business economics I take keeninterest in Indian economy and for that banks arethe main source of development.So this must be the first choice for me to selectthis topic. At this stage every person must knowabout new innovation, technology of procedure newschemes and new ventures. Because of the following reasons, I prefer thisproject work to get the knowledge of thebanking system. Banking is an essential industry. It is where we often wind up when we areseeking a problem in financial crisis andmoney related query. Banking is one of the most regulatedbusinesses in the world. Banks remain important source for careeropportunities for people.

 It is vital system for developing economyfor the nation. Banks can play a dynamic role in deliveryand purchase of consumer durables THE ROLE OF ECONOMISTS IN BANKS The crucial role of bank economists in transforming the banking system in India.Economists have to be more mainstreamed within the operational structure of commercial banks. Apart from the traditional functioning of macro-scanning, the inter-linkages between treasuries, dealing rooms and trading rooms of banks need to be viewednot only with the day-to-day needs of operational necessity, but also with analyticalcontent and policy foresight.Today, operational aspects of the functioning of banks are attracting intensiveresearch by professional economists. In particular, measuring and modeling differentkinds of risks faced by banks, the behavior of riskreturn relationships associated withdifferent portfolio mixes and the impact of fluctuations in financial markets on thefinancial performance of banks are areas which lend themselves to analytical andempirical appraisal by economists and econometricians. They, in turn, are discovering thedegrees of freedom and room for analytical maneuver in high frequency informationgenerated by the day-to-day functioning of banks. It is vital that we develop anenvironment where these synergies are nurtured so as to serve the longer-term strategicinterests of banks. Even in real time trading and portfolio decisions, the fundamentalanalysis of economists provides an independent assessment of market behavior,reinforcing technical

analysis.A serious limitation of the applicability of standard economic analysis to bankingrelates to the inadequacies of the data-base. Absence of long time series data storage inthe banking industry often poses serious problems to the quest for the formal analyticalrelationships between variables. Even if such data exist, the presence of structural breaksmay blur meaningful analysis based on traditional formulation. Economists need to think innovatively to overcome this problem. Use of panel regression, nonparametric methodsand multivariate analyses could go a long way in understanding and validating behavioralrelationships in banking.Another important challenge for the economics profession is to develop propermodels for measurement of various risks in Indian conditions. This is a necessity in viewof the move towards risk-based supervision. Quantification of operational risks andcalibration of Value at Risk (VaR) models pose major computational challenge to bankers and policy makers alike, particularly in India. A major difficulty lies inidentifying the right statistical model that determines the underlying distribution suited tothe particular category of operational loss, and building the necessary database forderiving operationally meaningful conclusions.In my inaugural address last year, I had also emphasized the need for bank economists to come out of their narrow specialization and address operational issuesrelating to banking and finance. In order to make a meaningful contribution to banking,economists must have the experience of working in operational areas of banks. For thispurpose, economists need to soil their hands in dealing rooms, treasuries and investmentunits, credit authorization and loan recovery, strategic management groups andmanagement information systems of the banks to understand the ground realities. Thereare also economies to be gained from field-level credit appraisal, asset recovery, debtrestructuring, market and consumer behaviors in which banks are involved. Thus, theprofession needs to

amalgamate the objectivity and theoretical soundness of economicswith the functional dimensions of banking and finance. It is this combination of specialisttraining with operational experience, which is going to make t he economics professionrelevant to the changing face of banking in India. HISTORY OF BANKING IN INDIA --------------------------- Without a sound and effective banking system in India it cannot have a healthyeconomy. The banking system of India should not only be hassle free but it should beable to meet new challenges posed by the technology and any other external and internalfactors.For the past three decades India's banking system has several outstandingachievements to its credit. The most striking is its extensive reach. It is no longerconfined to only metropolitans or cosmopolitans in India. In fact, Indian banking systemhas reached even to the remote corners of the country. This is one of the main reasons of India's growth process. The government's regular policy for Indian bank since 1969 haspaid rich dividends with the nationalization of 14 major private banks of India.Not long ago, an account holder had to wait for hours at the bank counters forgetting a draft or for withdrawing his own money. Today, he has a choice. Gone are dayswhen the most efficient bank transferred money from one branch to other in two days.Now it is simple as instant messaging or dial a pizza. Money has become the order of theday. The first bank in India, though conservative, was established in 1786. From 1786 tilltoday, the journey of Indian Banking System can be segregated into three distinct phases.They are as mentioned below: Early phase from 1786 to 1969 of Indian Banks

Nationalization of Indian Banks and up to 1991 prior to Indian banking sectorReforms. New phase of Indian Banking System with the advent of Indian Financial &Banking Sector Reforms after 1991.To make this write-up more explanatory, I prefix the scenario as Phase I, Phase II andPhase III. Phase I The General Bank of India was set up in the year 1786. Next came Bank of Hindustan and Bengal Bank. The East India Company established Bank of Bengal(1809), Bank of Bombay (1840) and Bank of Madras (1843) as independent units andcalled it Presidency Banks. These three banks were amalgamated in 1920 and ImperialBank of India was established which started as private shareholders banks, mostlyEuropeans shareholders.In 1865 Allahabad Bank was established and first time exclusively by Indians,Punjab National Bank Ltd. was set up in 1894 with headquarters at Lahore. Between1906 and 1913, Bank of India, Central Bank of India, Bank of Baroda, Canara Bank,Indian Bank, and Bank of Mysore were set up. Reserve Bank of India came in 1935.During the first phase the growth was very slow and banks also experienced periodicfailures between 1913 and 1948. There were approximately 1100 banks, mostly small. Tostreamline the functioning and activities of commercial banks, the Government of Indiacame up with The Banking Companies Act, 1949 which was later changed to BankingRegulation Act 1949 as per amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of India was vested with extensive powers for the supervision of banking in India as theCentral Banking Authority. During those days public has lesser confidence in the banks.As an aftermath deposit mobilization was slow. Abreast of it the savings bank facilityprovided by the Postal department was comparatively safer. Moreover, funds werelargely given to traders.

 Phase II Government took major steps in this Indian Banking Sector Reform afterindependence. In 1955, it nationalized Imperial Bank of India with extensive bankingfacilities on a large scale especially in rural and semi-urban areas. It formed State Bank of India to act as the principal agent of RBI and to handle banking transactions of the Unionand State Governments all over the country.Seven banks forming subsidiary of State Bank of India was nationalized in 1960on 19th July, 1969, major process of nationalization was carried out. It was the effort of the then Prime Minister of India, Mrs. Indira Gandhi. 14 major commercial banks in thecountry were nationalized. Government. The Reserve Bank has a separate Issue Department which is entrusted withthe issue of currency notes. The assets and liabilities of the Issue Department are keptseparate from those of the Banking Department. Originally, the assets of the IssueDepartment were to consist of not less than two-fifths of gold coin, gold bullion orsterling securities provided the amount of gold was not less than Rs. 40 crores in value.The remaining three-fifths of the assets might be held in rupee coins, Government of India rupee securities, eligible bills of exchange and promissory notes payable in India.Due to the exigencies of the Second World War and the post-was period, these provisionswere considerably modified. Since 1957, the Reserve Bank of India is required tomaintain gold and foreign exchange reserves of Ra. 200 crores, of which at least Rs. 115crores should be in gold. The system as it exists today is known as the minimum reservesystem. Banker to Government

The second important function of the Reserve Bank of India is to act asGovernment banker, agent and adviser. The Reserve Bank is agent of CentralGovernment and of all State Governments in India excepting that of Jammu and Kashmir.The Reserve Bank has the obligation to transact Government business, via. to keep thecash balances as deposits free of interest, to receive and to make payments on behalf of the Government and to carry out their exchange remittances and other bankingoperations. The Reserve Bank of India helps the Government - both the Union and theStates to float new loans and to manage public debt. The Bank makes ways and meansadvances to the Governments for 90 days. It makes loans and advances to the States andlocal authorities. It acts as adviser to the Government on all monetary and bankingmatters. Bankers' Bank and Lender of the Last Resort The Reserve Bank of India acts as the bankers' bank. According to the provisionsof the Banking Companies Act of 1949, every scheduled bank was required to maintainwith the Reserve Bank a cash balance equivalent to 5% of its demand liabilities and 2 percent of its time liabilities in India. By an amendment of 1962, the distinction betweendemand and time liabilities was abolished and banks have been asked to keep cash