#bankinglaws

This article on 'Evolution of the Banking System: All You Need to Know' was written by Shruti Korgaonkar, an intern at Legal Upanishad.

Introduction

Banking is one of the oldest industries in the world. They are regarded as the foundation of a developed economy. The financial infrastructure required for thriving economies is provided by sound financial systems, which are at the forefront of technological development. Since the days of the commodities banks, banking has undergone a substantial transformation, and contemporary financial organisations are constantly evolving to address the most challenging problems. The banking system prevailed before the invention of money, the history of banking and the history of money is intimately intertwined. Grain was the primary material found in deposits at first, followed by other products like cattle, farm equipment, and eventually valuable metals like gold in the form of lightweight compacted plates The first prototype banks of merchants from the ancient world, which are said to have existed in Assyria and Babylonia m around 2000 BC, provided grain loans to farmers and traders transporting products between cities. Later, lenders located in temples offered loans and introduced two crucial innovations: the acceptance of deposits and the changing of money. This occurred in ancient Greece and during the Roman Empire. Ancient Chinese and Indian archaeology from this time period demonstrates the existence of money-lending activity. This article discuss the evolution of the banking system in India from the Vedic Period to nationalisation of 14 major banks on July 19, 1969, and later.

Evolution of the Banking System in India

In India, banking has a history that predates even the Vedic Civilization. For instance, rnapatra or rnalekhya loan deeds were common in the Vedic era. Usury and interest rates were both common in Vedic India. The fact that Manusmriti sets the minimum and maximum interest rates and views money lending above a particular rate as a grievous sin serves as evidence of institutional money lending. However, it establishes several caste-specific ceiling rates. For instance, the interest rate for Brahmins was 24 percent, compared to 36 percent, 48 percent, and 60 percent for Kshatriyas, Vaishyas, and Shudras. Similar to the Vedic period, the Buddhist, Mauryan, and Mughal eras are likewise noted for having produced a variety of these instruments. The Kautilya Arthashastra indicates the existence of bankers during the Mauryan era. The "Adesha" instruments, which are analogous to modern bills of exchange, existed during the Mauryan era. Numerous references to an indigenous financial system that supported the nation's trade and commerce can be found in ancient Indian literature. Since ancient times, bankers by the names of Shroffs, Seths, Sahukars, Mahajans, Chettis, etc. have operated in the industry. These native bankers ranged from shroffs with substantial operations to very minor moneylenders, conducting a large and specialised business that was even greater than that of banks. The British's ascent to power marked the beginning of modern banking in India. After defeating Tipu Sultan, the British solidified their position of dominance and rose to the top of the Indian political hierarchy. The European Agency Houses served as bankers prior to the establishment of the three Presidency Banks. As the Agency Houses had prospered, they also wanted to run Banks. In the 1770s, a renowned agency house named Alexander & Company began overseeing the Bank of Hindustan. It is unknown when exactly that bank was founded. The other Agency Houses in Bengal founded the Bengal Bank and the General Bank of India in the eighteenth century. The Agency Houses floated the Commercial Bank in 1819 and the Calcutta Bank in 1824. These banks were neither legitimate joint stock institutions nor did they have limited liability. They had unrestricted liability and were partnership firms. The 1860 Companies Act was the first piece of legislation to codify limited liability. Up to that point, banks had to either operate under unlimited liability or get a special Charter from the Crown. The Bank of Bengal was founded in 1806 as a successor to the Bank of Calcutta. The Swadeshi Movement, which inspired Indians to launch several new organisations, also served as inspiration for the launch of numerous new banks. During the 1906–13 economic boom, there was a notable growth in the number of joint stock banks. The Bank of India, The People's Bank of India Ltd. During this time, the Bank of Baroda, Indian Bank Ltd., and the Central Bank of India were founded. The Imperial Bank of India Act of 1920 combined the three Presidency Banks in Calcutta, Bombay, and Madras into the Imperial Bank in 1921. Although this bank was not authorised to issue bank notes, it was allowed to run the clearing house and hold government budget balances The Reserve Bank of India was established to serve as the Central Bank with the passage of the Reserve Bank of India Act in 1934. It obtained the ability to print money and served as the government's banker in place of the Imperial Bank. The Imperial Bank was given permission to represent the Reserve Bank of India in locations where there were no Reserve Bank branches, nevertheless.

Evolution of the Banking System: All You Need to Know

NATIONALISATION OF BANKS

The nationalisation of 14 major banks on July 19, 1969, is without a doubt the most significant historical event in India's financial history since independence. As the government believed that. Nationalization was seen as a major step toward achieving the socialistic pattern of society. The nationalised banks were expected to enhance lending to government-important sectors and to use their resources to further the interests of society as a whole. For these banks, a detailed plan of objectives, regulations, management, etc. was created. Nationalization was a realisation of the bank system's capacity to further more general economic goals. The banks needed to go out and broaden their network in order to prioritise mass banking over class banking. The expansion of finance in rural areas was a top priority. The advantages of nationalisation have been significant. The branch network of these banks has virtually covered the entire nation, particularly in rural and formerly unbanked areas.

CONCLUSION

Indian banks have over time altered the nation's depressing financial environment to support its expanding economy. There is no question that the Indian banking sector supports the nation's economy even now. The 2016 demonetization of currency notes is a good illustration. Almost overnight, existing currency notes were destroyed, causing havoc throughout the country. By enabling citizens all around the country to swap obsolete banknotes, banks assisted in the economy's recovery from the blow. The capacity of India's banking sector to sustain a country that is constantly hungry for financial development grows as the sector develops.

REFERENCE

This article on 'Emerging Trends in Banking Laws' was written by Swaroopa Royadu, an intern at Legal Upanishad.

INTRODUCTION:

With the changing economic, social, and technological needs, the role of banks has also changed from merely receiving deposits and rendering money to online banking activities. As and when the need arises to improve or add new ideas in the banking sector, there arises the need to make new laws, rules, and regulations to implement the new changes. This article covers the evaluation of banks, laws governing banks in India, emerging trends in banking laws, reformation and liberalization of banks, and analysis of emerging trends in banking laws.

MEANING OF BANK:

A bank is a financial institution that holds a license to accept deposits and give loans to people. Along with providing deposit facilities (saving deposit, current account deposit, fixed deposit, etc.) and loan facilities (short-term loan, long-term loan, etc.) banks also provide services like granting credit cards, mortgage facilities, locker facilities, money orders, currency exchange, etc.

EVALUATION OF BANKS:

The basic function of banks, that is lending and receiving money can be traced back to the Vedic period. The modern bank as it exists today was first established in the year 1770 with the name “The Bank of Hindostan”, followed by “The General Bank of India” established in 1786. However, both these banks were closed due to their inefficiency. Later during the 18th century, economic activities gained significant heights which led to the establishment of the Bank of Calcutta, Bank of Madras, and Bank of Bombay. In the year 1894 Punjab National Bank was established, it had 100% stakeholders from India. Many banks were established in the 19th century after getting inspiration from the swadeshi Movement. There were no Acts to regulate banks till the Reserve Bank of India Act was regulated in 1934. The Reserve Bank of India was established in 1935. Post-Independence many banks were nationalized. In the year 1949, the Reserve Bank of India was nationalized followed by the nationalization of 14 other banks in the year 1969 and 6 other banks in 1980. . In the year 1991, as a result of LPG tremendous changes and improvements were seen in the banking sector. The concept of privatizing Indian banks, the concept of e-banking, the development of payment banks, etc. were all the result of LPG.

LEGISLATION GOVERNING BANKS IN INDIA:

There are more than 40 Acts regulating Banks in India. Some are directly related to banking activities while some are supportive or are relevant to only specific departments of the bank. Example: The Industrial Disputes (Banking and Insurance Companies) Act, 1949 can be referred to in case of bank disputes and not for regulating bank functions. Some of the important Acts regulating banks in India are: - Reserve Bank of India Act, 1934 - The Banking Regulation Act, of 1949 - Negotiable Instrument Act, 1881, 2015 - Banker Book Evidence Act, 1891 - Banking Regulation (Amendment) Act, 2020 - Amalgamation of Public Sector Banks scheme, 2020 - Banking Law Amendment Act, 2012, 2013 - The State Bank of India Act, 1955 - Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003 - The Export-Import Bank of India Act,1981 - Limitation Act, 1963, etc.

Emerging Trends in Banking Law: All You Need to Know

EMERGING TRENDS IN BANKING LAWS FROM 1991:

Most of the banks that were in existence before 1991 were public sector banks. The performance of these banks was very poor. During economic crises, these banks received fewer deposits and the demand for loans was very high, this resulted in poor performance by public sector banks. The SLR (Statutory Liquidity Ratio) and CRR (cash reserve ratio) were very high. The banking system was not stable, hence the need for banking Reformation arose and this was considered an integral part of the liberalization. The reformation was made in 1991, following the Narasimham committee report which aimed at increasing the role of private sector banks, reducing the SLR and CRR rates, deregulating interest rates, setting up of hierarchy bank system, arranging for Asset Reconstruction funds, etc. Narasimham committee 2 was formed in 1998 to strengthen the banking sector. This committee recommended raising the capital adequacy ratio of banks, rising start-up capital for foreign banks, suggested the merging of Public sector banks for better international performance, Narrow banking concept was introduced for banks whose non-performing assets were performing poorly. “Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002” came into force as a result of the committee’s recommendation. Improved quality of internet service has bought new trends in the banking sector. The Internet has almost replaced the manual and traditional work environment with an online work environment and this work environment is widely accepted in the country today. E-payment, E-service, e-money, digital wallet, Magnet ink character recognition, KYC norms, Debit card, credit card, electronic clearance services, Internet banking, Electronic Fund Transfer, payment banks, mobile banking, etc. are a few examples of trending banking services. Internet Banking is not a separate sector but a modified version of the banking sector where all the similar functions of banks are followed but through computers and new technology. The enactments controlling Internet Banking in India are Information Technology Act, 2000 (IT Act), the Indian Penal Code, Banking Regulatory Act, RBI Act, the Consumer Protection Act, Negotiable Instrument Act. - The Information Technology Act deals with electronic commerce and cybercrime. Internet Banking operates in conformity with the provisions of the IT Act. The legal recognition for all electronic documents, transactions, and authentication is provided by IT Act. Digital signatures are accepted under the provisions of this Act for internet banking purposes. Section 66 of the IT Act deals with penalizing the acts of hacking, spreading the virus through computers, etc. which is applicable in the bank sector too. - Provisions of the Indian Penal Code protect internet banking from fraud, theft of data, and other Internet-related problems. - Under the Negotiable Instrument Act, e-cheques were added that are in electronic format, forming a part of internet banking. - Consumer Protection Act has a provision to protect consumer’s personal data, safe and secured under internet banking.

CRITICAL ANALYSIS OF EMERGING TRENDS IN THE BANKING SECTOR:

No doubt the emerging trend in the banking sector has contributed to economic growth and has played a crucial role in improving India’s international business and overall development of our country. With the help of the Internet, individuals are benefited from availing of banking services from every corner of the world. With the necessary enactments and legal support, the transactions carried out under internet banking are safe and secured. Internet Banking is available 24/7, so the question of Sundays or other holidays does not arise. Transactions done through internet banking saves valuable time for both customers and bankers. Through consistent efforts are made to improve internet banking, the sector still faces some issues such as: - phishing, hacking, data theft, loss of data, etc. are still the major concerns in internet banking. - Illiterates, people from small villages, old aged people, etc cannot easily understand the procedures or use internet banking. So, still, the entire population cannot avail of the facility. - Jurisdiction problems may arise especially concerning an international transaction unless the jurisdiction is clearly mentioned in the agreement. - In villages or towns where there is an issue with internet speed, availing of the benefit of internet banking becomes difficult. - Internet banking involves transactional risk. Problems of inaccuracy in processing, problems with software or computer, failure to transfer money or double/multiple time transfer of amount for the same transaction, etc. are still prominent issues. Banks have to adopt measures to secure the personal data, financial data of their customers. Banks have to adopt a new and developed version of software to avoid transactional risks and every banker must be technically well-trained and skilled to operate the computer and solve the problems associated with it. Workshops can be conducted to train bankers to guide customers to use internet banking. Free Workshops for customers especially in rural area is also essential to make people aware of the availability of internet banking.

CONCLUSION:

Digital India is a program launched by our central government in the year 2015 with the aim to transform India into a digitally empowered society. The banking sector of our country has almost achieved the aim of the Digital India Program. A strong Banking system, with the ability to adapt to emerging trends in society, is likely to achieve economic progress rapidly.  

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