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Entire INDIAN Banking System in 18 Mins — Transcript · YTtoTranscript

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Entire INDIAN Banking System in 18 Mins

HinExp · 2,536 words · 13 min read · EN

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Below is the complete, readable transcript of Entire INDIAN Banking System in 18 Mins by HinExp on YouTube. Read the full text, copy any part you need, or generate a transcript for any video with our free tool.

I have a small confession to make. When I was little , I thought a bank was a building where [MUSIC] there was a huge locker in the basement where everyone's money was put in and there was a guard who was staring at the money all night to make sure no one stole it. [Music]

This is what they show in movies, a big vault with a round door and the hero entering with dynamite. Brother, I am here to burst your bubble. Your money is not in that locker. In fact, from the day you deposit the money, that money is getting ready to go into someone else's pocket.

A stranger whose name you have never even heard can use your money to buy a house, start a business or buy a bike on EMI and the bank sits in the middle [music] and quietly makes profits. Now think, if a small branch is playing such a big game, then how would the entire Indian

banking system, which has lakhs of branches , crores of customers and a boss named RBI who controls everyone, function ? So today we will cover the entire journey in one video. From a failed bank in 1770 to India with UPI in 2026. Where there are over 700 transactions happening in 1 second [MUSIC].

History, structure, RBI and today's game, everything. Let's get started. First of all let us take care of the basics because without this we will not be able to understand history. [Music] You deposit ₹100 in the bank. The bank gives you interest on it. Let's say 4% per annum, which is a typical savings account rate these days.

Now the bank does not keep this ₹100 with itself. He gives this money to another person as a loan [music]. Suppose he wants to buy a house. The bank will charge 8% interest from that borrower. So when the borrower returns ₹18 to the bank [music], the bank gives you ₹14 and the bank's profit becomes ₹4. This

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is the spread. The difference between the interest you pay and the interest the bank pays on deposits [MUSIC]. This is the oldest and simplest business model of banking. But there is a big risk in this. If you suddenly come to ask for your money and the bank has already given that money as loan, then the

bank will have nothing left to give. For this reason, the Reserve Bank of India, which we call RBI and which is the boss of every bank, makes a rule. Every bank will have to keep a fixed percentage of its deposits as cash reserve. This is called Cash Reserve Ratio (CRR) [music] which is currently around 4%.

Apart from this, there is another ratio called Stock Exchange Liquidity Ratio (SLR) which is currently around 18%. [Music] This means that banks will have to invest a portion of the deposits in safe assets like government bonds, gold [Music] or securities. So in total, about 22% of your deposit gets locked as per RBI rules

for safety and the remaining 78% is used by the bank to give loans [music]. This entire system works only when people have trust in the bank and this trust is not built in a day. There's over 250 years of story behind it [the music]. Let's go back a little. Where in the world did the concept of banking first appear in its modern form

? In Italy of the 11th century. At that time, Italy was the center of European trading, and in cities like Pisa, merchants [music] had to handle different currencies simultaneously for trade. Therefore, money changers used to exchange currency while sitting on benches. And from the Italian word banco we get the word bank. Now let's talk about India.

Banking was not a new concept here. The same thing, i.e. lending money on interest, is mentioned in the Vedas and the word Kusidin was used for moneylender. The Hundi system was prevalent in India for centuries. A type of credit instrument [music] used to transfer money from one city to another. Without physically carrying cash. This

was the Indigenous Bankers' system [music] and it's still used in some places today. Modern Western-style banking began in India in 1770 when the Bank of Hindustan opened in Kolkata. But this bank could not run for long. Closed by 1832. After that, more than 600 small banks were opened in the pre-independence period and

most of them failed. Due to fraud, mismanagement and weak regulation. But some important banks were also formed during this period. The British East India Company established three Presidency Banks. Bank of Bengal 1806, Bank of Bombay 1840 and Bank of Madras 1843. These three banks functioned as quasi-central banks. This means that before the advent of RBI, they used to

control currency and credit in their respective regions. In 1921, these three were merged to form the Imperial Bank of India. Which was the biggest bank at that time. And in 1955 [music] after independence, this Imperial Bank was nationalized and renamed as State Bank of India (SBI), which is still the largest public sector

bank in India. Another interesting fact during this period is that India's first fully Indian-owned and Indian-managed commercial bank was the Central Bank of India, which was formed in 1911 and is also called India's first truly indigenous bank. Punjab National Bank also comes in this list. Founded in 1894 by Indian nationalists in Lahore, it remains a

leading Indian bank. Until now we had banks, but there was no central authority that controlled everyone [music]. This gap was filled in 1935 when the Reserve Bank of India was established. Interestingly, RBI was initially a privately owned bank. The government had no share in it. The creation of RBI was recommended in 1926 by the Hilton Young Commission, also known as the Royal Commission on

Indian Currency and Finance. [Music] He said in the report that India needs a proper central bank. RBI was officially established on 1 April 1935 [music] and its legal framework, the RBI Act, was passed a year earlier in 1934 [music]. The first headquarters of RBI was Kolkata because most of the British trade took place through the East India Company.

But as time passed, it was realised that it was not practical to control the entire India from a headquarters located in one corner. Therefore, in 1937, the headquarters of RBI was shifted from Bombay to present-day Mumbai, where it remains even today. The first Governor of RBI was Sir Osborne Smith. 1935 to 1937 [Music]

and the first Indian Governor was CD Deshmukh who later also became the first Finance [Music] Minister of Independent India. Now the most important moment was the nationalization of RBI in 1949. Meaning [music] which was privately owned was bought by the government. With this, RBI became the central bank of India in truth [music] whose

job is to set monetary policy. Printing currency. Yes, RBI prints notes , but does not mint coins , that is the work of a different department. Regulating banks and controlling the flow of credit throughout the economy. There was a big problem immediately after independence. Most of India's banking sector was in the hands of private players

and these banks mostly served urban and industrial areas. People living in villages still depended on moneylenders who charged them very high interest [music]. The government realised that if the banking sector has to be developed and money has to be delivered to agriculture, small industries [music] and rural India, then it will have to

take control in its hands. So a historic decision was taken in 1969. 14 major private banks were nationalized. Meaning the government bought their major shares and [music] made them public sector banks. These were the banks whose deposits were more than ₹50 crore. What was the result of this? Banking was suddenly no longer confined to the city. [Music]

Branches started opening in every village. Agriculture and small businesses started getting loans. This was the first big push for financial inclusion. Another round took place in 1980. Six more banks were nationalized. The total count reached 20 nationalized banks. Its aim was to take control of the commanding heights of the economy and to use credit

not just for profit but for social good [music]. But everything has a down side too. As government control increased, efficiency in banks decreased [music]. Since there was no competition, customer service, innovation and profitability all lagged behind. Bad loans, which we call [music] today NPAs, non- performing assets, started increasing. India realized that even 100% government

control is not a perfect solution. In 1991, India was caught in a severe balance of payments crisis. [Music] Foreign reserves were so low that the government had to pledge its gold. This crisis forced India towards economic liberalization [music] and the banking sector was no exception. The government formed a committee headed by Mr. M.

Narasimham. That is why it is called Narasimham Committee. The committee submitted its report in 1991 and recommended that public and private banks should receive equal treatment. Foreign banks should be able to enter into joint ventures with Indian banks and most importantly, new private banks should be given licenses. In 1993, RBI licensed 10 new

private banks. From here came the names that every Indian knows today. HDFC Bank, ICICI Bank, Axis Bank, formerly UTI Bank, Indusind [Music] Bank. This was the real comeback of private players in India's banking sector. For the first time since 1940. After this the series of reforms continued. Interest rates were deregulated. Capital adequacy norms came into effect and

investments in banking technology began. Core banking solutions came into existence in the 2000s. Then came the boom of net banking and then credit cards. Another important thing happened in 2014. Pradhan Mantri Jan Dhan Yojana (PMJDY) was launched, opening crores of zero balance bank accounts through Aadhaar and mobile technology so that every Indian, no matter

how poor, can become a part of the formal banking system [music]. This year RBI introduced a new concept. Payments Banks and Small Finance Banks like Airtel Payments Bank, Paytm Payments Bank, India Post Payments Bank. Now we have come to the present. So what does the structure of the Indian banking system look like today? RBI is at the top. The

regulator and boss of the entire system. Below that comes the banking system. Which is divided into two broad categories. Scheduled banks and non- scheduled banks. [Music] Scheduled banks are those listed in the Second Schedule of the RBI Act. Meaning large, [MUSIC] established and regulated banks. Non-scheduled banks are smaller and less regulated. Scheduled banks are further

divided into two parts [MUSIC]. Commercial banks and cooperative banks. Commercial banks are those that are purely for business [music]. Taking cheap money and giving expensive loans, earning profit. These further progress into four categories. Public Sector Banks [Music] in which the Government has a majority stake. This includes SB and nationalized banks [music]. Private sector banks in which the government has

no stake like HDFC, ICICI, Axis, [Music] Kotak, foreign banks whose headquarters are in some other country but operate in India. Like [MUSIC] Citibank, HSBC, Standard Chartered. Fun Fact: The first foreign bank in India was HSBC [music] and the first ATM was also introduced by HSBC. Regional Rural Banks (RRBs) were established in Mumbai in 1987.

These are government owned but are specifically created for the rural development of a region. These are operated jointly by the Central Government, State Government and a sponsor bank. On the other hand, there are cooperative banks which are exactly like cooperative societies. The members are the owners of this bank. Members make deposits and members take loans.

Profit is also distributed among the members. Apart from this, there are development banks like [music] NABARD which provide specific credit for agriculture and rural development. This entire structure works like a pyramid. The RBI controls and sets monetary policy at the top [music] and at the bottom each type of bank plays its specific role. Be it the

salary account of the urban middle class or the crop loan of a [music] farmer. A quick but necessary tangent. In 2008, banks around the world were caught in a huge crisis. Many major banks abandoned their traditional safe business model and started investing in short term high risk financial products. Just like gambling. A

joint bank like Lehman Brothers was offering home loans to almost anyone. Without proper checking. When people couldn't reap the loans, the whole system collapsed [music]. Millions lost their jobs and trillions of dollars evaporated. [Music] India was largely spared because Indian banks were regulated conservatively. CRR, SLR and strict oversight by RBI did not allow such financial gambling to happen here. This is

a big reason that even today when people ask why Indian banks are so stable? The answer is strong regulation and careful control by RBI. And now let's talk about the thing that changed the whole [music] game. UPI Unified Payments Interface which was launched by NPCI in 2016 [Music]. Just imagine, in 2016, only 21 banks

were connected to UPI and [music] in the first month there were only 373 transactions and today in May 2026, UPI has created a record 23.2 billion transactions with a total value of Rs 29.90 lakh crore. In just 1 month, more than 700 banks are on the UPI network and India processes more than 66 crore transactions every day.

IMF has also officially declared UPI as the world's largest real-time retail payment system [music]. India alone accounts for approximately [music] 49% of all real-time payments globally, three times more than Brazil's share. Today even a tea seller is taking payment by showing QR code and this is no small thing. This is the biggest revolution in financial inclusion

that India has seen. So you see, starting from a failed bank in 1770, then the British Presidency Banks, then the Imperial Bank, then the SBI, then the nationalisation of RBI, then the nationalisation waves of 1969 and 1980, then the liberalisation of 1991 which gave rise to joints like HDFC, ICICI and now UPI which

showed the whole world how digital payments should be [music], this journey of the Indian bank banking system is no less than any Bollywood story. And the next time you take out your phone and make a payment of ₹10 in a second, think for a moment that behind this one tap, there is a history of 250 years, a

nationalization, a liberalization and a silent control of RBI. If you found this video helpful, please like it. Send this to your friends who still think that bank money is kept in lockers and don't forget to subscribe to the channel because in the next video we will dive deep into RBI's monetary policy and credit control measures

which come in exams and are also useful in real life. See you in the next video. Until then, keep your money in the bank. Don't worry. You understand the system [music]