Indigenous Banking System in India

Indigenous banking system is the system of banking that involves private firms or individuals who act as banks by providing financial services such as loans and accepting deposits.

Indigenous banking system is made up of indigenous bankers who do not fall under the purview of the government. The system of indigenous banking dates back to the medieval period. This system continued till the middle part of the nineteenth century.

Indigenous bankers formed the bulk of the Indian financial system in the ancient times. These bankers provided credit facilities to the individuals and businesses as well as to the governments at times.

The indigenous banking system lost its charm with the advent of foreign banks and commercial banks. The business contracted further with the formation of co-operative banks and commercial banks in the late 1950s.

Functions of Indigenous Bankers

The indigenous bankers performed the following functions:

1. Accepting deposits from the public: It is one of the important functions of the bankers.The deposits will be for a fixed period and can be of either fixed or current period.

2.Providing loans against security: Indigenous bankers provide loans against securities or assets such as land, vehicles, gold ornaments, etc.

3. Discounting Hundis: Hundis were important instruments of money exchange for the businesses in times before new instruments were introduced. Discounting Hundis is one of the most profitable businesses for the indigenous bankers.

Hundis are of two types 1) Darshni or Sight hundi, a hundi that is payable on demand and 2) Muddati Hundi, a hundi that is payable after a certain time period. The time period after which it becomes payable is mentioned at the face of the hundi.

4. Remittance: Indigenous bankers also provide remittance services by having separate branches or tie ups with other indigenous bankers across the country.

This concludes the topic of Development of Indigenous Banking System in India, which is an important topic for Commerce students. For more such interesting articles, stay tuned to BYJU’S.