12.1 Introduction

In the preceding chapters, we broadly covered all critical aspects of banking in an Indian perspective. We began with an introduction to the banking business and Indian banking system in Part I of the book. We discussed that deposit mobilisation and use of such deposits for lending and investment form the core of the banking business. We also highlighted how modern banking has become more sophisticated with the adoption of financial engineering and several ancillary functions. In the Indian financial system, SCBs continue to be of paramount importance despite development of other segments including the capital market during the post-reform period. Necessary details in a comparative perspective were provided.

This was followed by a discussion on the role of banks in an economy in Part II. Drawing from growth theories, we discussed how through mobilisation of domestic savings and facilitation of capital formation along with efficient resource allocation, banks support long-term economic prosperity. The critical role of banks in the MTM towards moderating economic fluctuations in the short run was also highlighted. It was underscored that banks can be helpful in addressing the economic disparity across states in India by promoting banking services in backward regions or states.

The banking business inherently entails a variety of risks. In this context, various types of banking risks, their quantification, regulatory prescriptions and the risk management framework of banks were covered in Part III. Awareness about banking risks and containing such risks within reasonable limits is an integral part of the banking business; otherwise, like a nuclear disaster, banking failures can be severely damaging. Banking crises can impede economic prosperity as was evident during the Great Depression of the 1930s and GFC of 2007–08. Such situations undermine monetary policy effectiveness.