Evaluation of indigenous banking in India 2021

India was and is still more like a continent than a country;in no two provinces are the conditions alike. In pre indepdence era, A provincial survey seemed at first to be more suitable. The broad facts and problems of indigenous banking were so similar allover the country that the subject in its larger aspects could well be treated from an all-India standpoint.

Evaluation of indigenous banking in India

Much has been said and written about the deplorable indebtedness of the Indian peasant and the extortionate rates of interest exacted from him. by the money-lender. Less has been written about the equally deplorable and less unavoidable indebtedness of the Indian urban worker of those times . Moral indignation has naturally been kindled against the usurers whose greed may turn a temporary calamity or pardonable extravagance on the part of the borrower into the means of his permanent impoverishment.

A banker, means any individual or private firm. which either receives deposits or deals in humUs or both. A money-lender, means any individual or private firm which lends, but does not usually receive deposits. or deal in hundis. Ind’genous Banking includes all the ordinary transactions of private bankers and money-lenders in India, but excludes the operations of Joint
Stock Banks and Co-operative Credit Societies.

In economics life of India the indigenous bankers had have been playing a significant role . When commercial banking was not developed, Indigenous bankers were the main source of finance for agriculturists, traders, businessmen, small industrialists, etc.

The activities of indigenous bankers is getting low but their importantance not. After nationalisation of commercial banks and the spread of banking in urban and rural areas, because the borrowers still facing problems to getting loans from the bank.

Indigeneous bankers doesn’t have fixed working hours and paper formalities that’s why the borrowers approach them directly and informally and get loans promptly and easily. They are very popular with traders, businessmen, agriculturists, and ordinary people.

Indigenous bankers provide finance and remittance facilities to traders and small industrialists by advancing loans; writing, buying and selling hundis; writing finance bills and trade bills. Thus they help not only in financing internal trade but also in expanding it.

indigenous bankers combine banking with trading and agriculture help the farmers to raise production of crops. paying them in cash with no waste of time, and also giving them loans.

The indigenous bankers act as commission agents when they purchase agricultural products on behalf of firms, mills, and trading houses. In this way, they again help in the development of internal trade.

The success of credit banks organised on the lines which certain recommendation were made has exceeded reasonable expectations. but the field is so vast and the variety of the credit needs of the people so marked that they must be supplemented by other means.


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.

Indigenous bankers do not constitute one homogeneous category. The Banking Commission (1972) had grouped them under four main sub-groups Gujarati shroffs, Shikarpuri or Multani shroffs, Chettiars of the South, and Marwari Kayas of Assam.

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.

  1. 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.

  1. Remittance: Indigenous bank

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