Banking System of a country contributes a great deal in the process of its economic development. It therefore becomes essential that a country has a good banking system. Following are the characteristic features of a good banking system:
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1. Conducive to Country’s Economic Conditions:
Banking system of a country should be conducive to its economic conditions. Indian economy is an underdeveloped agricultural economy.
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It needs a banking system that identifies various sources of credit and generates suitable credit facilities for agricultural and related sectors of the economy.
2. Sound Financial Basis:
A good banking system should have sound financial basis. It should generate public faith for which it should be mandatory for the banks to obtain license from the Govt. Banks should have enough of minimum reserves to retain their credibility. Also, credit- related risks should be minimised.
3. Mobilisation of Savings:
A good banking system should facilitate mobilisation of savings. People should be encouraged to save more and assured of suitable investment prospects.
4. Controlled Credit:
A good banking system underlines the importance of controlled credit. Flow of credit is so channelised that it conforms to the development needs of the nation. Central bank of the country should have quantitative as well as qualitative control over the flow of credit.
5. Uniformity of Policies:
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A good banking system should exhibit uniformity of policies. If dear- money policy is needed during periods of inflation, it must be uniformly adopted across all sectors of the economy. In case of finance-crunch, the whole banking system of the nation should adhere to the required monetary discipline. There should be no loopholes in the system. Monetary System should be conducive to growth programmes of the nation.
6. A Co-ordinated System:
A good banking system should be a well co-ordinated system of banking. There can be diverse categories of banking institutions in the country, but all should be complementary to each other in conformity with the overall programmes of growth and development.
There should only be a healthy competition across different banking institutions that only promote the efficiency and productivity of the Banking System as a whole. Thus, a fairly high degree of complementarily is expected across industrial banks, rural development banks, Mutual Fund, Financial Institutions and other financial intermediaries. The whole structure of financial intermediaries should efficiently cater to diverse financial needs of various sectors of the economy.
7. Trained and Progressive Administration:
Trained and progressive administration is yet another characteristic of a good banking system. Administrative set of the banking structure must conform to the standard norms of efficiency and productivity. And these norms of efficiency should not only yield high profitability but also ensure efficient consumer service.
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Central Bank of the country and the Government should have fair degree of control over the banking system with a view to ensuring progressive banking administration.
8. Modernisation:
A good banking system should be exposed to modernisation with a view to stimulating dynamism in its functioning. It must be integrated with the banking system of developed nations as a part of overall globalisation of diverse economic structures in different countries of the world.
In short, a good banking system should be friendly to overall programmes of growth and development of a nation and should be modern as well as flexible to function as an integrated unit of the global financial market structure.