Economics for Common People – Part 18 Banking System

---

1️⃣ What Is a Banking System?

The banking system is a network of financial institutions that manage money in the economy.

It includes:

• Central Bank
• Commercial Banks
• Cooperative Banks
• Regional Rural Banks

Banks act as intermediaries between savers and borrowers.

---

2️⃣ Role of the Central Bank

The Central Bank:

• Controls money supply
• Issues currency
• Regulates commercial banks
• Implements monetary policy

Example: Reserve Bank of India (RBI).

---

3️⃣ Role of Commercial Banks

• Accept deposits
• Provide loans
• Offer payment services
• Support business activities

When you deposit money in a bank, the bank lends a portion of it to others.

---

4️⃣ Money Creation Process

Banks create money through lending.

When a bank gives a loan, it increases money in circulation.

This is called credit creation.

---

5️⃣ Importance of Banking System

• Promotes savings
• Encourages investment
• Supports economic growth
• Provides financial stability

---

6️⃣ Problems in Banking

• Bad loans (Non-Performing Assets)
• Financial crises
• Bank failures

Proper regulation is important to maintain trust in the system.

---

Banks connect savings with investment and keep the economy moving.

— Shaktimatha Learning