Role of banks in the Indian Financial System

Abstract

The financial system of India is significantly influenced by banks. In addition to providing over 90% of the country's commercial credit, the banking system also channels over two-thirds of household deposits. At present, the financial industry in India is significantly advanced in terms of product contributions, expansion, and supply. A comprehensive review of the various literature studies on the "role of banks in the Indian financial system" is presented in this article. It concluded that banks play a pivotal role in strengthening the Indian financial system by promoting financial inclusion, supporting capital formation, and facilitating economic growth. While traditional banking investments showed limited direct impact on growth during the study period, financial inclusion indicators—such as the number of bank branches and credit-deposit ratio—positively influenced GDP. Despite the expansion of banking infrastructure, meaningful usage remains a challenge. Therefore, regulatory focus, enhanced financial literacy, and digital banking awareness are essential to maximize the benefits of financial inclusion. A robust, inclusive, and stable banking sector is key to India’s sustained economic development.