What are the Functions and Characteristics of Indigenous Bankers?


According to the Indian Central Banking Enquiry Committee, an indigenous banker is defined as “any individual or private firm receiving deposits and dealing in hundis or lending money.”

The sub-committee on the Agricultural Finance in its report (1945), however, observes that the distinguishing feature of an indigenous banker lies not in accepting deposits but in discounting hundis.

Indigenous banking is mostly confined to certain castes like Khatris, Jains, Marwaris, Chettiars, and other which are known as the banking castes in India.


According to the Banking Commission’s (1972) estimate, there were about 2,500 indigenous bankers in the country in 1971. As per membership records, there were: 400 Multani Shroffs, 350 Gujarati Shroffs, 400 Kyas and 50 Chettiar firms.

No current statistics are available. According to the All-India 1971 Census, there were 33,741 money­lenders and indigenous bankers, of which 19,058 were confined to the urban areas.

It is also interesting to note that indigenous bankers have concentrated mostly in the Western and Southern parts of India.

Moreover, they have been active in commercial centres.


In the rural money market of the country, among the different types of indigenous bankers, the Multani bankers occupy a strategic position.

This is because Multani bankers grant unsecured loans against hundis to the traders. It has been observed that, on an average, a Multani banker deals with at least 300 parties every day.

Functions of Indigenous Bankers:

Indigenous bankers render the following services in the money market:


1. They accept deposits on current and fixed accounts.

2. They buy and sell hundis for remitting funds.

3. They accept valuables of their clients for safe custody.

4. They finance inland trade (retail/wholesale), including the movement of agricultural commodities like cotton, sugar, oilseeds, etc. But, they do not give direct loans to farmers.


5. They give loans to artisans and small urban traders against collateral security or personal security.

6. In recent years, they are also providing working capital to the small industrialists.

Characteristics of Indigenous Bankers:

Indigenous bankers have the following distinguishing features when compared to a modern banker:


1. Indigenous bankers accept deposits and deal in hundis. Modern bankers do not deal in hundis, but in bills of exchange.

2. Indigenous bankers use their own capital for conducting their lending activities. Deposits form only a small part of their working capital while a modern banker relies largely on deposits for his business.

3. Operations of indigenous bankers are free from formalities and delays. Their business hours are flexible. A modern banker deals in a formal way only.

4. In comparison with a modern banker, indigenous banking establishments are small and economical. As against modern joint-stock commercial banks, the business of indigenous bankers is carried on as a family concern with their own working capital.

5. Indigenous bankers provide finance to the traders, artisans, as well as the small industrialists, but give no direct loans to the agriculturists.

6. Indigenous bankers do not have any formal banking education. They conduct business on the basis of their experience.

7. Indigenous bankers maintain simple accounts in the vernacular.

8. Indigenous bankers have a thorough knowledge about the family history of their customers and all details regarding their business and financial standing.

9. Indigenous bankers keep a close watch over the activities of the borrowers.

10. Indigenous bankers are keen on maintaining their business reputation unlike non-professional money-lenders. They have a high sense of responsibility and profit motive. As such they command prestige and great confidence among the trade circles and the borrowers.

11. Unlike a modern banker, indigenous bankers lend on the mortgage of land, houses etc. They also draw and discounts hundis – darshini or muddati (i.e., demand or usuance bill). The discounting rate charged by them is called the bazar rate.

12. A majority of indigenous bankers combine banking business with trading and speculative activity based on a common capital fund employed by them. However, Multanis of Bombay and Chettiars of Madras stick to banking business only.

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