Summary of this article
Indian banks serve diverse sectors with specialised financial services.
Commercial, cooperative, small finance, and payments banks exist.
Scheduled and non-scheduled banks follow RBI regulations strictly.
Indian banking is an intricate and interconnected system created to meet the financial requirements of its large and varied population. The Reserve Bank of India (RBI) regulates and supervises all Indian banks. Accordingly, all banks have to conduct business in accordance with the Banking Regulation Act, 1949. As a whole, the industry is segmented into a wide number of classes that have separate functions and customers.
Commercial Banks: Pillar of the Banking System
The commercial banks form the core of India's banking system. They are primarily engaged with accepting deposits as well as disbursing loans to the government, industries, and individuals. Commercial banks are again categorised into:
Public Sector Banks (PSBs): These are largely owned by the government. PSBs are directly engaged in the implementation of government policies and inclusive growth. The State Bank of India (SBI), Punjab National Bank (PNB), and Bank of Baroda are among the largest ones.
Private Sector Banks: They are controlled and owned by private groups and are customer service and technology leaders. HDFC Bank, ICICI Bank, and Axis Bank are some of the prominent private sector banks.
Foreign Banks: They are branches or subsidiaries of foreign banks in India. They have multinational companies and high-net-worth individuals as clients. Citibank and Standard Chartered are among the prominent foreign banks in India.
Regional Rural Banks (RRBs): Established to provide credit and other facilities to rural farmers, artisans, and rural communities, RRBs are a joint venture of the central government, state governments, and sponsor banks. They provide financial inclusion in rural India.
Cooperative Banks: Working at the Grassroots Level
Run on a cooperative basis with the aim of providing finance to its members, cooperative banks are classified as:
Urban Cooperative Banks (UCBs): The UCBs are banks that are functioning in urban and semi-urban areas, offering services like savings accounts, loans, and fixed deposits. They assist in performing an important role to meet the financial needs of small businesses and individuals who live in urban areas.
State Cooperative Banks (StCBs): The StCBs operate at the state level and undertake the business of the district central cooperative banks and provide monetary assistance to cooperative societies.
District Central Cooperative Banks (DCCBs): DCCBs operate at the district level and provide financial facilities to primary agricultural credit societies and other cooperative institutions.
Small Finance Banks: Small Finance Banks Facilitate Financial Inclusion
Small Finance Banks (SFBs) are instituted with the aim to provide banking services to underbanked and unbanked sections of society like low-income households, micro enterprises, and small farmers. Core banking products are deposit and savings accounts, insurance schemes, and loans. SFBs will target financial inclusion in terms of providing banking facilities in rural and semi-urban segments.
Payments Banks: Facilitation of Digital Payments
Payments banks are a new banking segment that includes digital banking and mobile banking. Payments banks can take deposits, offer payment and remittance services, and issue debit cards. Payments banks cannot offer loans or credit cards. Payments banks can assist in financial inclusion with convenient banking services to the unbanked, particularly those that are geographically isolated.
Local Area Banks: Catering to Specific Locations
Local Area Banks (LABs) are formed to provide financial services in local regions or areas. LABs strive to enhance financial inclusion by providing banking services to financially excluded individuals within their local area. LABs are governed by the RBI and must meet some minimum capital adequacy requirements.
Development Banks: Encouraging Economic Development
Development Banks are commercial banking organisations which provide long-term finance for the development of industry in sectors such as industry, agriculture, and infrastructure. They aim to stimulate economic development and growth by providing finance to projects that lead to the development of the country.
Scheduled vs. Non-Scheduled Banks
Indian banks are also categorised based on whether they come under the RBI’s Second Schedule:
Scheduled Banks: Scheduled banks hold a position under the RBI's Second Schedule and have some privilege of membership of the clearing house and utilisation of RBI's credit facilities. Scheduled banks include all commercial banks, cooperative banks, and regional rural banks certified by RBI, based on RBI's prescribed criteria.
Non-Scheduled Banks: They do not belong to the Second Schedule of the RBI and are not favored as scheduled banks. They are small banks and even have partial operations.
India's banking sector is diversified with various types of banks catering to various classes of individuals and performing various roles in the economy. It is important for people and businesses to know the roles and types of banks to make the appropriate financial decisions. All types of banking serve a special role in the country's financial mechanism, facilitating economic growth and financial inclusion.
