The banking industry handles finances in a country including cash and credit. Banks are the institutional bodies that accept deposits and grant credit to the entities and play a major role in maintaining the economic stature of a country. Given their importance in the economy, banks are kept under strict regulation in most of the countries. In India, the Reserve Bank of India (RBI) is the apex banking institution that regulates the monetary policy in the country.
Classification of Banks in India
Banks are classified into scheduled and non-scheduled banks. Scheduled banks can further be classified into commercial banks and cooperative banks. Commercial Banks can be further classified into public sector banks, private sector banks, foreign banks and Regional Rural Banks (RRB). On the other hand, cooperative banks are classified into urban and rural. Apart from these, a fairly new addition to the structure is payments bank.
Schedules banks are covered under the 2nd Schedule of the Reserve Bank of India Act, 1934. A bank that has a paid-up capital of Rs. 5 Lakh and above qualifies for the schedule bank category. These banks are eligible to take loans from RBI at bank rate.
Commercial Banks are regulated under the Banking Regulation Act, 1949 and their business model is designed to make profit. Their primary function is to accept deposits and grant loans to the general public, corporates and government. Commercial banks can be divided into-
Public Sector Banks
These are the nationalised banks and account for more than 75 per cent of the total banking business in the country. Majority of stakes in these banks are held by the government. In terms of volume, SBI is the largest public sector bank in India and after its merger with its 5 associate banks (as on 1st April 2017) it has got a position among the top 50 banks of the world.
There are a total of 21 nationalised banks in the country namely below:
Private Sector Banks
These include banks in which major stake or equity is held by private shareholders. All the banking rules and regulations laid down by the RBI will be applicable on private sector banks as well. Given below is the list of private-sector banks in India-
A foreign bank is one that has its headquarters in a foreign country but operates in India as a private entity. These banks are under the obligation to follow the regulations of its home country as well as the country in which they are operating. Citi Bank, Standard Chartered Bank and HSBC are some leading foreign banks in India.
Regional Rural Banks
These are also scheduled commercial banks but they are established with the main objective of providing credit to weaker sections of the society like agricultural labourers, marginal farmers and small enterprises. They usually operate at regional levels in different states of India and may have branches in selected urban areas as well. Other important functions carried out by RRBs include-
- Providing banking and financial services to rural and semi-urban areas
- Government operations like disbursement of wages of MGNREGA workers, distribution of pensions, etc.
- Para-Banking facilities like debit cards, credit cards and locker facilities
Small Finance Banks
This is a niche banking segment in the country and is aimed to provide financial inclusion to sections of the society that are not served by other banks. The main customers of small finance banks include micro industries, small and marginal farmers, unorganized sector entities and small business units. These are licensed under Section 22 of the Banking Regulation Act, 1949 and are governed by the provisions of RBI Act, 1934 and FEMA.
|Au Small Finance Bank Ltd.||Capital Small Finance Bank Ltd.|
|Fincare Small Finance Bank Ltd.||Equitas Small Finance Bank Ltd.|
|ESAF Small Finance Bank Ltd.||Suryoday Small Finance Bank Ltd.|
|Ujjivan Small Finance Bank Ltd.||Utkarsh Small Finance Bank Ltd.|
|North East Small Finance Bank Ltd.||Jana Small Finance Bank Ltd.|
Co-operative banks are registered under the Cooperative Societies Act, 1912 and they are run by an elected managing committee. These work on no-profit no-loss basis and mainly serve entrepreneurs, small businesses, industries and self-employment in urban areas. In rural areas, they mainly finance agriculture-based activities like farming, livestock and hatcheries.
This is a relatively new model of bank in the Indian Banking industry. It was conceptualised by RBI and is allowed to accept a restricted deposit. The amount is currently limited to Rs. 1 Lakh per customer. They also offer services like ATM cards, debit cards, net-banking and mobile-banking.