Types of banks in India

Banks serve a crucial role in preserving a nation’s economic status as the institutional structures that take deposits and issue credits to companies. Most governments subject banks to stringent regulation because of their significance to the economy.

The Reserve Bank of India (RBI) is the country’s central bank and the authority on monetary policy in India. Banking is the business of accepting deposits and making loans. In India, there are several distinct varieties of banks, each with its own unique set of responsibilities. The bank accepts deposits from the public at a considerably lower rate (the deposit rate) and loans money to customers at a much higher rate (the lending rate).

There are many different kinds of banks. A breakdown of the various Indian banking options is provided below.

• Central bank
• Cooperative banks
• Commercial banks
• Regional rural banks (RRB)
• Local area banks (LAB)
• Specialised banks
• Small finance banks
• Payments banks
• Know how to obtain a mini statement from Indian overseas bank

8 Types of banks in India

• Central bank

The Reserve Bank of India serves as the central bank for India. There is a central bank in each nation that regulates the rest of the banking system. The primary function of the central bank is to act as the government’s bank and to monitor and control all other financial institutions in the nation. It is sometimes referred to as the banker’s bank since it provides support to commercial banks and manages the country’s overall financial system on behalf of the government.

Here are some of the things a country’s central bank does:

• Supporting the efforts of other financial institutions
• Creating currency and enforcing fiscal policies
• The regulator of the financial system

 

• Cooperative banks

State legislation controls the operations of these financial institutions. They help the agricultural sector and others like it by giving them access to short-term financing. The main goal of cooperative banks is to improve societal well-being via the provision of low-interest loans. There are three distinct levels:

Tier 1: Banks that are owned and operated by the state, in Tier 1 (State) (regulated by RBI, State Govt, NABARD)

• The initiative is supported financially by the Reserve Bank of India (RBI), the government, and the National Bank for Agriculture and Rural Development (NABARD). The funds are subsequently distributed evenly among the populace.
• The CRR and SLR reductions apply to these financial institutions. In other words, (SLR: 25%, CRR: 3%)
• The corporation is owned by the government, and the top executives are voted on by the membership.

Tier 2: (District) Agriculture Credit Unions, Central/District Cooperative Banks

Tier 3: (Village) (Primary) Group Savings Institutions

 

• Commercial banks

Its foundation may be traced back to the Banking Companies Act of 1956. They are business enterprises with profit as their major motivation. They have a standardised framework and may be held by the federal government, a state, or a private firm. They oversee the rural as well as the metropolitan areas. These financial institutions do not provide subsidised interest rates unless specifically instructed to do so by the RBI. Deposits from the general public are these banks’ main sources of funding. Three subcategories of commercial banks exist

• Public sector: When the government or the central bank of a nation has a significant stake in a financial institution, we call it a public sector bank. More than 75% of the nation’s financial activity is handled by these nationalised banks. The government owns the lion’s share of the stock in these financial institutions. After merging with its 5 affiliate banks (as of 1st April 2017), SBI has gained a place among the top 50 banks in the world and is now the biggest public sector bank in India.
• Private sector: Private banks are those in which the majority of shares are held by a nongovernmental organisation, a person, or a small group of investors. Among these institutions are financial institutions in which private investors retain a significant stock position. Private sector banks must adhere to all of the RBI’s banking laws and regulations. 
• Foreign sector: Banks headquartered in other countries but operating U.S. branches fall under the heading “foreign banks.” These financial institutions must adhere to the rules of both their home nation and the country in which they are doing business. 

Examples of commercial banks in India:

• Public sector banks:

Bank of Maharashtra	Indian Bank
Bank of Baroda	Punjab & Sind Bank
Bank of India	Punjab National Bank
Canara Bank	State Bank of India
Central Bank of India	Union Bank of India
Indian Overseas Bank	UCO Bank

 

• Private sector banks:

Axis Bank	IndusInd Bank
Bandhan Bank	Jammu and Kashmir Bank
City Union Bank	Karnataka Bank
Dhanlaxmi Bank	Kotak Mahindra Bank
DCB Bank	Karur Vysya Bank
Federal Bank	CSB Bank Ltd.

 

• Foreign banks

Australia and New Zealand Banking Group Ltd.	DBS Bank India Limited	SBM Bank (India) Limited
Bank of Bahrain & Kuwait BSC	AB Bank Ltd.	Sonali Bank Ltd.
Bank of Nova Scotia	Industrial & Commercial Bank of China Ltd.	BNP Paribas
Credit Agricole Corporate & Investment Bank	Societe Generale	Deutsche Bank
HSBC Bank	PT Bank Maybank Indonesia TBK	Mizuho Bank Ltd.
Sumitomo Mitsui Banking Corporation	MUFG Bank, Ltd.	Cooperative Rabobank U.A.

 

• Regional rural banks (RRB)

There are special commercial banks known as regional rural banks (RRBs) that provide preferential interest rates on loans to the agricultural and rural sectors of the economy. The Regional Rural Bank Act of 1976 established RRBs after its inception in 1975. Shares in RRBs are owned equally by the federal (15%) and state governments (50%) and a commercial bank (50%). RRBs numbered 196 between 1987 and 2005. The number of RRBs has decreased from 82 to 82 after the government started combining them in 2005. No more than three contiguous districts may have branches opened by the same RRB.

• Local area banks (LAB)

• It wasn’t until 1996 that it made its debut in India.
• These are coordinated by the private sector.
• The major focus of a local area bank is on increasing the bank’s bottom line.
• The Companies Act of 1956 governs the operations of local area banks.
• Only four Local Area Banks remain, and they’re all in southern India.

 

• Specialised banks

There are financial institutions whose only goal is to fulfil a given need. Many distinct kinds of banks go under the umbrella term “specialised banks.” Some examples are as follows:

• SIDBI (Small Industries Development Bank of India): Small enterprises may receive the most up-to-date machinery and software with the help of this financial institution.
• EXIM Bank (Export and Import Bank): facilitates international trade. Foreign nations that export or import products may be eligible for loans or other financial assistance from this sort of bank.
• NABARD (National Bank for Agricultural and Rural Development): If you need help financing the growth of your rural business, your community, or your handicrafts and agriculture, you can always count on NABARD.

See also: Top 10 investment banks in India

• Small finance banks

Loans and other financial aid are extended to small businesses, farmers, and other members of society who lack access to traditional banking services. The country’s central bank is responsible for regulating these businesses.

Payments banks

They are relatively new kinds of financial institutions that were conceived of by the Reserve Bank of India. An individual with a payment bank account is restricted to making deposits of up to Rs.1,00,000/- and is not eligible to apply for loans or credit cards. Internet banking, mobile banking, ATM card issuance, and debit card issuance are all services provided by payment banks. These are the few payment banks available in our country:

• Airtel payments bank
• India post payments bank
• Fino payments bank
• Jio payments bank
• Paytm payments bank
• NSDL payments bank

 

FAQs

How many nationalised banks does India have?

In India, you may choose from one of twelve government-owned financial institutions.

How stable is the Indian financial system?

Reserve Bank of India (RBI), cooperative banks, commercial banks and development banks make up India's banking system (development finance institutions). These banks and other financial organisations serve as a hub for India's savings and investors.

What role does banking play in Indian society?

The financial system would not function without banks. In this way, it has an impact on the economy by facilitating the development of new industries and the expansion of existing ones. Banking provides essential support for economies across the world.