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The banking industry is the backbone of any nation's economy, serving as the engine that drives the flow of finances, cash, and credit. In India, this vital sector is closely regulated by the Reserve Bank of India (RBI), which acts as the apex body responsible for defining, shaping, and monitoring India's monetary policy. Read on to learn about the different banking systems and services they offer.
Bank Classification
Banks in India are a diverse group, each playing a unique role in the financial ecosystem. The Banks in India can be classified into four broad categories:
- Commercial Banks
- Co-operative Banks
- Payments Banks
- Small Finance Banks
Each category of banks serves a distinct purpose and target audience, contributing to the robustness of India's banking sector.
Commercial Banks
Commercial banks represent the financial giants of India's banking landscape. They are regulated by the Banking Regulation Act of 1949 and have a business model focused on profitability. These banks are the go-to institutions for a wide range of financial services, including accepting deposits and disbursing loans to the general public, corporate entities, and even the government.
Commercial banks can be further divided into several sub-categories:
- Public Sector Banks (PSBs)
Public Sector Banks account for more than 75% of the total banking business in India. These banks are predominantly owned by the government and hold a crucial role in shaping the nation's economy. The largest among them, the State Bank of India (SBI), stands as one of the world's top 50 banks after its merger with five associate banks.
The list of public sector banks in India include:
State Bank of India |
Bank of Baroda |
Bank of India |
Indian Overseas Bank |
Union Bank of India |
Punjab & Sind Bank |
Punjab National Bank |
Canara Bank |
Central Bank of India |
UCO Bank |
Indian Bank |
Bank of Maharashtra |
- Private Sector Banks
Private sector banks, in contrast, are primarily owned by private shareholders. These banks must adhere to all the rules and regulations stipulated by the RBI, ensuring a level playing field in the banking sector.
Notable private sector banks in India include:
Axis Bank |
Bandhan Bank |
City Union Bank |
DCB Bank |
Dhanlaxmi Bank |
Federal Bank |
HDFC Bank |
ICICI Bank |
IDBI Bank |
IDFC Bank |
YES Bank |
IndusInd Bank |
Jammu and Kashmir Bank |
Karnataka Bank |
Karur Vysya Bank |
Kotak Mahindra Bank |
CSB Bank Ltd. |
Nainital Bank |
RBL Bank |
Tamilnad Mercantile Bank |
South Indian Bank |
- Foreign Banks
Foreign banks, as the name suggests, originate from foreign countries but operate in India as private entities. They are obligated to adhere to the regulations of both their home country and India. Major international banks include:
AB Bank Ltd. | Credit Suisse A.G | Krung Thai Bank Public Co. Ltd. |
Abu Dhabi Commercial Bank Ltd. | CTBC Bank Co., Ltd. | Mashreq Bank PSC |
American Express Banking Corporation | DBS Bank India Limited* | Mizuho Bank Ltd. |
Australia and New Zealand Banking Group Ltd. | Deutsche Bank | MUFG Bank Ltd. |
Bank of America | Doha Bank Q.P.S.C | PT Bank Maybank Indonesia TBK |
Bank of Bahrain & Kuwait BSC | Emirates Bank NBD | Qatar National Bank (Q.P.S.C.) |
Bank of Ceylon | First Abu Dhabi Bank PJSC | Sberbank |
Bank of China | FirstRand Bank Ltd | SBM Bank (India) Limited* |
Bank of Nova Scotia | HSBC Ltd | Shinhan Bank |
Barclays Bank Plc. | Industrial & Commercial Bank of China Ltd. | Societe Generale |
BNP Paribas | Industrial Bank of Korea | Standard Chartered Bank |
Citibank N.A | J.P. Morgan Chase Bank N.A. | Sumitomo Mitsui Banking Corporation |
Credit Agricole Corporate & Investment Bank | JSC VTB Bank | United Overseas Bank Ltd |
- Regional Rural Banks (RRBs)
Co-operative Banks
Co-operative banks operate under the Cooperative Societies Act of 1912 and are managed by elected managing committees. They work on a no-profit, no-loss basis and play a pivotal role in supporting entrepreneurs, small businesses, and self-employment ventures in urban areas. In rural regions, they primarily finance agriculture-related activities such as farming, livestock rearing, and hatcheries.
Co-operative banks can be further categorized into:
- State Co-operative Banks: A State Cooperative Bank is an association having a central cooperative bank, serving as the headquarters of the cooperative banking framework within a State.
- Urban Co-operative Banks: Urban Co-operative Banks operate in urban and semi-urban areas, extending credit to smaller borrowers and businesses centred around specific communities and localities. These banks contribute significantly to the financial ecosystem of states like Andhra Pradesh, Gujarat, Karnataka, Maharashtra, and Tamil Nadu.
Payment Banks
Payment banks are a recent addition to India's banking landscape, conceptualized by the RBI to cater to the evolving financial needs of the population. They operate under certain limitations, primarily accepting restricted deposits, currently capped at Rs. 1 lakh per customer. Payment banks offer a range of services, including ATM cards, debit cards, net banking, and mobile banking.Small Finance Banks
Small Finance Banks form a niche segment in India's banking sector, designed to address the financial inclusion needs of segments overlooked by other banks. Their customer base typically includes micro-industries, small and marginal farmers, unorganized sector entities, and small businesses. Licensed under Section 22 of the Banking Regulation Act of 1949, these banks are governed by provisions of the RBI Act of 1934 and FEMA.
Notable Small Finance Banks include:
AU Small Finance Bank Ltd. | Utkarsh Small Finance Bank Ltd. |
Fincare Small Finance Bank Ltd. | Ujjivan Small Finance Bank Ltd. |
Jana Small Finance Bank Ltd. | ESAF Small Finance Bank Ltd. |
Suryoday Small Finance Bank Ltd. | Equitas Small Finance Bank Ltd. |
Capital Small Finance Bank Ltd. | North East Small Finance Bank Ltd. |
Scheduled and Non-Scheduled Banks
A critical distinction in the Indian banking sector is between Scheduled and Non-Scheduled Banks.
Scheduled Banks
These banks are included in the Second Schedule of the Reserve Bank of India Act, 1934. To qualify as a scheduled bank, certain conditions must be met:- Paid-up capital of Rs. 5 lakh or more.
- A commitment to conduct operations that safeguard depositors' interests.
- Status as a corporate entity, rather than a sole proprietorship or partnership firm.
Non-Scheduled Banks
These banks, not listed in the Second Schedule of the RBI Act, are local area banks. While they aren't under the purview of RBI regulations, they are required to maintain cash reserve requirements independently.Types of Bank Accounts
These banks offer a wide range of account types to cater to the diverse financial needs of individuals and businesses. Some of the common bank account types include:
- Savings Account: This basic account allows individuals to save money while earning interest and provides limited withdrawal privileges.
- Current Account: Designed primarily for businesses, this account offers low or zero interest rates but allows for frequent transactions.
- Fixed Deposit Account: In this account, a lump sum is deposited for a fixed tenure at a higher interest rate than savings accounts, with funds locked in until maturity.
- Recurring Deposit Account: It functions as a savings plan where a fixed amount is deposited monthly, and at the end of a specified period, the depositor receives both the principal and interest.
- NRI (Non-Resident Indian) Account: Tailored for Indians living abroad, it includes NRE (Non-Resident External), NRO (Non-Resident Ordinary), and FCNR (Foreign Currency Non-Residential) accounts.
- Senior Citizen Savings Account: Designed for senior citizens, these accounts offer higher interest rates and additional benefits.
- Salary Account: Employers use this account to credit their employees' salaries every month, often with no minimum balance requirement.
- Demat Account: This account facilitates the electronic holding and trading of securities such as stocks and bonds.
- Joint Account: Shared by two or more individuals, it is used for various purposes, including family or business needs.
- Minor Account: Opened on behalf of minors by parents or guardians, with control granted to the minor upon reaching a certain age.
- Corporate Account: Used by companies and corporations to manage their banking needs, including salary and vendor transactions.
Services Offered by Banks
Banks extend a variety of financial services, with savings and current accounts, extending loans in different categories like personal, business, home, and property mortgages, credit card facilities, investment opportunities, and modern electronic banking solutions like online and mobile banking.
Some of the pivotal functions and services that these Banks provide are:
- Manage Funds from Customers: Banks provide individuals and businesses with a secure location to deposit their funds and gain from it while ensuring easy access whenever required.
- Providing Capital: Banks offer financial assistance to individuals and enterprises for diverse purposes, such as home loans, business expansion, or personal loans.
- Enabling Transactions: Banks enable transactions using a variety of methods, including cheques, debit/credit cards, and electronic transfers, ensuring the seamless flow of money.
- Foreign Exchange Services: Many banks offer foreign exchange services, enabling customers to buy, sell, or exchange foreign currencies, supporting international financial activities.
- Valuables Protection: Some banks offer locker facilities, offering customers a highly secure means to store valuable items and important documents.
- Investment Opportunities: Banks provide access to investment products like mutual funds, stocks, and bonds, allowing customers to grow their wealth through prudent financial planning.
- Convenient Banking Services: Banks have embraced modern technology, offering online and mobile banking services that enable customers to conveniently manage their accounts, pay bills, and execute fund transfers.
FAQs on Banking:
1. What types of accounts can I open at a bank?
Banks provide different types of accounts like savings accounts, current accounts, fixed deposits (FDs), etc. Each of them have a different purpose and earning potential.
2. How do I open a bank account?
You can open a bank account by applying online or by going to the bank to apply. You will need to provide all the essential KYC documents – ID proof, address proof, and other necessary documents.
3. How many public sector banks are present in India?
There are 12 public sector banks in India, including the State Bank of India, Punjab National Bank, Canara Bank, UCO Bank, and others.
4. Do small finance banks provide debit cards?
Yes, small finance banks also give debit cards, internet banking, and multiple other banking services.
5. Are non-scheduled banks entitled to borrow from the central bank?
Yes, non-scheduled banks can borrow from the Central Bank, i.e., RBI, in case of an emergency.
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