Banking

The banking industry plays a crucial role in managing the finances of a country, including cash and credit. Banks are institutions that accept deposits and provide loans, significantly contributing to the economic stability of a nation. Due to their importance, banks are subject to strict regulations. In India, the Reserve Bank of India (RBI) serves as the central regulatory authority overseeing monetary policy.

Classification of Banks in India

Banks in India are categorised into four primary types:

• Commercial Banks
• Small Finance Banks
• Payments Banks
• Co-operative Banks

Each category further branches into specific subtypes.

Commercial Banks

Commercial banks are governed by the Banking Regulation Act, 1949 and aim to generate profit. Their main functions include accepting deposits and offering loans to individuals, businesses, and governments. Commercial banks are classified as:

• Public Sector Banks
• Private Sector Banks
• Foreign Banks
• Regional Rural Banks (RRBs)

Public Sector Banks

These banks are majority-owned by the government and handle more than 75% of the country’s banking operations. The State Bank of India (SBI) is the largest among them, ranking among the top 50 banks globally after its merger with five associate banks in 2017. Other notable public sector banks include:

• Bank of Maharashtra
• Punjab National Bank
• Bank of Baroda
• Union Bank of India

Private Sector Banks

These banks are primarily owned by private shareholders, though they are regulated by the RBI. Key private sector banks include:

• HDFC Bank
• ICICI Bank
• Axis Bank
• YES Bank

Foreign Banks

These banks have their headquarters abroad but operate in India. They must comply with both Indian and their home country’s regulations. Some foreign banks in India include:

• HSBC Bank
• Citibank
• Standard Chartered Bank
• Deutsche Bank

Regional Rural Banks (RRBs)

RRBs focus on providing financial services in rural and semi-urban areas, specifically targeting economically weaker sections such as farmers and small businesses. They also handle government schemes like wage disbursements and pensions.

Small Finance Banks

Small finance banks are designed to provide financial inclusion to underserved communities, such as small farmers, micro-industries, and small businesses. Some of these banks include:

• AU Small Finance Bank
• Equitas Small Finance Bank
• Ujjivan Small Finance Bank

Payments Banks

Payments banks are a relatively new category, introduced by the RBI. They offer limited deposit services, with a maximum balance of Rs. 1 lakh per customer. They also provide ATM cards, debit cards, and digital banking services.

Co-operative Banks

Co-operative banks, governed by the Cooperative Societies Act, 1912, are non-profit organisations that serve local communities, particularly small businesses and agricultural activities. They operate mainly in two forms:

• Urban Co-operative Banks: These serve urban and semi-urban areas.
• State Co-operative Banks: These are the apex institutions overseeing the cooperative banking structure in each state.

Scheduled vs. Non-Scheduled Banks

Banks can also be classified based on whether they are Scheduled or Non-Scheduled:

 Scheduled Banks

Scheduled banks are listed under the Second Schedule of the Reserve Bank of India Act, 1934. To qualify as a scheduled bank, a bank must have a paid-up capital of at least Rs. 5 lakh and prove that its operations are safe for depositors. These banks are also insured under the Deposit Insurance and Credit Guarantee Corporation (DICGC), which protects deposits up to Rs. 1 lakh per person per bank.

Non-Scheduled Banks

Non-scheduled banks, which typically include local area banks, are not listed in the Second Schedule of the RBI Act. These banks are required to maintain cash reserves, but instead of keeping them with the RBI, they must do so with other designated institutions.

In conclusion, the banking system in India is diverse, with different categories serving specific needs within the economy, from large national banks to small community-oriented institutions.