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Banking Systems In India

In today's world, the people can park there hard earned money in banks and financial institutions without worrying much about the safety of the  invested funds. We all are enjoying the full benefits by utilizing the various schemes offered by various banking institutions present in the country which our forefathers were unheard of. In the earlier years, there was no regular system which permitted people to safeguard the money and mostly used to treasure the money in their own houses.   

The concept of the banking system in India was developed during the British era. The British East India Company has to its credit establishing three banks in India namely Bank of Bengal during 1809, Bank of Bombay in 1840 and Bank of Madras in 1843. All these three banks were amalgamated and the Imperial Bank came into existence which was further taken over by SBI during 1955. Now let's understand the concept of a bank.

What is a Bank? 

A Bank is a financial institution which is licensed to receive the deposits and lend loans to the needy. The banks also perform other functions in the form of currency exchange, wealth management, financial service, safe deposit boxes and so on.  The main function of a bank apart from receiving deposits and lending money to businesses and individuals involves disbursing payments, safeguarding money and investing the funds in securities.

Categorization of Banking Sector 

In India, the banking sector is categorized into two broad categories namely scheduled and non-scheduled banks. The scheduled banks come under the second schedule of the Reserve Bank of India Act of 1934. 


Scheduled Banks as the name suggest are the banks, which are accounted in the Second Schedule of the Reserve Bank of India (RBI) Act, 1934. To qualify as a scheduled bank, the bank should conform to the following conditions:

The total minimum value of paid up capital and reserve must be of Rs. 5 lacs. The bank requires to satisfy the central bank that its affairs are not carried out in a way that causes harm to the interest of the depositors. The bank needs to be a corporation rather than a sole- proprietorship or partnership firm. Scheduled banks enjoy certain rights such as: Right to receive refinance facility from the apex bank Entitled for currency chest facility. Right to become members of clearing house However, they are required to fulfil certain obligations like maintenance of an average daily balance of CRR   (Cash Reserve Ratio) with the central bank at the rates specified by it. Add to that; these banks need to submit  returns at regular intervals, to the central bank subject to the rules of Reserve Bank of India Act, 1934 and Banking Regulation Act, 1949.


Non-Scheduled Bank refers to the banks which are not listed in the Second Schedule of Reserve Bank of India. In finer terms, the banks which do not comply with the provisions specified by the central bank, within the meaning of the Reserve Bank of India Act, 1934, or as per specific functions, etc. or as per the judgement of the RBI, are not able to serve and protect the depositor’s interest, are known as non-scheduled banks. 

Non-Scheduled Banks are also required to maintain the cash reserve requirement, not with the RBI, but with themselves. These are local area banks.


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, corporate and government. Commercial banks can be divided into four categry

1 ) 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 20 nationalised banks in the country
namely below:

1. State Bank of India
2. Bank of India
3. Allahabad Bank
4. Bank of Maharashtra
5. Canara Bank
6. Indian Overseas Bank
7. Punjab & Sind Bank
8. Punjab and Sind Bank
9. Syndicate Bank
10. Corporation Bank
11. Andhra Bank
12. UCO Bank
13. Bank of Baroda
14. Union Bank of India
15. United Bank
16. Vijaya Bank
17. Dena Bank
18. Indian Bank
19. Oriental Bank of Commerce
20. Central Bank of India

2 ) Private Sector Banks
In these banks, most of the equity is owned by private bodies, corporations, institutions or individuals rather than government. These banks are managed and controlled by private promoters.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-

1. HDFC Bank
2. ICICI Bank
3. Axis Bank
4. YES Bank
5. IndusInd Bank
6. Kotak Mahindra Ban
7. DCB Bank
8. Bandhan Bank
9. IDFC Bank
10. City Union Bank
11. Tamilnad Mercantile Bank
12. Nainital Bank
13. Catholic Syrian Bank
14. Federal Bank
15. Jammu and Kashmir Bank
16. Karnataka Bank
17. Dhanlaxmi Bank
18. South Indian Bank
19. Lakshmi Vilas Bank
20. RBL Bank
21. Karur Vysya Bank
22. IDBI Bank

3 )Foreign Banks
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. Given below is the list of foreign banks operating in India –

1. HSBC Bank
2. Citibank
3. Standard Chartered Bank

4 ) 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.

Given below is the list of Small Finance Banks in India-

1. Au Small Finance Bank Ltd.
2. Capital Small Finance Bank Ltd.
3. Fincare Small Finance Bank Ltd.
4. Equitas Small Finance Bank Ltd.
5. ESAF Small Finance Bank Ltd.
6. Suryoday Small Finance Bank Ltd.
7. Ujjivan Small Finance Bank Ltd.
8. Utkarsh Small Finance Bank Ltd.
9. North East Small Finance Bank Ltd.
10. Jana Small Finance Bank Ltd.

Payments Banks
This is a relatively new model of bank in the Indian Banking industry. It was conceptualised by the 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

Co-operative Banks
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.

Urban Co-operative Banks
Urban Co-operative Banks refer to the primary cooperative banks located in urban and semi-urban areas. These banks essentially lent to small borrowers and businesses centered around communities, localities work place groups.

State Co-operative Banks
A State Cooperative Bank is a federation of the central cooperative bank which acts as custodian of the cooperative banking structure in the State.

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