Banking Industry in India

The first bank in India was the “Bank of Hindustan” established in 1770. The bank started its operations in Kolkata. The first fully indigenous bank in India was the Punjab National Bank. The Reserve Bank is the central bank of India. The Reserve Bank came into existence in 1935 on the recommendations of the Hilton Young Commission of 1926. The Reserve Bank, known as the “Bankers’ Bank”, had an authorized capital of Rs 5 crore. The Reserve Bank was nationalized on 1 January 1949. The Reserve Bank issues currency notes except for the one rupee denomination. The Reserve Bank also represents India in the International Monetary Fund.

Reserve Bank of India

The Reserve Bank of India is often referred to as the country's bank, the central bank, and the bank of banks. It was established on April 1, 1935. The Reserve Bank operates under the RBI Act and the Banking Regulation Act. The RBI has 22 regional offices in the country, including Thiruvananthapuram. The executive power is vested in the Governing Council, which consists of the Governor and 20 members. The first Governor of the Reserve Bank was O.A. Smith. The Reserve Bank was the central bank of Myanmar until April 1947 and of Pakistan until June 1948!

Main Responsibilities of RBI - The responsibilities of the RBI include issuing the necessary currency notes in the country, being responsible for foreign exchange, regulating the banking sector in the country and giving better instructions, acting as the bank, agent and advisor to the government, controlling loans, and acting as a bank to banks.

Scheduled Banks and Non-Scheduled Banks in India

Scheduled banks are commercial banks that operate under the regulations and rules of the Reserve Bank. They are included in the Second Schedule of the Reserve Bank of India Act, 1934. Non-Scheduled banks are banks that do not come under this schedule. Scheduled banks are required to deposit three to 15 percent of their various deposits as reserves with the Reserve Bank. They are required to submit accurate accounts to the Reserve Bank from time to time. The Reserve Bank has the power to cancel their licenses and impose fines if they violate the instructions. The Reserve Bank of India deals directly with scheduled banks only. Scheduled banks include the State Bank of India and its associate banks, nationalized banks, regional rural banks, foreign banks, some cooperative banks, and old and new private banks. Non-Scheduled Banks are banks that are not listed in the Second Schedule of the RBI Act, 1934 and have a reserve capital of less than Rs. 5 lakhs. Non-Scheduled Banks are banks that are not eligible to borrow from RBI for normal banking purposes except in emergency or extraordinary circumstances. All local area banks are called Non-Scheduled Banks.

TYPES OF BANKS IN INDIA

Based on their activities, banks are mainly classified into four categories - Commercial banks, Cooperative banks, Development banks, and Specialized banks.

I. COMMERCIAL BANKS

As of March 2024, India's commercial banking sector consisted of 12 public sector banks (PSBs), 21 private sector banks (PVBs), 43 Regional Rural Banks (RRBs), 45 foreign banks (FBs), 12 Small Finance Banks (SFBs), 6 Payments banks (PBs) and 2 Local Area Banks (LABs). Out of these 142 commercial banks, 138 were classified as scheduled banks, while four were non-scheduled. 

Public Sector Banks

Public sector banks are banks that are owned by the government. The majority of the shares of public sector banks are owned by the government. All public sector banks are scheduled banks. However, not all scheduled banks are public sector banks. In addition to banking activities, public sector banks are responsible for the utilization of government funds and project implementation to the maximum extent. Allahabad Bank is the first public sector bank in the country. The bank started its operations in 1865. Punjab National Bank was the first Indian bank to be started entirely with Indian capital. Central Bank of India was the first Indian bank to be started entirely under the control and ownership of Indians. Canara Bank was the first Indian bank to receive ISO certification. Union Bank in the public sector was inaugurated by Gandhiji. The three phases of bank nationalization led to major changes in India. After the third phase of bank nationalization, the number of public sector banks in India increased to twelve.

1. Central Bank of India

2. Bank of Baroda

3. Bank of India

4. Punjab National Bank

5. UCO Bank

6. Union Bank

7. Canara Bank

8. Bank of Maharashtra

9. Indian Bank

10. Indian Overseas Bank

11. Punjab and Sind Bank

12. State Bank of India

Private-sector banks

Private sector banks are banks where the majority of the bank's equity is owned by a private company or a group of individuals. They comply with the central bank guidelines yet have a unique financial system. New generation banks emerged as a result of the economic liberalization in the country after the 1990s. These are private banks of international standing. UTI Bank (now Axis Bank) was the first new generation bank to start operations in India. Examples of these include ICICI, HDFC, Kotak Mahindra Bank, Yes Bank, etc. All of them operate according to the regulations and rules of the Reserve Bank of India. There are 21 private banks in India as of 1 April 2024. 

1. Axis Bank

2. Bandhan Bank

3. CSB Bank

4. City Union Bank

5. DCB Bank

6. Dhanlaxmi Bank

7. Federal Bank

8. HDFC Bank

9. ICICI Bank

10. IDBI Bank

11. IDFC First Bank

12. IndusInd Bank

13. Jammu & Kashmir Bank

14. Karnataka Bank

15. Karur Vysya Bank

16. Kotak Mahindra Bank

17. Nainital Bank

18. RBL Bank

19. South Indian Bank

20. Tamilnad Mercantile Bank

21. Yes Bank

Rural Banks/Regional Rural Banks (RRB)

Regional Rural Banks or Grameen Banks were established in 1975 with the aim of agro-industrial development in rural areas. They were established as subsidiary banks of nationalized banks. 50 percent of the shares of Grameen Banks are held by the Central Government, 15 percent by the State Government and 35 percent by the sponsoring bank. The objectives of Grameen Banks are the development of backward areas and supporting the traditional employment sector. Like other banks, all types of transactions are carried out in these banks. The government's goal is to merge the number of Grameen Banks with the parent institution and bring the number of Grameen Banks to 16. Kerala Grameen Bank was formed by merging South Malabar Grameen Bank and North Malabar Grameen Bank under Canara Bank. There are 43 regional rural banks in India as of 1 January 2025. 

1. Andhra Pradesh Grameena Vikas Bank

2. Andhra Pragathi Grameena Bank

3. Chaitanya Godavari Grameena Bank

4. Saptagiri Grameena Bank

5. Arunachal Pradesh Rural Bank

6. Assam Gramin Vikash Bank

7. Dakshin Bihar Gramin Bank

8. Uttar Bihar Gramin Bank

9. Chhattisgarh Rajya Gramin Bank

10. Baroda Gujarat Gramin Bank

11. Saurashtra Gramin Bank

12. Sarva Haryana Gramin Bank

13. Himachal Pradesh Gramin Bank

14. Ellaquai Dehati Bank

15. Jammu And Kashmir Grameen Bank

16. Jharkhand Rajya Gramin Bank

17. Karnataka Gramin Bank

18. Karnataka Vikas Grameena Bank

19. Kerala Gramin Bank

20. Madhya Pradesh Gramin Bank

21. Madhyanchal Gramin Bank

22. Maharashtra Gramin Bank

23. Vidarbha Konkan Gramin Bank

24. Manipur Rural Bank

25. Meghalaya Rural Bank

26. Mizoram Rural Bank

27. Nagaland Rural Bank

28. Odisha Gramya Bank

29. Utkal Grameen Bank

30. Puduvai Bharathiar Grama Bank

31. Punjab Gramin Bank

32. Rajasthan Marudhara Gramin Bank

33. Baroda Rajasthan Kshetriya Gramin Bank

34. Tamil Nadu Grama Bank

35. Telangana Grameena Bank

36. Tripura Gramin Bank

37. Aryavart Bank

38. Baroda UP Bank

39. Prathama UP Gramin Bank

40. Uttarakhand Gramin Bank

41. Bangiya Gramin Vikash Bank

42. Paschim Banga Gramin Bank

43. Uttarbanga Kshetriya Gramin Bank

Foreign Banks

Foreign banks are institutions that provide various services and products to clients belonging to their home country and other countries. These banks have branches across the globe and support enterprises, companies, and other conglomerates. Foreign banks in India as on 2024 are 44.

Small Finance Banks in India

The role of small finance banks is to accept deposits and provide loans to small business units, farmers, weaker sections, unorganized sector units, etc. Capital Small Finance Bank, the first small finance bank in India, was established in 2016. ESAF is the first small finance bank in Kerala. ESAF Small Finance Bank was established in March 2017. It was granted scheduled status by the Reserve Bank of India in 2018. As of 31st December 2024, there are 12 small finance banks in India.

1. AU Small Finance Bank

2. Capital Small Finance Bank

3. Equitas Small Finance Bank

4. ESAF Small Finance Bank

5. Jana Small Finance Bank

6. North East Small Finance Bank

7. Shivalik Small Finance Bank

8. Suryoday Small Finance Bank

9. Ujjivan Small Finance Bank

10. Unity Small Finance Bank

11. Fincare Small Finance Bank

12. Utkarsh Small Finance Bank

Payments Banks in India

The main objective of a payments bank is to promote small savings. It targets low-income families, small businesses, and those in the unorganized sector. Like commercial banks, it can accept deposits but cannot provide loans. The limit for deposits is set at Rs 2 lakh (from April 2021). The capital requirement is Rs 100 crore. 25 percent of the branches should be in rural areas where banking services are not available. Payments banks will have facilities to pay bills such as telephone bills, ATM facilities, debit card facilities, etc. They do not fully provide the services provided by other banks. Post Bank of India, which was started by the Department of Posts, is an example of a payments bank. As of 1 April 2024, there are 6 Payment Banks in India.

1. Airtel Payments Bank

2. India Post Payments Bank

3. Fino Payments Bank

4. Paytm Payments Bank

5. Jio Payments Bank

6. NSDL Payments Bank

Local Area Banks

Local Area Banks are non-scheduled banks having twin objectives of providing an institutional mechanism for the promotion of rural and semi-urban savings and for giving credit for economic activities in local areas. They were formed as a Public Limited Company in the private sector. They are promoted either by individuals, corporates, trusts or societies. As of 1 April 2024 there are 2 Local Area Banks. They are 

1. Coastal Local Area Bank Ltd

2. Krishna Bhima Samruddhi LAB Ltd

II. COOPERATIVE BANKS

The cooperative movement has a strong influence in India. This can be seen in the banking sector as well. Cooperative banks operate at three levels: State Cooperative Bank, District Cooperative Bank, and Primary Service Cooperative Bank. There are also agricultural and rural development banks and urban banks in the cooperative sector. Cooperative banks are controlled by their respective governing bodies. The Department of Cooperatives of the state government supervises them. The Kerala State Cooperative Bank is a scheduled cooperative bank. With the formation of Kerala Bank, the State Cooperative Bank and the District Cooperative Bank became one.

State Cooperative Banks: The highest level of cooperative sector in the state. Financial assistance to district cooperative banks and primary cooperative banks. There are 34 state co-operative banks in India.

District Cooperative Banks: Operate in various centers of the district. Provide assistance and advice to primary cooperative banks. There are a total of 352 district Central Co-operative in India.

Primary Cooperative Banks: Operate in villages. Promote the saving habit of villagers. Provide loans to villagers at low interest rates.

III. DEVELOPMENT BANKS

Development banks are banks that provide long-term loans for the technological upgradation and modernization of industries. These banks are designed to meet the financial needs of development-oriented industries. They are a mechanism for providing long-term financial support to meet the overall financial needs of the infrastructure development sector. These banks provide long-term loans to private business companies and public sector units. Some examples of national development banks are,

1. Industrial Development Bank of India (IDBI)

2. Small Industries Development Bank of India (SIDBI)

3. Industrial Reconstruction Bank of India (IRBI)

4. Industrial Credit and Investment Corporation of India (ICICI)

5. Infrastructure Development Finance Company (IDFC)

6. Industrial Finance Corporation of India (IFCI)

IV. SPECIALIZED BANKS

Specialized banks are banks that provide finance to specific economic sectors such as agriculture, industry, real estate, and rural development. Some examples of Specialized banks are,

1.Tourism Finance Corporation of India Ltd (TFCI)

2. National Bank for Agriculture and Rural Development (NABARD)

3. National Housing Bank (NHB)

4. Housing Development Finance Corporation (HDFC)

5. Export-Import Bank of India (Exim Bank)