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Indian Banking Structure

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Indian Banking Structure

Banking Structure


shape Introduction

The Indian Banking structure is a structural network of institutions that offer financial services within the country. Banks have played a critical role in the economic development of some developed countries such as Japan and Germany and most of the emerging economies including India. Banks today are important not just from the point of view of economic growth, but also financial stability.The Reserve Bank of India (RBI) is the central banking and monetary authority of India, and also acts as the regulator and supervisor of commercial banks.The article Indian Banking Structure gives an overview of the banking structure in India.

In emerging economies, banks are special for three important reasons:

  • First, they take a leading role in developing other financial intermediaries and markets.

  • Second, due to the absence of well-developed equity and bond markets, the corporate sector depends heavily on banks to meet its financing needs.

  • Finally, in emerging markets such as India, banks cater to the needs of a vast number of savers from the household sector, who prefer assured income and liquidity and safety of funds, because of their inadequate capacity to manage financial risks.


shape Structure

The Indian banking sector is classified into scheduled banks and non-scheduled banks. All banks which are included in the Second Schedule to the Reserve Bank of India Act, 1934 are Scheduled Banks. These banks comprise Scheduled Commercial Banks and Scheduled Co-operative Banks. Scheduled Co-operative Banks consist of Scheduled State Co-operative Banks and Scheduled Urban Cooperative Banks. banks have a paid-up capital and reserves of an aggregate value of not less than Rs. 5 lakhs, they have to satisfy the RBI that their affairs are carried out in the interest of their depositors Non- scheduled Banks are those which are not included in the second schedule of the RBI Act, 1934.


Scheduled banks and Non-scheduled banks both need to maintain the Cash Reserve Ratio but Scheduled banks have to deposit this amount in the RBI while Non-scheduled banks can deposit this amount with themselves.


List of Non-Scheduled State Co-operative Banks
1. Andaman and Nicobar State Co-operative Bank Ltd.
2. Arunachal State Co-operative Apex Bank Ltd.
3. Assam Co-operative Apex Bank Ltd.
4. Chandigarh State Co-operative Bank Ltd.
5. Delhi State Cooperative Bank Ltd.
6. Jammu and Kashmir State Co-operative Bank Ltd.
7. Jharkhand State Cooperative Bank Ltd.
8. Manipur State Co-operative Bank Ltd.
9. Meghalaya Co-operative Apex Bank Ltd.
10. Mizoram Co-operative Apex Bank Ltd.
11. Nagaland State Co-operative Bank Ltd.
12. Sikkim State Co-operative Bank Ltd.
13. Tripura State Co-operative Bank Ltd


List of Non-Scheduled Urban Co-operative Banks

Non-Scheduled Urban Cooperative Banks


Scheduled Commercial Banks in India are categorized into five different groups:

  • Nationalized Banks

  • Private Sector Banks

  • State Bank of India

  • Foreign Banks

  • Regional Rural Banks


Public Sector Banks :
Public Sector Banks (PSBs) are banks where a majority stake (i.e. more than 50%) is held by a government. The shares of these banks are listed on stock exchanges. There are a total of 27 PSBs in India [22 Nationalised banks + 1 State bank group. In 2011 IDBI bank and in 2014 Bharatiya Mahila Bank were nationalized with a minimum capital of Rs 500 cr. For Ex – Bank of Baroda, Punjab National Bank, Bank of India, etc.

Private Banks :
The private-sector banks in India represent part of the indian banking sector that is made up of both private and public sector banks. The “private-sector banks” are banks where greater parts of stake or equity are held by the private shareholders and not by government. For ex – ICICI Bank, HDFC Bank, Axis Bank, etc.

Comparison between Private and Public Sector Banks:
Private sector banks introduced the concept of online banking in India. This was mostly because the private banks were technologically well equipped. Private sector banks were using state of the art technology and fully computerized systems since the time they entered the Indian market whereas the Public sector banks were not. However despite the technological challenges the public sector banks in India are still the preferred destinations for many as they are considered as safer options for money deposit.

Regional Rural Banks:
Regional Rural Banks are local level banking organizations operating in different States of India. They have been created with a view to serve primarily the rural areas of India with basic banking and financial services. However, RRB’s may have branches set up for urban operations and their area of operation may include urban areas too. The Government of India, the concerned State Government and the bank, which had sponsored the RRB contributed to the share capital of RRBs in the proportion of 50%, 15% and 35%, respectively.

Foreign Banks:

  • A foreign bank is a bank with head office outside the country in which it is located. e.g. Standard Chartered Bank.

  • Foreign banks have their registered and head offices in a foreign country but operate their branches in India.

  • The RBI permits these banks to operate either through branches; or through wholly-owned subsidiaries.

  • The primary activity of most foreign banks in India has been in the corporate segment. However, some of the larger foreign banks have also made consumer- financing a significant part of their portfolios.

  • These banks offer products such as automobile finance, home loans, credit cards, household consumer finance etc.

  • Foreign banks in India are required to adhere to all banking regulations, including priority-sector lending norms as applicable to domestic banks.

  • In addition to the entry of the new private banks in the mid- 90s, the increased presence of foreign banks in India has also contributed to boosting competition in the banking sector.


Cooperative Banks:

  • All co-operative banks other than those from the State of Meghalaya and the Union Territories of Chandigarh, Lakshadweep and Dadra and Nagar Haveli.

  • Co-operative banks cater to the financing needs of agriculture, retail trade, small industry and self-employed businessmen in urban, semiurban and rural areas of India.

  • A distinctive feature of the co-operative credit structure in India is its heterogeneity.

  • The structure differs across urban and rural areas, across states and loan maturities.

  • Urban areas are served by urban co- operative banks (UCBs), whose operations are either limited to one state or stretch across states.

  • The rural co-operative banks comprise State co-operative banks, district central cooperative banks, SCARDBs and PCARDBs.