Types of Banks in India

Types of Banks in India – In most countries, banks are regulated by the national government or central bank. They provide a safe place for consumers and business owners to stow their cash and a source of loans for personal purchases and business ventures. They help you keep your money safe. At the same time, they also help you compound your investment or savings by allowing you to earn interest on your deposits. 

Banks operating in India fall under seven categories: Central Banks, Commercial Banks, Co-operative Banks, Payment Banks, Small Finance Banks, Scheduled Banks, and Non-scheduled Banks. All of these categories of banks allow citizens to open a bank account in India. 

Bank and its Functions

The important role of banks in the financial system is to facilitate payment and settlement services for their customers. Nowadays Banking sector is not only functioning to deposit money or lend loans but also provides services like issuing debit and credit cards, providing safe custody of valuables, lockers, ATM services, and other services like online transfer of funds across the country/world.

Banks have two types of functions: Primary Function and Secondary Function

Primary Functions of the Banks

• Accepting of Deposits- Savings Account, Current Account, Fixed Deposit, Recurring Deposit. Fixed Deposits and Recurring deposit accounts are called term deposits or time deposit accounts. Savings Bank accounts and current accounts are called Demand Deposit accounts.
• Issue Loans- Term loans, Cash Credit, Overdrafts
• Funds transfer
• Credit Creation
• Discounting of bills

Secondary Functions of Banks

• Collection of cheques, drafts, promissory notes, etc.
• Accepting and collecting bills of exchange
• Undertaking safe custody of valuables- lockers facility
• Issuing letters of credit and travellers cheques
• Buy and sell shares, securities, debentures
• Providing consumer finance- educational loans
• Disperses salary to employees on the behalf of the employer
• On permission of RBI, the bank purchases or sells foreign exchange

New Age Functions of Bank in India

• ATM services
• Home Banking
• Green Card- Credit facility to farmers
• Factoring business- Under this, the bills drawn by customers on the buyer will be handed over to the bank for collection. The bank will pay 80% of the value of the bill to the customer and the balance 20% will be paid after realising the bill from the buyer. For this purpose, the bank will be paid factoring commission.
• Mutual Funds
• Electronic Clearing System (ECS)- Telephone charges are paid through this system.
• Gold or Platinum Card- credit card facility given to customers as per their credit worthiness.
• Gold Deposit Scheme
• E-banking
• Core Banking- A device in which all branches of a bank are linked through a network system. Customer can operate his account across any of the branches of a
  bank.

Types of Banks in India

1. Central Bank
2. Commercial Banks
3. Cooperative Banks
4. Payment Banks
5. Small Finance Banks
6. Scheduled Banks
7. Non-Scheduled Banks

Central Bank

India’s central bank is known as the Reserve Bank of India. It is also called the banker’s Bank. It is a regulatory body under the jurisdiction of the Ministry of Finance, Government of India. It takes responsibility for regulating the Indian banking system and issuing and supplying Indian rupees. RBI has the responsibility to manage all payment-related systems and works to promote its economic development.

Royal Commission on Indian Currency and Finance, also known as the Hilton-Young Commission, was the first to recommend opening the central bank for India in 1926. RBI was established on 1 April 1935 under the RBI Act of 1934 with a capital of 5 crore. RBI started its operation on 1 April 1935 as the Central Bank of India. The headquarters of the Reserve Bank of India was initially established in Calcutta. RBI headquarters was permanently moved to Mumbai in 1937. RBI was the first nationalized bank of India, which was nationalized with effect from 1 January 1949 under the Reserve Bank of India (Transfer to Public Ownership) Act, 1948.

RBI was formed:

• To regulate and issue currencies, which were banknotes
• To maintain the Indian reserves to secure monetary stability
• To maintain and operate the credit and currency system of the country

Commercial Banks

These are the most common types of banks and include public sector banks, private sector banks, and foreign banks. They provide various services like savings and current accounts, loans, and investments.

These are the most common types of banks and include public sector banks, private sector banks, and foreign banks. They provide various services like savings and current accounts, loans, and investments.

• Public Sector Banks: These types of banks are owned and operated by the government, examples include the State Bank of India (SBI), Punjab National Bank (PNB), and Bank of Baroda (BOB).
• Private Sector Banks: These are privately owned and managed banks, such as HDFC Bank, ICICI Bank, and Axis Bank.
• Foreign Banks: These types of banks have branches in India and are headquartered in foreign countries. Some examples are Citibank, Standard Chartered, and HSBC.
• Regional Rural Banks (RRBs): These types of banks cater to rural and semi-urban areas and are owned by the government, commercial banks, and state governments.

The table below shows a few examples of Commercial Banks in India.

Cooperative Banks

A Co-operative Bank is registered under the Co-operative Societies Act of 1912 and is run by an elected managing committee. These types of banks work on a non-profit, no-loss basis and mainly serves entrepreneurs, small businesses, self-employment, and more in urban areas.

In rural areas, it mainly functions to finance agriculture-based activities like farming, livestock, and hatcheries. There are mainly two types of Co-operative Banks:

1. State Co-operative Banks
2. Urban Co-operative Banks

State Co-operative Banks – A State Co-operative Bank is a federation of the central Co-operative banks that will act as a custodian of the Co-operative banking structure in the State.

Urban Co-operative Banks – The Urban Co-operative Bank is the primary Co-operative bank located in urban and semi-urban areas. The types of banks essentially lent to smaller borrowers, and businesses centered around a community, locality, and more.

Payment Banks

The payment banks are a relatively new banking model in the country that has been conceptualized by the RBI. These types of banks are allowed to accept a restricted deposit. This amount is limited to Rs. 1 lakh for a customer. The bank also offers services such as ATM cards, net banking, and more.

How to make Budget in 2023

 Small Finance Banks

These types of banks primarily serve the unserved and underserved sections of the population, including small businesses and low-income individuals.

These types of banks is licensed under Section 22 of the Banking Regulation Act 1949, and it is governed by the Provisions Act of 1934.

Here are a few examples of Small Finance Banks in India:

• 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 Banks

These banks are covered under the 2nd Schedule of RBI Act 1934, and they need to have a paid-up capital of Rs. 5 lahks or more.

Non-Scheduled Banks

The non-scheduled banks are local area banks that are not listed in the 2nd Schedule of the RBI Act 1934. There are more than 1400 Non-Scheduled Banks available in India.

List of Non-Scheduled Banks

Conclusion

There are so many types of banks in india currently working. We have discussed them with explanation and we have shared the pdf link as well for Non-Scheduled Types of Banks.