Friends, our Indian banking system is quite complex and diverse, with a large number of commercial banks, public sector banks, private sector banks, foreign banks and co-operative banks. The Indian banking system is classified into different tiers based on the size of the bank and the scope of operations.
So friends, in this article we will know in detail about the structure of Indian banking system.
Our first tier of Indian banking includes Reserve Bank of India (RBI) and other nationalized banks. The second tier consists of state level cooperative banks, while the third tier in our India consists of rural regional banks (RRBs). While the fourth tier includes Urban Co-operative Banks (UCBs) and finally, the fifth tier includes all other scheduled commercial banks. Each of these levels has a different role in the banking system of our India.
RBI is responsible for formulating and regulating monetary policy, while nationalized banks play an important role in rural development and social welfare. State-level cooperative banks are important for providing loans to small businesses and farmers, while RRBs are focused on providing banking services in rural areas. UCBs mainly cater to urban areas, while scheduled commercial banks provide a wide range of banking services in both urban and rural areas.
What is the Indian Banking System?
According to Structure of Indian Banking System Our Indian banking system is a three-tier structure consisting of Reserve Bank of India (RBI) at the top, followed by commercial banks and finally rural banks. RBI is the apex bank of India and is responsible for maintaining monetary stability and issuing currency. And it also controls and supervises the working of commercial banks in India.
Commercial banks are further classified into scheduled and non-scheduled banks. Scheduled banks are those which have been included in the second schedule of the RBI Act, 1934. As of March 31, 2020, there were 1,203 scheduled commercial banks in India. Non-scheduled commercial banks are those which are not included in the second schedule of the RBI Act, 1934.
Gramin banks are those which operate mainly in rural and semi-urban areas with the objective of providing loans and other financial services to small farmers and rural artisans. As on March 31, 2020, there were 56 Gramin Banks in India.
Different types of banks in India :-
Friends, according to the structure of our Indian banking system, there are four types of banks in India – first public sector banks, second private sector banks, third foreign banks and fourth regional rural banks.
Talking about public sector banks, they are those which are owned by the government. And these include State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BOB) and Canara Bank.
Whereas private sector banks are those which are not owned by the government. These include HDFC Bank, ICICI Bank, Axis Bank and Kotak Mahindra Bank.
And foreign banks are those which are located in another country but operating in India. These include Citibank, HSBC and Standard Chartered.
Regional Rural Banks (RRBs) are small banks that operate in specific geographical areas. They were established to develop the rural economy by providing credit and banking facilities to small farmers and businesses.
The Structure of the Indian Banking System :-
According to the structure of the Indian banking system, the Indian banking system is broadly classified into four types of banks:
- Public Sector Banks.
- Private Sector Banks.
- Foreign Banks.
- Co-operative Banks.
Thus the Indian banking system is made up of four different types of banks: public sector banks, private sector banks, foreign banks and co-operative banks.
So let’s know about the banks involved in the structure of the banking system of India –
Public Sector Banks:
These are the banks which are owned and operated by the government. The largest and oldest bank of India, State Bank of India (SBI) is a public sector bank. Other famous public sector banks in India include Punjab National Bank (PNB), Bank of Baroda (BOB), Canara Bank etc. Public sector banks dominate the Indian banking landscape with around 70% market share.
Private Sector Banks:
These are banks that are not owned by the government but are run by private entities. Some of the major private banks in India include HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank etc. These banks generally have a more customer-centric approach and offer a wider range of products and services than public sector banks.
As the name suggests, these are banks that are located in other countries and headquartered in another country but have branches in India that operate through a branch or a subsidiary. They make up a small part of the banking system.
Some of the most popular foreign banks operating in India include Citibank, HSBC, Standard Chartered Bank, etc. Foreign banks usually cater to the needs of large corporates and businesses rather than retail customers.
Co-operative bank is a bank in India which is owned by their members who are usually from a particular community or region. They focus on providing loans to small businesses and farmers. Some examples include The Maharashtra State Co-operative Bank and The Krishnamurthy Co-operative Bank Ltd.
The Reserve Bank of India :-
Friends, talking about the structure of the Indian banking system, Reserve Bank of India (RBI) is the central bank of India. It was established on April 1, 1935 in accordance with the Reserve Bank of India Act, 1934. Mainly, RBI is responsible for the monetary policy of the Indian Rupee.
The headquarter of RBI is located in Mumbai and its four regional offices are located at New Delhi, Kolkata, Chennai and Guwahati. The central bank also has a training academy which is located in Nainital, Uttarakhand.
Reserve Bank of India RBI is a member of Asian Clearing Association (ACU) and International Monetary Fund (IMF).
The current governor of RBI is Urjit Patel and the deputy governors are Sushil Kumar Modi, Viral V Acharya and NS Vishwanathan.
The Commercial Banks in India :-
According to the structure of the Indian banking system, commercial banks in India are classified into two types – scheduled banks and non-scheduled banks. Scheduled banks are those which are included in the second schedule of the Reserve Bank of India (RBI) Act, 1934. As on 31 March 2016, there were 27 public sector banks, 21 private sector banks, 43 foreign banks, 515 urban. co-operative banks and 58 rural co-operative banks which were scheduled banks.
Non-scheduled commercial banks are those which are not included in the second schedule of the RBI Act, 1934. As of 31 March 2006, there were six such non-scheduled commercial banks in India.
The commercial banking structure in India is highly centralized with the RBI as its apex body followed by a few large public sector banks and a large number of smaller regional rural banks (RRBs), urban cooperative banks (UCBs) and other private sector banks.
The largest share in aggregate deposits is held by State Bank of India (SBI) and its associates which stood at Rs 16,80,553 crore as on 31 March 2016 followed by HDFC Bank Ltd (Rs 6,81,236 crore), ICICI Bank Ltd (Rs 6,30,533 crore) and Axis Bank Ltd (Rs 4,062 crore). In terms of growth of deposits during 2015-16 SBI registered a growth of 10.3 per cent followed by HDFC Bank (13%), Axis Bank(12%).
The Regional Rural Banks in India :-
Regional Rural Banks (RRBs) are a network of public sector banks in India that serve the rural areas of the country, as per the structure of the Indian banking system. They were established under the Regional Rural Banks Act, 1976 to provide credit and banking facilities to the rural and agricultural sectors. Presently 45 RRBs are operational with a total of more than 13,000 branches across the country.
RRBs are owned by a consortium of three shareholders: the central government, the state government and the sponsoring commercial bank. The central government holds 50% of the share capital, while the state government and the sponsor bank have 30% and 20% respectively. RRBs are managed by a Board of Directors consisting of representatives of all three shareholders.
The main functions of RRBs are to provide credit and banking facilities to rural households and small businesses, as well as to promote financial inclusion in rural areas. In recent years, they have also been playing an important role in implementing government schemes such as Pradhan Mantri Jan-Dhan Yojana (PMJDY) and Pradhan Mantri Fasal Bima Yojana (PMFBY).
The Cooperative Banks in India :-
The Indian banking system is divided into two parts: the central bank, which is the Reserve Bank of India (RBI), and the commercial bank. Commercial banks are further divided into scheduled and non-scheduled banks.
Scheduled banks are those which are included in the second schedule of the Reserve Bank of India Act, 1934. As on March 31, 2020, there were 27 Public Sector Banks (PSBs), 31 Private Sector Banks, 44 Foreign Banks, 56. Regional Rural Banks (RRBs), 1,589 Urban Co-operative Banks (UCBs) and 94,384 Rural Co-operative Banks (RCBs) in India.
Cooperative Banks in India can be broadly classified into 2 types:
1. Primary Agricultural Credit Societies (PACSs)
2. State Cooperative Banks (SCBs)
PACSs are farmer-owned cooperatives at the village level while SCBs operate at state level. Both these institutions primarily cater to the needs of small and marginal farmers as well as agricultural labourers. T
hey provide credit for short term as well as long term requirements for agriculture and allied activities such as purchase of inputs like seeds, fertilizers, farm machinery etc., along with other purposes like housing, consumption etc. In order to ensure easy availability of credit to target groups at reasonable rates, refinancing facilities are provided by NABARD to PACSs and SCBs from time to time.
The banking system in India is divided into four tiers:-
According to the structure of the Indian banking system, the banking system in India is divided into four levels:-
1) Scheduled Commercial Banks (SCBs): These are large banks that are listed in the Reserve Bank of India (RBI) list of Scheduled Commercial Banks. As of March 2020, there were 27 public sector banks, 21 private sector banks, 43 foreign banks and 56 regional rural banks (RRBs) in India.
2) Non-Scheduled Commercial Banks (NSCBs): These are small banks which are not listed in RBI’s list of scheduled commercial banks.
3) Co-operative Banks: These are co-operative societies which provide banking services to their members. There are three types of co-operative banks in India – urban co-operative banks (UCBs), state co-operative banks (SCBs), and central co-operative banks (CCBs).
4) The Microfinance Institutions (MFIs): These institutions provide financial services to low-income families and small businesses.
The Indian banking system is divided into four tiers: the Scheduled Commercial Banks (SCBs), which comprise the public sector banks (PSBs) and private sector banks (PVBs); the Regional Rural Banks (RRBs); the cooperative banks, which include urban cooperative banks (UCBs) and rural cooperative banks (RCBs); and finally, the Reserve Bank of India (RBI).
The SCBs are further classified into two categories: PSBs and PVBs. PSBs are owned by the central or state government, whereas PVBs are in the private sector. As of March 2020, there were 21 PSBs and 36 PVBs in India.
The RRBs are a class of commercial bank that operate at the district level. They were established with the aim of providing banking services to rural areas. As of March 2020, there were 56 RRBs in India.
The cooperative banks are owned by their members and operate at both the urban and rural level. UCBs predominantly operate in urban areas, while RCBs predominantly operate in rural areas. As of March 2020, there were 1,562 UCBs and 37,977 RCBs in India.