Blog: Type of Banks In India: List of Different Types of Banks – Bankersadda

Type of Banks In India: The banking system of any country is considered the backbone of that country’s economy, therefore, it is essential that it should be regulated by an authority that the public can trust. Every country has its own central bank which regulates the banking activities in that country. The body which regulates the banking system in India is the RBI. Banking awareness is one of the main sections asked in the mains examination of banking exams which contains various important topics and the types of banks in India is one of them. Today in this article, we are going to discuss the list of different type of banks present in India.

Type of Banks In India: List of Different Types of Banks

Banking has been a significant part of our lives for a very long time and this sector contribute a major part in our economy. The history of banking in India has seen a lot of phases, reforms & has been continuously evolving since then. Before moving towards the types of banks in India, lets first know what is banking?. As per the Banking Companies Act of 1949, Banking is defined as a financial institution which accept deposits for the purpose of lending or investment from the public, repayable on demand or otherwise and withdrawable by cheque, demand draft and other modes.

Type of Banks In India: List of Different Types Of Banks

The type of banks can broadly be categorised into Scheduled banks and Non scheduled banks.

  • Scheduled Banks- It is one of the type of banks in India which constitute those banks, which have been included in the second schedule of Reserve Bank of India(RBI) Act 1934. It basically comprises commercial banks and cooperative banks. Commercial Banks primarily works on a profit basis and is engaged in the business of accepting deposits for the purpose of giving loans. The scheduled commercial banks can further divided into four categories. Type of banks falling under the scheduled commercial banks are public sector banks, private sector banks, foreign banks and Regional rural banks.
  • Non Scheduled Banks- Non scheduled banks defined in clause (c) of section 5 of the Banking Regulation Act, 1949.

Type of Banks In India: List of Different Types Of Banks

Commercial Banks

Commercial banks is one the major type of banks which are registered under the banking companies act 1956. The main objective of these banks is to earn the profit. The primary source of funds of the commercial banks is public deposits. Commercial banks are divided into three categories i.e. public sector banks, private sector banks and regional rural banks.

  • Public Sector Banks- These are those entities which are owned by government having more than 51% stake in the capital
  • Private Sector Banks- Private Banks are those entities which are owned by private individuals/institutions and these are registered under the companies act 1956 as limited companies
  • Regional Rural Banks- These entities are completely under government and work for the betterment of the rural sector of the society
  • Cooperative Banks
  • Foreign Banks

Regional Rural Banks

Regional Rural Banks or RRBs are government banks operating at regional level in different states of India. These are designed to cater the needs of the rural area people. Regional Rural Banks are the type of commercial banks which helps to bring the financial inclusion in the primary level of the nation. Currently there are 43 RRBs in India and each RRB is sponsored by Government of India along with State Government and Sponsor bank.

  • Regional Rural Banks (RRBs) were set up under the provisions of 26 September 1975 ordinance and the RRB Act of 1976 to allocate banking and credit services for agriculture and other rural sectors. They were established on the recommendation of Narshimhan committee.
  • After the legislation of the Regional Rural Banks Act, 1976, the first Regional Rural Bank “Prathama Grameen Bank” at Moradabad (U.P) was set up on October 2, 1975 which was sponsored by Syndidcate Bank with Rs 5 crore as initial capital.

Regional Rural Banks are owned by three entities:

  • Central Government with a share of 50%
  • State Government with a share of 15% and
  • Sponsor Bank with a share of 35% (Any commercial bank can sponsor the regional rural banks)

Cooperative Banks

Cooperative Banks are the type of banks which operates in India. They are known so because of the purpose they serve which is mainly financing the small lenders. Cooperative banks generally lends money to small businessmans and farmers. Cooperative banks generally gets deposits from their own shareholders and from public as well. Cooperative banks does not deal with big individuals or companies. Cooperative Banks  are registered under Banking Regulation Act 1949 but also with Cooperatives societies, Act 1965 as well. Cooperative Banks are regulated by both RBI and NABARD. Cooperative banks are the type of banks which have a valuable contribution in the growth of rural India. The cooperative banks in India works at three level

  • Urban cooperative banks
  • District cooperative banks
  • Primary agriculture cooperative society

Foreign Banks

Foreign banks are also registered banks which are situated out of their home country and their branches are located in other countries. Foreign banks are required to follow the rules and regulation of both home country and host country. There are currently 45 foreign sector banks in India.

Local Area Banks

Local area banks are the type of non scheduled banks. These banks are governed by the companies act 1956. The Local area banks are introduced only around 1996 as the main objective to run only in local areas to generate profits. Commercial private sector banks manage these banks. However, not many local area banks are there in India. Some of them include Coastal Local Area Bank in Andhra Pradesh, Subhadra Local area bank in Kolhapur, Capital Local area bank in Punjab, and Krishna Bhima Samruddhi Local area bank in Telangana.

Small Finance Banks

The small finance bank shall be registered under the Companies Act, 2013. It is licensed under section 22 of the Banking Regulation Act, 1949. The minimum paid-up capital required to set up a small finance bank is Rs.200 crore and it will be required to maintain a capital adequacy ratio of 15 percent of its risk-weighted assets. The promoters have to contribute an initial 40 percent of paid-up equity capital.  According to FDI policy foreign investors can invest in small finance banks up to 74 percent of equity capital (49 percent from direct route and other from approval route).

Specialised Banks

Specialised Banks are one of the category of banks in India which are setup for a special purpose. There are certain specialised banks which plays a very crucial role in the banking system.

  • NABARD- National Bank for Agriculture & Rural Development is the full form of NABARD. This bank was formed for the development of agriculture sector in our country and is still doing the same.
  • EXIM- Export Import Bank of India was formed to promote domestic industries so that they can export their products. This bank grant loans. The primary objective of EXIM Bank is to provide financial assistance to exporters and importers.
  • SIDBI- Small Industrial Development Bank of India is one the major financial institution which provides financial assistance to micro industries for their expansion and development.

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FAQs: Type of Banks In India

Q.1 What are the different type of banks in India, explain their major functions?
Ans The type of banks in India are mainly divided into scheduled banks and non scheduled banks and then they are further divided into various categories.

Q.2 What are the types of commercial banks in India?
Ans The types of commercial banks in India are divided into public sector banks, private sector banks, foreign banks and cooperative banks

Q.3 Which is the apex bank in India?
Ans The Reserve Bank of India is the apex bank in India

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