TYPES OF BANKS

BANKING

The banking industry handles finances in a country including cash and credit. Banks are the
institutional bodies that accept deposits and grant credit to the entities and play a major role
in maintaining the economic stature of a country. Given their importance in the economy,
banks are kept under strict regulation in most of the countries. In India, the Reserve Bank of
India (RBI) is the apex banking institution that regulates the monetary policy in the country.

CLASSIFICATION OF BANKS IN INDIA

Banks are classified into scheduled and non-scheduled banks. Scheduled banks can further be
classified into commercial banks and cooperative banks. Commercial Banks can be further
classified into public sector banks, private sector banks, foreign banks and Regional Rural
Banks (RRB). On the other hand, cooperative banks are classified into urban and rural. Apart
from these, a fairly new addition to the structure is payments bank.

SCHEDULED BANKS

Scheduled banks are covered under the 2nd Schedule of the Reserve Bank of India Act, 1934.
A bank that has a paid-up capital of Rs. 5 Lakh and above qualifies for the schedule bank
category. These banks are eligible to take loans from RBI at bank rate.
Commercial Banks

Commercial Banks are regulated under the Banking Regulation Act, 1949 and their business
model is designed to make profit. Their primary function is to accept deposits and grant loans
to the general public, corporates and government.

Types of Commercial Bank

Commercial banks are classified into two categories i.e. scheduled commercial
banks and non-scheduled commercial banks. Further, scheduled commercial banks are
further classified into three types:

 Private Bank: When the private individuals own more than 51% of the share capital, then
that banking company is a private one. However, these banks are publicly listed companies
in a recognized exchange.

 Public Bank: When the Government holds more than 51% of the share capital of a
publicly listed banking company, then that bank is called as Public sector bank.

 Foreign Bank: Banks set up in foreign countries, and operate their branches in the home
country are called as foreign banks.
 Non-scheduled commercial banks refer to the banks which are not covered in the Reserve
Bank of India’s second schedule. The paid-up capital of such banks is not more than Rs. 5
lakhs.

Functions of Commercial Bank

1. Primary functions

 Accepting Deposits: The primary function for which the commercial banks were
established is to accept deposits from the general public, who possess surplus funds and
are willing to deposit them so as to earn interest on it.

 There are various products offered by the bank to the customers for the deposit of their
money, which includes savings account, current account, fixed deposit and recurring
deposit.
  Advancing Loans: Next important function performed by the commercial bank is lending
money to the individuals and companies. The banks make loans to the customers in the
form of term loans, cash credit, overdraft and discounting of bills of exchange.

2. Secondary functions

 Agency Services: There are some facilities provided by the commercial banks in which
they act as an agent of the customers. Such services are:

 Collection and payment of rent, interest and dividend.

 Collection and payment of cheques and bills.

 Buying and selling securities.

 Payment of insurance premium and subscriptions.

 General Utility Services: Commercial banks provide general utility services to the
customers and charges a fee for the same. It covers services like:

 Safekeeping of valuables, documents etc, in locker or vault.

 ATM card, credit card and debit card facility.

 Issue of demand draft, pay order and traveller’s cheque.

 Internet and mobile banking

 Sale of application forms of competitive exams.

 Transfer of funds: Banks assist in the transfer of funds from one person to another or
from one place to another through its credit instruments.
 Credit Creation: The commercial banks are authorized to create credit, by granting more
loans than the amounts deposited by the customers.

Public Sector Banks

These are the nationalised banks and account for more than 75 per cent of the total banking
business in the country. Majority of stakes in these banks are held by the government. In
terms of volume, SBI is the largest public sector bank in India and after its merger with its 5
associate banks (as on 1st April 2017) it has got a position among the top 50 banks of the
world.

State Bank of India Bank of India Allahabad Bank

Bank of Maharashtra Canara Bank Indian Overseas Bank

IDBI Bank Oriental Bank of Commerce Central Bank of India

Corporation Bank Andhra Bank UCO Bank

Bank of Baroda Union Bank of India United Bank of India

Vijaya Bank Dena Bank Indian Bank

Private Sector Banks

These include banks in which major stake or equity is held by private shareholders. All the
banking rules and regulations laid down by the RBI will be applicable on private sector banks
as well. Given below is the list of private-sector banks in India-

HDFC Bank ICICI Bank Axis Bank

YES Bank IndusInd Bank Kotak Mahindra Bank

DCB Bank Bandhan Bank IDFC Bank

City Union Bank Tamilnad Mercantile Bank Nainital Bank

Catholic Syrian Bank Federal Bank Jammu and Kashmir Bank

Lakshmi Vilas Bank RBL Bank Karur Vysya Bank

Foreign Bank

A foreign bank is one that has its headquarters in a foreign country but operates in India as a
private entity. These banks are under the obligation to follow the regulations of its home
country as well as the country in which they are operating. Citi Bank, Standard Chartered
Bank and HSBC are some leading foreign banks in india.

Regional Rural Banks

These are also scheduled commercial banks but they are established with the main objective
of providing credit to weaker sections of the society like agricultural labourers, marginal
farmers and small enterprises. They usually operate at regional levels in different states of
India and may have branches in selected urban areas as well. Other important functions
carried out by RRBs include-

 Providing banking and financial services to rural and semi-urban areas

Small Finance Banks

This is a niche banking segment in the country and is aimed to provide financial inclusion to
sections of the society that are not served by other banks. The main customers of small
finance banks include micro industries, small and marginal farmers, unorganized sector
entities and small business units. These are licensed under Section 22 of the Banking
Regulation Act, 1949 and are governed by the provisions of RBI Act, 1934 and FEMA.
Au Small Finance Bank Ltd. Capital Small Finance Bank Ltd.

Fincare Small Finance Bank Ltd. Equitas Small Finance Bank Ltd.

ESAF Small Finance Bank Ltd. Suryoday Small Finance Bank Ltd.

Ujjivan Small Finance Bank Ltd. Utkarsh Small Finance Bank Ltd.

North East Small Finance Bank Ltd. Jana Small Finance Bank Ltd.

Co-operative banks
 Co-operative banks are registered under the Cooperative Societies Act, 1912 and they
are run by an elected managing committee. These work on no-profit no-loss basis and
mainly serve entrepreneurs, small businesses, industries and self-employment in
urban areas. In rural areas, they mainly finance agriculture-based activities like
farming, livestock and hatcheries.

There are three types of cooperative banks-

(a) Primary Credit Societies- These institutions are formed at village level or town level. The
operations of such banks are limited to a very small area

(b) District Central Cooperative Banks- These banks operate at the district level. They act as
a link between primary credit societies and state cooperative banks
(c) State Cooperative Banks- State Cooperative Banks are biggest forms of cooperative
banks. They operate at the state level. Some of State Cooperative banks operate in multi
States.

Difference between cooperative and commercial banks