Banking Structure

Banking Structure in India

There are various types of banks which operate in our country to meet the financial requirements of different categories of people engaged in agriculture, business, profession etc. On the basis of functions, the banking institutions in India may be divided into the following types:-

1. Central Bank (RBI-Reserve Bank of India)
2. Scheduled Banks
3. Non-Scheduled Banks
4. Development Banks

1. Central Bank :- Central Bank is the bank of a country- a nation. Its main function is to issue currency known as 'Banks Notes'. This bank acts as the leader of the banking system and money market of the country by regulating money and credit. The Central Bank maintains record of Government revenue and expenditure under various heads, they are banker's banks and the ultimate custodian of a nation's foreign exchange reserves. The aim of the Central Bank is not to earn profit, but to maintain price stability and to strive for economic development with all round growth of the country. The Reserve Bank of India is the central bank of our country.

2. Scheduled Banks :- The scheduled commercial banks are those banks which are included in the second schedule of RBI Act 1934 and which carry out the normal business of banking such as accepting deposits, giving out loans and other banking services. Scheduled banks are those banks whose minimum paid up capital and reserve amount to 25 lakh. These bank have to submit details of their activities to the Reserve Bank of India every week.


         2.1  Commercial Banks :- Commercial Banks are banking institution providing services for businesses, organisations and individuals. Services include accept deposits and grant short-term loans, and advances to their customers. In addition to giving short-term loans, commercial banks also give medium-term and long-term loan on a long-term basis to individuals.

Commercial banks in India are classified into following four groups:

• Public Sector Banks- These banks are owned and controlled by the government. The main objective of these banks is to provide service to the society, not to make profits. State Bank of India, Bank of India, Punjab National Bank, Canada Bank are some examples of public sector banks.
• Private Sector Banks- These banks are owned and controlled by private businessmen. Their main objective is to earn profits. ICICI Bank, Indusind Bank, Kotak Mahindra Bank are some examples of private sector banks.
• Foreign Banks- These banks are owned and controlled by foreign promoters. These banks are registered and have their headquarters in a foreign country but operate their branches in our country. Some of the foreign banks operating in our country are Hong Kong and Shanghai Banking Corporation (HSBC), Citibank, American Express Bank are some examples of foreign banks.
• Regional Rural Banks (RRB)- Regional Rural Banks were set up after nationalizations of banks in 1969 when emphasis shifted to providing more credit to weaker sections. Regional Rural Banks were established under the Regional Rural Banks Act, 1976. RRBs have been created with a view to serve primarily the rural areas of India with basic banking and financial services. Their mission was to fulfill the credit needs of the relatively unserved sections in the rural areas-small and marginal farmers, agricultural labourers and socio-economically weaker sections. Shareholding pattern of RRBs among the three sponsoring entities is 50:35:15 among central government(50), sponsoring bank(35) and state government(15) respectively.

         2.2  Co-operative Banks :- People who come together to jointly serve their common interest often form a co-operative society under the Co-operative Societies Act, They are organized on co-operative principles of mutual help and assistance. They grant short-term loans to the agriculturists for purchase of seeds, harvesting and for other cultivation expenses. They accept money on deposit from and make loans to their members at a low rate of interest. As regards banking business, the society must follow the guidelines set issued by the Reserve Bank of India. 

Co-operative banks have a three tier structure — 1. primary (agriculture or urban) credit societies-These are formed at the village or town level with borrower and non-borrower members residing in one locality. The operations of each society are restricted to a small area so that the members know each other and are able to watch over the activities of all members to prevent frauds.  2. District central co-operative banks(Central Co-operative banks) - These banks having some ot the primary credit societies belonging to the same district as their members. These banks provide loans to their members and functions as a link between the primary credit societies and state co-operative banks. and 3. at the apex level, State co-operative banks- These are the apex co-operative banks in all the states of the country. They mobilise funds and help in its proper channelisation among various sectors. The money reaches the individual borrowers from the state co-operative banks through the central co-operative banks and the primary credit societies.




          2.3 Development Banks :- Business often requires medium and long-term capital for purchase of machinery and equipment for using latest technology or for expansion and modernization. Such financial assistance is provided by Development Banks.



Development banks in India are classified into following four groups:

           Industrial Development Banks: It includes, for example, Industrial Finance Corporation of India (IFCI), Industrial Development Bank of India (IDBI) and Small Industries Development Bank of India (SIDBI).
IFCI:- The IFCI was the 1st specialised financial institution setup in India to provide term finance to large industries in India. It was established on 1st July 1948 under the Industrial Finance Corporation Act of 1948. The main objective of IFCI is too provide medium and long term financial assistance to large scale industrial undertakings.

IDBI:- The Industrial Development Bank of India (IDBI) was established  under Industrial Development Bank of India Act, 1964, is the principal financial institution for providing credit and other facilities for developing industries and assisting development institutions. Till 1976, IDBI was a subsidiary bank of RBI, In 1976 it was separated from RBI and THe ownership was transferred to Government of India. The main functions of IDBI are - 1. To provide financial assistance to industrial enterprises, 2. To provide technical and administrative assistance for promotion management or expansion of industry, 3. To promote institutions engaged in industrial development and 4. To undertake market and investment research and surveys in connection with development of industry.

SIDBI:- SIDBI was established in year 1990. If you want to establish a small-scale business unit or industry, loan on easy terms can be available through SIDBI. It also finances modernisation of small-scale industrial units, use of new technology and market activities. The aim and focus of SIDBI is to promote finance and develop small-scale industries.

          Agricultural Development Bank: It includes, National Bank for Agriculture and Rural Development (NABARD).

NABARD:- NABARD was established in the year 1982. It is a central or apex institution for financing agricultural and rural sectors. If a person is engaged in agriculture or other activities like handloom weaving, fishing, etc. NABARD can provide credit, both short-term and long-term, through regional rural banks. It provides financial assistance, especially, to co-operative credit, in the field of agriculture, small-scale industries, cottage and village industries handicrafts and allied economic activities in rural areas.

          Export-Import Development Bank:- It includes, Export-Import Bank of India (EXIM BANK).

EXIM Bank:- EXIM Bank was established in year 1982. If you want to set up a business for exporting products abroad or importing products from foreign countries for sale in our country, EXIM bank can provide you the required support and assistance. The bank grants loans to exporters and importers and also provides information about the international market. It gives guidance about the opportunities for export or import, the risks involved in it and the competition to be faced etc.

          Housing Development Bank:- It includes, National Housing Bank (NHB)

NHB:- The National Housing Bank (NHB) is a state owned bank and regulation authority in India created on July 8, 1988 under section 6 of the National Housing Bank Act (1987). The institution, owned by the Reserve Bank of India (RBI), was established to promote housing finance institutions both at local and regional levels and re-financing social housing programs and other activities like research etc. Its vision is promoting inclusive expansion with stability in housing finance market.

3. Non-Scheduled Banks :- The banks that are not included in the Reserve Bank of India (RBI) Act, 1934 are defined in the clause (c) of Section 5 of the Banking Regulation Act, 1949. These banks are not eligible for having loans from RBI for meeting their day to day general requirements. Only in emergency conditions, these banks can be granted loans from RBI.