This document provides an overview of commercial banks in India. It discusses the history and nationalization of banks in India. It defines scheduled and non-scheduled commercial banks and describes the types and structure of banks, including public sector banks, private sector banks, foreign banks, and regional rural banks. The document also discusses the functions of modern commercial banks such as credit creation and financing foreign trade. It provides learning objectives and topics to remember on the structure and roles of commercial banks in India.

1. Ch-2 A Study of Commercial Banks
(Public & Private Sector Banks)
10 September 2020

2. Learning Objectives
1. History of Banks in India
2. Timeline of Nationalisation of
Banks
3. Meaning and Definition of Bank
(same as previous chapter)
4. Types and Structure of
Commercial Banks in India
5. Functions of Modern
Commercial Banks (contd. from
Ch-1)
6. Importance of Banks or role of
banks in economic development
7. Recent trends/ developments in
commercial banking.
Topics to Remember

3. History of Banks in India
1. https://allgovtjobsindia.in/history-banking-india-origin-development-banking-
india-bank-exam-study-material/
2. https://www.jagranjosh.com/articles/history-of-indian-banking-system-an-
overview-1495540364-1
3. https://testbook.com/blog/history-of-banking-in-india/

4. Timeline of Nationalisation of Banks
1949 Enactment of Banking Regulation Act
1955 Nationalisation of State Bank of India
1959 Nationalisation of SBI Subsidiaries
1961 Insurance cover extended to deposits
1969 Nationalisation of 14 major banks
1971 Establishment of Credit Guarantee Corporation
1975 Creation of Regional Rural Banks
1980 Nationalisation of 6 banks with deposits of over ₹ 200 crores
1990 Banking Sector Reforms started with the recommendations of Narsimham
Committee I & II

5. Types & Structure of Commercial Banks
There are two types of commercial banks in India:
A. Scheduled Commercial Banks- Banks that are registered in the second
schedule of the Reserve Bank of India Act are called Scheduled Commercial
Banks. A Bank doing banking business in India and fulfilling the following
conditions can be included in the second schedule of the RBI Act:
1. Has a paid up capital of ₹ 5 lakhs
2. Is registered under the Indian Companies Act or under a foreign law.
3. Must satisfy the RBI that its affairs are not conducted in a manner
detrimental to the interest of its depositors.
4. Its economic condition must be sound.

6. Types & Structure of Commercial Banks
B. Non-scheduled Commercial Banks- Banks whose names are not included
in the second schedule of the RBI Act are termed as non-scheduled banks.
They are not entitled to the facilities available to scheduled banks from the
RBI.

7. Scheduled Banks & the RBI
The scheduled banks enjoy the following facilities from the RBI:
1. Borrow funds against permitted securities from the RBI.
2. Rediscount certain trade bills with RBI including bills drawn for the purpose
of buying government securities.
3. Enjoy clearing house facilities as a member of the clearing house.
4. Avail financial help and guidance from the RBI at a time of crisis.
5. Enjoy remittance facilities provided by the RBI for quick and cheap transfer of
funds from one place to another.

8. Responsibilities of Scheduled Commercial Banks
The scheduled banks have to fulfil certain obligations laid down by the RBI, in
return for the facilities they enjoy as scheduled banks. These are:
1. A scheduled bank must maintain with the RBI a cash reserve between 3% to
15% as directed by the RBI of its total time and demand deposit liabilities;
and a statutory liquidity ratio of 20.5% of the deposit liabilities.
2. These banks are required to submit the weekly return of their position on
every Friday to the RBI.

9. Non-scheduled Banks and the RBI
The RBI maintains regular contact with the non-scheduled banks which may
become scheduled banks in future. The Banking Regulation Act 1949 now makes
it obligatory for all banking companies to submit monthly returns to the RBI and
maintain cash reserves with the RBI. they can also avail remittance facilities from
the RBI.

10. Structure of Commercial Banks in India
A. Public Sector Banks
1. Nationalised Banks
2. SBI & Associates (now only SBI)
3. Other public sector banks
B. Private Sector Banks
1. Old private sector banks
2. New private sector banks
C. Foreign Banks
D. Regional Rural Banks
https://en.wikipedia.org/wiki/List_of_banks_in_India

11. A. Public Sector Banks in India
1. https://financialservices.gov.in/banking-divisions/public-sector-banks
2. https://en.wikipedia.org/wiki/Public_sector_banks_in_India
3. https://www.jagranjosh.com/general-knowledge/list-of-all-public-and-private-
sector-banks-in-india-1582542534-1
4. https://www.bankersadda.com/list-of-public-sector-banks-in-india/

12. B. Private Sector Banks in India
1. https://financialservices.gov.in/banking-divisions/Private-Sector-Bank
2. https://www.gktoday.in/gk/private-sector-banks-in-india/
3. https://www.rbi.org.in/scripts/banklinks.aspx

13. C. Foreign Banks in India
1. https://en.wikipedia.org/wiki/List_of_banks_in_India#Foreign_banks
2. https://rbidocs.rbi.org.in/rdocs/Content/pdfs/71207.pdf
3. https://www.gktoday.in/gk/foreign-banks-in-india/

14. D. Regional Rural Banks
1. https://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=RegionalRuralBanks.
htm
2. https://financialservices.gov.in/banking-divisions/Regional-Rural-Bank
3. https://financialservices.gov.in/list-rrbs-functioning-country
4. https://byjus.com/bank-exam/rrbs-in-india/
5. https://en.wikipedia.org/wiki/Regional_Rural_Bank

15. Functions of Modern Commercial Banks (contd.
from Ch-1)

16. D. Financial & Managerial Arrangement for Foreign Trade
Commercial banks play an important role in the expansion of foreign trade. They
make short term credit available to the traders engaged in foreign trade. They
also perform the function of accepting and discounting of bills, hundies and
letters of credit. They make international trade easier and convenient. These
banks help in establishing mutual relationships between exporters and
importers.

17. E. Credit Creation
Commercial banks perform the function of credit creation according to the credit
policy of the Reserve Bank of India. Granting of loans and advances is the primary
or traditional function of the banks. As we know, when the bank grants loans to
its customers, it generally does not lend out cash equal to the amount of the loan
to the customers, like an individual money-lender does; but on the contrary,
opens an account in the borrower’s name and credits the amount of the loan to
his account.
Thus, whenever a bank grants a loan, it creates a deposit or a liability against
itself. Since the deposits of the bank circulate as money, the creation of such
deposits leads to a net increase in the money stock of the economy. This is
known as creation of credit or money by the bank. Thus, credit creation indirectly
increase the supply of money and make transactions convenient.

18. “Banks are not merely purveyors of money but also,
in an important sense, manufacturers of money.”
~ Prof. Sayers