This document provides an overview of the different types of banks in India. It discusses central banks, commercial banks including public sector, private sector and foreign banks. It also covers cooperative banks, regional rural banks, local area banks, specialized banks including EXIM Bank and SIDBI, payments banks, small finance banks and indigenous banks. The key functions and features of each bank type are described.

1. Types of Banks
Dr. Sunita Sukhija
Assistant Professor
Govt. National College, Sirsa

2. Introduction
 A financial system is an important tool for a country
that wants to develop economically. The reason is
that it helps in the creation of wealth by a way of
investments. That is why there are different types
of financial services available to facilitate the
requirement. One of the important ways for a
country to control financial transactions and
services is through banks. Banking in India has
been a backbone to so many businesses in the
past as well as in the present times. Different types
of banks are central banks, commercial banks,
investment banks, cooperative banks, postal
banks. Let us see the introduction of Banks.
 Banks are financial institutions that perform
deposit and lending functions. There are various
types of banks in India and each is responsible to
perform different functions.

3.  Banking is defined as the accepting
purpose of lending or investment of
deposits, money from the public,
repayable on demand or otherwise and
withdrawal by cheque, draft, order or
otherwise — this definition is given in
Indian Banking Regulation Act (1949).
 From this definition, we can say that a
bank has two main features: (1) the bank
accepts deposits of money which are
withdrawal by cheques, (2) the bank uses
the deposits for lending. To be recognised
as bank the institution must use the
deposits to give loans to the general

4. Classification of banks as per
schedule
 Scheduled Banks:- Banks which have been
included in the Second Schedule of RBI Act 1934.
They are categorized as follows:
 Public Sector Banks:- These are those banks in
which majority of stake is held by the government.
Eg. SBI, PNB, Syndicate Bank, Union Bank of India
etc.
 Private Sector Banks:- These are those banks in
which majority of stake is held by private
individuals. ie. ICICI Bank, IDBI Bank, HDFC Bank,
AXIS Bank etc.
 Foreign Banks:- These are the banks with Head
office outside the country in which they are located.
Eg. Citi Bank, Standard Chartered Bank, Bank of
Tokyo Ltd. etc.
 Non scheduled commercial Banks:- Those

5. Scheduled Commercial Banks
 All the commercial banks in India- Scheduled and Non-Scheduled is
regulated under Banking Regulation Act 1949.
 Minimum Capital of Rs. 200 Cr. & Must be in business of banking
 Either a company defined in Sec.3 of Companies Act, 1956 or a
company incorporated under any law.
 It must satisfy RBI that its affairs are not conducted in manner
detrimental to interest of its depositor.
 By definition, any bank which is listed in the 2nd schedule of the
Reserve Bank of India Act, 1934 is considered a scheduled bank. The
list includes the State Bank of India and its subsidiaries (like State Bank
of Travancore), all nationalised banks (Bank of Baroda, Bank of India
etc), Private sector banks, Foreign banks, regional rural banks (RRBs),
foreign banks (HSBC Holdings Plc, Citibank NA) and some co-operative
banks.
 Till 2017, Scheduled commercial banks in India comprised 26 Public
sector banks including SBI and its associates, and 19 Nationalised Bank
and IDBI. The creation of Bhartiya Mahaila Bank has increased the total
no of Public sector SCB’s to 27, but the recent merger of the Mahaila
Bank with SBI had reduced the list back to 26.
 The scheduled private sector bank includes old private sector banks
and new private sector banks. There are 13 old private sector banks
and 9 new private sector banks including the newly formed IDFC and
Bandhan Bank.
 There are also 43 Foreign National Banks operating in India.

6. Classification of banks
according to functions
 The bank takes deposit at a much lower rate from the
public called deposit rate and lends money at a much
higher rate called the lending rate.
 Banks can be classified into various types. Given below
is the bank types according to functions in India:-
 Central Bank
 Cooperative Banks
 Commercial Banks
 Regional Rural Banks (RRB)
 Local Area Banks (LAB)
 Specialized Banks
 Small Finance Banks
 Payments Banks

7. Central Bank
 The Reserve Bank of India is the central bank of our country. Each country has a central
bank that regulates all the other banks in that particular country. The Reserve Bank of
India, Bank of England and Federal Reserve System are the Central Banks respectively
of India, England and U.S.A. Though the first Central bank in the world was established
in 1668 in Sweden, but the true beginning of Central banking system is marked with the
establishment of Bank of England in 1694.
 The main function of the central bank is to act as the Government’s Bank and guide and
regulate the other banking institutions in the country. Given below are the functions of
the central bank of a country:
 Guiding other banks
 Issuing currency
 Implementing the monetary policies
 Supervisor of the financial system
 In other words, the central bank of the country may also be known as the banker’s bank
as it provides assistance to the other banks of the country and manages the financial
system of the country, under the supervision of the Government. Central Bank is the
Apex bank of the banking system of the country. It issues currency notes and acts as
banker’s bank. It controls credit and regulates the banking system of the country.
Central Bank occupies an important status in monetary and banking system of a
country.
 Economic stability is the principal function of these banks. The Central Bank issues all
types of currency, controls all other banks in the country and functions as a bank of the
Government. This Bank also controls and regulates the flow of credit.
 In short, Central Bank is an institution that controls and regulates the banking system of
a country.

8. Cooperative Banks
 These banks are organised under the state government’s
act. They give short term loans to the agriculture sector
and other allied activities.
 The main goal of Cooperative Banks is to promote social
welfare by providing concessional loans
 They are organised in the 3 tier structure
 Tier 1 (State Level) – State Cooperative Banks (regulated
by RBI, State Govt, NABARD)
◦ Funded by RBI, government, NABARD. Money is then
distributed to the public
◦ Concessional CRR, SLR applies to these banks. (CRR- 3%,
SLR- 25%)
◦ Owned by the state government and top management is
elected by members
 Tier 2 (District Level) – Central/District Cooperative Banks
 Tier 3 (Village Level) – Primary Agriculture Cooperative
Banks

9. 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. When a
co-operative society engages itself in banking business it is called a Co-
operative Bank. The society has to obtain a licence from the Reserve Bank
of India before starting banking business. Any co-operative bank as a
society is to function under the overall supervision of the Registrar, Co-
operative Societies of the State. As regards banking business, the society
must follow the guidelines set and issued by the Reserve Bank of India.
 Types of Co-operative Banks
 (i) Primary 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.
 (ii) Central Co-operative Banks: These banks operate at the district level
having some of the primary credit societies belonging to the same district
as their members. These banks provide loans to their members (i.e.,
primary credit societies) and function as a link between the primary credit
societies and state co-operative banks.
 (iii) State Co-operative Banks: These are the apex (highest level) 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.

10. Commercial Banks
 Organised under the Banking Companies Act, 1956
 They operate on a commercial basis and its main objective is
profit.
 They have a unified structure and are owned by the
government, state, or any private entity.
 They tend to all sectors ranging from rural to urban
 These banks do not charge concessional interest rates
unless instructed by the RBI
 Public deposits are the main source of funds for these banks
 The commercial banks can be further divided into three
categories:
 Public sector Banks – A bank where the majority stakes are
owned by the Government or the central bank of the country.
 Private sector Banks – A bank where the majority stakes are
owned by a private organization or an individual or a group of
people
 Foreign Banks – The banks with their headquarters in
foreign countries and branches in our country, fall under this
type of bank

11. Types of Commercial banks:
 (i) Public Sector Banks: These are banks where majority
stake is held by the Government of India or Reserve Bank
of India. Examples of public sector banks are: State Bank
of India, Corporation Bank, Bank of Boroda and Dena
Bank, etc.
 (ii) Private Sectors Banks: In case of private sector banks
majority of share capital of the bank is held by private
individuals. These banks are registered as companies
with limited liability. For example: The Jammu and
Kashmir Bank Ltd., Bank of Rajasthan Ltd., Development
Credit Bank Ltd, Lord Krishna Bank Ltd., Bharat
Overseas Bank Ltd., Global Trust Bank, Vysya Bank, etc.
 (iii) Foreign Banks: 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, Standard & Chartered Bank, Grindlay’s Bank, etc.
The number of foreign banks operating in our country has
increased since the financial sector reforms of 1991.

12. Specialised Banks
 There are some banks, which cater to the requirements
and provide overall support for setting up business in
specific areas of activity. EXIM Bank, SIDBI and
NABARD are examples of such banks. They engage
themselves in some specific area or activity and thus,
are called specialised banks. Let us know about them.
 i. Export Import Bank of India (EXIM Bank): 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.

13. Special Banks
 ii. Small Industries Development Bank of India (SIDBI):
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.
 iii. National Bank for Agricultural and Rural
Development (NABARD): 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.

14. Agricultural Banks:
 Agricultural Banks are those banks which give
credit to agricultural sector of the economy. Short
period loans are given to the farmers for the
purchase of seeds, fertilizers and other inputs.
Long period loans are given for making
permanent improvement land.
 Agricultural Co-operative Banks and Regional
Rural Banks deal in short period loans while long
period loans are advanced by Land Development
Banks. At the village level Primary Agricultural
Co-operative Societies, at the tehsil level Co-
operative Unions, at the district level Central Co-
operative Banks and at the state level State Co-
operative Banks function in India. To fulfil
agricultural credit needs at the national level,
National Bank for Agriculture and Rural
Development (NAB ARD) has been established.

15. Regional Rural Banks (RRB)
These banks were established mainly to support the weaker and lesser
fortunate section of the society like marginal farmers, laborers, small
enterprises etc. they mainly operate at regional levels at different
states and may have branches in urban areas as well. Their main
features are:
1. Supporting rural and semi-urban region financially
2. Pension distribution and Wage disbursement of MGNREGA
workers
3. Added banking facilities like locker, cards-debit, and credit
 These are special types of commercial Banks that provide
concessional credit to agriculture and rural sector.
 RRBs were established in 1975 and are registered under a Regional
Rural Bank Act, 1976.
 RRBs are joint ventures between the Central government (50%),
State government (15%), and a Commercial Bank (35%).
 196 RRBs have been established from 1987 to 2005.
 From 2005 onwards government started merger of RRBs thus
reducing the number of RRBs to 82
 One RRB cannot open its branches in more than 3 geographically
connected districts.

16. Local Area Banks (LAB)
 Introduced in India in the year 1996
 These are organized by the private sector
 Earning profit is the main objective of Local Area Banks
 Local Area Banks are registered under companies Act,
1956,
 There are only four Local Area Banks (LAB) in India,
which exist in the form of Non-scheduled banks.
 At present, there are only 4 Local Area Banks all which
are located in South India
 Coastal Local Area Bank Ltd. Founded : 27 Dec. 1999.
 Capital Local Area Bank Ltd. Founded : 14 January
2000.
 Krishna Bhima Samruddhi Local Area Bank Ltd.
 Subhadra Local Area Bank Ltd.

17. Payments Banks
 This is a new and upcoming model of banking in India. It has been
conceptualized and signed-off by RBI with restricted operations.
Maximum of Rs. One Lakh is acceptable per customer by these
banks. Like other banks, they also offer para-banking services like
ATM cards, Debit- Credit cards, net-banking, mobile banking etc .
People with an account in the payments bank can only deposit an
amount of up to Rs.1,00,000/- and cannot apply for loans or credit
cards under this account. There is no facility of loans or credit cards
available in such banks.
 This latest introduction to the banking format design took place by
the RBI. The maximum deposit accepted in these banks is that of
Rs.100000.
 Net, online, mobile, ATM, and debit card banking can take place via.
Options for online banking, mobile banking, the issue of ATM, and
debit card can be done through payments banks. Given below is a
list of the few payments bank in our country:
 Airtel Payments Bank
 India Post Payments Bank
 Fino Payments Bank
 Jio Payments Bank
 Paytm Payments Bank

18. Indigenous Banks:
 These Banks found their origin in India.
These banks made a significant
contribution to the development of
agriculture and industry before
independence. Mahajans, rural money
lenders and jewellers have been the
fore-runners of these banks in India.
These agencies do their banking
business with their own funds. Even
these days nearly 40% of agricultural
loans are offered by the indigenous

19. Saving Banks:
 The principal function of these banks
is to collect small savings across the
country and put them to the productive
use. These Banks have shown
marked development in Germany and
Japan. Saving Banks were first
established in Hamberg city of
Germany in 1765. In India a
department of Post Offices functions
as Saving Banks.

20. Small Finance Banks
 All Small Finance Banks deal with basic lending and deposit activities, like loans and deposits.
SFBs are required to focus their products more towards the priority sector, which includes
facilitating funds to poor people for housing, lending for agriculture and allied activities, funding
to micro and small industries, and weaker sections of the society. These directives are regulated
by the RBI, that allows Small Finance Banks to operate. These banks cater to a niche segment
in the society and help with financial inclusion of sections which are not taken care of by other
leading banks. They look after micro industries, unorganized sector, small farmers etc. RBI and
FEMA are the governing bodies of these banks.
 It is mandatory for Small Finance Banks to set up at least 25 percent of its branches in the
unbanked remote and rural areas.
 The SFBs require a minimum capital requirement of ₹ 100 Cr.
 The Small Finance Banks are subjected to follow the rules and regulations set by the RBI.
These rules include maintenance of the CRR or cash reserve ratio, and STR or statutory
liquidity ratio.
 The Small Finance Banks can even take up activities like distribution of mutual funds, insurance
products, and pension products, but only after approval from RBI.
 Also, SFBs can engage in foreign exchange business as per their customer’s needs.
 Some of the operational Small Finance Banks in India are as follows.
 Ujjivan Small Finance Bank.
 Janalakshmi Small Finance Bank.
 Equitas Small Finance Bank.
 A U Small Finance Bank.
 Capital Small Finance Bank.
 ESAF Small Finance Bank.
 Utkarsh Small Finance Bank.
 Suryoday Small Finance Bank.

21. Industrial Banks:
 Industrial Banks are those banks which offer
long term and medium term loans to the
industries and also work for their
development. These banks help industries in
the sale of their debentures, bonds and
shares.
 Banks themselves purchase the shares as
well as underwrite the debentures of the
industries. Industrial Banks give loans to the
industries for the purchase of land and
machinery. In India many industrial banks
have been established after independence,
viz. Industrial Development Bank of India,
Industrial Finance Corporation, State Finance
Corporations and others.

22. Retail banking
 Retail banking is a major form of commercial banking
but mainly targeted to consumers rather than corporate
clients. It is the method of banks' approach to the
customers for sale of their products. The products are
consumer-oriented like offering a car loan, home loan
facility, financial assistance for purchase of consumer
durables, etc. Retail banking therefore has large
customer-base and hence, large number of transactions
with small values. It may therefore be cost ineffective in
a highly competitive environment. Most of the Rural and
semi-urban branches of banks, in fact, do retail
banking. In the present day situation when lending to
corporate clients lead to credit risk and market risk,
retail banking may eliminate market risk. It is one of the
reasons why many a wholesale bankers like foreign
banks also prefer to go for consumer financing albeit for
marginally higher net worth individual.

23. Advantages of Retail Banking:
 1. Retail deposits are stable and constitute core deposits.
 2. They are interest insensitive and less bargaining for additional interest.
 3. They constitute low cost funds for the banks.
 4. Effective customer relationship management with the retail customers built a
strong base.
 5. Retail banking increases the subsidiary business of the banks.
 6. Retail banking results in better yield and improved bottom line for a bank.
 7. Retail segment is a good avenue for funds development.
 8. Consumer loans are presumed to be of lower risk and NPA perception.
 9.Retail banking helps economic revival of the nation through increased
production activity.
 10. Retail banking improves lifestyle and fulfils aspirations of the people through
affordable credit.
 11. Innovative product development credit.
 12. Retail banking involves minimum marketing efforts in a demand-driven
economy.

24. Disadvantages of Retail
Banking
 1. Designing own and new financial products is very
costly and time consuming for the bank.
 2. Customers now-a-days prefer net banking to branch
banking. The banks that are slow in introducing
technology-based products, are finding it difficult to
retain the customers who wish to opt for net banking.
 3. Customers are attracted towards other financial
products like mutual funds etc.
 4. Though banks are investing heavily in technology,
they are not able to exploit the same to the full extent.
 5. A major disadvantage is monitoring and follow up of
huge volume of loan accounts inducing banks to spend
heavily in human resource department
 6. Long term loans like housing loan due to its long
repayment term in the absence of proper follow-up, can
become NPAs.

25. India Post Payments Bank
 India Post Payments Bank (IPPB) is a public
sector payments bank from India operated by the India
Post. Opened in 2018, the bank had acquired about 4.0
crore customers by December 2020 At India Post
Payments Bank, we believe that a nation can grow when
every citizen has an opportunity to prosper, regardless of
their way of life. With simple, diverse and growth-oriented
offerings, IPPB aims to provide every household in India an
access to efficient banking services and enable them to
become financially secure and empowered.
 India Post Payments Bank (IPPB) was setup under the
Department of Post, Ministry of Communication with 100%
equity owned by Government of India. IPPB was launched
as a pilot project on 30 January 2017 in Ranchi
(Jharkhand) and Raipur (Chhattisgarh), with the objective
of being present across India by the FY 2018-2019. IPPB
has expanded its strength across India covering post
offices, through a network of 650 IPPB branches/controlling
offices, working on a hub and spoke model.

26. India Post Payments Bank
(IPPB)
 IPPB will be leveraging the vast postal network of nearly 1.55 lakh post
offices and 3.0 lakh postal employees in every district, town and village
of the country to serve . To expand services to every doorstep, postman
become your trusted financial services advisor, working hard to ensure
that you get what you need - be it receiving your money in the fastest
way possible, using it at ease for essentials, saving for your loved ones,
or even investing for a bright future. Every customer is important,
every transaction is significant, and every deposit is valuable no
matter what the value.
 That is what it has been said that– Aapka Bank, Aapke Dwaar.
 One may avail various banking services such as opening of savings and
current accounts, transfer of money, direct benefit transfers (DBT), bill
and utility payments, and so on. Three different kinds of IPPB savings
accounts - regular, digital and basic saving.
 Approachability:
Last mile delivery of services through the postman – a son of the soil and
a friend, philosopher and financial guide to the people.
 Ease of banking:
IPPB integrates easily with the existing bouquet of post office services,
extends the services though a frictionless shift.
 The last mile delivery agent is empowered with financial knowledge and
intuitively designed digital tools to offer financial services and guidance
with relative ease.

27. MCQs
 Which bank is known as banker’s bank?
 a. RBI b. SBI c. PNB d .NABARD
 Banking Regulation Act was comes into
existence………
 a.1949 b. 1934 c. 1956 d .1949
 The process of …………. begins with banks
lending money out of primary deposit.
 a. credit creation b. cash credit c. debit
creation d. over draft
 Example for Foreign Bank is -----
 a. Centurion Bank b CityBank c Axis Bank d.
All

28.  Bank of Baroda is an example for -------
 a. Private sector Bank b. Foreign Bank c. Public sector
Bank .None of these
 State financial corporations is an example for -------- a.
Industrial Bank b. Foreign Bank c. Public sector Bank
d.All
 ------ banks accept deposits but customer balance should
not exceed Rs.1 lakh
 a. Small Finance Bank b. Consortium Bank c. Payment
Bank d. None of these.
 -------- Banks can issue ATM Debit cards but no Credit
cards.
 a. Payment Bank b. Consortium Bank c. Small Finance
Bank d. None of these
 HDFC bank is an example of?
 (A) Foreign Bank (B) Public Bank (C) Private Bank (D)
None of these

29. Thanks