Banking Financial Institutions – Overview & Types

Introduction

The Banking System is the core of the financial system. In India, it is structured under the apex body, the Reserve Bank of India (RBI).

1. Classification of Banks

A. Scheduled Banks

• Listed in the Second Schedule of RBI Act, 1934.
• Paid-up capital > ₹5 Lakhs.
• Eligible for RBI borrowing facilities.
• Almost all banks we see are Scheduled Banks.

B. Non-Scheduled Banks

• Not listed in Second Schedule. Very few local area banks remain.

2. Types of Scheduled Banks

1. Commercial Banks (Profit Motive)

• Public Sector Banks (PSBs): Govt holds > 51% (e.g., SBI, PNB, Bank of Baroda).
• Private Sector Banks: Private ownership (e.g., HDFC, ICICI, Axis).
• Foreign Banks: Branches of foreign banks (e.g., Citibank, HSBC).
• Regional Rural Banks (RRBs): For rural credit (Sponsored by PSBs).
• Small Finance Banks: For financial inclusion (e.g., AU Small Finance).
• Payments Banks: Can't lend, only deposits (e.g., Paytm Payments Bank, India Post).

2. Cooperative Banks (Service Motive)

• Run on "No Profit, No Loss" principle initially. Owned by members.
• Urban Cooperative Banks (UCBs).
• Rural Cooperative Credit Institutions.

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3. Difference: Commercial vs Cooperative

Summary

• Apex: RBI.
• Main Category: Scheduled Commercial Banks.
• PSBs: Govt owned.
• Cooperative: Member owned for mutual help.

Quiz Time! 🎯

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