We all visit banks and have our transactions from our own respective branches for our everyday needs and necessities. But do you know that there are several types of banks in the country? Depending on the different types of banks, the operations and functions alter. However, basically, overall, there are two significant and main functions for every bank. Let us understand them briefly. First of all, banks run to accept our deposits, withdraw them on demand, and grant loans to the public.
What is a Bank?
Banks are financial institutional bodies that accept and store deposits and provide credit to their customers. The bank uses the deposited money to grant loans to the customers as needed. Banks are considered the backbone of the Indian economy as they play an important role in shaping and maintaining the country’s economic condition. They are licensed financial institutions that enable a country’s economic growth and maintain its financial stability. They also play an important role in supporting existing businesses and empowering new ones. In most countries, they are strictly regulated.
How Bank Function?
- Accepting Deposits: Banks take money from people and keep it safe for them.
- Providing Withdrawal Service: You can take your money out of the bank when you need it.
- Giving Loans: Banks lend money to people who need it for different reasons, like buying a home or starting a business.
- Moving Money: Banks help you send money to other people or places.
- Making Payment Drafts: They create special papers (drafts) for making payments.
- Offering Lockers: Banks have lockers where you can store valuable things.
- Dealing with Foreign Money: They handle foreign currencies for international transactions.
Types of banks in India?
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 a payments bank.
Banks in India can be classified into 8 types
- Central Bank
- Cooperative Banks
- Commercial Banks
- Regional Rural Banks (RRB)
- Local Area Banks (LAB)
- Specialized Banks
- Small Finance Banks
- Payments Banks
1. 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.
- Guiding other banks
- Issuing currency
- Implementing the monetary policies
- Supervisor of the financial system
Functions of the Reserve Bank of India
- RBI formulates, implements, and monitors the country's monetary policy to maintain price stability.
- To facilitate external trade and maintain the forex market in the country, it manages the Foreign Exchange Management Act of 1999.
- It provides the parameters, policies, and guidelines of banking operations that are to be followed by all the banking and financial institutions in the country.
- RBI performs the government's merchant banking function and acts as the banker to both central and state governments.
- The functions of the Reserve Bank of India also include maintaining the reserves and banking accounts of all the scheduled banks and thus acting as a banker to the banks.
- It issues currency (except coins) and destroys coins and currencies unsuitable for circulation.
2. Cooperative Banks:
In India, the primary role of cooperative banks is to extend financial assistance to the worthy masses at the most nominal interest rates. An ostensible contrast between a commercial bank and a cooperative bank lies in their approach to revenue generation. While commercial banks pursue the maximization of profits, cooperative banks operate on the principle of “no profit and no loss”.
Ownership: Cooperative banks are owned and controlled by their members, who are also customers of the bank.
Local Focus: They primarily serve the financial needs of a specific region, community, or group.
Types: In India, cooperative banks are classified into two main categories: Urban Cooperative Banks (UCBs) and Rural Cooperative Banks. UCBs are found in urban and semi-urban areas, while rural cooperative banks cater to the needs of rural areas.
Purpose: Cooperative banks aim to provide financial services to their members, including savings accounts, loans, and other banking services. They often focus on supporting local agriculture, small businesses, and community development.
Regulation: These banks are regulated by the Reserve Bank of India (RBI) and the National Bank for Agriculture and Rural Development (NABARD), depending on their type and area of operation.
Membership: To become a member and avail of services, individuals typically need to buy shares in the cooperative bank.
Social Objectives: Cooperative banks often have a social or developmental focus and aim to uplift the economic conditions of their members and the communities they serve.
3. Commercial Banks:
Commercial banks in India are financial institutions that provide various banking services to the public and businesses. Here's some important information about them:
Deposits: Commercial banks accept money deposits from individuals and businesses. These deposits can be in the form of savings accounts, fixed deposits, and current accounts.
Loans and Credit: They offer loans and credit facilities to individuals and businesses. This includes home loans, personal loans, business loans, and more.
Payment Services: Commercial banks provide various payment services, such as issuing checks, debit and credit cards, and facilitating online and mobile banking.
Investment Services: They offer investment opportunities, including fixed deposits, mutual funds, and other financial instruments to help customers grow their money.
Foreign Exchange: Commercial banks deal with foreign currency exchange for international trade and travel purposes.
Safekeeping: Many commercial banks offer safe deposit boxes or lockers for customers to store valuable items securely.
Advisory Services: They provide financial advice and investment planning services to help customers make informed financial decisions.
Government Transactions: Commercial banks often act as intermediaries for various government transactions, such as distributing pensions and handling tax payments.
Mobile and Online Banking: They offer convenient digital banking services, allowing customers to manage their accounts and conduct transactions from their devices.
4. Regional Rural Banks (RRB):
Regional Rural Banks (RRBs) in India are a type of financial institution that specifically serve the rural and semi-urban areas of the country. Here's some information about RRBs:
Formation: RRBs were established in India in 1975 with the goal of providing banking and financial services to rural and agricultural areas. They were created to promote rural development and financial inclusion.
Ownership: RRBs are jointly owned by the Government of India, the concerned State Government, and the sponsor bank (usually a nationalized bank).
Service Area: RRBs primarily operate in rural and semi-urban regions, focusing on the needs of the agricultural and rural communities.
Functions: They offer a wide range of banking and financial services, including savings and current accounts, loans for agriculture and rural development, and other financial products tailored to the rural population.
Financial Inclusion: RRBs play a crucial role in bringing banking services to the doorstep of rural people, thereby reducing the dependency on informal sources of credit.
Regulation: RRBs are regulated by the National Bank for Agriculture and Rural Development (NABARD) and the Reserve Bank of India (RBI).
5. Local Area Banks (LABs)
Local Area Banks (LABs) in India are specialized banks that primarily operate at the local or regional level. They are designed to cater to the banking needs of a specific area or region, typically a smaller geographic location. LABs focus on promoting financial inclusion and providing banking services to rural and semi-urban areas.
Local Focus: LABs concentrate on serving the banking requirements of a particular locality, often in rural or semi-urban regions.
Financial Inclusion: They play a crucial role in extending banking services to underserved and unbanked areas, helping people in these regions access basic financial services.
Regulation: LABs are regulated by the Reserve Bank of India (RBI) and must adhere to banking regulations like other commercial banks.
Ownership: LABs are typically set up as small cooperative banks, which means they are owned and managed by a group of people with a common interest in the local area's economic development.
Products and Services: They offer a range of banking services, including savings and current accounts, loans, and other financial products tailored to the needs of the local community.
6. Specialized Banks:
In India, there are specialized banks that focus on specific types of services or customers. Some of the specialized banks in India include:
Reserve Bank of India (RBI): It is the central bank of India responsible for regulating and controlling the country's monetary and financial system.
State Bank of India (SBI): SBI is a major commercial bank in India, but it also has specialized branches and subsidiaries for services like agriculture, international banking, and financing for small and medium-sized enterprises.
Industrial Development Bank of India (IDBI): IDBI focuses on providing financial assistance and services to industries and businesses.
National Bank for Agriculture and Rural Development (NABARD): NABARD specializes in providing financial support and services to the agricultural and rural sectors.
Exim Bank (Export-Import Bank of India): This bank focuses on financing and facilitating international trade and export-import activities.
Small Industries Development Bank of India (SIDBI): SIDBI is dedicated to promoting and financing small-scale industries and micro, small, and medium enterprises (MSMEs).
National Housing Bank (NHB): NHB specializes in providing financial assistance and regulation for housing and real estate sectors.
Industrial Finance Corporation of India (IFCI): IFCI offers financial support to industrial and infrastructure projects.
7. Small Finance Banks:
Small Finance Banks in India are a special type of banks that focus on providing banking services to small and underserved customers. Here's some key information about them:
Financial Inclusion: Small Finance Banks are established with the goal of promoting financial inclusion by reaching out to people in remote and underserved areas.
Services: They offer a range of banking services, including savings accounts, fixed deposits, and small loans, with a focus on micro and small enterprises, low-income individuals, and small farmers.
Size: These banks are smaller in size compared to traditional banks and have restrictions on the maximum deposit amount that a customer can hold.
Regulations: Small Finance Banks are regulated by the Reserve Bank of India (RBI) and must follow certain guidelines to ensure they meet their financial inclusion objectives.
Ownership: Small Finance Banks can be privately owned, but they are required to ensure that a significant portion of their lending goes to priority sectors, such as agriculture and small businesses. Ex.
- 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.
8. Payments Banks:
In India, Payment Banks are a special type of bank that primarily focus on providing payment and basic banking services. Here's what you should know about Payment Banks in India:
Limited Services: Payment Banks offer a restricted range of services. They are not like regular banks that provide loans or credit cards. Instead, they mainly focus on basic banking and payment services.
Accept Deposits: Payment Banks can accept deposits from individuals and businesses, but the amount you can deposit is usually limited.
Mobile and Digital Banking: These banks often use mobile and digital technology to provide banking services. You can do things like transfer money, pay bills, and check your balance through mobile apps and online platforms.
No Lending: Payment Banks do not provide loans. They are not in the business of lending money to customers.
Financial Inclusion: One of the main purposes of Payment Banks is to promote financial inclusion by making basic banking services accessible to people in remote and underserved areas.
Partnerships: Payment Banks can partner with other banks to expand their services. For example, they might tie up with regular banks to offer more extensive services through their networks.
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
- NSDL Payments Bank
We hope the above article on types of banks in India will be helpful for the aspirants of various competitive examinations.