Structure of Indian Banking system

Structure of Banking Sector in India

Scheduled bank

Which is registered in the second schedule of the reserve bank of India 1934. It includes these banks, which have a paid-up capital and reserve of an aggregate value of not less than 5 lakh and must satisfy the criteria laid down under section 46(6)(a) of the act.

These are the banks where more than 50% stake is held by the government.

Example : Bank of Baroda, Bank of India, Indian bank.

Non-Scheduled bank

Its means a banking company as define in clause (c) of section 5 of the banking regulation act 1949 (10 of 1949), which is not a schedule bank. Banks with reserve capital of less than 5 lakh qualify as non-schedule bank, these banks are not governed by according to the RBI act they receive no benefit from the RBI.

Cooperative banks

A co-operative bank is a financial entity that belongs to its members, is at the same time the owners and the customers of their bank. Co-operative banks are often created by persons belonging to the same local or professional community or sharing a common interest. Co-operative banks generally provide their members with a wide range of banking and financial services ( loans, deposits, banking account ).

     ·       Cooperative banking institutions takes DEPOSITS and LEND MONEY in most parts of the world

     ·       It differs from STOCKHOLDERS BANK.

     ·       Follows all PRUDENTIAL banking regulations.

     ·       It provides FINANCIAL ASSISTANCES to the people with small means to protect them from the debt trap of the money lenders.

     ·       Its often created by a person belonging to the same local or personal community or sharing a common interest.

     ·       Wide range of banking and financial and financial services, ( LOANS, DEPOSITS, AND BANKING ACCOUNTS ETC…).

Central cooperative banks

These are the federations of the credit societies in a district.

The funds of the bank consist of share capital, deposits, loans and overdrafts from state co-operative banks and joint stocks.

They also conduct all the business os a stock bank.

State cooperative banks

The state cooperative bank is a federation of central co-operative bank and acts as a watchdog of the co-operative banking structure in the state.

Its funds are obtained from share capital, deposits, loans and overdrafts from the reserve bank of India.

The state cooperative banks lend money to central co-operative banks and primary societies and not directly to the farmers.

They also know as apex banks.

Example : Andhra Pradesh state co-operative bank Ltd, the Bihar state bank Ltd, Chhatisgarh rajaya sahakari bank maryadit, the goa state co-operative bank Ltd, the Gujarat state co-operative bank Ltd.

Indian bank

Indian banks are those banks, which are incorporated in India.

Commercial bank

A commercial bank is a type of bank / financial institution that provide services such as accepting deposits, making business loans, and offering basic investment products.

The commercial bank established with an objective to help businessmen. These banks collect money from the general public and give short-term loans to businessmen by way of cash credits. Overdrafts, etc.

Example : ICICI Bank, state bank of India, axis bank, and HDFC Bank.

Public sector bank

PUBLIC SECTOR BANKS (PSBs) are banks where a majority stake ( more than 50% ) is held by a government. The share of these banks is listed on stock exchanges. There are a total of 21 PSBs in India.

The central government entered the banking business with the nationalization of the imperial bank of India in 1955.

A 60% stake was taken by the RESERVE BANK OF INDIA and the new bank was named as the STATE BANK OF INDIA. The next major nationalization of banks took place in 1969 nationalization of an additional 14 major banks.

The total deposits in the banks nationalized in 1969 amounted to 50 crores. This move increased the presence of nationalized banks in India. With 84% of the total branches coming under government control.

The next round of nationalization took place in April 1980. The government nationalized six banks. The total of these banks amounted to around 200 crores. This move led to a further increase in the number of branches in the market. Increasing to 91% of the total branch network of the country.

Example : state bank of India, Punjab national bank, bank of Baroda, Canara Bank, Andhra bank, syndicate bank, state bank of Mysore, bank of Maharashtra.

Regional rural banks

RRBs are oriented towards meeting the needs of the weaker sections of the rural population consisting of small & marginal farmers, agricultural laborers, artisans & small entrepreneurs.

As these banks were more suitable for rural development work, preference should be given to them to open branches in rural banks.

The eligible business of commercial banks rural branches may be transferred to RRBs.

The losses in initial years of RRBs may be met by shareholders & equity capital should also be raised.

The various facilities provided by sponsor banks should continue for 10 years in each case.

Concessionary refinance by RBI should be continued.

The control, regulatory and promotional responsibilities relating to RRBs should be transferred from the government of India to RBIs or NABARD.

Example: Gorakhpur kshatriya Gramin bank, Haryana kshatriya Gramin bank Bhiwani, Jaipur-Nagpur anchalik Gramin Bank Jaipur.

Private sector bank

Private sector banks refer to the banks whose majority of the stake is held by individuals and corporations.

Private banks should be established as public limited companies under the Indian Companies Act 1956.

Paid-up capital >300 crores.

The promoters’ share shall not be less than 40 percent.

The voting rights of a shareholder shall not exceed 10 percent.

Banks are required to observe priority sector lending targets.

Eight banks were set-up in the private sector and some mergers took place.

Example : ICICI Bank, yes bank, IndusInd Bank, Kotak Mahindra bank, axis bank.

Foreign banks in India

Foreign banks are those banks, which are incorporated in foreign country.they have set-up their branches in India.

The first foreign bank to start its operation in India was a standard chartered bank in 1858. The second bank was CITI bank which started in 1902.

There are over 29 foreign banks that operate in India.

Foreign banks are also known for uprooting the unemployment in India by offering a lot of job opportunities.

These banks have brought along with them the latest technologies and banking practices.

EXAMPLE: Royal Bank of Scotland, Switzerland's UBS, US-based GE Capital, industrial and commercial bank of china.