Indian Banking System

Indian Banking System

Scheduled and Non-Scheduled Banks

Scheduled Banks

• The scheduled banks are those that are entered in the second schedule of the RBI Act, 1934. These banks have a paid-up capital and reserves of an aggregate value of not less than Rs. 5 lakhs and satisfy the RBI that their affairs are carried out in the interest of their depositors.

• All commercial banks (Indian and foreign), regional rural banks, and state co-operative banks are scheduled banks.

Non-Scheduled Banks

• Non-scheduled banks are those that are not included in the second schedule of the RBI Act 1934. At present, there is only one such bank in the country.

Regional Rural Banks (RRBs)

• First Regional Rural Bank was established on 2nd October 1975.

• The Regional Rural Banks (RRBs), the newest form of banks, have come into existence since the middle of the 1970s (sponsored by individual nationalised commercial banks) to develop the rural economy by providing credit and deposit facilities for agriculture and other productive activities of all kinds in rural areas.

• The emphasis is on providing such facilities to small and marginal farmers, agricultural labourers, rural artisans, and other small entrepreneurs in rural areas.

• Total number of RRBs (after merger) was 56 (in 525 districts) with 14,494 branches (as on 31.03.2016).

Co-operative Banks

Co-operative banks are so-called because they are organised under the provisions of the Co-operative Credit Societies law of the states. The major beneficiary of the Co-operative Banking is the agricultural sector in particular and the rural sector in general. The first such bank was established in 1904.

Types of Co-operative Credit Institutions

The Co-operative credit institutions operating in the country are mainly of two kinds:

• Agricultural (dominant)

• Non-agricultural

Structure of Co-operative Banking

• At the apex is the State Co-operative Bank (SCB) (co-operation being a state subject in India)

• At the intermediate (district) level is the Central Cooperative Banks (CCBs)

• At the village level is the Primary Agricultural Credit Societies (PACS)

• Long-term agricultural credit is provided by the Land Development Banks

In the year 1991, the Narsimham Committee was constituted to advise on the issue of reconstruction of the banking system.

Bharatiya Mahila Bank

With a purpose to promote gender equality and empowerment of women, the Government of India had set up India's first Women's Bank—Bhartiya Mahila Bank Limited.

• Launched on 19th November 2013, the Bank has carved a niche for itself as a pan-India Bank with 60 branches across the country.

• Mrs. Usha Ananthasubramanian was the first Chairman and Managing Director of the Bank, and S. M. Swathi was the first Executive Director of the Bank.

• The Bank has been allocated an initial capital of Rs. 1,000 Crores.

• The Government decided on 20th March, 2017, to merge the Bhartiya Mahila Bank into the State Bank of India.

• All branches of BMB merged with SBI from April 1, 2017.

Development Banks

Industrial Development Bank of India (IDBI)

• Established in 1964

• Main functions: Providing finance to large and medium-scale industrial units.

Industrial Finance Corporation of India (IFCI)

• Established in 1948

• Main Functions:

(a) Project finance

 (b) Promotional services.

Industrial Credit and Investment Corporation of India Limited (ICICI)

• Formed in 1955

• Main functions: Providing term loans in Indian and foreign currencies; Underwriting of issues of shares and debentures.

Small Industries Development Bank of India (SIDBI)

• Established in 1989

• Main functions: Assisting small-scale industries through state finance corporations, state industrial development corporations, commercial banks, etc.

EXIM Bank (Export-Import Bank of India)

• Established in 1982.

• Specialised financial institution, wholly owned by the Government of India, set up for financing, facilitating, and providing foreign trade of India.

• Main functions: Coordinating the work of institutions engaged in financing export and import trade.

• The paid-up capital was 5,059 crore, and the Net Worth of the Bank (as on 31.03.2015) was Rs. 9,902 crore.

National Housing Bank (NHB)

• Started operations in 1988.

• Main functions: Development of housing finance in the country.

NABARD (National Bank for Agriculture and Rural Development)

• Established in 1982 with an initial capital of Rs. 100 crore.

• The paid-up capital of NABARD stood at Rs. 15,080 crore as on 31 March 2021.

• Main functions: To serve as an apex refinancing agency for institutions engaged in providing agricultural finance to develop a credit delivery system to coordinate rural financing activities.

New Development Bank (NDB)

Instituted in 2015 with a vision to support and foster infrastructure and sustainable development initiatives in emerging economies.

• The Founding members of the NDB—Brazil, Russia, India, China, and South Africa (BRICS) have brought in capital of USD 1 billion as an initial contribution.

Asian Infrastructure Investment Bank (AIIB)

Asian Infrastructure Investment Bank (AIIB) is a Multilateral Development Bank (MDB) set up in 2016 to foster sustainable economic development, create productive assets, and improve infrastructure in Asia through financing of infrastructure projects.

• India is one of the founding Members and the second largest shareholder.

• Indi, along with 20 other countries, signed the Inter-Government Memorandum of Understanding (MoU) for establishing the AIIB in Beijing.

Final Thoughts

The Indian banking system plays a crucial role in the country’s economy, connecting people, businesses, and governments through financial services. It is broadly divided into Public Sector Banks (PSBs), Private Banks, Regional Rural Banks (RRBs), Co-operative Banks, and Development Banks.

PSBs, like the State Bank of India and Punjab National Bank, hold a majority government stake and dominate India’s banking sector. Private Banks, such as HDFC and ICICI, bring in innovation and customer-focused services. RRBs focus on rural credit, while Co-operative Banks support farmers and local communities.

Specialised institutions like NABARD, SIDBI, and EXIM Bank provide targeted financial support to agriculture, small industries, and international trade. On the global front, India also partners with bodies like the New Development Bank (NDB) and the Asian Infrastructure Investment Bank (AIIB) to boost infrastructure and growth.