Types of Banks in India: Different Types of Banks, Key Functions-UPSC Notes

Syllabus	General Studies Paper III
Topics for Prelims	Types of Banks in India
Topics for Mains	Indian Economy

Banks are the financial institutions that play a crucial role in the functioning of the Indian economy. They are licensed to receive cash deposits and provide loans. Different types of banks in India reflect that India has a mixed economy. These various types of banks in India help with economic growth and development, maintain financial stability and support existing and new businesses. The Reserve Bank of India (RBI) is the Indian central bank that controls and regulates Banking in India. 

The topic types of banks in India UPSC are among the most critical topics for the UPSC IAS exam. It covers a significant part of the Indian economy subject in the General Studies Paper-3 syllabus and current events of national importance in UPSC prelims.

In this article on the types of banks in India UPSC, we shall discuss the banking structure in India, the functions of various banks, and the list of banks under each type.

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Types of Banks in India can be broadly classified into commercial banks, cooperative banks, and regional rural banks. Commercial banks include public sector banks, private sector banks, and foreign banks. Cooperative banks are further categorized into urban cooperative banks and rural cooperative banks. Regional rural banks are specialized banks established to cater to the banking needs of rural areas.

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Central Bank/Banker's Bank

The central bank of India is the Reserve Bank of India (RBI). The RBI is responsible for regulating and supervising the Indian banking system. It also manages the country's monetary policy and foreign exchange reserves.

Commercial Banks

Commercial banks are the most common type of bank in India. They provide various financial services to individuals and businesses, including savings accounts, loans, and investment products.

Public Sector Banks

Public sector banks are owned and operated by the government of India. They account for a significant share of the Indian banking system. Some of the major Public Sector Banks include:

• State Bank of India
• Punjab National Bank
• Bank of Baroda
• Canara Bank
• Bank of India
• Union Bank of India
• Indian Bank
• Central Bank of India
• Bank of Maharashtra
• Indian Overseas Bank
• UCO Bank
• Punjab & Sind Bank
• Allahabad Bank
• Andhra Bank (Merged with Union Bank of India)
• Corporation Bank (Merged with Union Bank of India)
• Oriental Bank of Commerce (Merged with Punjab National Bank)
• Syndicate Bank (Merged with Canara Bank)
• United Bank of India (Merged with Punjab National Bank)
• Vijaya Bank (Merged with Bank of Baroda)
• Dena Bank (Merged with Bank of Baroda)

Private Sector Banks

Private sector banks are owned and operated by private individuals or companies. They have played an increasingly important role in the Indian banking system in recent years. Some of the major Private Sector Banks include:

• Axis Bank
• HDFC Bank
• ICICI Bank
• Kotak Mahindra Bank
• Yes Bank
• IndusInd Bank
• IDFC First Bank
• Bandhan Bank
• Federal Bank
• IDBI Bank
• Jammu and Kashmir Bank
• Karnataka Bank
• Karur Vysya Bank
• South Indian Bank
• RBL Bank
• City Union Bank
• DCB Bank (Development Credit Bank Ltd.)
• Tamilnad Mercantile Bank
• Nainital Bank
• Lakshmi Vilas Bank (Merged with DBS Bank India Limited)
• Ratnakar Bank (RBL Bank)

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Foreign Banks

Foreign banks are branches of foreign banks that operate in India. They offer various financial services, including corporate banking, investment banking, and retail banking. Some of the major Foreign Banks include:

• Australia and New Zealand Banking Group Ltd.
• National Australia Bank
• Westpac Banking Corporation
• Bank of Bahrain & Kuwait BSC
• AB Bank Ltd.
• HSBC (Hongkong and Shanghai Banking Corporation)
• CITI Bank
• Deutsche Bank
• DBS Bank Ltd.
• United Overseas Bank Ltd
• J.P. Morgan Chase Bank
• Standard Chartered Bank
• Barclays Bank PLC
• The Royal Bank of Scotland N.V. (RBS)

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Regional Rural Banks

Regional rural banks (RRBs) were established in 1975 to provide banking services to rural areas. Commercial banks and the government of India sponsor them. RRBs play an essential role in promoting financial inclusion and rural development. Some of the major Regional Rural Banks include:

• Assam Gramin Vikash Bank
• Baroda UP Bank
• Dakshin Bihar Gramin Bank
• Karnataka Gramin Bank
• Manipur Rural Bank
• Mizoram Rural Bank
• Punjab Gramin Bank
• Tamil Nadu Grama Bank
• Utkal Grameen Bank
• Uttarakhand Gramin Bank

Cooperative Banks

Cooperative banks are owned and operated by their members. They provide various financial services, including savings accounts, loans, and agricultural credit. Cooperative banks play an essential role in the rural economy. 

Scheduled Banks

Scheduled banks are commercial banks that the RBI regulates. They are included in the Second Schedule of the Reserve Bank of India Act, 1934. Scheduled banks can be classified into three categories: public sector banks, private sector banks, and foreign banks.

Non-Scheduled Banks

Non-scheduled banks are not subject to the RBI regulation. They are typically smaller banks that cater to a specific niche market. Some of the central Non-Scheduled Banks include:

• The Andaman and Nicobar State Cooperative Bank Ltd.
• The Manipur State Cooperative Bank Ltd
• The Sikkim State Cooperative Bank Ltd.
• The Assam Cooperative Apex Bank Ltd.
• The Tirupati Cooperative Bank Ltd.
• Hindustan Cooperative Bank Ltd.
• Coastal Local Area Bank Ltd.
• Subhadra Local Area Bank Ltd.
• Krishna Bhima Samruddhi LAB Ltd.

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Local Area Banks

Local area banks (LABs) were established in 2013 to provide banking services to underserved areas. Commercial banks and the government of India sponsor them. LABs play an essential role in promoting financial inclusion.

Payment Banks

Payment banks were set up in 2015 to offer basic banking services such as savings accounts, money transfers, and bill payments. They cannot provide loans or credit cards. Payment banks are designed to promote financial inclusion and cashless transactions. Some of the major Payments Banks include:

• Airtel Payments Bank Ltd
• India Post Payments Bank Ltd
• FINO Payments Bank Ltd
• Paytm Payments Bank Ltd
• Jio Payments Bank Ltd
• NSDL Payments Bank Ltd

Small Finance Banks

Small finance banks (SFBs) were set up in 2015. They provide banking services to underserved population segments, such as small businesses and farmers. SFBs can offer various financial services, including savings accounts, loans, and investment products. Some of the major Small Finance Banks include:

• 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
• North East Small Finance Bank Ltd
• Jana Small Finance Bank Ltd
• Shivalik Small Finance Bank Ltd

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Specialized Banks

Specialized banks focus on a specific sector of the economy, such as agriculture, industry, or trade. Some examples of specialized banks in India include:

• National Bank for Agriculture and Rural Development (NABARD) and 
• Industrial Development Bank of India (IDBI).

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Key Functions of Banks in India

Primary functions of banks in India include accepting deposits from the public and providing loans and advances to individuals and businesses. These core roles are carried out by various types of banks in India, such as commercial banks, cooperative banks, and regional rural banks, each contributing to savings, investment, and the nation's economic growth.

• Banks act as safety deposits. They offer a reasonably secure location to store cash and protect assets while collecting interest on these deposits.
• Commercial banks pay interest on deposits, and the amount is dependent on the kind of account.
• Money lending is a significant source of profit for banks. Banks use deposits to lend to eligible individuals and businesses for investments or expansion.
• Regulation of Money Supply through credit creation.
• Banks deal with foreign exchange.
• Banks also provide miscellaneous functions such as overdraft facilities, locker facilities, and ATM facilities.

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