Banking Structure in India

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The banking system is at the heart of the financial system. It is an organisation that provides various financial services, for example keeping or lending money.  The banking structure in India is described below:

Reserve Bank of India

Reserve Bank of India is the Central Bank of our country. It was established on 1st April 1935 under the RBI Act of 1934. It holds the apex position in the banking structure. It is called the Reserve Bank’ as it keeps the reserves of all commercial banks. It also issues country’s currency.

Commercial Banks

They can be divided into two groups:

  • Scheduled Banks: The banks which are included in the 2nd schedule of RBI Act 1934. The banks included must fulfill the condition: the paid up capital and collected funds of bank should not be less than rs.5 lakh.
  • Non-scheduled banks: The banks which are not included in the list of scheduled banks are called non-scheduled banks. These are not eligible for having loans from RBI for meeting their day to day general activities unless in emergency unlike scheduled banks.

Commercial bank includes public sector, private sector, foreign banks.

  1. Public sector banks: It includes SBI, five associate banks, IDBI bank Ltd. and nineteen (19) nationalized banks. Altogether there are 26 public sector banks. The public sector accounts for 90 percent of total banking business in India and State Bank of India is the largest commercial bank in terms of volume of all commercial banks.
  2. Private sector banks: Private sector banks are those whose equity is held by private shareholders. For example: ICICI, HDFC etc. Private sector bank plays a major role in the development of Indian banking industry.
  3. Foreign Banks: Foreign banks are those banks, which have their head offices abroad. CITI bank, HSBC, Standard Chartered etc. are the examples of foreign bank in India.

Regional Rural Bank (RRB)

They were established on 2nd October 1975 under the provisions of RRB Act 1976 with a view to develop the rural economy. They are working in all states except Sikkim and Goa. These are state sponsored regional rural oriented banks. Their borrowers include small and marginal farmers, agricultural laborers, artisans etc. NABARD gives short term and medium term loans to them. South Malabar Gramin Bank is the RRB sponsored by Canara bank is the largest among the 82 RRBs in the country in terms of total business.

Co-operative Bank

Co-operative bank was set up by passing a co-operative act in 1904. They are organised and managed on the principal of co-operation and mutual help. The main objective of co-operative bank is to provide rural credit. Three tier structures exist in the cooperative banking:

  1. Primary Agricultural Credit Societies: Primary Agricultural Credit Societies (PACS) are the foundation of the co-operative credit structure and form the largest number of co-operative institutions in India. Most of these societies have been organised mainly to provide credit facilities for productive activities among their members. Minimum 10 persons or a village or area can form a PAC.
  2. Central or District Co-operative Banks in India: District Co-operative Banks (DCBs) occupy the middle level position in the three tier co-operative credit structure of the country. they get loans from state co-operative banks and give loans to PACs. The Co-operative Societies Act of 1912 permitted the registration of DCBs. Even before the enactment of this Act, some DCBs were established to cater to the needs of primary societies.
  3. State Co-operative Banks in India: These apex banks assume a key-position in the co-operative credit structure because the financial assistance from RBI and the National Bank for Agriculture and Rural Development are invariably routed through them. Currently 28 state co-operative banks are working in the country.

Development banks and other financial institutions

A development bank is a financial institution, which provides a long term funds to the industries for development purpose. This organization includes banks like IDBI, ICICI, IFCI etc. at All India level. State level institutions like State financial corporations (SFC’s), State industrial development corporations (SIDC’s) etc. It also includes investment institutions like UTI, LIC, and GIC etc. As development banks their main role is promotion of economic development by way of promoting investment and enterprise in their priority areas.

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