Constitution of Banks in India: PSB, RRB, Coop Banks

August 25, 2019
 
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The constitution of banks in India falls under the six broad categories:

  1. Public Sector Banks
  2. Regional Rural Banks
  3. Cooperative Banks
  4. Private Banks
  5. Small Finance Banks
  6. Payments Banks

Constitution of Banks

Constitution of Banks: Public Sector Banks

A Public Sector bank is one in which, the Government of India holds a majority stake. These banks are constituted under special statue. The State Bank of India was constituted under The State Bank of India Act, 1955. The six subsidiaries of State Bank of India were constituted under the State Bank of India (Subsidiary Banks) Act, 1959. The government further nationalized 14 commercial banks through Banking Companies (Acquisition and Transfer of Undertakings) Ordinance, 1969 on 19th July 1969. It later nationalized six more commercial banks through Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 on 15th April 1980. The State Banks (Repeal and Amendment) Bill 2017 merges five associate banks of SBI and Bharatiya Mahila Bank with SBI.

Regional Rural Banks

The Regional Rural Banks (RRB) were set up under the Regional Rural Banks Act, 1976 to provide financial assistance to different segments of rural population engaged in rural activities.

Cooperative Banks

A Cooperative bank is essentially a cooperative Society. There are two types of Co-operative banks: Multi-state cooperative society and State Cooperative society. Multi-state cooperative societies are registered under the cooperative society’s act of the Centre. State cooperative societies are registered under the state cooperative act.

Private Banks

These banks are constituted under Companies Act 1956 or Companies Act 2013. Under sector 5(c) of Banking Regulation Act, 1949, a “banking company” means any company which transacts the business of banking [in India].

Small Finance Banks

The Small Finance Banks are constituted under Section 22 of the Banking Regulation Act, 1949 and are governed by the provisions of RBI Act, 1934. These banks are set up to increase financial inclusion by providing banking facility to unorganized sector, small farmers, micro and small industries etc.

Payments Banks

The payments bank is registered as a public limited company under the Companies Act, 2013, and licensed under Section 22 of the Banking Regulation Act, 1949, with specific licensing conditions restricting its activities mainly to acceptance of demand deposits and provision of payments and remittance services. It is governed by the provisions of the Banking Regulation Act, 1949; Reserve Bank of India Act, 1934; Foreign Exchange Management Act, 1999; Payment and Settlement Systems Act, 2007; Deposit Insurance and Credit Guarantee Corporation Act, 1961; other relevant Statutes and Directives, Prudential Regulations and other Guidelines/Instructions issued by RBI and other regulators from time to time.

Read Next: Reserve Bank of India Act 1934

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