TYPES OF BANKS

I. Introduction:
A bank is a financial intermediary and money creator that creates money by lending money to
the borrower, thereby creating a corresponding deposit on The bank's balance sheet finding
activities can be performed directly by loaning or indirectly through capital Markets. Due to
their importance in the financial system and influence on the national economy ,banks are
highly regulated in most countries.
II. Definition:
Oxford Dictionary defines a bank as an establishment for custody of money, which it pays out
on customers order.
As per section 5(c) of the banking regulation Act, 1949 a “Banking Company” means any
company which transacts the business of the Banking in India.
III. Scheduled And Non- Scheduled Banks
1. Scheduled Banks: These are banks included in the Second Schedule of the Reserve Bank
of India Act, 1934. They are eligible for loans from the RBI at the bank rate and automatically
become members of the clearing house. Most major banks in India fall under this category.

2. Non-Scheduled Banks: These are banks not included in the Second Schedule of the RBI
Act. They have fewer regulatory benefits compared to scheduled banks. Local Area Banks are
examples of some non-scheduled banks.
III. Types of Banks:
1. A central bank: also known as a monetary authority, is a financial institution that manages
the money supply, currency, and interest rates in a country or group of countries. Its primary
goal is to ensure price stability and maintain a stable economic environment. In India, the
Reserve Bank of India (RBI) serves as the central bank.
a) Public sector bank
• Public sector banks Refer to a type of commercial banks that are nationalized by the
government of a country. In public sector banks, the major stake is held by the government. In
India, public sector banks operate under the guidelines of Reserve Bank of India (RBI), which
is the central bank.
• Public Sector Banks (PSBs) are a major type of government owned banks in India, where a
majority stake (i.e. more than 50%) is held by the Ministry of Finance of the Government of
India or State Ministry of Finance of various State Governments of India. The shares of these
banks are listed on stock exchanges. Their main objective is social welfare.
For example, The State bank of India (SBI) is the largest public sector bank in India. In this
bank, the Indian government holds more than 57.2% share. A large part of the remaining share
is also traded in the Indian stock market.
Public sector banks are nationalized banks.
b) Private Sector Banks

• Banks in which a major stake or equity is held by private shareholders. All the banking rules
and regulations laid down by the RBI will be applicable to private sector banks as well.

2. A commercial bank is a kind of financial institution that carries all the operations related to
deposit and withdrawal of money for the general public, providing loans for investment, and
other such activities. These banks are profit-making institutions and do business only to make
a profit.
Commercial banks are regulated by the Banking Regulation Act 1949. Commercial Banks
operate with a head office and network of branch offices spread throughout the country.
Commercial banks are one of the types of banks in India.
3. A cooperative bank is a type of financial institution that is owned and controlled by its
members, who are usually the customers or users of the bank's services. Cooperative • banks
are established to provide financial services to their members, often with a focus on serving the
local community or a specific group of people.

Features of Cooperative Banks

1. Member-owned
2. Not-for-profit
3. Local focus
4. Democratic governance

4. Specialized or Industrial Banks: In India, industrial banks play a crucial role in providing
financing to businesses and industries. These banks specialize in providing loans and other
financial services to companies in various sectors, such as manufacturing, construction, and
technology.

Some of the prominent industrial banks in India include Industrial Development Bank of India
(IDBI), Small Industries Development Bank of India (SIDBI), and Industrial Finance
Corporation of India (IFCI).Regional Rural Banks (RRBs) in India are financial institutions
that provide banking services to rural areas, with a focus on supporting agriculture and rural
development. They were established to cater to the financial needs of rural communities,
particularly small farmers, artisans, and rural entrepreneurs.
5. Regional Rural Banks (RRBs):- in India are financial institutions that provide banking
services to rural areas, with a focus on supporting agriculture and rural development. They
were established to cater to the financial needs of rural communities, particularly small farmers,
artisans, and rural entrepreneurs.
The main objectives of RRBs are:

• To provide financial support to rural communities, particularly small farmers and rural
entrepreneurs
• To promote rural development and employment opportunities
• To provide banking services to unbanked and underbanked rural areas
• To support agriculture and allied activities.
6. Small Finance Banks (SFBs) :in India are a specific type of bank, established by the
Reserve Bank of India (RBI), to promote financial inclusion by providing basic banking
services to underserved and unbanked populations. They focus on sectors like small businesses,
micro-entrepreneurs, low-income households, and rural communities. SFBs offer a range of
basic banking services such as savings accounts, fixed deposits, loans, and more.
7. A Payment Bank is a specific type of differentiated bank in India, introduced by the Reserve
Bank of India (RBI) with the primary objective of furthering financial inclusion, particularly
for unbanked and underbanked populations. They operate on a smaller scale with minimal
credit risk, focusing on digital transactions and basic banking services.
Deposit Limit: Initially, the maximum balance allowed per customer was ₹1 lakh. However,
the RBI increased this limit to ₹2 lakh per customer in 2021.
8. Foreign exchange banks: facilitate international trade and investment by providing foreign
exchange services, including:
- Currency exchange
- Foreign exchange trading
- International payments
- Trade finance
They help manage foreign exchange risk and provide convenient currency exchange services,
supporting individuals, businesses, and governments in cross-border transactions.
IV. Conclusion:
Thus the banking system has come along the banking sector and had witnessed a rapid growth
in the country in the post for decades.
Under the English common law, a banker I defined as per who carries on the business of
banking which is specified as:-
i) Conducting current accounts for live customers.
ii) Paying cheques drawn on him/her & collecting cheques for him/ her customers.
 FUNCTIONS OF RBI
I. Introduction and Preamble of the Reserve Bank of India:
The Reserve Bank of India (RBI), established in 1935 under the Reserve Bank of India Act, of
1934, serves as India's central bank and apex monetary authority. Its core purpose, as
articulated in its Preamble, is "to regulate the issue of Bank notes and the keeping of reserves
with a view to securing monetary stability in India and generally to operate the currency and
credit system of the country to its advantage.
II. Establishment.
The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions
of the Reserve Bank of India Act, 1934.
The Central Office of the Reserve Bank was initially established in Kolkata but was
permanently moved to Mumbai in 1937. The Central Office is where the Governor sits and
where policies are formulated.
Though originally privately owned, since nationalisation in 1949, the Reserve Bank is fully
owned by the Government of India.
III. Organization.
The Reserve Bank of India (RBI) is managed by a Central Board of Directors. This board
comprises:
* A Governor
* Not more than four Deputy Governors, appointed by the Central Government.
* Four Directors, one from each of the four local boards, nominated by the Central
Government.
* Ten Directors nominated by the Central Government.
* One government official nominated by the Central Government.
The four local boards are located in Mumbai, Kolkata, Chennai (formerly Madras), and New
Delhi. Each local board consists of five members appointed by the Central Board of Directors
to represent territorial and economic interests and to advise the bank on cooperative
and local matters.
IV. Functions of RBI.
1. Monetary Authority:
• Formulates, implements and monitors the monetary policy.
• Objective: maintaining price stability while keeping in mind the objective of growth.
2. The Reserve Bank of India is the sole authority for the issue and regulation of currency
in the country.
• This power enables the RBI to effectively regulate and control the money supply.
• It has adopted the Minimum Reserve System for printing currency notes, maintaining gold
and foreign exchange reserves (with a specific minimum in gold) since 1957.
3. Banker to Government: The RBI acts as a banker to both the Government of India and the
State Governments.
It manages their current financial transactions, looks after their accounts, accepts money on
behalf of the Government, makes payments, carries out exchange remittances, and performs
other banking operations, including the management of public debt.
It also tenders useful advice to the government on matters related to economic and monetary
policy.
4. Banker to Commercial Banks (Banker's Bank and Lender of Last Resort): Commercial
banks maintain their accounts and keep deposits with the Reserve Bank of India, similar to how
individuals maintain accounts with commercial banks.
They can borrow money from the RBI when necessary.
In times of financial difficulty, the RBI acts as the lender of the last resort to commercial banks,
providing them with necessary liquidity.
5. The Reserve Bank of India (RBI) has supervisory and regulatory powers, including:
- Cautioning or prohibiting banking companies from entering into specific transactions
- Providing advice to banking companies
- Assisting in amalgamation proposals between banking companies
- Granting loans and advances to banking companies
These powers allow RBI to regulate and oversee banking companies, promoting
financial stability.
6. Regulator and supervisor of the financial system:
• Prescribes broad parameters of banking operations within which the country's banking and
financial system functions.
• Objective: maintain public confidence in the system, protect depositors' interest and provide
cost-effective banking services to the public.
7. Credit Control and Regulation:
The RBI exercises control over the volume of credit created by commercial banks.
Its primary objective is to ensure price stability by regulating and controlling the credit flow
through appropriate monetary and credit policies.
It uses both quantitative and qualitative techniques for this purpose.
8. Custodian of Foreign Exchange Reserves and Maintenance of Currency Value: The
RBI has the responsibility to maintain not only the internal value (i.e., the Indian Rupee) but
also the external value of the currency. For the purpose of keeping foreign exchange rates
stable, the Reserve Bank buys and sells foreign currencies and protects the country's foreign
exchange funds.
9. Grants of loans and advanced to banking companies: The Reserve Bank of India (RBI)
acts as the crucial "Lender of Last Resort" by providing emergency loans and advances to
commercial banks facing temporary liquidity shortages, thereby preventing bank runs and
ensuring the stability of the financial system. This is primarily done through mechanisms like
the Repo Rate and Marginal Standing Facility (MSF), where banks borrow against eligible
collateral, typically government securities, at interest rates set to manage liquidity and
discourage excessive reliance on central bank funding.
10. Development and promotional functions:-The Reserve Bank of India (RBI) performs
developmental functions, including developing rural banking and financial institutions,
regulating and developing money and capital markets, collecting and publishing economic
data, and providing loans to the government, ultimately supporting economic growth and
financial stability in India.
V. Conclusion.
Annual Report on Banking Progress and Suggestions: The RBI is required to submit an annual
report to the Central Government detailing the trends and progress of banking in the country.
This report specifically refers to the RBI's activities under clause 2 of section 17 of the Reserve
Bank of India Act, 1934, and includes any suggestions the RBI may have for strengthening
banking business throughout the country.
 The Regional Rural Banks (RRBs)
The Regional Rural Banks (RRBs) were established under the Regional Rural Banks Act, 1976,
to provide institutional credit to the rural and agriculture sector. The RRBs are jointly owned
by the Government of India, the concerned State government, and sponsor banks.

I. Introduction:

Regional Rural Banks (RRBs) were established to create an alternative channel to the
"cooperative credit structure" and to ensure sufficient institutional credit for the rural and
agriculture sector. As per the Regional Rural Banks Act, 1976, RRBs are jointly owned by the
Government of India, the concerned State government, and sponsor banks, with the issued
capital shared in the proportion of 50 percent, 15 percent, and 35 percent, respectively.

II. Explanation of RRBs:

RRBs were established to provide banking services to the rural areas, with a focus on
agriculture and rural development. The RRBs are required to provide credit to the rural sector,
including agriculture, small-scale industries, and other rural activities. The RRBs are also
required to provide other banking services, such as deposits, loans, and remittances.

III. Main Aims of RRBs:

The main aims of RRBs are:

1. To provide institutional credit to the rural and agriculture sector.

IV. Ownership of RRBs:

The ownership of RRBs is shared among the Government of India, the concerned State
government, and sponsor banks, with the issued capital shared in the proportion of 50 percent,
15 percent, and 35 percent, respectively.
1. Central Government: 50%
2. Sponsor Bank: 35%
3. State Government: 15%

This ownership structure is as per the Regional Rural Banks Act, 1976, and is applicable to
all RRBs in India.

V.Objectives of RRBs:

The objectives of RRBs are:

1. To provide credit to the rural sector, including agriculture, small-scale industries, and other
rural activities.
2. To promote rural development and agriculture growth.
3. To provide other banking services, such as deposits, loans, and remittances.

VI. Functions of RRBs:

The functions of RRBs include:

1. Providing credit to the rural sector.

VII.Amendments to the Regional Rural Banks Act, 1976:

The Regional Rural Banks (Amendment) Bill, 2014, was passed to strengthen the capital base
and improve the overall capabilities of RRBs. The amendments include:

1. Continuation of managerial and financial assistance from Sponsor Banks beyond the first
five years of functioning of Regional Rural Banks.
2. Enhancement of authorized capital of each Regional Rural Bank from five crore rupees to
two thousand crore rupees.
3. Provisions for raising capital by Regional Rural Banks from sources other than the Central
Government, the State Government, and the Sponsor Bank.
VIII.Conclusion:
In conclusion, RRBs play a crucial role in providing institutional credit to the rural and
agriculture sector. The amendments made to the Regional Rural Banks Act, 1976, aim to
strengthen the capital base and improve the overall capabilities of RRBs. The RRBs are jointly
owned by the Government of India, the concerned State government, and sponsor banks, and
are required to provide credit to the rural sector and promote rural development and agriculture
growth.

As per the document, the Regional Rural Banks (Amendment) Bill, 2014, was passed in the
year 2015 and is recognized as Regional Rural Bank (Amendment) Act, 2015 (Act No. 14 of
2015).