Indian Banking Structure | MODULE C: INDIAN FINANCIAL ARCHITECTURE
Indian Banking Structure
Introduction
The Indian banking system is structured in a multi-layered way to cater to the diverse needs of the economy. It plays a crucial role in financial intermediation, economic growth, and development.
Functions of Banking
- Accepting Deposits (Savings, Current, Fixed)
- Providing Loans and Advances
- Credit Creation
- Payment and Settlement Services
- Agency Functions (e.g., collection of cheques, insurance)
Development of Banking in India
Banking in India has evolved significantly through nationalization (1969, 1980), liberalization (post-1991), digitalization, and financial inclusion. Initiatives like Jan Dhan Yojana and UPI have transformed access to banking services.
Scheduled Commercial Banks (SCBs)
SCBs are listed under the Second Schedule of the RBI Act, 1934. They maintain reserves with RBI and comply with its norms.
Types and Functions:
- Public Sector Banks (PSBs): Majority government-owned (e.g., SBI, PNB)
- Private Sector Banks: Owned by private entities (e.g., HDFC, ICICI)
- Foreign Banks: Branches of international banks (e.g., Citibank, HSBC)
Local Area Banks (LABs)
LABs operate in a maximum of three districts. They aim to provide credit to rural and semi-urban areas. Example: Coastal Local Area Bank.
Regional Rural Banks (RRBs)
RRBs were established in 1975 to serve rural areas by providing credit to agriculture and allied activities. Sponsored by public sector banks, they are jointly owned by the Central Government, State Government, and Sponsor Bank.
Cooperative Banks
Types:
- Urban Cooperative Banks (UCBs): Operate in urban/semi-urban areas.
- Rural Cooperative Banks: Include State Cooperative Banks, District Central Cooperative Banks, and Primary Agricultural Credit Societies (PACS).
Payment Banks
These banks can accept deposits up to ₹2 lakh but cannot lend money. Examples include Airtel Payments Bank and India Post Payments Bank. Their aim is to enhance financial inclusion through mobile and digital banking.
Small Finance Banks (SFBs)
SFBs provide basic banking services including accepting deposits and lending to underserved sections like small businesses, unorganized sector, and low-income households. Examples: Ujjivan SFB, Equitas SFB.
Non-Banking Financial Companies (NBFCs)
NBFCs offer financial services similar to banks but do not hold a banking license. They provide loans, asset financing, investment products, etc. They cannot accept demand deposits.
Key RBI Guidelines
- CRR (Cash Reserve Ratio) and SLR (Statutory Liquidity Ratio) requirements
- Capital Adequacy Norms (Basel III compliant)
- Priority Sector Lending targets (40% for SCBs)
- Licensing criteria for Payment Banks and SFBs
- NPA classification and provisioning norms
Chapter List
- Indian Financial System – An Overview
- Indian Banking Structure
- Banking Regulation Act, 1949 and RBI Act, 1934
- Development Financial Institutions
- Micro Finance Institutions
- Non-Banking Financial Companies
- Insurance Companies
- Indian Financial System - Regulators & their roles
- Reforms & Developments in the Banking sector
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