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Structure of Banking Sector in India


The RBI is India's central bank. The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934. RBI acts as a banker to the Government and Banks. The Central Bank maintains record of Government revenue and expenditure under various heads. It maintains deposit accounts of all other banks and advances money to other banks, when needed. Another important function of the Central Bank is the issuance of currency notes, regulating their circulation in the country by different methods. Banks in the country are broadly classified as scheduled banks and non- scheduled banks.

Scheduled Banks

All banks which are included in the Second Schedule to the Reserve Bank of India Act, 1934 are scheduled banks. These banks comprise Scheduled Commercial Banks and Scheduled Cooperative Banks. These banks are eligible for certain facilities such as financial accommodation from RBI and are required to fulfill certain statutory obligation. The RBI is empowered to exclude any bank from the schedule whose:
  1. Aggregate value of paid up capital and reserves fall below Rs 5 lakh
  2. Affairs are conducted in a manner detrimental to the interests of depositors and
  3. Goes into liquidation and ceases to transact banking business.

Commercial Banks

Commercial banks may be defined as, any banking organization that deals with the deposits and loans of business organizations. Commercial banks issue bank checks and drafts, as well as accept money on term deposits. Commercial banks also act as moneylenders, by way of installment loans and overdrafts. Commercial banks also allow for a variety of deposit accounts, such as checking, savings, and time deposit. These institutions are run to make a profit and owned by a group of individuals.

Public Sector Banks

These are banks where majority stake is held by the Government of India. Examples of public sector banks are: SBI, Bank of India, Canara Bank, etc.

Foreign Banks

These banks are registered and have their headquarters in a foreign country but operate their branches in our country. Examples of foreign banks in India are: HSBC, Citibank, Standard Chartered Bank, etc.

Private Sector Banks

These are banks majority of share capital of the bank is held by private individuals. These banks are registered as companies with limited liability. Examples of private sector banks are: ICICI Bank, Axis bank, HDFC, etc.

Regional Rural Banks

Regional Rural Banks were established under the provisions of an Ordinance promulgated on the 26th September 1975 and the RRB Act, 1976 with an objective to ensure sufficient institutional credit for agriculture and other rural sectors. The area of operation of RRBs is limited to the area as notified by Govt. of India covering one or more districts in the State. RRBs are jointly owned by Govt. of India, the concerned State Government and Sponsor Banks (27 scheduled commercial banks and one State Cooperative Bank); the issued capital of a RRB is shared by the owners in the proportion of 50%, 15% and 35% respectively. Prathama bank is the first Regional Rural Bank in India located in the city Moradabad in Uttar Pradesh.

Cooperative Banks

A co-operative bank is a financial entity which belongs to its members, who are at the same time the owners and the customers of their bank. Co-operative banks are often created by persons belonging to the same local or professional community or sharing a common interest. Co-operative banks generally provide their members with a wide range of banking and financial services (loans, deposits, banking accounts, etc). They provide limited banking products and are specialists in agriculture-related products. Cooperative banks are the primary financiers of agricultural activities, some small-scale industries and self-employed workers. Co-operative banks function on the basis of "no-profit no-loss". Anyonya Co-operative Bank Limited (ACBL) is the first co-operative bank in India located in the city of Vadodara in Gujarat.
The Co-operative Credit system consists of -
  1. Short-term agricultural credit institutions
  2. Long-term agricultural credit institutions
  3. Non-agricultural credit institutions
The short-term agricultural credit institutions are in three categories:
  1. Primary Agricultural Credit Societies at the Village level Guidelines -
  2. Central Co-operative Banks at the District level
  3. State Co-operative Banks at the State level.
The Long-term agricultural credit institutions are as under-
  1. Primary Land Development Banks [at the base]
  2. Central Land Development Banks [at the apex]
Thus, the apex of the co-operative organization in a state is the State Bank to which Central Banks are affiliated. The Primary societies are mostly affiliated to the Central Banks. Some of them are grouped into local unions for the purposes of supervision. All of them are forbidden to lend to non-members except with the sanction of the Registrar of Co-operative societies.

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