Banking Structure in India

Banking Regulator
The Reserve Bank of India is

• The central banking and monetary authority of India
• The regulator and supervisor of commercial banks

Scheduled Banks in India
Scheduled banks comprise scheduled commercial banks and scheduled co-operative banks.

• Scheduled commercial banks form the bedrock of the Indian financial system, currently accounting for more than three-fourths of all financial institutions’ assets.
• SCBs are present throughout India, and their branches, having grown more than four-fold in the last 40 years now number more than 80,500 across the country.

Public Sector Banks

• Public sector banks are those in which the majority stake is held by the Government of India.
• Public sector banks together make up the largest category in the Indian banking system.
• There are currently 27 public sector banks in India.
• They include the SBI and its 6 associate banks, 19 nationalized banks and IDBI Bank Ltd.
• Public sector banks have taken the lead role in branch expansion, particularly in the rural areas.
• Public sector banks account for bulk of the branches in India (88 percent in 2009).
• In the rural areas, the presence of the public sector banks is overwhelming; in 2009,
• 96 percent of the rural bank branches belonged to the public sector.

Regional Rural Banks

• Regional Rural Banks (RRBs) were established during 1976-1987 with a view to develop the rural economy.
• Each RRB is owned jointly by the Central Government, concerned State13 Government and a sponsoring public sector commercial bank.
• RRBs provide credit to small farmers, artisans, small entrepreneurs and agricultural laborers.
• Over the years, the Government has introduced a number of measures of improve viability and profitability of RRBs, one of them being the amalgamation of the RRBs of the same sponsored bank within a State. This process of consolidation has resulted in a steep decline in the total number of RRBs to 86 as on March 31, 2009, as compared to 196 at the end of March 2005.

 Private Sector Banks

• In this type of banks, the majority of share capital is held by private individuals and corporate.
• Not all private sector banks were nationalized in 1969, and 1980.
• The private banks which were not nationalized are collectively known as the old private sector banks and include banks such as The Jammu and Kashmir Bank Ltd., Lord Krishna Bank Ltd etc.
• As at end March, 2009 there were 7 new private sector banks and 15 old private sector

Foreign Banks

• Foreign banks have their registered and head offices in a foreign country but operate their branches in India.
• The RBI permits these banks to operate either through branches; or through wholly-owned subsidiaries.
• The primary activity of most foreign banks in India has been in the corporate segment.
• However, some of the larger foreign banks have also made consumer financing a significant part of their portfolios.
• These banks offer products such as automobile finance, home loans, credit cards, household consumer finance etc.
• Foreign banks in India are required to adhere to all banking regulations, including priority-sector lending norms as applicable to domestic banks.
• Some of the existing private sector banks, which showed signs of an eventual default, were merged with state owned banks.
• It may be noted that two important erstwhile developmental financial institutions, viz. Industrial Development Bank of India (IDBI) and Industrial Credit and Investment Corporation of India (ICICI) converted themselves into commercial banks after the new bank licensing policy was announced in July 1993.
• In addition, a foreign institution could also invest up to 74% in domestic private bank, in which up to 49% can be via portfolio investment.
• At the end of June 2009, there were 32 foreign banks with 293 branches operating in India.
• Besides, 43 foreign banks were operating in India through representative offices.
• Under the World Trade Organization (WTO) Agreement, RBI allows a minimum 12 branches of all foreign banks to be opened in a year.

Co-operative Banks

• Co-operative banks cater to the financing needs of agriculture, retail trade, small industry and self-employed businessmen in urban, semi-urban and rural areas of India.
• A distinctive feature of the co-operative credit structure in India is its heterogeneity.
• The structure differs across urban and rural areas, across states and loan maturities.
• Urban areas are served by urban cooperative banks (UCBs), whose operations are either limited to one state or stretch across states.
• The rural co-operative banks comprise State co-operative banks, district central cooperative banks, SCARDBs and PCARDBs.
• The co-operative banking sector is the oldest segment of the Indian banking system. The network of UCBs in India consisted of 1721 banks as at end-March 2009, while the number of rural co-operative banks was 1119 as at end-March 2008.
• Owing to their widespread geographical penetration, cooperative banks have the potential to become an important instrument for large-scale financial inclusion, provided they are financially strengthened.
• The RBI and the National Agriculture and Rural Development Bank (NABARD) have taken a number of measures in recent years to improve financial soundness of co-operative banks.