The Current Banking System of India

One will come across ample banks in India. In India, the banking system and the banks are divided into several categories. Each category has its own pros and cons that is reflected in their daily operations. Each bank has its own dedicated target market. There are banks dedicated for rural areas while some are urban banks. Most of the urban banks are catering in small towns and cities.

The Current Banking System of India

That being said, there are three bodies that regulate the entire financial systems in India:

  • Reserve Bank of India (RBI)
  • Securities Exchange Board of India (SEBI)
  • Insurance Regulatory and Development Authority (IRDA)

Indian banking system follows a structure and the banks in India are classified under the following heads:

1. The Public Sector Banks: Maximum number of banks in India come under this category. All the nationalised banks and state bank groups are called public sector banks. These banks have the largest number of branches in metro and non-metro cities. They contribute 75% of the total deposit in the country. 70% of the total advances come from the public sector banks. These banks have a large network all over the country, and have a large base of assets and deposits.

2. The Private Sector Banks: It was in the year 1990, when the government of India started giving licenses to private banks. A bank which has its major share on the private land is called a private bank. These are the banks that are registered under limited liability and they are regulated by the Reserve Bank of India. These private banks are also divided into old private banks and the new private banks depending upon the time when they came into existence.

3. Foreign Banks: The government of India has given permission to many foreign banks to operate in the country, and these foreign banks have to operate as per the rules and guidelines laid down by the RBI. Till date more than 40 foreign banks have their branch office in the country. Standard Chartered Bank has the highest number of branches in the country followed by HSBC and Citi. These banks are responsible to provide access to foreign exchange, bond markets and global stock to the local banks.

4. Scheduled Banks: These are those banks which are listed in the second schedule of the Reserve Bank of India Act, 1934. It is compulsory for these banks to maintain a certain amount of money with the RBI, and in return, they enjoy the facilities of financial accommodation and remittances at concessions rates from the RBI.

5. NBFC (Non-banking financial companies): Lastly, we have NBFCs, which are essentially private financial institutions. These are responsible to provide loans to public but they do not operate as the banks do in the country. NBFCs are registered under the companies act 1956, and they are responsible to carry out businesses of loans and advances, hiring and purchasing stocks, acquisition of shares and many more.

The banking system of India is the backbone of our country. It plays a vital role in promoting economic growth by channelling savings into investments and offer fare allocation of resources.