Structure Of Banking In India
In this article we discussed about structure of banking In India.A bank is a financial Institution which deals with monetary and credit transactions. The primary role of the bank is to accept deposits from the public, provide loans and help to transfer money from one place to another place.
A modern bank performs different types of functions to the public or its customers. So it is difficult to provide a particular definition of it. Different economists provide different definitions and meanings of banks.
According to Kinley, “A bank is an establishment which makes individual persons to take such advance of money as per the requirement and to which individuals entrust money or credit when not required by them.”
John Paget said that, “Nobody can be a banker who does not take deposits from a public or deposit account, current account, issue or pay of cheques and collects cheques from its customers.
According to section 5 (B) Indian Banking Regulation Act, 1949; Banking means “ A financial institution which accepts money or credit for the purpose of lending and investment of Indian companies, accepts deposits from the public, provides withdrawal facility over saving account of the customer, withdraw cash by cheque, draft and other transaction.
Primary Features of Bank
Banks in the modern times provide various or varieties of features and facilities to its customers. Some primary features of Bank are pointed below:
It deals with the money or monetary transactions like accepting deposits and advancing loans to its customers.#It also deals with credit transactions and it has the ability to create credit.#It creates credit like it expands its primary aim to earn profit.
Bank is a commercial institution whose primary aim is to earn profit.
It is the financial institutions which create demand deposits on medium exchange.
Overall, banks manage the payment system of the country.
Types of Bank In India
Today the Bank provides various facilities to its customers.
According to RBI Act, 1934 Bank are divided into 3 categories:
Scheduled Bank
Non scheduled Bank
Development Bank
What is Scheduled Bank?
Scheduled Bank means the bank which was listed in the second schedule of RBI Act, 1934. It’s paid up capital is 5 lakh.
Note: Banks having paid up capital of at least 5 lakh are eligible to be listed in the 2nd schedule of Reserve Bank Of India act 1934 as Scheduled Bank.
Further Scheduled Bank is into 2 types:
Commercial Bank
Cooperative Bank
Non-scheduled Bank
According to RBI the banks which are not listed in the 2nd schedule of the RBI act 1934. Non scheduled Bank does not require to maintain CRR with the Reserve Bank of India.
What is Development Bank?
What is Commercial Bank?
The Bank performs all types of banking related activities like finance, trade, deposit and withdrawal is known as the Commercial Bank. It provides short term loans to the business organisation and traders.
Generally it avoids medium or long term loan facilities or lending processes.But now in modern times the commercial banks expand their areas of operation in medium and long-term finance.
Read – What is Commercial Bank and It’s Types?
Commercial Bank in india is divided into 4 types:
Public Sector Bank
Private Sector Bank
Foreign Bank
Regional Rural Bank
What is Public Sector Bank?
The Bank which fully operates, regulates or is owned by the Government of India. It includes the State Bank of India & 19 Nationalised Banks.
Some of the example of Public Sector Bank in india are:
State Bank of India, Allahabad Bank, Bank of Baroda,Bank of India, Canara Bank, Central Bank of India, Bank of Maharashtra etc.
What is Private Sector Bank?
The Bank which operates, regulates or is owned by the private individual or person is known as a private sector Bank. It includes Small Finance Bank, Payments Bank and Local Areas Bank etc.
Some example of Private Sector Bank are:
Axis Bank, HDFC Bank, ICICI Bank, Bandhan Bank, IndusInd Bank, Kotak Mahindra Bank, Yes Bank etc
What is Foreign Bank?
The Banks which are located in the country but headquarters are situated in foreign countries are known as Foreign Countries.
Some of the example of Foreign Bank are:
Australia and New Zealand Banking Group Ltd., National Australia Bank, Westpac Banking Corporation, AB Bank Ltd., Bank of Bahrain & Kuwait BSC, HSBC, CITI Bank etc.
What is Regional Rural Bank?
First it formed under Regional Rural Bank ordinance 1975. Later it is a formed and replaced by Regional Rural Bank act, 1976 (2) of Government of India.
Regional Rural Banks introduced for development of rural economy by providing loan facilities for developing agriculture, trade, business and other facilities. This Bank is very much helpful for marginal and small farmers, agricultural labourers and small entrepreneurs.
Note:The first Regional Rural Bank in India was established on October 2,1975 as “Prathama Grameen Bank”. Sponsor Bank of the 1st Regional Bank was Syndicate Bank and the head office was situated in Moradabad, Uttarpradesh, India.
The Government of India, state Government and the sponsor Bank contribute share capital of RRBs of 50%, 15% and 35%.
Cooperative Bank in India
A cooperative Bank is a financial institution that belongs to its members and customers. Members of the Cooperative Bank are both owners and customers of the Bank.The primary aim of Cooperative Banks is to promote social welfare by providing credit and loans facilities.
Cooperative Bank organised in the 3 tier structure
Tier 1 (State Level)State Cooperative Banks regulated by RBI, State Govt, NABARD.Funded by RBI, government, NABARD. Money is then distributed to the public Concessional CRR, SLR applies to these banks. (CRR- 3%, SLR- 25%)Owned by the state government and top management is elected by members.
Tier 2 (District Level) – Central/District Cooperative Banks
Tier 3 (Village and Rural Level) – Primary Agriculture Cooperative Banks
Types Of Cooperative Bank
Cooperative Bank in india is further divided into 2 types:
Urban Cooperative Bank
Rural Cooperative Bank
What is Urban Cooperative Bank?
Urban Cooperative Bank is otherwise known as primary cooperative Bank (PCB). It operates in urban areas or urban society. This Bank is suitable for small scale business borrowers in urban areas.
What is Rural Cooperative Bank?
The Rural Cooperative Bank operated in rural or village areas of India. The primary aim of Rural Cooperative Bank is to provide credit or loan facility to support the agricultural sector of rural areas. It also aims to improve the rural or village economy in india.
The loan or credit structure of Rural Cooperative Bank is divided into 2 types:
Short Term Cooperative Structure
Long Term Cooperative Structure
Short Term Cooperative Bank
The structure of Rural Cooperative Bank provides short term loans like working capital loan and crop loan to the farmers of rural areas.
Long Term Cooperative Bank
This structure of Rural Cooperative Bank provides both medium and long term loans to the agricultural sector.
The short term cooperative credit structure operates using a 3 tier system.
Tier1: Primary Agricultural credit societies at the village or Rural level, central cooperative Bank in district level and state Cooperative Bank in state level.
Tier2: Primary Agricultural Credit Societies (PACs) are not banks. This is a society and not regulated by the Reserve Bank Of India. This society is outside of the Banking Regulation Act,1949.
Tier3- STCBs/ DCCBs are registered under the provisions of state Cooperative societies Act of state. Both are regulated by RBI and supervised by NABARD under section 35 A of the Banking Regulation Act.
The Long Term Cooperative Bank Credit Structure
It operates using a 2 tier system.
Tier1: Comprising the state Cooperative Agricultural and Rural Development Banks and the primary cooperative Agricultural and Rural Development Banks.
Tier2: The state not having long term Cooperative create entities are served by the state Cooperative Banks apart from being serviced by the branches of Regional Rural Bank & Rural/Semi Urban branches of commercial banks.
Payment Bank In India
Payment Bank is a newly introduced digital form of banking system. Payment banks have been approved by the Reserve Bank of India. It contains digital savings accounts, debit cards, Net Banking and Mobile Banking facilities for their customers.
Some Example of Payment Bank In India are:
Airtel payment Bank, Paytm Payment Bank, Jio Payment Bank, Fino Payment Bank, NSDL Payment Bank, Indian Post Payment Bank
RBI Guideline /Regulation For Payment Bank In India
Customers with an account in these banks can only deposit an amount of up to Rs.1,00,000/- and cannot apply for loans or credit cards under this account.
These banks provide mutual funds and insurance facilities to its customers.
The initial minimum capital requirement of 100 crore is mandatory for this type of bank.
The promoter contributes at least 40% for the first 5 years.
Non Resident Indian (NRI) will not be able to open accounts on these banks.
What is Small Finance Bank?
Small Banks are those whose aim is to provide such basic banking products such as deposits and supply of credit. These banks are physical banks who operate in a limited area of operation.These banks are especially helpful for small business organisations, micro industries, migrant workers, and low income households.
Some example of Small Finance Bank which are available in India:
AU Small Finance Bank, Equitas Small Finance Bank Jana Small Finance Bank, Northeast Small Finance BankCapital Small Finance Bank, Fincare Small Finance Bank Suryoday Small Finance Bank, Ujjivan Small Finance Bank, Esaf Small Finance Bank, Utkarsh Small Finance Bank
Important Features Of Small Finance Banks In India
They can accept any type of deposit like fixed, current, savings and recurring deposits as well as commercial Banks.
Initial 3 years prior approval will be required for the branch expansion.
NBFCs any individual with 10 years of experience in banking can apply for a license for Small Bank.
It targets the small business and MSME sector.
Small Finance Banks are not allowed to lend the savings or deposited money to any type of large business and organisations.
What is the Central Bank?
The Central Bank is the financial institution which controls, supervises and regulates all financial or monetary transactions and records of the country. Reserve Bank Of India is the Central Bank of India. It operates all types of financial operations. It is the supreme Bank of India.
