Indian Banking Categorisation System

Over the last decade, the forces of change unleashed in the Indian economy have changed the corporate environment across the board. This, coupled with fast technological advancements, presented firms with both an opportunity and a challenge worldwide — the chance to improve customer service and product offered by innovating efficiency and the challenge of keeping up with change and achieving a competitive edge by being first to market.

These two events sparked significant changes in the Indian economy’s structure and all about banking. The rising share of the services sector was undoubtedly the most noticeable and far-reaching of these changes in the economic system.

Indian Banking System Structure

Indian banking system structure includes scheduled, Non-scheduled, Commercial Bank, and RBI.  Two fundamental variables govern the structure of the banking system: economic and legal. The growth of the economy and the dissemination of banking habits need the expansion of financial services. The demand for these banking services impacts the banking system structure and operations of banks organization. Government regulations are the product of national objectives and aspirations, which significantly impact the Indian banking system structure.

These rules are divided into two categories:

• First, regulations that lead to the development of new banks to satisfy a certain set of needs and collection of economic activity.
• Second legislation that has an impact on the structure. Nationalization, mergers, and liquidation are all options.

RBI: The Reserve Bank of India, as the country’s central bank, is in charge of this group. The key functions of RBI include banker’s bank, the custodian of foreign reserve, controller of credit and to manage printing and supply of currency notes in the country.

Non-Scheduled Banks: Non-scheduled banks are those banks which are not listed in the 2nd schedule of the RBI act, 1934. Banks with a reserve capital of less than 5 lakh rupees qualify as non-scheduled banks.

Scheduled Banks: All commercial banks, including nationalized, international, cooperative, and regional rural banks, fall under scheduled banks.

Commercial banks can be classified into two types: scheduled and non-scheduled, with the former being similar to member banks of the Federal Reserve System of the United States USA.

Their names are listed in the Reserve Bank of India Act’s Second Schedule.

They have the right to borrow money from the Reserve Bank. They are responsible for their actions to keep a specified minimum balance in their Reserve Bank of India accounts and a few other items that are required by law. They are directly influenced by the Reserve Bank’s different credit control policies, and the consequences of these measures are seen across the economy.

1. The Regional Rural Banks Act of 1976 established Regional Rural Banks (RRBs). RRBs were planned to operate as state-sponsored commercial banks with a regional focus and a focus on rural areas.
2. The primary goal of this group of rural financial institutions was to get a sense of familiarity with the industry.
3. There is a local requirement. and a professionally managed alternative finance channel for small and medium-sized businesses. Farmers on the fringes, workers in the agricultural industry, Agriculture trade, commerce, manufacturing, and other productive activities require the participation of socially and economically disadvantaged parts of the population.
4. RRBs were anticipated to mobilize resources from rural areas and play a key role in developing agriculture and the rural economy by deploying mobilized resources in rural sectors for those who were not served by SCBs, despite their extensive network. Keeping this goal in mind, RRB capital is held in proportion by the Central Government, concerned State Governments, and sponsor banks.

Structure of a Commercial Bank

Commercial banks are financial entities that accept deposits from the general public and provide loans to make a profit.

The public sector, private sector, foreign banks, and RRBs are the four types of commercial banks.

The government owns the majority of shares in the public sector banks. There are now 12 public sector banks in India, following the recent merger of Small banks with large banks. State Bank of India is an example of a public sector bank.

Private sector banks are those in which private stakeholders or business houses own most of the equity. HDFC Bank, Kotak Mahindra Bank, and ICICI Bank are some of India’s biggest private commercial banks. 

A foreign bank is one that has its headquarters outside of the country yet operates its offices as a private business anywhere else in the world. Such banks are required to follow the rules set out by the country’s central bank and the rules set forth by the parent corporation based outside of India.

The Regional Rural Banks Ordinance of 1975 established Regional Rural Banks to secure adequate institutional credit for agriculture and other rural sectors. The operation is restricted to the region designated by the government as a commercial bank. RRBs are jointly owned by the Indian government, state governments, and sponsor banks. Arunachal Pradesh Rural Bank is an example of an RRB in India.

Conclusion

The banking sector in India has reacted positively and positively to the financial sector reforms. New private banks have entered the market, putting public sector institutions under pressure. The reforms in the financial sector have pushed India’s financial system closer to international standards. The Indian financial system is diverse, but it is insufficient and inefficient. Efficient financial systems will aid India’s growth by mobilizing greater financial resources and distributing these resources to the most productive uses. Financial systems must evolve in tandem with economies that cater to their needs.