Types of Banks in India – Function, Classification with Example

The banking exam aspirants must know about the different types of banks in India. This topic is a part of the General Awareness section in various bank exams. Studying this topic will increase your general knowledge and eventually help you with your interview preparation. The different types of banks in India include scheduled and non-scheduled banks, cooperative and commercial banks, small finance banks, payments banks, rural banks, urban banks, etc. These types of banks are divided based on their functions and area of banking operations. Let’s understand all these types of banks and how they are different from each other with examples.

List of Different Types of Banks in India

In India, the Banking Regulation Act 1949 is the primary law governing the operation of banks. The banking sector in India is divided into several types. Each of them serves specific functions and purposes. These banks are required to accept deposits, provide loans, make payments and settlements, currency exchange, safekeeping of valuables, investment services, and Internet banking services. These banks are controlled by the Reserve Bank of India (RBI). The Banking Regulation Act, 1949, and the RBI Act, 1934, together govern the banks in India and with all other acts, provide a legal framework to manage the operations of banks in India. The different types of banks in India are listed below.

1. Central Bank: This is the apex bank that regulates the entire banking system.
2. Commercial Bank: These are profit-making institutions that accept deposits and provide loans.
3. Co-operative Bank: They are owned and operated by their members, primarily to provide credit in rural and semi-urban areas.
4. Payment Bank: The Payment Bank provides small savings accounts and remittance services.
5. Small Finance Bank: They are made for the financial inclusion of small businesses, the unorganized sector.
6. Scheduled Bank: They are listed in the Second Schedule of the RBI Act, 1934.
7. Non-scheduled Bank: They are not listed in the Second Schedule of RBI Act.
8. Public Sector Bank: These are the banks where the government holds more than 50% of shares.
9. Private Sector Bank: In the Private Sector Bank, the majority stake is held by private shareholders.
10. Development Bank: The Development banks provide long-term finance for industrial and infrastructure development.
11. Local Area Bank: They operate in rural/semi-urban areas in limited geographical zones.
12. Foreign Bank: The Foreign banks are headquartered abroad but operate in India.
13. Regional Rural Bank: The RRBs are jointly owned by the Central Government, the State Government, and the Sponsor Bank.

Major Types of Banks In India: Overall Classification Table

The overall classification table provides an overview of the types of banks that we are going to discuss further in this article.

Classification	Type	Example
Based on RBI Schedule	Scheduled Banks	SBI, ICICI, NABARD, Cosmos Bank
	Non-Scheduled Banks	Local cooperative banks
Based on Function	Commercial Banks	SBI, HDFC, Axis Bank
	Cooperative Banks	Saraswat Bank, District Coop Bank
	Development Banks	NABARD, SIDBI
Specialized Banks	Small Finance Banks	Equitas SFB, AU SFB
	Payments Banks	Paytm Payments Bank, IPPB
	Local Area Banks	Coastal Local Area Bank
Central Authority	Central Bank	Reserve Bank of India (RBI)

Classification of the Types of Banks in India

The classification of these banks is based on their ownership, function, and on the basis of their inclusion in the RBI’s Schedule. The functions of these banks and their examples are mentioned below. The types of banks are further classified into three main categories.

1. Based on Function
   • Commercial banks
   • Cooperative banks
   • Development banks
   • Central bank
   • Specialized banks
2. Based on Ownership/Structure
   • Public Sector Bank
   • Private Sector Bank
   • Foreign bank
   • Regional Rural Bank
   • Cooperative bank
3. Based on Inclusion in RBI’s Schedule
   • Scheduled Banks
   • Non-Scheduled Banks

1. Classification Based on Function

There are mainly five types of banks based on their functions. They are such as: Commercial Bank, Cooperative Bank, Development Bank, Central Bank, and Specialized Banks. Continue to read about the function of these types of banks with their examples.

a. Commercial Banks

These are profit-making institutions that accept deposits and provide loans.

Types of Commercial Banks:

• Public Sector Banks
  • Example: State Bank of India (SBI), Punjab National Bank (PNB)
    Owned mainly by the Government.
• Private Sector Banks
  • Example: HDFC Bank, ICICI Bank
    Majority stake held by private individuals/institutions.
• Foreign Banks
  • Example: Citibank, HSBC
    Headquartered in a foreign country but operating in India.
• Regional Rural Banks (RRBs)
  • Example: Andhra Pradesh Grameena Vikas Bank
  • The RRBs are jointly owned by the Central Government, the State Government, and the Sponsor Bank.

b. Cooperative Banks

They are owned and operated by their members, primarily to provide credit in rural and semi-urban areas.

Types of Cooperative Banks:

• Urban Cooperative Banks (UCBs)
  • Example: Saraswat Cooperative Bank
  • Operate in urban and semi-urban areas.
• Rural Cooperative Banks
  • Example: State Cooperative Bank, District Central Cooperative Bank
  • Operate in rural areas and provide agricultural and rural credit.

c. Development Banks

The Development banks provide long-term finance for industrial and infrastructure development.

Examples:

• Small Industries Development Bank of India (SIDBI)
• National Bank for Agriculture and Rural Development (NABARD)
• Industrial Finance Corporation of India (IFCI)

d. Central Bank

This is the apex bank that regulates the entire banking system.

• Example: Reserve Bank of India (RBI)
• Functions: Monetary authority, regulator of banks, currency issuer, manages foreign exchange reserves, etc.

e. Specialized Banks

The Specialized banks are the Banks which has to provide services to specific sections or purposes.

Includes:

• Small Finance Banks (SFBs)
  • The Small Finance banks are categorised under Scheduled Commercial Banks.
  • Purpose: Financial inclusion of small businesses, the unorganized sector
  • Examples: AU Small Finance Bank, Ujjivan SFB
• Payments Banks
  • Payment Banks are also scheduled banks if included under the Second Schedule of the RBI Act.
  • Purpose: Provide small savings accounts and remittance services
  • Restrictions: Cannot issue loans or credit cards
  • Examples: India Post Payments Bank, Paytm Payments Bank
• Local Area Banks (LABs)
  • Purpose: Operate in rural/semi-urban areas in limited geographical zones
  • Example: Coastal Local Area Bank

2. Classification Based on Ownership

There are mainly five types of banks based on their ownership. They are such as: Public Sector Bank, Private Sector Bank, Foreign Bank, Regional Rural Bank, and Cooperative Bank. Continue to read about the function of these types of banks with their examples.

a. Public Sector Banks

• Banks where the government holds more than 50% of shares.
  • Example: SBI, Bank of Baroda

b. Private Sector Banks

• The majority stake is held by private shareholders.
  • Example: Axis Bank, Kotak Mahindra Bank

c. Foreign Banks

• The Foreign banks are headquartered abroad but operate in India.
  • Example: Standard Chartered Bank

d. Regional Rural Banks (RRBs)

• Set up for rural credit needs under a tripartite ownership.
• They are jointly owned by the Central Government, the Sponsored bank, and the State Government. (50%, 35%, and 15%)
  • Example: Kerala Gramin Bank

e. Cooperative Banks

• Operated on cooperative principles and controlled by members.
  • Example: Cosmos Bank, Maharashtra State Cooperative Bank

3. Classification Based on Inclusion in RBI’s Schedule

There are mainly two types of banks based on their inclusion in the RBI’s Schedule. They are such as: Scheduled Bank and Non-scheduled Bank. Continue to read about the function of these types of banks with their examples.

a. Scheduled Banks

• Listed in the Second Schedule of RBI Act, 1934
• Maintain CRR with RBI and eligible for loans from RBI
• Includes:
  • Scheduled Commercial Banks
    • Public Sector Banks (e.g., SBI)
    • Private Sector Banks (e.g., HDFC Bank)
    • Foreign Banks (e.g., HSBC)
    • Regional Rural Banks (e.g., Karnataka Gramin Bank)
  • Scheduled Cooperative Banks
    • Urban Cooperative Banks
    • State Cooperative Banks

b. Non-Scheduled Banks

• Not listed in the Second Schedule of RBI Act
• Do not maintain CRR and not eligible for RBI loans
• Smaller and localized in operations
  • Example: Some local cooperative banks

Difference Between Major Types of Banks

The difference between major types of banks on the basis of their operations and service areas, and functions is mentioned in the form of a table below for easy understanding of the major types of banks.

Type of Bank	Objective	Area of Operation	Target Customers	Can Provide Loans?	Regulated By	Examples
Commercial Banks	Profit-making through financial services	Nationwide and international	General public, corporates, businesses	Yes	RBI & Banking Regulation Act	SBI, HDFC, ICICI, PNB
Cooperative Banks	Serve members on cooperative principles	Local/Regional	Farmers, small traders, self-employed	Yes	RBI & State Govts	Saraswat Bank, District Coop Banks
Regional Rural Banks	Rural credit and development	Rural areas	Farmers, rural artisans, small entrepreneurs	Yes	NABARD & RBI	Tamil Nadu Grama Bank, Kerala Gramin Bank
Small Finance Banks	Financial inclusion of underserved sections	Local to national (limited scope)	Small businesses, low-income groups, MSMEs	Yes	RBI	AU Small Finance Bank, Ujjivan SFB
Payments Banks	Enable small savings and digital transactions	Entire country	Small account holders, migrant laborers	No (Loans Not Allowed)	RBI	Paytm Payments Bank, India Post PB
Development Banks	Provide long-term financial assistance	Nationwide	Industrial units, agriculture, exporters	Yes (Long-term)	RBI, Specific Acts	NABARD, SIDBI, EXIM Bank
Foreign Banks	Offer banking services under parent foreign entity	Mostly metro/urban centers	High-net-worth individuals, corporates	Yes	RBI	HSBC, Citibank, Standard Chartered
Local Area Banks	Credit to local rural and semi-urban areas	Limited to 3 districts	Agriculture, small business units	Yes	RBI	Coastal Local Area Bank
Central Bank	Regulates entire banking and monetary system	Entire country	All banks, financial institutions	No	RBI Act, 1934	Reserve Bank of India (RBI)

Summary

The different types of banks in India include Public Sector Banks, Commercial Banks, Cooperative Banks, Regional Rural Banks, Local Area Banks, Small Finance Banks, Payment Banks, Development Banks, Foreign Banks, Central Bank, Scheduled Banks, and Non-Scheduled Banks. Try to learn about these banks and their functions, and other details which is important for your exam. Make short notes on this topic and revise them. This will surely fetch you a few marks in your exam.

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