TYPES OF BANKS
The Banks can be classified on a number of basis. Depending upon the criterion selected, a bank can be classified into more than one category also.
CLASSIFICATION OF BANKS
|RBI ACT||OWNERSHIP||CONSTITUTION||NATURE OF BANKING|
|Scheduled Banks||Public Sector Banks||Statutory Banks||Payment Banks|
|Non- Scheduled Banks||Private Banks|
|Nationalized Banks||Small Banks|
|–||Cooperative Banks||Regional Rural Banks|
|At present there are 149 scheduled banks in India, including 56 RRBs. (RBI data, Dec 2015.)|
A bank whose name appears in the second schedule of the RBI Act, 1934 is called a ‘scheduled bank’. Whenever the RBI is not satisfied with the functioning of a bank, it may delete the name of that bank from the second schedule. Barring a few small banks, almost all banks (including foreign ones) in India are Scheduled Banks.
The bank whose name does not appear in the 2nd schedule is called a ‘non- scheduled bank’.
The banks which have been constituted under a separate Act of Parliament are called Statutory Banks. Some examples of such banks are – Reserve Bank of India (Reserve Bank of India Act-1934), State Bank of India (State Bank of India Act – 1955), IDBI Bank (Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003).
PUBLIC SECTOR BANKS
All those banks where the government share holding is 51% or more are called Public Sector Banks. Thus all nationalized banks, SBI, IDBI Bank and RRBs are Public Sector Banks.
The State Bank of India is the largest public sector bank in India.
The banks which were nationalised in 1969 and 1980 vide Banking Companies (Acquisition and Transfer of Undertaking) Act are called nationalised banks. In all, 14 banks, each with deposits of over Rs 50 crores, were nationalised in 1969.
Later, in 1980, six more banks, each with deposits of over Rs 200 crore, were nationalised. Of the 6 banks nationalised in 1980, New Bank of India was merged with Punjab National Bank in 1993, leaving only 19 nationalised banks.
Punjab National Bank is the largest nationalised bank in India.
|The capital structure of the RRB is jointly subscribed by the Central Government–50%, State Government–15% and Sponsoring Bank–35%.|
Recently govt. has decided to increase the authorized capital of RRBs from Rs. 5 crore to Rs. 2000 crores.
All banks other than public sector banks are called Private Banks. These banks are registered under the Companies Act, 1956. They are of two types – Indian Banks and Foreign Banks. The Banks registered in India are called Indian Banks while those with their registered office outside India are called Foreign Banks.
ICICI Bank is the largest Indian private sector bank and Standard Chartered Bank is the largest foreign bank in India.
REGIONAL RURAL BANKS – RRBs
The Narasimhan Working Group (1975) proposed the establishment of RRBs as special purpose, low cost banks to serve the banking needs of rural areas.
These banks were formed under the Regional Rural Banks Act, 1976. Every RRB has to be sponsored by a public sector bank. At present there are 56 RRBs.
Generally, they are confined to a local area only and are not allowed to open branches in cities.
75 per cent of their total loans have to be in priority sector.
These banks are co-operative societies registered under the respective State Cooperative Societies Act. For their organisational structure, they are governed by the State Cooperative Societies Act and for their banking functions they are governed under Banking Regulation Act.
Both RRBs and Coop Banks are supervised by NABARD as well.
Inspection of RRBs and Cooperative Banks is conducted by NABARD under the Banking Regulation Act, 1949.
DEVELOPMENT FINANCIAL INSTITUTIONS – DFIs
These financial institutions have been set up under different acts of Parliament, each for a specific purpose. They do not have a banking licence and hence, cannot issue their own cheques. They have limited public dealings and generally, they deal with banks and other financial institutions. In India, there are six major DFIs as under:
- NABARD (National Bank for Agriculture and Rural Development): Set up in 1982 under the NABARD Act, 1981, it works for development of agriculture and rural economy. It is also the regulator of cooperative banks and RRBs. It is owned by the Government of India (99.50%) and RBI (0.50%).
Head Office: Mumbai
- EXIM Bank (Export Import Bank of India): Set up in 1982 under the Export-Import Bank of India Act, 1981, wholly owned by Government of India, it works for the promotion and financing of exports.
Head Office: Mumbai
- NHB (National Housing Bank): Set up in 1988 under the National Housing Bank Act, 1987, it is owned by the Reserve Bank of India and works for the development of housing finance sector and also regulates the housing finance companies.
Head Office: New Delhi
- SIDBI (Small Industries Development Bank of India): Set up in 1990 under the SIDBI Act, 1989 for the promotion, financing and development of the Micro, Small and Medium Enterprise (MSME) sector. Promoted by IDBI, it is owned by a number of financial institutions.Head Office: Lucknow
- IFCI (Industrial Finance Corporation of India):
Established in 1948 under an act of Parliament, it is the first Development Financial Institution (DFI) in the country to cater to the long-term finance needs of the industrial sector. The government holds a majority share in IFCI along with several other Financial Institutions.Head Office: New Delhi
- MUDRA (Micro Units Development and Refinance Agency Ltd.) It is an institution for development and refinancing of loans up to Rs. 10 lakh to non-farm sector only to micro, small and medium enterprises (MSMEs) by all public sector banks, RRBs, MFIs, NBFCs.It functions under the Pradhan Mantri Mudra Yojana (PMMY).Head Office: Mumbai
It has 3 loan schemes:
- Shishu for loans up to Rs. 50,000/-,
- Kishore for loans above 50,000 up to Rs. 5 lakh,
- Tarun for loan above Rs 5 lakh up to Rs 10 lakh.
The government has decided to convert MUDRA in to a regular bank.
|BANK BRANCHES OF ALL SCHEDULED COMMERCIAL BANKS|
(as in Dec. 2015)
D-SIB–DOMESTIC SYSTEMICALLY IMPORTANT BANK
A few banks, on account of their size, cross-jurisdictional activities, complexity, specialities and linkage with other banks, become important for the entire system. Their failure may cause significant disruption to the entire banking system. Such banks thus are considered Systemically Important Banks (SIBs) as their continued functioning is critical for the uninterrupted availability of banking services.
In July 2014, RBI had announced the framework for dealing with D-SIBs and names of banks designated as domestic systemically important bank were to be declared every year in August starting from August 2015.
On August 31, 2015, RBI, for the first time gave the status of D-SIB to State Bank of India and ICICI Bank.
According to the Reserve Bank of India, India needs variety of Banks to cater to needs of different strata of society. The Nachiket Mor Committee constituted by the RBI has proposed a Differentiated Banking system with Payment Banks for Deposits and Wholesale Banks for credit with relaxed entry points for financial inclusion.
The Reserve Bank released the guidelines for ‘Payment Banks’ and ‘Small Finance Banks’ in November 2014.
These banks can receive demand deposits and make remittances, but cannot lend; focus on migrant labour and low income households.
On August 19, 2015, RBI gave in principle approval to 11 entities to set up Payment Banks.
They are India Post, Reliance Industries Ltd., Aditya Birla Nuvo, Tech Mahindra, Sun Pharma, National Securities Depository Ltd., Airtel M Commerce Services Ltd., Vodafone m-pesa Ltd., Cholamandalam Distribution Services Ltd., Fino Pay Tech Ltd. and Paytm.
SMALL FINANCE BANKS
These banks will lend to “un-served and under-served sections”, including small business units, small and marginal farmers, and micro and small industries.
On Sep 18, 2015 RBI gave in principle approval for 10 Small Finance Banks.
They include Ujjivan Financial Services Pvt. Ltd, Janalakshmi Financial Services Pvt. Ltd, Equitas Holdings Ltd, Au Financiers (India) Ltd, Capital Local Area Bank Ltd*, Disha Microfin Pvt. Ltd, ESAF Microfinance and Investments Pvt. Ltd, RGVN (North East) Microfinance Ltd, Suryoday Micro Finance Pvt. Ltd, and Utkarsh Micro Finance Pvt. Ltd.
*It started functioning as India’s first small finance bank in March, 2016.
PAYMENT BANKS AND SMALLS FINANCE BANKS- SALIENT FEATURES
|PAYMENT BANKS||SMALL FINANCE BANKS|
|Provide small savings accounts and payments/remittance services to migrant labour workforce and low-income households||Financial inclusion and credit to small business units through high –technology, low–cost operations|
|Individuals or professionals with necessary experience and eligibility, existing NBFCs, corporate banking correspondents, mobile companies, supermarket chains, real estate co-ops and corporate entities||Resident individuals or professionals with 10 years of experience in banking and finance, companies and societies owned and controlled by residents, existing NBFCs, microfinance institutions and local area banks owned and controlled by residents|
|SCOPE OF ACTIVITIES|
|Can accept only demand deposits where balance should not exceed Rs. 1 lakh. Cannot open FD or RD accounts||Basic services of accepting deposits and lending|
|Cannot give loans, can issue ATM/debit card but not credit cards||No restriction on the area of operations|
|Can distribute non-risk simple financial products such as mutual funds and insurance products||At least 50% of its loan portfolio should comprise loans and advances of up to Rs. 25 lakh.|
|NRIs will not be allowed to open accounts||75% of their total loans have to be in the priority sector.|
|DEPLOYMENT OF FUNDS|
|Minimum 75 per cent of its “demand deposit balances” to be invested in SLR securities.||Will have to observe same CRR and SLR norms as for regular commercial banks.|
|Minimum paid-up equity capital of Rs. 100 crore. Promoter’s contribution has to be not less than 40% for first 5 years.|