Banking Structure in India: Types of Banks, Banking System, RRBs, Cooperative Banks & More
The banking structure in India is an important topic for students preparing for SSC, IBPS, SBI, Railway, RBI, and other competitive examinations. India has a diverse banking system that includes commercial banks, cooperative banks, Regional Rural Banks, Small Finance Banks, Payments Banks and other specialised financial institutions.
A clear understanding of the Indian banking system helps aspirants answer questions related to banking awareness, financial institutions, types of banks, RBI regulations and the functions of different banking institutions.
The basic study material provided for this topic classifies banks into scheduled and non-scheduled banks and further explains commercial banks, cooperative banks, Regional Rural Banks and differentiated banks.
Important: Some figures, bank names and regulatory details in older study material have changed over time. This article updates those points where current RBI/NABARD information is available.
What is the Banking Structure in India?
The banking structure in India refers to the organised framework through which different types of banks operate and provide financial services to individuals, businesses, farmers and government institutions.
At the centre of India’s banking system is the Reserve Bank of India (RBI), which is the country’s central bank and monetary authority. The RBI regulates and supervises various categories of banks and plays a major role in maintaining financial stability.
For exam purposes, banks are commonly discussed under categories such as:
- Scheduled Banks
- Non-Scheduled Banks
- Commercial Banks
- Cooperative Banks
- Regional Rural Banks
- Small Finance Banks
- Payments Banks
The RBI defines a scheduled bank as a bank included in the Second Schedule of the Reserve Bank of India Act, 1934.
Scheduled Banks in India
Scheduled banks are banks included in the Second Schedule of the RBI Act, 1934. The source material broadly divides scheduled banks into commercial banks and cooperative banks.
In competitive exam questions, it is useful to remember that the scheduled banking system includes major categories such as scheduled commercial banks and scheduled cooperative banks.
Commercial Banks
Commercial banks are financial institutions that accept deposits from customers and provide loans and advances for different purposes. They also provide a wide range of payment, investment and other banking services.
Commercial banks are a crucial part of the economy because they connect savers with borrowers. Deposits collected from the public are used, subject to regulatory requirements and risk management, to provide credit to households, businesses and other eligible borrowers.
The major categories commonly studied under commercial banks are:
- Public Sector Banks
- Private Sector Banks
- Foreign Banks
- Regional Rural Banks
- Small Finance Banks
- Local Area Banks
RBI’s regulatory framework also separately identifies commercial banks, Small Finance Banks and cooperative banks as distinct banking categories.
Public Sector Banks
Public Sector Banks (PSBs) are banks in which the government has a controlling stake. They play an important role in financial inclusion, government banking programmes, lending and economic development.
State Bank of India is the largest public sector bank in India, while other public sector banks were created through nationalisation and subsequent consolidation.
The older study material describes public sector banks as government-controlled banks and discusses the historical transition of Imperial Bank of India into the State Bank of India under the SBI Act, 1955.
Private Sector Banks
Private sector banks are banks where ownership and control are primarily with private shareholders. They provide services such as savings and current accounts, loans, credit cards, digital banking, investment products and payment services.
Examples of well-known private sector banks include HDFC Bank, ICICI Bank and Axis Bank.
Private banks have become an important part of India’s banking sector, particularly because of their focus on technology, digital banking and customer-oriented services.
Foreign Banks in India
Foreign banks are banks headquartered outside India that operate in India under the applicable regulatory framework.
They generally serve corporate customers, international businesses, trade-related activities and selected retail customers. The source material gives foreign banks as a separate category of commercial banks and provides examples such as Citibank and HSBC.
Non-Scheduled Banks
A non-scheduled bank is a bank that is not included in the Second Schedule of the Reserve Bank of India Act, 1934.
The distinction between scheduled and non-scheduled banks is a frequently asked concept in banking awareness exams.
For exam preparation, remember:
Scheduled Bank → Included in Second Schedule of RBI Act, 1934
Non-Scheduled Bank → Not included in the Second Schedule
Regional Rural Banks (RRBs)
Regional Rural Banks (RRBs) were established to strengthen banking and credit facilities in rural areas. They focus particularly on sections such as small and marginal farmers, agricultural labourers, artisans, small entrepreneurs and other rural customers.
The first RRB, Prathama Bank, was established on October 2, 1975, in Uttar Pradesh. The original study material also notes that RRBs were established following recommendations of the Narasimham Working Group.
RRBs were created under the Regional Rural Banks Act, 1976, with the objective of developing the rural economy by providing credit and banking facilities.
Ownership Structure of RRBs
The ownership pattern of RRBs is an important banking awareness fact:
- Government of India – 50%
- Concerned State Government – 15%
- Sponsor Bank – 35%
This 50:15:35 ownership structure is also documented by NABARD.
RRBs have a specific regional focus, although the structure and number of RRBs have changed significantly through amalgamation and consolidation over the years. Therefore, older figures such as the number of RRBs in 2013 should not be treated as current data.
NABARD continues to supervise RRBs and publishes updated information on RRBs and their performance.
Cooperative Banks in India
Cooperative banks operate on cooperative principles and have traditionally played an important role in providing credit to agriculture, rural communities, small businesses and other borrowers.
The cooperative banking structure is generally discussed through three levels:
- State Cooperative Banks (StCBs) – State level
- District Central Cooperative Banks (DCCBs) – District level
- Primary Cooperative Societies/Banks – Grassroots level
The source material explains the three-tier structure as primary credit societies, district central cooperative banks and state cooperative banks.
Cooperative banking regulation is distinctive because different authorities have roles depending on the institution and activity. RBI regulates banking functions under applicable banking laws, while cooperative authorities also have responsibilities under cooperative laws.
This makes cooperative banking structure in India an important topic for banking awareness and competitive exams.
Small Finance Banks
Small Finance Banks (SFBs) were introduced to promote financial inclusion by providing banking services to underserved sections of society.
Their target customers include:
- Small businesses
- Farmers
- Micro and small industries
- Low-income households
- Unorganised sector workers
- Other underserved customers
Unlike Payments Banks, Small Finance Banks can accept deposits and provide loans, subject to RBI regulations.
The source material highlights that Small Finance Banks are designed to meet the credit and remittance requirements of small businesses, farmers, micro and small industries and low-income households.
RBI’s banking framework currently identifies Small Finance Banks as a separate category, with a minimum paid-up/net-worth requirement of ₹300 crore under the current licensing framework.
Payments Banks
Payments Banks were introduced as differentiated banks with a strong focus on financial inclusion, deposits and payment/remittance services.
They can provide services such as savings and current deposit accounts, debit cards and payment/remittance facilities, subject to RBI regulations. However, Payments Banks cannot undertake lending activities.
One important update to older study material is the deposit limit. The original limit of ₹1 lakh was increased by RBI to ₹2 lakh per individual customer in 2021.
Therefore, aspirants should avoid memorising the old ₹1 lakh figure when preparing from older banking notes.
Functions of Commercial Banks
The functions of commercial banks can broadly be divided into primary and secondary functions.
Primary Functions
The main functions include:
1. Accepting Deposits
Commercial banks accept different types of deposits, including:
- Savings deposits
- Current deposits
- Fixed or term deposits
- Recurring deposits
2. Providing Loans and Advances
Banks provide credit for various purposes such as:
- Home loans
- Personal loans
- Vehicle loans
- Business loans
- Agricultural loans
- Working capital requirements
The source material identifies accepting deposits and lending money as the primary functions of commercial banks.
Secondary Functions
Modern commercial banks provide many additional services, including:
- Debit and credit cards
- Internet and mobile banking
- Bank guarantees
- Letters of credit
- Cheque collection
- Fund transfers
- Foreign exchange services
- Locker facilities
- Insurance and investment product distribution
- Government benefit transfers
- KYC and customer verification services
These services have expanded significantly with digital banking and financial technology.
Exim Bank and ECGC: Important Financial Institutions
The banking system is closely connected with specialised financial institutions that support particular areas of the economy.
Exim Bank of India
The Export-Import Bank of India (Exim Bank) was established in 1982 under the Export-Import Bank of India Act, 1981. Its major role is to support and promote India’s international trade by providing financial assistance and coordinating export-import financing activities.
However, for classification questions, students should remember that Exim Bank is a specialised All India Financial Institution, rather than simply treating it as another type of commercial bank.
ECGC
Export Credit Guarantee Corporation of India (ECGC) provides export credit insurance support to exporters and banks. Its purpose is to reduce risks associated with international trade and help Indian exporters obtain credit facilities.
The source material identifies ECGC as a Government of India enterprise established in 1957 and describes its export credit insurance functions.
Banking Structure in India: Quick Revision
For competitive exams, the following simplified structure is useful:
Indian Banking System
→ Scheduled Banks
→ Commercial Banks
→ Cooperative Banks
Commercial Banks include:
→ Public Sector Banks
→ Private Sector Banks
→ Foreign Banks
→ Regional Rural Banks
→ Small Finance Banks
→ Local Area Banks
Cooperative Banking includes:
→ State Cooperative Banks
→ District Central Cooperative Banks
→ Primary-level cooperative institutions
Alongside these, Payments Banks operate as differentiated banks with restricted activities and no lending function.
Why Is Banking Structure Important for Competitive Exams?
Banking structure in India is a high-value topic for banking awareness because questions can be asked directly or indirectly in SSC, IBPS, SBI, RBI, Railway and other government examinations.
Important areas to revise include:
- Meaning of scheduled bank
- Difference between scheduled and non-scheduled banks
- Types of commercial banks
- Public sector and private sector banks
- Regional Rural Banks
- RRB ownership pattern
- Cooperative banking structure
- Small Finance Banks
- Payments Banks
- Functions of commercial banks
- RBI’s role in the banking system
- Specialised institutions such as Exim Bank and ECGC
A good strategy is to understand the structure rather than simply memorising isolated facts. This makes it easier to solve both direct banking awareness questions and statement-based MCQs.
The banking structure in India consists of several types of institutions designed to meet different financial requirements. Commercial banks serve the broad banking needs of individuals and businesses, while cooperative banks have an important role in cooperative and rural credit. Regional Rural Banks focus on rural and agricultural communities, whereas Small Finance Banks concentrate on financial inclusion and underserved customers. Payments Banks focus mainly on deposits, payments and remittance services within their permitted regulatory framework.
For exam preparation, candidates should pay particular attention to the difference between scheduled and non-scheduled banks, commercial and cooperative banks, RRBs, Small Finance Banks and Payments Banks. Since banking regulations and institutional details can change, students should also verify time-sensitive facts from RBI and NABARD before using them in an examination.
FAQs on Banking Structure in India
1. What is the banking structure in India?
The banking structure in India is the framework of different types of banks operating under the country's banking and regulatory system. It includes commercial banks, cooperative banks, Regional Rural Banks, Small Finance Banks, Payments Banks and other banking institutions.
2. What are scheduled banks in India?
Scheduled banks are banks included in the Second Schedule of the Reserve Bank of India Act, 1934.
3. What are the main types of commercial banks in India?
The major categories include public sector banks, private sector banks, foreign banks and specialised categories such as Regional Rural Banks and Small Finance Banks.
4. What is an RRB?
RRB stands for Regional Rural Bank. RRBs were established to provide banking and credit facilities, particularly to rural communities, farmers, agricultural workers and small entrepreneurs.
5. What is the ownership pattern of RRBs?
The standard ownership pattern is 50% Government of India, 15% State Government and 35% Sponsor Bank.