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August 08, 2014

Types of Commercial Banks

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Friends, in our previous post, we have discussed about various Types of Banks. Commercial Banks are one of the important category among them. Today we shall discuss about the Types of Commercial Banks in India. The Commercial Banks are regulated by the Banking Regulation Act 1949. They can be either of the branch banking system or of the unit banking system. The Reserve Bank of India (RBI) classified the commercial banks into two categories, namely 'Scheduled Banks' and 'Non-Scheduled Banks'. Further, the RBI also classified the commercial banks according to their nature of business and ownership and mode of control. Thus, we have different types of commercial banks such as scheduled banks or non-scheduled banks, public sector banks, private sector banks, Nationalized banks, Regional Rural Banks and Foreign Banks.

Scheduled and Non-Scheduled Commercial Banks

The banks can be classified as 'scheduled banks' and 'non-scheduled banks' based on their 'scheduled status'. A 'Schedule' means a list. A 'Scheduled Bank' is a status conferred on a commercial bank and a state cooperative bank by the Reserve Bank of India. The Reserve Bank of India will issue a notification when the banks are included in its Second Schedule of the RBI Act 1934. A commercial bank has to satisfy the following conditions in order to get a scheduled status :

  1. The share capital and the reserves of a bank should not be less than Rs. 5 lakhs
  2. The bank should function in the interest of the depositors.
  3. The institution must be a bank incorporated under section 3 of the Indian Companies Act 1956 or a corporation, or a company incorporated by or under any law in force in any place outside India, or an institution notified by the Central Government in this behalf, or a State Cooperative Bank. 
A scheduled bank will enjoy certain advantages on conferment of the status on it. They are :

  1. Banks are entitled to avail refinance and remittance facility from the Reserve Bank of India. 
  2. The Banks will be covered by the Deposit Insurance and Credit Guarantee Schemes (DICGS). 
The Scheduled Banks have to abide by all the rules and regulations, controls, directives, etc., issued by the Reserve Bank of India (RBI) from time to time. Scheduled banks have to keep minimum stipulated statutory cash reserves with the Reserve Bank of India. The scheduled banks account for almost all the banking activities in our country. At present, all the commercial banks are "Scheduled Banks". The non-scheduled banks are those banks whose paid up capital and resources is less than Rs. 5 lakhs and are not included in the second schedule of the Reserve Bank of India Act, 1934. At present, there exists no 'Non-Scheduled Banks' in India. The RBI has also classified the banks under various heads such as public sector banks, nationalized banks, SBI and its Group, Foreign Banks, Private Sector Banks and the RRBs based on their nature of business, ownership and mode of control. We shall discuss about these in detail in our coming posts.

Public Sector Commercial Banks

The Government of India entered in the field of banking business in the year 1955 with the establishment of State Bank of India as the first public sector commercial bank. Later, seven subsidiary state banks were nationalized in 1959-1960 to form the SBI group. The expansion of Public Sector in banking field was commenced with the Nationalization of 14 major commercial banks on 19th July 1969. 6 more Private Banks were Nationalized in the year 1980. The public sector banks account for over 90 percent of the total banking business in terms of deposits and business by the end of 1999. Further, Regional Rural Banks (RRBs) began to come in existence from the year 1975.

Private Sector Banks

The Private Sector Banks played a strategic role in the growth of joint stock banks in India. During the first half of the twentieth century, there was a mushroom growth of the private sector commercial banks. At present there are 24 old Private Sector Banks such as ING Vysya Bank, Karnataka Bank etc. Under liberalization era, eleven new Private Sector Commercial Banks are established with a hitech environment. The new generation banks, even though less than 50% in number when compared to old Private Sector Banks, has been performing well in terms of deposits and advances.

That's all for now friends. In our next post we shall discuss about Regional Rural Banks in Detail. Happy Reading :)

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