Hello and welcome to exampundit. We will be providing each and every information on Banking Awareness for 2017 Bank Exams and Interviews. Today we are sharing all types of Banks in India with their definition, limits, guidelines. So next time, you can answer anything asked about a bank.
A scheduled bank, in India, refers to a bank which is listed in the 2nd Schedule of the Reserve Bank of India Act, 1934. Banks not under this Schedule are called non-scheduled banks.
Scheduled commercial banks
- Nationalised banks
- State Bank of India and its associates
- Regional Rural Bank (RRBs)
- Foreign banks
- Other Indian private sector banks
- Scheduled State Co-operative Banks
- Scheduled Urban Co-operative Banks
- Foreign Private Banks
Types of Banks in India
- State Bank and its associates
- Nationalised banks
- Foreign banks with branches in India
- Foreign banks with representative offices in India
Regional Rural Banks (RRBs)
- Central Co-operative Banks
- State Co-operative Banks
- Land Development Banks
- Urban Co-operative Banks
The Indian banking system consists of 27 public sector banks, 25 private sector banks, 43 foreign banks, 56 regional rural banks, 1,589 urban cooperative banks and 93,550 rural cooperative banks, in addition to cooperative credit institutions. Public-sector banks control nearly 80 percent of the market, thereby leaving comparatively much smaller shares for its private peers. Banks are also encouraging their customers to manage their finances using mobile phones.
Public Sector Banks
Public Sector Banks (PSBs) are banks where a majority stake (i.e. more than 50%) is held by a government. There are a total of 27 PSBs in India [21 Nationalized banks + 6 State bank group (SBI + 5 associates) ]. However, after the merger of BMB and SBI Associates with State Bank of India, the total number of Public Sector Bank will be 21.
FDI Limit in Public Sector Banking – Upto 20%
Private Sector Banks
The private-sector banks in India represent part of the indian banking sector that is made up of both private and public sector banks. The "private-sector banks" are banks where greater parts of state or equity are held by the private shareholders and not by government.
FDI Limit in Private Sector Banking – Beyond 49% & Upto 74%
The private sector banks are split into two groups by financial regulators in India, old and new. The old private sector banks existed prior to the nationalisation in 1969 and kept their independence because they were either too small or specialist to be included in nationalisation. The new private sector banks are those that have gained their banking license since the liberalisation in the 1990s.
Examples of the old private-sector banks in India
- City Union Bank - 1904
- Dhanlaxmi Bank - 1927
- Federal Bank - 1931
- Karur Vysya Bank - 1916
- Lakshmi Vilas Bank - 1926
The banks, which came in operation after 1991, with the introduction of economic reforms and financial sector reforms are called "new private-sector banks". Banking regulation act was then amended in 1993, which permitted the entry of new private-sector banks in the Indian banking s sector. However, there were certain criteria set for the establishment of the new private-sector banks, some of those criteria being:
- The bank should have a minimum net worth of Rs. 200 crores.
- The promoters holding should be a minimum of 25% of the paid-up capital.
- Within 3 years of the starting of the operations, the bank should offer shares to public and their net worth must increase to 300 crores.
New private sector banks
- Axis Bank (earlier UTI Bank) - 1994
- Bank of Punjab (actually an old generation private bank since it was not founded under post-1993 new bank licensing regime) - 1989
- Centurion Bank Ltd. (Merged Bank of Punjab in late 2005 to become Centurion Bank of Punjab, acquired by HDFC Bank Ltd. in 2008) - 1994
- Development Credit Bank (Converted from Co-operative Bank, now DCB Bank Ltd.) - 1995
- ICICI Bank (previously ICICI and then both merged; total merger SCICI+ICICI+ICICI Bank Ltd) - 1996
- IndusInd Bank - 1994
- Kotak Mahindra Bank - 2003
- Yes Bank - 2005
- HDFC Bank - 1994
- Bandhan Bank - 2015
- IDFC Bank - 2015
Payments Banks are a new set of banks licensed by the Reserve Bank of India to further financial inclusion by enabling them to provide (i) small savings/ current accounts below Rs. 1 lakh (ii), distribution of mutual funds, insurance products on a non risk sharing basis and (ii) payments / remittance services to migrant labour workforce, low income households, small businesses, other unorganised sector entities and other users through high volume-low value transactions in deposits and payments / remittance services using a secured technology-driven environment including issuance of prepaid cards etc.
The minimum paid-up equity capital for payments banks shall be Rs. 100 crore, of which the promoter’s contribution would be minimum 40 percent of paid-up equity capital for the first 5 years of commencement of the business.
The Payments Bank are proposed to be registered as a public limited company under the Companies Act, 2013, and licensed under Section 22 of the Banking Regulation Act, 1949, with specific licensing conditions restricting its activities to acceptance of demand deposits and provision of payments and remittance services. It will be governed by the provisions of the Banking Regulation Act, 1949, Reserve Bank of India Act, 1934, Foreign Exchange Management Act, 1999, Payment and Settlement Systems Act, 2007 etc.
The proposal for creating payments banks stemmed from the report of the Committee on Comprehensive Financial Services for Small Businesses and Low Income Households (Chairman: Dr. Nachiket Mor) submitted in January 2014. This was later announced in the Union budget 2014-2015 presented on July 10, 2014.
Department of Posts is launching India Post Payments Bank (IPPB) as a Public Limited Company with 100% Government of India (GOI) equity.
Airtel recently launched India's first Payment Bank in Rajasthan.
Regional Rural Banks
Regional Rural Banks (RRBs) are financial institutions which ensure adequate credit for agriculture and other rural sectors . Regional Rural Banks were set up on the basis of the recommendations of the Narasimham Working Group (1975), and after the legislations of the Regional Rural Banks Act, 1976. The first Regional Rural Bank “Prathama Grameen Bank” was set up on October 2, 1975. At present there are 56 RRBs in India.
The equity of a regional rural bank is held by the Central Government, concerned State Government and the Sponsor Bank in the proportion of 50:15:35. The RRBs combine the characteristics of a cooperative in terms of the familiarity of the rural problems and a commercial bank in terms of its professionalism and ability to mobilise financial resources.
Within the 40% priority target, 25% should go to weaker section or 10% of their total advances should go to the weaker section .Weaker sections, under priority sector lending purposes, include scheduled castes, scheduled tribes, small and marginal farmers, artisans and self help groups.
The sources of funds of RRBs comprise of owned fund, deposits, borrowings from NABARD, Sponsor Banks and other sources including SIDBI and National Housing Bank.
Small Finance Banks
The Small Finance Bank (SFB) is a private financial institution intended to further the objective of financial inclusion by primarily undertaking basic banking activities of acceptance of deposits and lending to un-served and underserved sections including small business units, small and marginal farmers, micro and small industries and unorganised sector entities, but without any restriction in the area of operations, unlike Regional Rural Banks or Local Area Banks.
The concept of small finance banks was also one of the recommendations in the 2009 Report - A Hundred Small Steps - of the Committee on Financial Sector Reforms headed by Dr. Raghu Ram Rajan.
The minimum capital for SFBs is prescribed at Rs. 100 crore with an initial contribution of 40% coming from the promoters, which over a period of 12 years, have to be reduced to 26%. Foreign Investment is permitted as in the case of other private sector commercial banks. After the small finance bank reaches the net worth of Rs.500 crore, listing of its shares on a stock exchange will be mandatory within three years of reaching that net worth.
The target group of SFBs are similar to that of Local Area Banks. They are required to extend 75 per cent of its Adjusted Net Bank Credit (ANBC) to the sectors eligible for classification as priority sector lending (PSL) by the Reserve Bank. At least 50 per cent of its loan portfolio should constitute loans and advances of upto Rs. 25 lakh.
There will not be any restriction in the area of operations of small finance banks; however, preference will be given to those applicants who in the initial phase set up the bank in a cluster of under-banked States / districts. it is stipulated that at least 25 per cent of its branches shall be in unbanked rural centers.
Local Area Banks
The Local Area Banks (LABs) are small private banks, conceived as low cost structures which would provide efficient and competitive financial intermediation services in a limited area of operation, i.e., primarily in rural and semi-urban areas, comprising three contiguous districts.
- LABs were required to have a minimum capital of Rs. 5 crore.
- The promoters of the bank may comprise of private individuals, corporate entities, trusts and societies with a minimum capital contribution of Rs. 2 crore.
- The area of operation of LAB is limited to a maximum of three geographically contiguous districts and are allowed to open branches only in its area of operation.
In 2014, RBI has permitted LABs to be converted into small finance banks subject to them meeting the prescribed eligibility criteria.
Foreign banks are those banks whose branch offices are in India but they are incorporated outside India, and have their head office in a foreign country. These banks were allowed to set up their subsidiaries in India from the year 2002.
The foreign banks can operate in India only, if they have a sound financial status. They must have a minimum of 25 million US dollars in minimum 3 branches. The first branch and the second branch must have 10 million US dollars each. The third branch should have a minimum of 5 million US dollars.
The State Co-operative Banks (SCBs), Central Co-operative Banks (CCBs) and Urban Co-operative Banks (UCBs) can normally extend housing loans upto Rs 1 lakh to an individual. The scheduled UCBs, however, can lend upto Rs 3 lakh for housing purposes. The UCBs can provide advances against shares and debentures also.
The co-operative banks are small-sized units which operate both in urban and non-urban centers. They finance small borrowers in industrial and trade sectors besides professional and salary classes. Regulated by the Reserve Bank of India, they are governed by the Banking Regulations Act 1949 and banking laws (co-operative societies) act, 1965. The co-operative banking structure in India is divided into following 5 categories:
Central Co-operative Banks
These are the federations of primary credit societies in a district and are of two types-those having a membership of primary societies only and those having a membership of societies as well as individuals.
State Co-operative Banks
The state co-operative bank is a federation of central co-operative bank and acts as a watchdog of the co-operative banking structure in the state. Its funds are obtained from share capital, deposits, loans and overdrafts from the Reserve Bank of India. The state co-operative banks
Land Development Banks
The Land development banks are organized in 3 tiers namely; state, central, and primary level and they meet the long term credit requirements of the farmers for developmental purposes. The state land development banks oversee, the primary land development banks situated in the districts and tehsil areas in the state. They are governed both by the state government and Reserve Bank of India. Recently, the supervision of land development banks has been assumed by National Bank for Agriculture and Rural development (NABARD).
Urban Co-operative Banks
The term Urban Co-operative Banks (UCBs), though not formally defined, refers to primary co-operative banks located in urban and semi-urban areas. These banks, till 1996, were allowed to lend money only for non-agricultural purposes.
Universal Banking, a concept that has gained a lot of credence in recent times, can be defined as a multi-purpose and multi-functional supermarket providing both banking and financial services through a single window. In simple words, a Universal Bank is a super store for financial products. Under one roof, Corporates can get loans and avail of other handy services, while individuals can bank and borrow.
Bandhan, which started as an NGO in 2001 and later turned into a microfinance institute, is the first MFI to become a universal bank.
Universal banking in general refers to the combination of commercial banking and Investment banking i.e., issuing underwriting, investing and trading in securities. In a broad sense, however, the term Universal banking refers to those banks that offer a wide variety of financial services especially insurance (Reddy, 2000).
There are four different types of Universal Banks in the world. They are as follows–
- Fully Integrated Universal Banks: Fully integrated Universal banks are those banks which function as a single institutional entity offering a complete range of banking and financial products and services.
- Partly Integrated Financial Conglomerates: It is an institutional set-up where the bank offers a range of services, with some of the services such as mortgage banking, leasing, and insurance being provided through wholly owned or partially owned subsidiaries.
- Bank Subsidiary Structure: These are the banks that offer functions such as investment banking and insurance in addition to focussing on regular commercial banking functions.
- Bank Holding Company Structure: Bank holding company structure is an institutional set-up where banking and financial products are offered through a financial holding company that owns both banking and non-banking subsidiaries that are legally separate.
10 key guidelines for 'on tap' licensing of universal banks in the private sector.
- The initial minimum paid-up voting equity capital for a bank shall be 500 crore rupees. Thereafter, the bank shall have a minimum net worth of 500 crore rupees at all times.
- Resident individuals and professionals having 10 years of experience in banking and finance at a senior level are also eligible to promote universal banks.
- Large industrial houses are excluded as eligible entities but are permitted to invest in the banks up to 10 per cent.
- Non-Operative Financial Holding Company (NOFHC) is non-mandatory in case of promoters being individuals or standalone promoting or converting entities who do not have other group entities.
- Not less than 51 per cent of the total paid-up equity capital of the NOFHC shall be owned by the promoter or the promoter group, instead being wholly owned by the promoter group.
- Foreign shareholding in the bank would be as per the existing foreign direct investment policy subject to the minimum promoter shareholding requirement. At present, the aggregate foreign investment limit is 74 per cent.
- Existing specialised activities have been permitted to be continued from a separate entity proposed to be held under the NOFHC subject to prior approval from the Reserve Bank.
- The business plan submitted by the applicant should be realistic and viable and address how the bank proposes to achieve financial inclusion.
- The bank shall get its shares listed on the stock exchanges within six years of the commencement of business by the bank.
- The bank shall open at least 25 per cent of its branches in unbanked rural centres and should comply with the priority sector lending targets and sub-targets as applicable to the existing domestic scheduled commercial banks.
Banking Correspondents (BCs) are individuals/entities engaged by a bank in India (commercial banks, Regional Rural Banks (RRBs) and Local Area Banks (LABs)) for providing banking services in unbanked / under-banked geographical territories. A banking correspondent works as an agent of the bank and substitutes for the brick and mortar branch of the bank.
BCs engage in
- identification of borrowers;
- collection and preliminary processing of loan applications including verification of primary information/data;
- creating awareness about savings and other products and education and advice on managing money and debt counselling;
- processing and submission of applications to banks;
- promoting, nurturing and monitoring of Self Help Groups/ Joint Liability Groups/Credit Groups/others;
- post-sanction monitoring;
- follow-up for recovery,
- disbursal of small value credit,
- recovery of principal / collection of interest
- collection of small value deposits
- sale of micro insurance/ mutual fund products/ pension products/ other third party products and
- receipt and delivery of small value remittances/ other payment instruments.
The banks in India may engage the following individuals/entities as BCs.
- Individuals like retired bank employees, retired teachers, retired government employees and ex-servicemen, individual owners of kirana (small shops) / medical /Fair Price shops, individual Public Call Office (PCO) operators, agents of Small Savings schemes of Government of India/Insurance Companies, individuals who own petrol pumps, authorized functionaries of well-run Self Help Groups (SHGs) which are linked to banks, any other individual including those operating Common Service Centres (CSCs);
- NGOs/ Micro Finance Institutions set up under Societies/ Trust Acts or as Section 25 Companies ;
- Cooperative Societies registered under Mutually Aided Cooperative Societies Acts/ Cooperative Societies Acts of States/Multi State Cooperative Societies Act;
- Post Offices;
- Companies registered under the Indian Companies Act, 2013 with large and widespread retail outlets
- Non-banking Finance Companies (NBFCs) were not allowed to be appointed as Business Correspondents (BCs) by banks. However, since June 2014 banks have been permitted to engage non-deposit taking NBFCs (NBFCs-ND) as BCs.
Banks Board Bureau
Banks Board Bureau is an autonomous body of Union Government of India tasked to improve the governance of Public Sector Banks, recommend selection of chiefs of government owned banks and financial institutions and to help banks in developing strategies and capital raising plans.
The BBB, originally proposed by the PJ Nayak Committee, was proposed to review governance issues in the banking sector.
Vinod Rai is the Chairman of the Mumbai based Bureau.
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