Types of banking

The business of banking involves safeguarding people’s money. When banks lend this money, interest is generated that benefits both the bank and its clients. However, they might also offer additional financial services. The term “bank” can be used to describe a wide range of financial institutions, including credit unions, savings and loan associations, bank and trust corporations, and other entities that take deposits. Your money is safe with banks from theft and calamities like fires and floods. Money lost at your house, car, or on your person may not be covered by insurance. However, banks normally don’t pose the same risk. Banking plays a vital role in society in order to save money and also provides opportunities for people in utilizing the money for investments.  The Indian banking system is considered as dynamic as these funding systems not only offer different types of loans but also help in funding the working capital of various businesses and industries of the nation. In India, there are basically two types such as scheduled and non-scheduled.

The scheduled and non-scheduled banks are then again further divided as the commercial banks, small finance banks, and payments and co-operative banks. The commercial banks include Private, public, foreign, and regional rural banks whereas the Small finance and cooperative banks are related to the small-scale industries of the nation. The scheduled and non-scheduled banks are the primary banks of the nation whereas commercial banks can work as depositors and also as a lender to provide funding to businesses and offers different products. The payment type of banking only accepts deposits from citizens.

The different types of banking that are offered to the people of India are mentioned in detail below:

Scheduled and Non-Scheduled Banks:

The Scheduled bank is the type that is registered under the Reserve Bank of India (RBI) under the Act of 1934, where the amount paid capital and collected amount must be greater than Rs. 5 Lakhs. In the scheduled bank type the Reserve Bank of India (RBI) pays the loans at bank rate and these types of banks are regarded as the clearing house members in India.

The Non-Scheduled banks are the ones that are not listed under the Reserve Bank of India (RBI) under the Act of 1934, and these banks need no borrowing from the Reserve Bank of India (RBI) as the paid capital and collected funds are less than Rs. 5 Lakhs.

Commercial Banks:

Commercial bank types can be either Scheduled or Non-Scheduled depending on the commercial bank type and are registered under the Banking Regulation Act, 1949. On one hand, the Commercial banks offer loans and other products, and on the other hand accept deposits from many businesses, the general public of India, and even the Government. Commercial banking offers different types of funding to both the rural and urban regions also. The public deposit is the major part of the working of commercial banks. There are many commercial banking systems present in society and they are as mentioned below:

Public Sector Banks: In the banking system of India, Public Sector banks are also called as the Nationalised bank as overall 75% of the banks are public sector banks where the Indian Government and the Reserve Bank of India (RBI) are the major stakeholders.

Private Sector Bank: The Private Sector banks are the ones that do have the Reserve Bank of India (RBI) or the Indian Government as the major stakeholders but the majority of the stakeholders are owned by private organizers, Individual investors, or group investors. But also, the private sector banks must follow the rules and regulations laid by the Reserve Bank of India (RBI) in their operations.

Foreign Sector Banks: The foreign sector banks are the banks whose headquarters are located in foreign counties and in India are considered the private banking firm. These Foreign Sector banks have to follow the regulations of the home country as well as the regulations of the country where it is located.

Regional Rural Banks: Regional rural banking is a scheduled banking type that was registered under the Act of Regional Rural Bank in the year 1976 where the funding is provided to the weaker section of the society which includes the farmers, agricultural laborers, and small business owners in rural areas. In this type of banking sector, the Regional Rural Banks offer many facilities to the rural people such as loans, debit cards, bank lockers, insurance, and so on. The regional rural banks are joint ventures between the commercial bank with 35%, the state government with 15%, and the central government with 50%. The restriction provided to the regional rural bank is that it can not open its branch in a place where there are more than three connected districts geographically.

Small Finance Banks:

The small finance banking system is registered under section 22 of the  Banking Regulation Act, 1949. The main objective of small finance banks is to serve the small-scale industries, micro, small and medium enterprises of the society. These small finance bankings are governed by the central bank of the country.

Payment Banks:

The payment banks are the banks that are restricted to deposit functions only by the Reserve Bank of India (RBI) and also limit is decided which is only Rs. 1 lakhs deposit per customer. E-banking and debit cards are offered under the payment banks of the country. The customers of the payment bank can not opt for any loans or funding.

Co-operative banks:

The co-operative banks are registered under the state government act of Cooperative Societies Act, in the year 1912 where these banks’ objective is to provide social welfare, and this bank functions on the logic of no profit and no loss by providing short-term loan facilities. The co-operative banks provide fund offerings to small enterprises as well as to industries and businesses.

The co-operative banking system is categorized into 3 tier systems as mentioned below:

Tier 1: Tier 1 is the state level where the state cooperative banks are involved which is founded and regulated by the Reserve Bank of India, the state government, and NABARD. Concessional CRR and SLR are applied to these cooperative banks with a CRR of about 3% and an SLR of 25%. Although, the cooperative banks are owned by the state government but the top management of these banks is elected by members.

Tier 2: Tier 2 is the district level where the central and District level of cooperative banks are involved.

Tier 3: Tier 3 is the village level where most primary agricultural cooperative banks are involved.

Local Area Banks (LAB):

The local area bank (LAB) have been established in India in the year 1996 and was registered under the Companies Act, of 1956. These local area banks are considered as private sector banks. The main aim of Local Area bank is to earn a profit and there are only 4 local banks in India that are located in the south of India.

Specialized Banks:

There are specific banks in India that are established for a specific purpose and those banks are known as specialized banks in India. The specialized banks have their own different purposes for the development of the nation, these types of banks are as follows:

Small Industries Development Bank of India (SIDBI):  These banks help small-scale businesses in meeting their working capital and for the better functioning of the business. Small Industries Development Bank of India (SIDBI) also helps in providing new technologies and machinery to small businesses to help them in their growth.

EXIM Bank: EXIM Bank stands for Export and Import Bank whose main objective is to provide loans or other financial support to the export and import trading business by exporting or importing goods from foreign countries.

National Bank for Agricultural & Rural Development (NABARD): These banks help rural people in their businesses by providing different types of financial support. For different kinds of jobs such as handicraft, village development, and agricultural development the National Bank for Agricultural & Rural Development (NABARD) is of great use to the rural people.