Career in banking: Types of banks in India

Central Banks

A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. The primary function of a central bank is to provide the nation's money supply, but more active duties include controlling interest rates (monetary policy), and acting as a lender of last resort to the banking sector during times of financial crisis.

The main monetary policy instruments available to central banks are open market operation, bank reserve requirement, interest rate policy, re-lending and re-discount (including using the term repurchase market), and credit policy (often coordinated with trade policy). To enable open market operations, a central bank must hold foreign exchange reserves (usually in the form of government bonds) and official gold reserves.

There are two Central Banks in India:

The Reserve Bank of India (RBI)

National Bank for Agriculture and Rural Development (NABARD)

The Reserve Bank of India was established in 1935. NABARD was established in 1982. Both RBI and NABARD are headquartered in Mumbai.

Nationalized Banks

Nationalisation, also spelled nationalization, is the process of taking an industry or assets into government ownership by a national government or state. In 1950-51 there were 430 commercial banks in India. The Government of India had social objectives of planning. These commercial banks failed helping the government in attaining these objectives. Thus, the government decided to nationalize 14 major commercial banks on 19th July, 1969.

The nationalisation of commercial banks took place with an aim to achieve following major objectives:

- Social Welfare

- Controlling Private Monopolies

- Expansion of Banking

- Reducing Regional Imbalance

- Priority Sector Lending

- Developing Banking Habits

List of Nationalized Banks in India

Allahabad Bank

Andhra Bank

Bank of Baroda

Bank of India

Bank of Maharashtra

Canara Bank

Central Bank of India

Corporation Bank

Dena Bank

Indian Bank

Indian Overseas Bank

Oriental Bank of commerce

Punjab National Bank

Syndicate Bank

UCO Bank

Union Bank of India

United Bank of India

Vijaya Banka

Punjab and Sind Bank

Grameen Banks

Grameen Banks or Regional Rural Banks (RRB) as they are also known were established to serve the banking needs in the underserved rural areas. The amendments to the Banking Regulation Act, 1949 brought regional rural banks under the jurisdiction of the Reserve Bank of India. Regional Rural Banks were set up under the Regional Rural Banks Act, 1976 for the development of rural economy. The key objective was to provide credit and banking facilities to small farmers, labourers, and small entrepreneurs. They also participate in government schemes for social upliftment such as poverty alleviation.

The equity of the RRBs was contributed by the Central Government, concerned State Government and the sponsor bank in the proportion of 50:15:35. In 2009, there were 86 Regional Rural Banks with 15,107 branches. Capital to Risk-Weighted Assets Ratio (CRAR) norms of RBI are not applicable to Grameen Banks. However, the income recognition, asset classification and provisioning norms for RRBs are similar to those of commercial banks.

The objectives of the Grameen Bank are;

- Eliminating exploitation of the rural poor by moneylenders.

- Facilitating self-employment projects for unemployed rural people.

- Making women self-reliant by providing them opportunities through Grameen Bank

- To reverse the vicious cycle of low income, low saving & low investment, into a new cycle of more credit, more investment, more income.

Co-operative Banks

Co-operative banking is retail and commercial banking organized on a co-operative basis. Co-operative banking institutions take deposits and lend money in most parts of the world. Cooperative banking includes retail banking carried out by credit unions, mutual savings banks, building societies and co-operatives, as well as commercial banking services provided by mutual organizations (such as cooperative federations) to co-operative businesses.

Larger institutions are often called cooperative banks. Co-operative banking systems are also usually more integrated than credit union systems. Local branches of co-operative banks elect their own boards of directors and manage their own operations, but most strategic decisions require approval from a central office.

The origins of the cooperative banking movement in India can be traced to the close of nineteenth century. The Anyonya Co-operative Bank in India is considered to have been the first cooperative bank in Asia. India now has over 2000 co-operative banks.

Private Banks

“Private banks" can also refer to non-government owned banks in general, in contrast to government-owned (or nationalized) banks, which were prevalent in communist, socialist and some social democratic states in the 20th century. Private banks as a form of organization should also not be confused with "Private Banks" that offer financial services to high net worth individuals and others.

Private banks are banks that are not incorporated. A private bank is owned by either an individual or a general partner(s) with limited partner(s). In any such case, the creditors can look to both the "entirety of the bank's assets" as well as the entirety of the sole-proprietor's/general-partners' assets. These are the major players in the banking sector as well as in expansion of the business activities India.

Private sector banks have been functioning in India since the very beginning of the banking system. Initially, during 1921, the private banks like bank of Bengal, bank of Bombay and bank of madras were in service, which all together formed Imperial Bank of India.

Reserve Bank of India (RBI) came in picture in 1935 and became the centre of every other bank taking away all the responsibilities and functions of Imperial bank. The share of the private bank branches stayed nearly same between 1980 and 2000. Then from early 1990’s, RBI's liberalization policy came in picture and with this the government gave licenses to a few private banks, which came to be known as new private sector banks.

“Private banks" can also refer to non-government owned banks in general, in contrast to government-owned (or nationalized) banks, which were prevalent in communist, socialist and some social democratic states in the 20th century. Private banks as a form of organization should also not be confused with "Private Banks" that offer financial services to high net worth individuals and others.

Foreign Banks

Foreign Banks are known for providing prompt services to clients. After the set-up of foreign banks in India, the banking sector in India became much more competitive and efficient.

New regulations that have been created by the Reserve Bank of India for foreign banks seem to have allowed them to get their expectations high because of the budget which enables the banks to expand freely. As a result, these foreign banks are now able to set up subsidiaries.

So far, there are many known foreign banks that have branches in India. To list only a few, these banks include:

- Citi Bank

- JPMorgan Chase Bank

- HSBC

Now, foreign banks in India are permitted to set up local subsidiaries. The policy conveys that foreign banks in India may not acquire Indian ones (except for weak banks identified by the RBI, on its terms) and their Indian subsidiaries will not be able to open branches freely. Foreign banks have brought latest technology and latest banking practices in India. Government has come up with a road map for expansion of foreign banks in India.