Indian Banking Structure.

Indian Banking Structure

1.Public Sector Banks

Public sector banks where the majority stake ( more than 50%) is held by the government. the shares of these banks are listed in the stock exchange.
There are 12 nationalized banks in India after the merger of 2019.
Some these banks are State bank of India, Punjab National Bank,

2. Private Sector Banks

All those banks wherein the majority of the stake is held by the private shareholders and not by the government are called "private-sector banks". control over its operations.

• The government of India has no control over its operations.

• There are 21 private sector banks in India.

• Some of these banks are ICICI Bank, Kotak Mahindra Bank Ltd, AXIS Bank, HDFC Bank, etc.

3. Foreign Banks

• Banks often open a foreign branch in order to provide more services to their multinationals customers as well as to expand their business activities.

• Foreign Banks need to follow the regulations of both the home & the host countries.

• For example, Bank of America opens a branch in India; the Bank branch would be legally obligated to follow both American and Indian Banking regulations.

• There are 45 foreign banks in operation in India. Example HSBC, Standard Chartered, RBS, etc.

4. Co-operative Sector Banks

• Banks came into existence under the co-operative societies act 1912.

• They are located both in the urban and rural areas.

• Although they operate mostly like the commercial banks, they provide finance to farmers, salaried people, small-scale industries and so on. Moreover, the rate of interest is much lower when compared to other banks.

• There are two types of co-operative banks in India.

üState Co-operatives

üUrban Co-operatives

5. Development Banks:

• They mostly provide long term finances to set up the new

industries short term finances for the export-import business.

• Industrial finance co-operation of India (IFCI)

• Industrial development of India (IDBI)

• Industrial Investment Bank of India (IIBI)

• Small Industries Development Bank of India (SIDBI)

• National Bank for Agriculture and Rural Development (NABARD)

• Export-Import Bank of India

6. Small Finance Bank

•The reserve bank of India has proposed major reforms in the banking sector with the issue of guidelines for setting up “small and payment banks” which will cater to marginalized sections of the society, including migrant labors, for collecting deposits and remitting funds

•These banks will provide a whole suite of basic banking products such as deposits and supply of credits but in a limited area of operation

•Small finance banks will be allowed to take deposits from customers. And as against payments banks, small finance banks will also be allowed to lend money to people.

• Small finance bank is a type of niche bank, which can provide banking services like accepting deposits and lending but mainly focusing on small businesses, small and marginal farmers, small and micro industries. Small finance banks can perform all the operations of normal commercial banks but at a smaller level targeting low-income segment.

Regulations Proposed by RBI for Small Finance Bank

• Small banks have to follow stricter regulations as proposed by RBI:

o Every small finance bank must have the words -- small finance bank -- in its name.

o They cannot set up subsidiaries to undertake non-banking financial service activities.

o Small banks can undertake financial services like distribution of mutual fund units, insurance products, pension products, and so on, but not without prior approval from the RBI.

o Minimum paid-up equity capital requirement of Rs 100 crore.

o A small bank can transform into a full-fledged bank, but only after RBI's approval.

7. Payments Bank

•Payments banks is a new model of banks conceptualized by the Reserve Bank of India (RBI).

•These banks can accept a restricted deposit, which is currently limited to 1 lakh per customer and may be increased further.

•These banks cannot issue loans and credit cards.

•Payments banks is a new model of banks conceptualized by the Reserve Bank of India (RBI). ... These banks cannot issue loans and credit cards. Both the current account and savings accounts can be operated by such banks. Payments banks can issue services like ATM cards, debit cards, net-banking and mobile banking.

•These banks are expected to reach customers mainly through their mobile phones rather than traditional bank branches

How does a payment bank earn money

•Interest arbitrage - they will offer interest rates at 6% and deposit the money with other banks and government deposits at 8% making 2% gross.

•Transaction costs - a lot of services which are free of cost in a normal bank will be charged in the payment banks.