Commercial banks in India: Types and functions

A commercial bank is a financial institution that performs operations related to deposit and withdrawal of money for the public, provides loans for investment, and carries out other similar activities.  The two main functions of a commercial bank are lending and borrowing. They play a crucial role in the country's financial system by smoothing the flow of funds, offering banking products and services, and contributing to economic growth.

Evolution of commercial banks in India

The evolution of commercial banks in India spans several centuries, reflecting changes in economic policies, banking regulations, and technological advancements. Let's look at the evolution of commercial banks in India:

Pre-independence era (pre-1947):

The origins of modern banking in India can be traced back to the 18th century when European trading companies established banks for conducting financial transactions.

The Bank of Hindustan (1770) and the General Bank of India (1786) were among the earliest banks in the subcontinent.

The State Bank of India (SBI) was established as the Bank of Calcutta in 1806. It later merged with the Bank of Bombay and the Bank of Madras in 1921 to form the Imperial Bank of India, eventually becoming the State Bank of India in 1955.

Post-independence and nationalisation (1947-1969):

After gaining independence in 1947, India witnessed a series of banking reforms to foster economic development.

The Banking Regulation Act of 1949 provided the regulatory framework for banking operations.

In 1969, the Indian government nationalised 14 major banks to achieve social and economic objectives, including increased credit flow to priority sectors like agriculture and small-scale industries.

Liberalisation and technological advancements (1991 onward):

Through the economic liberalisation of 1991, the government initiated financial sector reforms to promote competition and efficiency.

The entry of private and foreign banks introduced a new era of competition and innovation in the banking sector.

Technological advancements revolutionised banking operations, leading to the establishment of online banking services.

Consolidation and regulatory changes (2000s onward):

In the 2000s, there was a trend of mergers and acquisitions in the banking sector, leading to the consolidation of banks for enhanced efficiency and scale.

The Reserve Bank of India (RBI) implemented Basel regulations to strengthen the banking system.

Current landscape (2020s onward):

Digital banking, mobile banking, and fintech collaborations have become prominent features of the commercial banking landscape.

The RBI focuses on maintaining financial stability, promoting financial inclusion, and addressing emerging challenges such as cybersecurity risks.

Types of commercial banks in India 

There are various commercial banks in India, each serving specific functions and catering to distinct segments of the economy. Here are the types of commercial banks in India:

Public sector banks

Public sector banks are government-owned banks where the majority of the ownership lies with the government. Examples include the State Bank of India (SBI), Punjab National Bank (PNB), and Bank of Baroda. These banks play a crucial role in implementing government policies related to financial inclusion and priority sector lending.

Bank	Headquarter
State Bank of India	Mumbai
Bank of Baroda	Vadodara
Punjab National Bank	New Delhi
Union Bank of India	Mumbai
Indian Overseas Bank	Chennai
Canara Bank	Bengaluru
Indian Bank	Chennai
UCO Bank	Kolkata
Bank of India	Mumbai
Central Bank of India	Mumbai
Bank of Maharashtra	Pune
Punjab & Sind Bank	New Delhi

Private sector banks

Private individuals or entities own these banks and operate them. They operate on a profit motive and are known for their efficiency and innovation. Examples include ICICI Bank, HDFC Bank, and Axis Bank.

Bank name	Headquarter
HDFC Bank	Mumbai
ICICI Bank	Mumbai
Kotak Mahindra	Mumbai
Axis Bank	Mumbai
IndusInd Bank	Pune
IDBI Bank	Mumbai
IDFC First Bank	Mumbai
Yes Bank	Mumbai
AU Small Finance Bank	Jaipur
Bandhan Bank	Kolkata
Federal Bank	Aluva
RBL Bank	Mumbai
Jammu & Kashmir Bank	Srinagar
Karur Vysya Bank	Karur
City Union Bank	Kumbakonam
Karnataka Bank	Mangaluru
Tamilnad Mercantile Bank	Thoothukudi
CSB Bank	Thrissur
South Indian Bank	Thrissur
DCB Bank	Mumbai
Dhanlaxmi Bank	Thrissur
Lakshmi Vilas Bank	Chennai

Foreign banks

Foreign banks are headquartered outside India and operate within the country after obtaining the necessary regulatory approvals. Examples include Standard Chartered, Citibank, and HSBC.

Name of the Bank	Headquarters
AB Bank Ltd.	Dhaka, Bangladesh
Abu Dhabi Commercial Bank Ltd	Abu Dhabi, United Arab Emirates
American Express Banking Corporation	New York, United States
Australia and New Zealand Banking Group Ltd.	Melbourne, Australia
Barclays Bank Plc	London, United Kingdom
Bank of America	Charlotte, North Carolina, United States
Bank of Bahrain & Kuwait BSC	Manama, Bahrain
Bank of Ceylon	Colombo, Sri Lanka
Bank of China	Beijing, China
Bank of Nova Scotia	Toronto, Canada
BNP Paribas	Paris, France
Citibank N.A	New York, United States
Rabobank	Utrecht, Netherlands
Credit Agricole Corporate & Investment Bank	Paris, France
Credit Suisse A.G	Zürich, Switzerland
CTBC Bank Co. Ltd.	Nangang District, Taipei, Taiwan
DBS Bank India Limited	Singapore
Deutsche Bank	Frankfurt, Germany
Doha Bank	Doha, Qatar
Emirates Bank NBD	Dubai, United Arab Emirates
First Abu Dhabi Bank	Abu Dhabi, United Arab Emirates
FirstRand Bank Ltd	Johannesburg, South Africa
HSBC Ltd	London, England, UK
Industrial & Commercial Bank of China Ltd.	Xicheng District, Beijing, China
Industrial Bank of Korea	Jung-gu, Seoul, South Korea
J.P. Morgan Chase Bank N.A.	New York, USA
JSC VTB Bank	Moscow, Russia
KEB Hana Bank	Seoul, South Korea
Kookmin Bank	Seoul, South Korea
Krung Thai Bank Public Co. Ltd.	Watthana, Bangkok, Thailand
Mashreq Bank PSC	Dubai, United Arab Emirates
Mizuho Bank Ltd.	Chiyoda City, Tokyo, Japan
MUFG Bank, Ltd.	Chiyoda City, Tokyo, Japan
NatWest Markets Plc	London, United Kingdom
PT Bank Maybank Indonesia TBK	Senayan, Jakarta, Indonesia
Qatar National Bank (Q.P.S.C.)	Doha, Qatar
Sberbank	Moscow, Russia
SBM Bank (India) Limited	Port Louis, Mauritius
Shinhan Bank	Jung-gu, Seoul, South Korea
Societe Generale	Paris, France
Sonali Bank Ltd.	Dhaka, Bangladesh
Standard Chartered Bank	London, England, UK‎
Sumitomo Mitsui Banking Corporation	Chiyoda City, Tokyo, Japan
United Overseas Bank Ltd	Singapore
Westpac Banking Corporation	Sydney, Australia
Woori Bank	Jung-gu, Seoul, South Korea

Regional rural banks

Regional Rural Banks are a specialised category of banks created to cater to the banking needs of rural and semi-urban areas.

Name of the Regional Rural Bank	Sponsor Bank	State
Andhra Pragathi Grameena Bank	Canara Bank	Andhra Pradesh
Chaitanya Godavari Grameena Bank	Union Bank of India	Andhra Pradesh
Saptagiri Grameena Bank	Indian Bank	Andhra Pradesh
Arunachal Pradesh Rural Bank	State Bank of India	Arunachal Pradesh
Assam Gramin Vikash Bank	Punjab National Bank	Assam
Dakshin Bihar Gramin Bank	Punjab National Bank	Bihar
Uttar Bihar Gramin Bank	Central Bank of India	Bihar
Chhattisgarh Rajya Gramin Bank	State Bank of India	Chhattisgarh
Baroda Gujarat Gramin Bank	Bank of Baroda	Gujarat
Saurashtra Gramin Bank	State Bank of India	Gujarat
Sarva Haryana Gramin Bank	Punjab National Bank	Haryana
Himachal Pradesh Gramin Bank	Punjab National Bank	Himachal Pradesh
Ellaquai Dehati Bank	State Bank of India	Jammu & Kashmir
J&K Grameen Bank	J&K Bank Ltd.	Jammu & Kashmir
Jharkhand Rajya Gramin Bank	State Bank of India	Jharkhand
Karnataka Gramin Bank	Canara Bank	Karnataka
Karnataka Vikas Grameena Bank	Canara Bank	Karnataka
Kerala Gramin Bank	Canara Bank	Kerala
Madhya Pradesh Gramin Bank	Bank of India	Madhya Pradesh
Madhyanchal Gramin Bank	State Bank of India	Madhya Pradesh
Maharashtra Gramin Bank	Bank of Maharashtra	Maharashtra
Vidharbha Konkan Gramin Bank	Bank of India	Maharashtra
Manipur Rural Bank	Punjab National Bank	Manipur
Meghalaya Rural Bank	State Bank of India	Meghalaya
Mizoram Rural Bank	State Bank of India	Mizoram
Nagaland Rural Bank	State Bank of India	Nagaland
Odisha Gramya Bank	Indian Overseas Bank	Odisha
Utkal Grameen Bank	State Bank of India	Odisha
Puduvai Bharthiar Grama Bank	Indian Bank	Puducherry
Punjab Gramin Bank	Punjab National Bank	Punjab
Baroda Rajasthan Kshetriya Gramin Bank	Bank of Baroda	Rajasthan
Rajasthan Marudhara Gramin Bank	State Bank of India	Rajasthan
Tamil Nadu Grama Bank	Indian Bank	Tamil Nadu
Andhra Pradesh Grameena Vikas Bank	State Bank of India	Telangana
Telangana Grameena Bank	State Bank of India	Telangana
Tripura Gramin Bank	Punjab National Bank	Tripura
Aryavart Bank	Bank of India	Uttar Pradesh
Baroda UP Bank	Bank of Baroda	Uttar Pradesh
Prathama UP Gramin Bank	Punjab National Bank	Uttar Pradesh
Uttarakhand Gramin Bank	State Bank of India	Uttarakhand
Bangiya Gramin Vikash Bank	Punjab National Bank	West Bengal
Paschim Banga Gramin Bank	UCO Bank	West Bengal
Uttar Banga Kshetriya Gramin Bank	Central Bank of India	West Bengal

Cooperative banks

Cooperative banks operate on cooperative principles, primarily focusing on meeting their members' credit and banking needs. They can be classified into Urban Cooperative Banks (UCBs) and Rural Cooperative Banks (RCBs). These banks play a vital role in supporting local economic activities.

Name of the Bank	Address
The Andaman and Nicobar State Co-operative Bank Ltd.	Andaman and Nicobar Isls.
The Andhra Pradesh State Co-operative Bank Ltd.	Andhra Pradesh
The Arunachal Pradesh State co-operative Apex Bank Ltd.	Arunachal Pradesh
The Assam Co-operative Apex Bank Ltd.	Assam
The Bihar State Co-operative Bank Ltd	Bihar
The Chandigarh State Co-operative Bank Ltd.	Chandigarh
The Chhattisgarh Rajya Sahakari Bank Maryadit	Chhattisgarh
The Delhi State Co-operative Bank Ltd.	Delhi
The Goa State Co-operative Bank Ltd	Goa
Gujarat State Co-operative Bank Ltd.	Gujarat
The Haryana State Co-operative Apex Bank Ltd.	Chandigarh
The Himachal Pradesh State Co-operative Bank Ltd.	Himachal Pradesh
The Jammu and Kashmir State Co-operative Bank Ltd.	Jammu & Kashmir
Jharkhand State Co-operative Bank Ltd.	Jharkhand
The Karnataka State Co-operative Apex Bank Ltd.	Karnataka
The Kerala State Co-operative Bank Ltd.	Kerala
The Madhya Pradesh Rajya Sahakari Bank Maryadit	Madhya Pradesh
The Maharashtra State Co-operative Bank Ltd.	Maharashtra
The Manipur State Co-operative Bank Ltd.	Manipur
The Meghalaya Co-operative Apex Bank Ltd	Meghalaya
The Mizoram Cooperative Apex Bank Ltd.	Mizoram
The Nagaland State Co-operative Bank Ltd.	Nagaland
The Odisha State Co-operative Bank Ltd.	Odisha
The Puducherry State Co-operative Bank Ltd.	Puducherry
The Punjab State Co-operative Bank Ltd.	Punjab
The Rajasthan State Co-operative Bank Ltd.	Rajasthan
The Sikkim State Co-operative Bank Ltd.	Sikkim
The Tamil Nadu State Apex Co-operative Bank Ltd.	Tamil Nadu
The Telangana State Cooperative Apex Bank Ltd.	Telangana
Tripura State Co-operative Bank Ltd.	Tripura
The Uttar Pradesh Co-operative Bank Ltd.	Uttar Pradesh
The Uttarakhand State Co-operative Bank Ltd.	Uttarakhand
The West Bengal State Co-operative Bank Ltd	West Bengal
The Daman and Diu State Co-operative Bank Ltd.*	Daman and Diu

Payment banks

Payment banks are a relatively recent addition to the Indian banking sector. They provide a limited set of banking services, primarily focused on payments and remittances. They cannot issue loans or credit cards but can accept deposits and facilitate transactions. Examples include Airtel Payments Bank and Paytm Payments Bank.

Small finance banks

Small finance Banks cater to the banking needs of underserved and unserved sections of the population, including small businesses and low-income individuals. Examples include Equitas Small Finance Bank and Ujjivan Small Finance Bank.

Name of the Bank	Bank Type
ESAF Small Finance Bank	Payment Banks and Small Finance Bank
Fino Payments Bank	Payment Banks and Small Finance Bank
Equitas Small Finance Bank	Payment Banks and Small Finance Bank
India Post Payment Bank	Payment Banks and Small Finance Bank
Suryoday Small Finance Bank Ltd.	Payment Banks and Small Finance Bank
Ujjivan Small Finance Bank	Payment Banks and Small Finance Bank
AU Small Finance Bank	Payment Banks and Small Finance Bank
Jana Small Finance Bank	Payment Banks and Small Finance Bank
Airtel Payment Bank	Payment Banks and Small Finance Bank
NSDL Payment Bank	Payment Banks and Small Finance Bank
Paytm Payment Bank	Payment Banks and Small Finance Bank
Fincare Small Finance Bank	Payment Banks and Small Finance Bank

Investment norms and asset structure of commercial banks

Commercial banks in India adhere to specific investment norms and maintain a well-defined asset structure to ensure financial stability and regulatory compliance. These norms are established by the Reserve Bank of India (RBI), the country's central banking authority.

Commercial banks in India allocate a significant portion of their funds to government securities, meeting statutory liquidity requirements. Additionally, they invest in a diverse portfolio of assets, including loans and advances to various sectors such as agriculture, industry, and services.

Prudent risk management practices guide their asset structure to maintain a balance between profitability and risk mitigation.

Functions of commercial banks in India

Functions of commercial banks in India are varied and range from accepting deposits to promoting financial inclusion. These aid in the country's economic development. The primary functions of commercial banks are:

• Accepting deposits: Commercial banks provide a safe and secure place for the public to deposit their money. They offer various types of deposit accounts, including savings accounts, current accounts, and fixed deposits.
• Providing loans and advances: Commercial banks extend loans and advances to individuals, businesses, and industries.
• Credit creation: Commercial banks create credit. When they lend money, they create new money in the form of bank deposits, contributing to the overall money supply in the economy.
• Electronic funds transfer: Commercial banks enable electronic funds transfer through channels such as online banking, mobile banking, and electronic payment systems. This facilitates quick and secure money transfers between accounts.
• Providing overdraft facilities: Commercial banks offer overdraft facilities to account holders, allowing them to withdraw more money than is available in their accounts up to a certain limit.
• Investment in securities: Commercial banks invest in a variety of securities, including government bonds, corporate bonds, and other marketable securities.
• Foreign exchange services: Banks in India engage in foreign exchange operations, facilitating international trade and providing services such as currency exchange and outward remittances.
• Financial inclusion: Commercial banks help in financial inclusion by extending banking services to underserved and rural areas.

Top 10 Banks with the highest percentage of deposits

The top ten banks with the highest deposits include seven government banks, holding 75 percent of deposits. Only five commercial banks in India hold 50 percent of deposits.

Government banks command a significant share of Rs62 for every Rs100 deposited, compared to private banks with Rs32. Despite small finance banks offering higher interest rates, they hold only 0.8 percent of India's savings, possibly due to safety concerns.

Government banks have an extensive branch network, even beyond urban centres. The Public’s trust in them also plays a role in making  them the banks with the highest deposits.

Here is a list of the top ten banks with the highest deposits, with data (as of October 2023) sourced from The Business Standard.

Rank	Bank Name	Percentage of Bank Deposits	Deposits in Trillion INR
#1	State Bank of India	23.58	40.5
#2	HDFC Bank	9.07	15.6
#3	Punjab National Bank	6.67	11.5
#4	Canara Bank	6.32	10.9
#5	ICICI Bank	6.20	10.6
#6	Bank of Baroda	6.09	10.5
#7	Union Bank of India	6.01	10.3
#8	Axis Bank	4.78	8.2
#9	Bank of India	3.65	6.3
#10	Indian Bank	3.45	5.9