Commercial banks in India: Types and functions

Explore all about commercial banks in India, from their types to function, and find out the banks with the highest deposits

Last Updated: Aug 26, 2024, 10:00 IST2 min

Organisations are essentially communities. If we dig further, we will quickly understand that they are, in fact, a community of communities. Illustration: Chaitanya Dinesh Surpur

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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.