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
By Forbes India
Aug 26, 2024, 10:00 IST8 min
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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 | Zà¼rich, 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"Ž |
| 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 | Small Finance Bank |
| Fino Payments Bank | Payments Bank |
| Equitas Small Finance Bank | Small Finance Bank |
| India Post Payment Bank | Payments Banks |
| Suryoday Small Finance Bank Ltd. | Small Finance Bank |
| Ujjivan Small Finance Bank | Small Finance Bank |
| AU Small Finance Bank | Small Finance Bank |
| Jana Small Finance Bank | Small Finance Bank |
| Airtel Payments Bank | Payments Banks |
| NSDL Payments Bank | Payments Banks |
| Paytm Payments Bank | Payments Banks |
| Fincare Small Finance Bank | Small Finance Bank |
| Jio Payments Bank | Payments Banks |
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.
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