How are banks classified in India? Read now

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Classification of Banks in India


Banks

  • Banks are the financial institutions that are licensed to deal with money and its substitutes by accepting time and demand deposits, making loans, and investing in securities. The bank generates profits from the difference in the interest rates charged and paid.
  • Banks are connecting link between the people, who have surplus money and the people who are in need of money. In addition to this, banks undertake the risk arising out of the possible default of the ultimate borrower.
  • In other words, bank is an institution which accepts deposits from the public and in turn advances loans by creating credit. The following functions of the bank explain the need of the bank and its importance:
    • To provide the security to the savings of customers.
    • To control the supply of money and credit.
    • To encourage public confidence in the working of the financial system, increase savings speedily and efficiently.
    • To avoid focus of financial powers in the hands of a few individuals and institutions.
    • To set equal norms and conditions (i.e. rate of interest, period of lending etc) to all types of customers.

Banking Systems in India

  • Banks are classified into Organized and Unorganized banking.
  • Un-organized Banking: The part of Indian Banking System which does not fall under the control of our central bank (i.e. Reserve Bank of India) is called as un-organized banking. For example: Indigenous banks.
  • Organized Banking: The scheduled banks are those which are entered in the second schedule of RBI Act, 1939. Scheduled banks are those banks which have a paid up capital and reserves of aggregate value of not less than Rs 5 lakhs and which satisfy RBI guidelines.
  • The Organized (Scheduled) Banking Sector can be categorized into three major categories:
    • Central Bank of the Country (RBI)
    • Commercial Banks
    • Cooperative Banks

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