Overview of Banking Institutions in India
Scheduled and Non-Scheduled Banks
In India the central banking authority is the Reserve Bank of India. It is also referred to as the “Apex Bank”. It functions under an act called The Reserve Bank of India Act’1934. All the banks and other financial institutions operating in India come under the monitoring and control of RBI. RBI controls the banking sector in India through an act called “the banking Regulations Act’ 1949. In the past, when there were very few banks, RBI used to include all the scheduled banks in its schedule. Now a day, when the number of banks has gone up substantially, RBI has to change the schedule every now and then, hence irrespective of whether a bank finds its name in the schedule to the RBI Act or not, its “schedule status” can be found out from its banking licence. A Bank that is not a scheduled bank is referred to as “Non scheduled” bank even in its banking licence.
The difference lies in the type of banking activities that a bank can carry out in India. In the case of a scheduled bank, it is licensed by the RBI to carry on extensive banking operations including foreign exchange operations, whereas, a non-scheduled bank can carry out only limited operations. There are a number of factors considered by RBI to declare a bank as a “scheduled Bank”, like the amount of share capital, type of banking activities that the bank is permitted to carry out etc. An example of difference between a scheduled and non-scheduled bank is dealing in “Foreign Exchange”.
Commercial and cooperative banks
Commercial banks are by far the most widespread banking institutions in India. They provide major products and services in India .A commercial bank is run on commercial lines, for profits of the organization.
A co-operative bank on the other hand is run for the benefit of a group of members of the co-operative body. A co-operative bank distributes only a very small portion of its profit as dividend, retaining a major portion of it in business.
All the nationalized banks in India and almost all the private sector banks are commercial scheduled banks. There are a large number of private sector co-operative banks and most of them are non-scheduled banks. In the public sector also, within a state, starting from the State capital, there are State Co-operative banks and District Central Co-operative Banks at the District level. Under the District Central Co-operative Bank, there are Co-operative Societies.
At present, In India, the banks can be bifurcated into following categories.
(a) Public sector banks
(b) Private sector banks
(c) Co-operative banks
(i) State level
(ii) District level
(iii) Urban Co-operative Banks
(iv) State Co-operative agriculture and rural development banks
(v) Primary Co-operative agriculture and rural development banks
(d) Regional Rural banks
(e) Foreign banks
Besides, the Reserve Bank of India (hereinafter referred to as RBI) acts as the central bank of the country. RBI is responsible for development and supervision of the constituents of the Indian financial system (which comprises banks and non-banking financial institutions) as well as for determining, in conjunction with the central government, the monetary and credit policies. They are also controlled by RBI.
Retail banking vs wholesale banking
Whole sale banking typically involves a small number of very large customers such as big corporations and governments, whereas retail banking consists of a large number of small customers who consume personal banking and small business services. Wholesale banking is largely inter-bank; banks use the inter-bank markets to borrow from or lend to other banks/large customers, to participate in large bond issues and to engage in syndicated lending. Retail banking is largely intra-bank; the bank itself makes many small loans.
Most of the Indian public sector banks practice retail banking; they are slowly practicing the concept of “wholesale banking”. On the other hand, most of the well-stablished foreign banks in India and the recent private sector banks practice wholesale banking alongside retail banking.
As a result of this difference, the composition of income for a public sector bank is different. While a major portion of the income for large public sector banks is from lending operations, in the case of any private sector bank in India, the amount of non-operating income (other than interest income) is substantially higher. The composition of other income is–commission on bills/guarantees/letters of credit, counseling fees, syndication fees, credit report fees, loan processing fees, correspondent bank charges etc.
Global Banking activities are an extension of various activities listed above into the international market. Global banking primarily consists of trade in international banking services and establishment of branches and subsidiaries in foreign countries.
Special kinds of bank branches
Most Banks in India separate out the following activities are special branches in areas are designated to mainly deal in these activities. This is done to reap benefits of specialisation as these activities are quite complex and hence letting only few employees in specialising them can save a lot of resources.
(a) Foreign exchange Branches
(b) NPA recovery branches
(c) Service branches dealing in Clearing house operations/Corporate banking and Industrial finance branches
(d) Personal banking branches
(e) Housing finance branch
(f) SSI branches
(g) Agricultural finance branches.