classification of banks

Banks are classified based on three primary criteria: the functions they perform, their ownership structure, and their listing in the schedules of the Reserve Bank of India (RBI) Act, 1934

1. Classification Based on Function

This category identifies banks by the specific economic roles they serve and the types of credit they provide.

• Commercial Banks: These are the oldest and largest banking institutions, primarily focused on accepting deposits and granting short-term loans to support trade and commerce. Examples include SBI, ICICI Bank, and HDFC Bank

• Development Banks: These institutions promote the growth of specific sectors like industry and agriculture by providing medium and long-term loans. Examples include the Industrial Finance Corporation of India (IFCI)

• Co-operative Banks: Financial entities owned by their members, operating on a “no profit, no loss” basis and principles of mutual help. They are regulated by the RBI for banking functions and the Registrar of Cooperative Societies for administration.

• Specialised Banks: These cater to highly specific needs, such as EXIM Bank for foreign trade, SIDBI for small industries, and NABARD for agriculture.

• Differentiated Banks: These operate under specific licenses to provide niche services in select areas. Notable categories include Payment Banks (focused on remittances and small savings) and Small Finance Banks (focused on unserved and unbanked regions).

• Central Bank: The apex body that supervises, controls, and regulates all other commercial banks in the country. In India, this is the Reserve Bank of India (RBI).

2. Classification Based on Ownership

This classification depends on who holds the majority stake in the institution.

• Public Sector Banks: Banks where the Government of India or the RBI holds the majority ownership (at least 51% share). Examples include SBI, Bank of Baroda, and Canara Bank.
• Private Sector Banks: Institutions where the majority of ownership is held by private individuals or shareholders. Examples include Axis Bank and ICICI Bank
• Foreign Banks: These are headquartered in a foreign country but operate branches or subsidiaries in India. Examples include CITI Bank and HSBC.

3. Classification Based on Schedules

This legal classification is based on whether a bank is listed in the Second Schedule of the RBI Act, 1934.

• Scheduled Banks: These are listed in the schedule and are eligible for low-interest loans from the RBI. They must fulfill specific obligations, such as maintaining an average daily Cash Reserve Ratio (CRR) with the central bank. This group includes all nationalised banks, Regional Rural Banks (RRBs), and certain co-operative banks.
• Non-Scheduled Banks: These are not included in the second schedule. They are generally not allowed to borrow funds from the RBI for normal purposes, except in extraordinary emergencies. An example is Jammu & Kashmir Bank.

Summary Comparison Table