Section 5(b) of the Banking Regulation Act of 1949 defines “banking means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, and order or otherwise”.
Deposits accepted by the banking institution are the money received from the people with the understanding that they can get it back at any time or at an agreed-upon future time. The money let out to a borrower by the banks is to be repaid by the borrower with interest.
Besides the activities of accepting deposits from the public and using the funds for lending and investments, Banks in India offer a wide range of banking services to their customers, such as savings and Current Accounts, debit cards, ATMs, credit cards, export credits, corporate and retail lending, investment services, Treasury operations, and electronic banking options like UPI, ECS, mobile banking, NEFT, and RTGS, SWIFT & ISO 20022 messages, etc. They also undertake para-banking activities like portfolio management and insurance business (Bancassurance) to the underwriting of bonds of PSUs, depository, selling gold coins, Government business, and so on. They also offer safe deposit Lockers for customers to securely store valuable items and documents.
Services available in specialised banks:
Investment Banks: An investment bank typically only works with deal makers and high-net-worth individuals (HNWIs)—not the general public. These banks underwrite deals, secure access to capital markets, offer wealth management and tax advice, advise companies on mergers and acquisitions (M&A), and facilitate the buying and selling of stocks and bonds. Financial advisors and discount brokerages also occupy this niche. Banks also provide investment products like mutual funds, stocks, and bonds, helping customers grow their wealth.
Portfolio Management Services
Some banks in India provide Portfolio Management Services (PMS) to high-net-worth individuals (HNWIs)—not the general public. A Portfolio Management Service (PMS) is a professional financial service that provides investors with personalised investment management to deliver superior risk-adjusted returns. Unlike mutual funds which cater to a large pool of investors with the same investment objective, a PMS account is designed to meet customers’ specific financial goals, risk tolerance, and investment preferences. To know more read: WHAT IS PORTFOLIO MANAGEMENT SERVICE?
Other Functions of Banks Include:
Collecting of cheques drawn on other banks
Accepting and collecting bills of exchange
Dealing in foreign exchange to assist in the settlement of overseas debts
Safe deposit facilities
Stock exchange trustee
Assisting the RBI in keeping the note issue in a safe and good condition
Different types of banks:
In India, we have different types of banks functioning such as the Reserve Bank of India (Central Bank), Scheduled Commercial Banks, Local Area Banks, Regional Rural banks, cooperative Banks, Payment Banks, and small finance banks that provide various financial services to individuals, businesses, and governments. Banking services mainly include accepting deposits, lending money, facilitating transactions, and offering various financial products like savings accounts, loans, credit cards, etc. As per the RBI website, currently, there are 12 public sector banks, 21 scheduled private sector banks, 11 scheduled small finance banks, and 4 scheduled payment banks. Also, there are 45 scheduled foreign banks in India and 43 Regional rural banks (RRBs) in India. Also, there are over 1434 Non-Scheduled Urban Cooperative Banks in India (non-scheduled banks those banks which are not included in the second schedule of RBI Act).
The main function of RBI is to regulate the issue of Bank notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage; to have a modern monetary policy framework to meet the challenge of an increasingly complex economy, to maintain price stability while keeping in mind the objective of growth.
Scheduled Banks
Scheduled banks are banks that are listed in the second schedule of the Reserve Bank of India Act, of 1934. They are considered to be more financially stable and meet various regulatory requirements. All the RRBs, Indian and foreign commercial banks, and cooperative banks are considered scheduled banks.
Non-Scheduled Banks
Non-scheduled banks are private institutions not listed in the second schedule of the RBI Act of 1934. They provide loans and other banking services to businesses and individuals under specific guidelines set by the RBI but do not conform to all parameters outlined for scheduled banks. These banks typically have a reserve capital of less than Rs. 5 lakh and are subject to additional financial constraints compared to scheduled banks. Unlike scheduled banks, they are not entitled to borrow from the RBI for normal banking purposes, except, in emergency or abnormal circumstances. Also, non-schedule banks do not have to maintain the Cash Reserve Ratio (CRR) or Statutory Liquid Ratio (SLR) unlike scheduled banks.
Commercial Banks :
Commercial banks in India are the financial institutions which offer services various services to earn a profit. These banks are regulated by the Banking Regulation Act of 1949. These banks extend banking facilities to individuals, businesses, and other organizations in the form of current, deposit, and savings accounts. They also provide loans to businesses.
Public Sector Banks
The government owns the majority of the shares of such banks. The ownership of the government is generally more than 50%.
Private Sector Banks
The majority of the equity is held by private entities, corporations, institutions, or individuals along with the government.
Foreign Banks
Foreign banks are international banks licensed to carry out banking business in India. These banks are compelled to follow the guidelines of both the home as well as the host countries. Such banks tend to be more effective in countries with high taxes and nations where it is easy for international firms to enter the market.
Regional Rural Banks (RRBs)
These banks were established in 1975 following the recommendations of “The Narasimham Committee” under the RRB Act 1976. These banks are regulated and supervised by the NABARDs (National Bank for Agriculture and Rural Development). RRBs are owned by 3 entities Central Government (50%), State Government (15%), and Sponsor Banks (35%)
Cooperative Banks:
In India, both commercial and cooperative banks are scheduled banks with the same functions such as deposit banking and advances. Commercial banks are operated by shareholders, while cooperative banks are owned by members of cooperative societies. Cooperative banks play a very important role in the rural economic development of the country.
Small Finance Banks (SFBs):
Small Finance Banks (SFBs) in India are financial institutions that provide basic banking services to underprivileged and underserved populations. The main goal of SFBs is to promote financial inclusion and support small businesses, micro and small enterprises, and unorganized sectors.
Payment banks:
The Reserve Bank of India (RBI) introduced payment banks in 2014 to promote financial inclusion, especially in rural and remote areas. Payment banks are designed to deliver accessible and affordable banking services to underserved segments of society, including low-income households, small businesses, and migrant workers. These banks focus on financial inclusion by providing essential services that traditional banks might not offer to these groups.
