Overview
The Reserve Bank of India (RBI) controls the Indian banking system. The primary goal of every bank is financial operations. Banks manage deposits and provide loans. There are different types of banks:
Scheduled Banks
1. Commercial Bank
2. Small Finance Banks
3. Payment Banks
4. Cooperative Banks
Commercial Banks
Regulated under the Banking Regulation Act of 1949. These banks primarily focus on profit-oriented business models.
Public Sector Banks
Private Sector Banks
Foreign Banks
Regional Rural Banks
Public Sector Banks
Majority owned by the government.
State Bank of India
Bank of India
Punjab National Bank
Bank of Baroda
Most of the business these banks do is with the government.
Mostly owned and operated by private entities. Known for providing services through technology and a strong network of ATMs, mobile banking, and online services.
Axis Bank
HDFC Bank
ICICI Bank
Lakshmi Vilas Bank
These banks have headquarters outside of India but operate branches within India. Subject to both Indian regulations and their home country’s regulations.
National Australia Bank
Bank of Bahrain and Kuwait
Industrial Bank of Korea
Regional Rural Banks
Work mostly in rural and semi-urban regions. Focus on providing banking services to rural populations.
Andhra Pradesh Grameena Bank
Kaveri Grameena Bank
Kerala Gramin Bank
Small FinanceBanks
focus on providing financial services to small industries and businesses. Capital Small Finance Bank Limited is an example.
Payment Banks
Concept introduced in 2014 by the RBI. The purpose is to provide financial services in areas where it is hard to go to a traditional bank. Designed for low-income individuals.
Have restrictions:Deposits are limited, and they cannot offer loan services. Primarily focus on deposits and facilitating payments. Offer services such as debit cards and online banking.
Airtel Payments Bank Limited
Fino Payments Bank Limited
Paytm Payments Bank Limited
Cooperative Banks
Banks are organized, operated, and owned by their members. Members pool resources for mutual benefit. Engage in banking activities, with members having voting rights.
RBI and Registrar of Cooperative Societies regulate them. Management is chosen by members.
Cash Reserve Ratio (CRR)
Capital Adequacy Ratio
Scheduled Banks
Banks that are listed in the Second Schedule of the RBI Act, 1934. Required to maintain a certain reserve with the RBI Local Area Banks are examples:
Coastal Local Area Bank Limited
Capital Local Area Bank Limited
Savings Accounts
Designed for the general public to deposit savings. Offer interest rates, but these are typically lower than other investment options.
Vary between public and private sector banks (e.g., 3.5% in public sector banks, 6% in some private sector banks). Generally allow a limited number of free transactions, with charges applied thereafter. Some savings accounts require a minimum balance.
Current Accounts
Designed for business people. Allow unlimited transactions.
Require a higher minimum balance compared to savings accounts. May offer additional facilities such as overdrafts.
RBI’s Role
The Reserve Bank of India (RBI) doesn’t print one-rupee notes and coins; the central government does. RBI controls other denominations. Prints notes in locations like Nashik, Dewas, Mysore, and Salboni.
Maintains chests in Mumbai, Hyderabad, Kolkata, and Noida for distribution. RBI uses the Monetary Policy Committee to control the repo rate and reverse repo rate.
The repo rate is the rate at which commercial banks borrow money from the RBI.The reverse repo rate is the rate at which the RBI borrows money from commercial banks.
These rates have an effect on the cost of goods and services and inflation.
Inflation Control
RBI aims for an inflation rate of 4-6%. The repo rate is a tool to manage inflation by adjusting the cost of borrowing for banks.
Functions of RBI
Money help for the central government and other government groups. Controlling CRR (Cash Reserve Ratio) and SLR (Statutory Liquidity Ratio).
CRR: Percentage of a bank’s total deposits that it must maintain with the RBI.SLR: The amount of a bank’s total deposits that it must retain in cash or other assets that are easy to get to, like government bonds.
These measures ensure banks have sufficient funds to meet obligations.
Printing of Notes
RBI decides on the printing of new notes based on economic conditions.
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