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Posted on Dec 26, 2025 in Business Administration and Management (BAM)

India’s banking system is a well-structured and regulated sector that plays a crucial role in the country’s economic development. It operates under the supervision of the Reserve Bank of India (RBI)
, which is the central bank of the country.

Structure of the Banking System in India

1. Reserve Bank of India (RBI) – Central Bank

  • Established: 1935 (nationalized in 1949)

  • Role:

    • Regulator and supervisor of the banking system

    • Issuer of currency

    • Controller of monetary policy

    • Custodian of foreign exchange

    • Banker to the Government and other banks

2. Scheduled vs. Non-Scheduled Banks

  • Scheduled Banks: Listed in the Second Schedule of the RBI Act, 1934; they fulfill certain criteria laid down by the RBI.

  • Non-Scheduled Banks


    Not listed in the Second Schedule; smaller in size and operations.

3. Classification of Banks in India

A. Commercial Banks

These are profit-making institutions that accept deposits and give loans.

  1. Public Sector Banks (PSBs)


    • Majority owned by the Government of India.

    • Examples: State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda.

  2. Private Sector Banks


    • Owned by private entities or individuals.

    • Examples: HDFC Bank, ICICI Bank, Axis Bank.

  3. Foreign Banks


    • Headquartered abroad but operating in India.

    • Examples: Citi Bank, HSBC, Standard Chartered.

  4. Regional Rural Banks (RRBs)


    • Jointly owned by Central Government, State Government, and a sponsor bank.

    • Aim: Serve rural and agricultural sectors.

  5. Small Finance Banks (SFBs)


    • Focus on providing financial services to underserved and unbanked areas.

    • Examples: AU Small Finance Bank, Equitas SFB.

  6. Payments Banks


    • Can accept deposits up to ₹2 lakh (as of 2024), offer remittance services, but cannot lend money.

    • Examples: Paytm Payments Bank, India Post Payments Bank.

B. Cooperative Banks

These are small-sized, community-focused banks organized under cooperative societies.

  1. Urban Cooperative Banks (UCBs)


    Operate in urban and semi-urban areas.

  2. Rural Cooperative Banks


    Cater to agricultural and rural sectors.

Regulatory and Supervisory Structure

InstitutionRole
RBI
Central regulatory authority
NABARD
Regulates and supports rural and agricultural financing (mainly cooperative banks and RRBs)

SEBI

Regulates capital markets, works alongside banks involved in investment banking
Ministry of Finance
Policy formulation and governance
Bank Board Bureau (BBB)
Recommends appointments of top executives in PSBs

Recent Reforms and Developments

  • Digital Banking


    UPI, internet banking, mobile banking, and digital wallets.

  • Bank Mergers


    Several PSBs were merged to form stronger entities (e.G., 10 PSBs merged into 4 in 2020).

  • Financial Inclusion Initiatives


    Pradhan Mantri Jan Dhan Yojana (PMJDY), Direct Benefit Transfer (DBT).

  • Asset Quality Review (AQR)


    To clean up NPAs (Non-Performing Assets).

  • Introduction of CBDC (Digital Rupee)


    By RBI in pilot phases.

Conclusion

India’s banking system is diverse and continuously evolving, balancing the dual objectives of financial inclusion and economic growth. With the RBI at the helm, it combines traditional banking with modern financial technologies to serve one of the world’s largest and most complex economies