Banking Awareness
✨ Login to trackBanking Structure in India
✨ Login to trackIndian banks come in many shapes: public sector banks, private banks, foreign banks, regional rural banks, cooperative banks and 'differentiated' banks such as payments banks and small finance banks. NBFCs lend money but are not banks. Exams test the special features of each type.
How banks are classified
A scheduled bank is listed in the Second Schedule of the RBI Act, 1934. It must keep a minimum capital and reserve fund. Scheduled banks enjoy RBI facilities; non-scheduled banks do not.
Commercial banks work for profit. Cooperative banks serve their members. Then come the differentiated banks, licensed for a narrow job.
| Type | What it is |
|---|---|
| Public sector bank (PSB) | Government holds the majority stake |
| Private bank | Private shareholders hold the majority |
| Foreign bank | Branch of a bank registered abroad |
| Regional Rural Bank (RRB) | Rural credit, jointly owned by three parties |
| Cooperative bank | Run on cooperative lines |
| Payments bank / Small finance bank | Differentiated banks with narrow mandates |
Public sector banks
The Imperial Bank of India (1921) became the State Bank of India on 1 July 1955 under the SBI Act, 1955.
On 19 July 1969, fourteen big private banks, each with deposits above ₹50 crore, were nationalised. On 15 April 1980, six more banks with deposits above ₹200 crore joined the list.
In 2017, the five SBI associate banks and Bharatiya Mahila Bank merged into SBI.
In April 2020, ten PSBs merged into four. Punjab National Bank absorbed OBC and United Bank of India. Canara Bank absorbed Syndicate Bank. Union Bank absorbed Andhra Bank and Corporation Bank. Indian Bank absorbed Allahabad Bank.
Note: After the 2020 round, the number of public sector banks stands at 12.
Regional Rural Banks
RRBs began on 2 October 1975. The first one was Prathama Grameen Bank. The RRB Act, 1976 gave them legal form.
An RRB is owned 50% by the Centre, 35% by the sponsor bank and 15% by the state. It lends to small farmers, artisans and rural workers.
Many mergers have cut the number of RRBs over the years. Check the latest count before your exam.
Cooperative banks
Cooperative banks work on a 'no profit, no loss' base. Rural ones run in three tiers: the state cooperative bank, the district cooperative bank and the primary society.
Urban cooperative banks (UCBs) face dual control: the RBI watches their banking, while the Registrar of Cooperative Societies watches their management.
The Banking Laws (Amendment) Act, 2020 strengthened the RBI's grip on UCBs.
Differentiated banks
The Nachiket Mor Committee (2014) proposed payments banks. The RBI licensed both types in 2015.
Payments banks take deposits up to ₹2 lakh per customer (raised from ₹1 lakh in 2021). They cannot lend or issue credit cards. They must invest deposits in government securities. Airtel Payments Bank was the first to open (2016-17); India Post Payments Bank followed in 2018.
Small finance banks can do what any bank does, but must lend 75% of credit to priority sectors such as farming and small business. Capital Small Finance Bank was the first to start (2017).
Rule: Payments banks collect but do not lend. Small finance banks lend but stay small.
NBFCs and MFIs
A Non-Banking Financial Company registers under Section 45-IA of the RBI Act, 1934. It lends and invests like a bank, but:
- it cannot accept demand deposits;
- it cannot issue cheques (it sits outside the payment system);
- DICGC deposit insurance does not cover it.
Microfinance institutions (MFIs) give tiny loans to groups, often self-help groups. NABARD's SHG-Bank Linkage Programme (1992) connects such groups to banks.
Question types you will see
Each type: how to recognise it, the method step by step, and one question to try.
Scheduled banks and the Second Schedule
The question says 'a scheduled bank is one included in' or asks which schedule lists scheduled banks.
Scheduled banks sit in the Second Schedule of the RBI Act, 1934.
They must meet minimum capital and reserve rules.
They gain RBI facilities such as refinance and clearing membership.
The schedule number is a one-word answer.
Scheduled banks in India are those included in which schedule?
Show solutionHide solution
The RBI Act, 1934 holds the list.
It is the Second Schedule.
The Second Schedule of the RBI Act, 1934
Nationalisation rounds
The question asks how many banks were nationalised in 1969 or 1980, or what deposit cut-off applied.
19 July 1969: 14 banks with deposits above ₹50 crore.
15 April 1980: 6 banks with deposits above ₹200 crore.
SBI had already become state-owned in 1955.
Two rounds, two numbers, two cut-offs.
How many banks were nationalised on 19 July 1969?
Show solutionHide solution
It was the bigger round.
Fourteen banks crossed the ₹50 crore mark.
14
Payments banks versus small finance banks
Statement sets list deposit caps, lending rights or credit-card rules for differentiated banks.
Payments banks: deposits up to ₹2 lakh, no lending, no credit cards.
Small finance banks: full banks, 75% loans to priority sectors.
Both were licensed in 2015 after the Nachiket Mor report.
One swapped feature changes the answer.
Payments banks in India can accept deposits up to how much from one customer?
Show solutionHide solution
The old cap was ₹1 lakh.
The RBI raised it in 2021.
₹2 lakh
RRB facts
The question asks about the first RRB, the ownership pattern or the RRB Act year.
Start: 2 October 1975; first: Prathama Grameen Bank.
The RRB Act is from 1976.
Ownership: 50% Centre, 35% sponsor bank, 15% state.
The three-way ownership split is the favourite detail.
The first Regional Rural Bank, set up in 1975, was?
Show solutionHide solution
It opened on 2 October 1975.
It worked in Uttar Pradesh.
Prathama Grameen Bank
NBFCs versus banks
The question asks which statement is NOT true of an NBFC, or what NBFCs cannot accept.
NBFCs register under Section 45-IA of the RBI Act.
No demand deposits, no cheques, no DICGC cover.
Lending and investment are allowed.
The three 'noes' define the type.
NBFCs in India cannot accept which deposits?
Show solutionHide solution
Some deposits are allowed, some are not.
Demand deposits need cheque and payment-system rights.
Demand deposits
PSB mergers and SBI history
The question asks which banks merged in 2020, what SBI was formed from, or when the associate banks merged.
SBI: the Imperial Bank, nationalised in 1955.
2017: five associate banks plus Bharatiya Mahila Bank joined SBI.
April 2020: ten banks merged into four, leaving 12 PSBs.
Consolidation links history with current affairs.
The State Bank of India was formed in 1955 from which bank?
Show solutionHide solution
The parent bank dated from 1921.
It was the Imperial Bank of India.
The Imperial Bank of India
Shortcuts that save time
Payments banks: take deposits, cannot lend. Small finance banks: full banks that must lend small and to priority sectors.
Which bank type cannot give loans?
Show solutionHide solution
One type is deposit-only.
Payments banks cannot lend.
Payments banks
Centre 50, sponsor bank 35, state 15. Say it as Centre, sponsor, state.
What share does the sponsor bank hold in an RRB?
Show solutionHide solution
The sponsor sits in the middle of 50-35-15.
The middle share is 35%.
35%
Mistakes to avoid
Where most students lose marks on this subtopic.
Wrong: Calling NBFCs banks. Right: NBFCs lend but cannot accept demand deposits or issue cheques.
Wrong: Saying payments banks can lend after some years. Right: Payments banks can never lend or issue credit cards.
Wrong: Mixing the 1969 and 1980 nationalisation rounds. Right: 1969: 14 banks above ₹50 crore deposits. 1980: 6 banks above ₹200 crore.
Wrong: Giving RRB shares as 40:40:20. Right: RRBs are held 50% by the Centre, 35% by the sponsor bank, 15% by the state.
Wrong: Saying SBI was born in 1806. Right: 1806 is the Bank of Bengal. SBI was formed from the Imperial Bank in 1955.
Quick revision
Read this the night before the exam.
Scheduled banks: Second Schedule of the RBI Act, 1934.
SBI: 1 July 1955, from the Imperial Bank (1921).
Nationalisation: 14 banks in 1969 (₹50 crore), 6 in 1980 (₹200 crore).
RRBs: 1975, Prathama Grameen Bank; owned 50:35:15 by Centre, sponsor bank, state.
Payments banks: deposits ₹2 lakh, no lending. Small finance banks: 75% priority-sector lending.
NBFCs: Section 45-IA, no demand deposits, no cheques, no DICGC.
2020 mergers: 10 PSBs into 4; 12 PSBs remain.
Practice: 12 questions
Sets of 10, mixed across the question types above. Every answer has a step-by-step explanation.
Topic test · 12 questions
Suggested time 5 min · wrong answers go to your mistake notebook automatically.