by Commercial banks in India are financial institutions that accept deposits from the public, provide loans, and offer a variety of financial services to individuals, businesses, and the government. They play a crucial role in the Indian economy by mobilizing savings and channeling them into productive investments. Regulated by the Reserve Bank of India (RBI), commercial banks help maintain financial stability, support monetary policy, and facilitate economic growth.
The Indian commercial banking system is divided mainly into public sector banks (PSBs), private sector banks, foreign banks, and regional rural banks (RRBs). Public sector banks, like the State Bank of India (SBI), are majority-owned by the government and account for a large share of the market. Private sector banks, such as HDFC Bank and ICICI Bank, are managed by private shareholders and are known for technological innovation and customer service. Foreign banks, including Citibank and HSBC, operate through branches in India, focusing on corporate clients and international transactions. RRBs serve the rural sector by providing agricultural and micro-enterprise loans.
Commercial banks in India offer a range of services, including savings and current accounts, fixed deposits, personal and business loans, credit cards, foreign exchange services, and digital banking products. They play a vital role in financial inclusion by reaching unbanked and underbanked populations, supporting government schemes, and financing small and medium enterprises (SMEs).
In recent years, the Indian banking sector has seen significant reforms, mergers, and technological advancements, improving efficiency and resilience. However, challenges like non-performing assets (NPAs), cybersecurity risks, and competition from fintech firms remain. Despite these, commercial banks continue to be the backbone of India’s financial system, driving economic development and supporting the needs of a diverse and growing population.
Structure of Commercial Banks in India
- Overview of Commercial Banks
The structure of commercial banks in India is well-defined and regulated under the Banking Regulation Act, 1949. These banks serve as the backbone of the Indian financial system, providing essential services like accepting deposits, lending, and facilitating payments. They are classified mainly into scheduled and non-scheduled banks, with scheduled banks listed under the Second Schedule of the RBI Act, 1934. The Reserve Bank of India (RBI) acts as the central regulator, supervising the functioning, solvency, and operations of commercial banks to ensure stability, liquidity, and credit control in the economy. This structure helps channel financial resources efficiently across sectors, promoting economic development and financial inclusion.
- Public Sector Banks (PSBs)
Public sector banks dominate India’s commercial banking landscape, holding a major share of total assets and deposits. These banks are majority-owned (over 50%) by the Government of India. Examples include State Bank of India (SBI), Punjab National Bank, and Bank of Baroda. PSBs are known for their widespread rural and semi-urban reach, making them crucial players in advancing government initiatives like agricultural financing, rural development, and financial inclusion. Over the years, several mergers and consolidations have taken place in the PSB sector to improve efficiency, reduce bad loans, and strengthen their balance sheets. They continue to serve as a key pillar of India’s formal financial system.
- Private Sector Banks
Private sector banks are those where private individuals or corporations hold the majority ownership. These banks are divided into old private sector banks (like Federal Bank, South Indian Bank) and new-generation private sector banks (like HDFC Bank, ICICI Bank, Axis Bank). They are known for superior customer service, technology-driven innovations, and competitive product offerings. Private banks are often more agile and profit-focused compared to PSBs, with strong footprints in urban and metropolitan areas. They have played a critical role in modernizing India’s banking sector through digitization, fintech partnerships, and customized financial products, driving competition and improving overall service standards across the industry.
- Foreign Banks in India
Foreign banks operate in India through branches, subsidiaries, or representative offices. Prominent names include Citibank, Standard Chartered, HSBC, and Deutsche Bank. These banks primarily focus on serving multinational corporations, large Indian businesses, trade finance, and wealth management clients. Foreign banks bring global expertise, advanced financial products, and international networks, enhancing the sophistication of India’s banking ecosystem. They are regulated by the RBI and must adhere to local guidelines on capital adequacy, priority sector lending, and reporting. Although their branch network is small compared to domestic banks, they hold a significant market share in cross-border transactions and niche financial services.
- Regional Rural Banks (RRBs)
Regional Rural Banks (RRBs) were established under the RRB Act, 1976, with the objective of serving the rural population, particularly farmers, artisans, and small entrepreneurs. RRBs are jointly owned by the central government, state governments, and sponsoring public sector banks. These banks combine local knowledge with financial strength to provide affordable credit and banking services in rural areas. Their functions include extending agricultural loans, supporting microenterprises, and implementing government schemes like Pradhan Mantri Jan Dhan Yojana (PMJDY) and Direct Benefit Transfers (DBTs). RRBs play a pivotal role in rural credit delivery, contributing to poverty alleviation and rural development.
- Scheduled vs. Non-Scheduled Banks
The RBI classifies banks as either scheduled or non-scheduled. Scheduled banks are listed under the Second Schedule of the RBI Act, 1934, meeting criteria like paid-up capital and reserve requirements. They enjoy certain privileges, such as borrowing facilities from the RBI and membership in clearinghouses. Scheduled banks include nationalized banks, private sector banks, foreign banks, and some cooperative banks. Non-scheduled banks, on the other hand, are smaller entities that do not meet these requirements. They are not entitled to borrow from the RBI for regular banking operations and play a very limited role in the financial system compared to their scheduled counterparts.
- Cooperative Banks
Cooperative banks are another important part of India’s commercial banking structure. These banks operate on cooperative principles, owned and managed by their members. They are divided into urban cooperative banks (UCBs) and rural cooperative banks. UCBs cater to urban and semi-urban customers, while rural cooperative banks focus on farmers and rural businesses. Cooperative banks are regulated jointly by the RBI and state governments, depending on their jurisdiction. While they are smaller in size and capital compared to commercial banks, they are crucial in promoting grassroots-level banking, especially in underbanked regions, supporting small borrowers and encouraging local economic activities.
- Specialized Financial Institutions (SFIs)
Although not commercial banks in the strict sense, specialized financial institutions like EXIM Bank, SIDBI, and NABARD play a supporting role in the Indian banking structure. These institutions focus on specific sectors like export financing, industrial development, and agricultural credit, respectively. They work alongside commercial banks to provide long-term funding, refinancing facilities, and sector-specific expertise. SFIs help fill gaps in the market that commercial banks may not fully address, especially when it comes to large infrastructure projects, rural development, or small industries. Their presence complements the commercial banking network, contributing to balanced and inclusive growth across sectors.
- Banking Reforms and Consolidation
The Indian banking structure has undergone significant reforms since the 1991 economic liberalization. Reforms aimed at deregulation, enhanced competition, better governance, and financial deepening have reshaped the sector. In recent years, several public sector bank mergers have taken place to create larger, stronger entities capable of competing globally. For example, the merger of Bank of Baroda with Dena Bank and Vijaya Bank, and the amalgamation of several other PSBs, was aimed at achieving operational efficiencies and capital strength. Such consolidations are part of the ongoing efforts to make India’s commercial banking system more resilient and globally competitive.
- Technological Advancements and Digital Banking
The commercial banking structure in India has been transformed by rapid technological advancements. Banks now offer services like internet banking, mobile banking, UPI (Unified Payments Interface), and digital wallets, reducing the need for physical branch visits. Fintech partnerships, payment banks, and small finance banks have further expanded access to financial services. The RBI promotes digital initiatives like the National Payments Corporation of India (NPCI) and Bharat Interface for Money (BHIM) to strengthen the digital payment ecosystem. These changes have increased banking penetration, improved customer experience, and enhanced the operational efficiency of the Indian commercial banking sector.
