Banking System in India
The Indian Banking System plays a crucial role in the economic development of the country by mobilizing savings, providing credit, and facilitating payments. It has evolved significantly since independence.
Structure of Indian Banking System
==== Regulatory Framework ####
Reserve Bank of India (RBI):
Establishment: 1935
Role: Central bank, monetary authority
Functions: Currency issuance, banking regulation, monetary policy
Headquarters: Mumbai
Banking Regulation Act, 1949:
Objective: Regulate commercial banks
Provisions: Licensing, operations, supervision
Amendments: Regular updates for modern banking
==== Types of Banks ####
| Bank Type | Ownership | Examples | Market Share |
| Public Sector Banks | Government majority | SBI, PNB, BoB | 59.8% (deposits) |
| Private Sector Banks | Private ownership | HDFC, ICICI, Axis | 35.9% (deposits) |
| Foreign Banks | Foreign ownership | Citi, Standard Chartered | 4.3% (deposits) |
Public Sector Banks (PSBs)
==== Major PSBs ####
State Bank of India (SBI):
Establishment: 1955 (merger of Imperial Bank)
Market share: Largest bank in India
Branches: 22,000+ branches
Assets: ₹53 lakh crore (2021)
Other Major PSBs:
Punjab National Bank (PNB) - Post-merger with OBC, United Bank
Bank of Baroda - Merged with Vijaya Bank, Dena Bank
Canara Bank - Merged with Syndicate Bank
Union Bank of India - Merged with Andhra Bank, Corporation Bank
==== PSB Consolidation ####
Bank Mergers (2017-2020):
Objective: Stronger capital base, operational efficiency
Result: 27 PSBs reduced to 12
Benefits: Reduced competition among PSBs, better resource utilization
Private Sector Banks
==== New Generation Private Banks ####
HDFC Bank:
Establishment: 1994
Market capitalization: Highest among Indian banks
Technology: Leader in digital banking
Performance: Consistent profitability
ICICI Bank:
Establishment: 1994
Focus: Retail and corporate banking
International presence: Multiple countries
Innovation: Pioneered many banking products
Axis Bank:
Establishment: 1993 (as UTI Bank)
Strength: Corporate banking
Network: Strong urban presence
==== Old Private Banks ####
Karnataka Bank - Regional focus
South Indian Bank - Kerala-based
Lakshmi Vilas Bank - Merged with DBS India
Specialized Banks
==== Development Banks ####
National Bank for Agriculture and Rural Development (NABARD):
Establishment: 1982
Role: Agricultural and rural development finance
Functions: Refinancing, policy formulation, supervision
Coverage: Rural and semi-urban areas
Export-Import Bank (EXIM Bank):
Establishment: 1982
Role: Export-import finance
Functions: Export credit, project financing
Focus: International trade promotion
==== Small Finance Banks ####
Objective: Financial inclusion, small businesses
Minimum capital: ₹200 crore
Examples: Equitas, Ujjivan, Jana Small Finance Bank
Focus: Unbanked and underbanked segments
==== Payments Banks ####
Objective: Payments and remittances
Restrictions: No lending, limited deposit size
Examples: Paytm Payments Bank, India Post Payments Bank
Target: Digital financial services
Cooperative Banking
==== Structure ####
Three-Tier System:
1. **Primary Agricultural Credit Societies (PACS)** - Village level
2. **District Central Cooperative Banks (DCCBs)** - District level
3. **State Cooperative Banks (SCBs)** - State level
==== Urban Cooperative Banks ####
Function: Urban and semi-urban banking
Regulation: RBI and state governments
Issues: Governance, capital adequacy
Examples: Saraswat Bank, Cosmos Bank
Regional Rural Banks (RRBs)
==== Establishment and Purpose ####
Year: 1975
Objective: Rural credit, financial inclusion
Ownership: Central government (50%), State government (15%), Sponsor bank (35%)
Current number: 43 RRBs (after consolidation)
==== Functions ####
Agricultural credit: Crop loans, farm mechanization
Rural development: Self-help groups, microfinance
Banking services: Deposits, remittances, insurance
==== First Generation Reforms (1991) ####
Narasimham Committee I (1991):
Recommendations: Deregulation, competition
Implementation: New private banks, branch licensing deregulation
Impact: Improved efficiency, customer service
==== Second Generation Reforms (1998) ####
Narasimham Committee II (1998):
Focus: Strengthening banking system
Recommendations: Capital adequacy, asset quality
Implementation: Basel norms adoption
==== Recent Reforms ####
Jan Dhan-Aadhaar-Mobile (JAM) Trinity:
Jan Dhan: Financial inclusion through bank accounts
Aadhaar: Unique identification for KYC
Mobile: Digital payments platform
Insolvency and Bankruptcy Code (IBC) 2016:
Objective: Faster resolution of bad loans
Process: Time-bound insolvency resolution
Impact: Recovery rates improvement
Financial Inclusion
==== Pradhan Mantri Jan Dhan Yojana (PMJDY) ####
Launch: 2014
Objective: Universal banking access
Accounts opened: 46+ crore accounts
Features: Zero-balance accounts, RuPay debit cards, insurance
==== Digital Banking ####
Unified Payments Interface (UPI):
Launch: 2016
Growth: 45 billion transactions (2022)
Value: ₹84 lakh crore annually
Impact: Financial inclusion, cashless economy
Digital Payment Systems:
RTGS: Real-time gross settlement
NEFT: National electronic funds transfer
IMPS: Immediate payment service
Mobile banking: App-based banking
Challenges in Banking Sector
==== Non-Performing Assets (NPAs) ####
Definition: Loans overdue for 90+ days
Peak level: 11.2% (2018)
Current level: 6.9% (2021)
Sectors affected: Infrastructure, steel, textiles, aviation
==== Other Challenges ####
Governance issues: PSB management
Capital adequacy: Meeting Basel III norms
Technology adoption: Legacy systems
Cybersecurity: Digital banking risks
Competition: Fintech companies
Future of Banking
==== Digital Transformation ####
Artificial Intelligence: Credit scoring, chatbots
Blockchain: Trade finance, record keeping
Open banking:
API-based services
Neo-banking: Digital-only banks
==== Regulatory Developments ####
Central Bank Digital Currency (CBDC): Digital rupee pilot
Account Aggregator: Consent-based data sharing
Regulatory sandbox: Fintech innovation testing
UPSC Relevance
Paper: General Studies Paper III (Economic Development)
Topics: Banking reforms, financial inclusion, monetary policy
Previous Year Questions:
Banking sector consolidation impact (2021)
Financial inclusion through digital banking (2020)
NPA crisis and resolution mechanisms (2019)
Cooperative banking structure and challenges (2018)
Key Statistics
Bank branches: 1.6 lakh+ (2021)
ATMs: 2.13 lakh (2021)
Credit-Deposit ratio: 71.9% (2021)
CASA ratio: 44.9% (2021)
Banking penetration: 80% adults have bank accounts
Memory Techniques
Major PSBs: SBI PNB BoB Canara Union
S - State Bank of India
P - Punjab National Bank
B - Bank of Baroda
C - Canara Bank
U - Union Bank of India
Private Banks: HDFC ICICI Axis
H - HDFC Bank
I - ICICI Bank
A - Axis Bank