Banking Structure in India
The banking structure in India is a multi-layered system led by the Reserve Bank of India (RBI). The RBI is the central bank of the country. It acts as the supreme authority or the 'apex body' for all financial institutions. It was established in 1935 under the Reserve Bank of India Act. The primary role of the RBI is to regulate the flow of money and maintain financial stability. All banks in India are broadly classified into two categories: Scheduled Banks and Non-Scheduled Banks.
Concepts (3)
These are 'niche' banks designed for specific purposes. Payments Banks help with small payments and remittances but cannot issue credit cards or loans. Small Finance Banks (SFBs) are meant for high-volume, small-value lending to unorganized sectors.
These are 'niche' banks designed for specific purposes. Payments Banks help with small payments and remittances but cannot issue credit cards or loans. Small Finance Banks (SFBs) are meant for high-volume, small-value lending to unorganized sectors. An example of a Payments Bank is Airtel Payments Bank, while AU Small Finance Bank is an example of an SFB.
This is a critical function of the central bank. When a commercial bank faces a 'liquidity crunch' (runs out of ready cash) and cannot get money from other banks, the RBI steps in.
This is a critical function of the central bank. When a commercial bank faces a 'liquidity crunch' (runs out of ready cash) and cannot get money from other banks, the RBI steps in. The RBI provides funds to protect the interests of depositors and prevent the bank from collapsing. It ensures the entire banking system remains stable during a panic.
Scheduled banks are those that meet the criteria of the RBI Act's Second Schedule. They must maintain a Cash Reserve Ratio (CRR) with the RBI. In return, they gain access to loans from the RBI at the bank rate. Non-scheduled banks are rare today.
Scheduled banks are those that meet the criteria of the RBI Act's Second Schedule. They must maintain a Cash Reserve Ratio (CRR) with the RBI. In return, they gain access to loans from the RBI at the bank rate. Non-scheduled banks are rare today. They have smaller capital and do not have the same borrowing rights from the RBI. For example, SBI is a scheduled bank.
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