Types of Banks
Banking is the primary pillar of the Indian financial system. At its simplest level, a bank is an institution that accepts deposits from the public. It then uses this money to provide loans to individuals and businesses. In India, the Reserve Bank of India (RBI) is the central authority. It regulates all banking activities under the Banking Regulation Act of 1949. Banks are broadly divided into Scheduled and Non-scheduled banks.
Concepts (3)
Payment banks are 'differentiated' banks aimed at low-income groups and small businesses. They can accept demand deposits like savings and current accounts. However, they cannot accept NRI deposits or time deposits like Fixed Deposits.
Payment banks are 'differentiated' banks aimed at low-income groups and small businesses. They can accept demand deposits like savings and current accounts. However, they cannot accept NRI deposits or time deposits like Fixed Deposits. They are allowed to issue debit cards but are strictly prohibited from issuing credit cards. They cannot undertake any lending activity or give loans. A famous example is the India Post Payments Bank (IPPB).
PSL is a rule where banks must provide a portion of their loans to specific sectors. These sectors include agriculture, education, housing, and small businesses. For most commercial banks, the target is 40% of their total lending.
PSL is a rule where banks must provide a portion of their loans to specific sectors. These sectors include agriculture, education, housing, and small businesses. For most commercial banks, the target is 40% of their total lending. For Small Finance Banks, this target is higher at 75%. This ensures that essential parts of the economy receive enough credit to grow.
SFBs are designed to provide basic banking services to underserved sections of society. Unlike Payment banks, they can provide both deposits and loans. They primarily target small farmers, micro-industries, and unorganized sector entities.
SFBs are designed to provide basic banking services to underserved sections of society. Unlike Payment banks, they can provide both deposits and loans. They primarily target small farmers, micro-industries, and unorganized sector entities. To ensure they serve the right people, RBI mandates that 75% of their loans must go to the Priority Sector. An example is AU Small Finance Bank.
Ready to practice? Start an interactive lesson.
Start Lesson: Payment Banks