Why this matters now
Banking is central to GS-3 — monetary-policy transmission, financial inclusion, NPAs and reform, and the regular news on mergers, new bank licences and digital banking. Prelims tests the scheduled/non-scheduled distinction and the types of banks.
The RBI at the apex
The Reserve Bank of India (1935) is the central bank — it conducts monetary policy, issues currency, regulates and supervises banks, manages forex and acts as banker to the government and lender of last resort. Banks listed in the Second Schedule of the RBI Act, 1934 are “scheduled banks”; those not listed are non-scheduled.
Commercial banks
- Public Sector Banks (PSBs) — majority government-owned (e.g., SBI and the consolidated nationalised banks);
- Private Sector Banks — e.g., HDFC, ICICI, Axis;
- Foreign Banks operating in India;
- Regional Rural Banks (RRBs) — for rural credit, jointly owned by the Centre, the sponsoring bank and the state.
Cooperative and differentiated banks
Cooperative banks serve agriculture and local credit through a tiered urban and rural structure (regulated jointly by RBI and the registrar of cooperatives). Newer differentiated banks include:
- Small Finance Banks (SFBs) — focused on small borrowers, micro-enterprises and the unbanked;
- Payments Banks — can accept deposits (up to a cap) and offer payments/remittances but cannot lend.
Development finance is supported by institutions like NABARD (rural) and SIDBI (small industry).
NPAs and prudential norms
A Non-Performing Asset (NPA) is a loan on which interest/principal is overdue (generally 90+ days). High NPAs weaken banks’ ability to lend. India strengthened bank health through the Insolvency and Bankruptcy Code (2016), recapitalisation, PSB consolidation, and adherence to global Basel III capital norms (capital-adequacy buffers).
UPSC angle
Know the scheduled (2nd Schedule, RBI Act) vs non-scheduled distinction and the bank types (PSB, private, foreign, RRB, cooperative, SFB, payments). Link NPAs to the IBC and Basel III.
Frequently asked questions
What is a scheduled bank?
A bank included in the Second Schedule of the RBI Act, 1934, which meets certain criteria and gets facilities like borrowing from the RBI; banks not listed are non-scheduled.
What are the main types of commercial banks in India?
Public Sector Banks, Private Sector Banks, Foreign Banks, and Regional Rural Banks (RRBs).
What is the difference between a payments bank and a small finance bank?
A payments bank can accept limited deposits and offer payments/remittances but cannot lend; a small finance bank can both accept deposits and lend, focusing on small and unbanked customers.
What is an NPA?
A Non-Performing Asset — a loan on which interest or principal has been overdue (generally 90 days or more), reducing a bank’s capacity to lend.