Decoding the different types of banking in India
The Indian banking sector is rather dynamic. Banks encourage people to save money with them and mobilise that money to invest in above-average investments. Banks also use these funds to finance various kinds of loans, thereby managing the cash flow for their massive clientele. In this article, we break down the different types of banking in India and the function of the banks.
The banking system in India has changed a lot in recent years. Customers can now open accounts, transfer money, and apply for loans without visiting a branch. Mobile apps and online platforms make these services faster and easier to use.
The Reserve Bank of India (RBI) continues to improve the system with rules that focus on customer safety, data protection, and better access to services. Digital payments, especially UPI, have become common across cities and rural areas.
While there are different types of banking in India, most changes today aim to make everyday transactions simple and secure. Banking is now more accessible and built around customer needs.
A banking system is the structure that handles money in an economy. It includes banks, regulators, and the rules they follow.
In India, the Reserve Bank of India (RBI) oversees the banking system. It ensures that banks protect deposits, give loans, and process payments as per regulations.
There are different types of banks in India. Each serves specific needs, from personal savings to business finance. The system helps people save, borrow, and move money while supporting the broader economy.
Banks perform key roles that support both individuals and the economy. Their main functions include:
These functions help people manage their money, plan for the future, and support the country’s financial system.
Common types of banking in India include the following:
A central bank is the authority that manages a country’s currency, money supply, and interest rates. In India, the Reserve Bank of India (RBI) serves as the central bank.
It regulates the banking system, issues currency, and ensures financial stability. The RBI sets policy rates, such as the repo rate, which influence interest rates across all types of banks in India.
The RBI also manages foreign exchange reserves and works to control inflation. It does not deal directly with the public but plays a key role in keeping the banking system efficient and secure.
Commercial banks can be scheduled or non-scheduled and are regulated under the Banking Regulation Act, 1949. As part of the banking system in India, banks accept deposits and grant loans to the general public, businesses, and even the Government. Among the main types of banking in India, commercial banks are further classified as:
These banks are registered under the Cooperative Societies Act, 1912, and function on a no-profit no-loss basis. They offer banking services to entrepreneurs, small businesses, and industries.
Local Area Banks (LABs) are small, private sector banks that operate within a limited geographic area. They were introduced by the Government of India in 1996 to improve access to basic banking services in underserved regions.
Among the various types of banking present today, LABs are designed to serve rural and semi-urban populations. They are regulated by the Reserve Bank of India and registered under the Companies Act, 1956.
This model fits into the broader types of banking system in India, offering savings and credit facilities to small farmers, local businesses, and low-income households.
Licensed under section 22 of the Banking Regulation Act, 1949, these types of banking systems cater to sections of societies not usually served by large banks. They serve micro and cottage industries and small business units.
RBI restricts these banks to offer deposit facilities only, with a deposit limit of INR 1 Lakh per customer. You can avail of debit cards and e-banking facilities.
The banking sector is divided into scheduled and non-scheduled banks.
Specialized banks are financial institutions that focus on specific sectors or activities such as industrial finance, export-import support, or housing finance. In India, examples include EXIM Bank, SIDBI, and NABARD. These banks do not provide typical retail banking services but play a crucial role in targeted financial development by offering sector-specific funding and expertise.
India’s banking types include scheduled and non-scheduled banks, with commercial banks playing a central role in handling deposits and loans. Other banks such as cooperative, small finance, and regional rural banks serve targeted groups including low-income households and small businesses.
For everyday banking, consider DBS Bank, which offers one of the top savings account interest rates through the DBS digibank app or website. There is no paperwork or branch visit required, and the account comes with features that support secure and convenient money management.
*Disclaimer: This article is for information purposes only. We recommend you get in touch with your income tax advisor or CA for expert advice.