Types of Banking in India
14 Aug 2025

Types of Banking in India

Decoding the different types of banking in India

Key Takeaways

  • Indian banking  types are broadly classified into two types – scheduled and non-scheduled.
  • These banks could be commercial, small finance, payments and cooperative banks.
  • Private, public, foreign and regional rural are common types of commercial banks.
  • Small finance and cooperative banks deal with small-scale clients.
  • RBI permits payment banks to only offer limited deposit facilities.

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.

Overview of the Banking System in India

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.

What is a Banking System?

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.

What are the Functions of Banks?

Banks perform key roles that support both individuals and the economy. Their main functions include:

  • Accepting deposits: Banks offer a safe place for people to keep their money. Customers can choose from different types of bank accounts such as savings, fixed deposits, or current accounts. For example, you can open savings account online with DBS Bank, without paperwork or branch visits.
  • Providing loans: Banks lend money to individuals, businesses, and governments. This supports spending, investment, and economic growth.
  • Facilitating payments: Banks enable money transfers through cheques, cards, UPI, NEFT, and mobile apps.
  • Offering financial services: Banks also offer services like currency exchange, insurance, and tools such as a savings interest calculator to help manage funds better.

These functions help people manage their money, plan for the future, and support the country’s financial system.

Types of Banking

Common types of banking in India include the following:

Central Bank

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

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:

  • Public Sector Banks: More than 75% of the total banking business in India comes under the public sector, also known as nationalised banks. The Indian Government and RBI are the major stakeholders in this sector.
  • Private Sector Banks: Most stakeholders of Private Sector Banks are individual investors, not the RBI or Indian Government. Nevertheless, these banks must adhere to all the RBI regulations for their operations. DBS Bank offers mobile banking access round the clock and savings accounts with interest rates of up to 5.5% per annum, making it a practical option for those seeking digital convenience and better-than-average returns.
  • Foreign Banks: Foreign Banks have their headquarters in a foreign country but operate as a private entity in India. They abide by the regulations of their home country and the country in which they operate.
  • Regional Rural Banks: These scheduled commercial banks serve the economically weaker sections, such as marginal farmers, agricultural labourers, and small businesses. Operating at regional levels, RRBs offer banking facilities like debit cards, bank lockers, complimentary insurance etc.

Cooperative Banks

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

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.

Small Finance Banks

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.

Payments Banks

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.

Scheduled and Non-Scheduled Banks

The banking sector is divided into scheduled and non-scheduled banks.

  • Scheduled Banks are listed in the second schedule of the Reserve Bank of India (RBI) Act, 1934. The paid-up capital and collected funds of scheduled banks must be 5 Lakh and above. The RBI grants loans at the bank rate, and these banks are eligible to become clearing house members.
  • Non-Scheduled Banks are banks not listed in the second schedule of the RBI Act, 1934. The paid-up capital and collected funds are less than INR 5 Lakh. Such banks need not borrow funds from the RBI.

Specialized 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.

Final Note

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.