Introduction

A (commercial bank) is a type of financial intermediary.. It is a financial intermediary because it mediates between the savers and borrowers). It does so by accepting deposits from the public and lending money to businesses and consumers. Its primary liabilities are deposits and primary assets are loans and bonds.

India has 88 scheduled commercial banks (SCBs) – 25 public sector banks (that is with the Government of India holding majority stake), 31 private banks and 38 foreign banks. Public sector banks hold over 75 percent of total assets of banking industry, with the private and foreign banks holding 18.2% and 6.5 respectively.

Public Sector Banks

They are owned by the Government either totally or as a majority stake holder.
State Bank of India and its five associate banks called the State Bank group
19 nationalized banks
Regional Rural Banks mainly sponsored by Public Sector Banks
SBI has five associate banks: State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala and State Bank of Travancore. Earlier SBI had seven associate banks. State Bank of Saurashtra and Indore merged with SBI.
Private Sector Banks include domestic and foreign banks Co-operative Banks are another class of banks and are not considered as commercial banks as they have social objectives and profit is not the motive. (explained later) Reserve Bank of India lays down the norms for banking operations and has the final supervising power.

Evolution of Banking in India

East India Co. established 3 presidency banks
1> Bengal 1806
2> Bombay 1840
3> Madras 1842

1861 : All 3 were given right to issue currency
1921 : Formation of Imperial Bank of India by merging all above 3 banks
1955 : Nationalization of imperial bank → Birth of SBI

Pre Independence banks in India

Foreign Banks

Bombay, Bengal, Madras Presidency Banks → Imperial Bank’ 21 → SBI’ 55
Catered British Army, Bureaucrats, Judges, merchants

Indian Banks

Allahabad Bank, PNB, BoB, Canara Bank
Focus was majorly on Foreign trade
Catered Merchants, Shroff & Moneylenders

Birth of RBI

By 1930 India had more than 1000 banks working solely on company’s law
In October 24, 1929, the stock market bubble finally burst, as investors began dumping shares en masse.
A record 12.9 million shares were traded that day, known as “Black Thursday.”
Finally in 1934, to check this kind of situation in future RBI as banker’s bank was institutionalized.

Post Independence banks in India

SBI, ICICI, PNB, BOB
Catered Merchant & industrial houses
Bank branches increases but only to cater industrial markets
No expansion in rural areas → No
No Financial inclusion → No help in five year plans achievement
Hence to cater the needs of rural banks → Government began nationalizing the banks

Public Sector Banks

These banks are owned by the Government either totally or as a majority stake holder.
>> 19 nationalized banks
>> Regional Rural Banks mainly sponsored by Public Sector Banks
>> State Bank of India and its five associate banks called the State Bank group

SBI has five associate banks

1> State Bank of Bikaner & Jaipur,
2> State Bank of Hyderabad,
3> State Bank of Mysore,
4> State Bank of Patiala and
5> State Bank of Travancore.

Earlier SBI earlier had 7 associate banks.
State Bank of Saurashtra and Indore merged with SBI.

Private Sector Banks

Private Sector Banks include domestic and foreign banks Co-operative Banks are another class of banks and are not considered as commercial banks as they have social objectives and profit is not the main motive. Reserve Bank of India lays down the norms for banking operations and has the final supervising & governing powers

Development Banks

Development Banks are those financial institutions which provide long term capital for industries and agriculture
>> Industrial Finance Corporation of India (IFCI);
>> Industrial Development Bank of India (IDBI);
>> Industrial Credit and Investment Corporation of India (ICICI) that was merged with the ICICI Bank in 2000; >> Industrial Investment Bank of India (IIBI);
>> Small Industries Development Bank of India (SIDBI);
>> National Bank for Agriculture and Rural Development (NABARD)a;
>> Export Import Bank of India;
>> National Housing Bank (NHB)

The commercial banking network essentially catered to the needs of general banking and for meeting the short-term working capital requirements of industry and agriculture. Specialized development financial institutions (DFIs) such as the IDBI, NABARD, NHB and SIDBI, etc., with majority ownership of the Reserve Bank were set up to meet the long-term financing requirements of industry and agriculture.

Bank Nationalization

In 1969 and again in 1980, Government nationalized private commercial banking units for channelizing banking capital into rural sectors; checking misuse of banking capital for speculative purposes; to shift from ‘class banking’ to mass banking’ (social banking); and to make banking into an integral part of the planning process of socio-economic development in the country.

Commercial Banks

Today banks are broadly classified into two types- Scheduled Banks and Non-scheduled Banks.
Scheduled banks are those banks which are included in the Second Scheduled of the Reserve Bank Act, 1934.
They satisfy two conditions under the Reserve Bank of India Act.
1> paid-up capital and reserves of an aggregate value of not less than Rs. 5 lakh.
2> it must satisfy RBI that its affairs are not conducted in a manner detrimental to the depositors.
The scheduled banks enjoy certain privileges like approaching RBI for financial assistance; refinance etc. and correspondingly, they have certain obligations like maintaining certain cash reserves as prescribed the RBI etc. The scheduled banks in India comprise of State Bank of India and its associates (5), the other nationalized banks (19), foreign banks, private sector banks, co-operative banks and regional rural banks. Today, there are about 300 scheduled banks in India having a total network of ~79,000 branches among them.
Non-scheduled banks are those banks which are not included in the second schedule of the RBI Act as they do not comply with the above criteria and so they do not enjoy the benefits either. There are only 4 non-scheduled commercial banks (also known as Local Area Bank) operating in the country.

Non-scheduled commercial banks (also known as Local Area Bank)

1> Coastal Local Area Bank Ltd : This bank was established on 27th December 1999. Its area of operation includes three contiguous districts viz. Krishna, Guntur and West Godavari. Its head office is located at Vijayawada in Andhra Pradesh.

2> Capital Local Area Bank Ltd : This bank was established on 14th January 2000. Its area of operation includes three districts viz. Jalandhar, Kapurthala and Hoshiarpur in Punjab. The head office is at Phagwara (Punjab).

3> Krishna Bhima Samruddhi Local Area Bank Ltd : This bank was established on 28th February 2001 with an area of operation comprising three contiguous districts of Mahbubnagar in Andhra Pradesh and Raichur and Gulbarga in the state of Karnataka with its head office at Mahbubnagar(Andhra Pradesh).

4> Subhadra Local Area Bank Ltd,Kolhapur : This is smallest Local Area Bank with only 8 branches. Its head office is in Kolhapur.