Banking Structure of India

📊 Banking Structure of India — At a Glance (2026)

Before diving into each of the 12 sub-topics, here is a consolidated snapshot of how many banks/entities exist in every category, based on RBI's official lists and the latest available data:

Visual comparison — number of banks by category:

1 Commercial Banks

Scheduled vs Non-Scheduled Banks

A commercial bank becomes a Scheduled Commercial Bank (SCB) once it is included in the Second Schedule of the RBI Act, 1934 — which requires the bank to satisfy RBI that it has a minimum paid-up capital and reserves, and that its affairs are not conducted in a manner detrimental to depositors' interests. Almost all commercial banks operating in India today are scheduled banks; a handful of non-scheduled entities (like the two remaining Local Area Banks) fall outside this schedule.

The Six Categories of Scheduled Commercial Banks

RBI's own classification splits Scheduled Commercial Banks into six categories, each covered in detail in the sections that follow:

2 Public Sector Banks

Public Sector Banks (PSBs) are commercial banks in which the Government of India holds a majority stake (more than 50%). They form the backbone of Indian banking, with the largest branch networks and a central role in financial inclusion and government scheme delivery.

History and Consolidation

• 1969: 14 major private banks were nationalised.
• 1980: A further 6 private banks were nationalised, taking the total to 20 nationalised banks plus SBI and its associates.
• 2017: State Bank of India merged its five associate banks and Bharatiya Mahila Bank into itself.
• August 2019 announcement, effective 1 April 2020: A mega-merger consolidated 10 PSBs into 4 larger banks (e.g., Oriental Bank of Commerce & United Bank of India into Punjab National Bank; Syndicate Bank into Canara Bank; Andhra Bank & Corporation Bank into Union Bank of India; Allahabad Bank into Indian Bank), bringing the total number of PSBs down from 27 to 12.

Current List of 12 Public Sector Banks

3 Private Sector Banks

Private Sector Banks are commercial banks where the majority of equity capital is held by private shareholders rather than the government. They are broadly split into two generations:

Old Private Sector Banks

These are banks that existed even before the 1969/1980 nationalisation waves but were too small to be nationalised, or were licensed shortly after. Examples include Federal Bank, South Indian Bank, Karur Vysya Bank, City Union Bank, Karnataka Bank, Tamilnad Mercantile Bank, DCB Bank, Dhanlaxmi Bank, CSB Bank, Nainital Bank and the state-linked Jammu & Kashmir Bank.

New Generation Private Sector Banks

Following RBI's 1993 liberalisation guidelines permitting new private banks, a wave of technology-driven banks emerged: ICICI Bank, HDFC Bank, Axis Bank, IndusInd Bank, Kotak Mahindra Bank, YES Bank and later RBL Bank. More recently, RBI granted universal banking licences to Bandhan Bank (2015, converted from a microfinance institution) and IDFC FIRST Bank (2015 licence to IDFC Bank, merged with Capital First in 2018).

4 Foreign Banks

Foreign Banks are banks incorporated outside India that operate in India under an RBI licence — either through branches of the parent foreign bank, or through a Wholly Owned Subsidiary (WOS) locally incorporated in India. Examples include Citibank N.A., HSBC, Standard Chartered Bank, Deutsche Bank, Bank of America, JPMorgan Chase Bank, Barclays Bank, BNP Paribas and DBS Bank India Limited (which operates as a WOS).

Branch Mode vs Wholly Owned Subsidiary (WOS) Mode

RBI's 2013 scheme for setting up WOS by foreign banks was designed to encourage foreign banks to incorporate locally, offering them near-national treatment — i.e., branch expansion flexibility comparable to domestic banks — in exchange for accepting the same regulatory and priority-sector obligations as Indian banks.

Foreign banks primarily serve corporate banking, trade finance and foreign exchange needs, alongside a smaller retail and wealth-management presence, and remain fully subject to RBI's licensing, prudential and priority-sector-lending norms for their India operations.

5 Regional Rural Banks

Regional Rural Banks (RRBs) were set up under the Regional Rural Banks Act, 1976, following the recommendations of the Narasimham Working Group (1975), to combine the local feel and familiarity of cooperative banks with the professionalism and resource base of commercial banks — specifically to serve small farmers, agricultural labourers and rural artisans.

Ownership Pattern

Each RRB is jointly owned by the Central Government (50%), a Sponsor Bank — always a Public Sector Bank (35%) — and the concerned State Government (15%). For income-tax purposes, RRBs are treated as cooperative societies.

The Journey from 196 to 28 RRBs

• 2005–2010 (Phase 1): 196 RRBs consolidated down to 82.
• 2012–2015 (Phase 2): Further reduced to 56.
• 2019–2021 (Phase 3): Reduced to 43.
• "One State, One RRB" (Phase 4), effective 1 May 2025: 26 RRBs across 11 states/UTs were amalgamated, cutting the number further to 28 RRBs across 26 states and 2 Union Territories, each with an authorised capital of ₹2,000 crore.

Post-consolidation, the 28 RRBs together operate over 22,000 branches spanning nearly 700 districts, with about 92% of branches located in rural and semi-urban areas — reaffirming the core rural-credit mandate of RRBs.

6 Cooperative Banks

Cooperative Banks are registered under state Cooperative Societies Acts (or the Multi-State Cooperative Societies Act) and are owned by their member-depositors on cooperative principles. They operate under a system of "dual control" — the RBI regulates their banking functions (licensing, capital adequacy, prudential norms), while the Registrar of Cooperative Societies (State Government) oversees their management and administrative affairs.

Urban Cooperative Banks (UCBs)

UCBs serve urban and semi-urban customers — traders, small businesses and salaried individuals. As of 31 March 2025, India had 1,457 UCBs (down from 1,926 in 2004, reflecting RBI-driven consolidation through mergers and licence cancellations). Since December 2022, UCBs are regulated under a four-tiered framework (Tier 1 to Tier 4) based on deposit size, balancing the cooperative spirit of smaller banks against the growth needs of larger ones.

Rural Cooperative Credit Structure (Three Tiers)

• State Cooperative Banks (StCBs) — 34: The apex cooperative bank in each state/UT.
• District Central Cooperative Banks (DCCBs) — 351: The middle tier, operating at the district level.
• Primary Agricultural Credit Societies (PACS) — approximately 96,000: The grassroots, village-level tier that directly serves farmers and rural borrowers.

There is also 1 Industrial Cooperative Bank (the Tamil Nadu Industrial Cooperative Bank) supervised alongside this structure. The Ministry of Cooperation, formed in 2021, works to strengthen governance and viability across this entire cooperative credit network.

7 Small Finance Banks

Small Finance Banks (SFBs) were introduced by RBI in 2015, based on the recommendations of the Nachiket Mor Committee, to further financial inclusion by providing savings vehicles and credit to unserved/underserved sections — small business units, marginal farmers, micro and small industries, and other unorganised-sector entities.

Key Licensing Norms

• Minimum paid-up capital requirement (revised in 2019 general licensing guidelines).
• At least 75% of Adjusted Net Bank Credit (ANBC) must go to the priority sector.
• At least 50% of the loan portfolio should typically consist of loans up to ₹25 lakh, keeping the focus on small-ticket lending.

Current List of 11 Small Finance Banks

AU Small Finance Bank (Jaipur), Capital Small Finance Bank (Jalandhar), Equitas Small Finance Bank (Chennai), ESAF Small Finance Bank (Thrissur), Suryoday Small Finance Bank (Navi Mumbai), Ujjivan Small Finance Bank (Bengaluru), Utkarsh Small Finance Bank (Varanasi), slice Small Finance Bank (Guwahati — formerly North East Small Finance Bank), Jana Small Finance Bank (Bengaluru), Shivalik Small Finance Bank (New Delhi) and Unity Small Finance Bank (New Delhi — which took over the stressed Punjab & Maharashtra Cooperative Bank's business in 2021).

8 Payments Banks

Payments Banks were introduced by RBI in 2014, also based on the Nachiket Mor Committee recommendations, as a "differentiated bank" model targeted at migrant labourers, low-income households and small businesses that needed basic savings, payments and remittance services but not full-fledged lending.

Key Restrictions and Features

• Can accept deposits, subject to a maximum end-of-day balance of ₹2 lakh per customer — but cannot lend money or issue credit cards.
• Must invest a minimum of 75% of demand deposits in Government securities/Treasury Bills of up to one year maturity, and hold the remaining 25% as deposits with other scheduled commercial banks.
• Can issue debit cards, offer mobile/internet banking, and act as agents to distribute mutual funds, insurance and pension products.
• Are part of India's payment and settlement system, and must maintain CRR like other commercial banks.

From 11 Approvals to 5 Operating Banks

In 2015, RBI granted in-principle approval to 11 applicants. Several — including Cholamandalam, Sun Pharma's promoter and Tech Mahindra — withdrew before launch, while Vodafone m-pesa surrendered its licence and Aditya Birla Idea Payments Bank commenced operations in 2018 but shut down in 2019. That left six payments banks that successfully launched: Airtel Payments Bank (the first to commence operations, 2016–17), Paytm Payments Bank, Fino Payments Bank, India Post Payments Bank, Jio Payments Bank and NSDL Payments Bank.

9 Local Area Banks

Local Area Banks (LABs) were introduced through the 1996 Union Budget as small, private-sector banks permitted to operate only within a maximum of three contiguous districts, aimed at mobilising rural savings and channelling them into local investment. LABs are non-scheduled banks, required to maintain a Capital Adequacy Ratio (CAR) of 15% and direct 40% of their lending to the priority sector.

What Happened to the Original Four LABs?

• Coastal Local Area Bank (Vijayawada, Andhra Pradesh) — the first LAB, licensed in 1999 — still operational.
• Krishna Bhima Samruddhi (KBS) Local Area Bank (Hyderabad/Mahbubnagar region, Telangana) — still operational.
• Capital Local Area Bank (Jalandhar, Punjab) — converted into Capital Small Finance Bank in 2016.
• Subhadra Local Area Bank (Kolhapur, Maharashtra) — licence cancelled by RBI in 2020 over governance and financial concerns.

This leaves only Coastal Local Area Bank and Krishna Bhima Samruddhi Local Area Bank as the two LABs operating in India today — a small but frequently-tested category in JAIIB exams precisely because there are so few of them left.

10 Development Banks

Development Banks (or Development Financial Institutions, DFIs) are specialised institutions that provide medium- and long-term finance for specific sectors of the economy — sectors where commercial banks, funded mainly by short-term deposits, are structurally less suited to lend directly due to asset-liability mismatch.

These five institutions together anchor India's long-term development finance ecosystem, complementing the short-term-deposit-driven commercial banking system covered in the earlier sections.

11 NBFCs

Non-Banking Financial Companies (NBFCs) are companies registered under the Companies Act that carry on financial activities — lending, investment, asset financing — after obtaining a Certificate of Registration (CoR) from RBI under Section 45-IA of the RBI Act, 1934. Unlike banks, NBFCs cannot accept demand deposits and are not part of the payment and settlement system in the same way.

Types of NBFCs

Functionally, NBFCs include the Investment and Credit Company (NBFC-ICC) — a 2019 harmonisation of the earlier asset finance, loan and investment company categories — along with Infrastructure Finance Companies (NBFC-IFC), Infrastructure Debt Fund-NBFCs (IDF-NBFC), Microfinance Institutions (NBFC-MFI), Housing Finance Companies (HFC) — which moved from NHB to direct RBI regulation in 2019 — Core Investment Companies (CIC), Account Aggregators (NBFC-AA), Peer-to-Peer Lending Platforms (NBFC-P2P) and Mortgage Guarantee Companies.

Scale Based Regulation (SBR) — Four Layers

Since October 2022, RBI regulates NBFCs through a Scale Based Regulation (SBR) framework that classifies every NBFC into one of four layers based on size, activity and perceived risk:

12 Differentiation Between Banks and NBFCs

Although both banks and NBFCs mobilise and deploy funds and are regulated by the RBI, several structural differences set them apart:

Despite these differences, NBFCs play a complementary role to banks — reaching customer segments (MSMEs, vehicle finance, gold loans, microfinance) that banks may find harder to serve profitably, making them a vital second pillar of India's credit delivery system.

✓ Key Takeaways

• India has 12 Public Sector Banks (after the 27→12 consolidation completed by April 2020) and 21 domestic Private Sector Banks, including IDBI Bank (reclassified as private in 2019).
• 44 Foreign Banks operate in India through branches or Wholly Owned Subsidiaries.
• Regional Rural Banks were cut from 43 to 28 under the "One State, One RRB" policy effective 1 May 2025.
• The cooperative structure comprises 1,457 Urban Cooperative Banks, 34 State Cooperative Banks, 351 District Central Cooperative Banks and roughly 96,000 PACS.
• 11 Small Finance Banks and 5 operational Payments Banks (after Paytm Payments Bank's licence was cancelled effective 24 April 2026) serve differentiated banking needs.
• Only 2 Local Area Banks — Coastal LAB and Krishna Bhima Samruddhi LAB — remain operational.
• 5 major DFIs — NABARD, SIDBI, EXIM Bank, NHB and NaBFID — provide long-term development finance.
• Over 9,000 NBFCs are registered with RBI, classified into four Scale Based Regulation layers (Base, Middle, Upper, Top — currently empty).
• Banks can accept demand deposits and sit inside the payment system; NBFCs generally cannot do either.

📝 72 JAIIB-Style MCQs on Banking Structure

Test your understanding with these 72 practice MCQs, closely modelled on the pattern expected in the upcoming JAIIB (IE & IFS) exam — including the latest current-affairs updates like the RRB merger and the Paytm Payments Bank licence cancellation. Each question has 5 options — the correct answer is hidden by default; tap "Show Answer" to reveal it along with a short explanation.