Functions Of Banks In India, Different Types, And Role Of Banks

Functions Of Banks In India, Different Types, And Role Of Banks: Banks play a major role in a country's economic development. In India, Banks are regulated by the Reserve Bank of India also called as Central Bank. This article contains information about the functions of banking system, the types of banks in India, functions of central bank, and the role of banks in economic development.

Candidates preparing for exams like UPSC, IBPS, RBI, SBI, SSC, etc can use this article for the topic of Banking awareness. The functions of Banks in India, functions of bank pdf, functions of bank in points, and various types of Banks are the important topics covered in this article. 

What is a Bank and its main function?

A Bank is a financial institution and its main function is to accept deposits from the public and lend those deposits in the form of loans for the development of Agriculture, Industry, Trade, and Commerce. 

  • Banks play an important role in providing loans to generate profits and manage risks.
  • This will generate economic growth and build a good relationship with customers.
  • Providing loans will support the fulfillment of essential needs of consumers and businesses.
  • This will create a positive impact on the economy.

Services Offered by Banks:

In India, Banks provide various services. Here we have provided a list of services provided by banks.

  • Loan advancements
  • Cheque payments
  • Debit cards
  • Credit cards
  • Bills of Exchange discounting
  • Collecting and paying the credit instruments
  • Bank Guarantee
  • Consultancy
  • Funds remittance

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Important Functions of Bank:

Here we have provided the important functions of bank in India. The functions of banks are primarily classified into two types. Their types are given below,

  • Primary Functions:

The primary functions of bank are Accepting Deposits, and Granting Advances.

  • Secondary Functions:

The secondary functions of bank are providing Agency Functions and Utility Functions.

Types of Bank Accounts in India PDF

We have provided the complete details of the primary and secondary functions of bank in detail. To understand the important function of bank read the complete article provided here.

Primary Functions of Bank:

The primary functions of bank are explained below in detail. 

Accepting Deposits:

  • Saving Deposits
  • Fixed Deposits
  • Current Deposits
  • Recurring Deposits

Granting Advances:

  • Overdrafts
  • Cash Credit
  • Loans
  • Discounting of Bills

Secondary Functions of Bank:

The secondary functions of bank are explained below in detail. 

Agency Functions:

  • Transfer of Funds
  • Collection of Cheques
  • Periodic Payments
  • Portfolio Management
  • Periodic Collection
  • Other Agency Functions

Utility Functions:

  • Draft Facility
  • Locker Facility
  • Underwriting
  • Project Reports
  • Forex Service
  • Third Party Products
  • Demat Accounts
  • Social Welfare Programmes
  • Other Utility Functions.

List of RBI Governors of India 2023 PDF Download

List of Different Types of Banks in India:

In India, Banks are classified into eight types. The list of different types of banks in India is explained below.

  • Central Bank of the country
  • Cooperative Banks
  • Commercial Banks
  • Regional Rural Banks
  • Local Area Banks
  • Financial Institutions in India (Specialized Banks)
  • Small Finance Banks
  • Payments Banks

Central Bank of the Country:

The Reserve Bank of India is the central bank of the country. Central Bank regulates all the other banks present in India. Each country has a central bank that regulates all the other banks in that country. 

The basic functions of the Reserve Bank of India are as follows,

  • To regulate the issue of banknotes, and
  • Keep reserves in order to secure monetary stability in India.
  • To operate the currency and credit system of India.
  • To provide a modern monetary policy framework to meet the requirements of an increasingly complex economy.
  • To control the price stability with the objective of growth.

The main functions of the Reserve Bank of India are as follows,

  • Monetary Authority
  • Regulator and supervisor of the financial system
  • Manager of Foreign Exchange
  • Issuer of currency
  • Developmental role
  • Regulator and Supervisor of Payment and Settlement Systems. 

Banker to the Government:

RBI performs merchant banking functions for the central and the state governments and also acts as their banker.

Banker to banks:

RBI maintains the banking accounts of all scheduled banks.

Cooperative Banks:

Cooperative banks are small financial institutions that work on the principle of cooperation. Cooperative banks are started by a group of people in order to support the financial needs of a village or a specific community. Cooperative banks are owned and operated by those members who gather resources and provide banking services like savings, loans, etc. Cooperative Banks play an important role in providing credit to agriculture, small industries, and other rural sectors. The Reserve Bank of India, the State Government, and NABARD also regulate Cooperative Banks.

Cooperative banks are classified into two categories. They are,

     1. Agricultural Credit Institutions

  • Short Term Credit Institutions
  1. State Cooperative Banks
  2. Central Cooperative Banks
  3. Primary Agricultural Credit Societies
  • Long Term Credit Institutions (Land Development Banks)

     2. Non-Agricultural Credit Institutions

Commercial Banks:

Commercial Banks are the profit making institutions of the country that accepts deposits from the general public and lends money in the form of loan to individuals like normal people, entrepreneurs, businessmen, etc. The main aim of commercial banks is to earn a profit by the interest from the given loans. Commercial Banks are regulated by the central bank, the Reserve Bank of India which is the supreme financial authority of India.

The Commercial Banks are classified into various types. They are explained below,

  • Scheduled Banks
  • Public Sector Banks
  • Private Sector Banks
  • Foreign Banks
  • Non scheduled commercial Banks

The functions of Commercial Banks are classified into two types primary and secondary.

Primary Functions of Commercial Banks:

  • Deposit Acceptance
  • Lending Money
  • Overdraft facility
  • Loans & Advances
  • Cash Credit

Secondary Functions of Commercial Banks:

  • Agency functions
  • Credit Creation

Important Banking Terms PDF For Bank Exams

List of Commercial Banks in India:

From the table given below, we have provided the list of Commercial Banks in India. Candidates who are preparing for the upcoming competitive exams can use the information.

List of Commercial Banks in India

S.No. Scheduled Public Sector Banks Scheduled Private Sector Banks Scheduled Foreign Banks

1

Bank of Baroda

Axis Bank Ltd.

AB Bank Ltd.

2

Bank of India

Bandhan Bank Ltd.

Abu Dhabi Commercial Bank Ltd.

3

Bank of Maharashtra

CSB Bank Ltd.

American Express Banking Corporation

4

Canara Bank

City Union Bank Ltd.

Australia and New Zealand Banking Group Ltd.

5

Central Bank of India

DCB Bank Ltd.

Barclays Bank Plc.

6

Indian Bank

Dhanlaxmi Bank Ltd

Bank of America

7

Indian Overseas Bank

Federal Bank Ltd.

Bank of Bahrain & Kuwait BSC

8

Punjab National Bank

HDFC Bank Ltd

Bank of Ceylon

9

Punjab & Sind Bank

ICICI Bank Ltd.

Bank of China

10

Union Bank of India

Induslnd Bank Ltd

Bank of Nova Scotia

11

UCO Bank

IDFC First Bank Ltd

BNP Paribas

12

State Bank of India

Jammu & Kashmir Bank Ltd.

Citibank N.A

13

 

Karnataka Bank Ltd.

Cooperatieve Rabobank U.A.

14

 

Karur Vysya Bank Ltd

Credit Agricole Corporate & Investment Bank

15

 

Kotak Mahindra Bank Ltd.

Credit Suisse A.G

16

 

Nainital Bank Ltd.

CTBC Bank Co., Ltd.

17

 

RBL Bank Ltd.

DBS Bank India Limited*

18

 

South Indian Bank Ltd.

Deutsche Bank

19

 

Tamilnad Mercantile Bank Ltd.

Doha Bank Q.P.S.C

20

 

YES Bank Ltd.

Emirates Bank NBD

21

 

First Abu Dhabi Bank PJSC

22

 

FirstRand Bank Ltd

23

 

HSBC Ltd

24

 

Industrial & Commercial Bank of China Ltd.

25

 

Industrial Bank of Korea

26

 

J.P. Morgan Chase Bank N.A.

27

 

JSC VTB Bank

28

 

KEB Hana Bank

29

 

Kookmin Bank

30

 

Krung Thai Bank Public Co. Ltd.

31

 

Mashreq Bank PSC

32

 

Mizuho Bank Ltd.

33

 

MUFG Bank, Ltd.

34

 

NatWest Markets Plc

35

 

PT Bank Maybank Indonesia TBK

36

 

Qatar National Bank (Q.P.S.C.)

37

 

Sberbank

38

 

SBM Bank (India) Limited*

39

 

Shinhan Bank

40

 

Societe Generale

41

 

Sonali Bank Ltd

42

 

Standard Chartered Bank

43

 

Sumitomo Mitsui Banking Corporation

44

 

United Overseas Bank Ltd

45

 

Woori Bank

 

Regional Rural Banks:

Regional Rural Banks are Scheduled Commercial Banks that offer banking services for rural people across various states in the country. RRB helps in empowering the rural people in backward areas by inducing Financial inclusion across the country. 

  • Regional Rural Banks were established in the year 1975.
  • RRBs are sponsored by the Central Government (50%), State Government (15%), and Sponsor Banks (35%).
  • At present, there are 43 Regional Rural Banks present in India.
  • RRBs provide para-banking facilities such as locker facilities, debit and credit cards, mobile banking, internet banking, and UPI services.
  • The main function of RRB is to provide pensions and wages to the workers of MGNREGA and PMGSY.

Click the below link to check the complete details of Regional Rural Banks. 

About Regional Rural Banks In India - History And List Of RRBs 2023

Local Area Banks:

Local Area Banks are the only type of Non-Scheduled Banks in India operating in semi-urban and rural areas. Local Area Banks provide the financial requirements of small and marginalized sectors which promote regional development.

  • Local Area Banks were established in August 1996.
  • The Reserve Bank of India (RBI) is the regulator of Local Area Banks (LAB).
  • The main aim of LAB is to bridge the gaps in credit availability and strengthen the credit framework in rural and semi-urban areas.
  • At present, there are only two LABs in India. They are Coastal Local Area Bank Ltd. and Krishna Bhima Samruddhi Local Area Bank Limited.
  • The minimum startup capital of Local Area Bank is fixed at INR 5 Crores.

Financial Institutions in India (Specialised Banks):

Specialized Banks are the banks created for performing specific purposes. Here we have provided the list of Specialised Financial Institutions in India.

  • Export-Import Bank of India
  • National Bank for Agriculture and Rural Development
  • National Housing Bank
  • Small Industries Development Bank of India

Export-Import Bank of India (EXIM Bank) is a Term Lending Institution while the other National Bank for Agriculture and Rural Development (NABARD), National Housing Bank (NHB), and Small Industries Development Bank of India (SIDBI) are termed as Refinance Institutions for regulatory and supervisory purposes.

Small Finance Banks:

Small Finance Banks are the banks registered as public limited companies under the Companies Act,2013. SFBs are licensed under Section 22 of the Banking Regulation Act 1949. After starting their operations as Small Finance Banks, they are stated as Scheduled Banks.  

  • Small Finance Banks were established in the year 2016.
  • The objectives of SFBs include enhancing Financial Inclusion by undertaking basic banking activities like accepting deposits and lending them to unserved and underserved sections including small business units, small and marginal farmers, micro and small industries, and other unorganized sector entities.
  • The minimum paid-up voting equity capital for small finance banks is Rs.200 crore.

List Of Small Finance Banks in India:

Here we have provided the complete list of Small Finance Banks in India at present.

  1. Au Small Finance Bank Limited

  2. Capital Small Finance Bank Limited

  3. FINCARE Small Finance Bank Limited

  4. Equitas Small Finance Bank Limited

  5. ESAF Small Finance Bank Limited

  6. Suryoday Small Finance Bank Limited

  7. Ujjivan Small Finance Bank Limited

  8. Utkarsh Small Finance Bank Limited

  9. North East Small Finance Bank Limited

  10. Jana Small Finance Bank Limited

  11. Shivalik Small Finance Bank Limited

  12. Unity Small Finance Bank Limited

Payments Banks:

Payment banks are like other banks but they operate on a smaller and more restricted scale. Payment banks perform most of the banking operations but cannot advance loans or issue credit cards. Payment banks do not involve Credit risk. 

  • Payments Banks are registered as a public limited company under the Companies Act, 2013.
  • PBs are licensed under Section 22 of the Banking Regulation Act, of 1949 with specific licensing conditions to only accept demand deposits and provisions of payments and remittance services.
  • The first Payments Bank in India is Airtel Payments Bank which was started in the year 2016.
  • Payments Banks can accept only savings and current deposits.
  • Payments Banks deposit up to ₹1 lakh per account and it can issue debit cards but not credit cards.
  • Payments Banks need not issue passbooks for the deposit accounts.

List Of Payments Banks in India:

Here we have provided the complete list of Payments Banks in India at present.

  1. Airtel Payments Bank Limited

  2. India Post Payments Bank Limited

  3. Fino Payments Bank Limited

  4. Paytm Payments Bank Limited

  5. Jio Payments Bank Limited

  6. NSDL Payments Bank Limited

Functions Of Banks In India: FAQs

Q. Define the Bank and its functions.

A. The Bank is a financial institution and its function is to accept deposits from the public and lend those deposits in the form of loans for the development of Agriculture, Industry, Trade, and Commerce.

Q. Banks functions are classified into how many types?

A. Banks functions are classified into two types, Primary functions and Secondary functions.

Q. Which is the first Payment Bank in India?

A. Airtel Payment Bank is the first Payment Bank in India.

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