L5

Different types of banks and their

functions
 Learning outcome
• Explore the different types of banking
• Familiarity with the different type of functions
performed by them
 Current news
• https://bfsi.economictimes.indiatimes.com/ne
ws/banking/icici-bank-slashes-lending-rates-b
y-10-bps-across-tenors/77346889
 Different types of banks
• Public sector banks
• Private sector banks
• Local area banks
• Indian banks
• Foreign banks
• Regional rural banks
• Co-operative banks
 Public sector banks
• Public Sector Banks (PSBs) those banks in
which majority stake (i.e. more than 50%) is
held by the government.

https://www.rbi.org.in/scripts/banklinks.aspx
 Public sector banks-functions
• Acceptance of deposits and advancing of loans
• Agency functions
• General utility functions
• Instructions for customers
• Undertake govt. payments
• Collections and payments on behalf of customers
• Merchant banking services
• Safety custody
 Private sector banks
• Private Sector Banks refer to those banks
where most of the capital is in private hands.

https://www.rbi.org.in/scripts/banklinks.aspx
 Private sector banks
• Primary services-deposit and lending
• Secondary services- lockers, draft creation,
cheque collection and transfer, bank
guarantee credit 
• Specific services- merchant banking
• Customised services- as per corporate or
individual
 Local area banks
• These banks are eligible to undertake all type of functions
which are done by any other commercial bank in ordinary
course of banking activities as per banking laws and
practices within their own areas.
• These banks provide loans services to
1. local customers for Agriculture and its allied activities
2. Agro based Industries
3. Small scale Industries
4. trading including non-farm activities
 Cont...

• These banks are also required to observe the

priority sector lending targets at 40% of their
net bank credit, at least 25% of PS lending or
10% of net bank credit should be deployed for
weaker sectors.
 Cont...
• Local Area Banks are set up in District Towns
and are required to function within their own
area which in normal case does not exceeds
three district towns.

• These banks can be set up by any individual,

Corporate house, Trust Or Society etc. with
minimum paid up capital of Rs. 5 Crores.
 Indian Banks
• All public sector banks
• All private sector banks
• All regional rural banks
• All local area banks
 Foreign sector banks
• There are two ways of presence of foreign
banks in India.
1. First is the branch form of presence which
means that the foreign bank has its physical
branch in India.
2. Second is the presence through Representative
Office in India, which is not actually a branch.
https://www.rbi.org.in/scripts/banklinks.aspx
 Foreign banks
• A foreign bank branch is a type of foreign bank that
is obligated to follow the regulations of both the
home and host countries.
• Foreign bank branches tend to be more effective in
countries with high taxes and nations where it is
easy for international firms to enter the market.
• Functions- To provide more services to their
multinational corporate clients other than normal
banking services to the host countries.
 Regional rural banks
• RRBs are Indian Scheduled Commercial Banks (Government Banks) operating at regional
level in different States of India. They have been created with a view of serving primarily the
rural areas of India with basic banking and financial services. However, RRBs may have
branches set up for urban operations and their area of operation may include urban areas
too.
• The area of operation of RRBs is limited to the area as notified by Government of India
covering one or more districts in the State. RRBs also perform a variety of different
functions. RRBs perform various functions in following heads:
1. Providing banking facilities to rural and semi-urban areas.
2. Carrying out government operations like disbursement of wages of MGNREGA workers,
distribution of pensions etc.
3. Providing Para-Banking facilities like locker facilities, debit and credit cards, mobile banking,
internet banking, UPI etc.
4. Small financial banks.
https://www.rbi.org.in/scripts/banklinks.aspx
https://byjus.com/bank-exam/rrbs-in-india/
 Co-operative banks
• Co-operative banks are the banks whose main objective is to
provide financial assistance to
economically weaker sections of the
society.
• There are 1,540 cooperative banks with a depositor base of 8.60 crore
having total savings of about Rs 5 lakh crore.

https://www.rbi.org.in/scripts/banklinks.aspx
 Test yourself
• What is the difference between Local area
banks and Regional Rural Banks?
• Why foreign banks services required to Indian
customers?