Indian commercial banks are institutions at the core of the country's financial sector, acting as an intermediary between depositors and borrowers. Commercial banks have a very vital role in mobilizing the economy through savings by individuals and business concerns, and make the same funds available to them in the form of loans or other financial services for productive investment purposes. It is the commercial banks that provide both the core banking services, such as deposit accounts and loans, and, through their large branch networks and innovative financial products, make a great contribution to economic growth and development, financial inclusion, and stability.

Commercial Banks in India is a vital topic to be studied for the economics related exam such as the UGC NET Economics Examination.

In this article the readers will be able to know about the following:

• commercial banks meaning
• commercial banks in India
• scheduled commercial banks in India
• types of commercial banks in India
• structure of commercial banks in India
• examples of commercial banks in India

What is a Commercial Bank?

Commercial banks are financial institutions that undertake deposit and lending services to many people, businesses, and even the government. Commercial banks are indeed very vital institutions within any financial system, offering a wide range of services needed in carrying out economic activities and helping individuals and businesses manage their financial needs effectively.

Commercial banks are financial institutions mandated to accept public deposits and offer loans, among other financial services. They are oriented towards making profits and play important roles in the economy, facilitating money flow from savers to borrowers.

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Structure of Commercial Banks in India

The commercial banking structure in India is heterogeneous, with different categories of banks having a predefined role, varied ownership structure, and a different regulatory framework. The following is an overview of the structure of commercial banks in India:

Public Sector Banks

The public sector banks are the banks wherein the Government of India holds more than 50 percent stake. These form the backbone of Indian banking and have a comprehensive network of branches in rural and semi-urban areas across the country. Therefore, PSBs are called upon to play a lead role in the area of promoting financial inclusion and implementation of government schemes. Examples include State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BOB), and others.

Private Sector Banks

Private sector banks are owned and managed by private individuals or companies. These banks work on the "for-profit" principle and are very efficient, customer-friendly, and highly creative in terms of banking products and services. All types of customers, from retail clients to small and big companies, are serviced by private sector banks. Examples include ICICI Bank, HDFC Bank, Axis Bank, Kotak Mahindra Bank, and others.

Foreign Banks

Foreign Banks, branch or subsidiary of banks incorporated in some other country, get registered in India. It was these above entries that brought global banking experience, capital, and technology into the Indian market. Geographically, they mainly target MNCs, HNIs, and individuals requiring international banking services. A foreign bank in India combines its specialization with observance of the local regulatory requirements in respect of services like trade finance, foreign currency transactions, and wealth management. Examples of such banks are Citibank, Standard Chartered Bank, HSBC, etc.

Regional Rural Banks (RRBs)

The regional rural banks were set up under specific mandates to provide banking services in rural and semi-urban areas. They are owned jointly by the central government, state governments, and sponsor banks, usually PSBs. In promoting rural development, financing agriculture, and advancing financial inclusions through credit facilities and basic banking services among the rural communities, RRBs play a critical role. Examples of RRBs include Punjab Gramin Bank, Baroda Rajasthan Kshetriya Gramin Bank, etc.

Cooperative Banks

Cooperative banks are financial institutions set up under the Cooperative Societies Act. Their ownership and management vest in their members, who would normally be people of a particular community, profession, or locality. Cooperative banks meet their members' requirements and offer services for deposits, loans, and other banking products. These banks have a significant role in certain regions and sectors of the economy, especially rural and agricultural areas. For example, Urban Cooperative Banks, State Cooperative Banks, and so forth.

Payment Banks and Small Finance Banks

Besides Commercial Banks, there are basically two specialized categories of Commercial Banks in India: Payment Banks and Small Finance Banks. The first category of payment banks deals with bare-skeleton banking products related to basic savings accounts and remittances, mainly using digital channels. Small Finance Banks take care of unserved and underserved segments' financial needs while continuing with basic banking activities.

Commercial banks in India are financial institutions that are authorized to accept deposits from the public and provide loans and other financial services. They are regulated by the Reserve Bank of India (RBI) and play a crucial role in the financial system by channeling funds from savers to borrowers, thereby contributing to economic growth and development.

Public Sector Banks (PSBs)

Indian Public Sector Banks are owned and managed by the government. These banks operate extensively throughout India, particularly in rural and semi-urban regions. They contribute substantially to financial inclusion and extending banking services to every section of society. Examples of PSBs include State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BOB), and others. PSBs have historically been instrumental in supporting government initiatives for socio-economic development through targeted lending programs.

Private Sector Banks

Private Sector Banks in India are owned and managed by private individuals or corporations. These banks operate with a profit motive and are known for their efficiency, innovation, and customer service. They cater to a wide range of customers, including retail clients, small businesses, and large corporations. Private sector banks like ICICI Bank, HDFC Bank, Axis Bank, and Kotak Mahindra Bank have expanded rapidly since liberalization in the 1990s and are known for their modern banking practices, digital services, and competitive product offerings.

Foreign Banks

Foreign Banks operate in India as branches or subsidiaries of banks incorporated outside the country. These banks bring global banking expertise, capital, and technology to the Indian market. They primarily cater to multinational corporations (MNCs), high-net-worth individuals (HNIs), and clients with international banking needs. Foreign banks in India adhere to local regulatory requirements while offering specialized services such as trade credit, foreign currency transactions, and wealth management. Examples include Citibank, Standard Chartered Bank, HSBC, and others.

Regional Rural Banks (RRBs)

Regional Rural Banks are established with the specific mandate to provide banking services in rural and semi-urban areas. These banks are jointly owned by the central government, state governments, and sponsor banks (typically PSBs). RRBs play a crucial role in promoting rural development, agriculture financing, and financial inclusion by providing credit facilities and basic banking services to rural communities. Examples of RRBs include Punjab Gramin Bank, Baroda Rajasthan Kshetriya Gramin Bank, etc.

Cooperative Banks

Cooperative Banks are banks that were set up under the Cooperative Societies Act. They are member-owned as well as member-controlled, with their members usually being people of a certain community, profession, or location. Cooperative banks finance the needs of their members as well as offer banking services like deposits, loans, and other financial schemes. These banks play a significant role in certain regions and sectors of the economy, especially in rural and agricultural areas. Examples include Urban Cooperative Banks (UCBs) and State Cooperative Banks (SCBs).

Functions of Commercial

Commercial activities are important in linking producers and consumers by bringing about the purchase and sale of goods and services. Commercial activities aid smooth economic functioning and see goods delivered at the appropriate location at the right time.

• Exchange of Goods and Services: Commercial activities assist in the selling and purchasing of goods between consumers and producers. The exchange enables individuals to obtain the items they require and companies to make profits.
• Transportation: Products are transported from the point of production to the point of consumption via transport. It assists in the availability of products in other areas of the country or globe.
• Warehousing: Warehousing is the keeping of goods safely until they are required. This helps maintain a consistent supply of goods in the market and avoids shortages.
• Banking: Banks offer loans, credit, and other financial facilities to businessmen. This enables them to manage their day-to-day activities and expand.
• Insurance: Insurance safeguards businessmen against dangers such as fire, theft, or accidents. It provides reassurance to traders and avoids financial losses.
• Advertising: Advertising assists in informing individuals about goods and services and making them purchase. It enhances sales and promotes brand name.
• Communication: Means of communication such as emails, phones, and messages assist firms in reaching consumers and suppliers. It makes trade quicker and more convenient.

Scheduled Commercial Banks in India

Scheduled Commercial Banks in India are all those banks that appear in the Second Schedule of the Reserve Bank of India Act, 1934. These are the banks that satisfy the various requirements laid down by the Reserve Bank of India relating to paid-up capital, reserves, and statutory requirements. SCBs can be broadly divided into two categories: 

Public Sector Banks

These banks are majority-owned by the Government of India. They form the bedrock of banking services spread over the country, more so in rural and semi-urban areas. Examples include State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BOB), etc.

Private Sector Banks

Private sector banks are owned and managed by private individuals or corporations. They have more of a market-oriented approach with an increased emphasis on profitability and innovation in service delivery. Examples include ICICI Bank, HDFC Bank, Axis Bank, Kotak Mahindra Bank, etc.

Besides, SCBs also include foreign banks who have operations in India and are branches of banks incorporated abroad. These banks bring global banking practices to the aid of servicing certain segments like multinational corporations and high-net-worth individuals.

The SCBs are the backbones of the financial system in India. They mobilize savings, provide credit to different sectors of the economy, facilitate trade and commerce, and support economic growth. The RBI regulates SCBs with the primary objectives of ensuring financial stability, protecting the interests of depositors, and promoting a sound banking environment in India. As such, scheduling as a commercial bank is very important because it means being under the control of RBI regulations, thereby enhancing trust and credibility in the banking sector.

Examples of Commercial Banks in India

Few examples of the commercial banks in India have been stated below. These examples will help in making the concept of commercial banks much more clearer for readers.

• State Bank of India (SBI) - The largest commercial bank in India, owned by the Government of India, offering a wide range of banking products and services.
• HDFC Bank - One of the largest private sector banks in India, known for its extensive network and innovative banking solutions.
• ICICI Bank - Another prominent private sector bank in India, offering a range of financial products and services to retail and corporate customers.
• Axis Bank - A major private sector bank providing a variety of banking and financial services in India.

Conclusion 

Commercial banks in India form an intrinsic part of the nation's financial system and play a very significant role in the process of economic development, financial inclusion, and business and individual success. From their sprawling branch networks and myriad new financial products to their contribution toward economic stability, one comes to realize that commercial banks are still pushing the growth trajectory of India while equipping themselves amid changing regulatory and technological landscapes.

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