Banking Structure in India for SSC Exams 2023

By PARUL RISHI|Updated : March 16th, 2023

The intricate, current banking structure in India was developed over many years in order to meet the requirements of the economy for credit and banking services. The modern banking framework is multi-layered to accommodate the unique and varied needs of various clients and borrowers. The framework of banking in India significantly contributed to the mobilization of savings and the encouragement of economic growth. The performance and sturdiness of the banking structure significantly increased during the period following the 1991 financial sector reforms. In comparison to the majority of developed and developing nations, the Indian commercial banking system is considered to be financially stable.

After various notes of SSC & Railway Economic Notes, we are adding the important study notes based on Banking and its Structures. 

Origin of Banking System in India

In India, banking is actually as ancient as the Himalayas. But it wasn't until the first decade of the 20th century that the banking services started to become a powerful force. The writings of Manu contain some of the earliest allusions to banking, which is an old industry in India.  Agency houses were engaged in banking in the early days of the East India Company. With the founding of the General Bank of India in 1786, one could argue that modern banking (i.e., in the shape of joint-stock companies) had its roots in India.

Structure of the Banking System in India

A bank is a type of financial organization that offers its clients banking and other financial services. Generally speaking, a bank is a business that offers basic financial services like accepting deposits and disbursing loans. The legal definition of a bank does not apply to all nonbanking organizations that offer specific banking services. A portion of the financial services sector includes banks.

Banking System and its Structures 

Money Market

  • In this borrowing and lending of funds take place up to 1 year.
  • It is used for short-term credit.
  • It includes Reserve Bank of India, Commercial Banks, Cooperative Banks, Regional Rural Banks, Some NBFC’s, etc. 

The composition of the Money Market

The Indian Money market consists of the organised sector and unorganized sector

1. Organised Sector-

It is also divided into two categories-         

a. Banking
b. Sub Markets

a. Banking

  • In this, we include Commercial Banks, Regional Rural Banks, and Cooperative Banks.
  • Classification of Banks based on the schedule of RBI Act 1934 - All banks (Commercial Banks, RRB, Cooperative Banks) can be classified into scheduled and non-scheduled banks. 

    1. Scheduled Banks

    • Banks those are listed in the second schedule of RBI Act, 1934.
    • Eligible for obtaining loans from RB on Bank Rate.

    2. Non- Scheduled Banks

    • Banks that are not listed in the second schedule of RBI Act, 1934.
    • Generally, not eligible for obtaining loans from RBI.
    • Keep CRR with itself, not with RBI.


Commercial Banks-

  • Regulated under the Banking Regulation Act 1949.
  • They can accept deposits, can provide loans and other financial services to earn a profit.
  • Commercial Banks consists of- Public Sector Banks and Private Sector Banks.

(i) Public Sector Banks-

  • In these Banks majority of shares (more than 50 %) are held by Government.
  • Currently, in India, there are 21 Public sector banks after the merger of SBI with their associate banks and Bhartiya Mahila Bank (BMB).
  • The Nationalisation of Banks was done by the government in two stages-
    The first stage of nationalization took place in July 1969, in which fourteen Banks were nationalized.
    The second stage of the nationalization of Banks took place in April 1980, in which 6 banks were nationalized.
    Objectives of Nationalization of Banks-
    1. Reducing Private Monopolies
    2. Social Welfare
    3. Expansion of Banking Facilities
    4. Focus on Priority Sector Lending

(ii) Private Sector Banks-

  • In these Banks, majority parts of share are not held by the government.
  • These banks consist of both Indian Banks as well as foreign banks.
  • Private banks that were set up before 1990 (liberalisation of the economy) are categorised as Old Banks.
  • Private banks that were set up after 1990 (liberalisation of the economy) are categorised as New Banks.
  • Local Area Banks- Private Banks which are allowed to operate in the limited area called local area banks and registered under the companies act, 1956. The minimum capital required for these is Rs. 5 crores.

(iii) Small Finance Banks

(iv) Payment Banks

Regional Rural Banks-

  • Established under RRB Act, 1976.
  • Set up by Public Sector Banks.
  • The objective is to increase credit flow to rural areas.
  • After the Kelkar committee’s recommendations in April 1987, no new RRBs have been opened.

Cooperative Banks-

  • Established with the aim of funding agriculture, cottage industries, etc.
  • Deposits and lending Both activities can do.
  • NABARD (National Bank for Agriculture and Rural Development) is the apex body of the cooperative sector in India.

Composition of Cooperative Banks-

1. Rural Cooperative Credit Institutions

(a) Short Term Structure-

  • Lend up to one year.
  • It is divided into three-tiered setup-

(i) State Cooperative Bank-

  • The apex body for cooperative banks in the state.

(ii) Central or District Cooperative Banks-

  • Operate at the district level.

(iii) Primary Agriculture Credit Societies-

  • Operate at the village level.

(b) Long-Term Structure-

  • Lend for more than one year to twenty-five years.
  • It is divided into two-tiered setup-
    (i) State Cooperative Agriculture and Rural Development Banks and
    (ii) Primary Cooperative Agriculture and Rural Developments Banks

2. Urban Cooperative Credit Institutions

  • Set up in urban and semi-urban areas.
  • Lend to small businesses and borrowers.

b. Sub Markets-

  • Sub Market, market to generate resources for investment and to meet the shortage of money for regular activities.
  • The government, Financial Institutions and Industries take part in the submarket.

Composition of Sub Market-

(i) Call Money Market-

  • Known as Short Notice Market.
  • Generally used for inter-bank borrowing and lending.
  • Loans for a range from One to Fourteen Days.
  • It is also divided into two categories- A. Call market or Overnight Market (Within one Day) B. Short Notice market (up to fourteen days)

(ii) Bill Market or Discount Market-

(a) Treasury Bills-

  • Issued by Government treasury.
  • Used for short-term credit.
  • Non-interest bearing (Zero Coupon bonds), issued at discount price.

(b) Commercial Bill Market-

  • Bills other than treasury bills.
  • Issued by traders and industries.

(iii) Dated Government Securities-

  • Used for long-term maturity.

(iv) Certificates of Deposits

  • Issued by commercial banks and financial Institution

(v) Commercial Paper-

  • Issued by corporate, Primary dealers and financial institutions.

2. Unorganised Sector-

(i) Money Lenders
(ii) Merchant Cum Money Lenders

All the Best 


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