Structure of Money Market in India > Organized Sector - Commercial Banks

• A commercial bank is a financial institution that deals with money and credit.
• It acts as a middleman (intermediary) between people who save money and people who need money.
• Commercial banks are profit-seeking institutions — they earn profit mainly from the difference between interest charged on loans and interest paid on deposits.

• “A bank collects money from those who have it to spare or who are saving it out of their incomes and it lends this money to those who require it.” — Crowther
• “Bank means accepting for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise and withdrawable by cheque, draft or otherwise.” — According to Indian Companies Act, 1949
• Banking Regulation Act of 1949: “Banking means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, demand draft, order or otherwise.”
• Prof. Cairncross: “A bank is a financial intermediary, a dealer in loans and debts.”

• Banking in India began in the last decade of the 19th century.
• The three oldest banks were:
  Bank of Bengal
  Bank of Bombay
  Bank of Madras
• These were private banks owned by European shareholders.

Key Milestones

Before Independence, all commercial banks were private and largely urban-focused. They mostly served industrial and trading sectors. Nationalisation was done to:

• Spread banking to rural areas
• Provide cheap financial assistance to priority sectors — agriculture, small farmers, and weaker sections
• Prevent concentration of banking capital in the hands of big business houses
• Provide funds for the public sector
• Ensure inclusive economic growth

India currently has 89 scheduled commercial banks, classified into four types:

Public Sector Banks (PSBs)

• Banks owned and managed by the Government or a government agency.
• Include SBI and all nationalised banks.
• Currently 12 PSBs in India (after mergers in 2020).

The 12 Public Sector Banks:

1. State Bank of India (SBI)
2. Punjab National Bank
3. Bank of Baroda
4. Bank of India
5. Bank of Maharashtra
6. Canara Bank
7. Central Bank of India
8. Indian Bank
9. Indian Overseas Bank
10. Punjab and Sind Bank
11. UCO Bank
12. Union Bank of India

Key Data (as on 31st March 2020):

• Largest commercial bank in India.
• 25% market share of total loans and deposits.
• 23% market share by assets.
• Ranked among the top 5 banks worldwide.
• Serves over 45 crore customers through 22,000+ branches in 31 countries (including 229 overseas branches).
• Fifth largest employer in India with 2.45 lakh+ employees (as on 31st March 2021).

• Sponsored by Public Sector Banks but function as scheduled commercial banks.
• Known as "small man's banks", they serve the poorest and most vulnerable.
• Primary targets: Small & marginal farmers, agricultural labourers, artisans, small entrepreneurs.
• Provide credit at lower interest rates than regular banks.
• Aim: Develop agriculture, trade, commerce, and industries in rural areas.
• 43 RRBs with 21,850 branches (as on 31st March 2020).

• Banks owned and managed by private individuals/entities — not the government.
• 22 private banks with 34,800+ branches (as on 31st March 2020).
• Known as "new-generation tech-savvy banks".
• Leaders in digital banking, mobile banking, and customer experience.

Major Private Banks in India:

• ICICI Bank
• HDFC Bank
• Axis Bank
• ING Vysya Bank

• Wholly owned subsidiaries or branches of banks incorporated in foreign countries.
• 41 foreign banks with 308 branches in India (as on 31st March 2020).
• Brought the latest banking technology and modern banking practices to India.
• Made Indian banking more competitive and efficient.

Major Foreign Banks in India:

• Citibank
• Standard Chartered Bank
• Barclays Bank
• Deutsche Bank
• ABN-AMRO Bank
• American Express Bank

• Commercial banks are profit-seeking intermediaries connecting savers and borrowers.
• Their primary functions are accepting deposits and granting loans.
• India has 89 scheduled commercial banks divided into PSBs, RRBs, Private Banks, and Foreign Banks.
• Nationalisation in 1969 and 1980 expanded banking access to rural and priority sectors.
• SBI is India's largest bank — 25% market share, 45 crore customers, top 5 globally.
• RRBs serve rural India at lower interest rates and are the backbone of rural credit.
• Private and foreign banks drive technology, innovation, and competition in banking.
• Commercial banks are regulated by the Reserve Bank of India (RBI) and governed by the Banking Regulation Act, 1949.