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Classification and Operations of Commercial Banks in India

Hemant Singh

Commercial banks form a prominent part of the country’s Financial Institution System. Commercial Banks are those profit making institutions which accept deposits from general public and gives money (loan) to individuals like household, entrepreneurs, businessmen etc. The prime objective of these banks is to earn profit in the form of interest, commission etc. The operations of all these commercial banks are regulated by the Reserve Bank of India, which is the central bank and supreme financial authority in India.

The main source of income of a commercial bank is the difference between these two rates which they charge to borrowers and pay to depositors. Some commercial banks in India are – ICICI Bank, State Bank of India, Axis Bank, and HDFC Bank, Punjab national bank, Central bank of India.

At present, there are 20 Public Sector Banks in India including SBI.

Classification of commercial banks

  1. Scheduled Banks:- Banks which have been included in the Second Schedule of RBI Act 1934. They are categorized as follows:
  2. Public Sector Banks:- These are those banks in which majority of stake is held by the government. Eg. SBI, PNB, Syndicate Bank, Union Bank of India etc.
  3. Private Sector Banks:- These are those banks in which majority of stake is held by private individuals. ie. ICICI Bank, IDBI Bank, HDFC Bank, AXIS Bank etc.
  4. Foreign Banks:- These are the banks with Head office outside the country in which they are located. Eg. Citi Bank, Standard Chartered Bank, Bank of Tokyo Ltd. etc.
  5. Non scheduled commercial Banks:- Those banks which are not added in the Second Schedule of RBI Act 1934.

Functions of Commercial Banks

Primary Functions of Commercial Banks:

Deposit Acceptance:

 Being a short term credit dealer, the commercial banks accept the savings of public in the form of following deposits:

  1. Fixed Term deposits
  2. Current A/c deposits
  3. Recurring deposits
  4. Saving A/c deposits
  5. Tax saving deposits
  6. Deposits for NRIs

Lending Money:  A second major function is to give loans and advances and thereby earn interest on it. This function is the main source of income of the banks.

Overdraft facility: its permission to a current A/c holder of withdrawal more than to what he has deposited in his/her account.

Loans & Advances: A kind of secured and unsecured loans against some kind of security. Discounting of bill of exchange: in case a person wants money immediately, he/she can present the B/E to the respective commercial bank and can get it discounted.

Cash Credit:

It is a facility to withdraw a certain amount of money on a given security.

Secondary Functions of Commercial Banks:

Agency functions: Bank pays on the behalf of its customers as an agent and gets  fee for agency functions such as:

  1. Payment of taxes, bills
  2. Collection of funds through bills, Cheques etc.
  3. Transfer of funds
  4. Sale-purchase of shares and debentures
  5. Collection/Payment of dividend or interest
  6. Acts as trustee & executor of properties
  7. Foreign exchange Transactions
  8. General Utility Services: locker facility

Credit Creation: It is one of the most important functions of commercial banks. A bank creates credit on the basis of its primary deposits. It further lends the money to common borrowers/ corporate/investors .This landed money is deposited by those people to have excess money and want to earn a fix return on their money. Commercial banks charges more rate of interests from customers (borrowers) as compared to given to the depositors of the money.

List of Commercial Banks in India

SBI & Associates:

  1. State Bank of India

Nationalized Banks:

  1. Allahabad Bank
  2. Andhra Bank
  3. Bank of Baroda
  4. Bank of India
  5. Bank of Maharashtra
  6. Canara Bank
  7. Central Bank of India
  8. Corporation Bank
  9. Dena Bank
  10. Indian Bank
  11. Indian Overseas Bank
  12. Oriental Bank of Commerce
  13. Punjab & Sind Bank
  14. Punjab National Bank
  15. Syndicate Bank
  16. UCO Bank
  17. Union Bank of India
  18. United Bank of India
  19. Vijaya Bank

Foreign Banks:

  1. ABN Amro Bank
  2. Abu Dhabi Commercial Bank
  3. American Express Banking Corporation
  4. AB Bank
  5. Bank International Indonesia
  6. Bank of America
  7. Bank of Bahrain & Kuwait
  8. Bank of Ceylon
  9. Barclays Bank
  10. BNP Paribas
  11. Chinatrust Commercial Bank
  12. Citibank
  13. DBS Bank
  14. Deutsche Bank
  15. Hongkong & Shanghai Banking Corporation
  16. JP Morgan Chase Bank
  17. Standard Chartered Bank
  18. UBS AG

Is IDBI Bank a Public Bank?

LIC completes acquisition of 51% stake in IDBI Bank. So the IDBI bank is no more public sector bank. The number of public sector lenders has come down to 20.

Here it can be conclude that network of commercial banks will play a prominent role in the economic development coming years, especially after the introduction of plan of financial inclusion in the whole country.

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