Commercial Banking System in India

An economy is a marketplace for lenders and borrowers to exchange funds. India’s financial system is controlled by both, private institutions, and the government. The institutions irrespective of ownership perform a similar role in the Indian economy. They regulate the fund’s flow, facilitate savings, give loans, and offer other banking services to its different customers. Financial Banking systems are of the following types:

•       Commercial banks

A commercial bank is a part of the Indian financial System, and these institutions are open to the public for common transactions like accepting deposits and/or lending money.

•       Investment banks

The investment banks acquire the first issue of stock of the corporation at a predetermined price, and then make the shares available to its clients and other investors at a price.

•       Cooperative banks

A co-operative bank is a financial entity, wherein the members are the owners and customers of the Bank. They are however regulated and looked upon by the Reserve Bank of India. They are segregated into Rural and Urban Cooperatives.

Each of these types of financial institutions has its own set of roles and responsibilities in the Indian Economy. But today we shall discuss the Commercial Banks of India. Commercial Banks are the financial intermediary that directs funds to the industries and sectors that need development, in other words, they are the connection between ‘Savers’ and ‘Borrowers’. These institutions accept deposits and utilise that as capital for lending to loaners. This circulation of funds is vital for the economic development of the country.

Commercial Banks are further classified into the following types depending on their roles, ownership, and customer base.

Private owned banks

Private sector banks are characterised by the fact that their ownership is held by private individuals or corporations who hold a significant slice of the bank’s equity. Even though private banks follow the guidelines of the RBI, they have the liberty to form their financial strategies curated for their customers. Since a major portion of these private banks’ shares are traded in the stock market, anyone can buy off these shares too.

Characteristics of Private Banks:

•       These banks offer different account opening services and other related benefits. 

•       These banks offer the customer to choose from a variety of investment strategies to help them achieve the ideal result.

•       They provide advisory on real estate financing options. 

•       They provide loans and credit at low-interest rates. 

•       Several banks in India assist their clients with tax compliance and risk management and provide suggestions on liquidity risks. That too without visiting the bank or worrying about the bank timings.

•       Private banks provide cash flow management for a variety of customers (individuals and businesses) by managing accounts and receipts.

Public owned banks

Public sector banks are also known as nationalised banks as these are banks in which the government or the Ministry of Finance (India) of the centre of the state ministries of the different states of India, owns most of its share (i.e., more than 50%). The goal of these banks is to cater to the public interest like financial inclusion, financial support to industries and sectors, and eventually socio-economic development. These banks cater to all types of customer bases and offer a plethora of offers and services like account creation, loan facilitation, and even buying and selling of government assets. Public banks are constantly working on better customer service with the help of technology. Like for a customer of an Indian bank can simply call the Indian Bank balance check number and get the information. Examples of public banks in India include State Bank of India (SBI), Bank of Baroda, Indian Bank and Punjab National Bank (PNB).

Characteristics of Public banks

•       Public banks are more reliable due to government ownership, adding to the confidence of depositors and borrowers alike.

•       These banks are mostly aiming towards public welfare objectives, with their goal being to promote financial inclusion, support industrial sectors, and further socio-economic development.

•       They are also known to offer loans and credits at comparatively lower interest rates against private banks, thus keeping the credit flow accessible to all sections of society.

•       These banks are open to a range of customers, which not only includes individuals and businesses, but also the government, and non-profit organisations.

•       Public banks have a long and wide distribution across the entire country. It includes branches and offices in urban and rural settlements, to cater to their wide customer base.

Regional rural banks

Regional Rural Banks (RRBs) in India are a type of financial institution owned by the government of India which was made to provide banking and financial services in rural areas of the country. RRBs were established initially under Narasimham Committee in 1975 and were later established under the Regional Rural Banks Act, of 1976. These banks are operating at the regional level in multiple states of India. 

There is a total of 43 RRBs operating in India as of 2023. Some of them are Punjab Gramin Bank, Chhattisgarh Rajya Gramin Bank, Andhra Pradesh Grameena Vikas Bank, Mizoram Rural Bank, Andhra Pragathi Grameena Bank, Bangiya Gramin Vikash Bank, and others.

Characteristics of RRBs:

•       RRP is fully aware of the challenges that the local people face as they are working in those environments. 

•       They have expertise in financing, much like commercial banks of India. 

•       RRB provides banking and credit services to farmers, entrepreneurs, artisans, and workers in rural areas. 

•       They comply with the preferred sector lending standards applicable to commercial banks. 

•       They are obliged to work only within the territorial limits set for them.


Commercial banks provide a wide range of banking services, assisting different economic sectors, and promoting financial inclusion. Commercial banks in India are crucial for the country’s economic and financial growth. They serve as middlemen that accumulate money from organisations and individuals to use such funds to offer loans and distinct credit options. 

These banks have established themselves as the pillars of the Indian banking sector thanks to their enormous branch networks, use of cutting-edge technology, and customer-centric strategies. Their tenacity, agility, and dedication to satisfying a wide range of client requirements have made them crucial to advancing India’s economic success.