Commercial banks are the backbone of India’s financial system. They play a crucial role in mobilising savings, providing credit, supporting businesses, and maintaining overall financial stability. Whether it is opening a savings account, applying for a loan, or making digital payments, commercial banks are involved in almost every financial activity of individuals and businesses. With India’s growing economy and rapid digitisation, understanding how commercial banks operate has become even more important.
This article explains in detail the types, structure, and functions of commercial banks in India, providing a clear and insightful overview for students, banking aspirants, and anyone interested in the Indian financial ecosystem.
What Are Commercial Banks?
Commercial banks are financial institutions that accept deposits from the public and provide loans to individuals, businesses, and government entities. Their main objective is profit-making through financial intermediation—borrowing at a lower interest rate and lending at a higher rate.
These banks also offer services such as fund transfers, digital payments, credit cards, wealth management, and safe deposit lockers. In India, commercial banks are regulated by the Reserve Bank of India (RBI) under the Banking Regulation Act, 1949.
Types of Commercial Banks in India
Commercial banks in India are classified based on ownership, structure, and the areas they serve.
1. Public Sector Banks (PSBs)
These banks are majority-owned (51% or more) by the Government of India. PSBs have a widespread branch network, especially in rural and semi-urban areas. They play a key role in implementing government schemes like Jan Dhan Yojana, Mudra Loans, and financial inclusion programs.
Examples:
- State Bank of India (SBI)
- Punjab National Bank (PNB)
- Bank of Baroda (BOB)
- Canara Bank
- Union Bank of India
Strengths: High trust, wide network, government-backed stability.
2. Private Sector Banks
These banks are owned by private entities or individuals. They are known for efficient service, digital innovation, modern banking products, and competitive loan offerings.
Examples:
- HDFC Bank
- ICICI Bank
- Axis Bank
- Kotak Mahindra Bank
- IndusInd Bank
Strengths: Superior digital banking, customer service, and quicker processing.
3. Foreign Banks
Foreign banks operate in India as branches of international banks. They focus mainly on corporate banking, trade finance, and high-net-worth customers.
Examples:
- Citibank
- HSBC
- Standard Chartered
- Deutsche Bank
Strengths: Specialised services, international banking support.
4. Regional Rural Banks (RRBs)
RRBs were established to promote financial inclusion and support agriculture, rural industries, and farming communities. They operate primarily in rural and semi-urban areas.
Examples:
- Aryavart Bank
- Baroda UP Bank
- Karnataka Gramin Bank
Strengths: Grassroots reach, low-cost banking services, agricultural support.
5. Small Finance Banks (SFBs)
Small Finance Banks provide financial services to small businesses, micro industries, unorganised sector workers, and low-income individuals. Their focus is on promoting credit access at the grassroots level.
Examples:
- AU Small Finance Bank
- Ujjivan SFB
- Equitas Small Finance Bank
Strengths: Micro-loans, doorstep banking, inclusive lending.
6. Payments Banks
Payments banks operate on a limited model and cannot provide loans. They focus on digital payments, remittances, and small savings.
Examples:
- India Post Payments Bank (IPPB)
- Airtel Payments Bank
- Paytm Payments Bank
Strengths: Digital-first services, mobile-based transactions, financial inclusion.
Structure of Commercial Banking in India
India’s commercial banking system is structured into three major tiers:
1. Scheduled Commercial Banks
These banks are listed in the Second Schedule of the RBI Act, 1934. They follow strict RBI regulations and maintain specific reserves. Scheduled commercial banks include:
- Public Sector Banks
- Private Sector Banks
- Foreign Banks
- Regional Rural Banks
- Small Finance Banks
These banks form the primary structure of India’s financial system.
2. Non-Scheduled Banks
These are smaller banks that do not meet the criteria of the Second Schedule. They are very few in number and have limited operations.
3. Payments & Digital Banking Institutions
This category includes Payments Banks and emerging digital-only banking models that focus on digital payments and technology-driven financial services.
Functions of Commercial Banks in India
Commercial banks play multiple roles across the financial system. Their functions can be divided into primary, secondary, and developmental functions.
1. Primary Functions
a) Accepting Deposits
The most essential function. Banks accept various types of deposits:
- Savings deposits
- Current account deposits
- Fixed deposits (FDs)
- Recurring deposits (RDs)
These deposits form the core funding base of banks.
b) Providing Loans and Advances
Commercial banks lend money to:
- Individuals (personal, home, vehicle loans)
- Businesses (working capital, term loans)
- Government entities
- Agriculture and MSMEs
Banks earn interest from these loans, which is their major source of income.
2. Secondary Functions
a) Agency Functions
Banks act as agents for customers by:
- Paying bills, taxes, EMIs
- Transferring funds
- Handling investments (SIP, FD, mutual funds)
- Collecting cheques and dividends
b) Utility Functions
Banks also offer:
- Credit cards and debit cards
- Internet and mobile banking
- Safe deposit lockers
- Forex and trade finance
- Wealth management services
3. Developmental Functions
a) Financial Inclusion
Banks help bring more Indian citizens into the formal banking system through affordable accounts and services.
b) Support to Priority Sectors
Commercial banks lend to agriculture, MSMEs, housing, and education—sectors essential for national growth.
c) Promoting Digital Payments
UPI, IMPS, NEFT, RTGS, and mobile wallets boost efficiency in India’s payment ecosystem.
Conclusion
Commercial banks are at the heart of India’s economy. From supporting everyday transactions to driving industrial growth, agricultural development, rural banking, and digital innovation, these institutions play a vital and multi-dimensional role. With rapid technological advancements and rising financial literacy, the commercial banking landscape in India continues to evolve, offering better services, faster payments, and increased financial access for millions.
Understanding the types, structure, and functions of commercial banks not only helps in academic learning but also empowers individuals to make informed financial decisions.
