Classification of Banks in India

The Indian banking system has a multi-layered structure designed to meet the diverse needs of the economy. At the apex is the Reserve Bank of India (RBI), which regulates and supervises all banks. For regulatory and organizational purposes, banks are classified on the basis of regulatory status, ownership, area of operation, and functional specialization. A key legal classification is between Scheduled and Non-Scheduled banks under the RBI Act, 1934. Over time, the system has also evolved to include differentiated banks such as Payments Banks and Small Finance Banks, alongside traditional universal banks.

Scheduled and Non-Scheduled Banks

Scheduled Banks

Scheduled Banks are those included in the Second Schedule of the RBI Act, 1934. Under Section 42(6) of the Act, a bank qualifies as scheduled if it has:

• minimum paid-up capital and reserves of ₹5 lakh
• conducts its business in a manner not harmful to depositors’ interests
• and is organized as a company or a state cooperative bank.

Scheduled status indicates compliance with RBI’s prudential and size norms. These banks enjoy access to RBI facilities such as repo operations and are required to maintain the Cash Reserve Ratio (CRR) with the RBI. All major commercial banks—public, private, foreign, regional rural banks, small finance banks, payments banks—and most large cooperative banks fall into this category.

Non-Scheduled Banks

Non-Scheduled Banks are banks not included in the Second Schedule of the RBI Act, usually because they fail to meet capital or prudential requirements. They are few in number, generally small and localized, and include certain Local Area Banks and small cooperative banks. These banks cannot normally access RBI refinancing facilities and must maintain their reserves with themselves rather than with the RBI. Due to their limited scale and higher vulnerability, they are subject to closer supervisory monitoring. As of 2025, India has over 120 scheduled banks, while only a handful of non-scheduled banks remain.

Ownership-Based Classification of Banks

Public Sector Banks (PSBs)

Public Sector Banks are banks in which the Government of India holds a majority stake (over 50%). Most PSBs originated from bank nationalization in 1969 and 1980, aimed at expanding banking outreach and channelling credit to priority sectors such as agriculture and small industries. These banks balance profitability with social objectives and play a major role in implementing government schemes, including financial inclusion initiatives. There are 12 PSBs after recent mergers, with examples including State Bank of India, Punjab National Bank, Bank of Baroda, and Canara Bank. PSBs have extensive branch networks, especially in rural and semi-urban areas. The list of 12 PSBs as of 2026 are as follows:

Private Sector Banks

Private Sector Banks are owned primarily by private individuals, institutions, or corporations. They operate on commercial principles with a strong focus on efficiency, innovation, and customer service. Since the 1990s reforms, private banks have grown rapidly, introducing advanced technology and digital banking solutions. Despite being profit-driven, they are fully regulated by the RBI. Major examples include HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank, and IndusInd Bank.

Foreign Banks

Foreign Banks are banks incorporated outside India but operating in the country through branches. They mainly cater to multinational corporations, large domestic firms, and high-net-worth individuals, particularly in metropolitan areas. These banks specialize in areas such as foreign exchange, trade finance, and corporate banking and are regulated by both the RBI and their home-country regulators. Due to their limited branch presence, their retail operations are relatively small. Here are the foreign banks operating in India:

Regional Rural Banks (RRBs)

Regional Rural Banks are scheduled commercial banks established under the RRB Act, 1976, with the first RRB set up in 1975. Their objective is to promote financial inclusion by providing credit and banking services to rural and semi-urban populations, particularly small farmers and artisans. RRBs have a unique ownership structure: 50% Central Government, 15% State Government, and 35% sponsor bank (usually a public sector bank). Prathama Bank (established 1975) was the first RRB. Examples of current RRBs include Baroda UP Bank, Karnataka Gramin Bank, Dakshin Bihar Gramin Bank, etc. RRBs are supervised by the National Bank for Agriculture and Rural Development (NABARD) in addition to RBI oversight

Cooperative Banks

Cooperative Banks are member-owned institutions operating on the principle of cooperation and service rather than profit maximization. Rural cooperative banking typically follows a three-tier structure consisting of State Cooperative Banks, District Central Cooperative Banks, and Primary Agricultural Credit Societies (PACS). Urban Cooperative Banks operate in cities and towns, serving small businesses and individuals. Cooperative banks are registered under state or multi-state cooperative laws and are subject to dual regulation by the RBI and the Registrar of Cooperative Societies. Examples include urban co-op banks like Saraswat Co-operative Bank or Shamrao Vithal Co-op Bank, and state co-op banks like Maharashtra State Cooperative Bank.

Payments Banks

Payments Banks were introduced in 2015 to enhance financial inclusion through low-cost banking services. They can accept demand deposits up to ₹2 lakh per customer but cannot lend or issue credit cards. Their primary role is to facilitate payments, remittances, and deposit services. To ensure safety, Payments Banks must invest most of their funds in government securities, reflecting a narrow banking model. Examples include Airtel Payments Bank, India Post Payments Bank, and Paytm Payments Bank.

Small Finance Banks (SFBs)

Small Finance Banks, also introduced in 2015, aim to provide both deposit and credit services to underserved sections such as small farmers, MSMEs, and low-income households. They function largely like regular banks but are subject to specific requirements, including 75% priority sector lending and a focus on small-ticket loans. Initially required to have ₹100 crore in capital, SFBs must increase this to ₹200 crore over time. Many SFBs evolved from microfinance institutions. Examples include AU Small Finance Bank, Ujjivan SFB, and Equitas SFB.

Local Area Banks (LABs)

Local Area Banks were introduced in the late 1990s to improve credit delivery in limited geographic regions, typically three contiguous districts. Only a few LABs came into existence (for example, Coastal Local Area Bank in Andhra Pradesh, Krishna Bhima Samruddhi LAB in Telangana, etc.), and over time some have converted or merged into other banks. One prominent LAB, Capital Local Area Bank, later transitioned into Capital Small Finance Bank when SFB licenses were introduced. Currently, very few LABs are operating in India. LABs are scheduled banks if they fulfill the criteria, but many remained non-scheduled due to their small capital base.

Development Financial Institutions (DFIs)

Development Financial Institutions are specialized institutions created to provide long-term finance to key sectors where commercial banks may be reluctant to lend. They support agriculture, MSMEs, exports, and infrastructure development. Examples include NABARD, SIDBI, and EXIM Bank. While some earlier DFIs transformed into commercial banks, new DFIs have recently been established to support infrastructure financing.