Banking Awareness — Types of Banks & Financial Institutions

🟢 Lite — Quick Review (1h–1d)

Rapid summary for last-minute revision before your exam.

Banking Awareness is the single most important section in IBPS PO — it can make or break your selection. Questions cover the structure of the Indian banking system, types of banks, regulatory framework, and the role of major financial institutions.

Key quick facts:

• RBI acts as the central bank — Governor is the chief authority
• Public sector banks: SBI + 12 nationalized banks + 1 payments bank (India Post)
• Private sector banks: HDFC, ICICI, Axis, Kotak, etc.
• Small Finance Banks and Payments Banks are differentiated banks licensed by RBI since 2015
• SIDBI is the principal institution for MSME financing

⚡ Exam tip: IBPS PO frequently asks about the number of public sector banks post-mergers (currently 12 plus SBI). Also watch for questions on banking correspondents (BCs) and the difference between various types of small banks.

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🟡 Standard — Regular Study (2d–2mo)

Standard content for students with a few days to months.

Structure of the Indian Banking System:

1. Reserve Bank of India (RBI)

Established 1935 under RBI Act 1934. Central bank of India.

• Governor: currently Sanjay Malhotra (appointed January 2025)
• Functions: currency issuance, monetary policy, banker to government, banker to banks, developmental role
• Monetary Policy Committee (MPC): 6 members — 3 RBI nominated + 3 external; meets 6 times a year
• Key rates: Repo Rate (current 6.5%), Reverse Repo Rate (3.35%), MSF (6.75%), Bank Rate (6.75%)

Recent RBI policy changes:

• RBI shifted to CPI-based inflation targeting in 2016 (4% ± 2%)
• The Marginal Standing Facility (MSF) allows banks to borrow overnight from RBI at repo rate + 25 bps

2. Commercial Banks

Divided into:

• Public Sector Banks (PSBs): 12 nationalized banks + State Bank of India + 1 (India Post Payments Bank)
  • After the 3mega-mergers of 2020: PNB + OBC + Canara (PNB is surviving entity); BOB + Dena + Vijaya (BOB is surviving); SBI + its 5 associate banks (merged into SBI)
  • Current count: SBI + 12 nationalized = 13 PSBs (including India Post Payments Bank)
• Private Sector Banks: Old private banks (SBI’s old associates before merger are PSBs, not private) — HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank, Yes Bank, IDBI Bank (government-owned but classified separately), etc.
• Foreign Banks: Citibank, HSBC, Standard Chartered, Deutsche Bank, etc.

3. Regional Rural Banks (RRBs)

• Established 1975 under RRB Act 1976
• Sponsored by Public Sector Banks (e.g., Canara Bank sponsors 9 RRBs)
• Jurisdiction: One or more districts within a state
• 43 RRBs currently operational (post-mergers)
• Ninety percent of their deposits must be invested in SLR securities or priority sector lending
• They cannot accept foreign currency deposits

4. Small Finance Banks (SFBs)

• RBI guidelines 2014, first licenses 2015
• Target: Financial inclusion for unbanked segments — small farmers, micro-enterprises, small businesses
• Must lend 75% of their Adjusted Net Credit (ANC) to priority sector
• Examples: Equitas SFB, Ujjivan SFB, Jana SFB, Suryoday SFB, etc.
• Not permitted to do foreign exchange business

5. Payments Banks

• Limited service entity — cannot lend
• Can accept deposits up to ₹1 lakh per customer
• Must invest 75%+ in SLR government securities
• Examples: Paytm Payments Bank, India Post Payments Bank, Fino Payments Bank, Airtel Payments Bank, Jio Payments Bank

6. Cooperative Banks

• Scheduled Urban Cooperative Banks (UCBs): Governed by Banking Regulation Act 1949; regulated by RBI
• Non-scheduled UCBs: Smaller, less regulatory requirements
• State Cooperative Banks (StCBs): Apex of state cooperative credit structure
• District Central Cooperative Banks (DCCBs): Intermediate tier

Development Financial Institutions:

• SIDBI (Small Industries Development Bank of India): Principal MSME financing institution; headquartered Lucknow; 100% government owned
• EXIM Bank (Export-Import Bank of India): Export finance and overseas investment
• NABARD (National Bank for Agriculture and Rural Development): Rural credit, agricultural refinance; established 1982
• NHB (National Housing Bank): Housing finance sector regulator and refinancing institution
• DICGC (Deposit Insurance and Credit Guarantee Corporation): Insures deposits up to ₹5 lakh per depositor per bank

Regulatory Framework:

• RBI governs commercial banks under Banking Regulation Act 1949
• IRDAI governs insurance companies
• SEBI governs capital markets
• PFRDA governs pension sector
• IBBI governs insolvency and bankruptcy

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🔴 Extended — Deep Study (3mo+)

Comprehensive coverage for students on a longer study timeline.

Banking System Reforms & Current Issues:

Merger History of Public Sector Banks

• 2017: 5 associate banks merged with SBI (SBI acquired its 5 associate banks — State Bank of Travancore, State Bank of Mysore, State Bank of Bikaner & Jaipur, State Bank of Patiala, State Bank of Hyderabad)
• 2020 mega-merger: 10 banks merged into 4:
  • Punjab National Bank + Oriental Bank of Commerce + United Bank of India → PNB
  • Canara Bank + Syndicate Bank → Canara Bank
  • Union Bank of India + Andhra Bank + Corporation Bank → Union Bank of India
  • Bank of Baroda + Dena Bank + Vijaya Bank → Bank of Baroda
• Post-merger count: SBI + 12 nationalized banks = 13 PSBs

Priority Sector Lending (PSL)

All domestic scheduled commercial banks must lend 40% of their Adjusted Net Credit (ANC) to priority sectors. Sub-categories:

• Agricultural: farm credit, agriculture infrastructure, ancillary activities (target: 18%)
• Micro Enterprises: small/marginal enterprises with investment in plant/machinery ≤ ₹10 lakh
• Small and Medium Enterprises (SMEs): investment limits apply
• Export Credit: up to 32% of NNE
• Weaker Sections: includes SC/ST borrowers, women, disabled, minority community loans
• Education: loans up to ₹10 lakh for studies in India; ₹20 lakh for abroad
• Housing: loans up to ₹35 lakh in metros, ₹25 lakh in other areas

Non-Performing Assets (NPAs)

• Sub-standard: NPA for up to 12 months
• Doubtful: NPA for more than 12 months (further sub-classified as D1, D2, D3)
• Loss Assets: Where recovery is impossible (or negligible)

NPA Resolution Mechanisms:

• SARFAESI Act 2002 — banks can seize collateral without court order if borrower defaults
• DRT (Debt Recovery Tribunals) — fast track recovery through 1993 Act
• IBC (Insolvency and Bankruptcy Code 2016) — resolution/liquidation of defaulting companies; 330 days timeline

Banking Ombudsman Scheme

RBI’s redressal mechanism for customer complaints:

• 22 ombudsman offices across India (as of 2023)
• Covers: Non-payment/delay in cheques, non-acceptance of deposits, levying of charges without notice, etc.
• If no satisfactory resolution, escalate to RBI’s appellate authority

Recent Regulatory Changes (2023-2024)

• Base Rate/SBLR replaced by benchmark rates linked to external benchmarks (e.g., Repo-linked PLR)
• LCR (Liquidity Coverage Ratio): Banks must maintain high-quality liquid assets (HQLA) to survive 30-day stressed scenario
• NPA identification: 90-day NPA norm (global standard) — 90 days or more overdue = NPA
• Joint Lenders Forum (JLF): For consortium accounts, all lenders must jointly decide restructuring
• 4/6 window for early intervention for stressed companies announced by RBI

Key Differences — SFB vs Payments Bank vs RRBs:

Feature	SFB	Payments Bank	RRB
Can lend?	Yes	No	Yes
Target	Unbanked	Digital payments	Rural
PSL target	75%	Not mandatory	75%
Max deposit	No limit	₹1 lakh	No limit
Foreign exchange	No	No	No
Ownership	Promoter-driven	Tech/Govt entities	Public bank sponsor