This article throws light upon the two types of banks that operate in India. The types are: 1. Central Bank 2. Commercial Banks.

Type # 1. Central Bank:

The bank is called the apex bank in a country. This bank is also known as central bank entrusted with the task of controlling, guiding and regulating the entire banking system and structure in the country. It is owned by the Govt. and help in deciding the monetary and credit policies in the best interest of the country.

The central Bank is Government’ Banker, maintains revenue and expenditure records of Govt. under different heads, helps govt. to decide rate of interest. The central bank regulates and issues currency performs banking services to all other banks and in case of need extends loans to banks on reasonable rates.

As such it functions like a bankers bank also. Like Central Govt. it provides agency services to State Govts. Also. It keeps international currency and manages all necessary action relating to foreign exchange. Foreign exchange reserves are held by the central bank. Cash Reserves of all the commercial banks are held by the central bank.


It is empowered to inspect the functioning of all banks including credit control. The central bank collects returns and financial statements mandatory to be submitted by all the banks. In case of default central bank can levy penalty on defaulting banks. The Reserve Bank of India is the Central Bank of India. It does not deal directly as banker with the public.

Type # 2. Commercial Banks:

As is clear from the name a commercial bank is one that functions like commercial company with a view to earn profits. Usually a commercial bank is an establishment which deals in money, – receiving it as deposits from customers, honouring customers drawings against such deposits on demand. Collecting cheques for customers and lending or investing surplus deposits until they are required for repayment.

Normally these banks perform all kinds of functions as have been prescribed under banking regulation and other Acts. Excepting deposits, lending money (both short time and long time). They also perform agency functions and correspondent banks. In fact all the commercial banks are joint stock companies and they work like that.

Different Types of Commercial Banks:


a) Nationalised Banks:

The Nationalised Banks are also known as Public Sector Banks. Majority of Stake in these banks is held by the government. Government of India in consultation with the Reserve Bank of India prescribes functioning norms for these banks. Previously the entire equity was held by the government but over a period of time it was reduced but still the majority is held by the Govt. Some strong banks have been allowed to reach the capital market and raise the additional capital.

b) State Bank of India and Its Associate Banks:

These banks are also nationalized bank. In addition to working as commercial banks they also work as the agent of RBI.


c) Private Sector Banks:

All the banks working under private sectors are also Joint Stock companies. These banks are registered as companies with limited liability. Previously before independence it was mandatory for any private bank that at least one of its Director should have unlimited liability to safe guard the customers interest.

In Private banks majority of share capital is held by private individuals where as in Public Sector Banks it is held with government. All the banking norms and regulations prescribed by RBI are applicable on these banks also. Followed by several banking reforms in India banks started enjoying some operational freedom. With the result more and more private banks are coming up. Moreover Private Sector Banks are better capitalized compared to PSB.

d) Foreign Banks:


Foreign Banks working in India are also Private banks but these banks have their Headquarters in a foreign country and not in India. They have opened their branches in India to work as registered banks. Lately these banks have been allowed to expand their functions including through subsidiaries and off shore banking.

e) Specialised Banks:

Under this category those banks can be covered which do not perform ordinary banking functions but have been established to fulfill certain specific goals.

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