Divided into 1. banks and 2. non banking Financial institutions (NBFI).
Basic difference between bank and NBFI is
- banks accept demand deposits and NBFI do not accept demand deposits
- Bank issue cheques but NBFI cannot issue cheque drawn on itself.
Banks divided into
- Commercial banks - operate on commercial (profit) principles
- Cooperative banks is on cooperative lines i.e.Service to its members and the society.
* Cooperative banks provides higher rate of interest on deposits as compared to commercial banks.
A. Commercial banks:-
- Scheduled Commercial banks -
* because they are included in 2nd schedule of rbi act,1934 and
* it must be a corporation and paidup share capital should be at least 5 lakh .
* Scheduled bank required to maintain reserve requirements with RBI as per RBI act ,1934.
- Non-scheduled commercial banks -
* Can carry out limited operation but not allowed to deal in foreign exchange.
* Need to maintain reserve requirements (as per Banking regulation Act 1949) but may not be with RBI.
B. Co-operative Bank:-
- Urban cooperative banks further classified into schedule and non schedule categories,
* also called primary cooperative bank
* , located in urban and semi-urban areas and *were centered around communities, localities work place groups.
* The essentially length to small borrowers and businesses.
- Rural Co-operative bank is primarily mandated to ensure flow of credit to the agriculture sector.
* Short term cooperative credit structures operates with the three tier system: state Central (district)and primary (villages).
*it is outside the purview of the Banking regulation Act 1949 and not regulated by RBI.
SCB / DCCB are under State cooperative societies act and hence under RBI.
*Urban cooperative banks need to provide 40% of the credit to priority sectors.
Regional rural banks (RRB)
Established in 1975 under provisions of RRB act 1976 .
with a view to developing the rural economy by providing for the purpose of development of agriculture ,trade ,commerce, industry and other credit facilities.
*On the recommendation of narsimhan committee working group and
* in 50central :15 state :35 sponser.
*RRB need to provide 75% of lending to priority sector.
*First RRB the Prathama Bank, head office at Moradabad, UP.
Non banking Financial institutions (NBFI) are divided into 3 segments:-
1. All india financial institutions (AIFI)
2. non banking financial companies (NBFC)and
3. primary dealers (PD)
Regulated and supervised by RBI.
*Credit information companies (CIC) are also a category of NBFI regulated by RBI.
AIFIs Constitute institutional mechanism entrusted with providing sector specific long term financing.
*Currently there are 4 AIFIs also called development Financial institutions (DFI) regulated and supervised by RBI.
