Banking in India: Key Terms, Types, and Benefits to Know

Banking Overview

Banking encompasses the system of financial institutions, like banks and credit unions, that deliver financial services to individuals, businesses, and government entities. Key banking services include accepting deposits, providing loans, facilitating transactions, and offering financial products such as savings accounts, loans, and credit cards. Banking plays an essential role in the economy by maintaining cash flow and supporting economic activities.

Main Functions of Banks

Indian banks offer a broad array of services, including savings and checking accounts, various loans (personal, business, and home loans), credit cards, investment solutions, and electronic banking options like online and mobile banking. The core functions of banks are outlined below:

• Accepting Deposits: Banks provide a secure location for customers to deposit their funds, which can be withdrawn when needed.
• Providing Loans: Banks lend funds to individuals and businesses for various purposes, like purchasing a home, expanding a business, or covering personal expenses.
• Payment and Settlement Services: Banks facilitate payments through diverse options like checks, debit/credit cards, and electronic transfers.
• Currency Exchange: Many banks offer foreign currency services, enabling customers to buy, sell, or exchange foreign currencies.
• Safekeeping of Valuables: Certain banks offer safe deposit boxes where customers can securely store valuable items and documents.
• Investment Services: Banks provide investment products such as mutual funds, stocks, and bonds to help customers build their wealth.
• Internet Banking: Online and mobile banking options allow customers to access accounts, pay bills, and transfer money with ease.

Types of Banks in India

India’s banking system is divided into various categories, each serving specific purposes. Here’s a breakdown of the types of banks in India:

1. Central Bank: The Reserve Bank of India (RBI) is India’s central bank, responsible for regulating the monetary and banking system in the country.
2. Commercial Banks: The most common type, commercial banks, includes public sector banks, private sector banks, and foreign banks, providing services like savings and checking accounts, loans, and investments.
   • Public Sector Banks: These government-owned banks include the State Bank of India (SBI), Punjab National Bank (PNB), and Bank of Baroda (BOB).
   • Private Sector Banks: Privately owned and managed banks like HDFC Bank, ICICI Bank, and Axis Bank.
   • Foreign Banks: Banks based in foreign countries but with branches in India, such as Citibank, Standard Chartered, and HSBC.
   • Regional Rural Banks (RRBs): These banks, jointly owned by the government, commercial banks, and state governments, primarily serve rural and semi-urban areas.
3. Cooperative Banks: Registered under the Co-operative Societies Act of 1912, cooperative banks operate on a non-profit basis and primarily assist entrepreneurs, small businesses, and self-employed individuals.
4. Payments Banks: This newer banking model, introduced by the RBI, accepts limited deposits (up to Rs. 1 lakh per customer) and offers services like ATM cards and online banking.
5. Small Finance Banks: Licensed under Section 22 of the Banking Regulation Act of 1949, these banks primarily support small businesses and low-income individuals. Examples include AU Small Finance Bank, Ujjivan Small Finance Bank, and Jana Small Finance Bank.
6. Scheduled Banks: These banks, listed in the Second Schedule of the RBI Act, must maintain a paid-up capital of Rs. 5 lakhs or more.
7. Non-Scheduled Banks: Local area banks that are not listed in the Second Schedule of the RBI Act, 1934.

Types of Bank Accounts in India

To meet diverse financial needs, banks offer various types of accounts, each suited for different purposes and transaction needs. Here are the most common types of bank accounts in India:

• Savings Account: A basic account for individuals to save money, offering interest on deposits and allowing limited withdrawals.
• Current Account: Primarily used by businesses, current accounts offer more flexible transactions with little to no interest.
• Fixed Deposit Account: A lump sum is deposited for a fixed term, earning a higher interest rate than savings accounts. Funds are locked until maturity.
• Recurring Deposit Account: A savings scheme where a fixed amount is deposited monthly, and the principal plus interest is returned after a specific period.
• NRI Account: Designed for non-resident Indians, with types like NRE (Non-Resident External), NRO (Non-Resident Ordinary), and FCNR (Foreign Currency Non-Residential) accounts.
• Senior Citizen Savings Account: Specially designed for seniors, these accounts offer higher interest rates and added benefits.
• Salary Account: Often used by employers to credit employees’ salaries monthly, generally without a minimum balance requirement.
• Demat Account: Primarily used for holding and trading securities like stocks and bonds in electronic form.
• Joint Account: Held by two or more people, often for family or business purposes.
• Minor Account: Opened by parents or guardians for minors, with control passed to the minor upon reaching a certain age.
• Corporate Account: Used by businesses and corporations to manage payroll and conduct transactions.