Banks are financial institutions authorised by the government to accept deposits and provide loans. They act as intermediaries between people who have surplus money and those who need funds. They perform both primary and secondary functions, contributing to economic growth.

The history of banking in India can be divided into two phases: Pre-Independence (till 1947), dominated by private banks and presidency banks, and Post-Independence (after 1947), marked by nationalisation, establishment of RBI as central authority, creation of RRBs and specialised banks.

After 1991, with LPG reforms (Liberalisation, Privatisation, Globalisation), Indian banking entered a modern phase with private banks, foreign banks, financial sector reforms, technology-driven banking, digitalisation and stronger regulations.

The Reserve Bank of India (RBI) is India’s central bank, established in 1935 under the RBI Act, 1934. It regulates the banking system, issues currency, manages foreign exchange, controls monetary policy, and acts as banker to the government and banks.

The Governor of RBI is the highest authority in India’s central bank. He, along with Deputy Governors, is appointed through a structured process involving the Cabinet Secretary and Appointments Committee of the Cabinet. RBI also functions through its zonal offices, specialized departments, and subsidiaries to manage diverse financial and regulatory tasks.

Banks in India can be classified based on different criteria such as function, ownership, and legal schedule under the RBI Act, 1934. This helps understand the diversity of financial institutions serving different purposes like trade, agriculture, industry, and overall economic development.

Scheduled Banks are those listed in the Second Schedule of the RBI Act, 1934 and must maintain minimum capital and reserves with RBI, while Non-Scheduled Banks are not included in the schedule and are smaller in scale with fewer privileges.

Commercial Banks are the oldest and largest banking institutions in India. They are regulated by RBI under the Banking Regulation Act, 1949. They accept deposits from the public and lend funds to borrowers, earning profit from the spread between deposit and lending interest rates.

Differentiated banks in India operate under RBI’s special licensing framework. They aim to promote financial inclusion by serving specific needs like small savings, remittances, and credit to underserved sectors. India currently has 6 Payment Banks and 11 Small Finance Banks.

India Post Payments Bank (IPPB) was launched in 2018 under the Department of Posts with 100% Government of India ownership. Alongside, India has a mixed banking structure with Scheduled and Non-Scheduled Banks, Local Area Banks for rural mobilisation, and Cooperative Banks working on mutual-help principles.

Co-operative banks in India are divided into Rural (PACS, CCBs, StCBs) and Urban (UCBs). They function on the principles of mutual help and democratic control. Additionally, Land Development Banks provide long-term credit for agricultural development.

Cooperative banks play a vital role in financial inclusion, rural credit, and strengthening the agricultural economy. However, they face governance, administrative, and financial challenges, including dual regulation, weak financial health, and high NPAs.

The Banking Regulation (Amendment) Act, 2020 empowered RBI to directly supervise cooperative banks. Regional Rural Banks (RRBs), established under the 1976 Act, are jointly owned by the Centre, States, and sponsor banks, focusing on rural credit and financial inclusion.

Development banks provide long-term finance and support to sectors that are high-risk and underserved by commercial banks. They play a key role in agriculture, rural development, MSMEs, housing, exports, and microfinance.

NBFCs are financial institutions registered under the Companies Act, 1956 that provide loans, investments, leasing, hire purchase, insurance, and chit funds. They act as intermediaries in mobilizing savings and providing credit but cannot accept demand deposits like banks.

From October 2022, RBI introduced a Scale-Based Regulatory (SBR) Framework to regulate NBFCs. It classifies NBFCs into four layers—Base, Middle, Upper, and Top—depending on their size, systemic importance, and risk potential.

Apart from RBI and banks, several specialised institutions like FSIB, NPCI, and BCSBI (now dissolved) play important roles in governance, payments, and customer protection in the Indian banking ecosystem.

Key banking terms like Debit Card, Credit Card, Prepaid Card, Smart Card, ATMs, POS, MDR, and IFSC are important for understanding how modern banking transactions work in both offline and online modes.

These terms and institutions are essential for understanding modern banking, global transactions, anti-corruption initiatives, and regulatory mechanisms. They cover payment codes, compliance systems, anti-bribery innovations, risk management, insolvency, and credit databases.

India’s financial ecosystem includes public and private players that collect, store, and use borrower credit data. Alongside this, institutions like Nidhi Companies, Lead Bank Scheme, and technological solutions like Core Banking have deepened financial inclusion and efficiency.

The stability of a bank depends on depositor trust, its ability to absorb risks, and compliance with international banking standards. Key terms include Bank Run (sudden withdrawals), Capital Adequacy Ratio (CAR), and Basel Norms (global risk management rules).

Basel norms are international banking standards set by the Basel Committee on Banking Supervision (BCBS) to strengthen global financial stability. Their aim is to ensure banks have enough capital, manage risks effectively, and maintain transparency.

India adopted Basel banking norms in 2003 (Basel I) and has been implementing Basel II and Basel III in phases. The RBI has been praised internationally for stricter capital standards, but challenges remain due to high capital and liquidity requirements.

A bad loan is one that the borrower is unlikely to repay due to financial difficulty or unwillingness. Loans can be structured with floating or fixed interest rates, each with its own benefits and drawbacks.

Loans can be classified based on the type of borrower (prime, subprime, overleveraged). Teaser loans offer initially low rates that later increase. NPAs are loans where repayment has stopped for over 90 days, creating stress in the banking sector.

Non-Performing Assets (NPAs) are classified into substandard, doubtful, and loss assets. Banks make provisions to cover NPAs, which reduce profitability. GNPA and NNPA are key indicators of NPA levels. Write-off and waive-off are two different tools for handling bad loans.

India’s NPA (Non-Performing Assets) crisis peaked after 2015, mainly due to over-leveraged corporates and stressed public sector banks, called the 'Twin Balance Sheet Problem'. The crisis originated in the mid-2000s investment boom, worsened by global financial crisis, rupee depreciation, high inflation, and falling commodity prices. NPAs touched ₹10.35 lakh crore in 2018 but have since reduced.

Slippage occurs when fresh loans turn into NPAs due to non-payment of interest for 90+ days. High slippages increase GNPA, reduce profits, and force higher provisioning. Recent years saw reduction in GNPA mainly due to large-scale loan write-offs. India has adopted a 3R approach—Rectification, Restructuring, Recovery—using tools like SARFAESI, IBC, ARCs, and Mission Indradhanush reforms.