Economy
Money, Banking and Inflation
Banking Structure in India
India's banking structure for CGPSC: PSBs, private and foreign banks, SFBs, payments banks, RRBs, cooperatives, nationalisation, reforms, NPAs and inclusion.
Prerequisites
- Money and the Reserve Bank of India: the RBI as regulator and banker’s bank
- Monetary Policy and the MPC: CRR, SLR and transmission, which all work through banks
The Hook: Five Banks on One Road in Jagdalpur
Connect
Walk down a main road in Jagdalpur and you may pass a branch of SBI, a private bank, an India Post Payments Bank counter, a branch of Chhattisgarh Gramin Bank and the office of a cooperative bank. Further out, in a village, a Bank Mitra (business correspondent) opens accounts with a fingerprint scanner.
Each of these is a different kind of institution with different owners, rules and lending duties. Some cannot give loans at all. Who owns which bank, who regulates it, and why did India nationalise banks in 1969 and then open the door to private banks in 1993?
Why it matters: Prelims asks about the types of banks (especially payments banks and RRBs), nationalisation years, NABARD and NPAs. Mains asks about banking reforms, NPAs, mergers and financial inclusion, all of which can be given a Chhattisgarh angle.
The Structure at a Glance
graph TD
RBI["Reserve Bank of India
(regulator)"] --> S["Scheduled banks
(in the Second Schedule, RBI Act)"]
RBI --> NS["Non-scheduled banks"]
S --> SCB["Scheduled commercial banks"]
S --> SCOOP["Scheduled cooperative banks"]
SCB --> PSB["Public sector banks (12)"]
SCB --> PVT["Private sector banks"]
SCB --> FB["Foreign banks"]
SCB --> RRB["Regional Rural Banks (28)"]
SCB --> SFB["Small finance banks"]
SCB --> PB["Payments banks"]
SCOOP --> UCB["Urban cooperative banks"]
SCOOP --> RC["Rural cooperatives:
StCB → DCCB → PACS"]- Scheduled banks (अनुसूचित बैंक) are those listed in the Second Schedule of the RBI Act, 1934. They can borrow from the RBI and must maintain CRR with it.
- Commercial banks are governed by the Banking Regulation Act, 1949.
- Counts are as of 2026: 12 public sector banks and 28 RRBs.
Types of commercial banks
| Type | Key features |
|---|---|
| Public sector banks (सार्वजनिक क्षेत्र के बैंक) | Government holds a majority stake. 12 since 1 April 2020: SBI, Punjab National Bank, Bank of Baroda, Canara Bank, Union Bank of India, Bank of India, Indian Bank, Central Bank of India, Indian Overseas Bank, UCO Bank, Bank of Maharashtra, Punjab & Sind Bank |
| Private sector banks | Old private banks (pre-1993) and new private banks licensed from 1993 after the Narasimham Committee (e.g. HDFC Bank, ICICI Bank, Axis Bank) |
| Foreign banks | Operate through branches or wholly owned subsidiaries |
| Regional Rural Banks (क्षेत्रीय ग्रामीण बैंक) | Rural credit to small farmers, labourers, artisans. Owned by the Centre 50%, sponsor bank 35%, State 15%. Supervised by NABARD. Priority sector target 75% |
| Small finance banks | Differentiated banks for small borrowers; minimum paid-up capital ₹200 crore; priority sector target 75% |
| Payments banks | Accept deposits up to ₹2 lakh per customer; offer remittances, debit cards, ATM services. Cannot lend or issue credit cards. Minimum capital ₹100 crore |
| Local area banks | Small private banks for a few contiguous districts, allowed from 1996; very few exist |
Small finance banks and payments banks came from the Nachiket Mor Committee (2013) on financial services for small businesses and low-income households. The RBI gave in-principle approvals in 2015.
Cooperative banks (सहकारी बैंक)
| Segment | Structure |
|---|---|
| Urban cooperative banks | Serve towns and cities |
| Rural short-term credit | Three tiers: State Cooperative Bank (StCB) → District Central Cooperative Bank (DCCB) → Primary Agricultural Credit Society (PACS) at village level |
| Rural long-term credit | State and Primary Cooperative Agriculture and Rural Development Banks (SCARDB / PCARDB) |
- Cooperative banks long had dual control: the State Registrar of Cooperative Societies for management, the RBI for banking functions. The Banking Regulation (Amendment) Act, 2020 brought cooperative banks much more fully under RBI regulation.
- NABARD supervises StCBs, DCCBs and RRBs.
Development finance institutions
| Institution | Year | Role |
|---|---|---|
| NABARD (राष्ट्रीय कृषि और ग्रामीण विकास बैंक) | 12 July 1982 | Apex for agriculture and rural credit; refinances RRBs and cooperatives; set up on the CRAFICARD (B. Sivaraman) Committee recommendation |
| EXIM Bank | 1982 | Export–import finance |
| National Housing Bank | 1988 | Housing finance regulation and refinance |
| SIDBI | 1990 | Micro, small and medium enterprises |
| NaBFID | 2021 | Long-term infrastructure finance |
How the System Evolved
timeline
title Milestones in Indian banking
1949 : Banking Regulation Act; RBI nationalised
1955 : Imperial Bank of India becomes State Bank of India (1 July)
1969 : 14 banks nationalised (19 July); Lead Bank Scheme
1975 : Regional Rural Banks begin (2 October)
1980 : 6 more banks nationalised (15 April)
1982 : NABARD set up
1991 : Narasimham Committee I
1993 : New private banks licensed
1998 : Narasimham Committee II
2014 : Pradhan Mantri Jan Dhan Yojana (28 August)
2016 : Insolvency and Bankruptcy Code
2020 : Ten PSBs merged into four (1 April); 12 PSBs remain
2025 : RRBs consolidated from 43 to 28 (1 May)State Bank of India
The Imperial Bank of India (1921, formed from the three Presidency Banks) became the State Bank of India on 1 July 1955, on the recommendation of the All India Rural Credit Survey Committee (A.D. Gorwala). Its five associate banks and the Bharatiya Mahila Bank merged into SBI on 1 April 2017.
Nationalisation (राष्ट्रीयकरण)
| First wave | Second wave | |
|---|---|---|
| Date | 19 July 1969 | 15 April 1980 |
| Banks | 14 | 6 |
| Criterion | Deposits of ₹50 crore or more | Deposits of ₹200 crore or more |
Reasons: banks were concentrated in cities and lent mainly to large industry linked to their owners. Nationalisation aimed to spread branches to rural India, direct credit to agriculture and small industry (the origin of priority sector lending), and mobilise savings for planned development.
Results: a huge expansion of rural branches and deposits. Over time, however, there was also political interference, low efficiency and weak balance sheets, which prepared the ground for the 1991 reforms.
Narasimham Committees (नरसिम्हम समिति)
| Committee I (1991) | Committee II (1998) |
|---|---|
| Reduce SLR and CRR in phases | Merge strong banks; “narrow banking” for weak ones |
| Deregulate interest rates | Raise capital adequacy norms |
| Prudential norms: income recognition, asset classification, provisioning | Review of the role of the RBI as owner and regulator |
| Allow new private banks; Asset Reconstruction Companies; Debt Recovery Tribunals | Stricter NPA recognition |
Mergers since 2017
- 2017: SBI’s associates and Bharatiya Mahila Bank merged into SBI.
- 2019: Vijaya Bank and Dena Bank merged into Bank of Baroda.
- 1 April 2020: Oriental Bank of Commerce and United Bank of India → PNB; Syndicate Bank → Canara Bank; Allahabad Bank → Indian Bank; Andhra Bank and Corporation Bank → Union Bank of India. This left 12 PSBs. Further consolidation has been discussed in 2026, but no new merger had taken effect as of the time of writing.
RRB consolidation
RRBs were set up after the Narasimham Working Group (1975). The first ones began on 2 October 1975 and the RRB Act followed in 1976. Several rounds of amalgamation since 2006 reduced their number. Under “One State, One RRB”, 43 RRBs were merged into 28 with effect from 1 May 2025.
Non-Performing Assets (NPA, अनर्जक आस्तियाँ)
- A loan becomes an NPA when interest or principal is overdue for more than 90 days.
- Classification: sub-standard (NPA for up to 12 months) → doubtful (NPA for more than 12 months) → loss (identified as uncollectible).
- Twin Balance Sheet problem: over-leveraged companies and stressed banks at the same time (Economic Survey 2016-17).
- Response, the “4Rs”: Recognition (Asset Quality Review, 2015), Resolution (IBC, 2016), Recapitalisation of PSBs, Reforms (governance, EASE agenda).
- Recovery tools: Debt Recovery Tribunals (1993); SARFAESI Act, 2002; Insolvency and Bankruptcy Code, 2016; National Asset Reconstruction Company Ltd (NARCL), the “bad bank” announced in 2021.
- Trend: the gross NPA ratio of scheduled commercial banks peaked at above 11% in March 2018 and fell to multi-year lows of around 2–3% by 2025, according to RBI Financial Stability Reports.
- Capital adequacy: under Basel III, the RBI requires a minimum capital to risk-weighted assets ratio (CRAR) of 9% (stricter than the Basel minimum of 8%), plus a capital conservation buffer of 2.5%.
Financial Inclusion (वित्तीय समावेशन)
| Measure | Detail |
|---|---|
| Lead Bank Scheme (1969) | One bank leads credit planning in each district |
| Priority sector lending | Domestic commercial banks: 40% of adjusted net bank credit, including 18% for agriculture; RRBs and SFBs: 75% |
| Business Correspondents (from 2006) | Bank Mitras deliver services in villages without branches |
| PM Jan Dhan Yojana (28 August 2014) | Basic accounts with RuPay card and accident cover; crossed 50 crore accounts in 2023 |
| JAM trinity | Jan Dhan, Aadhaar, Mobile: the base of Direct Benefit Transfer |
| Deposit insurance (DICGC) | ₹5 lakh per depositor per bank since 4 February 2020; DICGC (Amendment) Act, 2021 provides interim payment within 90 days when a bank is placed under restrictions. A higher limit was under consideration in 2025–26 |
Chhattisgarh angle
- Chhattisgarh Gramin Bank (छत्तीसगढ़ ग्रामीण बैंक): the state’s single RRB, formed in 2013 by amalgamating Chhattisgarh Gramin Bank, Surguja Kshetriya Gramin Bank and Durg-Rajnandgaon Gramin Bank. It was known as Chhattisgarh Rajya Gramin Bank until its renaming was notified in January 2026. HQ: Atal Nagar–Nava Raipur. Sponsor: State Bank of India. Ownership: Centre 50%, SBI 35%, State 15%. It has over 600 branches, mostly rural. Because Chhattisgarh already had a single RRB, the 2025 “One State, One RRB” merger did not change its structure.
- Cooperative credit: the Chhattisgarh State Cooperative Bank (Apex Bank) at Raipur sits over the district central cooperative banks and village societies. In tribal areas, Large Area Multi-Purpose Societies (LAMPS) combine credit with the purchase of forest produce. The same societies act as paddy procurement centres, so farm credit and procurement payments run through one network. See Agriculture Economy and Chhattisgarh Economy and Schemes.
- Mains points on gaps: thin branch coverage in remote forested blocks of Bastar and Surguja, security constraints in Left Wing Extremism-affected areas, dependence on business correspondents, and low credit-deposit ratios in some districts.
Memory Tricks
Nationalisation: '14 in '69, 6 in '80'
‘69 → 14 banks, ₹50 crore. ‘80 → 6 banks, ₹200 crore. The second time there were fewer banks but a bigger deposit threshold.
RRB ownership: '50-35-15'
Centre 50, Sponsor 35, State 15: “Centre takes half, the Sponsor bank more than the State.”
Payments bank: 'Pay, don't lend'
A payments bank can take deposits (up to ₹2 lakh) and move money, but cannot lend and cannot issue credit cards.
Don’t Confuse
| This | vs | That |
|---|---|---|
| Payments bank: deposits up to ₹2 lakh, no lending | vs | Small finance bank: takes deposits and lends, mainly to small borrowers |
| NABARD (1982): rural and farm refinance | vs | SIDBI (1990): MSME refinance |
| First nationalisation: 19 July 1969, 14 banks | vs | Second: 15 April 1980, 6 banks |
| Narasimham Committee I (1991): liberalise | vs | Narasimham Committee II (1998): consolidate and strengthen |
| SARFAESI (2002): secured creditors enforce security | vs | IBC (2016): time-bound insolvency resolution |
| Scheduled bank: in the Second Schedule, RBI Act | vs | Commercial bank: governed by the Banking Regulation Act, 1949 |
Common Mistakes
MCQ traps
- “Payments banks can lend small amounts.” No. They cannot lend at all.
- “RRBs are supervised by the RBI directly.” They are regulated by the RBI but supervised by NABARD.
- “SBI was nationalised in 1969.” SBI was created in 1955 from the Imperial Bank. It was not part of the 1969 list.
- “There are 12 RRBs and 28 PSBs.” Reversed. 12 PSBs, 28 RRBs (as of 2026).
- “An NPA is a loan overdue for 180 days.” The norm is 90 days.
- “RRB ownership is Centre 50%, State 35%, sponsor 15%.” It is sponsor 35%, State 15%.
Practice
All questions below are original practice questions written in CGPSC style. They are not previous-year questions.
Level 1: Foundation
- The first Regional Rural Banks began functioning on ______.
- A loan becomes a non-performing asset when it is overdue for more than ______ days.
- The sponsor bank of Chhattisgarh Gramin Bank is ______.
Answers
- 2 October 1975.
- 90.
- State Bank of India.
Level 2: Prelims MCQs
Q1. Consider the following statements about payments banks in India:
- They can accept deposits of up to ₹2 lakh per customer.
- They can issue credit cards but not give loans.
- They were recommended by the Nachiket Mor Committee.
Which of the statements given above is/are correct?
- (a) 1 only
- (b) 1 and 3 only
- (c) 2 and 3 only
- (d) 1, 2 and 3
Answer and explanation
(b) 1 and 3 only. Payments banks can issue debit cards but not credit cards, and cannot lend, so statement 2 is wrong. The deposit limit was raised from ₹1 lakh to ₹2 lakh in 2021. The Nachiket Mor Committee (2013) suggested such differentiated banks.
Q2. Match List I (Event) with List II (Year):
| List I | List II |
|---|---|
| A. State Bank of India formed | 1. 1969 |
| B. Fourteen banks nationalised | 2. 1982 |
| C. NABARD established | 3. 1955 |
| D. Insolvency and Bankruptcy Code enacted | 4. 2016 |
- (a) A-3, B-1, C-2, D-4
- (b) A-1, B-3, C-2, D-4
- (c) A-3, B-2, C-1, D-4
- (d) A-3, B-1, C-4, D-2
Answer and explanation
(a) A-3, B-1, C-2, D-4. SBI: 1 July 1955. First nationalisation: 19 July 1969. NABARD: 12 July 1982. IBC: 2016.
Q3. In the share capital of a Regional Rural Bank, the share of the sponsor bank is:
- (a) 15%
- (b) 35%
- (c) 50%
- (d) 51%
Answer and explanation
(b) 35%. The Central Government holds 50%, the sponsor bank 35% and the State Government 15%. For Chhattisgarh Gramin Bank, the sponsor is SBI.
Q4. Which one of the following institutions supervises Regional Rural Banks and rural cooperative banks?
- (a) Reserve Bank of India
- (b) Small Industries Development Bank of India
- (c) Ministry of Cooperation
- (d) National Bank for Agriculture and Rural Development
Answer and explanation
(d) NABARD. The RBI regulates these banks, but on-site supervision of RRBs, State Cooperative Banks and District Central Cooperative Banks is done by NABARD.
Q5. Consider the following statements about the 1 April 2020 merger of public sector banks:
- Syndicate Bank was merged into Canara Bank.
- Allahabad Bank was merged into Punjab National Bank.
- After the merger, the number of public sector banks fell to 12.
Which of the statements given above is/are correct?
- (a) 1 and 3 only
- (b) 2 only
- (c) 1 and 2 only
- (d) 1, 2 and 3
Answer and explanation
(a) 1 and 3 only. Allahabad Bank went to Indian Bank. PNB absorbed Oriental Bank of Commerce and United Bank of India. The merger left 12 PSBs.
Level 3: Mains Answer Writing
Q1. (150–200 words) What were the causes of the rise in non-performing assets in Indian banks after 2012? Discuss the steps taken to resolve the problem.
Model answer outline
- Intro: NPAs are loans overdue for more than 90 days. The gross NPA ratio peaked above 11% in March 2018.
- Causes:
- Lending boom of 2004–11 to infrastructure, power, steel and telecom, followed by project delays (land, environment clearances, coal block cancellations).
- Evergreening and delayed recognition through restructuring.
- Weak governance and appraisal in PSBs; some fraud.
- Slower growth and the twin balance sheet problem.
- Steps: Asset Quality Review (2015); IBC (2016); SARFAESI amendments; recapitalisation of PSBs; Prompt Corrective Action; mergers of 2019–20; NARCL (2021); governance reforms.
- Result: NPAs fell to around 2–3% by 2025 and bank profits recovered.
- Chhattisgarh angle: Stressed power and steel projects in the state’s industrial belt (Raigarh, Korba, Bhilai) were part of the corporate stress story.
- Conclusion: Recognition and resolution have worked. Better appraisal and governance must prevent a repeat.
Q2. (150–200 words) Examine the role of Regional Rural Banks and cooperatives in financial inclusion in Chhattisgarh.
Model answer outline
- Intro: Financial inclusion means affordable access to savings, credit, insurance and payments for all. In a largely rural, tribal state it depends on local institutions.
- Body:
- Chhattisgarh Gramin Bank (SBI-sponsored, HQ Nava Raipur): over 600 mainly rural branches; 75% priority sector target; Kisan Credit Cards; DBT accounts.
- Cooperative structure: Apex Bank → DCCBs → PACS and LAMPS; crop loans to farmers; procurement payments for paddy flow through the same societies.
- Jan Dhan, business correspondents and India Post Payments Bank extend reach to remote villages.
- Constraints: sparse branches in forested blocks, security issues in LWE areas, weak connectivity, low financial literacy, governance problems in some cooperatives.
- Way forward: digital banking with offline options, more Bank Sakhis, strengthening PACS (computerisation), financial literacy camps.
- Conclusion: RRBs and cooperatives are the last-mile channel. Their health decides how far inclusion goes in Chhattisgarh.
Quick Revision Table
| Fact | Detail |
|---|---|
| Banking Regulation Act | 1949 |
| SBI | 1 July 1955 (from Imperial Bank; AIRCS Committee) |
| Nationalisation | 19 July 1969 (14, ₹50 crore); 15 April 1980 (6, ₹200 crore) |
| RRBs | Began 2 October 1975; Act 1976; 50:35:15; 28 after 1 May 2025 |
| NABARD | 12 July 1982; CRAFICARD (Sivaraman) |
| Narasimham Committees | 1991 and 1998 |
| PSB count | 12 (since 1 April 2020; as of 2026) |
| Payments bank | Deposits up to ₹2 lakh; no lending; no credit cards |
| SFB / payments bank origin | Nachiket Mor Committee (2013); licences 2015 |
| NPA | Overdue more than 90 days |
| Recovery laws | DRT 1993, SARFAESI 2002, IBC 2016, NARCL 2021 |
| PSL | 40% of ANBC (agriculture 18%); RRBs and SFBs 75% |
| DICGC cover | ₹5 lakh (since 4 February 2020) |
| PMJDY | 28 August 2014 |
| Chhattisgarh Gramin Bank | Single RRB; SBI sponsor; HQ Atal Nagar–Nava Raipur; renamed from CG Rajya Gramin Bank (2026 notification) |
Key Takeaways
Key Takeaways
- Scheduled commercial banks include PSBs (12), private, foreign, RRBs (28), small finance and payments banks. Cooperative banks form a separate three-tier rural structure.
- Nationalisation (1969, 1980) spread banking to rural India. The Narasimham reforms (1991, 1998) made it competitive and prudent.
- Payments banks cannot lend. RRBs are 50:35:15 owned and supervised by NABARD.
- NPAs were tackled by the 4R strategy: recognition, resolution (IBC), recapitalisation and reform.
- In Chhattisgarh, Chhattisgarh Gramin Bank and the cooperative network carry rural credit and paddy procurement payments.
What’s Next
- Inflation: why the RBI’s price-stability goal matters
- Agriculture Economy: agricultural credit, KCC and rural finance
- Poverty and Employment: inclusion and welfare delivery
- Chhattisgarh Economy and Schemes: state schemes delivered through banks
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