Banking Credit: Commercial, Cooperative, Development and Regional Rural Banks

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Commercial Banks

Definition as per RBI: Commercial Banks refer to both scheduled and non-scheduled commercial banks which are regulated under Banking Regulation Act, 1949

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Scheduled Commercial Banks are grouped under following categories

  • State Bank of India and its Associates

  • Nationalized Banks

  • Foreign Banks

  • Regional Rural Banks

  • Other Scheduled Commercial Banks.

Non-Scheduled Commercial Banks

  • The aim of a commercial bank is to earn profit by charging rate of interest on loans and fees for various services such as issuing draft, transferring money etc.

  • Ex: State Bank of India (SBI), Andhra Bank, ICICI Bank etc.

Cooperative Banks

Cooperative banks are banks run by cooperative societies (an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly owned and democratically controlled enterprise) for their benefits. And these cooperative banks are governed by the laws of the state in which they are operating.

There are two types of cooperative society banks.

  • Agricultural Cooperatives or Rural cooperatives to provide credit for farming and allied sector activities such as cattle, fishery etc.

  • Non-agricultural Cooperative Banks to provide credit for self-employment, small scale industries development etc.

Ex: State cooperative banks, primary agricultural credit societies, urban cooperative banks, land development banks, and district central cooperative banks. These banks have different names in different states and areas.

Development Banks

  • Development banks are the specialized institutions to achieve economic development for the country. These banks provide credit for a long period to private business companies and public sector units who want to establish industries and create infrastructure.

  • Ex: Industrial Finance Corporation of India (IFCI), 1948

  • State Finance Corporation (SFC), 1951

  • Industrial Credit and Investment Corporation of India (ICICI), 1955

  • Industrial Development Bank of India (IDBI), 1964

  • Small Industries Development Bank of India (SIDBI), 1990 etc.

Functions of Development Banks

  • Provide long term loans

  • Capital contributed by Central and State governments

  • Accept deposits from commercial banks, Central and state governments.

  • They promote Economic growth of the country.

Regional Rural Banks (RRBs)

  • Regional Rural Banks (RRBs) also known as Garmin banks, are Indian scheduled banks (Government banks) operating at regional level in different States of India. RRBs came into force on Oct 2nd, 1975. RRBs are set up under RRBs act,1976.

  • The RRBs were owned by three entities with their respective shares as follows:

  • Central Government →

  • State government →

  • Sponsor bank →

  • ‘Prathama Grameena Bank’ is the first RRB. After that many banks came into existence. The number raised to 196 banks. But most of the banks failed due to many reasons. Then the number has decreased by merging of banks. Now there are 56 RRBs.

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