There are various kinds of banks and financial organization which are playing predominant role in the economy of our country as detailed below:

1. Reserve Bank of India or Central Bank of India
2. Commercial Banks
   1. Commercial Banks under Public Sector
      1. State Bank of India and its subsidiaries
      2. Nationalized Banks and their subsidiary banks
   2. Commercial Banks under Private Sector
3. Regional Rural Banks
4. Co-operative Banks
   1. State Co-operative Banks
   2. Central District Co-operative Banks
   3. Primary Credit Societies
5. Development Banks
   1. Industrial Development Banks
      1. Industrial Development Bank of India
      2. Industrial Finance Corporation of India
      3. State Financial Corporation
      4. Industrial Credit and Investment Corporation of India Limited
   2. Land Development Banks (State Level Land Development Banks and Primary Land Development Banks)
   3. Agricultural Finance Corporation Ltd and
   4. National Bank of Agriculture and Rural Development (NABARD)
   5. Exchange Banks.

The Reserve Bank of India is the central bank of our country. It was established as a body corporate under the Reserve Bank of India Act, 1934. It started functioning from April 1, 1935. It was first, a shareholders bank. It was nationalized with effect from January 1, 1949. It took over the function of issuing currency from the government of India, the power of credit control from the then Imperial Bank of India (State Bank of India at present). Its main functions are stated below :

1. It issues currency notes.
2. It acts as Banker to the government.
3. It acts as Banker to the banks and lends the banks as a last resort.
4. It is a custodian of Foreign Exchange Reserves.
5. It controls/regulates the credit created by the commercial banks and
6. It acts as a clearing house.

The banks which perform all kinds of banking business and generally finance trade and commerce are called commercial banks. Since their deposits are for a short period, these banks normally advance shorts term loans to the businessmen and traders and avoid medium term and long-term lending. However, recently, the commercial banks have also extended their areas of operation to medium term and long term finance. Majority of the commercial bank in India are in the public sector. But, there are certain private sector banks operating as Joint Stock Companies. Hence, the commercial banks are also called joint stock banks.

In simple words, commercial banks are those, which carry on banking business to earn profits. They borrow from the public by accepting different kinds of deposits at lower rates of interest and lend the same to the public by sanctioning loans and advances at higher rates of interest and thereby earn profits. The commercial banks may be classified into two categories namely:

1. Commercial Banks under Public Sector and
2. Commercial Banks under Private Sector

Commercial banks under the public sector are governed by the respective statutes. One such statute is the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970. They include:

1. State Bank of India and its subsidiaries viz. State Bank of Hyderabad and State Bank of Mysore etc., and
2. Nationalized Banks (viz. Bank of India, Central Bank of India, Indian Bank, Canara Bank etc. etc.)

The Nationalized Banks are owned by the Government of India. The State Bank of India acts as an agent of the Reserve Bank of India, while the other Commercial Banks do not act as the agents of the State Bank of India. About 90% of the country’s commercial bank system is now in the public sector.

The State Bank of India occupies a unique position in our banking system. It is the biggest commercial bank with very vast financial resources and the largest number of branches. It had 7 subsidiary banks. Before 1920, the State Bank of India was known as Imperial Bank of India. In 1920, the Imperial Bank of India was nationalized with change of its name as the State Bank of India.

Now, the State Bank of India is next to the Reserve Bank of India and acts as an agent of the Reserve Bank of India in the places where the RBI does not have an office or branch of the banking department. It has been conferred the status of the largest commercial bank of India. Its subsidiaries were the State Bank of Hyderabad, State Bank of Mysore, State Bank of Travancore, State Bank of Bikaner and Jaipur etc. After the acquisition of subsidiary banks by the SBI, subsidiary banks have ceased to exist.

Management : The affairs of the SBI is managed by a Central Board of Directors consisting of 15 members :

1. The Chairman and a Vice-Chairman are appointed by the Government in consultation with RBI.
2. Two managing directors are appointed by the Central Board.
3. In the remaining 12 directors, 4 are elected by private shareholders, 4 directors are nominated by the Central Government in consultation with the RBI representing various economic interests.
4. The Central Government appoints one director and nominates one.
5. The RBI nominates one director.

There is one ex-officio director. There are 14 Local Boards in the Country.

Where the ownership and management of banks is taken over by the state/government, it is called “Nationalization of Banks” and the banks are known as “Nationalized banks”. The government of India on July 19, 1969 nationalized 14 major commercial banks and 6 other banks on April 15, 1980. Later, the State Bank of India and its 7 subsidiaries were nationalized. Among the banking institutions in the organized sector, commercial banks are the oldest, having the wide network of branches commanding utmost public confidence. There are about 28 banks, which constitute the strong public sector in Indian commercial banking. The nationalized banks do not act as agents of the Reserve Bank of India.

Apart from the commercial banks under the public sector, there are commercial banks under private sector, both Indian and Foreign banks, which are playing role in the economy of our country.

On March 31 2006 there were 220 scheduled commercial banks in India. Of these 28 were public sector banks, 133 are Regional Rural Bank, 29 Foreign Banks and 29 Private Banks.

A well organized and well developed banking system is a prerequisite for the economic development of any country. Commercial Banks in our country are playing significant role in the economy of our country. Commercial Banks mobilize financial resources from the saving public and provide them for industrial growth. In the process they can also influence the direction in which these resources are utilized. Banks are regarded as development agencies. In underdeveloped countries, banking facilities are limited. They are confined to specific areas and regions. They provide credit facilities to some sectors only. In India before nationalization of major banks in 1969. Banks neglected agriculture and small industry. Changes in the structure and functions are necessary to enable banks to perform development role in these economies.

In a modern economy, banks provide a variety of functions and services which are conducive to growth. They do much more than deposit banking. They undertake several financial services and introduce new instruments. They encourage entrepreneurs and also undertake entrepreneurial function. They also undertake social responsibilities. They are the agents necessary for economic development . Banks play an important role in the development of a country. It is the growth of commercial banking in the 18^th centuries that facilitated the occurrence of industrial revolution in Europe. Similarly, the economic progress in the present day developing economies largely depends upon the growth of sound banking system in these economies.

In 1970, the Government of India announced 20 Point Economic Program. One of the significant features of the program was the liquidation of the rural indebtedness. Consequently, the Government of India thought it necessary to established rural banks as subsidiaries of the public sector banks to Chairmanship of Mr. M. Narasimham recommended on July 30, 1975 the establishment of RRBs. The first 5 RRBs were set up on October 2, 1975 by an Ordinance (which was replaced by the Regional Rural Banks Act of 1976).

The commercial banks are basically urban oriented and unable to provide credit at cheaper rates to the weaker sections of the rural people. In order to provide credit at cheaper rates and to protect the interests of the weaker sections of the rural population the Regional Rural Banks came into existence in 1975. The Regional Rural Banks are relatively new banking institution which were added to the Indian banking scene since October 1975.

A Rural Bank carries on the normal business of banking as defined in Section 5(b) of the Banking Regulation Act, 1949. It generally undertakes are business of granting loans and advances to small and marginal farmers and agricultural peasants, who may be individuals or groups and to co-operative societies which include marketing societies, agricultural processing societies, co-operative farming societies, for agricultural purpose or agricultural operations or for other relevant or allied purposes, and to artisans, small entrepreneurs and persons of small means, engaged in trade, commerce or industry or other productive activities within the notified area of the concerned Rural Bank.

The RRBs perform the following functions :

1. They provide credit facilities to the agricultural sector with particular emphasis on small and marginal farmers and agricultural labourers.
2. They promote the welfare of economically and socially backward sections of the population.
3. They help the rural artisans and small entrepreneurs in rural areas by providing credit facilities.
4. Along with the agriculture, they are expected to help small business units and self employment schemes and thereby promote the all-round development of village societies.
5. They mobilize deposits of rural people.
6. They provide subsidiary services like commercial bank.

Cooperation means voluntary association on the basis of equality and for some common purpose. The basic principle of cooperation is each for all and all for each’. In the words of H. Calvert, Cooperation then is from of organization wherein persons voluntarily associate together as human beings on the basis of equality for the promotion of their economic interest. Cooperative bank is institution established on the cooperative basis and dealing in ordinary banking business. Like other banks, the cooperative banks are funded by collecting funds through shares, deposits etc.

The co-operative banks are established under the Co-operative Societies Acts of the states concerned. The co-operative banks are basically rural oriented and function on the principles/ideas of co-operation. They have three tier set-up and sub-divided as follows –

1. State Co-operative Banks : State cooperative banks are the apex institutions in the three tier cooperative credit structure, operating at the state level. Every state has a state cooperative bank. State cooperative banks occupy a unique position in the cooperative credit structure
2. Central/District Co-operative Banks at District Level : Central cooperative banks are in the middle of the three tier cooperative credit structure Central cooperative banks are of two types :
3. There can be cooperative banking unions whose membership is open only to cooperative societies. Such cooperative banking unions exist in Haryana, Punjab, Rajasthan, Orissa, and Kerala,
4. There can be mixed central cooperative banks whose membership is open to both individuals and cooperative societies.
5. Primary Credit Societies at village level : Primary agricultural credit society forms the base in the three tier cooperative credit structure. It is a village level institution which directly deals with the rural people. It encourages savings among the agriculturists, accepts deposits from the, gives loans to the needy borrowers and collects repayments.

The co-operative banks also perform the basic functions of banking and differ from the commercial banks as follows :

1. The commercial banks are established under the central enactment viz, the Companies Act, 1956 or a separate Act passed by the Parliament, while the co-operative banks are established under the Co-operative Societies Acts of the States concerned.
2. The co-operative banks have three tier set-up as stated above, while the commercial banks are organized on unitary basis.
3. Only the State Co-operative banks have access to the Reserve Bank of India, whereas every commercial banks which is a scheduled bank is entitled to avail of the refinance facilities from the Reserve Bank of India.
4. The co-operative banks function within a limited area/jurisdiction only viz, particular state or district or to a local area (in case of a society)., whereas the jurisdiction of commercial banks extends to other district, states and also other counties.
5. The Reserve Bank of India has full / complete control over the commercial banks, whereas its control over co-operative banks is partial.
6. Co-operative banks function on the principles/ideals of co-operation, while the commercial banks function on sound business principles and profit motive.

The banks, which aim to promote trade, commerce and finance and to develop the economy of our country may be divided into two categories namely :

1. Industrial Development Banks, and
2. Land Development Banks.

Industrial sector is playing vital role in the economy of any nation and hence the government takes all necessary steps by providing financial assistance through financial organizations for industrial development. Industrial banks, also known as investment banks, mainly meet the medium-term and long-term financial needs of the industries. Such long-term needs cannot be met by the commercial banks which generally deal with short-term lending. The main functions of the industrial banks are :

• They accept long-term deposits
• They grant long-term loans to the industrialists to enable them to purchase land, construct factory building, purchase heavy machinery etc.
• They help selling or even write the debentures and shares of industrial firms.
• They can also provide information regarding the general economic position of the economy.

Following are some of the notable institutions/organization of industrial finance:

1. Industrial Development Bank of India.
2. Industrial Finance Corporation and
3. State Financial Corporation and
4. Industrial Credit and Investment Corporation of India Limited.

The Industrial Development Bank of India is the apex bank, which provides industrial finance. It was established in July 1964 as a wholly owned subsidiary bank of the Reserve Bank of India. On 16th February 1976 it was delinked from the Reserve Bank of India and its entire Share capital was transferred to the Central Government. Consequently, its role has been enlarged and has been conferred the status of principal financial organization for coordinating the functions and activities of all India term lending institutions and also to some banks under the public sector. The IDBI provides direct finance to the large scale and medium industries. It also extends indirect financial assistance to the other industrial establishments as stated below :

1. The IDBI refinances the industrial loans sanctioned by the State Financial Corporations, State Industrial Development Corporations, Commercial Banks, Co-operative Banks, Regional Rural Banks etc.
2. It provides financial assistance by re-discounting of bills and
3. It provides seed capital assistance granted to new entrepreneurs through the State Financial Corporation, State Industrial Development Corporations etc.

The Industrial Finance Corporation of India is the first Industrial Development Bank in India. It was established in the year 1948 with the main objective to provide finance to the newly established industries for the purpose of accommodation and fixed assets. It has been contributed 50% by the Industrial Development Bank of India and 50% by the Scheduled Banks. It raises its resources by issuing bonds in the market, borrowing from Industrial Development Bank of India, Central Government and other financial institutions and foreign credits.

The Industrial Finance Corporation provides financial assistance to large public limited companies and cooperative societies and does not cover the small and medium sized industries. In order to meet the varied financial needs of small and medium sized industries, the Government of India passed the State Finance Corporations Act in 1951, which empowers the State governments to establish such Corporations in their states.

Functions : The functions of the State Financial Corporations are summarized below:

1. The SFCs have been established to provide long-term finance to small scale and medium sized industrial concerns organized as public or private companies, corporations, partnership or proprietary concerns.
2. The SFCs can grant advances to the industrial concerns repayable within a period of 20 years.
3. The SFCs guarantee loans raised by the industrial concerns in the market or from scheduled or cooperative banks and repayable within 20 years.
4. The SFCs subscribe to the debentures of the industrial concerns repayable within a period of 20 years.
5. The SFCs guarantee loans raised by the industrial concerns from scheduled or cooperative banks and repayable within 20 years.
6. The SFCs underwrite the issue of stocks, shares, bonds and debentures by industrial concerns.

The Industrial Credit and Investment Corporation of India Limited was established as a Joint Stock Company in 1955. Its main objective was to channelize the funds market in the country. Its entire share capital was held by commercial banks, insurance companies which were then in the private sector and were not nationalized, and individuals.

(State Level Land Development Banks and Primary Land Development Banks)

The Land Developments Banks are the co-operative societies/institutions, which provide long term credit facilities in the agricultural sector. The main objective behind the establishment of the Land agricultural sector. The main objective behind the establishment of the Land Development Banks is agricultural development. The structure of these banks is two tier i.e. i) State Level Land Development Banks and ii) Primary Land Development Banks. The central land development banks are located at state level, while the primary land development banks are located at the district and taluka level guaranteed by the State Governments and subscribed by the Central and State Governments.

It was set up as a Joint Stock Company in 1968 by the Indian Banks Association. Its main object is to help the commercial banks in financing the agricultural projects. There are about 17 banks, which induce the State Bank of India and other nationalized banks are the share holders of this corporation. It is now functioning as a Rural Development Consultancy Organization. It has built up expertise in this field and is engaged in the formulation of projects and development plans at the instance of member banks, State Governments and the Central Government.

With the increasing role of Institutional credit in the integrated rural development of the country, it was felt necessary for a single broad based organization which would not only extend adequate financial assistance to the various credit institutions of the rural areas but also provide guidance in all the mattes concerning the formulation and implementation of rural developments programs. So far all such functions have been performed by the Reserve Bank of India and the Agricultural Refinance and Development Corporation (ARDC). In 1981, the Committee to Review Arrangement for Institutional Credit for Agriculture and Rural Development (CRAFICARD), set up by the Reserve Bank of India, recommended the establishment of the National Bank for Agriculture and Rural Development (NABARD). The recommendation was approved by the government and consequently NABARD came into existence on July 12, 1982 (NABARD) is the apex development bank for agriculture and rural development. It was established on July 12, 1982 by merging the Agricultural Credit Department and Rural Planning and Credit Cell of the Reserve Bank of India, and the entire undertaking of Agricultural Refinance and Development Corporation.

The functions of the NABARD are three tier, namely:

1. The credit functions
2. The development functions, and
3. The regulation functions.

Exchange Banks are those banks which deal with foreign exchange and have specialized in financing foreign trade. These banks are foreign banks and have their head offices located outside the country. Although the main business of these banks is financing of foreign trade, they also perform normal commercial banking functions and thus compete with local commercial banks.

The main functions of exchange banks is to finance foreign trade. There are two aspects of financing foreign trade (a) financing exports, and (b) financing imports.