India's Financial Sector – Understanding the structure.. (Part I)

The role of financial sector in the development of any economy is undebatable. This is even more critical in socialistic economies like India where sector functions with multiple objectives including financial inclusion, that being the reason for nationalisation of banks in 1970s. However, the structure of the sector has become complex over last few decades with newer segments added to meet special needs of particular section. A look at the structure of the sector in the country..

Financial sector can be broadly classified into three categories –  Scheduled Commercial Banks (SCBs), Co-operative Banks (CBs) and Non-banking financial institutions (NBFI). Of these, SCBs and NBFI have an urban focus, CBs play more important role in meeting rural needs. Of these, CBs are classified into a large number of subcategories leading to considerable complexity in managing and regulating them.
Scheduled Commercial Banks (SCBs) are the backbone of Indian financial sector and are further classified into Public Sector (27 in numbers) , Private (21) and Foreign Banks (45) and operate through total of over 1.2 lakh branches. As per RBI report, SCBs account for nearly Rs 94 lakh crore of deposits and Rs 74 lakh crore of advances. Of this, nearly two-thirds is managed by PSBs. Despite the primarily urban focus, SCBs have stringent requirement to serve rural market also, having nearly 40% branches in rural area and more than 5 lakh banking correspondents.
Other than SCBs, the financial intermediation job is undertaken by a vast network of Co-operative banks. Unlike SCBs, co-ops are very large in numbers but have limited reach. The co-op segment comprises of  urban cooperative banks (UCBs), 1,574 in numbers and rural cooperative banks. Rural co-ops is further classified into two tier structure comprising of short term and long-term loan institutions. The short term institutions comprise of State co-op banks (32) and district co-op (370) and primary agriculture co-op societies (PACs).
PACs, numbering 92,789, are single branch entity, owned by local people themselves, lending to members only. Long term institutions comprise of primary co-op agriculture & rural development banks (PCARDBs) and state co-op agriculture & rural development banks (SCARDBs). There are currently  702 PCARDBs and 20 SCARDDBs. Rural India is also served by another channel called regional rural banks (RRBs) totalling 56 in numbers. RRBs were set up in 1970s as joint venture between central government, state govt and an specified SCBs who was charged with its operations.
The third category of financial intermediaries, non-banking financial institutions (NBFI), comprises of NBFCs, AIFIs etc.
(Image courtesy of Stuart Miles at

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