Banking is a legally defined activity, which means that it is governed by strict rules and regulations.The Banking Regulation Act,1949 defines and governs the banking activities in India. 

The banks can be classified into more than one categories:

a) On the basis of RBI Act: Schedule Banks and Non Schedule Banks.

b) On the basis of ownership: Public Sector and Private Sector banks

c) On the basis of Laws: Statutory banks, Nationalised banks, RRBs and Cooperative Banks.

d)  Miscellaneous: Payment Banks, Small Banks etc. 

1. Schedule Banks: Banks which have been included in the second scheduled of the RBI Act, 1934”. The banks included in this category should fulfil two conditions: a) The paid up capital and collected fund of the bank should not be less than Rs. 5 lac.; b) Any activity of the bank will not adversely affect the interests of the depositors. 

2. Non- Scheduled Banks: The banks which are not included in the list of the scheduled banks are called the Non- Scheduled Banks. At present there are only 3 such banks in the country. Non- Scheduled Banks have to follow CRR conditions. These banks can have CRR fund with themselves as no compulsion has been made by the RBI to deposit it in the RBI. Non- Scheduled Banks are also not eligible for having loans from the RBI for day to day activities but under the emergency conditions RBI can grant loan to them.

3. Public Sector Banks: Public Sector Banks are the banks whose more than 50% shareholding lies with the central or state government. These banks are listed on stock exchange. In the Indian Banking System, PSB’s are the largest category of banks and emanated before independence.

4. Private Sector Banks: Banks whose greater part of the equity is held by private shareholders and entities rather than government is known as private sector banks. 

Some important Private Sectors banks in India:

5. Nationalised Banks: Nationalization refers to private assets being transferred to the public sector to be operated by or owned by the state.  The opposite of nationalization is privatization. The Banks which were earlier in private sector were transferred to the public Sector by the act of nationalization. The first nationalized bank was Imperial Bank of India (under the SBI Act of 1955) and re-christened as State Bank of India (SBI) in July 1955. In 1969 , 14 banks were nationalized and in 1980, the second phase of nationalization of Indian banks took place, in which 7 more banks were nationalized. Currently total 26 public sector banks in India all were Nationalized over a period of time.

6. Regional Rural Banks:  Regional Rural Banks (RRBs) were established in 1975 under the provisions of the Ordinance promulgated on the 26th September 1975 and followed by Regional Rural Banks Act, 1976 with the aim of developing rural economy in all areas like agriculture, trade, commerce, industry and other productive activities in the rural areas, credit and other facilities, particularly to small and marginal farmers, agricultural labourers, artisans and small entrepreneurs, etc. RRBs were set up on the recommendations of the Narasimham Working Group. The first RRB to be set up was the Prathama Bank, sponsored by Syndicate Bank on October 2, 1975 in Uttar Pradesh.  The regulatory authority of these RRBs is NABARD. The percentage shares of the Government of India, the concerned State Government and the bank, which had sponsored the RRB is in the proportion of 50%, 15% and 35%. Sponsor bank can be any Nationalized Commercial Bank. The Chakrabarty Committee reviewed the financial position of all RRBs in 2010 and recommended for recapitalization. Under the Dr Vyas Committee Recommendations, amalgamation of RRBs took place in 2013. As a result of amalgamation, number of the RRBs reduced from 196 to 53 as on1st March 2019. All states in India have RRBs, except Sikkim and Goa.

7. Cooperative Banks: These banks are cooperative societies registered under the respective cooperative societies act. They are governed by the state cooperative societies act and for their banking functions they are governed under Banking regulation Act. Cooperative banks are also supervised by NABARD.

Development Financial Institutions:

National Bank for Agriculture and Rural Development (NABARD)

• Headquarter: Mumbai, Maharashtra
• Chairman: Harsh Kumar Bhanwala
• Established: 12 July 1982
• National Bank for Agriculture and Rural Development (NABARD) is an apex development bank in India. The Committee to Review Arrangements for Institutional Credit for Agriculture and Rural Development (CRAFICARD) under the Chairmanship of Shri B. Sivaraman, conceived and recommended the establishment of the National Bank for Agriculture and Rural Development (NABARD).
• The main objective behind the set up of NABARD was to uplift rural India by increasing the credit flow for elevation of agriculture & rural non farm sector.

Small Industries Development Bank of India (SIDBI)

• Headquater: Lucknow
• Chairman & Managing Director: Mohammad Mustafa
• Established: 2 April 1990
• Small Industries Development Bank of India (SIDBI), set up on April 2, 1990 under an Act of Indian Parliament, presently acts as the Principle Financial Institution for the Promotion, Financing and Development of the Micro, Small and Medium Enterprise (MSME) sector.

Classification of MSMEs on the basis of Turnover:

• Micro enterprise: It will be unit with annual turnover does not exceed Rs. 5 crore. 

• Small enterprise: It will be unit with annual turnover is more than Rs. 5 crore but does not exceed Rs. 75 crore.

• Medium enterprise: It will be unit with annual turnover is more than Rs. 75 crore but does not exceed Rs. 250 crore.... 

Insurance Regulatory and Development Authority of India (IRDAI)

• The Insurance Regulatory and Development Authority of India (IRDAI) is an autonomous, statutory body tasked with regulating and promoting the insurance and re-insurance industries in India.
• It was constituted by the Insurance Regulatory and Development Authority Act, 1999.
• The agency's headquarters are in Hyderabad, Telangana, where it moved from Delhi in 2001
  Chairman of IRDAI is Mr Subhash Chandra Khuntia. 

Export-Import Bank of India (EXIM Bank)

• Established: January 1, 1982
• Headquarter: Mumbai, Maharashtra.
• CEO: David Rasquinha
• Export-Import Bank of India (EXIM Bank) is a specialized financial institution, wholly owned by Government of India, set up in 1982 under act passed by parliament, for financing, facilitating and promoting foreign trade of India.

Securities and Exchange Board of India (SEBI)

• The Securities and Exchange Board of India is the regulator for the securities market in India. It was established in 1988 and given statutory powers on 30 January 1992 through the SEBI Act, 1992. 
• The Securities and Exchange Board of India (SEBI) is the designated regulatory body for the finance and investment markets in India. The board plays a vital role in maintaining stable and efficient financial and investment markets by creating and enforcing effective regulation in India’s financial marketplace.
• Headquarter: Mumbai, Maharashtra.
• Chairman: Ajay Tyagi.

Export Credit Guarantee Corporation of India Limited (ECGC)

• Headquarter: Mumbai, Maharashtra.
• Chairman: Geetha Muralidhar
• ECGC Ltd. (Formerly known as Export Credit Guarantee Corporation of India Ltd.) wholly owned by Government of India, was set up in 1957 with the objective of promoting exports from he country by providing credit risk insurance and related services for exports. Over the years it has designed different export credit risk insurance products to suit the requirements of Indian exporters. ECGC is essentially an export promotion organization, seeking to improve the competitiveness of the Indian exports by providing them with credit insurance covers.

National Housing Bank (NHB)

• Established: The bank started its operations from July 1988. National Housing Bank was established under section 6 of National Housing Bank Act (1987).
• Headquarter: New Delhi
• Chairman: Sriram Kalyanaraman.
• National Housing Bank (NHB) was set up by an Act of Parliament in 1987. NHB is an apex financial institution for housing.

National Payments Corporation of India (NPCI)

• Headquarter: Mumbai
• Head: Chairman – Sh. Balachandran
• MD & CEO: A.P. Hota
• The umbrella organisation for all retail payments system in India,National Payments Corporation of India (NPCI) has reached a major milestone of successfully linking 15 crore bank accounts with Aadhaar number.

Deposit Insurance and Credit Guarantee Corporation (DICGC)

• Established: Under DICGC act 1961 on 15 July 1978.
• Subsidiary of RBI 
• Head office: Mumbai
• Chairman: N.S. Vishwanathan

Micro Units Development and Refinance Agency Bank(MUDRA):

• Micro Units Development and Refinance Agency Bank (or 'MUDRA Bank) is a public sector financial institution in India. It provides loans at low rates to micro-finance institutions and non-banking financial institutions which then provide credit to MSMEs. It was launched by Prime Minister Narendra Modi on 8 April 2015.Headquarter: mumbai

The bank will classify its clients into three categories and the maximum allowed loan sums will be based on the category:[5]

• Shishu : Allowed loans up to ?50,000 (US$700)
• Kishore : Allowed loans up to ?5 lakh (US$7,000)
• Tarun : Allowed loans up to ?10 lakh (US$14,000)

Government has decided to provide an additional fund of ?1 trillion (US$14 billion) to the market and will be allocated as

• 40% to Shishu
• 35% to Kishor
• 25% to Tarun

Those eligible to borrow from MUDRA bank are:

• Small manufacturing unit
• Shopkeepers
• Fruit and vegetable vendors
• Artisans

Miscellaneous Banks:

Small Banks

• The purpose of the small banks will be to provide a whole suite of basic banking products such as deposits and supply of credit, but in a limited area of operation.
• Resident individuals with 10 years of experience in banking and finance, companies and Societies will be eligible as promoters to set up small banks. NFBCs, micro finance institutions (MFIs), and Local Area Banks (LABs) can convert their operations into those of a small bank. 
• Branch expansion: For the initial three years, prior approval will be required.
• The maximum loan size and investment limit exposure to single/group borrowers/issuers would be restricted to 15 per cent of capital funds.
• Loans and advances of up to Rs 25 lakhs, primarily to micro enterprises, should constitute at least 50 per cent of the loan portfolio.
• For the first three years, 25 per cent of branches should be in unbanked rural areas.
• Minimum capital: 100 crore.

Payments Banks

• Objective of payments banks is to increase financial inclusion by providing small savings accounts, payment/remittance services to migrant labour, low income households, small businesses, other unorganised sector entities and other users by enabling high volume-low value transactions in deposits and payments/remittance services in a secured technology-driven environment.
• Those who can promote a payments banks can be a non-bank PPIs, NBFCs, corporate’s, mobile telephone companies, super market chains, real sector cooperatives companies and public sector entities. Even banks can take equity in Payments Banks.
• Payments Banks can accept demand deposits (only current account and savings accounts). They would initially be restricted to holding a maximum balance of Rs 100,000 per customer. Based on performance, the RBI could enhance this limit.
• The banks can offer payments and remittance services, issuance of prepaid payment instruments, internet banking, functioning as business correspondent for other banks.
• No credit lending is allowed for Payments Banks.
• The float funds can be parked only in less than one year G-Secs.
• Minimum capital: 100 crore.

Types of Banking

Retail Banking:

• Retail banking means banking where transactions are held directly with customers and there are no transactions with other banks or corporations. The banks provide all kinds of personal banking services to customers like saving accounts, transactional accounts, mortgages, personal loans, debit and credit cards etc.

Wholesale Banking:

• Wholesale banking involves banking services for high net-worth clients like corporate, commercial banks, mid-size companies etc. 
• It can be equally risky for a firm if all the funds are parked in one place only and there is no diversification of risks.

Universal Banking

• Universal banking is a system of banking under which big banks undertake a variety of banking services like commercial banking, investment banking, mutual funds, merchant banking, insurance etc. It involves providing all these services under one roof by financial experts who can handle multiple financial products easily.

Narrow Banking

• The Narrow Banking is very much an antonym to the Universal Banking. Narrow Banking means Narrow in the sense of engagement of funds and not in activity. So, simply, Narrow Banking involves mobilizing the large part of the deposits in Risk Free assets such as Government Securities.

Islamic Banking

• Islamic banking is banking or banking activity that is consistent with the principles of sharia and its practical application through the development of Islamic economics.

Shadow Banking

• Shadow banking refers to all the non-bank financial intermediaries that provide services similar to those of traditional commercial banks. They generally carry out traditional banking functions, but do so outside the traditional system of regulated depository institutions. 

Core Banking Solution(CBS)

• In this all the branches of Bank are interlinked to a common server so that the data is accessible anywhere and anytime.