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IBPS PO Types of Banks & NBFCs

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This page covers IBPS PO Types of Banks & NBFCs with complete concept notes, 23 graded practice MCQs, key points and exam-specific tips. Free to study.

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Concept Notes

Types of Banks & NBFCs— Rules & Concept

Core ConceptRead this first — the foundation of the topic
Three subtypes

(a) Public Sector Banks — Government owns more than 50% stake

Example

SBI, PNB, Bank of Baroda. Currently 12 Public Sector Banks in India (after mergers in 2020). (b) Private Sector Banks — Private shareholders own them

Example

HDFC Bank, ICICI Bank, Axis Bank. (c) Foreign Banks — Headquartered abroad, operate branches in India

Example

Citibank, Standard Chartered, HSBC. 3. SMALL FINANCE BANKS (SFBs) These serve small borrowers — farmers, small businesses, unorganised sector. They can accept deposits AND give loans

Minimum capital required

Rs. 200 crore

Examples

AU Small Finance Bank, Ujjivan SFB, Jana SFB. 4. PAYMENTS BANKS They can ONLY accept deposits (maximum Rs. 2 lakh per customer). They CANNOT give loans or issue credit cards. They can offer debit cards, net banking, mobile banking

Examples

Airtel Payments Bank, India Post Payments Bank, Paytm Payments Bank (license cancelled in 2024)

Minimum capital

Rs. 100 crore. 5. COOPERATIVE BANKS Owned and operated by members. Work on cooperative principles

Two types

Urban Cooperative Banks and Rural Cooperative Banks. Regulated jointly by RBI and State Governments (or NABARD for rural cooperatives). 6. REGIONAL RURAL BANKS (RRBs) Set up under RRB Act 1976. Serve rural areas

Ownership

Central Government 50%, Sponsor Bank 35%, State Government 15%.

Memory HookRemember this — never confuse the two again

as the 50-35-15 Rule. 7. DEVELOPMENT BANKS Provide long-term finance for industry and agriculture. Examples: NABARD (agriculture), SIDBI (small industries), NHB (housing), EXIM Bank (export-import). ━━━━━━━━━━━━━━━━━━━━━━━━━━━━ NBFCs — NON-BANKING FINANCIAL COMPANIES ━━━━━━━━━━━━━━━━━━━━━━━━━━━━ NBFCs are registered under the Companies Act. Regulated by RBI. They CAN lend money. They CANNOT accept demand deposits (savings/current account deposits). They are NOT part of the payment and settlement system. Key NBFC Types you must know: - NBFC-MFI: Microfinance Institutions (serve poor borrowers) - NBFC-Factor: Involved in factoring business - IDF-NBFC: Infrastructure Debt Fund - CIC: Core Investment Company SHORTCUT — The 3 CANNOT Rule for NBFCs: NBFCs CANNOT (1) accept demand deposits, (2) issue cheques drawn on itself, (3) have deposit insurance from DICGC. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━

Formula BlockMemorise — at least one formula appears in every paper

━━━━━━━━━━━━━━━━━━━━━━━━━━━━

RRB Ownership Formula: Centre 50% + Sponsor Bank 35% + State Govt 15% = 100%

Payments Bank Deposit Limit: Max Rs. 2 lakh per customer

SFB Minimum Capital: Rs. 200 crore

Payments Bank Minimum Capital: Rs. 100 crore

Public Sector Banks in India (post-2020 mergers): 12 banks

━━━━━━━━━━━━━━━━━━━━━━━━━━━━

Exam PatternsWhat examiners ask — read before attempting PYQs

— WHAT GETS ASKED ━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Examiners love to test: - Can Payments Banks give loans? (Answer: NO) - Who regulates Cooperative Banks? (Answer: RBI + State Government/NABARD) - What is the deposit limit in Payments Bank? (Answer: Rs. 2 lakh) - RRB ownership split (Answer: 50-35-15) - Is NBFC covered by DICGC? (Answer: NO) ━━━━━━━━━━━━━━━━━━━━━━━━━━━━ SHORTCUTS & TRICKS ━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Trick 1 — PAYMENTS BANK = PAY only, no PLAY Pay = accept deposits only. No play = cannot give loans or credit cards. Trick 2 — RRB 50-35-15 Memory Aid Think: CENTRE is the biggest boss (50), SPONSOR BANK is middle (35), STATE is smallest (15). Total always = 100. Trick 3 — NBFC vs BANK one-liner test If it accepts demand deposits and issues cheques = BANK. If it only lends and cannot take demand deposits = NBFC. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━

Worked ExampleSolve this step-by-step before moving on
1
Step 1

Recall RRB ownership — Sponsor Bank = 35%

2
Step 2

Calculate — 35% of 500 = (35/100) x 500 = Rs. 175 crore Answer: Rs. 175 crore ━━━━━━━━━━━━━━━━━━━━━━━━━━━━ WORKED EXAMPLE 2 ━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Question: XYZ Finance Ltd. lends money to small businesses but does not have a banking licence. A customer wants to open a savings account there. Can they?

1
Step 1

XYZ Finance Ltd. is an NBFC (no banking licence, only lends).

2
Step 2

NBFCs CANNOT accept demand deposits (savings/current accounts).

3
Step 3

Therefore, the customer CANNOT open a savings account at XYZ Finance Ltd. Answer: No. NBFCs cannot accept demand deposits. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━ #1 MOST COMMON TRAP — DO NOT FALL FOR THIS ━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Students confuse Payments Banks with Small Finance Banks. Both are newer types of banks. But the KEY difference is: - Payments Bank = NO loans, NO credit cards, deposit limit Rs. 2 lakh - Small Finance Bank = CAN give loans, NO deposit limit restriction like Payments Bank Examiners deliberately mix these two in options. Always check: Can it give loans? If YES = SFB. If NO = Payments Bank.

Key Points to Remember

  • RBI is India's Central Bank — established 1935, nationalized 1949; it does NOT deal directly with the public.
  • Public Sector Banks = Govt. owns more than 50% stake; currently 12 PSBs in India after 2020 mergers.
  • RRB Ownership Formula: Central Govt 50% + Sponsor Bank 35% + State Govt 15% — always remember 50-35-15.
  • Payments Banks CANNOT give loans or issue credit cards; maximum deposit limit per customer = Rs. 2 lakh.
  • Small Finance Banks CAN accept deposits AND give loans; minimum capital requirement = Rs. 200 crore.
  • Payments Bank minimum capital requirement = Rs. 100 crore (half that of Small Finance Banks).
  • NBFCs 3 CANNOT Rule: Cannot accept demand deposits, cannot issue cheques on themselves, not covered by DICGC insurance.
  • NABARD regulates Rural Cooperative Banks and provides refinance to agricultural sector; HQ in Mumbai.
  • Development Banks quick list: NABARD = agriculture, SIDBI = small industries, NHB = housing, EXIM Bank = export-import.
  • NBFC vs Bank one-liner: If it accepts demand deposits and issues cheques = Bank; if it only lends = NBFC.

Exam-Specific Tips

  • RBI was established on April 1, 1935 under the RBI Act 1934, and nationalized on January 1, 1949.
  • As of 2020 (after mega mergers), India has exactly 12 Public Sector Banks, down from 27 in 2017.
  • RRB Act was enacted in 1976; ownership split is Central Govt 50%, Sponsor Bank 35%, State Govt 15%.
  • Payments Banks cannot accept deposits exceeding Rs. 2 lakh per individual customer account.
  • Minimum paid-up capital for Payments Bank = Rs. 100 crore; for Small Finance Bank = Rs. 200 crore.
  • NBFCs are registered under the Companies Act and regulated by RBI but are NOT covered by DICGC deposit insurance.
  • Paytm Payments Bank had its licence cancelled/restricted by RBI effective March 2024 due to compliance issues.
  • NABARD (National Bank for Agriculture and Rural Development) was established in 1982 and is headquartered in Mumbai.
Practice MCQs

Types of Banks & NBFCs — Practice Questions

23graded MCQs · easy to hard · full solution & trap analysis · showing 20 of 23

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Practice 1medium

A Small Finance Bank (SFB) in India is permitted to accept deposits up to a maximum maturity of how many years, as per RBI guidelines?

Practice 2medium

Which of the following is a key distinguishing feature between Scheduled Commercial Banks and Non-Scheduled Banks in India?

Practice 3medium

An NBFC (Non-Banking Financial Company) is primarily regulated by which of the following in India?

Practice 4medium

Which category of bank is specifically established to provide credit and other financial services to the agricultural sector and rural areas in India?

Practice 5medium

Which of the following is NOT a function of a Payment Bank as defined by RBI?

Practice 6medium

Under the Banking Regulation Act, 1949, which of the following correctly describes the role of a Non-Banking Financial Company (NBFC)?

Practice 7medium

Which category of bank is primarily focused on providing financial services to the agricultural and rural sectors in India?

Practice 8medium

Which of the following statements correctly describes the relationship between a bank's role as a financial intermediary and its core functions?

Practice 9medium

Which of the following is a correct statement regarding the regulatory framework for Cooperative Banks in India?

Practice 10medium

Which of the following statements correctly distinguishes between Scheduled Commercial Banks (SCBs) and Non-Banking Financial Companies (NBFCs) under RBI regulation?

Practice 11medium

Under RBI guidelines, a Non-Banking Financial Company (NBFC) is primarily engaged in which of the following activities, and what is the minimum net owned funds (NOF) requirement for an NBFC to be registered with RBI?

Practice 12hard

Under the Banking Regulation Act, 1949, which of the following correctly distinguishes between a Scheduled Bank and a Non-Scheduled Bank in India?

Practice 13hard

Which of the following statements accurately reflects the regulatory treatment of Small Finance Banks (SFBs) under the Banking Regulation Act, 1949, as distinct from Universal Banks?

Practice 14hard

Under the Payment and Settlement Systems Act, 2007, which of the following payment systems is classified as a 'Systemically Important Payment System' (SIPS) by RBI and operates on a Real-Time Gross Settlement (RTGS) basis?

Practice 15hard

A Payment Bank licensed by RBI differs from a Small Finance Bank in which of the following critical regulatory aspects?

Practice 16hard

Under the RBI Act, 1934, which category of Non-Banking Financial Company (NBFC) is subject to the most stringent capital adequacy requirements and is classified as 'Systemically Important'?

Practice 17hard

Which of the following statements correctly describes the regulatory distinction between a Scheduled Commercial Bank (SCB) and a Cooperative Bank under Indian banking law?

Practice 18hard

Under the Banking Regulation Act, 1949, which of the following correctly distinguishes between the regulatory scope of Scheduled Commercial Banks (SCBs) and Non-Banking Financial Companies (NBFCs) in India?

Practice 19hard

Which of the following statements correctly distinguishes between a Scheduled Commercial Bank and a Non-Scheduled Bank under the Banking Regulation Act, 1949?

Practice 20hard

An NBFC (Non-Banking Financial Company) is classified as a 'Systemically Important NBFC' (SI-NBFC) by RBI. Which of the following regulatory requirements does an SI-NBFC face that a regular NBFC does not?

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60-Second Revision — Types of Banks & NBFCs

  • Remember: RRB ownership = 50 (Centre) + 35 (Sponsor Bank) + 15 (State) — this is a direct MCQ formula every exam.
  • Remember: Payments Bank deposit limit = Rs. 2 lakh max; CANNOT give loans; min capital Rs. 100 crore.
  • Remember: Small Finance Banks CAN give loans — do NOT confuse with Payments Banks which cannot lend.
  • Formula: Public Sector Bank = Government stake MORE THAN 50%; currently 12 PSBs in India after 2020 mergers.
  • Trap: NBFCs cannot accept DEMAND deposits (savings/current accounts) — they can accept some term deposits but NOT demand deposits.
  • Remember: RBI established 1935, nationalized 1949; NABARD established 1982 — these years are frequently asked.
  • Trick: NBFC not covered by DICGC = no deposit insurance protection for customers — this is a key differentiator from banks.
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