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Types of Banks & NBFCs

IBPS PO · Banking Awareness

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Core Concept

Read this first — the foundation of the topic

→Based on Ownership

* - Public Sector Banks: Government owns majority stake (>51%)

✏️Examples

SBI, PNB, BOB - Private Sector Banks: Private ownership

✏️Examples

HDFC, ICICI, Axis - Foreign Banks: Headquarters outside India

✏️Examples

Citibank, Standard Chartered - Regional Rural Banks: Joint venture of Central Govt (50%) + State Govt (15%) + Sponsor Bank (35%) *2

→Based on Functions

* - Commercial Banks: Accept deposits, provide loans - Cooperative Banks: Serve specific communities - Development Banks: Long-term financing for industries *3

→Based on Operations

* - Scheduled Banks: Listed in RBI's Second Schedule, minimum capital Rs 5 lakh - Non-Scheduled Banks: Not in RBI's Second Schedule NBFC Classification NBFCs are categorized as: - Asset Finance Companies (AFC) - Investment Companies (IC) - Loan Companies (LC) - Infrastructure Finance Companies (IFC) - Microfinance Institutions (MFI) - Housing Finance Companies (HFC) Key Differences: Banks vs NBFCs - Banks can accept demand deposits; NBFCs cannot - Banks are part of payment system; NBFCs are not - Banks have deposit insurance; NBFCs don't - Minimum capital for banks: Rs 500 crore; NBFCs: Rs 2 crore Exam Pattern Recognition Questions focus on: ownership patterns, regulatory differences, capital requirements, and specific examples of each category. Shortcut Formula RRB Ownership Split: Remember '50-15-35' (Central-State-Sponsor Bank) PSB Identification: If government stake >51% = PSB Worked Example 1 Question: If Central Government holds 52%, State Government holds 8%, and ICICI Bank holds 40% in a bank, what type is it

→Solution

1

Check government ownership = 52% + 8% = 60%

2

Since total government ownership >51%, it's a Public Sector Bank

3

Since it involves Central + State + Private bank, it could be RRB structure Answer: Regional Rural Bank (RRB) Worked Example 2 Question: A financial company accepts fixed deposits for 2 years minimum, provides car loans, but cannot issue cheques. What is it

→Solution

1

Accepts deposits - financial service ✓

2

Cannot issue cheques - Not a bank

3

Provides specific loans (car) - Lending function

4

Fixed deposits only (no demand deposits) - NBFC characteristic Answer: Non-Banking Financial Company (NBFC) - Asset Finance Company Exam Tricks 1

🔑PSB Quick Check

Government ownership >51% = PSB 2

→NBFC vs Bank

If 'demand deposits' or 'cheques' mentioned → Bank; otherwise NBFC 3

📋RRB Pattern

Always involves three entities (Central, State, Commercial Bank) Most Common Mistake Students confuse 'Private Sector Bank' with 'Foreign Bank'

💡Remember

Private banks are Indian companies with private ownership (HDFC, ICICI). Foreign banks have headquarters outside India (Citibank, HSBC). Ownership location, not operational location, determines the category. Memory Tip Use 'COPS' for bank types: Commercial, Cooperative, Public, Scheduled. For NBFCs, remember 'AILS': Asset, Investment, Loan, Specialized companies.

🔑 Key Points

Public Sector Banks have government ownership >51%, Private banks have private majority ownership
RRB ownership formula: Central Govt (50%) + State Govt (15%) + Sponsor Bank (35%)
NBFCs cannot accept demand deposits or issue cheques, unlike commercial banks
Scheduled banks need minimum capital of Rs 5 lakh and RBI Second Schedule listing
Foreign banks have headquarters outside India, not just foreign operations
Quick NBFC identification: No demand deposits + No cheque facility = NBFC
Cooperative banks serve specific communities or groups with common interests
Development banks focus on long-term industrial and infrastructure financing
Minimum capital for new banks: Rs 500 crore; for NBFCs: Rs 2 crore
PSB memory trick: Government stake >51% = Always Public Sector Bank

📌 Exam Facts

RBI Second Schedule listing requires minimum capital of Rs 5 lakh for scheduled banks
New commercial bank license requires minimum capital of Rs 500 crore
NBFC registration requires minimum capital of Rs 2 crore
RRB ownership structure: 50% Central Government, 15% State Government, 35% Sponsor Bank
SBI is India's largest public sector bank with government holding majority stake
Scheduled Commercial Banks are governed by Banking Regulation Act, 1949
NBFCs are regulated under RBI Act, 1934 and Companies Act, 2013
Foreign banks in India include Citibank, Standard Chartered, HSBC, and DBS Bank

🚀 60-Second Revision

Remember: Government ownership >51% = Public Sector Bank classification
Formula: RRB structure = 50-15-35 (Central-State-Sponsor Bank ownership)
Trap: Private banks are Indian private companies, Foreign banks have overseas headquarters
Key difference: Banks accept demand deposits and issue cheques, NBFCs cannot do both
Quick check: Scheduled banks must be in RBI Second Schedule with Rs 5 lakh minimum capital
NBFC types: Asset, Investment, Loan, Infrastructure, Microfinance, Housing Finance Companies
Remember: All scheduled commercial banks have deposit insurance, NBFCs do not

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