Evolution & Structure of Indian Banking: Revision and Practice

How the six lessons connect#

Module 02 is easiest to remember as a sequence of questions.

BA-02-01 asks: How did Indian banking reach the modern era?#

You move from Presidency Banks to Imperial Bank, RBI, SBI, nationalisation, reforms and differentiated banking.

BA-02-02 asks: Why did ownership and policy change?#

You learn the logic behind nationalisation, social banking, prudential reform, liberalisation, private-bank entry and consolidation.

BA-02-03 asks: What does the system look like today?#

You build a map containing RBI, commercial banks, co-operative banks, specialised banks, NBFCs and financial institutions.

BA-02-04 asks: What does “scheduled” actually mean?#

You separate Second-Schedule status from ownership and business-model labels.

BA-02-05 asks: Who owns or controls the bank?#

You compare public-sector, private-sector and foreign-bank presence.

BA-02-06 asks: What specialised banking licences exist?#

You distinguish SFBs, Payments Banks and LABs.

The central lesson is:

Do not classify an Indian bank using only one label. First identify which classification lens the question is asking about.

Common Confusions - Module 02#

1. RBI vs SBI#

RBI: central bank and regulator.
SBI: Public Sector commercial bank.

2. Scheduled bank vs Public Sector Bank#

Scheduled: included in Second Schedule to RBI Act.
Public sector: ownership/control classification.

3. Scheduled bank vs Scheduled Commercial Bank#

Scheduled bank is the wider legal-status term. Scheduled Commercial Bank is a scheduled bank within the commercial-banking category.

4. Commercial bank vs co-operative bank#

Commercial and co-operative banking are different institutional forms. Both can contain scheduled entities.

5. Private-sector bank vs Small Finance Bank#

Private sector = ownership lens.
SFB = differentiated banking licence/business-model lens.

An SFB can also be privately owned.

6. Foreign bank vs bank outside RBI regulation#

Foreign banks operating in India are regulated under the Indian banking framework for their Indian operations.

7. Payments Bank vs payment app#

A Payments Bank is a licensed bank category. A fintech/payment app is not automatically a bank.

8. Small Finance Bank vs Payments Bank#

The easiest distinction:

• SFB -> can lend;
• Payments Bank -> cannot lend.

9. LAB vs RRB#

They are different institutions. LABs are local-area private banking entities; RRBs have a specific rural-banking statutory and ownership structure.

10. Nationalisation vs merger#

Nationalisation changes ownership/control into the public sector. Merger/amalgamation combines institutions.

11. SBI vs nationalised banks#

SBI is a PSB, but its historical path comes from the Imperial Bank and SBI legislation rather than the 1969/1980 nationalisation process.

12. Bank count in old notes vs current official list#

Always prefer the latest RBI/DFS source because mergers, licences and winding-up actions can change the list.

Important Exam Facts to Remember#

1. Bank of Bengal - 1806.
2. Bank of Bombay - 1840.
3. Bank of Madras - 1843.
4. Presidency Banks were amalgamated into Imperial Bank of India in 1921.
5. RBI began operations on 1 April 1935.
6. RBI was brought into public ownership from 1 January 1949.
7. Imperial Bank became SBI on 1 July 1955.
8. 14 major commercial banks were nationalised in 1969.
9. 6 more commercial banks were nationalised in 1980.
10. Narasimham Committee I is associated with 1991 financial-sector reform.
11. RBI issued new-private-sector-bank entry guidelines in 1993.
12. “Scheduled bank” means a bank included in the Second Schedule to the RBI Act, 1934.
13. Scheduled status is not an ownership classification.
14. A scheduled bank is not necessarily a Scheduled Commercial Bank; scheduled co-operative banks also exist.
15. DFS currently lists 12 Public Sector Banks.
16. RBI's current directory lists 21 private-sector banks.
17. RBI's directory lists 11 Small Finance Banks at this review date.
18. SFBs can accept deposits and lend.
19. SFB overall PSL target under the 2025 directions is 75% of ANBC/CEOBSE, whichever is higher.
20. Payments Banks cannot lend.
21. Payments Banks can issue ATM/debit cards but not credit cards under the Payments Bank model.
22. Current Payments Bank end-of-day balance limit per individual customer is ₹2 lakh.
23. RBI announced the winding up of Paytm Payments Bank Limited in July 2026.
24. Jio Payments Bank and NSDL Payments Bank have been identified by RBI as non-scheduled commercial banks.
25. RBI currently lists two Local Area Banks.
26. The original LAB scheme envisaged three contiguous districts; later eligible expansion to two more districts was permitted.
27. Foreign banks may operate in India through branches or Wholly Owned Subsidiary structures subject to RBI rules.
28. IDBI Bank is currently placed by RBI in its private-sector-bank list.

Module 02 Recap#

Indian banking evolved through a series of institutional and policy changes rather than one single reform.

The Presidency Banks - Bank of Bengal, Bank of Bombay and Bank of Madras - were merged into the Imperial Bank in 1921. RBI began operations in 1935. The Imperial Bank became SBI in 1955. The nationalisation of 14 major banks in 1969 and six more in 1980 expanded public-sector and social banking. The reform era beginning in 1991 strengthened prudential regulation, competition and market orientation, and RBI reopened entry for new private banks in 1993.

Today's banking system must be understood through multiple classification lenses. A bank can be scheduled or non-scheduled, public/private/foreign by ownership, commercial or co-operative by institutional form, and universal or differentiated by business model.

Scheduled status comes from inclusion in the Second Schedule to the RBI Act. It does not mean government ownership. Public-sector status is an ownership category. Small Finance Bank and Payments Bank are differentiated business-model categories.

SFBs can accept deposits and lend and have strong priority-sector obligations. Payments Banks focus on deposits, payments and remittances but cannot lend. LABs are geographically restricted local banks.

Finally, current lists must be kept separate from evergreen explanations. Bank mergers, conversions, licence changes and winding-up actions can make static lists obsolete quickly.

Glossary#

Amalgamation: Combination of one bank/entity with another under an approved legal/regulatory scheme.

Banking Company: A company that transacts the business of banking in India as defined under banking law.

Bank Nationalisation: Transfer of a banking enterprise into public ownership/control through law or government policy.

Banking Regulation Act, 1949: Core Indian legislation governing banking companies and RBI's regulatory powers over banking.

Commercial Bank: A bank engaged in commercial banking business; RBI's directory concept includes scheduled and non-scheduled commercial banks.

Co-operative Bank: A banking institution organised under co-operative principles and subject to the applicable co-operative and banking regulatory framework.

Differentiated Bank: A bank licensed with a specialised/restricted business model rather than the full ordinary universal-bank model.

Foreign Bank: Banking presence associated with a foreign parent, operating in India through a permitted structure such as branches or WOS.

Imperial Bank of India: Institution formed in 1921 from the Presidency Banks; transformed into SBI in 1955.

Local Area Bank (LAB): A geographically restricted local commercial bank designed to mobilise local savings and provide local credit.

Narasimham Committee: Major financial-sector reform committees associated with India's post-1991 banking reforms.

Non-Scheduled Bank: A bank not included in the Second Schedule to the RBI Act.

Payments Bank: Differentiated bank focused on demand deposits, payments and remittances; cannot undertake lending.

Presidency Banks: Bank of Bengal, Bank of Bombay and Bank of Madras.

Private Sector Bank: Bank classified under private ownership/control rather than public-sector ownership.

Public Sector Bank (PSB): Bank under government/public-sector controlling ownership; DFS currently lists 12.

Reserve Bank of India (RBI): India's central bank and principal banking regulator.

Scheduled Bank: A bank included in the Second Schedule to the RBI Act, 1934.

Scheduled Commercial Bank (SCB): A scheduled bank belonging to the commercial-banking category.

Second Schedule: Schedule to the RBI Act containing banks that have scheduled-bank status.

Small Finance Bank (SFB): Differentiated bank focused on financial inclusion through savings and credit, especially for underserved/small-borrower segments.

State Bank of India (SBI): Public Sector commercial bank created from the Imperial Bank of India in 1955.

Universal Bank: A bank permitted to undertake a broad range of banking and financial activities rather than a narrow differentiated mandate.

Wholly Owned Subsidiary (WOS): A subsidiary fully owned by its parent; foreign banks may use a WOS structure in India subject to RBI's framework.

Practice MCQs - Module 02#

Questions#

1. Which of the following was NOT one of the three Presidency Banks?#

A. Bank of Bengal
B. Bank of Bombay
C. Bank of Madras
D. Bank of Hindustan

2. The three Presidency Banks were amalgamated in 1921 to form:#

A. Reserve Bank of India
B. Imperial Bank of India
C. State Bank of India
D. Central Bank of India

3. RBI commenced operations on:#

A. 1 April 1935
B. 1 January 1949
C. 1 July 1955
D. 19 July 1969

4. The Imperial Bank of India became State Bank of India in:#

A. 1935
B. 1949
C. 1955
D. 1969

5. How many major commercial banks were nationalised in 1969?#

A. 6
B. 10
C. 14
D. 20

6. How many more commercial banks were nationalised in 1980?#

A. 4
B. 6
C. 8
D. 14

7. The committee most closely associated with the 1991 banking reform agenda was chaired by:#

A. Bimal Jalan
B. M. Narasimham
C. Y. V. Reddy
D. C. Rangarajan

8. RBI issued guidelines for entry of new private-sector banks after liberalisation in:#

A. 1980
B. 1985
C. 1991
D. 1993

9. Which pair was amalgamated with Bank of Baroda in 2019?#

A. Andhra Bank and Corporation Bank
B. Vijaya Bank and Dena Bank
C. Allahabad Bank and Syndicate Bank
D. OBC and United Bank of India

10. Oriental Bank of Commerce and United Bank of India were amalgamated with:#

A. Canara Bank
B. Indian Bank
C. Punjab National Bank
D. Union Bank of India

11. Which bank absorbed Syndicate Bank in the 2020 amalgamation?#

A. Canara Bank
B. Indian Bank
C. Union Bank of India
D. Bank of Baroda

12. Which bank absorbed Allahabad Bank in 2020?#

A. Indian Bank
B. Bank of India
C. Punjab National Bank
D. UCO Bank

13. A “scheduled bank” is a bank included in:#

A. Schedule I of the Banking Regulation Act
B. Second Schedule of the RBI Act
C. Companies Act banking schedule
D. Finance Act schedule

14. Which statement is correct?#

A. Every scheduled bank is government owned.
B. Every scheduled bank is necessarily a Scheduled Commercial Bank.
C. Scheduled status is based on inclusion in the Second Schedule to the RBI Act.
D. Non-scheduled banks are illegal.

15. “Public-sector bank” primarily refers to classification by:#

A. Schedule status
B. Ownership/control
C. Geographic reach
D. Payment technology

16. “Small Finance Bank” primarily refers to classification by:#

A. Ownership only
B. Second-Schedule status only
C. Differentiated licence/business model
D. Foreign ownership

17. Which of the following is NOT a banking-system classification lens discussed in this module?#

A. Ownership
B. Schedule status
C. Business model
D. Stock-market index weight

18. Which statement about NBFCs is correct?#

A. Every NBFC is a bank.
B. An institution can lend without being a bank.
C. NBFCs issue currency.
D. NBFC and scheduled bank mean the same thing.

19. Which is India's central bank?#

A. State Bank of India
B. Reserve Bank of India
C. Bank of India
D. NABARD

20. Which regulator is principally associated with the securities market?#

A. RBI
B. SEBI
C. PFRDA
D. IRDAI

21. How many Public Sector Banks are currently listed by the Department of Financial Services at the review date of this module?#

A. 8
B. 10
C. 12
D. 14

22. Which of the following is currently listed by RBI as a private-sector bank?#

A. Punjab National Bank
B. IDBI Bank
C. UCO Bank
D. Bank of Maharashtra

23. Foreign banks operating in India:#

A. are outside RBI regulation;
B. can operate only through representative offices;
C. may operate through branches or permitted WOS structures;
D. cannot accept deposits in India.

24. Which of the following is a foreign-bank presence in India?#

A. Standard Chartered Bank
B. Punjab & Sind Bank
C. Bank of Maharashtra
D. UCO Bank

25. Which differentiated bank is permitted to lend?#

A. Payments Bank only
B. Small Finance Bank
C. Neither SFB nor Payments Bank
D. Payments Bank and no other bank

26. A Payments Bank is NOT permitted to:#

A. provide remittance services
B. accept permitted demand deposits
C. issue debit cards
D. undertake lending

27. Under RBI's current financial-awareness framework, the maximum end-of-day balance per individual customer at a Payments Bank is:#

A. ₹50,000
B. ₹1 lakh
C. ₹2 lakh
D. ₹5 lakh

28. Payments Banks under their category model can issue:#

A. credit cards but not debit cards
B. debit cards but not credit cards
C. both without restriction
D. neither debit nor credit cards

29. Under the RBI Priority Sector Lending Directions, 2025, the overall PSL target for SFBs is:#

A. 40%
B. 50%
C. 60%
D. 75%

30. RBI's current directory at the review date lists how many Small Finance Banks?#

A. 6
B. 8
C. 11
D. 12

31. Which of the following is currently listed as a Small Finance Bank?#

A. slice Small Finance Bank
B. Paytm Payments Bank
C. Coastal Local Area Bank
D. SBI

32. Which of the following is a Local Area Bank?#

A. AU Small Finance Bank
B. Krishna Bhima Samruddhi Local Area Bank
C. India Post Payments Bank
D. Bandhan Bank

33. The original Local Area Bank scheme envisaged operations in:#

A. one state without district limits
B. three contiguous districts
C. every district in India
D. only metropolitan centres

34. Which statement is correct about Jio Payments Bank and NSDL Payments Bank in RBI banking reports?#

A. They have been identified as non-scheduled commercial banks.
B. They are Public Sector Banks.
C. They are Local Area Banks.
D. They are Small Finance Banks.

35. Why is a simple count of six Payments Banks potentially misleading as of this module's review date?#

A. Payments Banks were abolished.
B. RBI announced the winding up of Paytm Payments Bank Limited in July 2026.
C. All Payments Banks converted to SFBs.
D. RBI removed the Payments Bank category.

36. Which statement best captures the main lesson of Module 02?#

A. Every bank belongs to exactly one mutually exclusive category.
B. Ownership is the only important banking classification.
C. Banks should be understood through multiple overlapping classification lenses.
D. Scheduled status and public ownership mean the same thing.

Answers and Explanations#

1. D - Bank of Hindustan. The Presidency Banks were Bank of Bengal, Bank of Bombay and Bank of Madras.

2. B - Imperial Bank of India. The three Presidency Banks were amalgamated into the Imperial Bank in 1921.

3. A - 1 April 1935. RBI commenced operations on this date under the RBI Act framework.

4. C - 1955. The Imperial Bank became State Bank of India on 1 July 1955.

5. C - 14. Fourteen major commercial banks were nationalised in 1969.

6. B - 6. Six more were nationalised in 1980.

7. B - M. Narasimham. The 1991 Committee on the Financial System is central to India's banking-reform history.

8. D - 1993. RBI issued guidelines for entry of new private-sector banks in January 1993.

9. B - Vijaya Bank and Dena Bank. Both were amalgamated with Bank of Baroda with effect from 1 April 2019.

10. C - Punjab National Bank. OBC and United Bank of India were amalgamated into PNB in 2020.

11. A - Canara Bank. Syndicate Bank was amalgamated into Canara Bank.

12. A - Indian Bank. Allahabad Bank was amalgamated into Indian Bank.

13. B - Second Schedule of the RBI Act. This is the defining basis for scheduled-bank status.

14. C. Scheduled status depends on inclusion in the Second Schedule. It does not imply public ownership, and scheduled banks can include co-operative banks as well as commercial banks.

15. B - Ownership/control. Public/private/foreign is primarily an ownership/control lens.

16. C - Differentiated licence/business model. An SFB can also be privately owned, demonstrating that ownership and business-model categories overlap.

17. D - Stock-market index weight. This has nothing to do with the banking classification framework discussed here.

18. B. Lending is not exclusive to banks; NBFCs may lend but are not banks.

19. B - Reserve Bank of India. SBI is a commercial bank, not the central bank.

20. B - SEBI. SEBI is the principal securities-market regulator.

21. C - 12. DFS currently lists 12 PSBs.

22. B - IDBI Bank. RBI's current Banks in India directory places IDBI Bank in the private-sector-bank list.

23. C. Foreign banks may operate through branches or permitted WOS structures and remain subject to Indian/RBI regulation.

24. A - Standard Chartered Bank. The other three options are Indian Public Sector Banks.

25. B - Small Finance Bank. SFBs can lend; Payments Banks cannot.

26. D - Undertake lending. Lending is prohibited under the Payments Bank business model.

27. C - ₹2 lakh. RBI raised the end-of-day maximum balance limit from ₹1 lakh to ₹2 lakh in 2021.

28. B - Debit cards but not credit cards. This is a standard Payments Bank distinction.

29. D - 75%. The 2025 PSL Directions prescribe an overall 75% target for SFBs based on ANBC/CEOBSE, whichever is higher.

30. C - 11. RBI's current bank directory used for this review lists 11 SFBs.

31. A - slice Small Finance Bank. It appears in RBI's current SFB directory.

32. B - Krishna Bhima Samruddhi Local Area Bank. It is one of the two current LABs listed by RBI.

33. B - Three contiguous districts. The original LAB framework was geographically restricted; later eligible expansion to two additional districts was permitted.

34. A. RBI banking reports have identified Jio Payments Bank and NSDL Payments Bank as non-scheduled commercial banks.

35. B. RBI announced the winding up of Paytm Payments Bank Limited in July 2026, so older directory counts should not be presented as a clean current operating count.

36. C. Indian banks sit within multiple overlapping classification systems: schedule status, ownership, institutional form, business model and mandate/geography.

Official Sources and Further Reading#

Source 1 - Reserve Bank of India, Evolution of Banking in India / Presidency Banks
https://rbi.org.in/scripts/PublicationsView.aspx?Id=10487
Used for Presidency Bank history and early banking evolution.

Source 2 - Reserve Bank of India, Brief History
https://www.rbi.org.in/CommonPerson/english/history/Scripts/BriefHistory.aspx
Used for RBI's establishment in 1935 and central-bank historical context.

Source 3 - Reserve Bank of India, Chronology of Events
https://www.rbi.org.in/scripts/His_Choronological.aspx
Used for the broad historical sequence including the SBI and nationalisation eras.

Source 4 - Reserve Bank of India, Internal Working Group / Evolution of Bank Licensing Norms
https://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?ID=1160
Used for nationalisation background, private-bank licensing, reform-era competition and differentiated-bank licensing history.

Source 5 - Reserve Bank of India, Guidelines on Entry of New Private Sector Banks (1993)
https://systemhealth.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=22965
Used for the 1993 private-bank licensing milestone and reform rationale.

Source 6 - Department of Financial Services, Banking
https://www.financialservices.gov.in/banking
Used for the current number/list of Public Sector Banks and PSB amalgamation history.

Source 7 - Department of Financial Services, Public Sector Banks
https://www.financialservices.gov.in/public-sector-banks
Used to cross-check the current PSB list.

Source 8 - Reserve Bank of India, Banks in India
https://www.rbi.org.in/commonman/English/scripts/banksinindia.aspx
Used for current RBI bank-directory classifications, including private-sector banks, LABs, SFBs, Payments Banks and foreign-bank presence.

Source 9 - Reserve Bank of India, Second Schedule / scheduled-bank definition references
https://www.rbi.org.in/commonperson/english/scripts/Notification.aspx?Id=1089
Used for the definition that a scheduled bank is a bank included in the Second Schedule to the RBI Act.

Source 10 - India Code, Reserve Bank of India Act, 1934 - Second Schedule
https://www.indiacode.nic.in/bitstream/123456789/2398/1/a1934-2.pdf
Used for statutory Second-Schedule context.

Source 11 - Reserve Bank of India, Directory of Bank Offices - Certain Concepts
https://www.rbi.org.in/Scripts/certainconcepts.aspx
Used for the scheduled/non-scheduled commercial-bank concept.

Source 12 - Reserve Bank of India, Report on Trend and Progress of Banking in India
https://systemhealth.rbi.org.in/Scripts/PublicationsView.aspx?id=22350
Used for examples of non-scheduled commercial banks, including Jio Payments Bank, NSDL Payments Bank and the two LABs in the cited reporting period.

Source 13 - Reserve Bank of India, Small Finance Bank licensing guidelines
https://systemhealth.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=32614
Used for the objectives and differentiated nature of SFBs.

Source 14 - Reserve Bank of India, Payments Bank licensing guidelines
https://systemhealth.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=32615
Used for permitted Payments Bank activities, debit-card/no-credit-card rule and prohibition on lending.

Source 15 - Reserve Bank of India, Priority Sector Lending Directions, 2025
https://rbi.org.in/Scripts/NotificationUser.aspx?Id=12799
Used for the current 75% overall PSL target applicable to Small Finance Banks.

Source 16 - Reserve Bank of India, Financial Awareness Messages (FAME)
https://www.rbi.org.in/commonperson/images/FAME202426022024.pdf
Used for beginner-friendly current distinctions between Payments Banks and Small Finance Banks, including ₹2 lakh Payments Bank balance limit and SFB small-ticket lending orientation.

Source 17 - Reserve Bank of India, Enhancement of Payments Bank maximum balance
https://www.rbi.org.in/commonman/Upload/English/PressRelease/PDFs/PR15GOVERNOR5AA91FD102FB403291B57E2BEDD74D54.pdf
Used for the increase in the Payments Bank end-of-day balance limit from ₹1 lakh to ₹2 lakh.

Source 18 - Reserve Bank of India, Local Area Bank overview
https://rbi.org.in/scripts/PublicationsView.aspx?Id=18086
Used for the original three-contiguous-district LAB model and later expansion allowance.

Source 19 - Reserve Bank of India, July/August 2026 What's New
https://m.rbi.org.in/Scripts/NotificationUser.aspx?Id=10001&Mode=0
Used to identify RBI's 2026 announcement on winding up Paytm Payments Bank Limited.

Source 20 - Banking Regulation Act, 1949 / India Code
https://www.indiacode.nic.in/
Used for the legal distinction between banking company/banking business and broader bank classifications.

Source policy for this module#

Module 02 contains both historical/evergreen material and current institution lists.

Historical claims are anchored primarily in RBI history/licensing publications and Government material. Current Public Sector Bank information is cross-checked against the Department of Financial Services. Current bank-category lists use RBI's Banks in India directory, while current regulatory status is separately checked for later events such as the 2026 Paytm Payments Bank winding-up announcement.

Important maintenance rule: never assume a directory count is current merely because the page still contains a bank name. Mergers, winding-up proceedings, licence changes and schedule-status changes must be checked against newer RBI notifications/press releases when the module is reviewed.