Banking & Finance in India

🏦 Overview

India's banking system, regulated by the Reserve Bank of India (RBI), is the backbone of financial intermediation in the economy — channelling savings into investment, enabling payments, and transmitting monetary policy. This topic frequently overlaps with the RBI/Monetary Policy topic and is heavily tested across UPSC, APPSC, TSPSC and EPFO (which has dedicated papers on accounting and banking-adjacent subjects).

🏨 Structure of the Indian Banking System

Reserve Bank of India (RBI) — the central bank and apex regulator, established 1935, nationalised 1949.
Scheduled Commercial Banks — Public Sector Banks (PSBs), Private Sector Banks, Foreign Banks, Regional Rural Banks (RRBs), and Small Finance Banks/Payments Banks (newer differentiated licences).
Cooperative Banks — Urban and Rural cooperative banks, regulated jointly by RBI and, for management matters, respective state Registrars of Cooperative Societies (post the 2020 Banking Regulation Amendment Act bringing UCBs more fully under RBI's regulatory ambit).
Development Financial Institutions — e.g. NABARD (agriculture/rural credit), SIDBI (MSMEs), EXIM Bank (foreign trade), and the newly established National Bank for Financing Infrastructure and Development (NaBFID).

📋 Bank Nationalisation

In 1969, the government nationalised 14 major private banks (each with deposits over ₹50 crore), followed by 6 more in 1980, to direct credit towards priority sectors like agriculture and small industry, and expand banking's reach beyond urban centres (branch expansion into rural/semi-urban India). This was followed decades later by a wave of PSB mergers (2017–2020) consolidating the number of public sector banks to strengthen balance sheets and improve efficiency.

📈 Non-Performing Assets (NPAs) and Resolution

A loan is classified as a Non-Performing Asset when interest or principal repayment remains overdue for more than 90 days. Rising NPAs, especially in PSBs, through the 2010s prompted several policy responses: the Asset Quality Review (AQR) by RBI, recapitalisation of PSBs, the Insolvency and Bankruptcy Code (IBC), 2016 as a time-bound resolution mechanism, and the creation of the National Asset Reconstruction Company Limited (NARCL), a "bad bank," to take over large stressed assets.

🔐 Financial Inclusion

Key initiatives expanding access to formal banking include PM Jan Dhan Yojana (universal bank account access), the JAM trinity (Jan Dhan-Aadhaar-Mobile) enabling Direct Benefit Transfer, priority sector lending norms, and differentiated bank licences (Payments Banks, Small Finance Banks) targeting underserved segments.

📊 Key Committees

Notable expert committees shaping banking reform include the Narasimham Committee (I – 1991, II – 1998) on financial sector reforms, and the P.J. Nayak Committee (2014) on governance of bank boards.

🎯 Exam Angle

Prelims frequently tests nationalisation years, NPA classification norms, and the roles of institutions like NABARD/SIDBI/EXIM Bank. Mains rewards connecting banking sector health to broader macroeconomic stability — e.g. the twin balance sheet problem (over-leveraged corporates + stressed bank balance sheets) that dominated policy discussion through the mid-2010s.