How Do Banks Work?
August 11 , 2012

Banks are financial institutions that lend money to people and keep people's money parked with them. The money that people deposit in a bank is lent out to borrowers. The borrowers pay an interest for the money they've received while depositors receive an interest for the money they've given the bank. A bank charges borrowers more interest than it pays the depositors. The difference in the interest money received by the bank and that paid by the bank is the bank's profit.

Banks cannot lend out all the money it has. If it did you wouldn't be able to withdraw money when you need it. Banks try to match the overall tenure of loans with that of deposits. If all the deposits of a bank were to mature on a single day the bank would have a hard time repaying each customer and that would lead to a Bank Run. The proportion of money that a bank can lend depends on the Capital Adequacy Ratio (CAR) of the bank as stipulated by the RBI as per international banking standards and regulation.

Reserve Bank of India (RBI)

The RBI is the central bank of India which is the apex body that regulates monitors and supervises the monetary and financial system of the Indian economy. It has the following key functions:

  • It regulates the Banking sector, setting rules under which Banks need to operate and the kind of disclosures they need to provide.
  • It controls inflation and catalyses economic growth, through use of the interest rate and other monetary policy variables.
  • It manages the exchange rate in such a way that importers and exporters have a stable environment to operate under.
  • It acts as a bank to the government raising funds for it by issuing bonds and to other banks providing them liquidity.

The Governor (currently Dr. Duvvuri Subbarao) of the RBI heads the institution.

Public sector banks (PSBs)

There are 26 public sector banks in India of which 20 are nationalized banks, 5 are affiliates of SBI and the last one IDBI is classified as other public sector bank by the RBI. The government has a majority stake of at least 51% in these banks.

Private sector banks

These banks belong to individuals or to a private group. There are 25 private sector banks in India. These have must be credited for making banking a customer-friendly activity.

Foreign banks

There are several foreign banks with operations in India. They are also subject to RBI norms.

Apart from these there are a host of Co-operative Banks which are formed by co-operative societies whose activities are limited to certain geographical regions and Regional Rural Banks (RRBs) which have been set up for credit activities in the country's rural areas.

List of banks in India

Nationalized banks

Allahabad Bank

Indian Overseas Bank

Andhra Bank

Oriental Bank of Commerce

Bank of Baroda

Punjab & Sind Bank

Bank of India

Punjab National Bank

Bank of Maharashtra

Syndicate Bank

Canara Bank

State Bank of India

Central Bank of India

UCO Bank

Corporation Bank

Union Bank of India

Dena Bank

United Bank of India

Indian Bank

Vijaya Bank



Affiliate banks of SBI

State Bank of Bikaner & Jaipur

State Bank of Hyderabad

State Bank of Mysore

State Bank of Patiala

State Bank of Travancore

Private sector banks

AXIS Bank Ltd. 

Tamilnad Mercantile Bank Ltd. 

Capital Local Area Bank Ltd. 

The Bank of Rajasthan Limited 

City Union Bank Ltd. 

The Catholic Syrian Bank Ltd 

Coastal Local Area Bank Ltd. 

The Federal Bank Ltd. 

Development Credit Bank Ltd. 

The HDFC Bank Ltd. 

Dhanlaxmi Bank Limited. 

The Jammu & Kashmir Bank Ltd. 

ICICI Bank Limited 

The Karur Vysya Bank Ltd. 

IndusInd Bank Limited 

The Lakshmi Vilas Bank Ltd. 

ING Vysya Bank Ltd. 

The Nainital Bank Ltd. 

Karnataka Bank Ltd. 

The Ratnakar Bank Ltd. 

Kotak Mahindra Bank Limited 

The South Indian Bank Ltd. 

Krishna Bhima Samruddhi Local 

Yes Bank Limited 

SBI Commercial and International Bank Ltd. 


Foreign banks operating in India

Abu Dhabi Commercial Bank

DBS Bank

American Express Bank

Deutsche Bank AG

Antwerp Bank


Arab Bangladesh Bank

JPMorgan Chase Bank

Bank Internasional Indonesia

Krung Thai Bank

Bank of America NA

Mashreq Bank psc

Bank of Bahrain and Kuwait B.S.C.

Mizuho Corporate Bank

Bank of Ceylon

Royal Bank of Scotland

Bank of Nova Scotia (Scotia Bank)

Shinhan Bank

Bank of Tokyo Mitsubishi UFJ

Société Générale

Barclays Bank PLC

Sonali Bank

BNP Paribas

Standard Chartered Bank

Calyon Bank

State Bank of Mauritius

Chinatrust Commercial Bank


Citibank N.A.



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