Banking sector

Story hook

On a humid June morning in Bhavnagar, Gujarat, three customers walk into three different bank branches within five hundred metres of each other. The first walks into a State Bank of India branch — public sector, sovereign-owned, the heir to the Imperial Bank chartered in 1806. The second enters an HDFC Bank branch — private sector, listed on the NYSE, India's largest by market capitalisation. The third stops at a tiny Bhavnagar Nagrik Sahakari Bank — a primary cooperative bank, member-owned, regulated jointly by RBI and the Registrar of Cooperative Societies.

Each customer is making a fixed deposit of ₹5 lakh. The interest rate they're quoted varies by ten basis points. The KYC paperwork is the same. Their deposit is insured up to ₹5 lakh per depositor per bank under the DICGC. And yet — the three institutions sit on three completely different regulatory rails, three different capital adequacy regimes, three different lender-of-last-resort relationships with the central bank.

How did India's banking system come to be this layered patchwork — and why? What does public-sector banking actually mean, twenty years after the merger waves and the privatisation rumours? Why does India still keep cooperative banks as a separate species, and what is the unfinished business with the Regional Rural Banks (RRBs) that Madhusudan Bhattacharyya started in 1975 and successive committees have tried to consolidate ever since?

Why this matters for UPSC

The structure of India's banking sector is the foundational topic for the entire Banking and Financial Sector portion of UPSC Economy. Prelims regularly asks which categories of banks exist, who regulates what, and what are the licensing thresholds. Mains GS-III questions probe consolidation of PSBs, performance comparison, and the rationale for differentiated banking licences (small finance banks, payments banks). Interview panels test current numbers — how many PSBs after consolidation, status of RRB amalgamation, scheduled vs non-scheduled distinction.