Understanding Rural Banks and Nationalised Banks in India

Introduction

India has a diverse and complex banking system consisting of various types of banks. Among them, Rural Banks and Nationalised Banks are often discussed but can be easily confused. In this article, we delve into the differences between these two concepts to help clarify the misconception that there are Rural Nationalised Banks.

Rural Banks in India

Rural Banks in India are not the same as Nationalised Banks. They are specifically designed to serve the rural population and are established under the Rural Banks Act, 1971.

Formation and Ownership

Rural Banks are formed under the Rural Banks Act and are owned jointly by the Government of India, the state governments, and a sponsoring nationalised bank. Unlike Nationalised Banks, Rural Banks are not under the direct control of the Government of India and are managed independently.

Role and Function

The primary role of Rural Banks is to provide financial services to the rural population, who are often excluded from traditional banking systems. These banks focus on providing microfinance, small loans, and other essential services to help improve the livelihoods of rural communities.

Nationalised Banks in India

Alternatively, Nationalised Banks are banks that were previously private but are now owned and controlled by the Government of India, except for a few which were established by Parliament.

Historical Background

The process of nationalisation began in the 1960s when the Indian Government aimed to strengthen the banking sector and make it more independent of private capital. Major steps were taken in 1969 and 1980, resulting in the nationalisation of 14 major banks.

Ownership and Management

Nationalised Banks are governed by the Government of India, with the majority of shares held by the national government. This makes them part of the Public Sector Banks category. Notable Nationalised Banks include Bank of India, Indian Overseas Bank, and State Bank of India (SBI). SBI, however, is a bit of an exception as it was established by an act of Parliament rather than nationalisation.

Regulatory Framework

Both Rural Banks and Nationalised Banks, along with other banks, fall under the regulatory framework of the Reserve Bank of India (RBI). The RBI declares and schedules these banks as commercial banks.

Commonalities and Differences

While both types of banks serve the financial needs of the Indian population, they have distinct characteristics and operational roles. Rural Banks concentrate on serving the unbanked rural population, whereas Nationalised Banks provide a broader range of services to a diverse customer base.

Conclusion

This article aims to clarify the differences between Rural Banks and Nationalised Banks in India. By understanding the distinct roles and characteristics of these banks, the public can make better-informed decisions about financial services and support.