What commercial banks in India are
A commercial bank is a bank that takes deposits from the public, including money you can withdraw on demand from a savings or current account, and lends that money out to individuals, businesses and governments. When you open a salary account, take a home loan or put money in a fixed deposit at an ordinary bank branch, you are dealing with one.
Commercial banks in India work under two main laws: the Reserve Bank of India Act, 1934 and the Banking Regulation Act, 1949. The Reserve Bank of India (RBI) licenses them, writes the rules they must follow, inspects them and can act against them if they break those rules. Co-operative banks, which are owned by their members, also take deposits, but they are a separate category with their own framework.
Types of commercial banks
The RBI groups commercial banks by who owns them and what they are allowed to do:
| Type | What it is |
|---|---|
| Public sector banks | Banks in which the government holds the majority stake, such as State Bank of India. |
| Private sector banks | Banks owned mainly by private shareholders, such as HDFC Bank and ICICI Bank. |
| Foreign banks | Banks incorporated abroad that operate in India through branches or a local subsidiary. |
| Small finance banks | Banks set up to serve small businesses, farmers and lower-income households, with their own set of RBI directions. |
| Payments banks | Banks that can take deposits and offer payments and remittance services, but cannot lend. |
| Regional rural banks (RRBs) | Banks focused on rural areas, jointly owned by the central government, a state government and a sponsor bank. |
The rural banks were consolidated recently. Under the “One State, One RRB” approach, the Department of Financial Services merged 26 regional rural banks, cutting their number from 43 to 28 with effect from 1 May 2025.
How the mix came about
The shape of commercial banks in India today reflects a few big turns. In 1969 the government nationalised 14 large private banks, and six more followed in 1980, which is why government-owned banks still hold a large share of deposits. From the early 1990s, as the economy opened up, the RBI began licensing new private banks, several of which have grown into the country’s biggest lenders. In 2015 it added differentiated licences for small finance banks and payments banks, to reach people and businesses that mainstream banks served poorly. Mergers among public sector banks and among rural banks have since reduced their numbers.
Scheduled and non-scheduled banks
You will often see the phrase “scheduled commercial bank”. A scheduled bank is one listed in the Second Schedule of the RBI Act, 1934. The RBI includes a bank in that list only if it meets the conditions set out in Section 42 of the Act, and it adds or removes banks by notification.
Being scheduled carries obligations and privileges. Every scheduled bank must keep a set share of its deposits as a balance with the RBI, which is the cash reserve ratio described below. In return, it can borrow from the RBI and take part fully in the payment system. Almost every bank an ordinary customer deals with is a scheduled commercial bank.
Commercial banks, NBFCs and co-operative banks
Several kinds of institutions lend money, and it helps to know how they differ:
| Commercial bank | Co-operative bank | NBFC | |
|---|---|---|---|
| Savings and current accounts | Yes | Yes | No |
| Cheques and payment system | Yes | Yes | No |
| DICGC deposit insurance | Yes, up to ₹5 lakh | Yes, up to ₹5 lakh | No |
| Owned by | Government or shareholders | Members | Shareholders |
Non-banking financial companies (NBFCs) can lend and some can take fixed deposits, but the RBI does not allow them to offer accounts repayable on demand or issue cheques, and their deposits are not insured. That difference is the main reason a bank account is the default home for everyday money.
How a commercial bank makes money
At heart, a bank borrows from depositors and lends to borrowers, and earns the difference. The cheapest money it can get is from current and savings accounts, often called CASA deposits, because it pays little or no interest on them. Fixed deposits cost more. Loans earn more than either.
Here is a simple illustration with round numbers. Suppose a bank pays an average of 5% on its deposits and earns an average of 9% on its loans. On ₹100 crore of loans funded by deposits, it earns ₹9 crore and pays ₹5 crore, leaving ₹4 crore of net interest income before its staff, branch, technology and bad-loan costs. That gap, measured against its assets, is its net interest margin.
Banks also earn fees: on cards, transfers, lockers, selling insurance and mutual funds, and handling trade transactions for businesses. When you read a bank’s results, net interest income, net interest margin, CASA share and bad loans are the numbers to watch together.
How the RBI regulates commercial banks
The RBI’s rulebook for banks is written as “Directions”, formal instructions organised into chapters and paragraphs. It amends them as needed. The October 2026 amendments, for example, rely on Section 35A of the Banking Regulation Act, 1949, a power that lets the RBI issue instructions when it judges this necessary and in the public interest. When a rule is changed, the RBI publishes an amendment that names the exact paragraph affected and states when it starts.
The main areas the rules cover include:
- Reserve requirements: the cash reserve ratio (CRR) is the share of deposits a bank must keep as cash with the RBI, and the statutory liquidity ratio (SLR) is the share it must hold in safe liquid assets such as government securities. The RBI’s website showed the CRR at 3% and the SLR at 18% on 23 October 2026.
- Capital adequacy: how much capital a bank must hold against the risks it takes, based on international Basel standards, with the RBI’s minimum set above the global floor.
- Priority sector lending: the RBI requires domestic commercial banks to direct at least 40% of their adjusted net bank credit to priority sectors such as agriculture, small businesses, education and affordable housing. For regional rural banks the target is 75%.
- Operational matters: day-to-day limits and conduct rules, such as those for derivative contracts. A derivative is a financial contract whose value depends on something else, such as an interest rate or a currency.
- Customer service and fair dealing: rules on charges, disclosure, complaints and how banks treat borrowers.
Banks and RBI policy rates
Commercial banks are also the main channel through which the RBI’s interest rate decisions reach households. The repo rate is the rate at which the RBI lends to banks; its website showed it at 5.50% on 23 October 2026. When the RBI changes it, banks’ own cost of money shifts, and over time they adjust what they charge on loans and pay on deposits. Many floating-rate retail loans, such as home loans, are now linked to an external benchmark like the repo rate, so a change can show up in your EMI or loan tenure within a few months. Fixed deposit rates usually follow more slowly, and existing fixed deposits keep the rate they were booked at.
How rules change
Major rules usually go through the same steps: the RBI releases a draft, invites public feedback, examines the comments, publishes final directions and gives a start date. Smaller amendments can take effect on the day of issue. Both kinds appeared this month.
Why it is in the news
Two RBI actions in October 2026 involve commercial banks.
Derivative limits removed
On 19 October 2026, the RBI issued a second set of amendments to its 2025 Directions for commercial banks. The amendment removes Section C of Chapter IV, which dealt with limits for non-option derivative contracts (paragraph 37). A parallel amendment did the same for small finance banks. Both apply from the day they were issued. Our related coverage has more detail.
Leverage ratio rules finalised
On 23 October 2026, the RBI released the final amendments to its capital adequacy rules for commercial banks. They put in place the Basel Committee on Banking Supervision’s “Leverage Ratio 2017 Standard”. A leverage ratio compares a bank’s capital with its total exposures, without adjusting for how risky each exposure is, and works as a simple backstop to risk-based capital rules.
The RBI released the draft on 7 August 2026 and took feedback until 28 August 2026. It says it examined the comments and modified the final text. The rules apply from 1 April 2027. See our report on the leverage ratio rules.
How to check a bank’s health
Every listed bank publishes quarterly results, and a few numbers tell you most of what you need to know about its strength:
- Capital adequacy ratio (CRAR): capital as a share of risk-weighted assets. The further above the RBI minimum, the bigger the cushion.
- Gross and net NPA: the share of loans that have stopped being repaid, before and after provisions.
- Provision coverage ratio: how much of those bad loans the bank has already set money aside for.
- CASA ratio: the share of low-cost current and savings deposits, which supports profits.
The RBI watches the same numbers. When a bank’s capital or asset quality falls below set thresholds, the RBI can place it under a prompt corrective action framework, restricting things like dividends and expansion until it recovers. For most commercial banks in India these numbers are comfortably healthy today, but they are worth a glance before you place a large deposit.
How your money is protected
Deposit insurance
Deposits in commercial banks, including small finance banks, payments banks and regional rural banks, are insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of the RBI. According to the DICGC, each depositor is insured up to ₹5 lakh for principal and interest together, for money held in the same right and capacity in the same bank.
The DICGC gives its own example: if you have ₹4,95,000 in an account plus ₹4,000 of accrued interest, the insured amount is ₹4,99,000. If the total is above ₹5 lakh, cover stops at ₹5 lakh. The limit applies per bank, so deposits spread across different banks are insured separately.
Complaints
If you have a problem with a bank, complain to the bank first, in writing. If it does not reply within 30 days or you are not satisfied with its answer, you can take the complaint to the RBI Ombudsman under the RBI’s Integrated Ombudsman Scheme, 2021, through the RBI’s complaint management system at cms.rbi.org.in.
What it means for you
The October 2026 changes sit mostly at the level of bank balance sheets and risk management. Nothing in them changes deposit rates, loan rates or deposit insurance for customers.
For customers of commercial banks in India, what the wider framework gives you is a set of checks worth running when you choose where to keep your money or borrow:
- Confirm the bank is a scheduled commercial bank and that its deposits are covered by DICGC insurance.
- If your deposits in one bank are well above ₹5 lakh, consider whether to spread them across more than one bank.
- Compare the interest rates and charges each bank publishes, not just the headline rate.
- Read the loan terms, including what happens if you prepay or miss a payment.
- Keep records of your dealings in case you need to complain.
If you borrow, you can estimate your repayments with the EMI calculator. If you save, the FD calculator shows maturity values.
Rules for banks do not tell you which bank to choose. When you compare banks, check the terms they publish and the official RBI notices.
