Indian Commercial Banks : Background, Operations & Top Institutions
Every nation's economy revolves around its banks, which are crucial to the nation's economic development and the expansion of its financial sector. According to the Reserve Bank of India Act of 1934's core framework, all significant Indian banks are regarded as commercial institutions. However, there are further types of banks that fall under the planned banking category, including cooperative, payment, and microfinance banks.
Public sector banks, private sector banks, foreign banks, local banks, and regional banks are further categories for commercial banks. The Banking Regulation Act of 1949 governs them and gives them permission to carry on business, keep deposits, and extend credit to individuals, organisations, and the government.
Commercial banks are financial organisations that offer their clients services including loans, CDs, savings accounts, and overdraft lines of credit. These organisations generate revenue by making loans to private borrowers and collecting interest. Commercial banks provide a variety of loans, including those for businesses, automobiles, homes, people, and education.
They fund these loans using deposits made by their clients in different kinds of accounts. Deposits serve as the capital they employ to extend loans. Commercial banks play a crucial role in the nation's economy through fostering market liquidity, credit, and capital. These banks are often found in urban areas, however nowadays you can access the majority of their services.
History of commercial banks in India
Some of India's commercial banks date back more than a century. They have locations all around the nation, and they are branching out into the provinces. Commercial banks in India have gone through three stages since their independence.
In Indian banking, a public sector formed between 1955 and 1970. It started in 1955 with the founding of the National Bank of India and ended in 1969 with the nationalisation of fourteen important banks.
Twenty years after banks were nationalised, mass banking began to replace class banking in the 1970s and 1980s. During this time, there was a significant branch growth, which was followed by the hiring of numerous bank workers and increased financing for key sectors, particularly the underserved and poorer ones.
Several commercial bank types
Commercial banks come in three different varieties, namely:
• Private bank: Majority shareholders in this form of bank are individuals and corporate entities. For instance, HDFC Bank, ICICI, and Yes Bank.
• Public banks: The government owns the vast majority of these institutions. For instance, Punjab National Bank (PNB), State Bank of India (SBI), and Bank of Baroda (BoB).
• Foreign bank: Banks of this sort have branches in India but were founded in other nations. American Express Bank, Citibank, and Hong Kong and Shanghai Banking Corporation are a few examples.
Commercial banks' responsibilities
Primary and secondary functions of commercial banks are separated. While receiving deposits and disbursing loans are the core duties, supplementary duties include offering overdraft, locker, and other services.
Basic banking services are offered by commercial banks to the general public, including private individuals and small enterprises. By assessing fees and charges for services, banks generate revenue. Fees, including as overdraft fees, locker fees, and reminder fees, change based on the items supplied. In addition to the interest on the loan, certain loans often include various expenses.
Banks use funds from consumer deposits and profit from lending. They give comparatively lower rates on deposits from their clients and charge higher interest rates on loans. As an illustration, a bank may provide 2% interest on savings accounts while charging 4.8% yearly interest on mortgages.
Commercial banks often have locations near ATMs and other teller facilities where consumers may readily access their services. Due to recent advancements in internet technology, the majority of banks now permit their clients to do the majority of their business online. Nowadays, people may send money, make deposits, and pay bills online.
Indian commercial banks' importance
Due to the fact that they give their clients essential services, foster market liquidity, and generate capital, commercial banks are essential to the economy. Banks maintain market liquidity by making loans from the deposits of their clients. Commercial banks contribute to economic growth by helping to create the credit that boosts output, employment, and consumer spending.
Therefore, commercial banks are subject to stringent regulation by the central bank of their nation or area. For instance, commercial banks are subject to reserve requirements set by the central bank. This implies that banks must reserve a specific portion of client deposits with the central bank as a safety net in case customers request cash withdrawals.
Indian commercial banks' home loan interest rates
The fourth time in a row since May 2022, the RBI has increased repo rates by 190 basis points, but second-half growth in Indian mortgages defies the trend. The rate boost in home savings rates has been adopted by almost all banks, but as of October 5, 2022, the following banks are giving the lowest home savings rates:
Bank Home loan interest rate*
Central Bank of India 7.50%
Union Bank of India 7.75%
Canara Bank 7.80%
Punjab National Bank 7.90%
Bank of Baroda 7.95%
Axis Bank 8.10%
State Bank of India 8.15%
Kotak Mahindra Bank 8.49%
HDFC 8.60%
ICICI Bank 9.25%
Top 5 commercial banks in India
Union Bank of India
When the government combined Corporation Bank and Andhra Bank in 2020, Union Bank of India, situated in Mumbai, created headlines. The bank currently operates more than 9,300 branches and 11,800 ATMs.
• No more than 30 Years
• Processing Fee: 0.5% of the loan amount up to Rs. 15,000 plus GST
• Budget-Friendly Scale: High
• Benefits: There is no maximum mortgage amount with Union Bank.
• Cons: In comparison to other public lenders, Union Bank has fewer branches.
Bank name Interest rates
Union Bank of India Home Loan 8.50%
Union Bank of India Personal Loan 10.4%
Kotak Mahindra Bank
The bank, which has locations in more than 100 Indian cities, is run by Uday Kotak, a rapidly expanding private financial organisation. Right now, Kotak Mahindra has the lowest mortgage rates available.
• Most years of service: 30
• Fees: None at this time. usually between 0.5 and 1% of the loan amount.
• Budget-Friendly Scale: High
• Benefits: Utilise the Kotak Digi Home Loan Facility to receive immediate mortgage approval. Since the bank has continued to offer the lowest interest rates on the market over the past year and intends to remain the home financing segment as its primary focus, borrowers should anticipate extended advantages.
• Cons: Kotak Mahindra has a poor market presence in India compared to several official lenders. For a number of reasons, mortgages need you to physically visit a branch.
Bank of Baroda
In April 2019, the Vadodara-based Bank of Baroda merged with Dena Bank and Vijaya Bank to become India's third-largest bank. Together with thirteen other important Indian commercial banks, the Maharajah of Baroda created the bank in 1908. On July 19, 1969, the government decided to nationalise the company, which presently has over 10,000 branches both in India and internationally.
Bank name Interest rates
Bank of Baroda Personal Loan 9.76 – 11%
Bank of Baroda Business Loan 13.9 – 15%
Bank of Baroda Loan Against Property 8.2 – 9.5%
Bank of Baroda Home Loan 6.9 – 7.8%
• A maximum of 30 years
• Processing charge: at now None
• Affordable: High
• Pros: Our online platform's loan application process is quite simple.
• Cons: Due to increased borrowing fees, those with bad credit should focus on loans from HFCs or NBFCs. As was already established, public lenders take a very long time to communicate crucial information to customers.
The second-largest public sector bank in India, Punjab National Bank PNB, also provides house loans at competitive rates. The 1894-founded bank, which has 6,937 branches and more over 8 crore clients in 764 cities, is situated in New Delhi.
Bank Name Interest Rates
PNB Home Loan 4 – 8.9%
PNB Personal Loan 8.75 – 9%
• 30 years is the maximum holding term.
• There are currently no fees. It is typically 0.35 percent of the loan amount, with a minimum and maximum of Rs. 2,500 and Rs. 15,000, respectively.
• Cost-effective Scale: High Benefits: The temporary removal of processing charges lessens the total load placed on borrowers. The bank will always reward customers, even those with excellent credit.
• Cons: A sharp surge in bad loans and allegations of participation in fraud cases have lately done serious damage to the bank's reputation. Additionally, borrowers could discover the service to be far less accommodating than most private lenders.
State Bank of India (SBI)
More than 30,000 homebuyers have received assistance from India's largest mortgage lender, the publicly traded State Bank of India (SBI). This 1955-founded lender has more than 24,000 locations both domestically and overseas. With a book size of Rs. 5.5 trillion, the State Bank of India is the dominant participant in the mortgage market.
Bank Name Interest Rates
SBI Personal Loan 9.5 – 10.9%
SBI Home Loan 7 – 8.5%
SBI Loan Against Property 9.45 – 10.5%
SBI Business Loan 11.05 – 12%
Maximum Term: 30 Years
• Service Fee: GST of 0.40% of the loan amount, with a minimum and maximum of Rs. 10,000 and Rs. 30,000. The rate is 0.40% with a maximum of Rs 10,000 plus tax for projects when the bank and developer are connected.
• Cost-effective Scale: High Pros: When the RBI lowers its repo rate, State Bank is always the first to do so. Additionally, it makes sense to choose to one of the banks with the greatest expertise in India for your borrowing requirements. The borrower has another justification for continuing to use his SBI because of the bank's strong financial standing. SBI has eliminated occupation-specific interest penalties and now charges both employees and self-employed individuals the same interest rate.
• Cons: Since banks conduct thorough due diligence to confirm applicants' creditworthiness, there are additional paperwork to present. The highest interest rates are also extended to borrowers with credit scores of 750 or above.
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