Banks & Types of Accounts: Your Simple Map to India's Banking System
A clear, exam-ready guide to India's bank types (public, private, RRB, Small Finance and Payments), every deposit account (savings, current, RD, FD, NRE/NRO), and KYC basics, all taught from scratch with simple Indian analogies.
By the PadhoDost Team · 📖 7 min read · Updated 4 August 2026
Part of Banking (IBPS / SBI) prep🧠 One market, many kinds of shops
Walk through any Indian bazaar and you will spot a giant department store, a specialised electronics shop, a tiny kirana serving just one lane, and a recharge counter that only takes payments. India's banks work exactly like that: different types built for different jobs, all watched over by one market-in-charge, the Reserve Bank of India (RBI). Once you see the 'shops', this whole chapter becomes easy. Chalo, let's map it out.
Every bank in India, big or small, works under the watch of the Reserve Bank of India (RBI), the country's central bank and banking regulator. The RBI issues licences, sets the rules, and decides what each type of bank is allowed to do. We can sort banks in two simple ways: by who owns them (public or private), and by the special job they were created for (rural, small-borrower, or payments-focused).
Types of Banks in India
| Type of Bank | Ownership / How it is set up | What it mainly does |
|---|---|---|
| Public Sector Bank (PSB) | Government holds the majority stake | Full-service banking with wide branch reach (e.g. SBI, PNB) |
| Private Sector Bank | Private shareholders hold the majority stake | Full-service, often tech-focused banking (e.g. HDFC Bank, ICICI Bank) |
| Regional Rural Bank (RRB) | Jointly owned by the Central Govt, a sponsor bank and the State Govt | Rural and agricultural banking for small farmers and artisans |
| Small Finance Bank (SFB) | Licensed by the RBI under the Banking Regulation Act | Serves the underserved: small loans, micro-enterprises, small farmers |
| Payments Bank | Licensed by the RBI; often set up by telecom or fintech firms | Deposits, payments and remittances only; cannot give loans |
Special-purpose banks at a glance
- ✓RRBs were created to take banking to rural India, focusing on farmers, agricultural labourers and small artisans.
- ✓Each RRB is jointly owned by the Central Government, a sponsor commercial bank, and the State Government.
- ✓Small Finance Banks must lend a large share of their money to priority sectors like agriculture and small businesses, as set by the RBI.
- ✓Payments Banks can offer savings/deposit accounts, debit cards and remittances, but cannot offer loans, credit cards, or NRI deposits.
- ✓A Payments Bank can accept deposits only up to a per-customer limit set by the RBI.
Types of Deposit Accounts
| Account Type | Best for | Interest | Key feature |
|---|---|---|---|
| Savings Account | Individuals saving money | Yes, a modest rate | Encourages saving; some limits on free transactions |
| Current Account | Businesses and heavy transactors | Usually none | Unlimited transactions; overdraft facility available |
| Recurring Deposit (RD) | Regular monthly savers | Higher than a savings account | A fixed amount deposited every month for a set tenure |
| Fixed Deposit (FD) | Parking a lump sum | Usually the highest of these | One-time deposit locked for a fixed tenure; penalty on early withdrawal |
🧠 Gullak vs. one big jar
A Recurring Deposit is like dropping a fixed amount into your gullak every single month, where the saving habit does the hard work. A Fixed Deposit is like taking one big jar of money you already have and locking it in the cupboard for a year so it grows quietly, undisturbed. Same goal, different style.
📝 Worked example: FD vs RD for the same year
Riya has Rs 50,000 saved from her internship and won't need it for a year.
She opens a 1-year Fixed Deposit. Assume, only for the maths, an illustrative rate of 7% a year (real rates change over time and differ by bank).
Interest for 1 year = 50,000 x 7% = Rs 3,500.
On maturity she gets 50,000 + 3,500 = Rs 53,500.
Her friend Aman instead saves Rs 5,000 every month in a Recurring Deposit for the same year.
Aman deposits 5,000 x 12 = Rs 60,000 in total, and earns interest on each monthly deposit.
Lesson: an FD suits a lump sum you already have; an RD suits building savings from monthly income.
NRE vs NRO Accounts (for NRIs)
A Non-Resident Indian (NRI) cannot run an ordinary resident savings account, so banks offer two special rupee accounts. The trick is simply to remember where the money comes from: money earned abroad, or money earned in India.
| Feature | NRE Account | NRO Account |
|---|---|---|
| Full form | Non-Resident External | Non-Resident Ordinary |
| Money you deposit | Foreign income earned abroad | Income earned in India (rent, pension, dividends) |
| Repatriation (sending money abroad) | Freely repatriable | Allowed within limits set by the RBI |
| Tax on interest in India | Interest is tax-free in India | Interest is taxable in India |
KYC: Know Your Customer
KYC stands for Know Your Customer. It is the process a bank uses to confirm you really are who you say you are, by verifying your identity and your address. The RBI makes KYC compulsory under the Prevention of Money Laundering Act (PMLA), 2002, to stop fraud, money laundering and fake accounts. No KYC, no account: it is the very first gate you pass through before any account opens.
How KYC works when you open an account
- 1Fill the account opening form and give one Officially Valid Document (OVD) as Proof of Identity, such as Aadhaar, Passport, Voter ID or Driving Licence.
- 2Provide Proof of Address; many OVDs conveniently prove both identity and address at once.
- 3Submit your PAN (or Form 60 if you do not have a PAN).
- 4The bank verifies your documents, often instantly through Aadhaar-based e-KYC.
- 5Later, the bank may ask you to refresh your details from time to time, known as periodic re-KYC.
⚡ Quick check
Which of these is a Payments Bank allowed to do?
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