Banking and Insurance - Laws and Practice · Regulatory Framework of Banks

Structure of Indian Banking and Regulators Explained

Updated 11 October 2026 · Fact-checked

The Indian banking structure has the Reserve Bank of India at the top as the central bank and banking regulator. Below it sit scheduled and non-scheduled banks: commercial banks (public, private, foreign, small finance, payments, regional rural) and cooperative banks. The Government, SEBI, IRDAI and PFRDA also regulate related areas.

Understand Structure of Indian Banking and Regulators

Start with the idea of layers. At the top is the Reserve Bank of India (RBI), the central bank. It issues currency, manages monetary policy, regulates and supervises banks, and acts as banker to banks and to the Government. Below it are the banks that deal with the public.

Banks are usually grouped as commercial banks and cooperative banks. Commercial banks include public sector banks (the Government holds the majority stake), private sector banks, foreign banks operating in India, small finance banks, payments banks and regional rural banks. Cooperative banks are of two kinds: urban cooperative banks and rural cooperative banks (state and central cooperative banks, and primary agricultural credit societies at the base).

A second way to classify is scheduled and non-scheduled. A scheduled bank is one included in the Second Schedule to the RBI Act, 1934. Scheduled banks have access to RBI facilities such as refinance and must maintain reserve requirements with the RBI. A bank not in that Schedule is non-scheduled. Study the conditions for inclusion in the Schedule from your study material.

Regulation is shared. The RBI is the main banking regulator under the Reserve Bank of India Act, 1934 and the Banking Regulation Act, 1949. The Central Government makes policy, holds ownership in public sector banks and has certain statutory powers. Other regulators cover neighbouring areas: SEBI for securities markets, IRDAI for insurance and PFRDA for pensions. Cooperative banks have a dual regulatory setup: the RBI for banking functions and the state or central registrar of cooperative societies for incorporation and management.

Overlaps cause disputes. Hybrid products, such as an instrument with both a money market and a securities component, may fall between regulators. Section 45Y of the RBI Act sets up a Joint Committee to settle such differences of opinion. Its decision is binding on the four regulators.

Key rules to remember

Joint Committee under Section 45Y: when it applies: Difference of opinion on whether an instrument is a hybrid or composite instrument + falls within jurisdiction of RBI, SEBI, IRDAI or PFRDA → reference to Joint Committee; Applies despite anything in the RBI Act, the SEBI Act, 1992 or any other law. It covers the instruments listed in Section 45U and the policies and securities listed in Section 45Y(1)(ii).
Composition of the Joint Committee: Union Finance Minister (Chairperson); RBI Governor (Vice-Chairperson); Secretary DEA; Secretary DFS; Chairperson IRDAI; Chairman SEBI; Chairperson PFRDA; Seven members, all ex officio. The Secretary, Department of Financial Services, is the convener of meetings.
Who may make a reference: Section 45Y(3): RBI Governor, IRDAI Chairperson, SEBI Chairman or PFRDA Chairperson; The Finance Minister and the two Secretaries cannot make a reference.
Time limit and effect of decision: Decision within 3 months from the date of reference, given to the Central Government; binding on RBI, SEBI, IRDAI and PFRDA; The Committee follows such procedure as it considers expedient.
Classification of banks: Banks → Commercial (public, private, foreign, small finance, payments, regional rural) + Cooperative (urban, rural) ; also Scheduled / Non-scheduled; Scheduled means included in the Second Schedule to the RBI Act, 1934.

How to solve Structure of Indian Banking and Regulators questions

Use this method for any question on the structure of banking or on who regulates what. Answer in the order of provision, analysis, conclusion.

1Read the question and identify the type: classification of banks, role of a regulator, or a jurisdiction dispute.
2For classification, state the head (commercial or cooperative, scheduled or non-scheduled) and then list the types with one-line features.
3For regulator roles, name the regulator, the Act it works under and its specific function (licensing, supervision, policy, registration).
4For a dispute involving a hybrid instrument, test the facts: is there a difference of opinion, is it a hybrid or composite instrument, and does it touch the jurisdiction of RBI, SEBI, IRDAI or PFRDA?
5If yes, apply Section 45Y: say who can refer, who sits on the Committee, the three-month period and the binding effect.
6Apply the rule to the names and facts given in the problem. Do not stay generic.
7Close with a one-line conclusion that answers exactly what was asked.
8Where useful, add a practical point for a company secretary, such as checking which regulator's approval or compliance applies.

Quickest way: Who regulates what: three-question check

When to use it: Use when a case or short note asks which authority is competent or how a dispute between regulators is settled.

Ask: is this a bank or cooperative bank (RBI, plus the registrar for cooperatives), a securities matter (SEBI), insurance (IRDAI) or pension (PFRDA)?
Ask: does the instrument belong to more than one regulator's field and is there a difference of opinion? If yes, go to Section 45Y.
Write the Section 45Y points as a checklist: referral by the Governor, IRDAI, SEBI or PFRDA head; Joint Committee chaired by Finance Minister; three months; binding decision.

Common mistakes in Structure of Indian Banking and Regulators

Saying the RBI alone regulates every bank in every respect.
Students remember RBI as the banking regulator and ignore cooperative banks.
Fix: State that for cooperative banks the RBI regulates banking functions while the registrar of cooperative societies handles incorporation and management.
Treating scheduled bank and commercial bank as the same thing.
Most well-known banks are both, so the terms blur.
Fix: Remember the two tests: commercial or cooperative is about the type of institution; scheduled or non-scheduled is about inclusion in the Second Schedule.
Naming the Finance Minister as a person who can refer a dispute to the Joint Committee.
The Minister chairs the Committee, so students assume the power to refer.
Fix: Only the members in clauses (b), (e), (f) and (g), the RBI Governor and the heads of IRDAI, SEBI and PFRDA, may make a reference.
Leaving out PFRDA from the Joint Committee or from the list of bound regulators.
Students recall only RBI, SEBI and IRDAI.
Fix: Count four regulators and seven members. Note that the Committee is joint across all four.
Stating that the Joint Committee decides all regulatory conflicts.
Overgeneralising the section.
Fix: Limit it to differences of opinion on hybrid or composite instruments of the kinds listed in the section.
Saying the Committee gives its decision to the RBI within three months.
Confusion about to whom the decision goes.
Fix: The decision goes to the Central Government within three months from the date of reference, and binds the four regulators.

Worked examples

Example 1

Explain the classification of banks in India and the role of the RBI in relation to them. (Short note)

Show the solution

Provision: the Indian banking system is led by the RBI, the central bank, with commercial banks and cooperative banks below it.
Analysis of types: commercial banks include public sector banks, private sector banks, foreign banks, small finance banks, payments banks and regional rural banks. Cooperative banks include urban cooperative banks and the rural cooperative structure.
Second classification: banks included in the Second Schedule to the RBI Act, 1934 are scheduled banks; others are non-scheduled.
Role of RBI: it issues currency, frames monetary policy, licenses, regulates and supervises banks, and acts as banker to banks and the Government.
Role of others: the Government owns public sector banks and sets policy; for cooperative banks the registrar of cooperative societies also has a role.

Answer: Banks are classified as commercial and cooperative, and as scheduled and non-scheduled. The RBI is the central bank and main regulator and supervisor, with the Government and, for cooperative banks, the registrar playing supporting roles.

Example 2

A financial product combines a money market instrument with a component of insurance. The RBI and IRDAI disagree on who has jurisdiction. Advise how the difference is to be resolved and who can start the process.

Show the solution

Provision: Section 45Y of the RBI Act, 1934 applies notwithstanding anything in the RBI Act, the SEBI Act, 1992 or any other law.
Analysis: the product is a hybrid or composite instrument with a money market component and an insurance component. The RBI and IRDAI differ on jurisdiction, so a difference of opinion exists.
Reference: under Section 45Y(3), the RBI Governor or the IRDAI Chairperson (as well as the SEBI or PFRDA head) may make a reference to the Joint Committee.
Committee: it has seven ex officio members, chaired by the Union Finance Minister, with the RBI Governor as Vice-Chairperson. The Secretary, DFS, convenes meetings.
Timeline and effect: the Committee gives its decision to the Central Government within three months from the date of reference. The decision binds the RBI, SEBI, IRDAI and PFRDA.

Answer: The dispute is referred to the Joint Committee under Section 45Y by the RBI Governor or the IRDAI Chairperson. The Committee decides within three months, reports to the Central Government, and the decision binds all four regulators.

Exam tips

Write the section number 45Y and the Act in the first line of any answer on regulator disputes.
Learn the seven members of the Joint Committee in order, with the chair and vice-chair marked.
Use headings in classification answers: commercial, cooperative, scheduled, non-scheduled. Examiners reward structure.
In case-based questions, name the regulator for each component of the instrument before concluding.
End with a practical compliance point, such as confirming which regulator's approval the company needs.

Practice questions from Regulatory Framework of Banks

Structure of Indian Banking and Regulators in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Structure of Indian Banking and Regulators: frequently asked questions

Who is the main regulator of banks in India?

The Reserve Bank of India is the main regulator and supervisor of banks, acting under the RBI Act, 1934 and the Banking Regulation Act, 1949. For cooperative banks, the registrar of cooperative societies also has a role.

What is the difference between scheduled and non-scheduled banks?

A scheduled bank is included in the Second Schedule to the RBI Act, 1934. A bank not so included is non-scheduled. Scheduled banks have access to RBI facilities and maintain reserve requirements with it.

What does Section 45Y of the RBI Act provide?

It creates a Joint Committee to settle differences of opinion on whether an instrument is hybrid or composite and falls within the jurisdiction of RBI, SEBI, IRDAI or PFRDA. The Committee decides within three months and its decision binds all four regulators.

Who chairs the Joint Committee under Section 45Y?

The Union Finance Minister is the ex officio Chairperson. The RBI Governor is the Vice-Chairperson, and the Secretary, Department of Financial Services, convenes meetings.