Structure and Functions of Banking in India: Complete DRA & IIBF Exam Guide

Want to clear the IIBF Debt Recovery Agent exam on your first attempt? Then the structure. Functions of banking is the one chapter you cannot skip.

It is the backbone of the entire DRA syllabus. Examiners love it. Recovery work demands it.

This 2026 guide breaks the topic down into simple, exam-ready pieces. We cover the meaning of a bank. The main functions of banks in India.

The full structure of the Indian banking system. And the specialised banks you must know. Short sentences.

Clear tables. Real study tips.

Why the Structure and Functions of Banking Matters for DRA Aspirants

The Indian Institute of Banking. Finance (IIBF) is the administering authority for the Debt Recovery Agent (DRA) exam. IIBF conducts the DRA exam at regular intervals through the year. Always confirm the exact dates on the latest official IIBF notification.

A Debt Recovery Agent works directly with banks. Corporate clients every single day. You must understand how banks operate. You must know who regulates them. You must grasp the different types of banks you will deal with.

This knowledge is not only for marks. It builds your on-the-job confidence too. Knowing the structure. Functions of banking helps you speak the language of lenders. Borrowers alike.

What Is a Bank? A Simple Definition

A bank is a financial institution authorised to accept deposits. Grant loans. That is the simplest definition you can memorise. It is also the most exam-friendly one.

Banks do far more than just hold money, though. They offer a wide range of financial services to customers across India.

Common services a bank may provide include:

• Wealth management for individuals and businesses
• Safe deposit lockers for valuables
• Foreign exchange services for cross-border needs

Several types of banks exist to perform these roles. The most common categories worldwide are retail banks. Corporate banks and investment banks. In India. The structure is broader and we will map it fully below.

In most countries. Banks are regulated by the national government or the central bank. In India.

The Reserve Bank of India (RBI) regulates all banks and financial institutions. Keep this fact at your fingertips. It appears often in the DRA exam.

The Main Functions of Banks in India

Among the functions of banks, two stand out as primary. They are the acceptance of deposits. The provision of credit and loans. Every other service flows from these two core activities.

Let us look at each major function in detail. These are high-scoring points for any banking exam.

1. Accepting Deposits

Banks accept money from customers as deposits. Customers can withdraw these funds as per the account rules. Deposits sit in one of three main account types.

• Savings account: Popular with small savers. The bank pays interest on the balance.
• Current account: A running account for businesses. It allows many transactions in a working day.
• Fixed deposit account: Holds funds for a fixed term. It pays a higher rate of interest.

2. Lending Credit and Loans

The bank lends funds to people who need them. It charges interest on these loans. Borrowers include farmers, industrialists and businesspeople.

This lending fuels investment and profit. It also drives the economic development of the country. Loans are the engine of the banking business.

3. Creating Credit (Credit Deposits)

A bank can create deposits by giving loans. The borrower's account is credited with the loan amount. The borrower can withdraw it when needed.

Often, the borrower keeps this money in the same bank. These are known as credit deposits. This is how banks multiply money in the economy.

4. Issuing Instruments of Exchange

Banks create cheap, safe means of exchange. These include cheques, drafts and letters of credit. Such instruments save the use of metal money.

Note one important point here. The RBI alone issues currency notes and coins in India. A commercial bank issues drafts and cheques, not banknotes.

5. Other Important Functions

Banks perform many secondary or agency functions too. These support trade, commerce and the wider economy.

• Collection and clearing of cheques drawn on other banks
• Acceptance and collection of bills of exchange
• Foreign exchange dealings to settle foreign debts
• Acting as an exchange and remittance agent
• Assisting the RBI in keeping the issue of notes safe and sound

Ready to test yourself on these functions? Try our free mock tests to lock in the concepts.

The Structure of the Indian Banking System

The structure of banking in India follows a clear hierarchy. At the top sits the RBI. Below it, banks divide into two broad groups.

The two main groups are scheduled banks and non-scheduled banks. This split is the foundation of the entire system. Memorise this branching tree for the exam.

Here is the simple flow of the structure:

• Scheduled Banks → Cooperative Banks and Commercial Banks
• Commercial Banks → Public Sector Banks. Private Sector Banks, Regional Rural Banks (RRBs) and Foreign Banks
• Non-Scheduled Banks → Banks not listed in the Second Schedule

Scheduled vs Non-Scheduled Banks: Quick Comparison

This is one of the most asked comparisons in the DRA exam. Study the table below carefully. Always verify the latest capital figures on the official IIBF notification.

Note: The older study material often quotes Rs. 25,00,000 for scheduled banks. Capital norms change over time. Always cross-check the current requirement on the latest official IIBF notification before the exam.

Types of Banks in India Explained

Now let us decode each type of bank. This section forms the heart of the structure. Functions of banking chapter. Read each one slowly.

Commercial Banks

A commercial bank accepts deposits and lends loans for profit. It serves individuals, organisations and businesses. It offers current, savings and term accounts.

Commercial banks can be either scheduled or non-scheduled. They form the largest part of the banking system.

Public Sector Banks (PSBs)

The government owns the majority of shares in these banks. Government ownership is generally more than 50%. The State Bank of India (SBI) is the largest example.

Public sector banks are further classified into nationalised banks. The State Bank group. Banking in India was dominated by PSBs after the 1969 nationalisation.

Private Sector Banks

Here, private entities, corporations or individuals hold most of the equity. The government may also hold a small stake.

After the liberalisation of the 1990s, new private banks emerged. Names like HDFC Bank. ICICI Bank became the new-age private sector leaders.

Foreign Banks

A foreign bank is incorporated abroad but operates in India. It must follow the rules of both its home and host countries.

These banks are often very efficient. They tend to thrive in markets that are easy for international firms to enter.

Regional Rural Banks (RRBs)

RRBs were set up to serve the rural economy. They were established in 1975 on the recommendation of the Narasimham Working Group. Under the RRB Act, 1976.

RRBs are regulated and supervised in coordination with NABARD. Their shareholding is split three ways.

• Central Government: 50%
• Sponsor Bank: 35%
• State Government: 15%

Cooperative Banks

Cooperative banks play a vital role in rural development. They work on the principle of mutual help and cooperation.

The rural cooperative credit sector once disbursed a large share of loans. Its share has fallen over the years. Yet it still matters for small and rural borrowers.

Specialised Banks You Must Know

Some banks serve very specific needs. These are called specialised banks or development financial institutions. They are favourite topics for one-mark questions.

The table below summarises the key specialised banks. Use it as a quick revision sheet.

Small Finance Banks

Small finance banks serve the unorganised sector. They help micro industries, marginal farmers and small artisans. They provide small loans and basic financial services. The RBI regulates them.

Examples include AU Small Finance Bank. Suryoday Small Finance Bank. Capital Small Finance Bank and Jana Small Finance Bank.

Payments Banks

Payments banks are a newer model conceptualised by the RBI. They accept limited deposits per customer. Confirm the current deposit cap on the latest official IIBF notification.

They cannot issue loans or credit cards. They focus on online banking, debit cards and mobile banking. Examples include Airtel Payments Bank. India Post Payments Bank and Jio Payments Bank.

How to Study This Topic and Score High

A smart strategy beats blind reading. Follow this simple plan to master the functions of banks in India. The banking structure.

1. Learn the tree first. Draw the structure of banking on one page. Start from RBI and branch downward.
2. Memorise the two core functions. Deposits and loans. Build every other point around these.
3. Use full forms. SIDBI, EXIM, NABARD, RRB, CRR. Examiners test these abbreviations directly.
4. Revise with tables. Convert each section into a table, like the ones above. Tables aid quick recall.
5. Practise daily. Solve at least 20 questions a day. Use our mock tests and read more free guides.

Common Mistakes DRA Aspirants Make

Many students lose easy marks on this chapter. Avoid these frequent errors and stay ahead.

• Confusing note issue with cheque issue. Only the RBI issues currency notes. Banks issue cheques and drafts.
• Mixing up RRB shareholding. Remember 50% Centre, 35% Sponsor Bank, 15% State.
• Forgetting the regulator. The RBI regulates banks. NABARD is the apex body for rural and agricultural credit.
• Quoting outdated figures. Capital and deposit limits change. Always confirm on the latest official IIBF notification.
• Ignoring specialised banks. SIDBI, EXIM and NABARD carry easy, guaranteed marks.

Frequently Asked Questions (FAQ)

What are the two primary functions of a bank?

The two primary functions of a bank are accepting deposits. Lending credit or loans. All other services. Such as foreign exchange and wealth management. Are secondary functions that support these two.

Who regulates banks in India?

The Reserve Bank of India (RBI) regulates all banks. Financial institutions in India. NABARD acts as the apex body for agriculture. Rural credit and oversees RRBs and cooperative banks.

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

Scheduled banks are listed in the Second Schedule of the RBI Act. 1934, and maintain their CRR with the RBI. Non-scheduled banks are not listed and maintain their reserves themselves. Confirm the current capital norms on the latest official IIBF notification.

What are the types of commercial banks in India?

Commercial banks in India include public sector banks. Private sector banks, foreign banks and regional rural banks (RRBs). They can be either scheduled or non-scheduled banks.

Why is the structure and functions of banking important for the DRA exam?

This topic is core to the IIBF DRA syllabus. To real recovery work. A Debt Recovery Agent deals with banks and corporate clients daily.

So understanding bank types. The RBI's role. Banking functions is essential for both the exam and the job.

Final Thoughts: Build Your Banking Foundation

The structure and functions of banking is more than an exam chapter. It is the foundation of your entire career as a Debt Recovery Agent. Master it once, and the rest of the DRA syllabus feels easier.

Keep your notes simple. Revise the tables often. Practise questions every day. With steady effort, this topic becomes a guaranteed scoring area.

Stay consistent. Trust the process, and walk into your IIBF DRA exam with confidence. You are closer to passing than you think.

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