In the Indian financial landscape, a handful of commercial banks wield substantial control over the market. This article delves into the hierarchy of Indian banks by examining deposit distribution. Remarkably, just five commercial banks hold a staggering 50 per cent of all deposits in India. Furthermore, the top 10, among which seven are government banks, collectively account for a whopping 75 per cent of all deposits. This financial landscape has implications for the choice of banks and depositors’ preferences.

Deposit Distribution

When analysing the distribution of deposits in Indian banks, a clear pattern emerges. Government-owned banks dominate the scene, holding a significant share of the market. For every Rs 100 deposited in an Indian commercial bank, a staggering Rs 62 finds its way into government banks. Private banks secure Rs 32 of this total, while foreign banks receive just under Rs 5. The remainder, just under Rs 1, is distributed among small finance banks and payment banks. This data underscores the stronghold of government banks in the Indian banking sector.

Preference for Government Banks

The preference for government banks among Indian depositors can be attributed to several factors.

1. Wider Presence

Government banks, also known as nationalised banks, have an extensive network of branches across the country. India’s vast and diverse landscape encompasses over 19,000 pin codes. Government banks, as per the Reserve Bank of India (RBI), boast around 65,000 offices, including branches, which translates to more touch points per pin code. In contrast, private banks, numbering 21, maintain approximately 42,000 offices. This wider presence of nationalised banks, particularly in non-urban areas, makes them more accessible and appealing for individuals looking to open savings accounts, take out loans, or initiate investment accounts.

2. Longevity

Another key factor influencing the preference for government banks is their historical longevity. Nationalised banks have been a part of the Indian banking landscape for a more extended period compared to private banks, which only began receiving approvals in the mid-1990s. This established history fosters trust among depositors, who often associate longevity with reliability and stability in the financial sector.

3. Digital Transformation and Customer Service

While government banks have had the upper hand historically, private banks have been rapidly catching up through digitization and high-quality customer service. Private banks have invested heavily in modern technology, offering innovative digital banking solutions that attract tech-savvy customers. These efforts have contributed to private banks narrowing the gap in terms of customer satisfaction and convenience.

Small Finance Banks: A Growing Alternative

Despite the overwhelming dominance of government and private banks, small finance banks represent a growing alternative for Indian depositors. These banks offer higher interest rates compared to larger commercial banks, making them an attractive choice for savers. However, concerns about the safety of deposits in relatively unknown small finance banks have kept many from exploring this option.

Regulation and Deposit Insurance

In the realm of financial institutions, it’s imperative to acknowledge that diminutive financial establishments fall under the vigilant purview of the Reserve Bank of India (RBI). They bear the prestigious classification of scheduled banks, akin to their counterparts in the public sector and the private sector. This stringent regulatory framework serves as a bulwark of security for depositors who repose their trust in these establishments. Furthermore, it’s worth noting that deposits entrusted to the custody of small finance banks enjoy the sanctuary of the deposit insurance programme, providing an indemnity umbrella extending up to a capacious sum of Rs 5 lakh. It is imperative for individuals contemplating the amalgamation of their resources into a cumulative fixed deposit with a small finance bank to exercise vigilance, ensuring that the sum total remains well within the confines of the Rs 5 lakh threshold, as the moment of maturity approaches.