(A) Definition : Bank is a dealer in money and credit. It is a financial institution whose basic activities are to accept deposits and advance, lend money and provide other related services, According to The Indian Banking Regulation Act, 1949, “any company which transacts the business of banking in India.” The term banking is further defined as, “accepting for the purpose of lending or investment of deposits from the public, repayable on demand or otherwise and withdrawable by cheque, draft and order or otherwise.”
Types of Bank:
1. Central Bank
2. Commercial Bank
3. Co-operative Bank
4. Industrial Development Bank
5. Exchange Bank
6. Regional Rural Bank
7. Savings Bank
8. Investment Bank
9. Specialised Bank
The different types of banks are explained below:
1. Central Bank: The central bank in a country is the financial institution at the top (apex) of all the banking institutions operating in the country. In India, The Reserve Bank of India was established in 1945 under a special statute called the Reserve Bank of India Act, 1944. It performs the functions like framing monetary policy, issuing currency notes, acting as a banker to the Government and acting as the banker’s bank to commercial and other banks in India.
2. Commercial Bank : The Commercial bank plays key role in the economic, industrial and social development of a country. It performs broadly two functions such as
(i) Primary functions which include accepting deposits and lending money in different forms and
(ii) Secondary function which include agency functions and utility functions.
The different types of commercial banks in India are as follows:
(i) Public Sector Banks : The banks in which majority of the share capital or stake (interest) is held by the Government of India are called Public Sector Bank, e.g. State Bank of India, Bank of India, etc.
(ii) Private Sector Banks : The banks in which majority of the share capital or stake is held by private individuals are called Private Sector Banks, e.g. Axis Bank, HDFC Bank, etc.
(iii) Foreign Banks : The banks which are registered and have their headquarters in foreign country but operate in different countries including India through their branches established there, are called Foreign banks e.g. Standard Chartered Bank, American Express Bank, HSBC, etc.
3. Co-operative Banks : Co-operative banks are formed, registered and organised under the Indian Co-operative Societies Act and regulated under Banking Regulation Act. These banks are more popular in rural and semi-urban areas. These banks are primarily meant for catering to the financial needs of economically backward people, farmers and small scale units.
They operate at three different levels:
(a) Primary Credit Societies : The primary credit societies work at village level. These credit societies collect the savings and surplus money in the form of deposits from members and common people. They are also financed by the State Co-operative Banks and District Co-operative Banks for the purpose of lending to needy people for productive purpose.
(b) District Central Co-operative Banks : The District Central Co-operative Banks operating at district level and financed by the State Co-operative Bank for the purpose of providing finance to primary credit societies.
(c) State Co-operative Banks : The State Co-operative Banks Eire working at state level. These banks provide funds to District Central Co-operative Banks and Primary Credit Societies to enable them to provide finance to rural and semi urban areas. Apart from this, they also supervise the working of district banks and credit co-operative societies.
4. Industrial Development Banks : The banks which provide medium and long term equipment, latest technology, expansion and modernisation of business, etc. are called Industrial Development Banks. Industrial Finance Corporation of India (IFCI), State Financial Corporations (SFCs), Maharashtra State Finance Corporation (MSFC), etc. are the examples of Industrial Development Banks.
These banks perform the following functions:
1. Provide medium and long term finance to business organisations for expansion and modernisation.
2. Underwriting i.e. giving guarantee to buy shares issued by public limited companies.
3. Purchase debentures and bonds.
5. Exchange Banks : An exchange bank specialises in financing import and export trade and in foreign exchange transactions. The American Express Bank, Bank of Tokyo, Barclays Bank, etc. are the examples of Exchange Banks functioning in India.
The Exchange Banks perform the following functions:
1. Finance foreign trade transactions,
2. Issue letter of credit on behalf of importer,
3. Discount foreign bills of exchange,
4. Remit dividend, interests and profits.
6. Regional Rural Banks : These banks were constituted (established) in 1975 and are sponsored by large public sector banks. 50%, 35% and 15% of the capital of these banks are provided by the Central Government, sponsored banks and State Government respectively. These banks collect (mobilise) funds in the form of deposits from rural and semi-urban areas. They provide loans and advances to small and marginal farmers, agricultural workers, rural artisans for productive purpose.
7. Savings Bank : A savings bank is one which has the main object of inculcating the habit of saving among the community. It collects scattered savings of the community especially from rural areas and invests the same in good securities. In India, Postal Savings Bank is an example of such a bank. Commercial Banks and Co-operative Banks act as savings banks as they have separate savings accounts departments.
8. Investment Bank : Investment banks offer financial and advisory assistance to their customers which usually include business firms and government organisations. These banks provide advice on investment decisions and facilitate mergers and acquisitions by undertaking research. These Banks do not directly deal with the common people.
9. Specialised Banks: The banks which make available to the requirements of the business and provide possible support to set up business activities in specific area are called Specialised Banks.
The different types of specialised banks are:
(a) Export Import Bank of India (EXIM Bank) : These banks provide the needed financial assistance and support to the exporters and importers in setting up business for exporting and importing products respectively. They work to expand and promote country’s international trade.
(b) Small Industries Development Bank of India (SIDBI) : SIDBI was established on 2nd April, 1990 under the Act of Parliament of India. Its main function is to act as the main institution for financing, promoting and developing the Micro, Small and Medium Enterprises (MSMEs) as well as co-ordinator of the institutions engaged in similar activities.
(c) National Bank for Agricultural and Rural Development (NABARD) : NABARD has been established to work as an apex institution to finance agricultural and rural sector. It provides long term and short term loans through regional rural banks. It provides loans to financial institutions and not individuals. It is also concerned with the function of policy planning and operations relating to agricultural credit and credit for other activities in rural areas.
