The focus of banking is varied, the needs diverse and methods different. Thus, we need distinctive kinds of banks to cater to the above-mentioned complexities. This article discusses the broad classification of banks and explains each type of banks with their distinctions.
Banking is defined as the accepting purpose of lending or investment of deposits, money from the public, repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise
— Indian Banking Regulation Act (1949).
From this definition, we can say that a bank has two main features:
(1) the bank accepts deposits of money which are withdrawable by cheques,
(2) the bank uses the deposits for lending.
# A savings bank is a financial institution whose primary purpose is to accept savings deposits.
# These banks are helpful for salaried people and low income groups. The deposits collected from the customers are invested in bonds, securities etc,.
# At present, most of the commercial banks carry out the functions of Savings Banks; Postal Department also performs the functions of savings bank.
# A Commercial Bank is an institution which accepts deposits, makes business loans and offers related services.
# Commercial Banks also allow for a variety of deposit accounts, such as current, savings and time deposit. These institutions are run to make profit.
# Commercial Banks provide various services like collection cheques, bills of exchange, remitting money from one place to another place.
# In India, Commercial Banks have been established under Companies Act, 1956.
# In 1969, 14 Commercial Banks were nationalized by the Government of India.
Industrial Banks/ Development Banks
# Development Banks are those financial institutions engaged in the promotion and development of industry, agriculture and other key sectors.
# These banks react to the socio-economic needs. They satisfy the developmental needs of the economy and their success is linked to the satisfactory growth of the economy.
# The main objective of these banks is to provide long term loans for expansion and modernization of industries.
# In India, such banks were established to a large scale after independence.
# They are Industrial Finance Corporation of India (IFCI), Industrial Credit and Investment Corporation of India (ICICI) and Industrial Development Bank of India (IDBI).
Land Development Banks
# The Long term credit needs of the agricultural sector are met by another type of Cooperative institution called as Land Development Banks.
# The structure of these banks is a two-tier one-at the state level there are Central Land Development Banks and at the district or taluka level, there are primary Land Development Banks.
# In a few States, e.g Gujarat, Jammu and Kashmir and UP, the structure is unitary i.e., there are Apex Land Development Banks which operate directly through their own branches at the district level.
# Indigenous Banks means money lenders and sahukars.
# They collect deposits from general public and grant loans to the needy persons out of their own funds as well as from deposits.
# These indigenous banks are popular in villages and small towns. They perform combined functions of trading and banking activities.
# Certain well-known Indian communities like Marwaries and Multanis even today run specialized indigenous banks.
# Every country of the world has a Central Bank. In India, Reserve Bank of India; in USA Federal Reserve and in UK, Bank of England are example of the Central Banks.
# These Central Banks are the bankers of the other banks. They perform specialized functions, i.e., issue of paper currency, work as bankers to governments, supervise and control foreign exchange.
# A Central Bank is a nonprofit making institution.
# It does not deal with the public but it deals with the other banks.
# The principal responsibility of the Central Bank is thorough control on currency of a country.
# In India, Cooperative Banks are registered under the Cooperative Societies Act 1912.
# They generally give credit facilities to small farmers, salaried employees, small scale industries, etc.
# Cooperative banks are in rural as well as in urban areas. The functions of these banks are just similar to that of Commercial Banks
# Standard Chartered Banks, City Bank, HSBC are the examples of Foreign Banks working in India.
# These banks are mainly concerned with financial foreign trade.
# Following are the various functions of Exchange Banks;
1. Remitting money from one country to another country
2. Discounting of foreign bills.
3. Buying and selling gold and silver.
4. Helping import and export trade.
We tried to put all information in simple manner. If you think you can add something into it. Please put your comment under comment section below.