Define Bank. Explain different types of banks.
Introduction: -Bank is an institution that deals with money and credit. It accepts deposits from the public and grants loans and advances to those who are in need of funds for various purposes. Banks encourage saving habits among individuals and thereby making funds available for their use as and when required. Banks also help in the nation's development by providing credit to farmers, small scale industries and self-employed people as well as to large business houses which lead to the balanced economic development of the country.
Definition: -"Bank is an establishment for custody of money, which it pays out on customer's order." (Oxford Dictionary)
1. Central Bank: -The main function of the central bank (RBI) is to regulate the money supply and to maintain the economic stability of the country. The central bank can print currency notes. The central bank does not accept deposits from the public. The Central bank provides a loan to banks and financial institutions. It is owned and controlled by the government if India. The Central bank frames the monetary policy and credit policy for the country.
2. Commercial Bank: -These banks accept the deposits from the general public and provide short term loans to traders, manufacturers, and businessmen by way of cash credits, overdrafts, and etc. commercial banks provide various services like collecting cheques, bills of exchange, remitting money from one place to another place, etc. Commercial banks are of three types' i.e. public sector banks, private sector banks, and foreign banks.
3. Development Banks: -business often requires medium and long term capital for the purchase of machinery and equipment, for using the latest technology or for expansion and modernization. Such financial assistance is provided by development banks. Examples of development banks are Industrial Development Corporation of India (IFCI) And State Financial Corporation (SFCs)
4. Co-operative Banks: -Co-operative banks are financial institutions registered under the co-operative societies Act. The main objective of such a bank is to give credit to economically backward people. In India, co-operative banks are the main source of rural credit. These banks encourage saving habits among the villagers and give loans at a low rate of interest.
5. Specialized Banks: -There are some banks that cater to the requirements and provide overall support for setting up a business in specific areas. EXIM Bank, SIDBI and NABARD are examples of such banks.
6. Regional Rural Banks: -These banks were established in 1975 to enhance the banking facilities in rural areas. In these banks, the features of commercial and co-operative banks are found. These banks are sponsored by some commercial banks. 50% of its capital is provided by the central Government. 35% by the Commercial bank concerned and 15% by the state government concerned.
7. Exchange Banks: -Exchange banks are mainly concerned with financing foreign trade. The main functions of an exchange bank are remitting money from one country to another country, discounting of foreign bills, helping import and export trade, etc. Bank of Tokyo, Bank of America is an example of exchange banks working in India.
8. Indigenous Banks: -In India, Indigenous or native/domestic bankers have been carrying on banking functions for generations before properly organized commercial and other banks started functioning. They mainly deal in "hundis" and promissory notes. They charge a very high rate of interest on a loan. Hundis are regarded as native Bills of Exchange.
9. Saving Banks: - This bank accepts small savings from the public who have a fixed income. It creates a saving habit among people. In India, the post office saving bank is one of the saving banks.