Banking

Type of Banks
Scheduled Bank:
A scheduled bank is one which is registered in the second scheduled of the
Reserve Bank of India Act. A bank must satisfy the following conditions to be
included in the schedule:
a) Bank concerned must be in business of banking in India;
b) A bank must have paid=up capital and reserves of not less than 5 Lakhs;
(presently, the RBI has prescribed a minimum capital of 200 crore for
starting a new commercial bank).
c) It must satisfy the Reserve Bank that its affairs are not conducted in a
manner detrimental to the interest of its depositor; and
d) It is either a company defined in Section 3 of the Indian Companies Act,
1956 or Corporation or a Company incorporated by or under any law in
force in any place outside India or an institution notified by the Central
Government in this behalf.
Non-Scheduled Bank:
Non-scheduled banks are those banks whose names do not appear in
the Second Schedule of the Reserve Bank of India Act. These are not entitled to
all those facilities that the scheduled banks avail from the RBI

Domicile
Foreign Bank:
Foreign banks are those banks which are registered or
incorporated out side India, and having a branch in India.
Domestic Bank: Domestic banks are those banks which are registered or
incorporated in India. These banks are dominant part of total commercial
banks. The presence of these banks is in each and every corner of the country.
Ownership Banks:
A) Public Sector Banks:
Public sector banks are those banks which are owned by the government. The
government runs these banks in India. In India 20 banks were nationalised in
1969 and 1980. Now these banks belong to the public sector bank category.
Public sector banks dominate commercial banking in India.

B) Private Sector Banks:

Private sector banks are owned and run by the private sector. Banks which
are owned by individuals or corporations and not by government or co-
operative societies are include in this category. The major private sector
banks are HDFC Bank, ICICI Bank, Axis Bank etc.

C) Co-operative Banks:

Co-operative Banks constitute another important segment of banking. Co-

operative banks are those banks which are jointly run by a group individuals.
The cooperative banks were started in India which the passing of the Co-
operative Societies Act 1912. Originally, co-operative banks were intended to
protect the small producers especially the poor agriculturists, against the
malpractices of money lenders and to promote thrift. But now the co-
operative banks by mobilising surplus resources from the urban and the rural
well to so strata, perform the most urgent task of financing agriculture and
small industry.

I. The Primary Credit Societies: These societies form the base of the
three-tier structure of co-operative banking in India. A primary co-
operative credit society is an association of persons in a particular
area It can started with ten or more persons.

II. Central Co-operative Banks: The Central Co-operative Banks were

organised as a result of the Co-operative Societies Act 1912. These
banks are federations of Primary Societies in a certain are or
district. The main purposes of the Central Co-operative Banks are
no finance primary Co-operative societies, co-ordinate their
activities and also to guide them

III. State Co-operative Banks: The state Co-operative Banks are

likewise federations of the Central Co-operative Banks in a State.
The State Co-operative Banks are also called Apex Banks. These
banks get their funds mainly from deposits from the public, from
 Commercial Banks and from RBI, if necessary. These banks finance
the central cooperative banks, coordinates their activities and
control their working.

The Co-operative Banks were started with the aim to take the
place of money lenders to meet short term capital of the
agriculturists.

Commercial Banks:

The most common type of banks are commercial banks. Commercial

banks are the most important constitutes of banking system. These
are the banks which do banking business to earn profit.

Industrial bank:
Industrial banks are those banks which offer long term and medium-
term loan to the industries and also work for their development.
Industrial banks help the industries in the sale of their debentures,
bond and share.

Agricultural Bank:
Agricultural banks are those banks which give credit to agricultural
sector of the economy. Thes banks provide long and short-term
finance to agriculturists and farmers. Long term loans are provide to
farmers for acquisition and improvement of land and purchase of
heavy agricultural equipment. Short term loans are needed by the
farmers for the purchase of seeds, fertilizers, manures and payment of
wages, etc.,
Eg: NABARD (National Agricultural and Rural Development Bank),
Agricultural Co-operatives.
Exchange Bank:
Exchange bank deal in foreign exchange. These banks are not separate
institutions. In fact, the commercial banks which acquire the
authorisation from the RBI to deal in foreign exchange are the
exchange banks. These banks provide the following services:
i) Discounting of foreign bills of exchange
ii) Foreign remittances
iii) Purchasing and selling of gold and silver
iv) Issue letter of credit.
Savings Bank:
The main aim of Saving banks is to collect small savings across the
country and put them to the productive use. These banks aim at
inculcating the habit of saving among the working classes i.e middle
and lower sections of society. These banks collect small savings and
operate savings account. These banks receive deposit into savings
accounts and also issue postal cash certificates. In India a department
of Post Offices functions as saving bank.

Indigenous Banks:
These banks found their origin in India. Before Independence, these
banks made a significant contribution to the development of
agriculture and industry. Mahajan, rural money lenders and jewellers
have been the fore-runners of these banks in India. These bankers
mostly own their own capital. They do not get deposit from public;
they grant loans against securities such as gold, jewellery, land
promissory notes, etc.
Types of Banking System
Unit Banking:
It is a system where the operations of a bank are confined to a single office
located in a particular area. Local area banks and reginal rural banks in India
are the replica of unit banking. Unit banking functioned in small town or cities
and these are called country bank and city banks.
Branch Banking:
It is a multi- office banking spread over to a vast geographical area. A branch
is an office where acceptance of money for the purposes of lending or
investment and any or all the banking services are carried out.
Offshore banking:
An offshore banking unit of a bank is a deemed foreign branch of the parent
bank situated within India. It is the bank located outside the country of
residence of the depositor, typically in a low tax jurisdiction that provides
financial and legal advantages.
Private sector banks are owned and run by the private sector. Banks which
are owned by individuals or corporations and not by government or co-
operative societies are include in this category. The major private sector
banks are HDFC Bank, ICICI Bank, Axis Bank etc.
Functional of Commercial Banks
Primary Function
Accepting Deposits:

The Main function of a commercial bank is to accept deposits from

the public and grants loans. The bank generally accept deposits by the
opening of the following accounts.
Fixed Deposit:
The account is one in which a customer keeps a fixed amount with a
bank for a fixed period. The rate of interest is higher in comparison of
other accounts.
Saving account:
This type of account is generally opened by salary income group
person. They deposit their saving and earn interest on this account.
These deposits also help in capital formation. Bank gives cheque
facility to withdrawal money from this account. The bank imposes a
limit on the number and amount of withdrawals during a particular
period.
Current Account:
Generally, this account is opened by businessmen, companies,
institutions etc. Depositor can withdraw the money from this account
several times in a day. The banks grant no interest on this account.
Overdraft facilities are also available in this type of current account.
Other Account:
Banks are also providing deposit facility to different type of customer
by opening different accounts like home deposit account. Monthly
income scheme, minor saving account.

Advance of Loans
Banks receive deposits by various ways and grant loan from the
deposited amount and charge higher interest rate. The difference
between the interest rate (given on deposit and charge on loan) is the
profit of the banks. Generally, banks sanctions various type loans and
services.
 Cash credit:
In this, bank grant loans and deposit in the borrower’s
account. The borrower can withdraw this amount at any time
accounting to his convenience. The interest rate is charged
only on the used money.
Overdraft Bank:
Bank allow a customer to draw which is greater than the
balance lying in his account. This is known as overdraft facility.
The facility is provided only current account holder. In the case
of overdraft, a customer pays interest on the amount by which
is actually withdrawn.
Loans and advance:
In this, the loan money is credited to the account of the
borrower and he/she can withdraw amount anytime as per
his/her requirement. The borrower has to pay interest on the
entire amount of loan from the date of sanctioning of loan to
the date of repayment.
Discounting of Bills of exchange:
Bank can lend money by discounting bill of exchange. The
banks charge a commission for discounting of bill of exchange.

Agency Function
 The bank collects the payment of cheques, bill of exchange or the credit
instrument on behalf of its customer.
 The bank collects dividends and interest paid by the companies on behalf of their
customer.
 Bank helps in transferring funds from one place to another
 Bank purchases and sells securities on behalf of the customer.
 Bank also acts as on trustee, executor and administrator

General Utility Function

 Banks provide lockers facilities to its customer for safe keeping their valuables
 Banks can provide reliable information about their customer which reduce risk
and help in explanation of their customer’s trade and business.
  Bank collect statistics about money, banking trade and commerce and publishes
them.
 Banks give useful advice to its customer on financial matters.
 Banks grant consumer loan to their customer for purchasing of consumer article
such as T.V, Fridge, scooters etc

Arrangement for Foreign Trade

Banks make available short-term credit to the traders engaged in foreign trade. Banks
accepts discounting of bill, hundies, letter of credit to make international trade easier
and convenient.

Credit Creation
Commercial banks undertake function of credit creation according to the credit
policy of Reserve Bank of India. Whenever, a bank grants loan, it creates deposit
since the deposits of the bank circulate as money. The creation of such deposits leads
to increase money in the economy. This is known as credit creation by banks. Credit
creation indirectly increase the supply of money and make transactions convenient.