What is Bank?

A bank is a Financial institution that accepts money from the public for the purpose of deposit and investment and repayable on-demand and withdrawal by cheques, ATM, draft & order.

The term banking is defined as per the banking regulation act 1949 under section 5(b) as accepting money for the purpose of lending or investment of deposit of money from the public, repayable on-demand and withdrawal by cheques, draft, order.

Different Types Of Banks:

Banks are divided into two types :

  1. Central Bank
  2. Commercial Banks

1. Central Bank:

A Central Bank is the apex institution of monetary and banking systems of account.It is the head or father of all banks who gives instructions to another bank. Central Bank involves all banks such as public sector banks or private sector banks.

Some of the world’s major central banks include The Reserve Bank Of India, the European Central Bank, the U.S. Federal Reserve Bank, The Bank of Japan, the Swiss National Banks and the People’s Bank of China and the bank of England.

Functions Of Central Banks: 

 I) The central banks have only the right to issue currency notes.

II) Central Banks helps the Government in formulating the economic, monetary, financial and fiscal policies by its expert knowledge.

III) Central Bank serves as a banker to the scheduled commercial bank.

IV) Central Bank control over management and methods.

Commercial Bank:

A commercial bank is a financial institution which accepts deposits from the general public for the purpose of investment and gives loan to the needy borrowers.

In simple words, a commercial bank is an institution which deals with money and credit.

Functions Of Commercial Banks:

I) It accepts deposits from the general public.

II) It making loans and advances.

III) Remitting funds from one place to another.

IV) It provides safe custody of valuables.

Types of Commercial Banks :

  1. Scheduled Banks
  2. Non-Scheduled Banks

1. Scheduled Banks: Scheduled Banks refer to those banking institutions whose names are included in the second schedule of the Central Banks:

Conditions of scheduled Banks :

A) The paid-up capital and reserve of the bank should not be less than 5 lakes.

B) The banks must satisfy the Central Bank that its affairs are not conducted in a manner detrimental to the interest of the depositors.

C) The banks must be a corporation or cooperate with society and not a partnership or single own firm.

Types Of Scheduled Banks :

1. Public sector banks

2. Private sector bank

1. Public Sector banks: Public sector banks are those banks in which the government has majority shareholding 51 more than per cent.

Public sector banks are owned and controlled by the government either directly or indirectly through the central banks. These banks are also known as National Banks.

Types Of Public Sector Banks :

A) State Banks Group: The public sector commercial banking in India started with the setting up of the state bank of India in 1955. State bank group consists of the state bank of India and it’s 6 associate Banks.

B) Nationalized Banks: An important step towards public sector banking was taken in July 1969, when 14 major banks were nationalized. Again in 1980, 6 more private sector banks were nationalized, bringing up the total number of such banks to 20.

C) Regional Rural bank: Regional rural bank was set up on the recommendations of a working group headed by the M. Narasimham in 1975. Initially, 5 such banks were set up on 2nd October 1975.

In 1976, the regional rural bank’s act was passed by the parliament paving the way for the establishment of such banks throughout the country.

Private Sector Banks Private sector banks are those banks in which the government has majority shareholding less than 51 per cent. Private sector banks are those banks which are owned by private individuals or business corporation.

Types Of Private Sector Bank :

A) Indian Banks: These are the banks which are incorporated in India under the Indian companies. These banks are owned and controlled by Indian entrepreneurs.

In the pre-reform periods, there were only 24 banks in the private sector. At present, there are 27 Indian private sector banks operating in the banking sector.

Some examples of Indian Banks: ICICI banks limited, HDFC Banks limited, Axis banks limited, Yes Bank Limited, Federal Bank Limited, South Indian Banks.

B) Foreign Banks: These banks are foreign in origin. These banks are incorporated outside India under the law of the home country but have a place of business in India.

Foreign Banks have their presence from the British period in India. Initially, they were allowed to operate only through branches but now they are allowed to set up subsidiaries in India.

Some Example of Foreign Banks: Standard Chartered Banks, Hongkong Shanghai Banking Corporation, American Express Banking Corporation, Bank of Tokyo, Citi Bank.

Functions of Foreign Banks:

A) Bringing together foreign institutional investors and Indian companies.

B) Helping foreign companies and Indian companies to enter into joint ventures.

C) Raising finance for power generation, telecommunications and mining projects in India.

D) Managing data and information systems by using the latest technology.

E) Managing the foreign issues of debt or equity of the Indian companies.

Importance Of Private Sector Banks :

A) These banks have bought in state of the art technology in the banking sector.

B) These banks provide healthy competition in the banking system and contributed to the efficiency of public sector banks.

C) These banks have helped in introducing a high degree of professional management and marketing concepts into banking.

D) These banks have helped the Indian entrepreneurs and companies in tapping the international financial markets to raise funds.

2. Non-Scheduled Banks :Non scheduled Banks are those Banks whose names do not appear in the list of scheduled Banks maintained by the central banks.

However, these banks come within the sweep of the banking regulation act 1949 and are therefore obliged to follow the central bank’s guidelines and provisions of the act.

For instance, these banks are required to keep a minimum capital of Rs 5 lake, these banks have to comply with the cash reserve requirements condition to the central bank, etc.

Non scheduled are not eligible for having financial assistance from the central banks under emergency situations. These banks are also deprived of privileges available to scheduled Banks.

What is the lead bank scheme?

The Lead Bank Scheme was introduced in December 1969 to promote the integrated development of each district of the country.

Under this scheme, a commercial bank was assigned the lead role in a district and all other financial institutions work jointly under the lead banks.

What is bank Nationalisation?

Social control of banks could not fulfill the objectives of the government and was found to be unsatisfactory and inadequate.

Ultimately the government took the decision to nationalize the major commercial banks. Initially, in July 1969, the government nationalized 14 major commercial banks and again in 1980, the government took over 6 more commercial banks.




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