classification of banks full details.

CLASSIFICATION OF BANKS 

The banking institutions form an indispensable part in a modern developing society. They perform varied functions to meet the demands of various sections of the society. On the basis of the functions performed and its ownership, the banks can be classified into the following types:

A. On the Basis of Functions: 

1.  Commercial Banks 

2.  Industrial Banks

1.     Regional Rural Banks

2.     Exchange Banks

3.     Central Bank

B. On the Basis of Ownership:

1.     Public Sector Banks

2.     Private Sector Banks

3.     Co - operative Banks

C. On the Basis of Schedules of RBI:

1.     Scheduled Bank

2.     Non - Scheduled Bank

 

 

A. On the basis of Functions:

Commercial Bank:

Banks, which help for the development of trade and commerce, are called Commercial Banks. The commercial banks may be owned by government or owned by private sector. For eg: Canara Bank, Punjab National Bank, Lakshmi Vilas Bank, Karur Visya Bank etc., are called as commercial banks.

 

Industrial Bank:

These banks assist to promote industrial development by providing medium and long- term loans, underwrites the shares and debentures, assisting in the preparation of project reports, providing technical advice and managerial service to the industries. For eg: Industrial Development Bank of India (IDBI), Industrial Credit and Investment Corporation of India (ICICI), are known as industrial banks.

 

              1.Regional Rural Bank:

These banks are established in rural areas. Its object is to develop the rural economy by providing credit and other facilities for agriculture, trade, commerce, industry and other productive activities in the rural areas.

 

            2.Exchange bank:

Exchange banks deal in foreign exchange and specialize in foreign trade. It plays an important role in promoting international trade. It encourages flow of foreign investments into India and helps in capturing international capital markets.

 

          3.Central bank:

Every country has a central bank of its own which is called as central bank. It is the apex bank and the statutory institution in the money market of a country. The central bank occupies a central position in the monetary and banking system of the country and is the superior financial authority. In India, the Reserve Bank of India is the central bank of our country.

 

B. ON THE BASIS OF OWNERSHIP:

On the basis of ownership banks can be classified as:

       1.Public Sector Banks:

These types of banks are owned and controlled by the government. The nationalized banks and

regional rural banks come under this category.

 

       2.Private sector Banks:

These Banks are owned by private individuals and corporations.

 

       3.Co-operative Banks:

These banks are operated on cooperative principles. It is a voluntary association of members for self-help and caters to their financial needs on a mutual basis. These banks are also subject to control and inspection by Reserve Bank of India. The main function of co-operative banking is to link the farmers with the money markets of the country.

 

a)  Primary Agricultural Co-operative societies (PACS):

It is the root of the credit structure. It is also called as village societies and the members belong to the related villages.

 Functions:

•       It gives short-term and medium term loans to farmers.

•       It helps in distribution of fertilizers and seeds.

•       It helps in distribution of consumer goods to their members.

•       It helps in milk, egg, sugar production in the village.

 

b)  Central Co-operative Banks (CCB):

It is the federation of all primary societies at the district level. Therefore it is also called as District co-operative central bank. It supervises, controls and finances the primary credit societies.

C. ON THE BASIS OF SCHEDULES OF RBI:

1. Scheduled banks:

These types of banks are included in the second schedule of the Reserve bank of India Act 1934.

The banks, which fulfill the following conditions, are classified into scheduled banks.

•       Its paid up capital and reserves are at least Rs.5 Lakhs.

•       Its operations are not detrimental to the interest of the depositors.

•       It is a corporation or co-operative society and not a partnership or a single owner firm.

 

2. Non-Scheduled banks:

The banks, which are not covered by the second schedule of Reserve Bank of India, are called as non-scheduled banks.

Traditional functions of Commercial Banks

(a)  Primary functions  

 Accepts deposit : The bank takes deposits in the form of saving, current, and fixed deposits. The surplus balances collected from the firm and individuals are lent to the temporary requirements of the commercial transactions.

Provides loan and advances : Another critical function of this bank is to offer loans and advances to the entrepreneurs and business people, and collect interest. For every bank, it is the primary source of making profits. In this process, a bank retains a small number of deposits as a reserve and offers (lends) the remaining amount to the borrowers in demand loans, overdraft, cash credit, short-run loans, and more such banks.

Credit cash: When a customer is provided with credit or loan, they are not provided with liquid cash. First, a bank account is opened for the customer and then the money is transferred to the account. This process allows the bank to create money.

(b)  Secondary functions  

 Discounting bills of exchange: It is a written agreement acknowledging the amount of money to be paid against the goods purchased at a given point of time in the future. The amount can also be cleared before the quoted time through a discounting method of a commercial bank.

Overdraft facility: It is an advance given to a customer by keeping the current account to overdraw up to the given limit.

 Purchasing and selling of the securities: The bank offers you with the facility of selling and buying the securities.

Locker facilities: A bank provides locker facilities to the customers to keep their valuables or documents safely. The banks charge a minimum of an annual fee for this service.

Paying and gathering the credit : It uses different instruments like a promissory note, cheques, and bill of exchange.

 

Modern Functions of Commercial Banks

1.     ATM services:

Automated Teller Machines are established by banks to enable its customers to have anytime money. It is used to withdraw money, check balance, transfer funds, get mini statement, make payments etc. It is available at 24 hours a day and 7 days a week.

2.     Debit card and credit card facility:

Debit card is an electronic card issued by a bank which allows bank clients access to their account to withdraw cash or pay for goods and services. It can be used in ATMs, Point of Sale terminals, e-commerce sites etc. Credit card is a card issued by a financial institution giving the holder an option to borrow funds, usually at point of sale. 

3.     Tele-banking:

Telephone banking is a service provided by a bank or other financial institution that enables customers to perform financial transactions over the telephone, without the need to visit a bank branch or automated teller machine.

 

4.     Internet Banking:

Online banking (or Internet banking or E-banking) is a facility that allows customers of a financial institution to conduct financial transactions  on a secured website operated by the

Institution. Online banking can be used to check balances, transfer money, shop online, pay bills etc.

5.     Mobile Banking:

Mobile banking is a system that allows customers to bank anytime anywhere through their mobile phone. Customers can access their banking information and make transactions on Savings Accounts, Demat Accounts, Loan Accounts and Credit Cards at absolutely no cost.

6.     Electronic Clearing Services:

It is a mode of electronic funds transfer from one bank account to another bank account using the services of a Clearing House. This is normally for bulk transfers from one account to many accounts or vice versa. 

7.     Electronic Fund Transfer/National Electronic Fund Transfer (NEFT):

National Electronic Funds Transfer (NEFT) is a nation-wide payment system facilitating one-to-one funds transfer. Under this Scheme, individuals, firms and corporate can electronically transfer funds from any bank branch to any individual, firm or corporate having an account with any other bank branch in the country participating in the Scheme.

 

8.     Real Time Gross Settlement System (RTGS):

It can be defined as the continuous (real-time) settlement of funds transfers individually on an order by order basis. 'Real Time' means the processing of instructions at the time they are received rather than at some later time. It is the fastest possible money transfer system in the country.