TYPES OF BANKS
Banks are of various types and can be classified :
A. On the basis of Reserve Bank Schedule.
B. On the basis of ownership.
C. On the basis of domicile.
D. On the basis of functions.
A. On the basis of Reserve Bank Schedule
Bank can be of the following two types on the basis of Second Schedule of the Reserve Bank of India Act, 1934 :
i) Schedules Banks and
ii) Non-scheduled Banks
i) Scheduled Banks
All those banks which are included in the list of Schedule Second of the Reserve Bank of India are called the Scheduled Bank. Only those banks are included in the list of scheduled banks which satisfy the following conditions :
a) That it must have a paid up capital and reserves of Rs.5 lakhs.
b) That it must ensure the Reserve Bank that its operations are not detrimental to the interest of the depositors.
c) That it must be a corporation or a cooperative society and not a single owner firm or a partnership firm. :
ii) Non-scheduled Banks
The banks which are not included in the second schedule of the Reserve Bank of India Act, 1934 are called non-scheduled banks. They are not included in the second schedule because they does not fulfill the three pre-conditions laid down in the act to qualify for the induction in the second schedule.
B. On the basis of Ownership
Banks can be classified on the basis of ownership in the following categories :
i) Public Sector Banks
ii) Private Sector Banks
iii) Cooperative Banks
i) Public Sector Banks
The banks which are owned or controlled by the Government are called “Public Sector Banks”. In 1955 the first public sector commercial bank was established by passing a special Act of Parliament which is known as State Bank of India. Subsequently the Government took over the majority of shares of other State Banks which were operating at the state levels namely State Bank of Patiala, State Bank of Bikaner & Jaipur, State bank of Travancore, State Bank of Mysore, State Bank of Indore, State Bank of Saurashtra and State Bank of Hyderabad presently working as subsidiaries of State Bank of India.
In the field of banking, the expansion of public sector was marked with the nationalization of 14 major commercial banks by Mrs. Indira Gandhi on July 19, 1969 through an ordinance. Again on April 15, 1980 another group of 6 commercial banks were nationalized with the deposits Rs.200 crores each, resulting in the total of 20 such banks. But due to the merger of New Bank of India with the Punjab National Bank in 1993-94, the number of nationalized bank has been reduced to 19. The State Bank of India and its seven subsidiaries had already been nationalized. The progressive nationalization of bank has increased the role of public sector banking in the country. In 1996 these nationalized commercial banks had 31,055 branches all over India whereas State Bank of India and its subsidiaries alone had 12,903 branches.
Under the new liberalization policy of the Government, The Oriental Bank of Commerce, State Bank of India, Corporation Bank, Bank of India and Bank of Baroda have offered their share to the general public and financial institutions and therefore these banks are no longer 100% owned by Government of India. Although majority of the shares is still with the Government, therefore these are still public sector banks.
ii) Private Sector Banks
On the contrary Private Sector Banks are those banks which are owned and controlled by the private sector i.e. private individuals and corporations. The private sector played a strategic role in the growth of joint stock banks in India. In 1951 there were in all 566 private sector banks of which 92 banks were scheduled banks and the remaining 474 were non-scheduled banks. At the time there was not even a single public sector bank. With the nationalization of banks in 1969 and 1980 their role in commercial banking had declined considerably. Since then the number of private sector banks is decreasing and the number of public sector banks is increasing.
iii) Co-operative Banks
The word ‘cooperative’ stands for working together. Therefore cooperative banking means an institution which is established on the principle of cooperation dealing in ordinary banking business. Cooperative banks are special type of banks doing ordinary banking business in which the members cooperate with each other for the promotion of their common economic interests.
Features of Cooperative Banking
Following are the distinguishing main features of a cooperative bank :-
i) Membership of Cooperative Banks is voluntary.
ii) Functions of a Cooperative Bank are common banking functions. : 7 :
iii) Organization and management of a Cooperative Bank is based on democratic principles.
iv) Main objectives of a Cooperative bank are to promote economic, social and moral development of its members.
v) Basic principle of Cooperative Bank is equality.
Therefore, we can conclude and define a cooperative bank as under :
“Cooperative Bank is an institution established on cooperative basis which deals in ordinary banking business for the promotion of economic, social and moral development of its members on the principle of equality.”
The short term agriculture credit institutions cater to the short term financial needs of the agriculturists which have the following three tier federal structure in cooperative :
a) At the Village level : Primary Agricultural Credit Societies
b) At the District level : Central Cooperative Banks
c) At the State level : State Cooperative Banks
C) On the basis of domicile
The banks can be classified into the following two categories on the basis of domicile :
i) Domestic Banks
ii) Foreign Banks
i) Domestic Banks
Those banks which are incorporated and registered in the India are called domestic banks.
ii) Foreign Banks
Foreign Banks are those banks which are set up in a foreign country with their control and management in the hands of head office in their country of origin but having : 8 :
business branches in India. Foreign Banks are also known as Foreign Exchange Banks or Exchange Banks. Traditionally these banks were set up for financing the foreign trade in India and discounting the foreign exchange bills. But now these banks are also accepting deposits and making advances like other commercial banks in India
D) On the basis of functions
The banks can be classified on the basis of functions in the following categories :
i) Commercial Banks
ii) Industrial Banks
iii) Agricultural Banks
iv) Exchange Banks
v) Central Bank
i) Commercial Banks
Commercial Banks are those banks which perform all kinds of banking business and functions like accepting deposits, advancing loans, credit creation, and agency functions for their customers. Since their major portion of the deposits are for the short period, they advance only short term and medium term loans for business, trade and commerce. Majority of the commercial banks are in the public sector. Of late they have started giving long term loans also to compete in the commercial money market. These commercial banks are also called joint stock banks because they are constituted and organized in the same manner as the joint stock companies are constituted.
ii) Industrial Banks
The Industrial banks are those banks which provide medium term and long term finance to the industries for the purchase of land and building, plant and machinery and other industrial equipment. They also underwrite the shares and debentures of the industries and also subscribe to them. The main functions of an Industrial Banks are as follows
i) They provide long term finance to the industries to purchase land and buildings, plant and machinery and construction of factory buildings.
ii) They also accept long term deposits.
iii) They underwrite the shares and debentures of the industry and sometimes subscribe to them.
In India there are number of financial institutions which perform the function of an Industrial Bank. Major financial institutions are as under :-
i) Industrial Development Bank of India (IDBI)
ii) Industrial Finance Corporation of India (IFCI)
iii) Industrial Credit and Investment Corporation of India (ICICI) and
iv) State Industrial Development Corporation such as Haryana State Industrial Development Corporation (HSIDC)
iii) Agriculture Banks
The needs of agricultural credit are different from that of industry, business, trade and commerce.
Commercial banks and industrial banks do not deal with agriculture credit financing. An agriculturist has both type of needs :
i) He requires short term credit to purchase seeds, fertilizers and other inputs and
ii) He also requires long term credit to purchase land, to make permanent improvement on land, to purchase agricultural machinery and equipment such as tractors etc.
Agricultural credit is generally provided in India by the Cooperative institutions. The Cooperative Agricultural Credit Institutions are divided into two categories :-
A) Short term agricultural credit institutions and
B) Long term agricultural credit institutions : 10 :
A) Short term agricultural credit institutions
The short term agricultural credit institutions cater to the short term financial needs of the agriculturists which have the following three tier federal structure :-
a) At the Village level : Primary Agricultural Credit Societies
b) At the District level : Central Cooperative Banks
c) At the State level : State Cooperative Banks
B) Long term agricultural credit institutions
The long term agricultural credit is provided by the Land Development Banks which were earlier known as Land Mortgage Banks. The land development banks provide long term to agriculturists for a period ranging from 5 years to 25 years.
iv) Exchange Banks
The exchange banks are those banks which deal in foreign exchange and specialised in financing the foreign trade. Therefore, they are also called foreign exchange banks. Foreign Exchange Banks are those banks which are set up in a foreign country with their control and management in the hands of head office in their country of origin but having business branches in India.
v) Central Bank
The Central Bank is the apex bank of a country which controls, regulates and supervises the banking, monetary and credit system of the country. The Central Bank is owned and controlled by the Government of the country. The Reserve Bank of India is the Central Bank in India. The important function of central bank are as follows :-
i) It acts as banker to the Government of the country.
ii) It also acts as agent and financial advisor to the Government of the country.
iii) It has the monopoly to issue currency of the country.
iv) It serves as the lender of the last resort.
v) It acts as the clearing house and keeps cash reserves of commercial banks.
Banks are of various types and can be classified :
A. On the basis of Reserve Bank Schedule.
B. On the basis of ownership.
C. On the basis of domicile.
D. On the basis of functions.
A. On the basis of Reserve Bank Schedule
Bank can be of the following two types on the basis of Second Schedule of the Reserve Bank of India Act, 1934 :
i) Schedules Banks and
ii) Non-scheduled Banks
i) Scheduled Banks
All those banks which are included in the list of Schedule Second of the Reserve Bank of India are called the Scheduled Bank. Only those banks are included in the list of scheduled banks which satisfy the following conditions :
a) That it must have a paid up capital and reserves of Rs.5 lakhs.
b) That it must ensure the Reserve Bank that its operations are not detrimental to the interest of the depositors.
c) That it must be a corporation or a cooperative society and not a single owner firm or a partnership firm. :
ii) Non-scheduled Banks
The banks which are not included in the second schedule of the Reserve Bank of India Act, 1934 are called non-scheduled banks. They are not included in the second schedule because they does not fulfill the three pre-conditions laid down in the act to qualify for the induction in the second schedule.
B. On the basis of Ownership
Banks can be classified on the basis of ownership in the following categories :
i) Public Sector Banks
ii) Private Sector Banks
iii) Cooperative Banks
i) Public Sector Banks
The banks which are owned or controlled by the Government are called “Public Sector Banks”. In 1955 the first public sector commercial bank was established by passing a special Act of Parliament which is known as State Bank of India. Subsequently the Government took over the majority of shares of other State Banks which were operating at the state levels namely State Bank of Patiala, State Bank of Bikaner & Jaipur, State bank of Travancore, State Bank of Mysore, State Bank of Indore, State Bank of Saurashtra and State Bank of Hyderabad presently working as subsidiaries of State Bank of India.
In the field of banking, the expansion of public sector was marked with the nationalization of 14 major commercial banks by Mrs. Indira Gandhi on July 19, 1969 through an ordinance. Again on April 15, 1980 another group of 6 commercial banks were nationalized with the deposits Rs.200 crores each, resulting in the total of 20 such banks. But due to the merger of New Bank of India with the Punjab National Bank in 1993-94, the number of nationalized bank has been reduced to 19. The State Bank of India and its seven subsidiaries had already been nationalized. The progressive nationalization of bank has increased the role of public sector banking in the country. In 1996 these nationalized commercial banks had 31,055 branches all over India whereas State Bank of India and its subsidiaries alone had 12,903 branches.
Under the new liberalization policy of the Government, The Oriental Bank of Commerce, State Bank of India, Corporation Bank, Bank of India and Bank of Baroda have offered their share to the general public and financial institutions and therefore these banks are no longer 100% owned by Government of India. Although majority of the shares is still with the Government, therefore these are still public sector banks.
ii) Private Sector Banks
On the contrary Private Sector Banks are those banks which are owned and controlled by the private sector i.e. private individuals and corporations. The private sector played a strategic role in the growth of joint stock banks in India. In 1951 there were in all 566 private sector banks of which 92 banks were scheduled banks and the remaining 474 were non-scheduled banks. At the time there was not even a single public sector bank. With the nationalization of banks in 1969 and 1980 their role in commercial banking had declined considerably. Since then the number of private sector banks is decreasing and the number of public sector banks is increasing.
iii) Co-operative Banks
The word ‘cooperative’ stands for working together. Therefore cooperative banking means an institution which is established on the principle of cooperation dealing in ordinary banking business. Cooperative banks are special type of banks doing ordinary banking business in which the members cooperate with each other for the promotion of their common economic interests.
Features of Cooperative Banking
Following are the distinguishing main features of a cooperative bank :-
i) Membership of Cooperative Banks is voluntary.
ii) Functions of a Cooperative Bank are common banking functions. : 7 :
iii) Organization and management of a Cooperative Bank is based on democratic principles.
iv) Main objectives of a Cooperative bank are to promote economic, social and moral development of its members.
v) Basic principle of Cooperative Bank is equality.
Therefore, we can conclude and define a cooperative bank as under :
“Cooperative Bank is an institution established on cooperative basis which deals in ordinary banking business for the promotion of economic, social and moral development of its members on the principle of equality.”
The short term agriculture credit institutions cater to the short term financial needs of the agriculturists which have the following three tier federal structure in cooperative :
a) At the Village level : Primary Agricultural Credit Societies
b) At the District level : Central Cooperative Banks
c) At the State level : State Cooperative Banks
C) On the basis of domicile
The banks can be classified into the following two categories on the basis of domicile :
i) Domestic Banks
ii) Foreign Banks
i) Domestic Banks
Those banks which are incorporated and registered in the India are called domestic banks.
ii) Foreign Banks
Foreign Banks are those banks which are set up in a foreign country with their control and management in the hands of head office in their country of origin but having : 8 :
business branches in India. Foreign Banks are also known as Foreign Exchange Banks or Exchange Banks. Traditionally these banks were set up for financing the foreign trade in India and discounting the foreign exchange bills. But now these banks are also accepting deposits and making advances like other commercial banks in India
D) On the basis of functions
The banks can be classified on the basis of functions in the following categories :
i) Commercial Banks
ii) Industrial Banks
iii) Agricultural Banks
iv) Exchange Banks
v) Central Bank
i) Commercial Banks
Commercial Banks are those banks which perform all kinds of banking business and functions like accepting deposits, advancing loans, credit creation, and agency functions for their customers. Since their major portion of the deposits are for the short period, they advance only short term and medium term loans for business, trade and commerce. Majority of the commercial banks are in the public sector. Of late they have started giving long term loans also to compete in the commercial money market. These commercial banks are also called joint stock banks because they are constituted and organized in the same manner as the joint stock companies are constituted.
ii) Industrial Banks
The Industrial banks are those banks which provide medium term and long term finance to the industries for the purchase of land and building, plant and machinery and other industrial equipment. They also underwrite the shares and debentures of the industries and also subscribe to them. The main functions of an Industrial Banks are as follows
i) They provide long term finance to the industries to purchase land and buildings, plant and machinery and construction of factory buildings.
ii) They also accept long term deposits.
iii) They underwrite the shares and debentures of the industry and sometimes subscribe to them.
In India there are number of financial institutions which perform the function of an Industrial Bank. Major financial institutions are as under :-
i) Industrial Development Bank of India (IDBI)
ii) Industrial Finance Corporation of India (IFCI)
iii) Industrial Credit and Investment Corporation of India (ICICI) and
iv) State Industrial Development Corporation such as Haryana State Industrial Development Corporation (HSIDC)
iii) Agriculture Banks
The needs of agricultural credit are different from that of industry, business, trade and commerce.
Commercial banks and industrial banks do not deal with agriculture credit financing. An agriculturist has both type of needs :
i) He requires short term credit to purchase seeds, fertilizers and other inputs and
ii) He also requires long term credit to purchase land, to make permanent improvement on land, to purchase agricultural machinery and equipment such as tractors etc.
Agricultural credit is generally provided in India by the Cooperative institutions. The Cooperative Agricultural Credit Institutions are divided into two categories :-
A) Short term agricultural credit institutions and
B) Long term agricultural credit institutions : 10 :
A) Short term agricultural credit institutions
The short term agricultural credit institutions cater to the short term financial needs of the agriculturists which have the following three tier federal structure :-
a) At the Village level : Primary Agricultural Credit Societies
b) At the District level : Central Cooperative Banks
c) At the State level : State Cooperative Banks
B) Long term agricultural credit institutions
The long term agricultural credit is provided by the Land Development Banks which were earlier known as Land Mortgage Banks. The land development banks provide long term to agriculturists for a period ranging from 5 years to 25 years.
iv) Exchange Banks
The exchange banks are those banks which deal in foreign exchange and specialised in financing the foreign trade. Therefore, they are also called foreign exchange banks. Foreign Exchange Banks are those banks which are set up in a foreign country with their control and management in the hands of head office in their country of origin but having business branches in India.
v) Central Bank
The Central Bank is the apex bank of a country which controls, regulates and supervises the banking, monetary and credit system of the country. The Central Bank is owned and controlled by the Government of the country. The Reserve Bank of India is the Central Bank in India. The important function of central bank are as follows :-
i) It acts as banker to the Government of the country.
ii) It also acts as agent and financial advisor to the Government of the country.
iii) It has the monopoly to issue currency of the country.
iv) It serves as the lender of the last resort.
v) It acts as the clearing house and keeps cash reserves of commercial banks.
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